Making It All Add Up

Sweeping changes in the field of accounting may test the managerial skills of executives at firms large and small. But in general, they’re contributing to a more competitive and efficient sector, with a potential savings for client companies

Roughly 14 years ago, when Matt Robertson started at the St. Joseph offices of what is today CliftonLarsonAllen, a new push was coming down the accountancy pike: The paperless office. It didn’t catch on quite as quickly as the visionaries had suggested, but what passed for technology in those days has been replaced by truly efficient, mobile accounting tools that have made the paperless operation a reality. There are good things about that, and some things not so good.

“There was a time when client service was more based on the fact that we can get to your stuff immediately—there was no need for paper files, we had e-mail and Excel files, etc.,” says Robertson, managing partner for the firm’s office in St. Joseph. “The last few years, with the way technology has changed, for us to be a premier accounting firm, we’ve kind of gone backwards a bit.”

Those tech tools, Robertson said, have come with a cost. “You have to be aware of the fact that your client doesn’t have the personal interaction with you that they used to have,” he said, and one reason for that was a drop in face-to-face interactions because of the ability to do business remotely. Clients began to clamor for the kind of hand-holding and day-to-day interaction they used to get in a pre-paperless world. Sure enough, technology addressed that, as well. “With smart phones and people communicating through social media and Facebook, to me, clients reaching for that level of service again. You have to be careful about losing that personal communication with clients.

Rapid technological change is just one of the megatrends at work in the field of accounting, some of which, as with new layers of regulation, impose operational challenges. Others, though, are increasing the efficiency of operations at firms—and by extension, their ability to provide more competitive cost structures for clients. Among them:
•    Increasing demand for tax and advisory services from domestic companies exploring entry into foreign markets.
•    Demand for additional consulting services as small business owners try to navigate the dizzying regulatory maze of federal health-care reforms.
•    And for many firms smaller than the Big Four, recruitment and retention issues that are becoming more acute as accountants from the leading wave of Baby Boomers themselves retire, or start winding down their careers. That’s creating not just challenges in structuring new relationships but in safeguarding those relationships when clients see the retirement of a long-time trusted adviser as an opportunity to see what competing accounting firms might have to offer.

Accounting firm executives say all of those factors, and more, amount to interesting times in their field—interesting times, that is, as in the reputed Chinese curse. Many of the factors contributing to that are the result of your tax dollars at work: Considerable levels of federal regulation. Again, though, that isn’t all bad.

“Any time there’s a change, opportunities arise, and that’s certainly been the case with the Affordable Care Act and its impact on business,” said Abe Cole, who’s with the Kansas City office of Springfield-based BKD.

“The ACA impacts all of our clients in some shape or form, so we spend quite a bit of time helping clients evaluate the health-care plans they offer.”

The hardest part of that challenge, Cole noted, is kicking the advisory ball at a moving set of goalposts, given the considerable number of delays that have been issued during the first year of the program’s rollout. Now, key elements don’t kick in until 2015 and beyond.

“We’ve helped them navigate rules, look at IRS regulations and tried to provide guidance on the tax aspects health-care
reform,” Cole said. “Because it’s so complex, we’re really seeing a lot of our clients looking at their whole business model and determining if there need to be modifications to be successful under ACA.”

As an example, he cited rural hospitals that are looking at different strategies to maintain market share, either with new services or new ways to structure existing ones.

“When the regulations are changing like this, people are unsure where things are going,” said Brad Sprong, Kansas City managing partner for KPMG.

“Change drives a ton of activity for us, both positive and negative.”

Global Impacts

If the experience at KPMG is an indicator, companies in the Kansas City region that are looking to expand into international markets are turning to bigger firms for that work.“The hottest area is regulatory change, but behind that, we see a lot of companies
wanting to expand,” said Sprong. “Whether it’s the widget maker or someone in professional services, especially those in
markets that have been going pretty well through our recession—Brazil, and even China with their growth rate down some is still double ours—there is a lot migrating toward where the opportunities are.

We have a strong international tax practice here, and advisory folks who help people trying to move into those markets.”
The challenge, of course, is that while global accounting continues to move toward standardization, tax policies vary wildly. But accounting firms that do tax work also have advisory services to help the domestic exporter understand the difference between doing business in Singapore and Sao Paolo. And the companies most likely moving into overseas markets, Sprong said, tend to reflect the current strengths of the regional business infrastructure—building and construction, agriculture and life sciences.

“We also see more on-shoring of supply chain, or near-shoring,” Sprong said. That trend is going on, but in terms of Kansas City companies wanting to do business offshore, we’re seeing more of that.”

BKD’s experience reflects the economic muscle flexed in the intermountain states. With offices in 15 states, running from the front range of the Rockies to the Appalachains, BKD nonetheless is growing in the global services arena.

“Definitely,” said Cole. “This is one of our largest growth initiatives in the firm, and not only in Kansas City, but firm-wide. The world is getting smaller, and our clients are heavily involved in and are becoming more involved in international opportunities, so we need to be very focused on keeping up with their needs. Especially with the international tax resources we have.”

Robertson’s office with CliftonLarsonAllen is in the heart of the animal health corridor between Manhattan, Kan., and Columbia, Mo. Global companies like Boehringer Ingelheim Vetmidica and Bayer Animal Health are strongly represented in the region, and are more typical of the kind of international business the firm deals with.

“The clients we have that are doing international have been doing it for a while,” Robertson said. “For us, there’s not a lot of new clients jumping in to tackle this. Most of our opportunities with that, especially locally, use our international tax consultants, a group that specializes in that. But the companies involved in that before the downturn are probably doing about the same amount of business, maybe a little less.”

The Boomer Effect
Accounting is subject to the same demographic forces pecking away at the overall work force, and a big concern
for the past generation, at forward-thinking firms, has been what to do about staffing from now through nearly 2030, when the last of the Baby Boomers turns 65.

For large firms, that’s not really an issue—like its biggest competitors, KPMG has a mandatory retirement age of 60, Sprong said. “It’s different from other professional services, like law firms, where partners may stay on,” he said, “but in terms of Boomers, with that structure in place, it has helped us in that regard. We don’t have 30 people at age 65 getting ready to leave the office, so we’ve had that succession plan built into the model.”

CliftonLarsonAllen has made a push in recent years to emphasize the need for transitioning work—and client relationships—to the next age cohort. “We don’t have a fiscal cliff, but almost an age cliff,” Robertson said. “Other firms may have done the same thing—you have to change the model of your hierarchy, the way the office is staffed.”

There once was a time in accounting, he said, when people would work until they longer wanted to deal with the hours or the type of work, or if they stayed on, made partner and remained there until retirement.

“The thing our firm has done is create new positions,” Robertson said, such as directors who may not have the status of a partner, but can help the firm execute a more seamless knowledge transfer when a partner retires. “A director is not a partner, but a permanent fixture in public accounting who can be an assigning director, a client service director, a technical director, and these people have a different model they can work under.”

They can be highly compensated, Robertson said, but don’t have the responsibility and the roles that a partner might have had—or all the hats a partner had to wear. “The goal with that was to go from a triangle, with partners, accountants and staff, almost to a square,” he said. “It’s a way, when partner are leaving, to transfer more knowledge to more people.”