CPA Industry: Stunning Update from Barry Melancon

When’s the last time you heard a speech that truly stunned you? If you’re like me, it’s been a while. But Barry Melancon‘s recent talk with our Chicago roundtable did just that.

The topic was the state of the CPA profession. Barry is the CEO of the Association of International CPAs (different name but still the AICPA!) and at 22 years, is the longest serving CEO in the organization’s 129 year history.

The following are excerpts from his talk.

We won’t recognize CPA firms in 10 years because of the merging of humans and technology that will be taking place. Like most innovations, the changes will occur first at the Big 4 and several mega-regionals, but it will eventually trickle down to medium and small local firms. It’s not a question of if, but when.

Reassuringly, Melancon said the AICPA is committed to making these advances available sooner than later to smaller firms.

THE COMING TECHNOLOGY

The current buzzwords for CPAs are blockchain, artificial intelligence and data analytics.  Today, most of us cannot properly define these terms.  Tomorrow, they will be as familiar to us as debits and credits.  Technology has advanced exponentially in the past 40 years, but the coming innovations (some of which are here already!) will make past conquests pale by comparison.  Examples:  (1) Auditors will test entire populations of data rather than sampling, and in a fraction of the time; (2) Today, the IRS could simply send a bill or a refund to 50% of all 1040 filers without the need to file a return; (3) Robots will function not just as sophisticated machines, but with cognitive abilities as well; (4) Replacing the inevitable revenue loss from traditional audits (due to dramatic reduction in audit time) will be a dramatic increase in cybersecurity audits, which will largely be annuity-based.

Says Melancon: “The need for trust in all areas of our society will increase and thus, there will always be demand for attest work.  It will simply take a different form in the future.”

THE COST OF THE COMING TECHNOLOGY

The Big 4 are already investing hundreds of millions of dollars on the new technology.   “My greatest fear is that the enormous cost to acquire this new technology will further widen the gap between the way the large and smaller firms operate,” said Melancon.

Strategic Planning and Goal Setting for Results is a “Cliffs Notes” guide to strategic planning and partner goal setting for CPA firms. It addresses ►the three main phases of strategic planning, ►overall management philosophy of a CPA firm, ►steps to creating the strategic plan, ►the all-important vision statement, ►stimulating productive brainstorming sessions, ►best practices for goal setting programs, ►core values, ►keys to implementation, ►pitfalls of strategic planning, ►why strategic planning will fail without partner accountability and other issues.

STAFF

For years, surveys by many organizations, including the AICPA, have shown that firms’ biggest problem is finding staff.  Can any of you remember when this was not the case?  But Melancon says “this issue will eventually go away.”  Technology advances will reduce – not eliminate- the need for staff labor.  (See an excellent article, “Sometime In the Next 40 Years, Robots Are Going to Take Your Job,” published in Mother Jones’ November/December 2017 issue).

The reduced demand has already started.  According to the 2017 AICPA Study of the Supply and Demand of Accounting Students, from 2014 to 2016, there were 10% fewer entry level hires by CPA firms.  An increasing number of new hires at larger firms are now non-accounting graduates in technology, engineering, etc.  Interestingly, accounting remains one of the most popular majors at universities.

According to Melancon, the shape of CPA firms’ organization structure will move from its present triangle to a diamond shape with a bulge in the middle.

One of our MPs commented: “For years, we been finding that entry-level hires are ill-prepared to do the work we have for them.  Universities need to change their curriculums with the times.”  Though the AICPA is working on it, Melancon confessed that this is a hard sell to the academic world.

TWO BIG CHALLENGES

First:  What you just read is so extraordinary that it will likely cause CPAs, who some say were born conservative and skeptical, to either deny the reality of these changes or adopt this view:  “Like all major changes in our profession, I’ll wait until it hits me.  We’ve been told other things will change our business and they never happened.  Besides, all these things are for the Big 4.  It will be decades before it trickles down to our firm and by then, I’ll be lying on a beach somewhere in retirement.”

Says Melancon” My greatest fear is denial by CPA firm partners.”

Second:  Very much related to the first point is this question, posed by one of our MPs:  Melancon, technology gurus and the media have pounded us incessantly about the disruption the new technology will bring.  We believe these experts and fully expect the changes to come.  But what should we be doing NOW and in the coming months?

Stay tuned.