Challenges AndSolutions For CPA Firms:The 2011 PCPS CPA Firm Top Issues Commentary

Table of Contents

Looking Closely at the Lists ........................................................................... 2

What Does It Mean for Firms? ....................................................................... 5

Resources to Help Firms Address Top Issues ................................................ 7

PCPS CPA Firm Top Issues Survey Comparison Between Years .................. 13

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While firms of all sizes face diverse challenges, growth and client retention clearly are on every firm’s agenda, according to the 2011 PCPS CPA Firm Top Issues Survey. Those two issues were among the top three challenges identified by all firm sizes. At the same time, firms of each size also appear to have their own unique concerns. Keeping up with tax laws and their growing complexity, for example, remains a significant issue for sole owners.

When the survey was last taken — in 2009, in the immediate aftermath of the economic meltdown — client retention was chosen as the top issue across the board. While holding on to clients clearly remains an important goal for all firms, new issues have moved to the top of the chart, depending on firm size. The 2011 PCPS CPA Firm Top Issues Survey asks practitioners to rank the challenges facing their firms. Responses are categorized by firm size, with separate lists released for sole owners, firms with 2-to-5, 6-to-10, 11-to-20 or 21-or-more professionals. The survey provides a unique snapshot of the most significant challenges facing practitioners across the country. PCPS conducts the survey every two years to provide practitioners with insights into the trends and problems affecting firms like their own and to better serve the needs of PCPS members.

From the survey’s inception in 1997 through 2007, staffing had been selected as the top concern for most firms (sole practitioners generally were the exception). That changed for the first time in 2009, when firms’ priorities shifted to client retention in the midst of the recession. This year’s results, while similar in many ways to the last survey, also indicate that firms are beginning to identify new issues in need of their attention. Some are familiar problems for CPAs, while others seem to indicate continued economic uncertainty and concerns about firms’ future leadership.

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Firms With One Professional There were some significant changes in the list for this segment of firms in 2011. Their top item — handling tax-law changes and complexity — has returned to the head of the list, where it stood in every recent survey except 2009. Among this year’s picks, retention of clients (No. 2) topped the list in 2009, and bringing in new clients moved from No. 8 in 2009 to No. 3 this year. Keeping up with accounting and attest standards retained its place at No. 4, a clear confirmation that complexity in any area poses challenges for the smallest firms. Seasonality/workload compression moved up to No. 5 this year from No. 7 in 2009.

Firms With 2-to-5 Professionals While complexity of both tax and accounting/attest standards are concerns for this group, growth and new business jumped to the top of the list this year, up from No. 9 last time. Seasonality also weighed somewhat more heavily on this group, edging up from No. 7 last time.

Looking Closely at the Lists

Here’s a look at the lists and how they compare to results in past years. The PCPS CPA Firm Top Issues Survey traditionally has focused on the top five issues for each firm size. To see the top ten issues for each segment, and the 2009 lists, turn to the addendum on page 13.

1 KeePIng uP WITH CHAngeS & ComPlexITy oF TAx lAWS

2 ReTenTIon oF CuRRenT ClIenTS

3 BRIngIng In neW ClIenTS

4 KeePIng uP WITH ACCounTIng & ATTeST STAndARdS

5 SeASonAlITy/WoRKloAd ComPReSSIon

FIRmS WITH 1 PRoFeSSIonAlToP 5 ISSueS

1 BRIngIng In neW ClIenTS

2 ReTenTIon oF CuRRenT ClIenTS

3 KeePIng uP WITH CHAngeS & ComPlexITy oF TAx lAWS

4 SeASonAlITy/WoRKloAd ComPReSSIon

5 KeePIng uP WITH ACCounTIng & ATTeST STAndARdS

FIRmS WITH 2-To-5 PRoFeSSIonAlSToP 5 ISSueS

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Firms With 6-to-10 Professionals Bringing in new clients moved to No. 1 from No. 5 for this group in 2011. In addition, fee pressure/pricing of services, which did not figure on this group’s top 10 concerns in 2009, popped into the top five. In fact, fee pressure and pricing concerns landed in the top five issues only for this segment and the largest firms. As in 2009, this segment continues to worry about retaining clients and qualified staff, as well as dealing with tax law complexity.

Firms With 11-to-20 Professionals The key news this year is the rise of partner accountability/unity, which jumped to No. 2 this year from No. 7 last time, perhaps underscoring the importance of these concerns in an uncertain economic climate. Succession (No. 4) was not on the list for these firms in 2009, indicating either that an aging partner group has brought the issue to the forefront or that improving economic conditions have allowed practitioners to focus on pressing practice-management challenges. These firms also are worrying about finding a good staff, an indication that the profession is shaking off some of the recession’s effects and once again seeking to expand. Given the soft job market in recent years, this could mean that firms ready to take on new people will be in a good position to find high-quality job candidates.

1 BRIngIng In neW ClIenTS

2 ReTenTIon oF CuRRenT ClIenTS

3 ReTAInIng quAlIFIed STAFF (AT All levelS)

4 KeePIng uP WITH CHAngeS & ComPlexITy oF TAx lAWS

5 Fee PReSSuRe/PRICIng oF SeRvICeS

FIRmS WITH 6-To-10 PRoFeSSIonAlSToP 5 ISSueS

1 BRIngIng In neW ClIenTS

2 PARTneR ACCounTABIlITy/unITy

3 ReTenTIon oF CuRRenT ClIenTS

4 develoPIng A SuCCeSSIon PlAn

5 FIndIng quAlIFIed STAFF (AT All levelS)

FIRmS WITH 11-To-20 PRoFeSSIonAlSToP 5 ISSueS

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Firms With 21-or-More Professionals This segment has clearly found itself motivated to think about the future. Succession is in their top five and, along the same lines, results imply that they also will be thinking about identifying, developing and accessing leadership training for new partners, which turned up on their list at No. 10*. Strategic planning (No. 7)*, which was not on their list last time, appears that it will be an issue looking ahead. These firms shared the same top three concerns as the previous segment (firms with 11-20 professionals), but in a slightly different order.

*See page 13 for the Top 10 lists.

1 PARTneR ACCounTABIlITy/unITy

2 BRIngIng In neW ClIenTS

3 ReTenTIon oF CuRRenT ClIenTS

4 Fee PReSSuRe/PRICIng oF SeRvICeS

5 develoPIng A SuCCeSSIon PlAn

FIRmS WITH 21+ PRoFeSSIonAlSToP 5 ISSueS

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What Does It Mean for Firms?Taking a high-level view of the lists, it’s possible to draw a few conclusions about CPA firm practice today.

It’s not just about putting out fires anymore. Although lingering economic uncertainty continues to cause problems for many firms and their clients, some of the shifting priorities in this year’s lists show that firms are focusing on future growth and development. While holding on to clients remains pivotal, firms have found themselves able to consider other priorities, as well, including not only growth but also succession and, among larger firms, strategic planning and development of future leaders.

Complexity of standards is a major issue for firms. This was a concern for all firms with 20 and fewer professionals, typically the kinds of practices that serve many private companies. The AICPA has been involved in a historic effort to effect meaningful changes in this area. Specifically, it is calling for action on the recommendations of the Blue Ribbon Panel on Private Company Financial Reporting, which advocates differential accounting for private companies and a separate standard-setting board that is in tune with the needs of their financial statement users. CPAs can get involved by sharing their opinions with the Financial Accounting Foundation, which is seeking feedback on the panel’s recommendations, and by urging other stakeholders—such as private company clients, lenders, investors, sureties and their own firm members—to provide their input, as well. Click here for more information. Overall, there is a clear need for simplifying private company reporting requirements. As discussed in “Resources to Help Firms Address Top Issues” section on page 7, PCPS members have access to a variety of tools to help ease implementation of standards.

Tax complexity and workload compression continue to weigh on firms. This is a perennial challenge for the smallest firms in particular, but it moved to the top of charts once again for firms with one professional. It also made the top five for all firms with 10 professionals and under and the top 10 for all but the largest firms. In the most recent year, last-minute congressional changes in tax laws were exacerbated by delays and other inconsistencies at the Internal Revenue Service. Late-breaking changes left firms with less time to prepare and have effectively compressed the season into an even shorter window. Other changes—including new deadlines for brokerage house Forms 1099 and an extended due date for Form 1065 partnership returns—added to the overload. Growing complexity also meant clients relied more heavily on their CPAs for help at a time when some may have reduced staffing in light of continuing economic uncertainties. Practitioners also noted that technology has clients, banks and others accustomed to the immediate delivery of services, which led them to expect shorter turnaround times.

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Fee pressures and collections pose tough problems for practitioners. In 2009, only the largest firms cited fee pressure/pricing of services as an issue, and for that group it was No. 6 on the list. Two years later, it is within the top six issues for nearly every firm segment. While the economic crisis may have abated, firms still are clearly facing demands to negotiate fees or cut prices. In many cases, clients assume that “temporary” fee renegotiations made in the worst days of the recession are now permanent. PCPS advises firms to understand and communicate the value of their services early and often, reminding clients before and after an engagement of the benefits that the work offers them. Practitioners also report in many cases that the hourly billing model has become a strain on their business. On another front, firms can implement process improvements to maintain profitability in the face of declining fees. These might include maximizing the use of technology, ensuring adequate planning and supervision of the engagement, delegating work to the appropriate levels and moving away from less profitable clients. To ensure that these steps enhance profitability, firms should not allow increased efficiencies to make their way into the pricing model.

The future is now. Succession planning is a new item on the list for firms with 10 and fewer professionals this year, after dropping out of their top challenges in the last survey. Once again, it appears that firms are in a position to look past day-to-day management issues and consider the future. As the Baby Boom partner group grows older, PCPS has been emphasizing the importance of succession planning for many years, and practitioners have clearly begun listening. In one notable example, while only 9% of sole proprietors reported having a practice continuation agreement in the 2008 PCPS Succession Survey, succession planning is now among this group’s top 10 issues.

Leadership is key. Whether developing future leaders, improving strategic planning or making realistic succession plans, the firms at the largest end of the spectrum clearly appreciate the importance of thinking for the long term. Many firms also are wrestling with partner accountability/unity, which was among the top two issues for firms with 11 and more professionals. While this may have been a less urgent concern for some before the economic downturn, firms are now expecting partners to make an active contribution to the practice’s overall strategic goals. In a stronger economy, firms may have been more tolerant of partners who did not contribute to business or staff development or were willing to withhold judgment in hopes a partner might eventually grow into a leadership role. It seems clear that many firms are now reconsidering their partner expectations and envisioning new standards for the partnership role.

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Resources to Help Firms Address Top IssuesPCPS continually creates new tools that help members tackle their most important challenges and lay the groundwork for success. Here’s a roundup of resources (most of them free to PCPS members) related to some of the issues that appeared most often on the 2011 survey.

a Keeping Up With Changes and Complexity of Tax Laws News updates, videos discussing new developments and access to the AICPA Tax Adviser and Tax Insider are just some of the free tools available to AICPA members wrestling with this challenge. Many of the toolkits and resources associated with specific legislation include resources to help CPAs talk to clients and staff about the implications of new rules. The AICPA also is actively involved in advocating for measures that would simplify tax regulations. In addition, turn to:

• AICPA Tax Resources Page

• AICPA Tax Section (separate membership required, but many free resources at the site)

• AICPA 2010 Tax Relief Act Resources

• PCPS Small Business Jobs Act of 2010 Toolkit

• AICPA Healthcare Reform Toolkit

• The Tax Adviser

• AICPA Tax Insider

• Practitioners Symposium and TECH+ Conference in partnership with the Association for Accounting Marketing Summit, to be held June 11-13, 2012, in Las Vegas (PCPS members receive a $125 discount on registration).

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b Retention of Clients When this issue jumped to the head of every list in 2009, PCPS immediately created the PCPS Client Service Resource Center to provide members with the tools they need to address issues such as communicating and connecting with clients; fees, billing and marketing; and improving client service. Another PCPS resource developed to address client retention is “Client Service - A Five Star Model”. This guide, developed with Rainmaker Consulting, LLC, is part of the Human Capital Center’s Owner Development section. The Five Star Model focuses on helping firms build long-term relationships with their clients. PCPS also is in the process of building a PCPS Marketing and Business Development Resource Center with new targeted tools to help firms forge critical bonds with potential and existing clients. (Watch for this center to debut in the summer of 2011.) Turn also to the Marketing and Practice Growth section of the PCPS site. Among the exclusive tools available now to PCPS members are:

• The PCPS YOU Are the Value Workshop, developed from Leo Pusateri’s book You Are the Value: Define Your Worth, Differentiate Your CPA Firm, Own Your Market, written specifically for CPAs. The workshop walks firm members through practical strategies to help them build meaningful and lasting relationships with clients and helps participants discover and make the most of their own unique value. This online workshop, a free PCPS member benefit, is available to anyone in a PCPS member firm.

• Client advisory boards can be powerful tools to help firms retain current clients and attract new ones. The PCPS Client Advisory Board Toolkit contains a host of practical tools to get one started. It can be found at the PCPS Client Service Resource Center.

• The PCPS Economic Podcast Series features advice on marketing and client service.

• The AICPA Trusted Business AdvisorSM Workshop focuses practical strategies for strengthening client relationships.

• Practitioners Symposium and TECH+ Conference in partnership with the Association for Accounting Marketing Summit, to be held June 11-13, 2012, in Las Vegas. As always, this multifaceted conference will feature sessions with well-known experts describing tips for keeping top clients. (PCPS members receive a $125 discount on registration).

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c Bringing in New Clients Once again, the PCPS Client Service Resource Center is a great place to find tools to promote the kind of high-quality client services that will impress new clients and turn existing clients into enthusiastic referral sources. (The new PCPS Marketing and Business Development Resource Center, scheduled to launch in the summer of 2011, also will contain a wealth of practice development tools.) Other related resources include:

• Small Firm Marketing Brochures

• AICPA CPA Marketing Toolkit

• PCPS Podcast Series—Helping Firms with Internal Operations

• AICPA Trusted Business AdvisorSM Workshop

• Practitioners Symposium and TECH+ Conference in partnership with the Association for Accounting Marketing Summit, to be held June 11-13, 2012, in Las Vegas (PCPS members receive a $125 discount on registration).

d Keeping Up With Accounting and Attest Standards As noted elsewhere, the AICPA is involved in a historic effort to bring greater relevance and usefulness to private company financial reporting. (Click here for more information.) CPAs concerned about the complexity of accounting standards are urged to learn more about this initiative. In addition, practitioners should be aware of these resources:

• PCPS SSARS No. 19 Toolkit

• PCPS Risk Assessment Standards Toolkit

• PCPS SAS 112/115 Toolkit

• PCPS Technical Issues Alert

• The PCPS Independence Toolkit

• The PCPS client brochure, “Comparative Overview of Compilation, Review, and Audit Brochure”

• A Journal of Accountancy article, “Clarified Auditing Standards: The Quiet Revolution.”

• Practitioners Symposium and TECH+ Conference in partnership with the Association for Accounting Marketing Summit, to be held June 11-13, 2012, in Las Vegas (PCPS members receive a $125 discount on registration).

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e Seasonality/Workload Compression Seasonality Success is a PCPS newsletter dedicated to helping CPAs make the most of busy season and other opportunities throughout the year. “Pre-Season Success Strategies,” a topic in the PCPS Economic Podcast Series, provides tips that can prepare any practitioner for combating the issues around seasonality. In addition, the PCPS Human Capital Center’s Work/Life and Retention section provides a host of resources to help firms address staffing issues related to workload compression. The AICPA also takes a leadership role in advocating for legislation and regulation that are in the best interests of the public and CPAs, including measures that would minimize workload compression.

f Fee Pressure/Pricing of Services When CPAs experience fee pressure and are tempted to cut or negotiate fees, it’s important to have a solid perspective on which clients are the most valuable to the firm. The PCPS Client Evaluation Form, available in the PCPS Firm Strategy and Planning tools (accessible through the PCPS site’s Resources section) is a spreadsheet that enables firms to rank clients in order of greatest importance, based on set criteria. In addition, PCPS Profitability and Pricing Strategies tools (accessible through the PCPS site’s Resources section) include an action plan, pricing tool, sample client culling letter and more resources. Fee pressure is also the topic of one of the presentations in the PCPS Economic Podcast Series. CPAs who are aware of the value of their services and are able to articulate this value to clients may be able to avoid fee pressure and set themselves apart in the marketplace. Leo Pusateri’s book You Are the Value: Define Your Worth, Differentiate Your CPA Firm, Own Your Market written specifically for CPAs, offers advice on how to accomplish those goals. The PCPS YOU Are the Value Workshop helps members put the book’s advice into practice.

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g Finding Qualified Staff (at all levels)/Retaining Qualified Staff (at all levels) While the economic slowdown may have lowered the competition for staff, it has also underscored the importance of holding on to the best people in order to maintain practice quality. To sharpen a firm’s competitive edge, the PCPS Human Capital Center is the first place to turn for valuable tools that address issues such as team recruitment and development, work/life and retention, performance management, reward & compensation & incentives and other related topics. Other resources include the PCPS Human Capital Forums and HR Networking Group, which offers education and networking opportunities to those charged with staffing responsibilities. In addition, CPAs can find sessions on staffing at the Practitioners Symposium and TECH+ Conference in partnership with the Association for Accounting Marketing Summit, to be held on June 11-13, 2012, in Las Vegas (PCPS members receive a $125 discount on registration).

h Partner Accountability/Unity A struggling economy, a hot M&A market, a large percentage of partners heading toward retirement all are among many challenges facing CPA firm leaders. They may explain why accountability and unity remain a top issue for firms with 11 or more professionals, jumping from No. 7 in 2009 to No. 2 this year for the 11-to-20 professionals firm and from No. 2 to No. 1 for firms with 21 or more professionals. PCPS will be publishing a new learning guide and related tools describing how to drive an accountability culture and how to build a leadership model. Look for these resources in fall 2011. Related resources in the PCPS Human Capital Center include:

• The PCPS CPA Firm Competency Model. This outstanding tool includes descriptions of roles and expectations for every firm level, including partner, in areas such as technical ability and business knowledge; client service; productivity; business development; and people development and teamwork.

• The PCPS Human Capital Center’s Reward & Compensation & Incentives section features tools such as a Pay for Performance Learning Guide and the related Sample Partner Win-Win Agreement.

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i Developing a Succession Plan The PCPS Succession Planning Resource Center helps CPAs achieve a range of long-term goals, whether it involves positioning the firm to sell or merge, developing future leaders, determining value or simply turning out the lights at retirement. CPAs will also find sessions on this topic at the Practitioners Symposium and TECH+ Conference in partnership with the Association for Accounting Marketing Summit, to be held June 11-13, 2012, in Las Vegas (PCPS members receive a $125 discount on registration).

This publication has not been approved, disapproved or otherwise acted upon by any senior technical committees of, and does not represent an official position of, the American Institute of Certified Public Accountants. It is distributed with the understanding that the contributing authors and editors, and the publisher, are not rendering legal, accounting or other professional services in this publication. The views expressed are those of the authors and not the publisher. If legal advice or other expert assistance is required, the services of a competent professional should be sought.

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Copyright © 2011 American Institute of CPAs®

PCPS CPA FIRm ToP ISSueS SuRveyComPARISon BeTWeen yeARS

2011

1 Keeping up with changes and complexity of the tax laws 2 Retention of current clients 3 Bringing in new clients 4 Keeping up with accounting and attest standards 5 Seasonality/workload compression 6 Fee pressure/pricing of services 7 Management of and control of technology (e.g., servers in the cloud, mobile devices, client portals) and keeping up with the investment in technology 8 Managing work/life balance initiatives 9 Developing a succession plan 10 Client collections

1 Bringing in new clients 2 Retention of current clients 3 Keeping up with changes and complexity of the tax laws 4 Seasonality/workload compression 5 Keeping up with accounting and attest standards 6 Fee pressure/pricing of services 7 Managing work/life balance initiatives 8 Finding qualified staff (at all levels) 9 Developing a succession plan10 Client collections

1 Bringing in new clients 2 Retention of current clients 3 Retaining qualified staff (at all levels) 4 Keeping up with changes and complexity of the tax laws 5 Fee pressure/pricing of services 6 Client collections 7 Developing a succession plan 8 Seasonality/workload compression 9 Finding qualified staff (at all levels)10 Keeping up with accounting and attest standards

1 Bringing in new clients 2 Partner accountability/unity 3 Retention of current clients 4 Developing a succession plan 5 Finding qualified staff (at all levels) 6 Retaining qualified staff (at all levels) 7 Keeping up with accounting and attest standards 8 Client collections 9 Fee pressure/pricing of services10 Keeping up with changes and complexity of the tax laws

1 Partner accountability/unity 2 Bringing in new clients 3 Retention of current clients 4 Fee pressure/pricing of services 5 Developing a succession plan 6 Retaining qualified staff (at all levels) 7 Developing/implementing a strategic or long-range plan 8 Finding qualified staff (at all levels) 9 Seasonality/workload compression10 Identifying, developing and accessing leadership training for new partners

2009

1 Retention of current clients/Client retention 2 Keeping up with changes and complexity of the tax laws 3 The effect on smaller firms caused by new regulations and standards 4 Keeping up with standards 5 Work/life balance initiatives 6 Keeping up with technology 7 Seasonality/workload compression 8 Marketing/practice growth: bring in new clients 9 Public perception of the value of the CPA license10 Private Company GAAP

1 Retention of current clients/Client retention 2 Keeping up with changes and complexity of the tax laws 3 The effect on smaller firms caused by new regulations and standards 4 Keeping up with standards 5 Work/life balance initiatives 6 Keeping up with technology 7 Seasonality/workload compression 8 Finding qualified staff (at all levels) 9 Marketing/practice growth: bring in new clients10 Client collections

1 Retention of current clients/Client retention 2 Retaining qualified staff (at all levels) 3 The effect on smaller firms caused by new regulations and standards 4 Keeping up with changes and complexity of the tax laws 5 Marketing/practice growth: bring in new clients 6 Finding qualified staff (at all levels) 7 Client collections 8 Keeping up with standards 9 Keeping up with technology10 Work/life balance initiatives

1 Retention of current clients/Client retention 2 The effect on smaller firms caused by new regulations and standards 3 Retaining qualified staff (at all levels) 4 Marketing/practice growth: bring in new clients 5 Keeping up with standards 6 Finding qualified staff (at all levels) 7 Partner accountability/Partner unity 8 Identifying and developing new partners/Developing a succession plan 9 Client collections10 Keeping up with changes and complexity of the tax laws

1 Retention of current clients/Client retention 2 Partner accountability/Partner unity 3 Identifying and developing new partners/Developing a succession plan 4 Marketing/practice growth: bring in new clients 5 Retaining qualified staff (at all levels) 6 Fee pressure/pricing of services 7 The effect on smaller firms caused by new regulations and standards 8 Client collections 9 Keeping up with standards10 Mentoring and career coaching

1 PROFeSSIONAL

2-5 PROFeSSIONALS

6-10 PROFeSSIONALS

11-20 PROFeSSIONALS

21+ PROFeSSIONALS

T: 888.777.7077 | E: info@aicpa.org | W: aicpa.org

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