A combination of unique challenges and new opportunities are putting pressure on accounting firms to make major changes to how they do business, leaders in the profession told a major gathering of accountants this week.
"Evolution isn't a nice to do — it's a need-to-do, a necessity," Michael Horwitz, executive director of the BDO Alliance, told attendees of the accounting firm association's annual conference, held in Las Vegas this week. "We as a group have a lot of learning and a lot of evolving ahead of us."
The goal of that proposed evolution is twofold: to navigate a complex, fast-changing environment studded with major challenges, and to make the most of the multiple new opportunities now opening up for the profession.
Perhaps the broadest challenge is the unpredictability of the current moment, both economically and politically.
"The best way to describe the economy is to say things continue to be uncertain," said Wayne Berson, CEO of Top 10 Firm BDO USA, in the event's opening session. "We've seen some hopeful signs that we'll avoid recession, but we won't see our clients celebrating — there's too much uncertainty."
In the same session, American Institute of CPAs president and CEO Barry Melancon noted that there's tremendous political uncertainty as well, with record-setting levels of polarization at the same time as the largest number of countries ever in history are set to hold leadership elections this year.
"There's so much uncertainty, and the men and women in our profession love to be the most trusted advisor when there's an answer to the problem, but they're less comfortable when there's an unlimited amount of gray areas," Melancon said. "Things are unpredictable, and getting more unpredictable all the time. What we want is certainty, and we have a political and economic situation that is just not certain."
Unfortunately, one constant in all that uncertainty, it seems, are growing levels of regulation generally, and regulation of the accounting profession specifically.
"Regulators continue to be laser-focused strongly on the profession; they're demanding quality and expecting us to make ethical decisions in everything we do," BDO's global chair, Pat Kramer, told the audience in the opening session. "Regulators are asking questions about who's investing in our firms: Are they going to be committed to quality?"
"Regulation is at an all-time high. We're seeing both states and countries pursuing extraterritoriality," Melancon concurred. "We live in a world of hyper-regulation that by its nature creates greater scrutiny. … We have a lot of scrutiny in audit trust and regulation in play in Washington, D.C. The regulatory environment is highly intense — they're focused on making the situation intense."
He also talked about a long-term challenge in the form of some numbers that may not add up for accounting firms: "We now have 17 firms with a billion dollars in revenue, and more coming," he explained. "There's a lot of positives with that, but from a macro trend perspective, those 17 firms generate about $120 billion in revenue. They want growth of something like 10% per year, and the question you have to ask is, 'Can our slowing economy — or any country's — support growth on $120 billion in revenue? Add up all 44,000 firms in the U.S. and it comes to about $145 billion — how can our economy support their growth goals?" (See "
And finally, a key challenge facing the profession is the ongoing staff shortage.
"Talent is the key for all of us," said Kramer. "You are competing for the best and the brightest, often against global organizations."
The competition is fierce and has firms considering a wide range of potential solutions and, in some cases, some very major changes — including, as Berson explained, his own firm's decision last year
"Everyone is intrigued by our choice of an ESOP," he told attendees. "The big question is, why did we take such a novel approach? We could have done nothing. We were very successful, and we could have done nothing in the near term — and I stress the near term — but we chose an ESOP because it makes sense over the long term."
By strengthening the firm's people-first culture, Berson said, "We think it will give us an edge in addressing the most critical problems facing the profession — the shortage of talent. We expect the ESOP will help us with recruiting and retention."
"In a world that demands constant change, we need to evolve," he added.
On the bright side
Not all is gloom and doom, however: In new areas and old, the profession is also looking at a host of positive possibilities.
"On the advisory side of your practice, the opportunities have never been greater," said Melancon. "When you think of the challenges you face, the ones your clients are facing are even greater," and they'll need their accountant's help getting through them.
Advisory services aren't the only ones with potential for growth, either: "In the last three to four years, there has been a shift in audit," he observed. "Attest is being viewed in a much broader sense. If you think about the range of categories in attest, it has grown enormously — in SOC, for instance, and we are going to see an explosion of assurance in ESG."
Melancon did add one caveat: In emerging areas like ESG or attestation around artificial intelligence, "we are going to have to be more on our game because these won't be reserved to us. We have the opportunity, but we have to seize that."
And while the growth of regulation may be a challenge for firms and clients alike, it has created at least one opportunity for accountants in the form of the beneficial ownership information reporting mandate that recently came into effect, according to Melancon.
After first assuring attendees that helping clients with their BOI reporting is highly unlikely to be considered the unauthorized practice of law, he did some simple math: Roughly 35 million business are required to report to the Treasury's Financial Crimes Enforcement Network, and if they each paid $500 for help, that would amount to almost $18 billion in fees.
"Before you decide if you want to avoid this, this is a key reporting requirement that's probably going to be with us for a long time. This is about the relationship with your key clients," he said. "Think about this strategically — the knee-jerk reaction is 'I don't know, I don't think I want to do this,' but it's a major opportunity."
Another growing area for accountants to home in on is the increasing propensity of companies to operate internationally.
"We have to think about our clients' needs — this is what we're really good at," said Kramer. "The opportunities we have as an organization to serve clients who want to move upmarket — they're crossing borders. They want a firm that's going to help them along the way. We're getting all kinds of opportunities there."
Rich with opportunity and rife with challenges, the current environment clearly calls for firms to begin rethinking much of what they do and how they operate.
"We have a situation that is more complicated and more conflicted than at any time of our lives, and maybe any time since the beginning of the modern profession," said Melancon. "Our profession is in great shape — it's doing extraordinary well — but it's our responsibility to make sure we're making the changes and evolving the profession to meet the changes of technology and the needs of our clients."
