The Evolution of Accounting: Mastering the Wave of Industry Changes Ahead

The accounting industry is facing big changes that will affect those in the industry and those who use accounting professional services.

FOR THE USERS OF ACCOUNTING PROFESSIONALS

Business owners need to be confident that their accounting professionals in tax, accounting, and advisory services are educated, competent, and reliable.  But are they?  Staffing and the lack of advisory services are concerning to business owners and the general public alike.

Declining enrollments and decreased numbers of CPA candidates have presented formidable challenges to the accounting industry.  Making accounting a career choice is being affected by lack of work-life balance concerns, applicants not considering a public service professional, and the industry not being as exciting as finance and technology. 

One solution has been suggested to lower the requirements for becoming a CPA.  Other solutions have been suggested, all creating concern about the quality of services provided by the very people clients rely on to stay compliant and avoid trouble with regulators and the IRS.

As a result, the public should be asking some questions and requiring advisory services, not just reporting services.  Today, the compliance requirements, the tax code, and the global economic situation require planning for individuals to obtain financial success in their personal lives and business operations.  Consider these areas when dealing with your accounting and tax professional.

Questions:

• How should I structure my business operations?
• What are your staffing levels?
• How can you help me with my tax goals?
• What are your plans for using AI?
• Do you outsource work?
• What information that belongs to me and I entrust to you is being made available to third parties?
• Will my returns be completed before the deadlines?

Advisory Services:

• What are ways that I can reduce my tax liability?
• Can you help me with financial strategies to increase my net worth?
• What is the best retirement savings plan for me?
• What is the best way to plan to sell my business?
• What is the financial future going to look like in 5 years, 10 years, 20 years?
• Can I have savings plans that benefit me as the owner of the business?

As the accounting industry changes, clients need to change with it and expect more from their accounting and tax professionals.

FOR ACCOUNTING PROFESSIONALS (CPAs, EAs, Accountants, and Bookkeepers)

The next several years will be much harder for accounting firms than the past several and many of these firms will have to make deep investments in the transformation of their firm to remain abreast of the changes.

The beauty of the public accounting industry in the past has been that everyone can play. Everyone can compete in this industry, but there's an upper third, a middle third, and a bottom third. The bottom third is an interesting category. These firms might still be in business, but they won't have very good clients, they won't have great employees, and they won't make a profit. But there's a place for everybody. So that means that the profitable players are only 2/3 of the entire industry!

There are three categories of accounting professionals: those who are fiercely independent, those who are transformative, and those who are limited by being stuck in the rut of hourly work.

Many firms will just continue to grind it out until they can no longer compete because they are oblivious to the changes going on in the industry. Some think that the accounting industry is immune to the effects of the economy and changes in technology. Nothing could be further from the truth.

The COVID restrictions in 2020 forced firms to work remotely and make some hard changes, which resulted in good results from streamlining their business operations.  All of those benefits peaked in 2023 and now the business is facing new challenges.

Staffing is an issue that has been widely publicized in the media.  The kids are choosing to go into technology, data analytics, and financial services.  These staffing issues affect both quantity and quality of production.  As a result, firms are using offshore options for some services.  Those that aren’t are feeling the pinch of the staffing shortage.

There is a huge amount of new compliance and disclosure requirements coming out from the Security & Exchange Commission (SEC), Public Company Accounting Oversight Board (PCABO), and Financial Accounting Standards Board (FASB) pronouncements.  This is very challenging for most firms, especially the small to mid-size firms.  That all comes at a cost.  Eventually, that will affect earnings.

The Artificial Intelligence advances are going to benefit some firms and hurt others.  The well-positioned firms will have leadership teams in place to take advantage of the AI advances, both back office and client-facing tasks.  There is a lot to be said about whether these firms that are instigating AI are going to benefit and if AI can deliver tangible benefits across various client markets.

Many firms are scared of AI and are not willing to address the challenge it’s going to have on their business operation, their staff, and the way they work with their clients.  Some of the owners of these firms will decide to retire out of the industry and that will create further challenges in succession planning.

A look into the firms that are successfully transforming are those embracing changes.  Most are expanding to value-added services, such as advisory services.  Many firms are either starting or partnering with other firms to provide financial services, retirement planning, life insurance strategies, or estate and legacy planning.  These firms not only increase their revenue streams, but they find that their client retention rates are through the roof. 

It will be interesting to see how well the accounting industry will invest and plan for the next generation.

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