American Institute of CPAs president and CEO Barry Melancon discussed the new tax extenders bill that's working its way through Congress, along with a variety of issues affecting the accounting profession, during a wide-ranging talk Thursday at the Accountants Club of America in New York.
On Wednesday night, the
"There's a reasonably good chance the Senate will pass this, but it is not certain," said Melancon. "It will take some work and it probably won't happen until March. It's not something the Senate will take up quickly. That's because there are some members of the Senate who are already starting to focus on some issues … that could unravel it."
He pointed to the political polarization in Washington as being one factor, although the House passed the measure by a wide bipartisan margin of 357 to 70. The AICPA lobbied for several provisions that didn't get into the bill, including a
"We are still very much for that," said Melancon. "It isn't in this bill, so there's going to have to be another bite at the apple for those types of things."
The $78 billion bill is mostly paid for by ending the problem-plagued Employee Retention Credit program early, as of Jan. 31, and increasing the penalties for fraudulent promoters.
"That gives some of our members angst, quite frankly, because there are some legitimate ERC claims that are still out there that people have just put off for a time," said Melancon. "It's a pretty complicated filing, and now that's not going to work, so they're not going to have that capability."
The AICPA and its members have been actively denouncing the so-called "ERC mills" that have been encouraging businesses to file dubious claims for the tax credits.
"There are some pretty stiff penalties that they've put into this bill as related to the ERC, and some of our members have gotten angst about that," said Melancon. "It is absolutely not targeted to our members."
He noted that the IRS has reassured the AICPA that CPAs are viewed as the "good guys" in the process. The penalties are based on a two-part test for how much of their fees come from ERC filers and wouldn't apply to a CPA firm that earns most of its fees from other types of services. The AICPA was able to get one modification made in terms of being able to take a payroll deduction on an amended return if an ERC claim is disallowed within the six-year statute of limitations, but most of the ERC penalty provisions in the bill were considered "untouchable" by lawmakers because they offset the cost of the bill.
Another congressional change that CPAs will be dealing with is the Corporate Transparency Act, which requires businesses to file
"The CPA is going to be on the front line of that," said Melancon. "There's been a big debate about whether CPAs can and ought to do this work. I will tell you my personal opinion is CPAs ought to do this work. You're closest to your client. You're going to need engagement letters that protect you. There are people who say this is the unauthorized practice of law. There's no evidence this is the unauthorized practice of law. No state has said it's an unauthorized practice of law. There's been debate about whether or not insurance coverage is going to catch you on that. The vast majority of small firms are covered by our professional liability insurance plan, something like 25,000 of them."
The AICPA plans to discuss the topic in one of its
Business model changes
Melancon also discussed other topics such as the use of
"We've got several firms in this country that are in ESOPs," said Melancon. "BDO is in the headlines because it's the largest firm ever to do an ESOP."
He noted that the demographics are shifting as the partnership model has changed. "We've got this big bubble of baby boomers who are now exiting firms, and we have smaller generations that have followed, so the transfer of ownership is a little bit different than it has been for the last 30 or 40 years, and it is switching to a fair market value basis," he said. "So if I'm going to leave the firm, I want to look at what the fair market value of my firm is. Therefore, if you want to come into the firm, you buy in at a fair market value basis."
Withum partner Ed Mendlowitz, who was attending the presentation virtually, said he agrees with Melancon's suggestion that the trend of CPAs leaving public accounting will reverse, with controllers and CFOs reverting back to CPA firms.
"With the trend toward CPA firm industry specialization, the industry knowledge of many in private would have a much greater value and offer vaster opportunities for that knowledge to be leveraged to support an accounting practice with a concentration of clients in a single industry," said Mendlowitz. "The CPA firm would have instant access to the operational, supply chain, customer dynamics and control aspects of those industries that it could bring to their clients and can use that to grow that industry base greater. Further there will be added opportunities of cross-pollination to related and peripheral industries."
Technology changes
Technology has also been changing the dynamics at CPA firms. "You go from the PC to the cloud and now you put in artificial intelligence," said Melancon. "For instance, we have been building a new approach called the Dynamic Audit Solution. It's a consortium of firms that's available to all and it's being used in live audits today. It has AI and massive data analytics built into it. Those types of things are going to be where the profession is an adapter to that. The only business professionals that will be negatively impacted by AI are those who don't use it."
He sees developments like AI as having an impact on the talent pipeline coming into firms.
"It changes how people progress from a pipeline perspective," said Melancon. "It changes the war for talent from entry level to midcareer and all the skills that are necessary."
He views AI as having more of an impact on the war for talent in the middle ranks at firms, not the war for talent coming out of colleges.
"Firms are already laying people off," said Melancon. "The pipeline has shifted to some degree the pendulum at firms. I'm not saying the pendulum on human capital has shifted all the way back to the side, but it's started its journey back as it relates to how people look at human capital, and what they're doing in that space."
Accounting pipeline
Melancon noted that part of the decline in accountants coming out of college can be tied to the overall drop in college students since the pandemic, in part due to the high costs. "Some of that has come back, but not all of it has come back," he said.
The AICPA has been participating in a National Pipeline Advisory Group that has been working on finding out why students are dropping out of the accounting field. It's also looking into regulations and ways to make the 150-hour CPA licensing requirement less costly and more flexible, as in one
PCAOB enforcement
He was asked by a member of the audience about the role of the Public Company Accounting Oversight Board in policing audit firms and how it could be driving some firms and young people away from public company auditing.
"The attitude of the PCAOB ebbs and flows based on who's on the PCAOB," he responded. "The PCAOB process is not intended to be educational. It's intended to be punitive … if somebody does something wrong."
He noted that the makeup of the board shifted dramatically in both the Trump and Biden administrations, when
"There are a lot of discussions that take place," said Melancon. "There are a lot of points that are made privately that say this does have a detrimental effect on people when you have this constant sort of badgering. The regulators don't buy that. That is not likely to change in the short run. If you have a change of administration, it is likely to change, but it's not going to change in the short run."
