Firm of the Future

As the inaccuracy of these early prognostication attempts became more apparent, humans began looking for sustainable, information-based ways to make more accurate predictions. What we found is that some systems are far too complex to predict with any real accuracy — take for example lottery numbers: some mathematicians argue there is no such thing as a “random” draw. Everything, they argue, happens according to some kind of pattern. It’s just that these patterns can be incomprehensibly large and complex by human standards, making them seem random.

Other predictions, such as those regarding weather, show greater success in spite of the massive number of variables that contribute to their outcomes. Meteorologists have employed technology to track these variables and to find cause and effect. As a result, we enjoy reasonably accurate weather predictions that become less reliable the farther out in time they go.

But the lottery and the weather represent two extraordinarily complex systems, both of which might yet be influenced by variables we aren’t even aware of. Simpler systems might not be simple, per se, but as the number of contributing variables fall and historical data increases, we can make increasingly reliable predictions as to what’s coming.

Think about how simple some of these predictions can actually be: do you think computer systems 10 years from now will be more powerful? Few would argue that they won’t be. Why? Because we have tons of historical data showing that computers continuously gain function and speed, starting almost from day 1 of the original room-filling behemoths like ENIAC and UNIVAC. We also know that market forces encourage greater computing power, and that the problems we’re using computers to solve are orders of magnitude more complex than even a few years ago. Put it all together, and it’s a safe bet that 10 years from today, the computers we use will be significantly more capable.

Believe it or not, there are some very safe predictions we can make about the accounting profession as well. At one time, Botkeeper even consulted some experts to get their takes on what the future of accounting might look like. We know that technology (broadly, with some specific instances having outsized influence), emerging services, and changes in labor practices and education all have had a major impact on accounting and the firms that practice it. And nothing in the data suggests any of these forces is going to be less influential in the future.

But there’s another component to the “Firm of the Future,” and that’s what we mean by “future.” Technically, just a second from now is the future. Predictions that short-term are, obviously, not very useful. But many firms see urgency in preparing for what’s coming. In that sense, we try to build the firm of the future today, setting up technology, people and processes that will accommodate us more fully down the road than they will today.

So which areas contribute most to the appearance of the accounting firm of the future? For that, we need to look at the current state of accounting. From there, we can tease out details and developments that give us some glimpses of the future. It’s true: accounting’s future might not be as difficult to predict as the lottery, but there are plenty of variables to track.

Accounting graduates, education, and the accountant supply

For some time now, organizations such as NASBA and the AICPA have been raising the red flag over falling numbers of accounting grads. That fall naturally leads to even fewer CPAs, which used to be the next natural step for any accounting grad.

A traditional accounting education is increasingly being seen (by students) as somewhat limiting — and a rise of MBA CFOs directly challenges CPAs on turf that was once almost exclusively theirs. Looking for a wider range of occupational options, students are flocking to the MBA, often in lieu of  the notoriously difficult CPA exam.

But is it really as bad as all that? The Bureau of Labor Statistics is calling for a 6% annual increase in employment for accountants and auditors. And if supply fails to meet demand, we know what happens — increased wages will attract more students to the profession, right?

Maybe not.

As it stands, attest services are the sole unassailable domain of the CPA, but most other services can be performed by an accountant or other kind of professional. So unless a student has a special interest in attestation, they might not even need an accounting degree to find themselves doing what has traditionally been accounting work. Recent graduates have cited a desire for exceptional work/life balance over salary, something the accounting field has never been known for — so money might just not be enough anymore.

Moreover, accounting firms — one of the most reliable employers of recent accounting grads and newly minted CPAs — are now hiring fewer accountants. In 2019, firms hired 30% fewer grads than they did in 2014, just 5 years earlier. This most likely stems from two things: the drop in available grads; and the rise of technology services needs at firms, which favor different certifications.

Accounting education itself varies greatly depending on what a student is planning to do with their education. Some jobs need only an Associate’s degree, while others need a Bachelor’s or Master’s degree and advanced certifications or licensures.

Traditional education has focused on teaching to the five types of accounts in accounting (assets, expenses, income, liabilities and equity), with practices and theories contributing in some way to one or more of these areas. In recent years, however, strides have been made in changing accounting education.

As a demonstration of accounting mastery, the Certified Public Accountant, or CPA license, has represented the pinnacle of accounting achievement. The notoriously difficult exam has focused on four areas: Auditing and Attestation; Business Environment and Concepts; Financial Accounting and Reporting; and Regulation. Since CPA licenses are granted by an authority in each state, requirements to sit for the exam vary slightly. All require a Bachelor’s degree and 150 credit hours (though some allow you to sit with 120 hours with the understanding you will complete another 30 hours post-exam). How many of those hours need to be accounting-specific also varies by state. The uniform CPA exam is developed by the AICPA, with assistance from and participation by NASBA and the state boards of accountancy.

With a broad range of educational requirements and applications paired with unprecedented demand, you’d think there would be a steady supply of accountants in the market, whether newly minted or experienced. Unfortunately, the last few decades have seen a decline in the number of accountants in the job market, for a variety of reasons.

1. As we already discussed, fewer students are choosing accounting degrees.

2. Also discussed, accounting firms are hiring fewer accountants.

3. A massive segment of existing accountants and CPAs are reaching retirement age

This third reason is especially problematic. Many of these retiring practitioners are sole proprietors, or principals of small firms of 10 or fewer employees. That means finding experienced accountants or CPAs to replace them will be extremely difficult, which in turn could drive or hinder merger and acquisition activity, depending on the dynamics of supply and demand.

For now, the number of new accountants entering the job market is not keeping pace with expected exits or the expected rise in demand for accounting services.

It’s not unusual for people not in the profession to be confused about the difference between being an accountant and being a CPA. The Venn diagram of this is simple: the circle comprising CPAs is contained fully within the circle comprising accountants. While the reality of this is simple to digest, the details of it might be a bit more muddy: CPAs and accountants have a common educational basis, with CPAs going on to more intense study and licensure.

Fewer than half of accounting grads go on to take the uniform CPA exam, and only about half of those pass all four sections. As the number of accounting grads has dropped, naturally so have the number of CPA exam candidates and those who pass.

The reality of this concerns everyone from educators to firm principals, and as wards of the profession, state boards of accountancy, NASBA, and the AICPA have been conducting analyses and studies to determine what needs to be done in education to encourage more students to enter the profession.

While on the surface this seems directed primarily at maintaining and/or increasing the number of CPAs, effective changes will benefit the broader profession and produce more accountants as well as more CPAs.

So what is it accounting needs to focus on as it moves into the future? Here are just a few of the areas education will need to pivot into:

1. Data analysis

As accounting firms veer more into advisory services, the ability to collect, sort, and analyze data to synthesize recommendations for clients becomes more important. Students will need to learn various software packages that assist in processing data, and then be able to apply critical thinking skills in teasing out the lessons the data teaches.

While many universities teach these skills to current accounting students, a large number still need to weave it into their curriculums. Firms will be seeking grads who bring these skills to the table.

2. IT audits, technology consulting and cybersecurity

Clients and firms both need reliable, secure technology to run their businesses and keep track of important records. Accounting students will need to understand how technology systems interact with each other and the outside world to determine that the information they transmit is secure from bad actors.

Additionally, they will need to determine that outputs from these systems are accurate and based on a transparent, reproducible process to ensure consistency across various uses.

3. Digital acumen

This term refers to businesses’ digital transformation, with specific emphasis on understanding how technology facilitates, empowers, and drives a business’ success while also future-proofing it.

Not surprisingly, a great deal of digital acumen involves understanding how to apply technology appropriately to solve business problems. Much of that comes back to data, which leads directly into data analysis.

Other areas educators are expected to need to cover include IT risks and controls, IT governance, SOC engagements, and predictive analytics.

If you see a theme here, you aren’t alone. NASBA and the AICPA have been working on the “CPA Evolution,” a plan to update how CPAs are trained and licensed. In the new model, all candidates would show mastery of a core competency set that includes accounting, auditing, tax, and technology. Candidates would then select from one of three disciplines, including information systems and controls, business analysis and reporting, and tax compliance and planning. The new test based on this model is scheduled to be available starting in 2024.

The hope is that these steps will serve to increase interest in the accounting field (and the CPA by extension), as well as better serve the competency needs of today’s firms. For now, the trend is suggesting flat to slightly increasing numbers of bachelor’s degrees in accounting, with drops in the number of master’s and doctoral degrees. But with firms hiring fewer accounting grads due to a gap in competencies (specifically regarding technology), it could be some time before we see these trends begin to head in a growth direction.

Enter emerging services. Clients’ and businesses’ needs are changing, with many looking to leverage the kinds of insights and advice once only available to the well-heeled. These Client Advisory Services (CAS) represent a relatively new space for accountants; one that’s the cornerstone of the firm of the future.

CAS services are rooted in client relationships, providing advice, counsel, data analysis and the synthesis of actionable intelligence. As the business and regulatory environments have become increasingly complex, expensive, and confusing, businesses have been seeking to farm out many of the tasks they once might have handled in-house. The firm of the future will fill this void, providing expertise in areas such as financial statement preparation, CFO/controller advisory services, accounts payable, forecasting/budgeting, 1099 creation and filing, and much more.

Building a CAS practice is about more than just adding services, however. A successful transition means likely changes to your processes, billing, labor allocation, and more. The firm of the future will emphasize soft skills, which will be of utmost importance in client interfacing — something firms will be doing more of in the very near future. Many already are.

Change isn’t going to slow down anytime soon, and client needs will evolve with the business environment. The firm of the future will keep its finger on the pulse of change, and will be prepared with appropriate services designed to meet the needs of clients, rather than maintaining a static set of services it depends upon for all its revenue.

For the time being, many firms will need to concentrate on evolving. While this might seem daunting, the good news is that the rewards prove to equal the work required. The firm of the future will adapt on the fly, project the changes that come to pass and be ready for them, and provide services that do more than just report on a client’s activities — they will drive them.