ADVERTISING. The word conjures up various perceptions in the minds of CPAs. The movement by CPAs toward accepting advertising as an everyday business planning tool has been discussed and written about in a variety of forums. Nevertheless, advertising is still perceived by many CPAs as a "non-professional act." Even though this perception may have limited the growth of advertising within the accounting profession, certain advertising techniques are being introduced and are growing in popularity with CPA firms. Radio, television, newspapers and specialty advertising are becoming acceptable mediums for selected target markets by firms.

Historical Perspective

The Accounting Profession. Historically, the AICPA's Code of Professional Ethics prohibited members from advertising. However, due in large part to pressures created by a Supreme Court ruling in 1977, the AICPA amended its bylaws on March 31, 1978 to permit advertising that is not "false, misleading or deceptive." The bylaws suggested the kinds of information (i.e., name, address, services, fees, and education) that CPAs could provide the public through advertising. These limited prohibitions were removed one year later because of their unenforceability. However, for approximately the next 10 years, the profession was reticent in its use of advertising. The reasons given for not advertising to a greater extent focused on professional issues, perceived adverse client reaction, and high cost.

As CPAs began to offer a greater array of services which, for the most part, have proven to be very profitable, firms changed their attitudes toward advertising. For example, consulting and financial planning have become acceptable and profitable services for CPAs to offer to their clients. This new attitude is evident by one large firm's extensive radio campaign to promote their financial consulting services. Other major accounting firms also are producing television advertisements to be aired on the Financial Cable Network. While the Big Six are starting to become more bold in their advertising programs, an advertising coordinator noted the real development in the advertising area has not been with the larger CPA firms. In his view, smaller CPA firms are using advertising to acquire a segment of the financial planning market for themselves. As a result, the most significant changes are taking place with the smaller CPA firms.

The Legal Profession. Other professions have also experienced the impact of widespread use of advertising. Specifically, the legal profession has become more concerned with marketing activities. As noted, the 1977 U.S. Supreme Court ruling of Bates v. State Bar of Arizona held that the old restrictions on lawyer advertising violated the protections given free speech by the First Amendment.

It did not take long for lawyers to digest the changes brought about by Bates and to further explore the limits of advertising suggested by that case. It did take some time, however, for state bar associations to discover and rule on the propriety of the forms of attorney advertising which quickly appeared. For a number of years the state bar associations tried to limit the scope of advertising. Most of these attempts were unsuccessful, for the courts held that a State could not discipline an attorney for truthful advertising. Currently, the legal profession has few restrictions on the form of advertising. With the lifting of the constraints that did exist, lawyers have begun an active campaign to notify the public of their services. In fact, some state bar associations have begun running institutional ads on television that recommend services of lawyers.

Assessment of Current Developments

In order to determine the current attitudes of CPAs about advertising a questionnaire was sent to CPA firms and sole practitioners selected on a random basis from the 1987 edition of Accounting Firms and Practitioners, published by the AICPA. So larger firms would be included in the survey, questionnaires were also sent to the 20 largest CPA firms, as measured by gross billings. The survey response rate (522 questionnaires were mailed with 182 responses) was over 35%. The survey was conducted in early 1988 and included all major geographic regions of the U.S.

The questionnaire was designed to address two specific areas of advertising. The first part addressed demographic questions. Each respondent was asked to answer questions about the number of professionals in the firm, the firm's perceptions concerning competitors' advertising, and whether the firm currently advertises. The second part, which was completed only by those respondents who indicated that they advertised, addressed the reasons why they advertised and the advertising media they used. Again, the respondents' strong interest in the subject of advertising was revealed by elaborate responses to open- ended questions.

Findings

Advertising by a CPA firm can be an effective means of informing potential clients of available services. One of the questions addressed by this survey was whether the size of the CPA firm had any impact on the firm's use of advertising. A CPA firm was classified as small if it had less than 10 professionals, or large if it had 10 or more professionals employed. On this basis, 81% of the firms were classified as small, and 19% were classified as large.

As shown in Exhibit 1, 19.7% of the small firms advertised, as contrasted with 35.3% of the large firms that advertised. The written comments made by the respondents indicate that the variance in the percentages was based not only on the more limited resources of small firms, but also on the perception of small firms that limited tangible benefits would be obtained from advertising.

Another issue addressed was the relationship between CPA firms that currently advertise and their perceptions concerning whether their competitors were increasing their advertising expenditures. As Exhibit 2 shows, 63.4% of the firms that advertise felt that their competitors were increasing their advertising expenditures. In comparison, 39.3% of the firms that do not advertise perceive that their competitors were increasing their advertising expenditures.

A further breakdown of perceptions concerning advertising by competitors by size of firm showed that a greater proportion of large accounting firms perceive their competitors to be increasing advertising. Responses from smaller accounting firms were mixed.

The findings suggest, as one advertising executive for a Big Six firm stated, a "me too attitude" has developed in the large accounting firms. While this statement may in fact be true, the respondents who advertise when asked to identify, in order of importance, reasons why their firm advertised did not put that at the top of the list. The results, which are shown in Exhibit 3, to no one's great surprise, disclosed that "to gain new clients" was the most important reason that firms advertised.

While both small and large accounting firms want to "gain new clients," the large firms indicated on their questionnaires that they have identified target markets, specifically the customer who is small but may have future growth potential. Finally, among the reasons given by those who selected "other" as the primary reason for advertising were to enhance the firm's image in the community, to provide potential clients with "name recognition" and to promote professional goodwill.

In the last set of questions, the CPA firms that did not advertise were asked to identify the reasons why they chose not to advertise. As shown in Exhibit V, 43% of the firms that did not advertise felt the image projected is "not professional." Further, 29% of the firms that did not advertise stated that advertising was or would be "ineffective" for their firms. Many of these firms indicated that they had advertised in the past, but felt they had received no tangible benefits from the activity. One respondent noted that they had once used advertising copy developed by an experienced advertising agency, but found it to be very ineffective. Another respondent stated, "The bulk of our clients are high income professionals who would be offended if our firm advertised."

Only a small percentage of the firms that do not advertise feel that advertising is too costly" (8%) or requires "too much time" (16%). A recurring theme of these respondents was that they were already too busy and did not need the increased workload. Finally, of the 14% of the respondents who stated that their firms do not advertise for other reasons, many referred to the potential adverse effects of advertising on the firm's independence.

Conclusion

Three important observations concerning advertising by accountants and the accounting profession were noted by the researchers:

1. Smaller CPA firms do not advertise as much as larger CPA firms. Their reasons centered around the conservative nature of the practitioner (i.e., advertising is not perceived to be professional) and financial limitations.

2. Small and large CPA firms that perceived their competitors were increasing advertising expenditures have a greater likelihood to advertise.

3. Small and large CPA firms that advertise have a great interest in gaining new clients.

In spite of the great liberalizing of advertising rules, relatively few accountants advertise in the print media and almost none utilize television or radio. While these statements are true, the authors believe that the accounting practitioner who recognizes what is permitted in terms of advertising and who understands the traditional restraints on services and pricing will be in a position to capitalize on this knowledge. He or she can use this knowledge to develop a marketing strategy which will make him or her more competitive. Exhibits 1 to 4 Omitted

William D. Cooper, CPA, Associate Professor at North Carolina A&T State University; Sarah Dunn, Doctoral Student at Florida State University; Mark Kiel, CPA, Associate Professor at North Carolina A&T State University; Benton Miles, Professor at University of North Carolina, Greensboro; and William C. Weeks, CPA, Partner with Brigman, Halcomb and Weeks, Greenville, SC