It’s a Brave New World And You Need to Prepare!
Excepts originally published in Inside Public Accounting
Since passage of the Sarbanes-Oxley Act, the move to regulate the accounting profession has been more akin to a rush. While it’s undeniable that the increasingly complicated regulatory atmosphere is a challenge for CPA firms, this new environment also offers opportunity for strategic marketing and niche development.
I believe the smart money is on leveraging regulation to direct and enhance our marketing efforts. In this article I’ll profile the current environment and suggest ways you can use it to maximum advantage.
SOX was the force that fundamentally shook the firmament of professional accounting. And although SOX was focused on SEC clients, its impact has cascaded down to smaller and non-public companies. It set a tone in the marketplace for greater financial transparency and more effective financial corporate governance. Although the events that led up to its passage were most unique, the resulting change was not completely surprising. That’s because mature markets typically experience one of three types of stimuli: regulatory, competitive and/or technological changes. All three are clearly in play in today’s marketplace, with the regulatory impetus at the top of the list.
Keeping on top of standards has always been a challenge to practitioners, but never as much as in the four years since SOX became law. That’s because the new law opened the door for non-traditional governing and rulemaking bodies to get involved…and did they ever! In the pre-SOX era, the AICPA was responsible for auditing standards, and FASB was responsible for accounting standards. International rules were for most people remote and relatively off their radar screens.
As part of SOX, Congress established the Public Company Accounting Oversight Board (PCAOB) to provide auditing standards for CPAs rendering financial statement opinions for public companies. Opening the door for two sets of auditing standards began the unraveling of a very tangled ball of twine whose beginning and end are difficult to determine.
Today, it takes two hands to count the entities involved in establishing the rules for audit, accounting, domestic, international, publicly held, privately held and governmental entities. It’s a steamy, swirling bowl of alphabet soup that includes: SEC, PCAOB, AICPA, GAO, IAAB, IASB, FASB and GASB, among others.
Then there’s NASBA, the National Association of State Boards of Accountancy. Although NABSA does not technically set standards today, it does regulate the licensing of CPAs, and has a vested interest in the standard-setting process.
Among other factors contributing to the excess in standard-setting is the increased complexity of transactions in the post-Enron world. Bill Balhoff, Director of A&A for Postlewaithe & Netterville of Louisiana comments, “The need for off-balance sheet entities, derivatives and other requirements is creating enormous complexity in terms of how deals get recorded and accounted for. This in turn drives the need for more, and more complex, standards.”
What’s more, the motivation for change is not driven only by government and other regulatory bodies. A recent AICPA survey found that three key constituent groups – practitioners, business owners and external users – questioned the usefulness of all public-company accounting standards for privately held companies. This is a significant departure from the attitudes of these same groups as reflected in a 1980s-era survey.
Dan Noll, Director of Accounting Standards for the AICPA clarifies, “Although the evaluation of accounting standards for privately-held companies is unrelated to Sarbanes-Oxley, since this topic has been debated for more than three decades, the significance is that for the first time there is a majority of all key constituent groups interested in exploring accounting standards that may be more relevant to privately held companies.”
We could very well be witnessing the possibility of having “differential standards,” in certain cases, as a result of this exploration by the AICPA with FASB.
I am among those who see no end in sight for this trend in standard setting. I’m even more convinced after my conversation with Balhoff. “I believe there will continue to be re-consideration of which bodies ‘own’ which sets of standards, and we don’t yet know how it’s all going to sort out,” he comments.
What I do see are compelling reasons for practitioners to not only better understand this altered regulatory terrain from a service delivery standpoint, but also to understand what this might mean in terms of growth strategies. Sorting through it all, and effectively managing to the strategic direction of their service offerings, demands that accountants significantly increase their level of understanding of the unfolding landscape.
How Many Sets of Standards Can We Stand?
A chief concern that may be facing firms in the not-too-distant future is which, and how many sets of standards they can provide trained professionals to support, while still delivering costeffective service to their clients. Although definitive positions have not yet been uttered, the big firms certainly might have a vested interest in serving a client base which requires fewer versus more sets of standards. The mere cost of training separate teams on separate sets of standards could be cost prohibitive. So, if we continue down the “multiple-standards” road, we may well see firms deciding to cut loose clients which don’t fit the standards-set that the firm supports. And this could mean lots of opportunity for other firms to acquire new clients.
How this will ultimately shake out is undetermined. What is apparent to me and other observers is that this highly regulated, multi-provider environment is continuing to create solid opportunity for firms able to embrace it. Those who have found opportunity in 404 work, employee benefit plan auditing, SAS 70 and other new specialties know this well.
The Future Is Now
Remember the scene in the movie The Graduate in which Benjamin, Dustin Hoffman’s character, is given one word of advice for his future? The word is “plastics.” In the accounting industry, the watchword for the future is “specialize.” Lots has been written about industry niches, but it will be even more relevant to specialize and niche our offerings in the future. Consider that we may see standards-based niches in our firm of the future – along with industry and service line niches. As the regulatory decisions unfold, the future belongs to those firms that embrace this opportunity and run with it. There’s a practical reason for this as well. Per Chuck Landes, VP – Professional Standards and Services at the AICPA, “With new standards such as the 8 recently issued Risk Assessment Standards, CPAs will be even more compelled to understand the client’s industry, in order to be adequately informed on the financial statement as well as business risks. CPAs can’t reasonably be all things to all people. The business risks are just too high.”
The point is, as you nurture your service lines, you must also constantly monitor the rulemaking environment. Task your service line leaders with more than just focusing on quality and efficiency of service delivery. They should be researching and reporting back to your partner group on how the terrain is shifting and the potential implications for your firm. Based on changes you or others observe, determine the strategy your firm should employ for the purposeful acquisition of desired segments and clients.
Mike Mares, co-founder of Witt Mares in Virginia states, “If you’re going to implement regulatory change as a driver of marketing strategy, you need to stay ‘tapped in’ to what’s happening in the halls of regulatory power.” Tax people have known this for a long time, as they’ve had to grapple with constant changes in the tax code, and translate this dynamic into opportunities for new services. But this thinking is relatively new for A&A people.
This means taking service-line ownership to a whole new level – moving beyond the typical concentration on the “delivery” side of the business into strategic thinking about new directions, new markets, new clients, new niches and new services.
Clarke Price, President & CEO of the Ohio Society of CPAs sheds some interesting perspective. “In the past, one CPA provided all the services to a client. In the current multi-provider environment, there is enormous opportunity in providing specific niche services to companies. The question is which services and to which companies? This requires a higher level of strategic thinking than in the old days, when a CPA owned the entire client relationship,” says Price.
The job descriptions of today’s practitioners need to include taking responsibility for the strategic direction and overall purposeful growth of the service line. It’s all about asking questions like: “What will we offer?” “Whom will we offer it to?” and “How will we go about finding prospective clients for these offerings?” These are traditional product management duties – a discipline not yet well understood by most CPAs.
Marketplace dynamics will take their shape…and they will take their time. Don’t wait until the chips have fallen to plan your strategy. Monitor the decisions that come out of rule-making bodies, be nimble and prepared to respond flexibly as standards change.
There’s chaos and confusion in the accounting profession, that’s true. But savvy firms and practitioners need to look beyond the present murkiness and use rules-driven marketing to create a brighter future.