A Panel Discussion
By James L. Craig, Jr., and Thomas W. Morris
Six-Figure Starting Salaries?
Where the accounting business will be in another five years—let alone another thousand years—is anybody’s guess. Many are using the year 2000 as an opportunity to take stock, look forward, and think big.
The CPA Journal editors recently met with six CPAs whose backgrounds represent a cross-section of the profession and discussed the events that have shaped their careers and their views about the future. Will the coming years be more prosperous? Will being a CPA still be fun?
The CPA Journal: What recent developments are shaping the profession, and what factors will strongly influence what lies ahead?
Michael J. Hand: One major development has been the enormous growth and consolidation of the largest accounting firms from the Big Eight tax and auditing firms of 20 years ago to the Big Five consulting conglomerates of today. These five giants dominate the auditing of public companies, while at the same time seek out new sources of revenue to feed their huge appetites for growth. And as they get bigger and fewer in number, they are facing obstacles from the regulators about audit versus consulting and the perceived conflicts caused by this concentration into a few firms. In response to the market and regulatory pressures, it looks like they will, over time, be spinning off their consulting practices into new, separate entities.
Nancy Newman-Limata: I agree with Mike’s comment: We may soon be the Big 10. What will be left after the spin-offs and reorganizations will be very traditional-looking accounting and auditing firms that have gone back to their core competencies. What’s viewed by many as conflicting practices will have gone full circle as unrelated businesses go their separate ways. A related development that will influence the direction of the profession is the consolidation of local firms into organizations such as American Express Tax & Business Services, H&R Block, and Century Business Services [CBIZ].
Eric E. Cohen: I think there is a dichotomy between the firms that have embraced technology and those that have not. Those that have are better able to cope with the changing requirements of business information. Those that have not face an uphill battle to stay competitive; also, 20 years ago, young CPAs felt it was an honor to volunteer for their professional associations and measured success in staying with the profession for their full career. We’ve moved away from that life-encompassing mind-set to a buyer’s market, where “what have you done for me lately” rules.
Neville Knowles: In my short time, I have seen the emergence of the Internet, the growth of consulting practices, and the lure of stock-market gains from high-tech, e-commerce businesses as major factors shaping the world in which the profession operates. These factors and the cross-selling of services to audit clients have contributed to the independence problems the profession is now facing.
We also face the problem of attracting talented graduates to the profession in the face of the lure of Internet companies and high salaries. Perhaps, as an exception to what many young people are doing, I came into accounting wanting to be an auditor, and I like what I am doing. Not only do the numbers appeal to me, but I also enjoy the dynamics of interaction with clients and staff—the people part. I may consider another career path one day, but, with Y2K behind us, I don’t think the consulting side will continue to grow as fast as it has—the opportunities there will be fewer. And I think that if the market takes a serious downturn, a lot of the people that left accounting for the Internet companies or the financial markets will come back to accounting—or at least try to come back.
Jeffrey M. Weiner: Technology and demographic changes have had tremendous impact. CPA firms are competing for talent with companies and positions that didn’t exist 20 years ago. Consulting and Internet firms can attract people with higher salaries and benefits and the lure of stock options.
One recent change is less fee pressure and competition among accounting firms. I just don’t see the low-balling that was so prevalent 10 years ago. Part of that is good, and if we play it right, it’s all good. For example, I see nothing wrong with paying accountants just out of school at or near the $100,000 level, as long as it can be translated into the billing rate. That kind of dramatic change will attract the talent we so desperately need. We will have to couple the higher salaries with improved productivity, but that’s where the technology comes in.
Hand: As the only CPA here from industry, I have to say, Jeff, you’re killing me! How can the audit client and the overall market afford the level of fees that would result?
Weiner: Clients will benefit from the higher quality people the higher starting salaries will attract. The economy is strong, and we as a profession should take advantage of it to contribute to financial success at all levels.
David A. Lifson: The way our business has changed must be examined from two perspectives: the business we do, and the way we do business. In 1984, I discussed with my partner what we saw as the changing landscape of the way we should do business. We realized the classic Big Eight model—eight staff people for each partner—wouldn’t work with our client base. We installed a Novell computer network and leveraged our efforts not by a multiple of people but by a multiple of computer power.
That model, much flatter than that of the large firms, is still working for us today. The busywork is being done by computers. This should make Michael very happy. When Jeff Weiner hires someone for $100,000 and equips that person to come in and do work, he will be getting a better deal than he would have 10 or 15 years ago.
Hand: But if public accounting starting salaries are reaching $100,000, what will that mean to industry? What will our salaries move to? Will we lose the competition for excellent entry-level candidates?
Lifson: Leveraging the technology should also work for you.
Weiner: My example of what starting salaries should be is exaggerated to make a point. We currently are paying entry-level people in the $40,000 range, and that is quite reasonable. But the shortage of people in the middle experience range is driving their salaries much higher. That is where the action is now.
Knowles: Starting salaries at Big Five firms, from what I’ve been told, are in the $43,000 to $46,000 range, with more for a master’s degree.
CPA Journal: Jeff, as an example of a successful local firm, how has your firm changed over the last 10 years or so?
Weiner: Ten years ago, our firm was probably 20 people, and now it’s 170, including strong growth in the traditional areas of accounting and tax work. But approximately 20–25% of staff are now doing what might be considered nontraditional services. We have people with Series 7 securities licenses, insurance licenses, and even certified network engineers. We even do some marketing for our clients. We operate through multiple entities: The accounting firm is an LLP, and the various other service entities are LLCs owned by the LLP. Whatever our clients need—SEC registration statements, group insurance, managing a pension fund, auditing, taxes, payroll, back-office accounting—we can do it for them. Diversification isn’t for every firm but for some firms it can be very successful.
CPA Journal: What about changes in the tax area and what they foretell for the future? Haven’t they been just as dramatic?
Lifson: Not from my perspective. The way we do business has changed. We spend virtually no time on tax compliance work, because computers and the Internet have replaced the pencil pushing and waiting for deliveries from Texas. We have compressed the time to mechanically comply. But to address the substance of transactions and the benefits of planning is more complex and takes more time. We are spending the time adding value to the advice and counsel we give and the quality of our thinking, and I suppose we are bringing some value to the IRS by helping our clients comply.
Cohen: In today’s paper, another of the major investment houses is advertising free online tax return preparation. Will that and low-cost tax preparation software change what you do?
Lifson: I tell those that want to use those sources to go and enjoy. The thought process is the work. I recently testified before the Senate Finance Committee. John Breaux asked whether computers and e-filing would put CPAs out of business. I responded, “e-filing is good—please, do it!” It’s not the processing of the return that is complex. It’s the complexity of the IRC and fitting the client’s tax-risk profile with the rest of its business profile that is the challenge. That’s what the majority of our clients and those of other firms want from CPAs.
Weiner: Our tax practice has also changed substantially, and we’re now doing the more sophisticated work. But ours is more of a corporate tax practice coupled with estate and trust planning for corporate executives. Our clients are not moving to some free online gimmick. I think the H&R Block type of practice could be impacted by the freebies. The amount of wealth that a lot of people have accumulated over the last 10 years is leading to considerable planning needs.
CPA Journal: Michael, how has what you do changed over the last 10 years?
Hand: On the industry side, the changes that are occurring include mechanically speeding up routine matters, such as month-end and year-end closings. But even more important, on the human side of the equation, we are now replacing number crunchers with “new finance” types that bring analysis, inquisitiveness, and a sort of “business intrusiveness” to their jobs.
CPA Journal: Are we better off than we were 10–15 years ago?
Newman-Limata: We’re better informed—that may or may not be the same as “better off.”
Hand: I definitely think we’re better off. Through technology, we now have quicker and more accurate information. The new challenge is to find the “right” information quickly. Through training, we now have individuals that are more business savvy—more attuned to what makes business “tick”—than they were 15 years ago. These changes make our jobs more challenging and our lives a bit easier.
CPA Journal: Are we more prosperous?
Weiner: There is no doubt about that.
Cohen: On behalf of small practitioners I must speak out. Many of them feel they’re becoming irrelevant. They face competition from investment houses with their offers of free tax return preparation, they are seeing public companies buying accounting practices, they feel their interests are not represented by their professional associations, and they feel frustrated because they can’t keep pace with technology. These are difficult times for the small practitioner.
Newman-Limata: Is that because they can’t afford things like technology, or is it because they’re unwilling to move off the mark of what they know and are comfortable with?
Cohen: I think it’s a number of issues. First, it’s the dollars to bring in technically competent staff. Small local firms can’t compete on salary. Second, there is a lack of support. Small firms can’t do it by themselves.
Weiner: They can join alliances and develop virtual offices to help them in specialized areas. Technology is cheaper than it has ever been. They have the opportunity to do more for their clients than ever before.
Newman-Limata: Speaking as an officer of the NYSSCPA, I think we owe our members a certain level of support. We could probably do a better job of helping smaller-firm members get the right courses and buy the right technology. The NYSSCPA now has a great website thanks to membership efforts, with more than 1 million hits. Five years ago, our society’s use of technology was very primitive.
Cohen: The small guys are finding that they have to be more diverse. The question is, what do you have to hold onto, and what do you have to give up? Do you try to market and deliver the stable of new services the AICPA has developed—WebTrust, SysTrust, ElderCare, and the like? Or do you stick to what got you there—independence, objectivity, and the basic services?
Newman-Limata: The core competency is assurance. Since 1983, we’ve had the ability to say, “Michael, your financial statements are fairly stated in all material respects.” But financial statements are no longer the only area where we can provide assurance. We need to expand the thinking. More and more people use the Internet every day. They want assurance that their transactions are safe, private, and that information is reliable. What more could the profession ask for? The AICPA had the right idea with WebTrust. There are questions about the product that resulted from that thinking, but it was on the right track. We are the ones people will trust to provide assurance on transactions and information over the Internet. That’s where we should be headed.
CPA Journal: That’s a good segue to talking about the future. We have seen profound changes over recent years, and the profession is being reshaped and redefined. What do the next five years look like for you, and how must you change to benefit from what will be happening?
Knowles: I think the small practitioner faces the difficult task of dealing with increased competition from the consolidators that are seeking the same clients. In addition, all companies are seeking a presence on the Internet and will be looking for help. It is up to the small practitioner to be there first. Clients are growing fast and getting into new areas. It will be very hard for the small practitioner to have the resources to help those clients. I think we’ll see further consolidations among smaller and mid-sized firms.
Weiner: If all small firms had focus and found their niches, they wouldn’t have that competitive pressure. There is a place for boutique operations, like Eric’s. Trying to be all things to all people can lead to defeat. So there is a place for the small practitioner. But they can’t be afraid. Large firms can’t practice the way they used to, either.
Cohen: The Internet is my virtual firm—I can get information for clients almost instantly. The Internet is how I communicate with people. The Internet is the “Revenge of the Lilliputians”—it gives the small person a connection to the world. I leverage myself by knowing more about how to use the technology and how to use the Internet for marketing. Clients find me via the Internet. In five years, I want to be part of the Internet infrastructure, with myself connected through virtual relationships and with a virtual staff.
Knowles: I haven’t decided yet about my next five years—public, or industry? For now, I’m planning on going back to school to obtain an MBA.
Weiner: Five years from now, we want to be the dominant financial services firm in the New York area among mid-market firms.
Hand: In five years, I see myself and my colleagues even more reliant on technology. We will use the Internet to get better data faster. We will, perhaps, close the books weekly versus monthly. We may even take snapshots of key data daily versus monthly or weekly. We will be even more proactive than we are today. But, the downside is the obvious lessening of face-to-face, personal contact. Voicemail and e-mail unfortunately have made it too easy to not have that personal interaction. That’s part of the challenge for the next five years.
Newman-Limata: In five years, I think I’ll still be focused on accounting and auditing, but not the kind we’re used to now. I think we’ll be providing assurance for transactions taking place in virtual reality. I think we’ll be looking at financial statements probably not so much at a point in time but at the flow of financial transactions. We will be adding value to clients in mitigating risk—providing assurance in many new ways, focusing more on the present than on history. The 10-K annual report is history by the time it’s printed, and fewer and fewer people care about that history. They care about what’s coming down the pike and what the analysts will see tomorrow. Investors want to know that information as it comes out can be trusted, and that’s where we add value. I’m not talking only about the large firms. The beauty of the high-tech environment is that a one-person boutique with the right setup can do it.
CPA Journal: The large firms are spending enormous amounts on new product development. How will the small firms compete?
Newman-Limata: Thinking is free. If you have a good idea, implementing it isn’t that expensive. If you look at the Internet, many of its successes are an idea and a webpage.
Lifson: In delivering business assurance services, there’s no patent on ideas. Our mission is to maintain objective business assurance services across the board—tax, audit, accounting—with no stake in the game. We don’t want to sell stocks or insurance—we want to advise people, with objectivity and credibility.
Weiner: In my firm we don’t have accountants selling these products. We have insurance people selling insurance. We have computer experts selling computer consulting. We have licensed, trained financial people advising on investments. Many people make the mistake of thinking accountants can sell these things.
Lifson: There’s a tussle among personal financial planners between being sellers and being planners, in the “fee-for-service” area. My clients want objective, nonprejudicial advice without any ties to a product. If they want me to be compensated through commissions rather than a fee, I tell them, “I’m not the right person to help you—I can’t do much for you here.”
Weiner: On the other hand, there are times when clients are seeking solutions that involve a product, and that client would prefer that the CPA be in part compensated through the purchase of that product. There is a client need here and we have the trained people, properly licensed, to serve in that way. I would like to point out, however, that the vast majority of the services we provide are on a fee-only basis. There is a place for both. And we do very well in the compliance area. Five years ago we had two SEC clients; now we have 15.
CPA Journal: The prosperous future that we are hearing about will depend on the intellectual capital of the firms just as much as the financial capital to invest in technology and facilities. How will you obtain this intellectual capital to perpetuate your organizations? Or is the answer, “When you go, it’s over”?
Newman-Limata: Fifty percent of the people coming to PricewaterhouseCoopers are coming in as advanced hires. Computers are replacing entry-level people, and we’re looking for people with knowledge. We can create knowledge by growing entry-level people or by bringing in experienced people. Auditing is not rocket science—it’s training.
Weiner: Not all the professionals in the firm have to be CPAs. At our 170-man firm, we need a handful of CPAs to do the signing of reports. Don’t get me wrong, we encourage all our accounting professionals to become CPAs—but there are other options. And we will have to compete with the other professions and business opportunities that at the moment seem more attractive. The 150-hour requirement will serve to increase the cost of CPA candidates.
CPA Journal: Without question, getting good people is the No. 1 challenge facing the profession. Employers and firms will have to be creative and innovative to bring the talent to their organizations. What other challenges exist?
Cohen: Technology is the other obvious challenge. The Gartner Group says 70% of Internet ventures will fail. We have to have core competencies in this area. The profession must get over the fear of getting involved. Right now, the NYSSCPA Emerging Technologies Committee is working with local colleges and universities to help students become technically prepared. In many companies and firms, executives are now expected to be self-reliant in terms of using office technology, but many grew up figuring they would have administrative assistants to do everything for them. Now everyone needs to communicate by e-mail, do their own spreadsheets and correspondence.
Knowles: With today’s complicated computer systems, an audit can’t be done without the systems consultants being involved.
CPA Journal: Is it fun being a CPA? Are you positive about the future?
Knowles: As long as people are impressed with you being a CPA, it’s good. I’m still getting that reaction.
Hand: Being a CPA is very rewarding. It’s given me the opportunity to work for some terrific companies, visit some interesting parts of the world, and work with many wonderful people. Overall, it’s been a positive experience that I would not trade for anything.
Lifson: I think the most fun thing is to rebut the stereotype of the CPA, because I know how untrue that stereotype is. We have to be careful, though: Do we want to stay in this profession, or be in a derivative business? We need to stick to our core competencies and maintain the public trust in our independence and objectivity.
The CPA Journal is broadly recognized as an outstanding, technical-refereed publication aimed at public practitioners, management, educators, and other accounting professionals. It is edited by CPAs for CPAs. Our goal is to provide CPAs and other accounting professionals with the information and news to enable them to be successful accountants, managers, and executives in today's practice environments.
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