Pearls of Wisdom from Elite Think Tank

The New Horizon Group, a CPA industry think tank, has met annually for the past 15 years to brainstorm and debate, as well as analyze top issues, present and future trends. Generously hosted by the AICPA, the group met recently in New York.  In attendance were its distinguished members: Jim Bourke, Gale Crosley, Chris Frederiksen, Carl George, Angie Grissom, Rita Keller, Roman Kepczyk, Allan Koltin, Mark Koziel, Rob Nixon, Darren Root, Marc Rosenberg and Jennifer Wilson.

This year’s special guest was Barry Melancon, AICPA’s President and Chief Executive Officer.

Some of the pearls from Barry’s session were:

• The growth curve of the CPA industry has been straight up (except for a few very minor blips). Essentially no other industry can make this same claim.

• Huge and rapid audit change will occur sooner than later.  Amazing new technology will enable 100%  statistical testing of transactions in a fraction of the time.  As a result, traditional audit revenue will dramatically fall in the coming years, to be replaced by attest work in other areas, primarily cybersecurity.  A tremendous investment in technology will be required, which could challenge smaller firms.

• As a result of these changes, more experienced and knowledgeable personnel and fewer lower level staff will be needed by firms. The old leverage measure will be out the window.  The new CPA firm organizational structure will look less like a triangle and more like a diamond.

• Among the Top 100 over the past six years, accounting and tax has grown 4% while consulting is up 16%. The legal profession in the same time frame has had zero growth.

Technology is transforming CPA service delivery and driving revenue

• Data is going to change the entire world.

• For the first time the AICPA is focusing on training and certification in non-traditional assurance services such as cybersecurity and establishing the first-ever  standards in cyber. The IRS says that every day, 5 CPA firms are being hacked and their data stolen.

• Artificial Intelligence will interact with client accounting software to allow all audit workpapers to be automatically prepared.  The days of statistical sampling will soon be over.  These platforms will be used by firms both large and small.

• The traditional IT technician job at CPA firms will become obsolete in a few years, replaced by higher level IT people with seats at board meetings (not necessarily as a voting member).

• We will soon see the end of tax organizers.

• Blockchain technology is coming. If you haven’t heard about yet, you will soon. It’s a  way of storing  transactions digitally that are automatically verified and unalterable – in real time. Very little will be left for CPAs to audit.  In 2-5 years, audit fees as they exist today, will be cut at least 50%.

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Mergers

Allan Koltin says “the merger frenzy has become the new normal. M&A is simply a part of growth, just like it is in all other businesses.”

Attributes of the best buyers:

• Strong leadership can drive a merger. A merger can be lost if the MP has to check with the rest of his/her partners at every single stage.
• Ability to move quickly.
• Put your best partner(s) forward when courting sellers.
• They prepare well for meetings with sellers.
• They don’t overpromise. Never say “nothing will change after the merger.”
• They don’t “fall in love” with sellers. They do their due diligence regardless of how well they know the seller.

Firm culture

• You can’t preserve what you can’t define. Defining your firm’s culture in writing is key.
• Culture is the way it feels to work at the firm and the way the firm works with clients as well.
• If a firm says it has core values and regularly allows partner transgressions, you don’t have core values.
  
• Strong communication; people know what’s going on.
• Partners set a good example; they walk the talk and have goals.
• Culture is 100% defined by the partners.

Next Gen MPs-desired attributes

• Hardened decision-maker.
• Grit-someone who sticks with it.
• Ability to lead and achieve partner accountability.
• Great communicator; great listener.
• Ability to create profitability.
• Must be confrontational when necessary to deliver the message.
• Growth-minded.
• Visionary; always looking toward the future.
• Engaging and articulate-this helps to persuade the partners.
• Don’t take the job if you have to take a vote every time you want to do something.

Predictions for what the CPA world will look like in 10 years

• No more internal IT infrastructure for firms < 200 members.
• All firms will be operating their practices entirely in the cloud.
• Audit sampling will be a thing of the past, replaced by 100% review.
• Audit of the future-transactions audited at inception with Blockchain technology.
• Wealth management and tax prep will overlap and become inseparable.
• Machine learning will displace wealth management, insurance and tax research services.
• Cybersecurity auditing and consulting will be a core service offered by many firms.
• The IRS will prepare simple 1040s.
• Firms will have fewer equity and many more non-equity partners.
• Private equity will finally make a major inroad into the accounting profession.
• Time-based billing will be eradicated once and for all.
• One-third of the Top 500 firms will be led by women.