A Skeptic’s View of the Most Important Issues in Accounting

The acclaimed Accounting Today (of which I have been a devoted, loyal reader for 30 years) recently came out with its Top 100 Most Influential People in Accounting list. These luminaries were asked what they thought the most important issues in accounting were.  Their responses commonly included:

1. Change; fear of; resistance to. (most often cited remark)
2. The importance of CPAs growing their consulting practice vs. the historical near-total reliance on compliance.
3. Technology
4. Labor shortage; staffing; reduced pipeline of accounting students.
5. Lack of diversity.
6. Succession planning; Boomers continue to retire amidst a woefully inadequate supply of replacements.

I beg to differ. I feel that half the items on this list do not belong on the “most important list.” I mean no disrespect to those citing the above as the most important issues. I understand why they stated them but would like to highlight what’s most important to CPA firms specifically.

This blog is addressed primarily to the 99+% of all CPA firms that are below the 100 largest firms (#100 is $45M). Big 4 and Top 100 firms are not the intended audiences for what I have to share with you because they operate in a totally different world than smaller firms.

What Does “Most Important” Mean?

If something is a serious, nearly unsolvable problem that is a clear threat to the existence and success of CPA firms, that to me is “most important.” To be considered “most important,” the viability of a firm is at stake if the firm fails to address the issue. 

What’s the Worst That Can Happen to the 99+% of Firms if They Fail to Address These “Most Important” Issues?

What will happen to CPA firms if they continue to:

• Resist change? There are those that feel CPAs are resistant to change. I am not among them. CPA firms have actually done quite well adapting to change throughout their history. They may not have changed as rapidly as some would have liked but adapt, they did. Historical examples include adopting sales and marketing tactics, the use of computers, consulting (OK, maybe not as much as it could be), wealth management, running a CPA firm like a real business, flexibility in how and when staff work, the decline of partner compensation formulas in favor of compensation committees and the dramatic increase in mergers in the past ten years. This does not sound like an industry that is reluctant to change. It’s very difficult for me to see how resistance to change is THE most important issue facing CPA firms. When the best firms convene their partner retreats and partner meetings, I don’t think they moan and berate themselves for being resistant to change. They undoubtedly talk about what to change, but I really don’t see their resistance to change as their #1 problem.

• Do CPA firms suck at succession planning? Sure they do. But can someone please tell me what’s wrong with this life: A firm grows and prospers over decades. The partners earn an average of $500,000 a year, enjoying their work and their clients. After 30 years of operating their highly successful firm, the partners merge into a larger firm as their exit strategy, pocketing buyouts in excess of $1M a piece. Will their tombstone read “Here lies Charlie CPA.  He sucked at succession planning.” Of course not.

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• Embrace compliance over consulting? How does one convince a partner in a CPA firm of the following: You’ve been a partner in your firm for many years. You earn way more money than you ever dreamed of. You love your work. You love your clients, and they love you. You work hard and your success is born by the fruits of your labor. And…80-90% of your work is compliance. How is this a problem? It’s simply not reasonable to expect firms to give up a successful game plan (a) before they have to and (b) that is in no way endangered for years to come. Are firms overlooking a great opportunity to increase revenues by achieving a better balance between compliance and consulting? Absolutely. But is this a “most important issue”? No way.

So, What Do I Think Are the Most Important Issues?

You’ve all been waiting for this, so, without further ado, here they are. My apologies if the list is a bit boring because nothing has changed in 20 years.

1. Technology – The threat isn’t adopting new technology, because CPAs have always adapted sooner or later; most firms simply don’t want to be sooner. The real threat is the possibility that new technology may reduce compliance work by 2/3, as some pundits are forecasting. This change will have as colossal an impact on CPA firms as anything we’ve seen in the history of the profession. But everything I’ve read and heard is that this change is still many years away.
2. Labor –Hiring and retaining enough staff – good staff – is a real problem that vexes all CPA firms and has since any of us can remember. But somehow, firms have managed to live with it. There are three things smart firms should do to alleviate and address what clearly is a critically important issue: (a) reduce reliance on labor by moving towards a higher price/lower volume model instead of the traditional lower price/higher volume operation, (b) use technology to increase efficiency, thereby doing more work in less time and (c) contribute to the greater efforts of our profession in attracting and retaining a diverse labor pool.
3. Leadership development. The nuanced problem we call succession planning isn’t the inability of firms to provide successors to current partners. Why? Because the vast majority of firms who fail at succession planning are able to secure their exit strategy by merging with larger firms.

The real problem is this: Most partners in CPA firms feel that it will be a fate worse than death if they sell out (merge) with a larger firm as their exit strategy. Their much-preferred strategy is to develop future leaders to buy them out. So, the real challenge is leadership development. But until CPA firms RICHLY reward and compensate partners for developing staff into future partners (which today, they rarely do), they will struggle with this succession planning conundrum.

So, prove me right or wrong, what are your most important issues as partners leading the small to medium-sized firms across the country?