Feature Stories - February 2011

Industry Focus

Accountants

    Nevada’s accounting industry is facing a myriad of changes in the near future.  From new regulations and licensing policies to changes in the way business is being done, the rules have changed for CPA’s.  Recently, executives representing this industry met at Holland & Hart’s Las Vegas office to discuss these and other industry challenges.

    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 pertinent to their industries.  Following is a condensed version of the roundtable discussion.

What are your thoughts on the economy?

Gary Johnson, Johnson, Jacobson & Wilcox:  I can tell you that in our client base, we are not seeing any improvements yet in sales or the bottom line.  We are still seeing downward trends; and, as a result, we are getting fee pressure.  Across the board, we are still seeing a decline happening.  I foresee that going well into 2011 and 2012 before we start seeing a recovery.

Tom Donohue, Piercy, Bowler, Taylor & Kern:  Our firm deals a lot with the gaming industry, and that is, obviously, one of the hardest hit industries.  Even within Southern Nevada, they are being affected more so than some other industries. Depending on which economist you ask, you will get a different answer on whether there are buds of recovery starting to sprout. There might be some pockets of recovery around the country; but I don’t really see much happening in the Las Vegas economy, at least anytime soon.

Bob Anderson, Holland & Hart: In the past, we did a lot of merger and acquisition transactions.  In the last four or five months, that practice has picked up significantly for us.  None of these deals are financed deals.  They have cash and are making a lot of strategic purchases.  We have four or five transactions going on right now and six months ago, we had zero.

How do you handle clients asking for fee concessions?

Ronnie Sloan, Fair, Anderson & Langerman:  When we were putting in our proposal and meeting with clients, we dealt with them with a reduction from the get-go.  Rather than them asking for it, we just did a five percent decrease across the board, especially on their financial statements.  We are also very sensitive about change-orders so whatever our fee is, that is what our fee is.  We really stick to that. This year, we are staying flat and we are talking to our clients in advance.

Lynda Keeton-Cardno, Lynda R. Keeton, CPA, LLC:  I will echo that.  We are in the process of doing arrangement letters now and not one of them is increasing.  The ones that I know we are going to go over, I am personally picking the phone up and saying here are the problems we had last year, what are you doing about them now so we don’t have this in the future?  

Donohue:  Well, obviously a lot of our clients haven’t done well and their stock prices suffered. Now they are in this boat where there are no longer the 404(b) internal control audit clients, which was a pretty healthy part of our business a couple years ago. We are seeing a lot of our clients who used to be the accelerated larger public company filers that no longer need the work.  It generates a lot of fees at the end of the year, so that has dried up. In addition, it is a multiple-headed monster in terms of the fee pressure and also the loss of actual work to generate fees as well.  It is something that we have experienced in the last couple years as the economy has tanked.

How are you dealing with collections?

Sloan: I think for the most part because we are a professional services company, we are holding the cards.  If you are having a challenge with the client that is not paying well, we get down to the point where, I would be the one that would be on the phone with them saying, “I am really sorry but, you didn’t make the progress payment, so if you want to pick up the tax return and financial statements, we need a check first.”  We have to do it.

Johnson:  We typically set up payment plans for a whole range of services we do for the entire year for a client.  When they get late on a payment, the partner responsible for that relationship has a duty to call and try to get the payment in.  We don’t have significant issues with receivables because we have dealt with everything up-front, like everybody else has.  They know we are working with them to spread out payments to help even out their cash flow.

How has technology changed your business?

Mike Verville, Wallace, Neumann & Verville:  For us, it has been a revelation.  We went paperless three years ago.  We have been able to hold our fees constant because of being paperless.  Internally, we are a lot more productive and so our staff hours are down but we are still able to bill for the same amount.  Our realization has been great.  The way we do accounting now versus three years ago has drastically changed. That has been the best thing we ever did.

Donohue:  Our managing partner likes to refer to our firm as an international firm with one office.  As an example of that, we have an audit team in Cairo, Egypt doing an audit.  They are tapping in from Egypt into our main server and working on files that are on our network. When I first started in the audit field, I’d lug six satchels full of binders and load it like a pack mule and wheel it all out to a client.  Now, you just bring a laptop with you. We are not paperless; I call it less paper because I am still shuffling some paper around.  It has pretty much transformed the way we do business, at least from an audit standpoint; it is a lot more streamlined.

How do you keep the best and brightest employees?

Annette Carro, Stewart, Archibald & Barney:  For our firm, we have been very fortunate to maintain low turnover. It is a little bit challenging right now because we have had to cut back on increases and we are looking at that now saying, “how much longer can we do that?”  And, as we have all talked about, what does next year look like?  Some of our clients haven’t even agreed to the engagements yet.  That is a struggle because we have got some great people. We have been able to give little bonuses, but that, to me, is not satisfying them anymore because they want a salaried amount.

Keeton-Cardno:  It is not sustainable. They can’t count on that.  I have never done bonuses.  This next season for us is probably going to be the busiest in our audit department, so I have always given time off.  Part of the reason we have lower turnover is because they know they will get their time.

Daniel Gerety, Gerety & Associates:  We do just the opposite.  We do have a strong bonus structure and it is based on the profits of the firm. I am sharing my profits to part of my firm.  It is a formula where the partners need to get a minimum of this return.  There is a little bit of heartbreak because I remember we had some people get huge bonuses and I said, “Be careful, remember, this may not be here next year, don’t count on it.”

Donohue:  Sounds like we are a hybrid in between a bunch of different ideas.  On top of the monetary compensation, we try to keep our employees stimulated by constantly shifting them around to different things and letting them get into different industries.  We are fortunate that we are in enough industries where we can move people around and keep them mentally stimulated and in the game.

Verville:  One of the things that a lot of our employees talk about is some of the non-monetary things they enjoy.  Some of those things would be like free-lunch Fridays.  Every person is assigned a partner and the partner takes you to lunch at least quarterly.  You have a lot of one-on-one contact with them.

Anderson: We have seen an incredible increase in the quality of resumes we are getting.  It is unbelievable the talent that is out there.  If you want to upgrade, you can certainly do that.

Has there been a lot of business increase from audits?

Keeton-Cardno: We do a lot of non-profit work.  Because of the federal money coming down, that has changed from a voluntary health and welfare audit, or getting an audit for their board, to dealing with a lot more A-133 requirements, or an audit for an organization that expends greater than $500,000 or more in federal grants.  Boards are becoming savvier because they have federal money. What we are finding is a lot more of that because the federal administration has pushed down money that has either trickled through the state, gone straight to the non-profit or trickled down through the county.

Carro:  I agree with that.  We even had some of the charter schools that have never had to have these types of compliance audits and federal money has been given to them and that has expanded their audits too.

Johnson:  With our commercial, for-profit clients, a lot of times, you can talk to a bank if they want to step up to an audit and, maybe, talk them out of it. We are working with a contractor right now who is going to get out of public works and the size of their jobs is going to be much smaller so their risk profile is significantly less. We said, “Let’s meet with the bonding company and talk to them about what is going on in our economy.  Your whole business plan is changing, and let’s see if we can talk them into taking a review.”

Verville:  We need to educate the public, in general [about audits].  We had a situation where somebody came to us and wanted an audit and it was actually driven by a divorce and a judge, so we did the audit. What they really wanted is an agreed-upon procedure to track the cash.  It wasn’t communicated to us what they needed so we ended up deposed and the judge was asking us why we didn’t do a cash analysis,. I think it is important for CPA’s to educate people about what an audit is.  So, when somebody comes to us with a specific situation, we are going to do a lot more work with the person that is requiring it and ask them if that is what they are really looking for.

What are the concerns for tax legislation in the near future?

Verville:  This year has been the hardest year for tax planning.  You have to have two sets of tax plans.  You have to say, ”if the tax rates are going to increase, this is what we are going to do.  If the tax rates stay the same, this is what we are going to do.”  It is almost like you have to have two plans.  

Anderson:  It is going to be interesting to see what happens, but I think that it is likely that there will be some closing of tax loopholes and maybe some increases in some specific areas.

Gerety:  There needs to be.  They cannot just cut spending and balance the budget.  They have to do a combination of both. They can cut out a lot of credits and really keep the tax rates the same, cut out a lot of deductions.

Anderson:  I think they have some very interesting ideas.  A lot of them we don’t like, like eliminating the mortgage interest deduction.  

Johnson:  In the short term, I think everything is going to stay for a couple of years.  I agree there is going to be some changes, but we are a couple years away from anything significant happening.  It is too political right now.  

Gerety:  We do a lot of estate planning and we don’t know what the law will be, so we are holding off on doing some transfers.  If we set up a trust that extends on for future generations, we don’t know if that will be exempt or not in the future because we don’t know what the law is.  We are shooting in the dark, we are guessing what the law might be. We will have to wait until Congress addresses that.  There are some huge complexities right now because of the inaction of Congress.       Donohue:  Sounds like what Mike [Verville] said, you have to have Plan A and Plan B depending on what comes down the pipe in terms of legislation.

Johnson:  Clients don’t know what the ground rules are right now for estate planning.  I think most of them have some comfort unless something weird happens. The current tax structure is going to get extended as it is. Clients have some comfort in that which helps in income tax and transactional planning.

Gerety:  I get a feeling, from my clientele, small businesses, that they run their motor up.  If it red lines at 8,000 RPM, they are running at 7,500 and are not doing anything to bring that down at all.  They are not hiring anybody, not bringing on any more equipment. They are looking to run the motor harder and see if they can weather the storm.  That is all they are doing.  I don’t think that will change at all. That is the way we are running our accounting practice, expecting more out of your existing personnel and not looking to hire new personnel to take on more business.

What are CPA’s requirements to be certified and what are the challenges?

Keeton-Cardno:  We are still peer-reviewed and if you don’t like to be peer-reviewed, get out of the business.  I don’t think that has changed.

Gerety:  The biggest thing on the tax side is getting every tax preparer registered.  CPA’s are exempt from some of the normal rules as far as taking the classes because our continuing education and our certification allows it.  Attorneys are also.  But where it is affecting us is when you have staff that are not CPA’s that are preparing returns, they have to go through the same thing even though they are not signing a return.