With taxes a hot topic nationally and over concerns with what the new year will bring for businesses, accountants have their hands full keeping up with new requirements and changing laws. However, working to service clients in a dwindling economy and finding new ways to diversify is nothing new to the industry and CPA’s across the state are rising to the challenge. Recently, executives representing accounting firms in Nevada met at the Las Vegas offices of Holland and Hart to discuss these issues and what the future will bring.
Connie Brennan, publisher of Nevada Business Magazine, served as moderator for the event. These monthly meetings are designed to bring leaders together to discuss issues relevant to their industries. Following is a condensed version of the roundtable discussion.
How has the economy affected your business?
Bob Anderson: What I’m hearing from clients is that things are getting a little bit better very, very slowly, but they are getting better. There is a special pressure on the fees and I still think there is a belt tightening that is going on. In my experience, it’s getting marginally better every month for the clients.
Bill Wells: We’re seeing a little bit of improvement in the revenue line, but the revenue line is the problem. Most of our clients had cut their expenses back as far as they can and are looking for efficiencies, but that is pretty well over now. The challenge is to grow the revenue line and there has been fewer transactions which has affected our business.
How has your pricing and fee structure changed due to the economy?
Anderson: We have to be more flexible. We’re not very often involved in a competitive bid environment, but it’s clear that potential clients are shopping fees because one of the first questions is, what is your hourly rate, what is it going to cost? In the better times, people were more concerned about the talent that they were hiring and more concerned about experience.
Dana Tompkins: We’re seeing the same thing and we have to be flexible with the clients. We’ve even considered lowering our billable rate per hour so it’s affordable in the current market. The only way to maintain a competitive edge was to be sensitive with the fees so that the client could afford services. Our firm made a conscious effort to switch into more of an advisory role with the clients, and we’ve seen a big up-tick in the business evaluations.
Ralph Piercy: The challenge, particularly in the audit area, is to maintain your quality when there is a little bit of fee pressure out there. The delivery systems have to be more efficient because you can’t sacrifice quality. We haven’t had a lot of clients switching to a lower fee, but we’ve had clients rearrange their service so they attempt to do more and we do less. Sometimes that backfires because they mess it up and it costs more to fix what they do, rather than if we had done it from the beginning. Clients have been more fee conscious; some only needed services because a lender required it, so they went back to the lenders and renegotiated what the lender required.
Glenn Goodnough: You have to make sure that you understand your clients, understand the full circumference of their needs and be able to meet them in the most efficient way possible; address the risks so that you can provide a competitive and responsive service.
Is finding qualified employees an issue?
Wells: There’s always a challenge to find good people. Historically, at least in the last couple of years, people have been somewhat paralyzed to move. They haven’t changed jobs as frequently because if they have a job that is a sure thing, they’d rather retain it instead of going out and look for a new one. We’re starting to see a little bit more movement in the local market; we’ve hired a few people from competitors lately, so I think that’s loosening up, but finding good people is always a challenge.
Piercy: We didn’t lay anybody off as a direct result of the economy, because our people are our primary assets and we develop all of our people from within. If you let somebody go, it takes time to get them back up to speed and it’s not a very productive way to do business. If anybody suffered with profits being down, it was primarily the owners because you don’t want to get rid of your assets; assets being the people that work for you.
Goodnough: Thankfully, diversity, which was a double edged sword, was our friend through the downturn, and we’ve been able to grow moderately during this time. We have also seen good people stay with us, which has enabled us that growth; Ralph [Piercy] is right, you cannot compromise quality.
Tompkins: In our firm, fortunately, we did not lay anyone off either and we managed to grow in this economy by shifting our services. We shifted more in the way of business evaluations, forensic accounting and auditing services; we [moved] away from the tax compliance work.
Are the requirements to become a CPA a deterrent to possible recruits?
Wells: I think over long terms the projections are people are going to enter the profession, so I don’t think there’s a huge issue right now. In the future there could be; fewer people want to go into the profession. It’s a difficult profession in that it’s hard work to stay current, stay relevant.
Anderson: The requirements now is it a five-year program? So, it’s longer, more time in school and difficult to do in a difficult economy. The exam is tough; the CPA [exam] is probably one of the most rigorous exams out there, [it’s] very difficult to pass.
Goodnough: Every year, specific industries will require industry specific continuing professional education as well. We have certified fraud examiners and they require certain CPE (Continuing Professional Education) as well. We’re members of the AICP (American Institute of CPA’s) Employee Benefit Plan Audit Quality Center and 40 hours is rarely, if ever adequate to accomplish the entire span of our CPE needs.
Piercy: Continuing education requirements vary by state. In Nevada, in your 40-hours, you have to have ethics; in California, you have to have so many test hours. We’re licensed in several states; [there are] just different requirements that make it difficult to coordinate all the licensing requirements. If you’re licensed in multiple states, you have more continuing education a year than 40 [hours] and, depending on what initials you have behind your name, adds a lot of continuing education time.
How competitive is your industry?
Barry Herr: I don’t specialize in tax or estate planning, so if my clients have those needs, I refer them to various other firms. I have relationships with those firms simply because I don’t have that expertise, I’m a sole practitioner. If these other firms have issues with the reviews, audits or other types of engagement, I will go and work with them. There is a relationship and it works out pretty well.
Piercy: [From] a competitive standpoint, you compete with yourself; where are you comfortable in your skin. I don’t go after McGladrey’s clients, a couple of times I told him, we had a call from one of your clients; you might want to go over and see if the problem can be worked out. It’s more of a proactive approach, we have niches and niches allow you to command a higher rate. It’s competitive with who you are and what you want to accomplish. So, you need to be looking for good clients and taking care of the clients that you have, but I don’t feel a sense of competition amongst the people. We mostly know each other and sometimes clients will move from firm to firm based solely on fee pressure.
Is there an obligation for CPAs to report clients if they are aware of any wrong-doing?
Piercy: Fire the client, and not only on the tax side, if you have an audit client that you feel is being guarded about what they are telling you, that’s probably a very polite way of suspecting they are lying to you.
Anderson: You can advise the client that they have done something wrong and they need to report it properly and take the consequences of it. If they refuse to do that, I don’t know that you have any choice; you can’t file the tax return because you become a party to that, so you have to terminate the case. Ralph [Piercy] is right, it’s true with audits, it’s just not worth it.
Do CPAs deal with conflicts of interests?
Wells: There is actual conflict and perceived conflict, both have to be managed. Sometimes it’s clearly a conflict of interest where you do have to resign or not accept an engagement and there are other times it’s a conflict by perception [and] in reality it probably isn’t, but it’s safer just to not go there.
If someone is looking to retain a CPA, what types of questions should they ask?
Piercy: One of the key questions is how much experience do you have in the given industry, because from industry to industry, competent CPAs can vary greatly. Another question would be: What is your business service model? And, what types of services can a company reasonably expect to receive from the CPA firm that they are retaining? Having a good understanding of their needs and how they will be met will be the key to the success of the relationship.
How has technology changed the industry?
Wells: We’re always looking for opportunities to enhance our operational effectiveness and efficiency, and technology plays into that. There’s a cost benefit relationship that you have to look at and what is the return on investment, because the investments are huge. It’s a case by case situation, the industry as a whole has gotten very high-tech relative to the tax preparation, audit software or research capabilities; just about every facet of the business.
Goodnough: There is so much professional judgment involved in what we do, which really becomes the driver. Technology, although it’s relevant, it’s marginal in comparison to just your core business understanding and your business competency to provide those services well and we have to have a good delivery system.
Tompkins: We’ve embraced technology and were able to move our office to a completely paperless environment and with voice over IP phones; we’re able to retain staff at other locations. They work remotely and it’s just as though they are in the office with us, they have access to all the documents. We have great document retention software and document management software that we feel has really enhanced our systems and efficiency.
Anderson: One of the negative things about technology, in e-mails, clients don’t allow the professional to give thoughtful consideration to anything. They want to send the document, send you the question, and expect you waiting there breathlessly for the e-mail. You can read it, digest it and respond quickly; but sometimes you just need the time to think about things, to roll it around in your head, and to talk to others to reflect on it. That’s one of the biggest challenges, getting the clients to understand that we need time.
Herr: The CPA technology has been a benefit to all of us because we don’t have to go down to the client every time we need a document. We don’t have to have that physical embrace where we only would see them once or twice a year. I have a relationship with a client in Canada just as well as I can have one on the other side of Las Vegas through telephone conference. We have that relationship, but more importantly, we’re able to service our clients better.
How does the business community view the industry?
Anderson: Most businesses have a relationship with somebody in the accounting field. I think that they have a lot better and a lot deeper relationship with their accountants and CPAs than they do with their lawyers. There are some businesses where there is a lot of litigation and there are a lot of issues that come up on a day-to-day basis, which would be a unique basis. I think it’s as Bill [Wells] and others have indicated, you develop relationships with the clients and they are in there once a quarter, once a month a couple times a year, and they only come to see us when there is some bad news that they want us to deal with.
How easy is the IRS to deal with?
Anderson: They are like every population, there are difficult agents to deal with and there are some that come in on a power trip. But, once you get past some of that, they are trying to do their job and you’re trying to do your job. The good part of it is you can always go up, you can go to appeals, tax court or the District Court. There is always an opportunity to get past the person, the level that is being particularly difficult. It gets expensive and very costly, but there’s a process to work your way up. If you’re fearful of the audit, [you] may be fearful for a couple of reasons; one is the cost, because you have to get professionals involved to represent you, or you’re fearful because you’ve done something wrong and you’re afraid it’s going to be discovered.
Piercy: If there is an issue, it’s normally with the on-site person that maybe you’re disagreeing with or maybe not moving as fast as you would like them to. A lot of times you get their supervisor involved and you work through it; it hasn’t really been a confrontational process in the experience of our firm. There is a process that you follow and everybody is working to get to the same place.
Are CPA firms diversifying in their areas of practice?
Wells: You have to be flexible and change with what is available to you and what the opportunities are. With the economy becoming more global, there are opportunities to look beyond just the local jurisdiction and go more into the state and local tax issues, or even the national tax issues.
Piercy: Diversification is interesting and it has to be managed because you can spend a lot of money getting into a new line of business that doesn’t help you at all profit wise. You have to manage what your opportunities are and how you employ them.
Goodnough: In addition to identifying the opportunity for our clients, many times opportunities develop from listening well to your clients about what their particular concerns are. We find that with forensics and fraud issues that a lot of companies, with the restructuring they have had to go through, have not aligned their internal controls to correlate with the staffing changes to evaluate proper segregation of duties, authorization, documentation and other core structural elements of a good internal analysis. We felt that has been an opportunity to help companies look at the change of their internal controls to match the change in their entity so that those issues don’t overtake them.