Changes Coming Fast in CPA Profession

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The pace of change in the CPA profession is getting faster, and not enough accountants are ready, according to New York State Society of CPAs executive director Joanne Barry.

Speaking Thursday during an Accountants Club of America luncheon in Manhattan, Barry talked about a host of recent trends. “The landscape is changing dramatically, and not enough CPAs that I speak to are aware of the dramatic changes that are happening in the profession and how the profession needs to be responsive to what’s going on, more so than they have been in recent years,” she said.

She pointed to the need for rapid adaptation to change. “The firms that are succeeding are making their moves on a chessboard,” she said. “If you’re a good chess player, you’re always anticipating the next two or three moves. Those next two or three moves aren’t going to happen in the next two or three years. They’re going to happen within the next two or three months. That’s how fast the pace of change is happening when I speak to CPAs who are really involved in trying to dramatically shake up their firms.”

Changing Demographics
She noted that demographics have had an extremely disruptive impact on firms, with more firms moving in the direction of having non-CPA owners. The client world is also changing, with virtual CPA firms servicing clients remotely. Younger generations are also filling more positions at firms as Baby Boomers retire, although not quickly enough for many firms to be able to fill their ranks, causing more and more of them to merge together. Generation X and Millennials are less interested in working their way up through the ranks and paying their dues by feeding the copy machine. Millennials tend to do their networking through social media rather than by going to networking events.

She noted that 71 percent of CPA firms in New York now have a “business casual” dress code, while only 6 percent require traditional business attire such as a jacket and tie all the time.

“Firms are trying to accommodate and change the culture,” said Barry.

More firms have also been accommodating their employees by allowing them to work remotely, she noted. Plus, more firms have been doing away with basing their fees on billable hours. “It’s value-based pricing, not hours-based pricing, and a lot of firms are moving in that direction,” said Barry.

CPA Exam Takers
Firms are increasingly using technology and non-CPAs, freeing up CPAs to do higher-level, more strategic work.

More students than ever before in New York State are studying accounting, and there is not enough space to accommodate all of them. “However those students are not sitting for the CPA Exam,” Barry added. “The number of exam takers has been flat for two and a half years now. Why? We don’t know for sure.”

The American Institute of CPAs and the American Accounting Association are doing research to find out why. “One thing we did find out is that the messaging from the managing partners and the senior partners in the firm is directly connected to the number of candidates who have the ability to sit for the exam and have the motivation to do so,” she said.

Barry suggested that more CPA firms should spread the word about taking the exam to their employees, as well as pay for CPA candidates to take the test, give them time off to study for it and pay for the licensing fees. “That’s going to impact hiring needs in the future,” she said.

Many firms are even hiring students who choose not to sit for the CPA Exam and bringing them into the firm anyway. “Another trend we’re seeing is that firms are moving away from the attest area and more and more into consulting work, so they’re using the best and brightest non-exam takers to build on their non-attest services.” Many of those who get hired end up working in technology consulting.

Between 2007 and 2014, there was a jump from 13 percent to 26 percent in non-accounting graduates hired by CPA firms, Barry pointed out. “That’s the kind of recruiting that’s happening on campus now, in addition to recruiting for CPA candidates,” she said.

There are also inclusion changes underway in the profession, with firms trying to increase the number of “underrepresented minorities.”

“We’ve been trying to address this change since the 1980s, when there was less than 1 percent of African Americans in the profession on a national basis,” said Barry. “That needle has moved just a little bit since the mid-1980s. It’s still in the low single-digit numbers. Yet the client base here in New York in particular is much more diverse than ever before.”

She noted that younger CPAs want to see more diversity in CPA firms and not seeing diversity makes them uncomfortable.

New York CPA Trends
Barry also previewed some of the results of a recent survey by Rosenberg Associates for the New York State Society of CPAs on trends in the profession in New York. The full results will appear in an upcoming issue of the NYSSCPA’s CPA Journal.

Average annual revenue growth in 2014 for firms over $2 million averaged 6.7 percent in New York. “That’s a pretty good number,” said Barry. “The bad news, however, is that’s about the same as the number from the prior year, and when the impact of mergers is figured in, organic growth slightly declined. Firms have been so active in the M&A market and the efforts that need to go into that with absorbing the clients together, that it’s taking away the focus on organic growth that the firms need for developing business. The second negative is that New York firms are being held back in all parts of the state by the acute shortage of staff, and when that happens, practice development has to be curtailed. Some firms are being forced to drop their least lucrative clients so they can expend their energy in servicing the more lucrative ones.”

In terms of retirement trends, nationally the number of partners over the age of 50 rose to 65 percent. In New York, the average age of partners is 55. “The greying of the profession is happening everywhere,” said Barry. “The aging partner base continues to drive up the mergers. Many firms simply don’t have a succession plan in place, and that’s why this merger frenzy is going on. The mandatory retirement age in New York stretches from 65 years old to 72 years old, and that’s ticking up as well because more and more small firms in particular are hanging on longer because they don’t have succession plans, so that number has been ticking up.”

The survey found that 64.2 percent of CPA firms in New York lack a succession plan.

The percentage of firms with mandatory retirement age provisions rose from 81 to 88 percent in two years. “Firms are grappling with partners hanging on to their equity longer,” said Barry. “Younger partners don’t see a way in, so there’s now a lot of frenzy between firms to hire away potential partners who can get on the partner track more quickly at another firm.”

Baby Boomers are aging as well, and when those clients sell their businesses, Barry pointed out, in many cases they’re selling them to underrepresented minority groups who are not well integrated into the firms at this point. “It becomes just a lot of turbulence and a lot of issues that need to be deal with,” she said.

Most firm partners in New York continue to be white males over the age of 50. The average age of managing partners is 56. “Professional staff turnover is about 17 percent, up from 15.5 percent last year,” said Barry. “What does that mean? The work is there. CPA firms have a lot of work, but they can’t find the talent to get it done, and sometimes that’s at the expense of growing the firm. More and more partners are beginning to say that a CPA with skill and experience and the right attitude and the desire to become partner, the drive to become partner, that type of person has become a unicorn, and we know that a unicorn is a mythical creature that doesn’t really exist. So the tug of war ensues between firms.”

Partners are blaming the Millennials for all this, she added, with their need for work/life balance and their sense of entitlement. “But the partners are overlooking the fact that many of them don’t have the appropriate leadership development in place,” she said. “They hire the wrong people for short-term needs, and they don’t invest in somebody in terms of education and growth and training and mentoring to get them on that partner track and to make them happy with the firm that they initially start out in.”

The number of years of being on the partner track has jumped from 10 to 12 on average. “This is an area we all need to focus on, or the pipeline will dry up,” said Barry.

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