CPAs Find New Opportunities in Outsourcing

Finance and accounting outsourcing increasing among mid-market companies.

by Rick Telberg
For the Finance Executive

After years of fear and trepidation, finance managers and accountants are learning how to stop worrying and love outsourcing.

According to a Boston consulting firm, 71 percent of middle-market companies, each with fewer than 5,000 employees, are now outsourcing at least some of their finance and accounting (F&A) functions. In fact, if you’re sending your tax work to a CPA firm or your payroll to an agency, then you too are already outsourcing.

CPA firms and finance executives have been reaping the rewards for years. But today, with middle-market companies looking to outsource some core functions, the vista is becoming even broader. Read more

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Posted on February 28, 2007
Filed Under BSG FINANCE PROFESSIONAL | 2 Comments

When Competency Becomes an Ethics Issue…or More

Services representing less than 15% of a firm’s service concentration produce loss ratios of 225%.

The current shortage of qualified staff has led accounting firms into an ethical challenge with the potential for significant damage to the profession, according to a national expert on risk management for CPA firms.

The difficulties firms have had in finding and retaining qualified staff during the past several years has led to a problem of inadequate competency, says John F. Raspante, CPA, an advisor with CAMICO Mutual Insurance Company.

He notes that the problem has been compounded by the reduction of the Big Five to the Big Four and the cascading of extra work to mid-sized firms and then to smaller firms. The resulting surplus of work and the dearth of experienced CPAs have created a business environment in which too many firms are accepting engagements for which they are not qualified.

“Firms seeing the current environment as an opportunity to obtain new clients and increase their billings will do better by considering the increased risk exposures from accepting engagements that are not a good fit for the firm’s expertise,” Raspante says.

“Substantial losses in revenue and billable time, as well as damage to reputations, can come from disappointing clients and becoming embroiled in litigation. Further, violations of professional and ethical standards as a result of incompetent work can potentially put a firm’s licenses in jeopardy,” he adds.

Raspante points to CAMICO claims experience, which shows that CPAs are most at risk when expanding into new service niches without adequate preparation. Statistics show that once a firm has entered a niche, it needs to practice in it often enough to stay current and proficient in it.

The chart below, “Loss Ratios vs. Service Concentration” shows that services that represent 65 percent or more of a firm’s service concentration produce loss ratios of about 25 percent (i.e., 25 cents of every premium dollar is a loss). Services that represent 15 to 65 percent of a firm’s service concentration produce loss ratios of about 70 percent.

But the kicker is in services representing less than 15 percent of a firm’s service concentration: Loss ratios rise to a staggering 225 percent. Clearly, dabbling in an area where the firm is not practicing the services often enough is a highly risky activity.

Codes of Conduct

The issue of competence is addressed in the AICPA Code of Conduct under ET Section 56, Article V: Due Care, as well as in several state codes of conduct. Article V, Section .03 of the AICPA code states that competence “establishes the limitations of a member’s capabilities by dictating that consultation or referral may be required when a professional engagement exceeds the personal competence of a member or a member’s firm.”

Raspante recommends these basic options to dabbling:

Refer clients to other practitioners who have the requisite expertise in a specific area; and/or
Consult with other practitioners to acquire the expertise needed in a specific area.
“Referring clients to other practitioners instead of attempting to perform a service for which you are unqualified is not only the prudent course of action, but it will generate goodwill and respect from clients who will appreciate the referrals,” he said. “Clients are already accustomed to accepting referrals from their doctors and other professionals, and CPAs will enhance their own reputations by emulating such practices.”

Gaining Competency

Raspante suggests that CPAs interested in gaining competency in a specific area do so by:

acquiring CPE in the area;
reading the professional literature;
acquiring a designation in a specialization;
consulting with a practitioner who is current in a specialization;
joining a CPA society committee on a specialized area (e.g., estate planning committees);
joining a specialized association or society (e.g., business valuation associations); and
joining an association of other CPA firms to facilitate consultations, cross-referrals, and the exchange of expertise and information as part of the learning process.
“Competency includes the ability to identify risk stress points in an engagement, which requires a thorough understanding of the client’s business and industry. Take your time and err on the side of caution when venturing into new territory,” says Raspante.

Practitioners can utilize the AICPA Competency Self-Assessment Tool (CAT) to evaluate their strength in certain areas. The tool is free to AICPA members and $49 per year for non-members. (See www.cpa2biz.com.)

Audit and accounting literature is also available at cpa2biz.com for several specialized areas in industries such as agriculture, airlines, securities broker-dealers, lending institutions, casinos, construction contractors, insurance companies, and state and local governments.

AICPA audit quality centers also provide guidance and information for specialized audits. Links are posted at www.aicpa.org under Professional Resources/Public Accounting Firm Resources: Center for Audit Quality, Employee Benefit Plan Audit Quality Center, and Governmental Audit Quality Center.

Client Screening

“CAMICO has long recommended client screening as a way to evaluate not just whether a current or potential client is acceptable, but whether the firm is qualified and able to provide the services the client needs,” Raspante said. Client screening processes have become standard practice for such purposes, as evidenced by AICPA Practice Alert 2003-03 on “Acceptance and Continuance of Clients and Engagements.”

“Some CPA firms make an annual habit of redefining and understanding the scope of their practice, going as far as to write out a clear statement of what they can do and what they cannot do,” he said. “If they have clients who don’t fit into that scope, they disengage and refer the clients elsewhere. Establish a policy for what types of engagements your firm will avoid because of a lack of technical expertise.”
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Posted on February 28, 2007
Filed Under BSG [CPA TRENDLINES] | Leave a Comment

TAX TENSION: Totally Crazed! or Totally Cool?

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Posted on February 26, 2007
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TAX SEASON ’07:Working Harder, Enjoying It Less?

You’re not alone. Only 49 days left to Tax Season 2007.

Join the tracking survey. Check the Stress-O-Meter.

by Rick Telberg
At Large

Tax practitioners are finishing the first few weeks of the busy season reporting that they are working harder and enjoying it less.

Compared to last year at about this time, about twice as many tax professionals are reporting high personal stress levels. In fact, some seven percent report they’re “totally crazed!” Join the survey panel. Read more

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Posted on February 25, 2007
Filed Under BSG [CPA TRENDLINES] | Leave a Comment

TAX SEASON ’07: Pro’s Running 0.9% Ahead of Last Year

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Posted on February 23, 2007
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Not Everything is ‘O.K.’ in Oklahoma

‘The CPA designation is in trouble,’ according to the Oklahoma Society of CPAs.

A state House bill grants state non-CPA public accountants the kinds of recognition they’ve been fighting for, for years. OSCPA Executive Director Daryl Hill says the bill is “detrimental to the public and to CPAs.” It would “allow the unlicensed to become licensees and hold out to the public and provide services that licensees provide without having to meet the same requirements.”

“Make no mistake – your hard-earned designation is at risk,” Hill says in his letter to members. See the details of Oklahoma HB 1752. Read more

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Posted on February 22, 2007
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The IRS ‘Dirty Dozen’ Tax Scams

If this is tax season, the IRS PR machine is in overdrive

Apparently as part of it’s tax season public relations push, the Internal Revenue Service has released a list of the 12 “most blatant” scams affecting American taxpayers.

As the IRS says… Read more

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Posted on February 21, 2007
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Busy Season Remedies: 52 Proven Stress Reducers

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Tax Season giving you a migraine?

Take some advice from people who ought to know – the folks at the National Headache Foundation. Here they present “52 Proven Stress Reducers.”

(Now, if only I had a minute to actually think about this list…)

1 – Get up fifteen minutes earlier in the morning. The inevitable morning mishaps will be less stressful.

2 – Prepare for the morning the evening before. Set the breakfast table, make lunches, put out the clothes you plan to wear, etc.

3 – Don’t rely on your memory. Write down appointment times, when to pick up the laundry, when library books are due, etc. (“The palest ink is better than the most retentive memory.” – Old Chinese Proverb). Read more

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Posted on February 20, 2007
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CalCPA Society Membership Surges Past 30,000

Biggest in the nation

While many associations in the profession are having difficulty maintaining membership, the roster of the California Society of CPAs has surged past 30,000, making it the largest in the country. CalCPA was established in 1909. It currently has 14 chapters throughout the state. Kudos to CalCPA Chief Executive Officer, Loretta Doon, CPA.
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Posted on February 20, 2007
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