AICPA ENGAGE brought together six conferences in Las Vegas for a massive event that featured experts in accounting and audit, accounting marketing, estate planning, personal financial planning, tax strategies for high-income individuals, and technology. A small sampling of guidance from the conference's speakers is presented in this article.
By Lou Carlozo
By strict definition, blockchain is a global digital ledger of economic transactions that is transparent, continually updated by countless users, and considered by many as almost impossible to corrupt or hack.
But in the broader sense, blockchain is also a lightning rod for highly charged opinions, confusion, and even fear. Some argue that blockchain will completely transform finance, accounting, and auditing. Others are decidedly more circumspect regarding its impact. And a certain segment is nervous, not knowing whether blockchain will make portions of the accounting profession obsolete—perhaps large ones, specifically as it relates to the current audit and tax practices focusing on compliance.
"I don't think it is going to cut our profession out," L. Gary Boomer, CPA/CITP, CGMA, former CEO of Boomer Consulting, and now the company's strategist and visionary, said in an interview. "But one of the things we have in our profession is the Rube Goldberg machine: A lot of processes that maybe don't add value. If you're not adding value, you'd better figure out how you're going to provide value in the future."
As one of many speakers presenting at the ENGAGE conference, Boomer said CPAs would be wise to learn about blockchain quickly. Boomer highlighted a number of crucial concepts that help explain blockchain and give insight into its value propositions for the accounting profession.
- Blockchain is secure and immutable. "While everyone thinks of the internet as public, blockchain protects transactions and increases the security and privacy," Boomer said. In theory it cannot be hacked because that would require overpowering all the computers that contribute to and update the ledger network—a feat akin to hijacking the entire internet.
- Think of blockchain as the "internet of value." As opposed to focusing on the exchange and transmission of information, the internet of value centers on transactions. That concept also gives a clue to where blockchain's impact on accounting will be felt first.
- Blockchain data will create new business opportunities. Boomer noted that because the speed of transactions on blockchain is increased significantly, "this has value for the audit, which is typically performed months after the fact. It will be faster and cheaper, but I don't think auditors should throw in the towel."
Instead, they will need to develop a more datacentric approach. "They have to be more involved with the data and use it with a forward rather than historic perspective," Boomer said. "The result is a higher-valued service."
Full story: journalofaccountancy.com
DIGITAL DISRUPTION CREATES OPPORTUNITIES
By Russ Banham
To add value in this era of digital disruption, CPAs must understand how different technologies are transforming their clients' businesses. This is not a once-and-done exercise, due to continual technological ingenuity and innovation. Audit and advisory firms simply must keep abreast of all current and burgeoning innovations.
Audrey Katcher, CPA/CITP, CGMA, a partner in RubinBrown's Business Advisory Services Group, spoke on the top six transformative changes in companies that are driven by technology:
- Governance complexities. In many organizations, cybersecurity is "owned" by the IT function, which is tasked to implement, supervise, and maintain new systems and applications. Today, cybersecurity must be owned by the entity itself, because the location, accuracy, and security of a company's data, and the resiliency of its network to withstand cyberattacks, represent a business and compliance issue of importance to senior executives and board members. Cybersecurity involves more than just technology networks and systems, given the people and processes that may inadvertently make an organization susceptible to a cyber-attack. Cross-collaboration across the enterprise is essential.
- Cyber everything. Technology is embedded deeply across every company today, producing a fast-changing array of cybersecurity risks. "Cyber is in everything," Katcher said. "Although technology itself is becoming more secure, the weakest link remains people, followed by inferior processes for attack detection, system recovery, and crisis management."
- Here, there, and everywhere data. Every company has what IT professionals call its "crown jewels"—highly sensitive customer data such as credit card numbers or proprietary business information. Unfortunately, many businesses have not identified their crown jewels, much less who is allowed to access these data and on which types of devices. "If you don't know where the critical information is, how can you secure it?" Katcher said.
- Full transparency. The transparency of cybersecurity risk management is important for the good governance of all business entities. Corporate leadership seeks transparency into business and market data to increase the speed of operational decision-making. And boards of directors expect accurate reporting on the security of the organizations they serve.
- Reporting on steroids. Reporting used to entail an analysis of the financials and the application of judgment. Today, accurate reporting depends upon how the data are input, processed, and stored, and the security risks presented in each scenario. "Simply stating information and reporting that the data is accurate no longer is enough," Katcher said. "CPA firms must provide evidence demonstrating that a client's data is complete, accurate, valid, and secure."
- Skill set shortages. With technology increasingly driving how business is conducted, the tasks traditionally performed in the work environment are rapidly changing. Augmented intelligence, machine learning, robotics, and other transformative technologies are combining in unique ways to replace some jobs, augment others, and demand the development of new skills. The challenge for many organizations is the dearth of talent to fill these roles.
Full story: journalofaccountancy.com
FUTURE OF THE AUDIT
By Liz Farr, CPA
The basic methodology for auditing hasn't changed significantly in decades.
Today's auditors essentially create paperless versions of what they have done with paper and pen since auditing began. In the future, there will be more opportunities for practitioners to provide insights that will help clients build better businesses.
"When the firm is not using any of that knowledge to provide insight about the business, it is no wonder the audit is seen as a commodity. Because how valuable is a December 31, 2016, financial statement that is issued on May 24, 2017?" said Alan W. Anderson, CPA, founder of ACCOUNTability Plus LLC.
In Anderson's vision of the future of auditing, "we're making time and room for insight. And insight, by the way, not only adds value to the client, it actually results in a better audit."
Trends in auditing in the future, Anderson said, may include:
- The virtual audit. A virtual audit turns the practice on its head: The work that's usually done in the field is done virtually in the office, and the wrap-up phase, which is normally done in the office, is done in the field. Rather than traveling to a client's offices, the auditors perform the routine work of examining the client's documents in the auditors' office using information uploaded to a secure portal. Once the routine tasks are completed, engagement leaders visit the client for the wrap-up phase.
- Continuous auditing. Continuous auditing involves frequent monitoring throughout the year to ensure that transactions are captured properly and are flowing correctly to the income statement. The balance sheet serves as an anchor at the end of the period. A few firms are implementing this by performing quarterly mini-audits. Frequent, smaller audits level the firm's workload and reduce the busy season time crunch. These firms don't need as many employees, and those employees may not need to work as many hours. Virtual audit techniques can be combined with this.
- Data analytics. Anderson believes that data analytics will be the foundation of the audit of the future. Using existing technology, auditors examine a client's transactions to spot trends. For example, a customer whose previous on-time payment suddenly slows to 10 days late may signal a risk of default.
According to Anderson, a key for the future is learning to communicate and work virtually with your clients. Being familiar with this technology "positions you for the audit of the future. Because [in] the audit of the future, with artificial intelligence and analytics, a lot of that ticking and tying will be done internally."
Leveraging technology to provide greater insights provides more value to the businesses being audited. But it will also require time and commitment from firm leaders to change workflow habits and firm culture.
Full story: journalofaccountancy.com
REINING IN BEHAVIORAL BIASES
By Allan Kunigis
Once investors recognize the emotions and biases that drive their behavior, they can work to counteract them, Jay Mooreland, a behavioral coach for financial planners, said in a telephone interview. He uses psychology to give advisers the tools and skills they need to help curb clients' most dangerous behavioral biases and prevent them from making costly mistakes.
Behavioral biases are based, in part, on the mental shortcuts everyone tends to take to simplify decision-making, along with other emotions that can trip people up. Some of the main biases that affect investing, according to Mooreland, are:
- Overconfidence. People often think they are smarter as investors than they actually are, which can lead to disastrous results.
- Anchoring, or using irrelevant information as a reference for evaluating other information. For example, because a stock had been at a certain price before falling, an investor might assume it will rebound to that price, even if a rational analysis would conclude otherwise.
- Herd behavior, or being so fearful of making a decision outside the norm that a person opts for an ill-considered or riskier conventional choice. A salient example is the herd mentality that typified the dot-com bubble of the late 1990s and how even rational individuals and portfolio managers were swept up in it. The challenge is to maintain an individual viewpoint at a time like that.
- Regret avoidance, or when people refuse to admit to themselves that they've made a poor decision so they can avoid the unpleasant feelings associated with that admission. Regret avoidance can come into play when investors refuse to take corrective action rather than admit they've made an investment mistake.
To help keep clients from making emotionally charged investing mistakes, Mooreland said, financial planners need to understand these behavioral biases, identify them, and work to counter each of them.
Full story: journalofaccountancy.com
THE BEST OF CLIENTS, THE WORST OF CLIENTS
By Cheryl Meyer
Managing clients is tricky business. Some clients are interested in many services and pay on time. Others use just one or two services but still bring in profits. And then other clients complain, treat employees badly, and pay late or not at all.
In a telephone interview, Jamie Thomas, director of marketing for BDO USA LLP's Southeast region, offered these tips to firms that want to better manage their clients:
- Determine your sweet spot. Firm leaders should begin their "effective client management" process by focusing on their specialties, strengths, knowledge base, and experience.
- Build your profile and focus on profitability. Firms also must understand their practice client mix. Create a spreadsheet, slides, or a chart "so that you understand the majority of your successes and where your revenue is coming from—and then you can go out to market and find more of that," Thomas said.
- Retain your best and profitable clients. While all clients require attention, firms should provide their best clients with a top-notch experience. The best clients are the ones who generate revenue for the firm, treat staff well, and are pleasant.
- Grade your clients. Firms also need to look at their total client base and essentially "grade" them on an "A to F" scale, Thomas said. Criteria for grading vary, depending on what makes sense for each firm.
- Develop cross-servicing initiatives. CPA firms should also determine which existing clients could benefit from other offerings. Create a cross-servicing spreadsheet listing all your firm's services, such as estate planning and consulting, on the top of the grid. On the left side, list all the clients in your particular niche. Then place an "x" in each client's box if there is a service that client doesn't need. When you are finished, look at each empty box to get an indication of where you could potentially sell additional services, Thomas said.
- Develop your niche. Once firms have outlined their strengths and areas of specialty, and their ideal customer profile, they need to actively develop their niches to gain new clients.
- Cultivate referral sources. Firms should also actively seek out other professionals—such as attorneys and bankers—who may have ideas and connections. Meet with these professional leaders and question whether your firm and theirs can work together.
- Do market research. To gain new clients, firms also need to research their market. If your firm's niche is construction, uncover construction companies in your area that have yet to be tapped.
- When necessary, let clients go. Clients that fly solo, bring little to no profitability, and don't value your service may need to take their business elsewhere, particularly if they are difficult and tough on your staff.
Full story: journalofaccountancy.com
To comment on this article or to suggest an idea for another article, contact Ken Tysiac, a JofA editorial director, at Kenneth.Tysiac@aicpa-cima.com or 919-402-2112.
Articles from ENGAGE
- "Preserve Family Wealth—and Your Practice—by Engaging the Next Generation," June 14, 2017
- "Create a Workplace Where Employees Want to Stay," June 14, 2017
- "Technology Trends for Accounting Firm Leaders," June 14, 2017
- "Furious Rush of Digital Disruption Creates Opportunities for CPAs to Help Clients," June 13, 2017
- "Cognitive Impairment Does Not Necessarily Have to Derail Your Clients' Planning," June 12, 2017
- "How to Improve Audit Planning Effectiveness and Efficiency," June 12, 2017
- AICPA ENGAGE 2018, June 11—14, Las Vegas
For more information or to register, go to aicpastore.com or call the Institute at 888-777-7077.
- Client evaluation tool, AICPA Private Companies Practice Section toolkit, aicpa.org/PCPS/quality
- Sample client disengagement letter, aicpa.org