In a recent
Readers weigh in: 'Do we need accounting firms?'
October 3, 2022 9:00 AM
David Bergstein CPA, CITP, CGMA
Do we need accounting firms?
The resounding answer is yes, but the real question is, do they have to be called "accounting firms"?
Accountants will always be around because everyone needs a professional who understands the numbers and can explain them. The future of the professions explains how automation, artificial intelligence, and other technology will do a lot of what an accountant does manually today. The future of accounting firms is all about accountants utilizing their professional acumen and judgment to help their clients make fiscal decisions that will help them grow financially by being more liquid, solvent and profitable. It's about their clients' businesses growing, or attaining more assets and less debt from a personal standpoint.. Accountants have the skills and knowledge to ask their clients what they are trying to achieve in their lives from a fiscal perspective and help them with a plan to reach their goals. We have the consortium of accounting firms today via network associations such as the BDO Alliance, BKR, and others. They have a lot of different specialties within these groups. We could also call accounting firms "professional service firms" instead of accounting firms, but they will still be doing accounting. The function of accounting firms (accountants) is changing from 80% compliance work and 20% advisory and consulting, to the other way around.
I also think that there should be "audit firms" and "professional accounting & advisory firms," which is what private equity is trying to do, which leads to other questions.
The resounding answer is yes, but the real question is, do they have to be called "accounting firms"?
Accountants will always be around because everyone needs a professional who understands the numbers and can explain them. The future of the professions explains how automation, artificial intelligence, and other technology will do a lot of what an accountant does manually today. The future of accounting firms is all about accountants utilizing their professional acumen and judgment to help their clients make fiscal decisions that will help them grow financially by being more liquid, solvent and profitable. It's about their clients' businesses growing, or attaining more assets and less debt from a personal standpoint.. Accountants have the skills and knowledge to ask their clients what they are trying to achieve in their lives from a fiscal perspective and help them with a plan to reach their goals. We have the consortium of accounting firms today via network associations such as the BDO Alliance, BKR, and others. They have a lot of different specialties within these groups. We could also call accounting firms "professional service firms" instead of accounting firms, but they will still be doing accounting. The function of accounting firms (accountants) is changing from 80% compliance work and 20% advisory and consulting, to the other way around.
I also think that there should be "audit firms" and "professional accounting & advisory firms," which is what private equity is trying to do, which leads to other questions.
Rita Keller
I have worked in the CPA profession for 40 years, and I have been continually puzzled by the structure of CPA firms. CPA owners urge their clients to be progressive and take charge of running their businesses. CPA owners tell each other to run their firm like a business. But it becomes the old, sad story of the managing partner continually hitting a brick wall.
Running the firm like a business means having a boss, a CEO, who others follow. Individual partners think that is a great idea for everyone but themselves, individually. "You other guys/gals can do that, but I'm going to do what I have always done" is the general thought pattern.
Why? Because they have made and continue to make awesome, — in some cases mind-boggling — money doing what they have always done. Current owners would have to be forced in some way to adopt a new business model, and maybe they will be. Right now, it seems what they do is simply merge up.
Young, highly educated, and motivated accountants are refusing to "buy out" the old guys/gals, and that leaves the current owners no choice but to merge up, and they will end up having someone in some distant headquarters control their lives, or more likely, escort them out the door (with a hefty amount of money, of course).
I am glad the profession has some very progressive, larger firms that are leading the way to a more corporate structure. However, for those of us who work with small firms, there are thousands and thousands of them who cannot see the light.
Running the firm like a business means having a boss, a CEO, who others follow. Individual partners think that is a great idea for everyone but themselves, individually. "You other guys/gals can do that, but I'm going to do what I have always done" is the general thought pattern.
Why? Because they have made and continue to make awesome, — in some cases mind-boggling — money doing what they have always done. Current owners would have to be forced in some way to adopt a new business model, and maybe they will be. Right now, it seems what they do is simply merge up.
Young, highly educated, and motivated accountants are refusing to "buy out" the old guys/gals, and that leaves the current owners no choice but to merge up, and they will end up having someone in some distant headquarters control their lives, or more likely, escort them out the door (with a hefty amount of money, of course).
I am glad the profession has some very progressive, larger firms that are leading the way to a more corporate structure. However, for those of us who work with small firms, there are thousands and thousands of them who cannot see the light.
Randy Crabtree, CPA
As long as people (and companies) have tax challenges and need financial statements, we will never stop needing (human) CPAs. With the current issues of students not enrolling in accounting programs and those that do finding more excitement in other industries, technology will be even more important.
Contrary to what many might think, most accounting professionals I know welcome technology, rather than seeing it as a threat to their livelihood. Technology and robots can handle basic rudimentary accounting tasks (i.e., putting numbers into columns), which frees up humans to do higher-value advisory work. I also see niche practices being extremely important. Becoming a niche expert, whether in a specific industry or professional service area, will always be needed and valued by clients. Outsourcing will continue to be important. As a niche expert, you not only will be able to help other advisors and their clients, but it should enable you to grow your firm faster.
Bottom line: We don't need more traditional accounting firms; we need more forward-thinking accounting firms.
Contrary to what many might think, most accounting professionals I know welcome technology, rather than seeing it as a threat to their livelihood. Technology and robots can handle basic rudimentary accounting tasks (i.e., putting numbers into columns), which frees up humans to do higher-value advisory work. I also see niche practices being extremely important. Becoming a niche expert, whether in a specific industry or professional service area, will always be needed and valued by clients. Outsourcing will continue to be important. As a niche expert, you not only will be able to help other advisors and their clients, but it should enable you to grow your firm faster.
Bottom line: We don't need more traditional accounting firms; we need more forward-thinking accounting firms.
Jeffrey Surd, CPA
Your statement regarding "a collection of individual practitioners in a WeWork space" is spot on in my experience with smaller accounting firms.
Chris Vanover, CPA
Thanks for writing your article, "Do we need accounting firms?" I found it interesting and asking the same question I have been wondering for the last few years. In my humble opinion, the answer is no. What we will likely always need is bright accountants, but not accounting firms.
By way of introduction, I'm the CEO of AuditClub. As a start-up, AuditClub is an alternative approach to what I believe is a traditional, antiquated accounting firm model. While we are a licensed accountancy corporation and registered with the Public Company Accounting Oversight Board, AuditClub does not perform its own audits, reviews, or other assurance engagements. Instead, we are a service center for CPA firms. Think of it as akin to an auditors-as-a-service model. In essence, AuditClub provides access to infrastructure in the form of scarce talent, knowledge, and more.
It's a model that has proven to work for CPA firms for the past few years and I see tremendous opportunity ahead if we look at the talent challenges of the profession and the professional interests and aspirations of those coming up the ranks. With that, I will simply say I'm excited at what has been built and more excited about what we have to come.
By way of introduction, I'm the CEO of AuditClub. As a start-up, AuditClub is an alternative approach to what I believe is a traditional, antiquated accounting firm model. While we are a licensed accountancy corporation and registered with the Public Company Accounting Oversight Board, AuditClub does not perform its own audits, reviews, or other assurance engagements. Instead, we are a service center for CPA firms. Think of it as akin to an auditors-as-a-service model. In essence, AuditClub provides access to infrastructure in the form of scarce talent, knowledge, and more.
It's a model that has proven to work for CPA firms for the past few years and I see tremendous opportunity ahead if we look at the talent challenges of the profession and the professional interests and aspirations of those coming up the ranks. With that, I will simply say I'm excited at what has been built and more excited about what we have to come.
Kathy Simms, PhD, CPA, CFE; Yiwen Li, DBA, CMA; Rob Warren, DBA, CPA, CFF (Radford University)
On Aug. 26, 2022, readers of Accounting Today were invited to respond to the article "Do we still need accounting firms?" This question was crafted around Susskind and Susskind's new edition of their highly acclaimed book, "The Futures of Professions: How Technology Will Transform the Work of Human Experts." Among the article's criticisms of accounting firms is that firms do not "aggressively cross-sell services to a single client base." Solutions offered included that, aided by new technologies, accounting firms might eventually reformulate either as independent platforms or independent practitioners who pool expertise as needed or as "genuinely" corporate entities.
We conjecture that, at a minimum, to supplant accounting firms, new organizational structures would have to overcome the following advantages of accounting firms:
1. Pooling of resources via ownership of accounting experts. Accounting firms benefit from economies of scale allowing them to fund resources more efficiently than sole practitioners or independent platforms could, whether these resources are technology, liability insurance, marketing expenses, workspace, staff, etc. Only "genuinely" corporate entities, which we take to mean publicly traded corporations, might raise more capital. However, these entities would be disadvantaged by the ownership of public stockholders. Ownership by non-professionals would create competing interests and conflicts that would drain the productivity of professionals with know-how. Additionally, the professional-as-owner approach places the risk of failure directly on professionals, rather than on third-party stockholders. This serves as a much better deterrence to malpractice. In fact, we believe the need for the accounting firms to be professionally owned is so important, that we do not consider the "genuinely" corporate entities alternative further.
2. Branding & reputation. Accounting firms' reputation and branding signals quality to customers much more efficiently than would accountants reorganized as myriads of platforms or solo practitioners that collaborate ad hoc to manage jobs. Thus, consumers of accounting services would be at a considerable disadvantage under these proposed organizational structures.
3. Staff. In a departure from Susskind and Susskind, we believe that the current firm structure produces superior staffing arrangements for both employers and employees. When firms hire their own staff, the staff will be available when needed, rather than owners having to compete with free market forces for staffing every time a job needs to be done. The staff will also be trained based on how the firm operates, rather than having ad hoc pools of workers who follow different workplace protocols and are accountable to the employer only on a short-term basis. We also believe most workers value the financial benefits and security of being an employee rather than being an independent contractor.
4. Germinating the next generation of accountants. Accounting firms are largely responsible for propagating our profession on several levels. Independent platforms or sole proprietors who collaborate ad hoc on specific engagements would have no incentive to do this, and even if they did, they would be unlikely to do it as well due to their independent arrangements. For example, accounting firms offer invaluable internships that allow future accountants to explore the profession. They provide the indispensable service of shepherding inexperienced graduates, also allowing them to satisfy initial employment requirements for licensure, and usually reimbursing their CPA exam fees and providing free study materials. Furthermore, they provide practice rotations, which allow even experienced accountants to reenergize their careers or to start a new career path.
5. Social interaction. Social interaction through the physical presence of others is sounder under the present firm structure. "Do we still need accounting firms?" expressed a sentiment akin to Susskind and Susskind's work when it stated that during the pandemic people learned they can do without "the physical presence of other human beings." To the contrary, mental health declined during the pandemic, with much of this decline being attributed to isolation. For example, theWorld Health Organization reported a 25% increase in anxiety and depression worldwide. A recent study reported increased deaths from drug and alcoholism, as well as increased mental health problems, among those who worked alongside robots. People need people.
As a lesser point, we suggest that accounting firms currently do not cross-sell primarily due to independence rules. It is likely that new independence rules would be drafted if these rules are circumvented via new organizational types.
Rather than changing the organizational structure in which accountants work, we suggest that technology is likely to change the nature of the work and training that accountants will need. For example, grunt work in accounting is likely to be less common. While largely positive, this change creates new challenges for improving analytical thinking skills among entry-level accountants, who used to engage primarily in grunt work. Other challenges will include teaching new generations of workers to understand what machines are doing because they have not had to do accounting manually. The ability to prevent and overcome cybersecurity threats is another key training issue, associated with advances in technology.
We conjecture that, at a minimum, to supplant accounting firms, new organizational structures would have to overcome the following advantages of accounting firms:
1. Pooling of resources via ownership of accounting experts. Accounting firms benefit from economies of scale allowing them to fund resources more efficiently than sole practitioners or independent platforms could, whether these resources are technology, liability insurance, marketing expenses, workspace, staff, etc. Only "genuinely" corporate entities, which we take to mean publicly traded corporations, might raise more capital. However, these entities would be disadvantaged by the ownership of public stockholders. Ownership by non-professionals would create competing interests and conflicts that would drain the productivity of professionals with know-how. Additionally, the professional-as-owner approach places the risk of failure directly on professionals, rather than on third-party stockholders. This serves as a much better deterrence to malpractice. In fact, we believe the need for the accounting firms to be professionally owned is so important, that we do not consider the "genuinely" corporate entities alternative further.
2. Branding & reputation. Accounting firms' reputation and branding signals quality to customers much more efficiently than would accountants reorganized as myriads of platforms or solo practitioners that collaborate ad hoc to manage jobs. Thus, consumers of accounting services would be at a considerable disadvantage under these proposed organizational structures.
3. Staff. In a departure from Susskind and Susskind, we believe that the current firm structure produces superior staffing arrangements for both employers and employees. When firms hire their own staff, the staff will be available when needed, rather than owners having to compete with free market forces for staffing every time a job needs to be done. The staff will also be trained based on how the firm operates, rather than having ad hoc pools of workers who follow different workplace protocols and are accountable to the employer only on a short-term basis. We also believe most workers value the financial benefits and security of being an employee rather than being an independent contractor.
4. Germinating the next generation of accountants. Accounting firms are largely responsible for propagating our profession on several levels. Independent platforms or sole proprietors who collaborate ad hoc on specific engagements would have no incentive to do this, and even if they did, they would be unlikely to do it as well due to their independent arrangements. For example, accounting firms offer invaluable internships that allow future accountants to explore the profession. They provide the indispensable service of shepherding inexperienced graduates, also allowing them to satisfy initial employment requirements for licensure, and usually reimbursing their CPA exam fees and providing free study materials. Furthermore, they provide practice rotations, which allow even experienced accountants to reenergize their careers or to start a new career path.
5. Social interaction. Social interaction through the physical presence of others is sounder under the present firm structure. "Do we still need accounting firms?" expressed a sentiment akin to Susskind and Susskind's work when it stated that during the pandemic people learned they can do without "the physical presence of other human beings." To the contrary, mental health declined during the pandemic, with much of this decline being attributed to isolation. For example, the
As a lesser point, we suggest that accounting firms currently do not cross-sell primarily due to independence rules. It is likely that new independence rules would be drafted if these rules are circumvented via new organizational types.
Rather than changing the organizational structure in which accountants work, we suggest that technology is likely to change the nature of the work and training that accountants will need. For example, grunt work in accounting is likely to be less common. While largely positive, this change creates new challenges for improving analytical thinking skills among entry-level accountants, who used to engage primarily in grunt work. Other challenges will include teaching new generations of workers to understand what machines are doing because they have not had to do accounting manually. The ability to prevent and overcome cybersecurity threats is another key training issue, associated with advances in technology.
Frank F. Mooney, CPA
I am responding to your editorial "Do we need accounting firms?"
It is my contention that the United States government would be in total chaos (not that it is not almost there now) without CPA firms getting the citizens to adhere to the onerous income tax system. For a country to tax its citizens in a way that no citizen can explain is a bit dishonorable. The tax breeds corruption and makes every citizen question their integrity. The recent law passed related to energy credits is laughable.
Were it not for CPA firms, who else would monitor the implementation of the Tax Code? Every return we prepare is more correct and honest than if we did not prepare it.
This country is very larcenous and I estimate that as much as 25-30% of the economy is underground. For instance, if a person pays subcontractors to build themselves a personal residence, he is not required to file any 1099s, so the drywaller, plumber, contractor, etc., will just decide how much income to declare. And it is my view that the more belligerent a person is about their government, then they only report enough income to make them look "legitimate" and not too much outside the box.
I live in an area that has had a tremendous growth of housing (I suspect $5 billion) just in one development. No way is $5 billion reported.
And I guarantee people entering this country do not have the ethics nor knowledge to properly report their income.
Thank you for the opportunity to respond to your editorial and I realize that I may not be exactly on your point.
It is my contention that the United States government would be in total chaos (not that it is not almost there now) without CPA firms getting the citizens to adhere to the onerous income tax system. For a country to tax its citizens in a way that no citizen can explain is a bit dishonorable. The tax breeds corruption and makes every citizen question their integrity. The recent law passed related to energy credits is laughable.
Were it not for CPA firms, who else would monitor the implementation of the Tax Code? Every return we prepare is more correct and honest than if we did not prepare it.
This country is very larcenous and I estimate that as much as 25-30% of the economy is underground. For instance, if a person pays subcontractors to build themselves a personal residence, he is not required to file any 1099s, so the drywaller, plumber, contractor, etc., will just decide how much income to declare. And it is my view that the more belligerent a person is about their government, then they only report enough income to make them look "legitimate" and not too much outside the box.
I live in an area that has had a tremendous growth of housing (I suspect $5 billion) just in one development. No way is $5 billion reported.
And I guarantee people entering this country do not have the ethics nor knowledge to properly report their income.
Thank you for the opportunity to respond to your editorial and I realize that I may not be exactly on your point.
