With the close of 2006 approaching, we asked industry leaders to share their ideas of what the accounting profession will look like in five years: What will be its major concerns? Challenges? Hot new service areas? What will shape will the firm landscape have taken?

Through the Thanksgiving holiday, WebCPA will post new comment collections each week.

Among others this week, insight from a number of firm chief executives, including RSM McGladrey Business Services president Steven Tait, Grant Thornton LLP chief executive Edward E. Nusbaum, Vitale, Caturano & Co. president Richard Caturano, BDO Seidman LLP chief executive Jack Weisbaum and UHY Advisors chief executive Steve Samek.

Many of the commentators made Accounting Today's recently released Top 100 Most Influential People list, which can be viewed at http://sm.ebookhost.net/amg/top100people2006/1/.


Sharon Allen, Chairwoman, Deloitte & Touche USA LLP:

“I don’t think there’s ever been a moment in our profession’s business history where the work of accountants has been so thoroughly examined -- and at the same time so critical to the success of the capital markets system. We are in the midst of major changes in our profession, and in the business community as a whole.

“As chairman, I spend a lot of time talking to the senior leadership of our clients and I’m well aware of the discontent and some even questioning the need for some of the new, recently enacted legislation. But … even the most vocal opponents are starting to come around. One chief executive that I visited recently acknowledged that they have learned a lot, have identified many costly control processes that were duplicative and ultimately had to say that when they ended up identifying more than 1,500 control deficiencies, it’s hard to say they haven’t benefited.

“Still, chief executives and chief financial officers don’t like the additional costs, but they do see opportunities to transform and streamline their operations and business infrastructure. Now is a great time for them to rethink the way they manage, and the way their companies operate. … We must be ‘thinking ahead of the curve.’ …  One of these approaches is to fill your board with the widest possible range of practical experience. Choose a cross-section of cultures, genders, varying business experiences. The more expertise you have, the better the chance to detect problems before they arrive.

“Transparency is another intangible. I don’t necessarily mean just cleaner disclosure of financial information. I mean it as much as an outgrowth of a business culture. The more we treat the investing public -- and our clients -- to frank and honest assessments of their businesses and of the capital markets overall, the better off we’ll all be. … As we go forward, I see a number of challenges:

  • In the U.S., we must resist efforts that are already underway to weaken the controls spelled out in SOX. There is an effort to ease the burden on small to midsized companies. It’s an idea worth reviewing, but we should never lose sight of the larger good of this regulation;
  • In my business, we’ve got to get ready for regulatory convergence, through the IFRS standards now in place in Europe and across other industrialized regions;
  • We must get comfortable with the new reporting requirements we’re seeing in more countries; and,
  • We need to get our arms around liability reform. That’s an issue of great importance not only to Deloitte and our competitors in professional services, but to businesses in all industries.”

David E. Hardesty, Vice President, Wilson Markle Stuckey Hardesty & Bott CPAs:“The next five years are going to be exciting for the profession. Current trends are established, and will continue. The big firms will get bigger, but will continue to emphasize their core competencies, which are auditing and tax compliance. The watchword for these firms is risk management. None of these firms is willing to bet the company on a large-cap client pursuing risky accounting strategies. Been there, done that. The memory of Arthur Andersen will weigh heavily on large firms for some time to come.

“Midsized accounting firms will continue to come into their own as providers of services for smaller, up-and-coming companies, as the large, risk-averse accounting firms focus on their ‘A-list’ clients. The next Microsoft or Google will be nurtured by a midsized firm. This can mean that, for accountants coming into the profession, the most exciting and potentially most rewarding career path may be found in a midsized accounting firm, rather than a Big Four firm.

“Small firms can thrive by providing services to public companies, which can no longer purchase these services from their auditors. … For firms with special expertise, the problem is going to be sales. The large firms have a long history of ‘productizing,’ marketing and selling specialized services, while for small firms this is something new. Some former big firm employees have split off to form niche service providers, and are employing techniques they learned in the big firms to sell their services. Whether this is going to work is not clear. Before the advent of the Sarbanes-Oxley restrictions on non-audit services, big firm specialists had a built-in client base, and the sales-to-sales-call ratio was relatively high. Now these same specialists have to make more sales calls for every sale they make. Time will tell whether profits earned from selling specialized services will pay for the sales effort needed to sell those services.”

Jonathan A. Baron, EVP and General Manager, Thomson Tax & Accounting, Professional Software & Services:

“If I were to identify one word that is driving changes today and will result in a very different world five years from now, it would be the Web. The profession, although fairly slow to adapt to the Web world, is now starting to utilize it more extensively with personal client portals, ASP processing, and account aggregation … among other things. As we move to Web 2.0, which some say is already here, usage of the Web in our profession will expand exponentially. In five years, it will dominate everything that we do, which means both opportunities and challenges.

“One of the biggest opportunities lies with the Baby Boomer population. Eldercare and wealth management will become very hot areas as Baby Boomers are faced with managing their personal financials, as well as the assets of their aging parents. … Personal tax processing will experience some real improvements in efficiency over the next five years as firms progressively employ Web services, which will allow aggregation of data from various sources without requiring data entry. … Finally, software will be ‘smarter’ five years from now and will automatically scan data for inconsistencies and notify the user of any additional action required. The real benefit is represented in seamless integration and aggregation of data, which eliminates manual data entry and review, and allows professionals to spend their time on true tax planning.

“The Web will also drive tremendous growth in the area of business financial analysis. Financial analysis as we know it today, which generally consists of benchmarking and ‘what if’ scenarios, will reach another level. XML/XBRL data exchange standards will enable firms to compare client financials to other similar firms using large-scale databases. …

“In regard to some of the challenges the profession will face, Web security will be a key issue. As more firms adopt XML/XBRL technology, the integrity and security of data exchanged over the Internet will require concentrated attention. The profession will have to be diligent in encouraging their clients to use secure data centers and passwords and generally drive client awareness of security measures. …

“Staffing is another issue that has plagued the profession for the past several years as the pool of qualified candidates has grown smaller. To address this issue, the very landscape of today’s accounting firm is changing. Over the next five years, firms will continue to consolidate and aggressively improve efficiencies through the application of web technologies. Improved efficiencies will continue to have a profound effect on firms. Through enhanced operations and technology, the bulk of work performed by professional staff can be transferred to paraprofessionals.”

Stephen “Tony” Batman, Chair, CEO and President, 1st Global:

“The single biggest concern will be attracting and retaining accounting professionals and developing them into productive partners. The classic public accounting firm labor pyramid will become much narrower and shallower as a result of the labor shortages, requiring partners to become much more efficient managers of scarce resources.”

Steven Tait, President, RSM McGladrey Business Services:

“One continuing challenge for all accounting firms will be the ability to retain and attract the best and brightest accounting talent. Work/life programs, such as the one we have at RSM McGladrey, will be necessities for accounting organizations to remain profitable and attain consistent growth. As far as projecting hot service areas, a variety of offerings around mergers and acquisitions will be a focus, as well as international tax, as more companies embrace the burgeoning global economy.”

James Quigley, CEO, Deloitte & Touche USA:

“Today, technology has connected people in ways that were not possible a decade ago, international trade has increased considerably and globalization of our economy has become a reality. A growing number of corporations consider themselves to be multinational. These changes have impacted individuals, professions and organizations alike, and the world of accounting is no exception.

“For more than a century prior to the passage of Sarbanes-Oxley, the accounting profession was self-regulated. Today, those in the profession are held accountable to a comprehensive set of rules and regulations. Fortunately, the early obsession with compliance with the new rules has been tempered with more recent guidance encouraging prudent judgment. In essence, allowing accounting professionals to be just that: professionals.

“Looking ahead, I believe principles-based accounting will continue to gain momentum, coupled with increasing global harmonization of accounting standards. Other challenges that must be addressed within the business community include reduction of financial reporting complexity and longer-term tort reform. The accounting profession and Deloitte USA LLP expect to play important roles in shaping our future; but realize that in today’s global world nothing is accomplished in isolation. We therefore welcome collaboration with all stakeholders in responding to these challenges.”

Edward E. Nusbaum, CEO, Grant Thornton LLP:

“The major concern will continue to be the quality of audits, testing for fraud, legal liability and various other non-attest services that accounting services provide. Hot new service areas include turnaround and recovery work. Internal audit will continue to be big. Grant Thornton will continue to grow, and we will have even greater presence in the marketplace. I think all accounting firms will continue to grow.”

James S. Turley, Chairman and CEO, Ernst & Young:

“I believe the accounting profession and corporate reporting will continue to undergo great change, especially as the tagging of data allows investors new ways to access financial data and that the markets continue to globalize. Convergence of global regulatory standards and practices will continue to be a key issue to enable companies to better operate and investors to invest with more confidence around the world.

“Secondly, I think we will continue to see improvements to the type of information investors receive. Globally, efforts are progressing to present more forward-looking and non-financial information, and I think this will become more prevalent. But probably the most important issue facing the profession is encouraging good people to join it. The good news is that people have a better understanding of the importance of what we do, and that means more graduates are seeking to join the profession.”

Thomas J. Marino, CEO, J.H. Cohn

“Based on current demographics and projected trends, a top concern among accounting firms will be the number of women and minorities (e.g., individuals of Asian-Pacific, Hispanic and African-American descent) in leadership positions as role models. It could become a challenge to retain increasingly diverse staff if they do not observe role models in leadership and believe that they have a career path at an accounting firm.

“Other challenges will be based on the market forces and regulatory requirements. These will also drive new service areas for accounting firms, much the way Sarbanes-Oxley has over the past four years. Our strategies are driving expansion in our firm throughout the Northeast, particularly in New York. As part of this extended landscape, we are focused on increasing the depth of our firm’s experience and service offerings in our niche areas of expertise (both functional and industry specific), while maintaining our partner-level attention to the middle market.”

Richard Caturano, President, Vitale, Caturano & Co.:

“Looking ahead five years, the major concerns facing the profession will continue to be how to maintain relevance and importance in the attest function of publicly traded companies and maintain the public confidence that our report provides value.

”The greatest challenge throughout the public accounting profession will continue to be on the attracting and retaining of talent. The firm landscape will most likely experience significant change in the next five years. I believe that we will [eventually] return to a ‘Big Six’ and ultimately a ‘Big Eight’ environment ... The demand for services from the public market sector, combined with the current and emerging Securities and Exchange Commission regulations make it impossible for four firms to service. Therefore, I  believe we will experience at least two of the second-tier firms emerge to be equal in size to the Big Four firms over the next five years.”

Shannon Vincent, CEO, ReNew Group:

“I believe the shortage of staff and lack of true succession plans will be the impetus for an even stronger use of technology as a productivity tool. Further, these factors will cause the outsourcing of tax and bookkeeping services to become the norm, as outsourcing will be a necessity for firms to compete (onshore and offshore) and a way to deal with the staffing crisis. We will also see further consolidation of firms by regional and large local firms, as small firms lack succession plans and they will not be able to compete with the opportunity and compensation packages offered by larger firms for staff.

“At another layer, we will see the H&R Blocks, Hewitts and Liberty Tax Services of the world do even better, since not all firms are worth buying and there just won’t be enough sole practitioners to serve the lower-end marketplace. The clients that are left standing who need more touch than the franchise tax model can provide will migrate to larger firms.

“There are a couple of hot new services areas that I believe will provide significant opportunities for CPAs:

  • First, generational wealth planning. The CPAs are serving the Boomers, and it is widely acknowledged that they are going to pass on trillions of dollars. The question is, who will manage the new affluent? CPAs will start to educate the Boomers, meet the younger generations, and we will see an entire new generational tax planning service take effect.
  • Second, identify theft. I see an opportunity for CPAs to advise their clients on how to protect themselves from identity theft. CPAs will advise their clients on simple measures such as how to set up security pass codes and how information should be stored electronically. There are several Web-based tools available in the marketplace today that are perfect for the CPA to utilize in this area.”

Graham Ward, President, IFAC“The major concerns and challenges of the profession five years from now will be:

 1) Continuing to effectively deliver quality services and meet high ethical standards in an increasingly complex and competitive environment;
2) Ensuring that professional accountants in business who play a critical role in the financial reporting supply chain adhere to high standards of ethics and practice;
3) Ensuring the availability of professional accountants in emerging economies, such as India and China;
4) Providing high-quality and proportionate international standards for small and medium enterprises; and,
5) Achieving high-quality accounting by governments.

“New service areas will include sustainability reporting, especially reporting around mergers. The firm landscape will change, with the firms that are ranked Nos. 5 and 6 in terms of size and services getting closer to the size and reflecting the scope of services of the Big Four firms.”
Jack Weisbaum, CEO, BDO Seidman LLP:

“It seems clear that governments around the world will continue to ensure that accounting firms will prosper by continuing to increase the regulation of business and the accounting industry. Quality control standards will become upgraded and the impending agreement on uniform accounting standards around the world, whether it is GAAP or IFRS, will lead to increased integration throughout the international networks of the large firms.

“Firms in a global network such as BDO Seidman will work more closely together in response. In line with the need for a more uniform high level of competence around the world, global training will become more uniform.

“As the demands of the largest public companies continue to sap the resources of the Big Four firms, the migration of audit clients from larger firms to smaller firms will continue for the foreseeable future. The true test for attracting and, more importantly, keeping larger clients will be the focused client service and more nimble structure of firms such as BDO Seidman. … Over the next several years, fewer accounting firms in the United States will audit public companies because of the increased regulatory environment and the ever-increasing litigation risk. Eventually, professional indemnity insurance markets will ease and accounting firms will become more and more profitable as assurance services continue to be a seller's market.

“Resources, however, will continue to be a concern for the foreseeable future. In many ways, the HR pipeline is the only possible obstacle to impede continued growth. The battle for talent is a major issue in today’s accounting industry. To address this issue, BDO Seidman has increased its overall HR staff by more than 50 percent in the past year and doubled the number of senior HR personnel at the firm. Thus far, this has resulted in a dramatic improvement in our professional retention rate and the implementation of an integrated recruitment program that has yielded impressive results. For example, 120 of BDO Seidman’s 400 new domestic positions in 2005 were filled by global hires recruited from foreign offices of the Big Four. These efforts need to be built upon going forward in order to meet marketplace demand.”

Steve Samek, CEO, UHY Advisors:

“I believe three evolving trends will significantly alter our challenges, services, and the landscape of firms in the next five years:

“The transformation from Technology Age to the Knowledge Age -- The way businesses create value is fundamentally changing as intangible assets become greater economic drivers. Google, for example, doesn’t produce a tangible product in the same way Microsoft does; its value is based on connecting users to information. … With shifting business value creation will come changes in tax, audit and consulting work. The ‘bricks and mortar’ era had hard assets to audit. In the Knowledge Age, complicated contracts and revenue recognition need to be accounted for, and they’re not usually found just on a balance sheet.

“I expect this trend to drive several concerns, challenges, and the landscape of the industry:

  • Increasingly complex audit work will cause firms to become information organizers and aggregators. Clients will look to their accounting firms to manage information and the implications of the plethora of new legislations and rulings.
  • More sophisticated client needs will drive industry consolidation. I estimate only 60 to 70 of today’s Top 100 firms will be here in the same form in five years. New start-up specialty firms will join the list, as many other firms hit the wall in terms of their ability to serve larger and more complex clients with evolving international and domestic operations.
  • Technological improvements will make client communications more seamless. In five years we’ll find the BlackBerry as quaint as we consider the fax machine today or the Qwip machine 25 years ago.
  • The ‘rule of threes’ will rule the accounting industry: megafirms will handle the Fortune 500; large national firms will handle the dynamic middle market; and the remaining firms -- either local service providers, or boutique/specialty firms -- will handle the smallest clients. And there won’t be the same level of client crossover among these sized firms as now.
    Many new service areas will be based on the crisis of confidence.

“A shifting workforce over the next five years -- This demographic change will also impact our most valued asset, our people, and the way we recruit, train and retain them. [A declining birthrate] along with a changing work force, will have various impacts on our industry:

  • Recruiting will grow in importance and cost as we compete even more than today for the best and the brightest.
  • Training in business, communications and interpersonal skills will be more important for employee retention.
  • The ability to formulate and articulate a corporate culture will grow in importance as a firm differentiator.
  • A smaller labor pool will increase entry-level salaries, causing increases in hourly rates, margin reduction, or both.
  • The class of 2011 will be among the first who grew up in the fully integrated communications technology era of blogging, text messaging, cell phones and personal Web pages.
  • The increase of women in accounting will impact how firms handle work-life balance for all employees.
  • Increasing workforce diversity will cause new thinking about our office cultures, practices and procedures.

“The continuing crisis in confidence -- We are no doubt in a crisis of confidence in business and political leadership. The current Sarbanes-Oxley era is part of the ‘action-reaction’ cycle that traces back to the trust-busting of Teddy Roosevelt. … After a while, confidence is regained; then, another scandal causes new legislation. The accounting industry, geared to ‘look back and report,’ is usually at the trailing end of these trends.“We need to become more “forward thinking” -- literally and figuratively. The most recent cycle, in my opinion, will impact business in general and the accounting industry in particular:

  • Audit committees of public companies and stakeholders in private ones will increasingly want a level of confidence that checks and balances exist and are being followed. The new SAS 104-111 rulings are evidence of this thinking. As a result, assurance services will continue to burgeon.
  • The middle market’s needs will grow in complexity. No longer will firms only provide tax services to smaller companies -- privately-held companies and even governments and nonprofits are coming under increased review because of the confidence gap.
  • Product lines like forensic accounting and e-discovery will provide businesses with a greater degree of confidence.
  • Specialty firms offering similar services will continue to enter the market as firms are either conflicted out of relationships or can’t provide the manpower/expertise to handle more complex situations.”

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