Riding the Changing Tide of the Accounting Profession
The accounting profession, specifically public accounting, has experienced tremendous transformation in the last few years. The COVID-19 pandemic and advancements in technology have accelerated industry trends, paving the way for specialization, niche practice areas and remote work.
Many of the recent changes have led to increased merger and acquisition activity among public accounting firms. In addition, private equity has made significant majority investments in accounting firms.
Firms are seeking to reduce overhead costs, increase headcount and add geographic and practice niche areas. Historically low unemployment combined with a shortage of accountants has created a talent war for CPAs. The competition for talent has led to overall higher salaries in the industry.
The Great CPA Shortage
As Baby Boomers (born in the mid 1940s to mid 1960s) reach retirement age, there are not enough professionals to replace them. Baby Boomers outnumber CPAs in Generation X (born in the mid 1960s to early 1980s). Additionally, the majority of Millennials (born in the mid 1980s to mid 1990s) are not yet experienced enough to fill the more senior roles in firms.
The increasing number of retirements among sole practitioners has created a steady stream of CPA practices for sale. This has led to the trend of CPAs venturing out on their own, thereby decreasing the pool of available talent for firms to hire.
The Great Recession from 2007 to 2009 greatly increased the number of students majoring in accounting. Students sought stable careers that were more insulated from severe economic downturns. According to American Institute of CPAs (AICPA) statistics, 2010 had one of the highest numbers of CPA candidates in history. Post Great Recession until the COVID-19 pandemic, the U.S. had been fortunate to experience a stable economy. The side effect of economic stability was a reduction in students seeking ‘safer’ careers in accounting.
Statistics indicate that CPA licensure has been declining in the last several years. In my opinion, the 150-credit-hour requirement for CPA licensure has turned away some would-be accountants. The prospect of a fifth year of college compounded by an additional year of tuition expense has led to stifled growth in CPA licensures.
In addressing the issue, many CPA firms have embraced the usage of right-shoring to bridge some of the talent gap. Right-shoring shifts certain work to lower-cost jurisdictions to find the right balance of both cost and efficiency. Such a strategy requires significant upfront investment, and not all firms have the budget for such a strategy. The effect of the CPA shortage has firms considering adding non-CPAs for certain positions.
When I entered public accounting in 2007, the ‘paperless office’ was sweeping through the profession. Since 2007, the profession has progressed by leaps and bounds in terms of technology. Tax and accounting software has evolved to become more efficient and user friendly, as well as more automated. Many manual data entry tasks have become a thing of the past.
Cybersecurity has become critical for businesses in an interconnected world. Hacker intrusions and ransomware attacks have become more common and sophisticated. As a result, firms dedicate a substantial portion of their technology budgets to cybersecurity defense.
Technology advancements have also created a near-seamless transition to a work-from-home environment as the COVID-19 pandemic shifted many CPAs away from the office. The use of remote technology has allowed CPA firms to utilize conference meeting software not only for client and staff meetings but for business development and thought leadership. An external firm webcast can now reach people around the world, opening a new avenue for business development and increased firm branding.
Historically, CPA firms were restricted to their geographical footprint for hiring employees. Technology has allowed firms to hire employees across the country who can now work remotely.
The advancements and transformations in technology have come at a major financial cost to CPA firms. Technology budgets can range from hundreds of thousands of dollars to well into the millions of dollars for larger firms.
Specialization and Practice Niches
In an increasingly complex business world, clients are relying more on their CPAs to be their trusted advisors. The evolving client relationship has opened the door to a plethora of services outside the traditional tax and accounting offerings. Advisory services have increasingly become a steady area of growth.
The number of CPAs that are ‘generalists’ has diminished. Working on accounting, tax and audit engagements has become too complex, and those with only general knowledge may represent a risk to firms. Increased technical complexity due to legislation and accounting and auditing pronouncements has made it nearly impossible to develop expertise in all areas of tax, audit and accounting.
As a tax professional, I have seen firsthand the increased tax complexity that has led to specialization. The 2017 Tax Cuts and Jobs Act (TCJA) represented the first major tax overhaul of the Internal Revenue Code in 30 years. The TCJA was far reaching and had several major provisions, such as:
- The state and local tax cap for individuals, which led to the passage of pass-through entity tax regimes by dozens of states, each with their own deadlines and set of rules
- The complete overhaul of the taxation of international income
- Creation of the 20-percent qualified business deduction (IRC Sec. 199A)
- A new limit on interest deductions for businesses (IRC Sec. 163(j))
- Economic nexus — the 2018 U.S. Supreme Court decision in South Dakota v. Wayfair overturned the law requiring a physical presence within a state before collecting sales tax. The new economic nexus standard opened pandora’s box for wide adoption by state and local governments. State nexus analysis studies have become critical since the Wayfair decision.
The transformation within the accounting profession has brought challenges. However, many positive changes have occurred as a result, such as job security and wage growth. It is important as CPAs that we look to be industry leaders and embrace change as a profession. The next generation of CPAs is counting on us.
This article appeared in the Spring 2023 issue of New Jersey CPA magazine. Read the full issue.