Pulse of the Profession
The present, future and global outlook for today’s CPAs.
By Derrick Lilly
In December 2009 the Illinois CPA Society (ICPAS) Strategic Planning Committee—a subcommittee of the ICPAS Board of Directors—launched an initiative to identify and explore the major trends and challenges facing CPAs and their profession. Combining their observations and experiences with those of other ICPAS committees, as well as task forces, chapters, member forum groups and the ICPAS LinkedIn community, the Committee gained multifaceted insight into what is influencing and concerning today’s CPAs.
The truth is, the profession is facing a future of change and challenge. And let’s be honest, it’s downright unnerving for some. But the best way to overcome—or at least alleviate—the uneasiness and uncertainty is to be watchful and plan strategically.
During his December 2009 address to fellow board members, Jim Jones, CPA, ICPAS Board treasurer, and COO and CFO of North Riverside, Ill.-based Edward Don and Company, said, “There is always a lot of eye-rolling when you hear ‘strategic planning.’” Contemplating the “Pulse of the Profession” observations, he questioned, “Why on earth should we be thinking and talking about blue-sky issues when we are all on the ground struggling to survive with our jobs, our 401(k)s, our very futures on the line?...There are trends developing and in play that could have a significant impact on our world, our economy, our livelihoods. I can guarantee you that there are some issues out there that if you are not thinking about them…you should be.”
THE HERE AND NOW
At the forefront of concerns is the state of the economy—and rightly so. The fallout from failed attempts to take on excessive credit and financial market risk has plunged our economy into depths from which it’s taking extraordinary efforts to surface. The ensuing volatility and growing uncertainty surrounding business and consumer investing and spending has affected nearly every aspect of our economy and lives. As a nation, we’ve been trying to recover from a recession that seemingly nobody expected or was prepared for. Even accounting, which is often labeled “recession- proof,” has felt the pain.
“Most CPA firms are business-to-business service providers,” says Charlie Kuyk, CPA/ABV, CFE, CrFA, CVA, co-chair of the Strategic Planning Committee and a director at Crowe Horwath LLP in Chicago. “In this recession there are fewer business transactions, and thus, reduced need for accounting assistance.”
“CPAs at all levels are experiencing layoffs, pay cuts and underemployment,” adds Annette M. O’Connor, CPA, co-chair of the Strategic Planning Committee and director of corporate financial planning & analysis at RR Donnelley & Sons Company in Chicago.
Financial results reported by Deloitte, Ernst & Young, KPMG LLP and PricewaterhouseCoopers, aka the Big Four, reflect some of the struggles the accounting industry is facing. Citing tough external conditions, slow global economic growth, cost-conscious clients, and sluggish merger and acquisition activity, the Big Four saw their combined revenues for a difficult 2009 fall nearly 5 percent. After years of continuous revenue growth, even a slight decline is a bit of a shock to the system and a real gauge of the economy.
While the Big Four’s cumulative decline isn’t necessarily overwhelming compared to declines in other segments of the financial industry, if the largest accounting firms in the world are showing signs of weakness you can bet their small and mid-sized counterparts are feeling the pressure as well.
Many of our troubles stem from the frozen credit markets brought on by the collapse of Bear Stearns and Lehman Brothers. With these markets as yet unthawed, the abilities of even able businesses to finance their operations and future investments remain severely crimped. As a result, many organizations continue to weigh the options of additional service and job cuts—all at a time when our economy seems stuck on a merry-go-round of compounding layoffs and budget cuts. As we’ve witnessed in one form or another, layoffs = less spending = less demand = budget cuts, bankruptcies and mergers = more layoffs. This cycle ultimately means more fiscal challenges for businesses and consumers to overcome.
Thomson Reuters’ review of global investment banking activity during 2009 revealed global M&As totaled a mere $1.97 trillion, a 32-percent drop from 2008 ($2.89 trillion) and down a significant 53 percent from the record high set in 2007 ($4.17 trillion). Hopefully a sign of brighter days ahead, the review also showed an encouraging 32-percent increase in M&A activity during the fourth quarter of 2009, which was the biggest quarter for private equity-backed M&As in 18 months, and the biggest quarter for global IPOs in two years. Consequently, Thomson Reuters sees total 2010 deal activity improving, which could save or even bring back jobs, as long as the capital markets continue to recover and business confidence makes a lasting return.
There may be another silver lining hidden among the lingering whispers of gloom and doom. Despite shedding 10,800 private-sector accountant positions between December 2008 and December 2009, the Bureau of Labor Statistics (BLS) is anticipating increased demand for accountants in the coming years. The BLS estimates positions will increase 21.7 percent, adding some 498,000 accounting jobs, to reach a total of 1.57 million employees by 2018.
Another boon may come in the form of the US government. “About 10 years ago I jokingly said to a colleague, ‘We’re all going to end up working for the government,’” says Mary Lou Pier, CPA, president of Chicago-based Pier & Associates Ltd. And, in fact, the excessive credit and market risks and rising cases of financial fraud have incited waves of renewed oversights and regulations that may offer CPAs employment opportunities in new and expanded government agencies. Lending support to the BLS estimates, jobs are expected to follow in the private and public sectors, as organizations realize the importance of enhancing compliance efforts.
“There’s never been a more dynamic time in our industry,” says Jones. “The only one who can stand between all the regulations and the practical application of them is a CPA.”
“And the recent big fraudulent schemes such as the Madoff scandal, as well as Foreign Corrupt Practices Act (FCPA) violations, have been a wake-up call,” adds Kuyk, who foresees opportunities increasing for internal auditors, risk managers and fraud investigation professionals.
Looking a little deeper, the CPA’s role and competencies are expected to expand to keep pace with industry and regulatory changes. The ICPAS Board foresees CPAs becoming more involved in certain areas of tax, fraud prevention and detection, risk management, cost control, financial forecasting, loan brokering and estate planning. Expertise in emerging specialties like XBRL (eXtensible Business Reporting Language) and IFRS (International Financial Reporting Standards) could open doors to new opportunities and entirely new CPA roles. And while the CPA credential remains the gold standard, exploring additional niche certifications may help CPAs to stand out from their peers.
Employment aside, another near-term concern persists, namely rising taxes. An unfortunate outcome of the government’s string of bailout and stimulus efforts and recession-hit tax revenues is a skyrocketing national debt and budget deficit. Now, instead of focusing purely on rejuvenating business operations, the ICPAS Board warns that businesses will need to watch out for tax increases and tax credit cuts at the state and federal levels.
“We ran up a lot of debt and that can’t be solved with more debt; you cannot pay off debt with more debt,” Jones stresses. “The government is going to have to raise taxes and they’re going to have to tax things that traditionally have been untaxed. The government has no choice; it needs to get more tax revenue.”
“As a business leader you have to anticipate that taxes are going to rise, and you have to make sure you have more contingency to cover that eventuality,” says Ed Stassen, CPA/MBA, ICPAS Board member and CFO of Chicago-based Recycled Paper Greetings Inc. Unfortunately, he says, “It’s really tough to plan for it because you just don’t know the magnitude until it shows up on the radar screen.
“What I’ve already observed is a lot of state agencies being more aggressive in collecting their fair share of taxes…more audits, more aggressive attempts to make sure they’re getting all of the taxes they’re owed,” says Stassen.
For practitioners, rising taxes and business expenses coupled with ongoing recessionary impacts will likely push clients’ feesensitivity beyond its already heightened level.
“The pressure on fees is huge, and unfortunately the accounting service a client thinks will decrease next year just isn’t going to happen,” says Pier. What’s more, “There’s a standards overload out there, and clients don’t want to deal with it anymore. They’re having hard times with their banks, and anything relating to their numbers— when their numbers are bad—they don’t want to deal with again,” she explains. “A CPA is just another expense.”
As such, the fear of less demand and fewer opportunities for CPAs in the future raises the question, ”Will need outweigh costs?” The old adage claims that a picture is worth a thousand words. But when someone outside of the industry or corporate world pictures a CPA, can they think of a thousand needs for one?
Countless consumers—individuals and businesspeople alike—still have no idea what “CPA” stands for, let alone what services one can provide. And if consumers don’t recognize a CPA’s importance, then business opportunities will be cut short.
“It’s important that people understand that we are trusted advisors, and you absolutely have to prove your value,” says Pier. “Even if it isn’t as clear-cut as, ‘What I did for you saved you $6,000,’ you have to explain your work.”
Volunteerism Boosts Careers
Shine a positive light on your career and your profession by giving something back. These volunteer opportunities offered through CPAs for the Public Interest, the community service arm of the Illinois CPA Society, give you the opportunity to use your financial expertise to help those in need, and educate the public on the services the CPA profession provides:
College Financial Aid Application Assistance – Help Chicago Public School students complete their FAFSA forms.
CPA Board Connection – Serve on the board of directors of a not-for-profit organization.
Habitat for Humanity – Building Financial Foundations – Provide financial management guidance to Habitat for Humanity homeowner families.
IRS Disaster Assistance / Emergency Relief – Help disaster victims understand the services and benefits available to them.
Junior Achievement: Dollars and Sense for Kids – Teach money management skills to elementary and middle schoolaged children.
Military Service Tax Preparation – Provide free tax preparation services for members of the military in Illinois.
Pro-bono Consulting Opportunities – Support small and emerging not-for-profits as they strengthen their financial management systems.
Tax Preparer for Low-income Families – Volunteer to help low-income individuals and families at tax time.
Workshop Presenters – Present a financial workshop for small not-for-profit boards and staff and/or the general public.
To get involved contact Jill Wiles, community service manager, at 800.993.0407 ext. 277 or email@example.com. Alternatively, visit us online at icpas.org/volunteer.htm.
THE ROAD AHEAD
Taking a forward look at the concept of the CPA image, O’Connor contends that, “The CPA brand needs a serious makeover for both the public and students considering a career in the profession. The CPA image—all work, no fun, no life—needs to be updated to reflect the rewards and opportunities of the profession.”
Without a steady flow of new students pursuing those opportunities, the generation gap already affecting the profession will widen. With Baby Boomer retirement on the horizon, we can’t afford to have the influx of new talent stymied.
The Strategic Planning Committee predicts that the first wave of Baby Boomers will begin stepping down within the next two years, and as they do, the gaps in ownership, executive and management ranks will need to be filled with qualified successors. Consequently, for organizations with an aging staff, succession planning, mentoring programs, leadership training and recruiting strategies will require a more focused approach.
“The real key to succession planning—that I see firms consistently make a mistake on—is planning early. A 5-year ‘route out’ is an absolute must for owners or upper management at that stage,” says Rob Cameron, CPA, ICPAS Board vice chair and principal of Cameron Smith & Company in Springfield, Ill.
“Many US companies and organizations have not trained, prepared, or secured sufficient numbers of mid-level managers to fill the executive ranks nationally. A talent pool shortage among those with executive quality potential significantly affects the level of competitiveness of US industries and the quality of service,” warns the American Society of Association Executives and The Center for Association Leadership in Designing Your Future: Key Trends, Challenges, and Choices Facing Association and Nonprofit Leaders.
“Owners need to come down and do more,” says Cameron. “I spend huge amounts of time showing my younger staff how 150 different clients may only create three or four different kinds of work. I show them the patterns and walk them through the thought process.”
Similarly, Pier spends “a lot of time trying to analyze the way I work and define those checkpoints and quality measures to pass on to the person next in line. The grooming of young people to come in and buy you out is just a portion of succession planning.”
Added to the issue of hiring and retention is the issue of retirement—and, specifically, its changing definition. Factors like longer life expectancies, higher living expenses, and declines in retirement savings are forcing many professionals to postpone their retirement plans, opt for phased retirements and even seek part-time work over traditional retirement. Essentially, that translates into fewer growth opportunities for younger generations impatient for promotion. The risk is that talented young professionals will simply move from one company to another in order to achieve their goals.
In response, Dan Rahill, CPA, ICPAS Board secretary, explains that, “It’s important to build a culture within your organization that promotes professional development, transparency, recognition, camaraderie and good team morale. Creating an environment where employees like and respect each other and their managers, and where they want to be a part of the organization is critical.” Rahill is KPMG LLP’s partner-in-charge, tax for the Chicago metro business unit, and a recruiter and advisory board member at Notre Dame and the University of Illinois.
In Touch with Technology
Respondents to Gartner Financial Executives International’s 2009 Technology Issues for Financial Executives Survey say execs should explore these technologies:
XBRL (29 percent)
Governance Risk and Compliance or GRC (24.8 percent)
Social Networking (19.5 percent)
Cloud Computing (16.7 percent)
Software-as-a-Service or SaaS (15.7 percent)
Green IT (14.8 percent)
Service-Oriented Architecture or SOA (13.8 percent)
Corporate Social Networking
Carbon Accounting (6.2 percent)
Enterprise Mashups (6.2 percent)
For now, the Bureau of Labor Statistics predicts that Baby Boomers will continue to stick around, but their overall numbers in the workforce will steadily decline. The number of workers aged 55 and over is projected to make up only one-quarter of the labor force in 2018, whereas Generation Y workers will make up nearly 50 percent. Professionals prolonging their careers will need to adapt to the management style and workplace attitudes of their younger colleagues, who will soon make up the vast majority.
In fact, the way business is conducted is likely to change drastically as Gen X and Y rise in influence. The challenge is to calm tensions and harness each generation’s unique abilities and qualities.
“You have to be nimble and you have to think outside the box,” says Cameron.
“Sometimes there’s conflict because the older professional doesn’t want to give, but open-minded people who are seeking a common goal can have a great meeting of the minds; both parties can coexist very well,” says Jones. “How we meet the goals may be dramatically different, but the method to get to the goals is really secondary.”
Drawing on next-generation influences, companies are evolving their strategies to capitalize on new technologies, and therefore keep their competitive edge. “You either adapt to these changes or face an eroding client base and high employee turnover, or both—at least over the long-haul,” says Kuyk.
As a result, accountants, CFOs and other finance professionals are being called upon to analyze and consult on IT spending and investments, therefore finding the most flexible, cost-effective and profitable solutions.
“You definitely need to understand technology. The exceptional CFO or CPA is one that has the vision of how this expenditure can support the initiative to move a business forward,” says Jones.
Gartner Financial Executives International’s 2009 Technology Issues for Financial Executives Survey, reveals that 42 percent of IT organizations report to the CFO, and that statistic is expected to grow.
“A lot of companies have eliminated the COO job and have rolled those responsibilities over,” says Jones. “Now the finance guy is involved with not only finance but operations and technology as well. That’s a pretty big triumvirate of responsibility.”
The evolution of technology in the workplace continues to influence the way we complete our tasks. Today, there’s a greater demand for transparency, accountability and seamless delivery of services; we’re seeing blogs, the Internet, mobile devices, virtual networks, data rooms and cloud computing playing greater roles in supporting business transactions and customer service; and social networks are increasingly becoming interwoven into communications with staff, partners, clients, customers and shareholders.
“People have raised their expectations,” says Jones. “Connectivity is enormous; you can really set yourself apart with it.”
“Everything happens more quickly than it used to because technology has us connected all of the time,” says Stassen. “The speed of decision-making has accelerated because you are operating in a 24/7 environment.”
“The business model is shifting,” Kuyk explains. “A small firm can be as competitive as a big firm, and can provide services for less money. That’s a window of opportunity for smaller firms to play in a bigger environment. You can have a small company in a suburb of Chicago selling products or services to international customers much easier than you ever could before.”
THE WORLD AROUND US
Internet World Stats reports Internet users in China and India have increased by more than 1,500 percent over the last decade, and China alone now has more users than the United States. On that note, it’s no surprise that emerging markets are now taking on higher-value tasks and maturing into formidable players on the global stage.
“The coupling of the Internet and global business is a dynamic that is affecting all accountants today. You just have to pay attention to it; your competitor is not necessarily the CPA down Madison Street,” says Kuyk. “It could be the chartered accountant in India.”
In its Global Portfolio Strategy report, “The BRICs Nifty 50: The EM & DM Winners,” Goldman Sachs points out that BRIC (Brazil, Russia, India and China) companies are becoming increasingly competitive on cost—and on an international scale. This means that US professional services companies, like accounting and investment firms, are being compelled to offshore and outsource tasks to drive top-line growth.
“With a tough economy people are looking for value all of the time. Without compromising quality, in order to achieve a lower price point in this economy many firms and companies are looking to outsource,” says Jones.
“There is almost no accounting function that isn’t being looked at by international service providers,” says Kuyk. “It’s not just the back-office credit card operation; foreign outsourcing is permeating all levels of business enterprise. The outsourcing of jobs is with us today, and will likely continue.”
India’s call centers, for example, known primarily for their computer and electronics customer service and tech support, are evolving into accounting, consulting and tax service providers. Investment banks are also increasingly outsourcing parts of their research divisions to India and other emerging markets.
“The market says it wants the best product for the best value. It’s a very easy decision, and competing against that decision is going to be pretty ineffective,” says Cameron. “To stay ahead in today’s economy you have to be nimble and you have to be open to change because the market is much freer to choose the direction it wants to go.”
The long-term perspective, then, points to emerging markets taking market share from the United States. Based on Goldman Sachs’ estimates, BRIC economies are expected to account for 50 percent of global GDP by 2050, and the ongoing financial and economic troubles in the United States and other developed markets seems to be accelerating this trend.
What Keeps You Up at Night?
We asked our committees, LinkedIn community and Young Professionals Group, “What four trends or issues do you see on the horizon impacting the CPA community?” Here’s what they had to say:
1. Less need for CPAs
2. Fewer opportunities
3. Complexity of standards increasing
4. Lack of leaders in the profession
Young Professionals Group
2. Finding or keeping jobs
3. Shortage of accounting Ph.Ds
4. Less need for CPAs
What’s more, the United States’ global influence and economic contributions continue to be diminished by the dollar’s volatility, lingering concerns over our financial stability and fears of slipping into a “double-dip” recession. It’s widely believed that a weak dollar bolsters international demand for US products and services, but it also weakens its status as a legitimate reserve currency. Our skyrocketing national debt and budget deficit, for example, is causing uneasiness among major foreign holders of US debt. If investors demand higher interest payments and reduce or stop future US Treasury purchases, the government's ability to finance its borrowing could be at risk; it could be facing its own personal credit crisis.
An international shift away from the US dollar as a preferred currency reserve also could alter the allocation of foreign direct investment in the United States, and change the balance and location of global assets held by corporations, governments and other investors. Furthermore, as the countries within BRIC, the European Union and the Middle East grapple for more economic and political influence, the world will become increasingly “multi-polar,” meaning that the US’ preeminence will further diminish. Globally, political and economic influences will become more universally intertwined.
“As globalization trends continue, accountants increasingly will be expected to bring international understanding and perspective to their clients,” says Rahill. “We’re seeing it now with many of our global clients, and expect this to increase in the years ahead.”
CPAs therefore will need to become much more focused on being competitive in an international, rather than local, marketplace. Bureau of Labor Statistics researchers emphasize that, “Continued globalization of business will lead to more demand for accounting expertise and services related to international trade and accounting rules and international mergers and acquisitions.” As such, the potential US adoption of IFRS will likely become increasingly significant to US practitioners—sooner rather than later.
For professionals educated on the matter and up-to-date on international trends, IFRS adoption and a truly global marketplace can present an array of opportunities around the globe. “If and when the United States moves toward conversion to IFRS, there clearly will be opportunities for accountants and other professionals with solid IFRS knowledge and experience to bring value to their clients,” says Rahill.
The AICPA points out that business and finance globalization has led to IFRS adoption by more than 12,000 companies in approximately 113 countries. And in the next two years, major US trade partners, Canada, India, Japan and Mexico will join their ranks.
“You’re going to want to translate the financials of your competitors and see what they’re doing,” says Stassen. “For that reason, pressure will certainly start to build to understand IFRS standards and to be able to read the financial statements.”
The AICPA predicts that, “Once a critical mass of non-US companies in a certain industry sector begin to report their financial results using IFRS, there will likely be pressure for US issuers to do the same.” The bottom line, according to the AICPA, “is that CPAs need to begin to prepare for the day in the not-so-distant future when the SEC could designate a date for voluntary, or even mandatory, adoption of IFRS by all US public companies.”
12 Trends to Watch
Using the Association Executives and The Center for Association Leadership's Designing Your Future: Key Trends, Challenges, and Choices Facing Association and Nonprofit Leaders as its guide, the ICPAS Board of Directors identified 12 trends they believe will have the biggest impact on CPAs and the CPA profession going forward:
1. Growing financial market risks and uncertainty, which create turbulence and impede economic recovery.
2. Evolution of decentralized and highly networked companies that utilize freelance and project-based employees. Also, growing demand for transparency and accountability.
3. Baby Boomer retirement, leading to talent shortages. Plus, financial pressures forcing many into post-retirement employment or unretirement.
4. The Internet transforming government, governance and business communications and accountability.
5. The rising economic strength of China and India, which represent an increasing share of global GDP, and may overtake the United States in coming years.
6. Generation Y influencing change in the workplace and society. They are “digital-natives,” civically engaged, and more politically and socially tolerant than their elders.
7. The widening generation gap between employees, which is creating tensions.
8. The increasing popularity of online versus classroom education.
9. Population diversity (minorities make up one-third of the US population), which affects political and economic outlooks.
10. Rising US personal and federal debt, which impacts the US’ overall financial stability.
11. Deepening US outsourcing, which raises concerns over employ-ment opportunities, cost control and competitiveness.
12. US loss of political and financial influence internationally due to currency weakness, financial market turbulence and adverse reactions to foreign policy.