CPA Trendlines

SEC Blinks; Big 5 Walk on Independence

By Rick Telberg

June 19, 2000 (SmartPros) ? So the Big Five have agreed to report past violations of independence rules in exchange for amnesty from the Securities and Exchange Commission. It is, essentially, a plea bargain.

SEC Chairman Arthur Levitt apparently found it impossible to effectively prosecute the Big Five for blatant and rampant abuses of the independence rules, so he took what he thought he could get — the promise of full confessions.

Sounds like a great deal for the firms? But wait! As they say on late-night cable: There’s more! The SEC says it is willing to change the rules so that the most common offenses are legalized.

In fact, Levitt and Chief Accountant Lynn Turner have been scolding, chastising, and jawboning the accounting profession for almost two years about the quality (or lack thereof) of financial reporting. In all this time, none of the Big Five have been censured, fined, or even lightly slapped on the left wrist for any infraction. Not once has the SEC used its big stick: Kicking an audit and forcing an audit client to hire another firm to do it again. In fact, the CPA firms have generally done whatever they have wanted to do. KPMG, for instance, took a $1 billion equity investment from Cisco Systems. Ernst & Young sold off its technology consulting practice to Cap Gemini, but agreed to hold equity for five years and swap referrals.

According to the SEC, the Big Five will undertake a “voluntary look-back” (not, to be sure, an “audit”) to report violations of auditor independence rules for the nine months ended in March. In exchange, the SEC granted “a safe harbor” from enforcement, except when a firm itself or “senior persons” working on an audit own stock in an audit client.

The firms will be required to identify “any direct investment in securities of an SEC audit client, including securities held in a brokerage account or IRA; any prohibited loan, including a margin account loan, with an SEC audit client; and any employee-benefit-plan account holding securities of an SEC audit client (such as a 401k account), except if such account is held by or for the spouse or dependent of a firm partner or professional employee.”

“Firms would report violations identified during the reviews both to the commission’s staff and to the audit committee of the relevant issuer,” the SEC says. “Within 13 months of the commencement of the program, each firm would submit to the commission’s staff a report of the results of its review. Following receipt of the firms’ reports, the commission’s staff would publish a report.”

So, at most, the firms will suffer public embarrassment. But there’s no sign that’s been a concern of theirs in the past.

Death Knell or Opportunity? You Decide

By Rick Telberg

June 16, 2000 (SmartPros) ? The relationship between the practicing professional and the client is being redefined by the technologies of the information age. No longer is the bond built solely on professional services rendered. The name of the game is information. And the client can get it anytime, anywhere, from almost anyone. The respected professional may no longer be the client’s first choice.

Professionals must react in new ways to this new world order, according to Dan Sautner, chairman of the 300-unit chain of Padgett accounting shops based Athens, Ga. In an analysis he performed for the National Association of Tax Practitioners, Sautner has worked to define the passing fads that can be ignored and the real trends that can be ignored only at our peril.

“In the future,” he warns, “if a client has a question, your answer may already be too late. Information, to the customer, will be like a stream — constantly flowing. It will go past newsletters, returning phone calls and personal contact. When the client thinks of the issue, they will start researching. And you want your company to be the first stop.”

Every professional has been asked for answers beyond their domains. Accountants are asked legal questions. Lawyers get financial problems. Insurance agents face tax queries. No one can do it all alone. And yet, the client wants results.

“In the past, we all restricted ourselves primarily to the issues we are best acquainted with — namely taxes and accounting,” Sautner says. “In the customer’s mind, however, we are seen as a much larger source of information.”

The well-armed practitioner of the future, Sautner says, will require some additional expertise. “But, more importantly, it will require that we link ourselves with other professionals and include them in our community of services.”

This means that the parameters of the practitioner’s service offering will change. Sautner says “we are seeing a gradual shift from a defined service towards an undefined service.” The lines between tax, accounting, business strategy, legal planning, investment and insurance are blurring. As a result, “customers will expect us to have a wider range of answers and solutions to their problems, even if we are not directly involved in the delivery of the solutions.”

Because accountants cover more of the solutions than any other professional, they are “the cornerstone provider.” At the same time, more clients will be do-it-yourselfers, ferreting out their own ideas, doing their own research, and developing their own solutions. The effect will be to weed out the low-margin, high-maintenance clients. By the time these DIY’ers come to the practitioner, they will be ready for high-level, premium services. Or, as Sautner puts it, “They will pay as much for us to straighten out their records, as they will for us to do the records in the first place.”

“This change,” Sautner warns, “can be seen as the death knell for the profession as we know it, or an unbelievable opportunity.”

Many, like Sautner, see the opportunities, and find them eminently believable.

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Fads or Trends? Choose Right and Choose Success

By Rick Telberg

June 15, 2000 (SmartPros) — Distinguishing between passing fads and lasting trends can spell the difference between life and death in this business. Dan Sautner has spent a lifetime making the right calls.

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Small Business Begins to Embrace the Internet

By Rick Telberg

June 14, 2000 (SmartPros) ? It’s been said that the business of America is business. In fact, the business of America is small business. And it’s the nation’s local accountants who keep them humming.

“We are seeing a shift toward B2B e-comm in small business of all sizes.” — IDC analyst

Now there’s new research from the data hounds at IDC in Framingham, Mass., which suggests that the nation’s small business owners are jumping into e-commerce as a critical part of their survival success formula.

IDC says the number of U.S. small businesses engaged in e-commerce will increase from 400,000 in 1998 to almost 2.8 million in 2003. Small businesses embracing e-commerce may be well positioned to succeed, IDC says. Laggards could fail.

Most small businesses garner less than $5 million a year. But IDC found that companies adopting the Internet are raking in revenues “significantly higher” than those that rated it as less important.

“The Internet is a key component to success for small businesses,” said Merle Sandler, senior analyst for IDC’s small business program. “Consumers have been the focus of small business e-commerce activity, but we are seeing a shift toward business-to-business e-commerce in small businesses of all sizes.”

Other key findings

Of 7.5 million small businesses, 11 percent were engaged in e-commerce in 1999.
One-third of Internet-enabled small businesses have a home page.
Small businesses profiting from the Internet are more involved in business and other services, manufacturing, and real estate than their e-enabled counterparts.
Small businesses that regard Internet-related revenue as important tend to have been in business for a shorter period of time than other small businesses.
20 percent of small businesses are selling online, by taking orders over the Internet or by phone or fax.

Among the smallest of the small, technology can provide the critical difference. Ray Boggs, vice- president of IDC’s small office/home office research, reports there are currently 25.5 million SOHOs in the U.S., equaling one in every four households. IDC projects an increase of more than 6 percent annually, projecting 32.3 million SOHOs by 2003. IDC surveys also find 25 percent of SOHOs want to conduct online selling and 21.5 percent of them have a Web home page.

Boggs says that while the number of startups is increasing each year, the number of businesses folding is also increasing. “But,” he says, “broadband and new technology will help the SOHO community compete effectively.”

Clearly, this is an opportunity too big for smart accountants to pass up.

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Clients Clamor for More from CPAs

(/b>By Rick Telberg

June 13, 2000 (SmartPros) ? CPAs are looking at huge untapped opportunities to expand their practices by offering business clients a wide array of new services, products and advice, according to new market research.

“The survey findings indicate the existence of real opportunities for accountants to build relationships with their clients and to provide advice to them on a broad range of issues,” according to a memo to the American Institute of CPAs from the Washington-based polling firm Peter D. Hart Research Associates. The report is being used by supporters of the plan to launch an AICPA-sponsored dot-com business linking small business with suppliers via their CPA.

But it also buttresses the long-range strategy of the profession and firms to take on an expanded role in business decisions and transactions. Many firms have already adopted a new view of themselves as not merely service providers, but also as a conduit of marketing and distribution for services and products produced by others.

“When business leaders are asked to estimate the proportion of their total annual expenses over which their CPAs have influence, the mean proportion is an astounding 17 percent,” says the unnamed author of the Hart report.

And business clients are clamoring for more. Some 58 percent said their expanded relationship with their CPA firm evolved mutually and organically, with no real plan or intention. Another 27 percent revealed that they had to go out of their way to ask their CPAs to take on extra work beyond taxes or accounting. And in only 9 percent of the cases did the CPA firm actually come in and ask for more work.

The Hart pollsters surveyed some 403 business leaders and then weighted the results to reflect the true influence of small business in the economy.

Key findings include:

70 percent report that their accountants influence at least some part of their business expenditures.
25 percent say at least 20 cents of every dollar spent was made after getting an accountant’s input.
94 percent place a “high level” of trust in their accountants. Only 82 percent say the same for their lawyers. Management consultants get the nod from 37 percent. And networking consultants garner 31 percent.
52 percent of all businesses use their accountants for more than just taxes or accounting.
CPAs are typically involved in 55 percent of a business’s decisions about new financial services, including selecting insurance, investments, employee compensation and 401(k) plans.
CPAs get involved in 33 percent of the decisions about selling, general and administrative spending, like office equipment, overhead, leasing a company car, packaging, or temporary staffing.
And CPAs are consulted on 14 percent of decisions about technology products or services, such as communications networks, selecting service providers, and setting up Web sites and conducting e-business.
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Professional Values Mean Professional Value

By Rick Telberg

June 12, 2000 (SmartPros) ? At perhaps no other time in the century-long history of the accounting profession have the opportunities for success been so broad and deep. It’s a great time to be an accountant.

It’s also a great time to begin a new phase in a career of serving accountants and business professionals. Hello, in case we haven’t met, please allow me to introduce myself. My name is Rick Telberg, senior editorial director of SmartPros Accounting. First as a writer and editor at Accounting Today, and later as a vice president and publisher at Thomson Corp.’s Faulkner & Gray, I’ve followed SmartPros’ growth and progress, its expanding vision, and its staunch commitment to the needs and aspirations of the serious professional.

SmartPros traces it’s beginnings to three high school friends who saw opportunities on the Internet in 1994, long before the Internet was a household word. They gave birth to AccountingNet, now SmartPros, and soon to be fully re-launched with a new look and vastly broader offerings for a multitude of business professionals. We’ll be relying on you, the working professional, to continue to guide us in our development.

Accountants are a special breed of professional. Their role in the marketplace is uniquely privileged and, well, accountable. No other professional works more passionately or diligently to help their client. And yet, the truly professional accountant remains independently objective and carries the burden of answering to a higher authority — the public. Accountants hold a special regard for truth, fairness and accuracy.

But the opportunities for an accountant today are just as formidable. The accounting, auditing and bookkeeping industry this year will top $72 billion in revenue, an 11 percent increase from last year, according to the U.S. Commerce Dept., which projects similar double-digit percentage gains for the next five years. More than 700,000 people work in the business.

Counting members in corporate, government and academia, the tax and accounting profession is more than 1 million strong. These are the professionals we at SmartPros Accounting dedicate ourselves to serve. We will try to do it with as much professional integrity, independence and objectivity — with as much respect for truth, fairness and accuracy — as the community itself.
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