The top 15 stories of 2022

December 28, 2022 3:33 PM

2022 was a busy year in accounting, with accountants facing a host of challenges and changes both old and new. Perennial issues like staffing and a backed-up Internal Revenue Service joined up with disruptive new opportunities in CAS and ESG and much more to keep the profession on its toes, even as some of the pointed the way to an exciting future.

What's more, outside events — from Russia's invasion of Ukraine to the midterm elections, or from the teetering economy and skyrocketing inflation to major collapses in the world of crypto — had major impacts on the profession, in ways both expected and unexpected.

Below are our editors' choices for the 15 top stories in tax and accounting of 2022, and how they played out over the year. (You can also see our collection of the 40 biggest developments specific to tax here.)

1. The war for talent grinds on

Gaj Rudolf/Gajus - Fotolia

This story happened every day, at every firm with more than one person in it: the profession's ongoing war for talent (and not, as many people put it — in a very telling Freudian slip — the war "on" talent). From the Top 100 Firms down to small local shops, the inability to staff engagements and fill partnership spots is forcing the profession to up salaries (as at KPMG at the start of the year), investigate outsourcing and offshoring, and pursue automation as much as possible. They're also investing in their talent, as witnessed by the $2.4 billion PricewaterhouseCoopers is spending, and exploring ways to make it easier to join the profession, like turning the fifth year of school into work-study.

2. Backlogs at the IRS

Andrew Harrer/Bloomberg

An understaffed, overburdened Internal Revenue Service continues to struggle to catch up with all the returns it wasn't able to process during the depths of the pandemic, leading to service issues like millions of unanswered phone calls, disagreements with the Taxpayer Advocate over how many unprocessed returns there are, the controversial destruction of millions of information returns, and more.

The IRS embarked on a crash program to hire more workers, and welcomed an additional $80 billion in funding from the Inflation Reduction Act (though that was not without controversy). Its struggles to plan ahead weren't helped by a change in leadership: Commissioner Charles Rettig stepped down at the end of his term in November, to be succeeded by an interim commissioner, Douglas O'Donnell, who will in turn be succeeded by Daniel Werfel once his nomination is approved.

3. The CAS boom

Online CFO - CAS - client accounting services

photon_photo - stock.adobe.com

While no one agrees whether it's client accounting services, client advisory services, client accounting and advisory services, outsourced accounting, or something else, everyone agrees that the combination of cloud-enabled bookkeeping and advisory services is one of the most profitable out there for accountants — and one that more and more firms expect to add, no matter how they define it.

4. PE keeps making inroads

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Private equity firms' jump into the accounting pond continues to produce major ripples, and not just because firms like Citrin Cooperman, EisnerAmper, Cherry Bekaert, and Schellman, fueled by PE money, have gone on acquisition tears. In fact, while experts like Allan Koltin of the Koltin Consulting Group predict that "90% of firms will not go the way of PE," it has firms of all sizes rethinking their models, their succession plans, and their competitive landscape.

5. A new audit overseer gets tough

Erica Williams

PCAOB

Erica Williams took the helm at the Public Company Accounting Oversight Board in January, and promptly started shaking things up at a regulator that had been in such disarray over the previous few years that the Securities and Exchange Commission had to defenestrate much of its previous leadership.

She immediately started long-delayed work on updating the board's audit standards, many of which had simply been adopted wholesale when the board was established, as well as getting tough with China, which had stonewalled audit inspectors for years, eventually ending up with historic access to Chinese audit firms (see below). Perhaps most important, she began seriously cracking down on audit firms, noting with pride that the board has levied record levels of fines and penalties to firms and individual auditors.

6. More and more major mergers

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2022 saw an almost-record number of mergers among Top 100 Firms, with BKD and Dixon Hughes Goodman combining to create Forvis; Marcum bringing on Friedman in New York; Atlanta-based Aprio adding Maryland's Aronson; and EisnerAmper adding fellow New York firm Raich Ende Malter. There would have been a record five T100 mergers, but a proposed combination of Texas-based Whitley Penn and Elliott Davis in the Southeast was eventually quietly called off.

Even without the record, it was still a standout year for M&A: There were also a host of mergers with major Regional Leaders, with Top 100 Firms plucking up well-established and highly regarded firms from the cohorts just below them.

7. EY considers a split

Simon Dawson/Bloomberg

After months of discussion, the leaders of Ernst & Young agreed in September to have its 13,000 partners vote on whether to divide the Big Four firm into an attest firm and a consulting firm. The vote is expected to early in 2023, and the proposed plan would involve selling a minority stake in the consulting company — worth a proposed $11 billion, and borrowing a further $18 billion — to help unlock its potential.

Deloitte denied plans that it was considering a similar move, but a number of smaller Top 100 Firms have actually already made such a split to accommodate investment by private equity firms (see below), and most of the Big Four spun off or sold their consulting divisions in the wake of Sarbanes-Oxley of 2002 to avoid conflicts of interest with attest.

8. A new template for climate disclosures

Joshua Roberts/Bloomberg

The idea of environmental, social and governance reporting captured a lot of imaginations in accounting in 2022, driven by two major developments. The first was particularly important for firms in the U.S.: The Securities and Exchange Commission's release of a proposed set of climate change disclosures. It's all still a work in progress, but have a wonderful way of concentrating minds.

It wasn't the only regulatory work in the area this year in the U.S., either: FASB added a project on accounting for financial instruments with ESG features to its technical agenda — but that wasn't the other big development, which took place largely overseas (see No. 9, below).

9. A new standard-setter on the block

Emmanuel Faber

Christopher Goodney/Bloomberg

The gradual coalescence of a number of ESG and sustainability standards-setters into the International Sustainability Standards Board finally saw the board stand up this year, planning a North American headquarters in Montreal, incorporating major predecessors like the Value Reporting Foundation, and starting to work on standards. Led by former Danone chief Emmanuel Faber, the board completed its roster of members and is now ready for the crucial task of building a set of reporting rules that the whole world can buy into.

10. The pursuit of diversity

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The accounting profession continued its decades-long pursuit of a more diverse workforce, broadening its ideas of what it means to be diverse and inclusive, and putting more time, effort, money and imagination into the cause. Large firms in particular invested heavily in DEI, aiming to help underrepresented populations get accounting degrees, and furthering their progress into and through the profession.

The needle still hasn't moved much, but while some studies suggested the profession has not yet fully embracing diversity, here and there, there was good news of actual results, as in an American Institute of CPAs report that diverse accounting hires are on the rise.

11. The PCAOB gets into China

Fred Dufour/AFP/Getty Images

After literally years of negotiation and legislation over the ability of Public Company Accounting Oversight Board inspectors to access the staff and workpapers of Chinese auditors, the board and the Chinese authorities reached an agreement to let inspectors do their jobs without interference from the Chinese government.

A key piece of leverage in the board's favor was the Holding Foreign Companies Accountable Act, which threatened to delist Chinese companies from U.S. exchanges if, after three years, the PCAOB didn't certify that it was able to conduct free inspections. In December, the board certified that its first unfettered inspections had met the test — but warned that it would not tolerate any backsliding, while Congress voted to shorten the time period from three years to two.

12. The economic outlook

Fuel prices at a gas station in Woodbridge, New Jersey, U.S., on Tuesday, May 17, 2022. From record prices to blowout spreads and falling stockpiles, a handful of financial and physical indicators are pointing to expensive and possibly tighter gasoline markets across the US this summer.

Stephanie Keith/Bloomberg

Volatility in the markets, spiking inflation, and Russia's invasion of Ukraine — and the oil shocks and supply-chain disruptions that came along with it — have clients deeply worried about the prospects for the economy — and accountants, too. Firms have been looking for insights into where things are headed, and doing their best to offer sound advice about all these issues and more in a time of tremendous uncertainty.

13. Accounting for, and taxing, crypto

The efflorescence of digital assets — cryptocurrencies, nonfungible tokens, land in the metaverse, and much more — has regulators and accountants working overtime to figure out their value, and to track and account for (and sometimes tax) it. The IRS expanded its efforts to get taxpayers to report their assets, while FASB decided to account for digital assets at fair value, and the SEC greatly expanded its crypto and cybersecurity team.

14. Crypto crackup

Sam Bankman-Fried, founder and CEO of FTX

Jeenah Moon/Bloomberg

The collapse of digital asset exchange FTX toward the end of the year sent shockwaves through the world of crypto — unnerving not just investors and regulators, but also accounting firms that work in the field. Top 100 Firms Armanino and Prager Metis, which had both issued certified audit reports for FTX entities, were both sued, while Mazars Group, which had worked with crypto giant Binance Holdings, suspended all of its crypto work.

Moves to the metaverse

Prager Metis' launch party in the metaverse

There's a land rush going on the metaverse — online worlds that combine possibilities for virtual interaction with the already-realized potential of the internet for commerce — and with clients staking claims, big accounting firms were quick to do so, too. Prager Metis has grabbed a spot, as have Big Four firms like KPMG and vendors like Wolters Kluwer. As no one is sure if the metaverse will pan out, most of the efforts in accounting are experimental or mainly in support of pioneering clients — but if it amounts to even half what its boosters expect, those early investments could pay serious dividends.