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?In the final part of the series, among others, managing director of research for research firm Glass Lewis & Co. Lynn Turner, Information Technology Group Inc. principal David Cieslak and Internal Federation of Accountants chief executive Ian Ball take a stab at forecasting what the future holds for the profession. The managing partner of Beckstead and Watts, Brad Beckstead, the firm involved in the legal challenge over the constitutionality of the Public Company Accounting Oversight Board, wraps things up.
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/.
Read Part 1 -- Featuring the managing director of RSM McGladrey Business Services, the chief executive of Sageworks and a number of leaders from the American Institute of CPAs.Read Part 2 -- With thoughts from from practitioners, product pushers and policymakers, including practice management consultant Marc L. Rosenberg and a trio of leaders from the country’s largest state societies.
Read Part 3 -- Where a number of firm chief executives share their insights.
.Jeffrey S. Pawlow, CEO, The Growth Partnership:
“I believe the profession will evolve into four unique sub-niche areas: firms that audit publicly traded companies; tax consulting firms that specialize in serving large international and multi-state businesses; advisory firms that provide tax, assurance and consulting to complex, privately-owned, closely held businesses; and ‘transaction shops’ that serve very small businesses and individuals. Each of these segments will require a different business model to succeed, and the lines between them will become more distinct.
“The personnel crunch will continue simply as a result of demographics playing themselves out. Even with the uptick in the number of students in the undergraduate programs, the number of CPAs will suffer a net decrease as boomers begin to retire. I expect it to be a buyer’s market for some time, as many CPAs that are caught unprepared in the succession-planning game sell their firms in order to take what chips they can off of the table.
“Hot new service areas? Family office/outsourced CFO services, as well as more corporate finance-type engagements driven by the CPA. Additionally, I see some undergrad programs beginning to offer curriculums that are geared toward students who want to pursue a career in public accounting. This will allow accounting programs to begin to differentiate themselves from the competition, and provide more of a foundation in the areas of management, marketing, human resources and strategic planning than the typical curriculum currently offers.”
Doug Burgum, Senior Vice President, Microsoft Corp.:
“In five years, the accounting industry will be as strong and vibrant as it has been throughout its long history. And as accounting professionals have adapted to an ever-dynamic business landscape, continued adaptation skills and strategic planning for the following industry dynamics is paramount. Professionals will see:
- Continued globalization for companies for all sizes, even small and midsized companies;
- Increased reporting consistency and transparency demands from multiple parties (governments, customers, etc.); and,
- A need to ensure that the application of accounting principles results in the information businesses need to truly assess company valuations, especially in a world where value is increasingly driven by intellectual property.
“One significant opportunity is helping midsized companies navigate the global economy. With a lack of global accounting standards and maneuvering currency and exchange rates [as examples], accounting professionals will play a significant role in helping millions of customers throughout the world reach their full business potential. … Even firms that serve small companies will need to adapt to keep up with the ‘flattening’ world.” Dennis J. Scott, President, NCCPAP:
“I look at the profession from the small firm perspective. In that regard, my concern is government regulation, which in turn will lead to fewer students wanting a career in accounting, causing more staffing problems. The landscape is changing already, as fewer small firms are doing audits.”
Allan Koltin, President and CEO, PDI Global:
“In five years, I believe there will be 20 percent fewer firms in the country, as the profession will go through a major consolidation due to lack of talent. I also believe starting salaries will exceed $75,000 for entry-level accountants. I would not be surprised to see the pendulum swing again in terms of firms going back to non-traditional services and having less reliance on traditional accounting and tax services.”
Sheryl L. Rowling, Managing Partner, Rowling, Dold and Associates LLP:
“I believe that the combination of increasing complexity and shortage of qualified employees will cause a dramatic rise in the consolidation of financial services firms. There are several key contributors to the increasing complexity:
- Proliferation of new products;
- Client sophistication;
- Competition; and,
“In its quest to encourage corporate financial integrity, the SEC has generated numerous requirements, including record-keeping directives, ongoing education, meticulous documentation procedures, detailed disclosure statements and a general ‘culture of compliance.’ The worthy goal of protecting the public comes at the cost of overburdening honest, smaller firms.“No matter the specific area of the profession, the number and complexity of financial deliverables are on the rise. CPA firms must deal with Sarbanes-Oxley … Tax professionals are required to learn and integrate new tax laws, regulations and judicial rulings on a continuous basis. Financial advisors need to evaluate and explain a myriad of investment vehicles … This compounding matrix of products and concepts will pressure small firms to merge with other (larger) firms, or to develop a niche practice.
“The instant and frequent availability of information has led to a more sophisticated consumer. An audit client now expects its accounting firm to identify internal control weaknesses and suggest corrective action. As opposed to being pleased with a tax refund, today’s client demands an explanation as to why the IRS benefited from the early use of his or her money. Investors expect their advisors to not only choose investments wisely, but to also minimize tax costs as part of the process.
“As the costs of business grow, competition from other firms becomes more of a problem. It is impossible to simultaneously compete in the areas of price, quality and quantity. As clients demand higher quality, the small firm risks market share when larger firms can provide the same quality level at a lower price. … I believe that the profession will change over the next five years to a smaller number of larger firms. Those firms that resist the pressure to merge will need to specialize in niche areas such as eldercare, business valuation or expert witness work.”
James J. Heeger, CEO, PayCycle:
“First, a large percentage of senior-level accountants will hit retirement age in the next five to 15 years. At the same time, fewer new accountants are entering the industry. As the economy continues to grow, experienced mid-level accountants will experience high demand for their services.
“Second, easy-to-use, automated client-service tools are going to become more widespread as accountants build their practices in a paperless environment. This trend has already begun to manifest itself through the rapid adoption of software-as-a-service applications such as PayCycle. Many accountants are viewing payroll services as a hook to build relationships with small businesses that bring them tax and auditing business.
“The main reason that payroll services are rapidly being adopted by accountants is that payroll technology has dramatically advanced over the last decade, making payroll easier and less expensive than it has ever been. Accountants can help their small business clients navigate the challenges of payroll while creating a lucrative revenue stream for themselves, all with minimal training or expertise.
“Online services also enable accounting firms to offer their services remotely. Accounting firms can serve their clients over the Internet, and thereby realize significant savings in rental costs and in-house expenses while experiencing gains in employee productivity.”
Barry Salzberg, Managing Partner, Deloitte & Touche USA LLP:
“I believe that talent management and recruiting will be a continued concern in the coming years. While a strong talent pool from Generation Y interested in joining the accounting profession, I find that an increasing responsibility will lie with business and academic leaders to shape that talent into leaders who will be able to face the challenges that business presents. A new approach is required in order to attract and retain this next generation of leaders.
“Enrollment in university-level accounting programs is growing. The American Institute of CPAs reports that for the four-year period from 2000 to 2004, enrollments were up 19 percent -- to 171,000 in 2004 -- and that this is expected to continue. The profession also appears to be attracting more women and minorities.
“When we look at the core competencies that young people bring to our firms, such as accounting and financial skills, we realize that these are just table stakes, and that an emphasis will also be placed on communications capabilities and other soft skills.
As the senior members of a growing profession, let’s assist the next generation of accounting professionals in raising our standards with their fresh thinking and problem-solving skills. Finally, let’s work with them to build relationships with us, and to learn the new requirements for success.”
Michael Lister, CEO, Jackson Hewitt Tax Service Inc.:
“Some of the same concerns and challenges as today will still be around -- tax simplification, regulatory issues and online tax preparation services. … The firm landscape will continue to evolve, and I believe the paid preparer market will continue to grow. With the ever-changing tax laws, people will continue to seek professional tax preparers to assist them.”
Larry L. Gray, Senior Partner, Alftermann, Gray & Co. LLC:
“I believe that one of our biggest growing concerns will be the security of our firm and client information, and serving our clients in an ever-increasing regulatory environment. Managing our client’s information, virtual office with real-time integration [will become] the norm. You will be live online, with real-time financial information being shared in a virtual meeting with the client. In the area of technology, over the last 12 to 15 years, firms picked the best software for a specific process or specific application. In the firm landscape in the next five years, we will have moved to the next frontier, and so-called best-of-breed applications of software and hardware will be a thing of the past. Firms will see 20 to 70 percent more efficiency then the current processes.”
Lynn Turner, Managing Director of Research, Glass Lewis & Co.:
“I believe in just five years, the profession will still continue to focus on how it can improve the defect rate that currently exists in audits of financial statements. I think as time goes on, the quality of international audits will receive greater scrutiny, as we have recently seen in Japan. This will be an increasing challenge to the larger accounting firms.
“For smaller firms, how to stay relevant in light of competition from large, low-cost service providers such as H&R Block will continue to be a challenge. I also believe the profession needs to find a way to get rid of the barriers created by state-by-state licensure.
“Finally, the quality of accounting education today suffers greatly. It has become readily apparent that many accountants lack the competency to do the day-to-day accounting --e.g., missed interest accruals at Freddie Mac and errors in sales commissions at CA. As a result, accounting education is in need of serious reform, and I suspect will be even more so five years from now.”
Colleen Cunningham, President and CEO, FEI:
“The answer to this question can take two paths. If the current direction of creating extraordinarily complex standards and moving toward more assumptions/judgments (i.e., fair value accounting) continues, I believe that the profession will be in complete chaos, especially if the litigation environment is not addressed. No one will feel comfortable signing off or attesting to financial statements. It will be very difficult to fill positions, as no one will want to put him or herself at such legal risk. The lawyers will be fat and happy. If the current complex environment is addressed appropriately, I would see the accounting model moving more towards recording transactions based on real economic reality. This will make for more relevant and useful financial statements. And perhaps more disclosure of the fair values where there is a relevant market would be appropriate.”
Troy Waugh, CEO, FiveStar3:
“With leaders of the profession working with government, the accounting business will grow exponentially and remain the most trusted business advisory business. As accounting firms adopt better business practices in leadership, marketing and management, their profits will keep pace.”
Taylor MacDonald, Executive Vice President, Sage Software:
“One of the most significant changes for the industry in the next five years will involve the Internet and the online collaboration opportunities that are beginning to become reality. Particularly in the SMB space, the CPA/client relationship has long been a personal, face-to-face relationship.
“In the future, this will often continue to be the case, but more and more SMBs are becoming comfortable with the Internet as a serious medium to conduct business. High-quality collaborative environments are beginning to enable the seamless exchange of financial information and content between CPAs and their clients anywhere in the world.
"The implications for CPAs are that they will be able to attract clients across a much broader geographic territory than has been historically the case, and that client acquisition will less often be based on a face-to-face relationship. Personal relationships can and will be built via wholly online environments. It also means that competition is likely to increase, as firms that specialize in the online world will expand their reach, often with aggressive prices due to their ability to achieve economies of scale.
“At a minimum, CPAs will have to ensure that their offerings enable online collaboration, as increasingly this will become a minimum expectation for clients who no longer will expect to drive their information to their CPA, but rather simply send it securely online.”
Jennifer Lee Wilson, Co-founder and Owner, ConvergenceCoaching:
“Five years from now, a major concern facing the profession will include the succession of a significant number of firm owners. I believe this will drive firm consolidation and absorption of sole practitioners who do not have a mid-level manager or young partner to transition their clients to … I believe the labor squeeze that exists today will begin to ease some in five years, but the relief will come from the ‘Echo’ population, or Gen Y.
“Another big shift will include the use of anywhere/anytime work technologies to support a more balanced work life. This will drive changes in expectations for office hours, confidentiality policies, how work and projects are supervised, the cost of per-capita overhead and the level of technology investment firms make. For firms that adapt, it will also drive an increase in employee retention, as people move to part-time status, choose to stay at home as parents, etc. are able to stay with their firms. This will enable the firms nimble enough to make this transition (and we encourage firms we coach to move here now!) to compete and thrive, while those that do not and choose to operate in the ‘old’ model will struggle.”
Jack LaRue, Senior Vice President, Thomson Creative Solutions:
“I believe that the Web will be a major force, both in the way that accounting firms access their tools and the way they provide services to their clients. Today, many people would not do business with a bank or investment firm that did not offer online services. While the Web may not progress to being a condition of doing business for accounting firms, it will certainly be the preferred and expected method of accessing accounting documents and services for a significant percentage of clients -- especially as the computer generation grows into positions of leadership and wealth. The convenience and efficiency will be impossible to ignore.”
David M. Cieslak, Principal, Information Technology Group Inc.:
“I believe the profession will continue evolving toward greater specialization in the coming years. As clients demand a higher level of specialized service, forward-thinking CPAs will transition from being generalists, towards being highly skilled practitioners in selected service areas, increasing the value they can provide to their clients. While I anticipate many traditional services will remain the same, CPAs will focus on providing fewer services with greater expertise.
“In a similar way, technology will continue to change the way CPAs work and deliver client services. Forward-looking CPAs who proactively look for ways to leverage the latest technology will continue to enjoy a competitive advantage over their peers in this changing paradigm.”
Arleen Thomas, Senior Vice President, AICPA:
“In five years, we start to reap the benefits of the significant increase in individuals seeking accounting degrees. Our challenge will be ensuring the value of the CPA license so that accounting students will seek to become licensed CPAs. Further, the competencies required to fulfill our professional responsibilities will focus more on fair value accounting and auditing, preventing and detecting fraud and strong leadership skills both in firms and in corporate America.”
Ian Ball, Chief Executive, IFAC:
“In five years, the major concerns and challenges for the profession will include completing the push for convergence to international standards, striving for consistency in regulatory regimes, addressing legal liability issues and ensuring that the accounting discipline adds value within business and within governments, including those in the developing world. Accounting firms operating across borders will be challenged to develop organizational structures that are appropriate in a global environment and that facilitate consistency in service quality, and to invest adequately in those structures.
“A hot new service area will be increased consulting to governments, which will be under increasing pressure to strengthen their accounting systems. Pressure on governmental efficiency will grow with tax competition, forcing governments to improve their financial management and, therefore, their accounting. The additional pressure of aging populations on fiscal positions will magnify the need for good accounting, perhaps to the point where governments are expected to produce financial reports of the same quality expected of companies.
“In terms of the firm landscape, I think there will be a continued dominant role in the market by the four large firms, but with ongoing and rapid growth by midsized firms, supported by regulators.”
Robert J. Gallagher, President, R.J. Gallagher & Associates Inc.:
“The major concerns during the next five years will be:
- Attracting and retaining professional staff;
- Succession issues;
- Liability issues; and,
- Growth issues for midsized firms (merger mania).
“With the number of females in the profession, CPA firms must develop alternative career paths for women who would like to stay in the accounting profession. In determining such paths, compensation, deferred compensation, charge hours, roles and responsibilities must be developed. The key to make this work will be the ‘accessibility’ of the part-time partner. … With the current human resource shortage of the accounting profession, each firm will need to develop a comprehensive program to attract and retain the best and the brightest. Directors of human resources are common with full-time equivalent of 60 or more. Another key position will be director of learning.“Firms who live by their core values (which have been developed by the partners and staff) will have greater success than those firms who don’t identify and live by such core values. A common characteristic of successful firms is that the professional and administrative staff practices such values on a daily basis.
“For many years, CPA firms have made payments to retired partners from operations in accordance with the terms of an unfunded retirement plan. As long as the firm developed new partners and there was successful transition of the retired partners’ client base, the process has generally been successful. We are in a much more knowledge-based profession today, however, where specialties are more the norm. What happens when the partner who developed a litigation and business valuation practice retires? What happens when the tax partner, who has many creative ideas to assist clients with tax issues, decides to retire? Unfortunately, in many cases, there will be a reduction in firm revenue since most of the business activity was centered around one individual. … Large firms have built a team of specialists; however midsized firms (ranging from $2 million to $4 million in revenues) are very vulnerable and will need to revisit their governance agreements and change some of the provisions.
“The Big 4 will no doubt go after higher-end, middle-market clients and build their other consulting services. It will be interesting to see how this will play out in a few years, and whether there will be relief in filling the void of experienced professionals in the marketplace. … For partners and managers, leadership training and understanding the necessity to enhance one’s emotional intelligence will be a common theme in enhancing firm leadership.
“With KPMG’s problems and Grant Thornton’s U.S. unit now included in the Parlamat litigation, I am concerned about the landscape of our profession. Larger firms have made organizational changes to be insulated from catastrophic litigation. I don’t believe that the structure has been tested in the courts, however. It is far reaching, but AT&T was once split into several businesses. Could the Big 4 or top three firms be broken up? No one ever thought that Arthur Andersen would go out of business. Andersen was under the impression they had a wonderful succession plan. It will be interesting to watch how this plays out. From a succession viewpoint, some larger firms may have some unexpected surprises.”
Amy Pawlicki, Director of XBRL, AICPA:
“The current, manual corporate reporting and assurance supply chain needs to evolve to a more cost-effective, efficient model that is better capable of handling the increasing complexity of business and market needs and demands for reliable, automated, timely and comparable information. Therefore, I believe that in five years both the content and format of reported information, and the assurance methodologies applied thereon, will have changed significantly. Two initiatives that the AICPA played a key role in founding: the Enhanced Business Reporting Consortium (http://www.ebr360.org/) and Extensible Business Reporting Language or XBRL (http://www.xbrl.org), as well as the AICPA Assurance Services Executive Committee, are making significant contributions toward this progress.”
Brad Beckstead, Managing Partner, Beckstead and Watts:
“I believe the next five years will see a swing of the pendulum, back to moderation from the current highly regulated environment. I have faith that the investing and corporate communities will demand a scaling back after the vast run-up of audit and consulting fees and accounting complexities caused by the Sarbanes-Oxley Act of 2002. I am encouraged by those in the profession who are willing to acknowledge that errors were made in drafting and passing the legislation without regard to its impact on foreign and domestic smaller public companies.
“To ensure that government officials and policymakers recognize the consequences of the Sarbanes-Oxley Act, I have joined with others to mount a constitutional challenge to the PCAOB’s authority, based on its violation of the appointments clause [of the U.S. Constitution]. Our goal is to return free market principles to the auditing community. Barriers to entry can and should be lowered, and competition encouraged. Ultimately, entrepreneurs, innovators, investors and the U.S. economy will be the winners.
“I believe the profession’s major concerns over the next five years will be dominated by international accounting issues, as the world markets continue to develop and mature. We are currently in the ‘infant’ stage of the international marketplace.
“As China and India continue their rise in wealth and knowledge, the investment demands will continue to grow with them. The resulting demands on the accounting profession will be to mold its accounting and auditing standards and procedures to adapt to an international forum. The U.S. investor marketplace is still the strongest in the world, and foreign companies have a great desire to tap into it. Listing by a foreign company on a U.S. exchange brings prestige and credibility to the foreign company. This, in turn, draws vast amounts of foreign capital to the U.S. marketplace. The U.S. accounting and auditing standards under SOX are currently a barrier to entry for foreign companies [considering being] listed on U.S. exchanges. If those standards are not eased, the foreign community will eventually transfer its efforts to other foreign markets, and take its investment dollars with it.”
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