March 1999 Issue


By Martin S. Harris

While it is necessary for all professions to carefully change for the purpose of providing better services to the public in accordance with changing conditions, I believe that many of the changes that are taking place and have been proposed for our profession are not in the public's best interest and will result in a substantial change in the public's perception of CPAs.

The Big Five CPA firms are pushing for more and more revenues, market share, and net income. What do these giant firms have in common with most other CPA firms? We must all conduct our accounting and auditing practices in accordance with the same principles and standards, and we are all interested in growing our firms and having respectable incomes. But we do not have the pressures involved in increasing market share on an international scale in an industry where the most traditional services, accounting and auditing, are decreasing.

The answer to their dilemma is obviously to broaden the services offered to their large clients. Forbes recently described how the Big Five are scouring the tax code to find unintended loopholes, which they attempt to apply to various corporations on a contingent fee basis. Since they are not allowed to charge contingent fees for audit clients, they are searching out other firms' clients for this service.

The rest of the CPA profession thinks that it must also branch out into other services, because it has been told that the value of traditional services is declining. The strategy of the AICPA into the 21st century appears to be to convince members to search out and acquire new and sexy nontraditional services.

How will the proliferation of dubious services and de-emphasis of auditing services benefit the public and the financial community? The short answer is it will not, and when the unintended consequences become apparent, the public will lose confidence in the profession. We will no longer have the desirable reputation for integrity that we presently enjoy. CPA firms, even the largest, have limited resources. As new services are added, some will be successful and some will not. But in either case, the resources available for auditing will be diminished. This is a major concern expressed by SEC Chairman Arthur Levitt and the Office of Chief Accountant from time to time.

Many large and medium-sized firms are buying into this trend. Large public companies like American Express and H&R Block have decided there is money to be made in providing nonattest services and through synergy, selling clients commercial services and products. The partners and staff of these firms serve two masters. They continue to do attest work for the CPA firm and do nonattest work for the commercial company under the supervision of the firm's partners, who are also employed by the commercial firm and presumably report to a higher authority at that company. We are asked to believe that although both the CPA practice and the commercial practice share the same facilities, equipment, administration, and supervision, independence is not preserved because separate engagement letters are used and the billing is separate.

Other professions also provide the so-called nontraditional services now being performed by CPAs. The only services CPAs perform that are not performed by others are auditing and other attest services. We have a lock on them. What do we do with this virtual monopoly? We allow clients and others to convince us that attest work is not productive, but rather a necessary evil. We allow jokes to be made about auditors being too organized, too narrowminded, and not creative. Because we seem to believe this nonsense, we price auditing work below standard rates believing that there is no value component to auditing. Have you ever heard of a competent, experienced attorney underpricing criminal defense work or personal injury litigation? Before we go adding a variety of unrelated services to our marketing brochures, we should take a hard look at the value we bring to the marketplace. Without competent, independent CPAs to file opinions on financial statements, it would be Dodge City all over again.

I am not suggesting we throw out our computers and go back to green eyeshades, high stools, and a single 25-watt lightbulb. We must continue to use modern technology and provide whatever ancillary consulting services are necessary to help our clients grow and prosper. If we do that conscientiously and within the framework of our existing standards, we will also grow and prosper. How did we ever support our families, send our kids to college, and retire comfortably without selling products and providing questionable services? *

Martin S. Harris, CPA, is a retired managing partner from a large Buffalo, N.Y., firm. He has not retired from keeping up with developments in the profession.

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