Many of the duties performed by accounting professionals are intended to bring a sense of predictability to businesses, clients, and the business world.
CPAs like budgeted amounts to match the actuals, forecasts to hit the target, rules to be easily applied, and financial statements to not lead to audit issues or restatements.
But 2020 is shaping up to be a year dominated by factors that are largely out of CPAs' control. In the AICPA Business & Industry Economic Outlook Survey for the third quarter of 2019, domestic economic conditions ranked higher on the list of businesses' challenges than at any time since the third quarter of 2016. In the same survey, domestic political leadership ranked higher on the list of challenges than at any time since the fourth quarter of 2012.
Meanwhile, until recently, respondents to Deloitte's CFO Signals survey said internal risks were more worrisome than external risks. In the third quarter of this year, that shifted. Amid uncertain U.S. trade policies, Brexit controversy, and worldwide economic turbulence, CFOs rated outside risks as more concerning than internal risks.
"This makes 2020 budgeting a real challenge," said Sandy Cockrell, CPA, managing partner of Deloitte's CFO program.
With these external factors in play, many CPAs are approaching the year with caution and conjuring memories of the tactics they used to stay afloat during the most recent global financial crisis.
The political turbulence of a presidential election year in the United States also is likely to affect hiring and investing.
"With 2020 being an election year and the uncertainty over the outcome of that election, I'm anticipating most companies taking a wait-and-see approach when it comes to investment and expansion," said Bob Sannerud, CPA, CGMA, the CFO of Life Link III, a provider of emergency air medical transportation in Minnesota. "It will be more of a stay-the-course year."
Here are some other things to expect as 2020 approaches.
ACCOUNTING AND AUDITING
Next year should be less frantic for many financial statement preparers as a result of FASB's delay in implementation dates for private companies and certain other preparers for accounting standards for leases, credit losses (known as CECL), and hedging.
But FASB proposed the delay with the idea that preparers would continue to work on implementation in a more comprehensive way to enable the improvement of systems and processes instead of just focusing on compliance. Companies that leave themselves time to carefully implement the lease accounting standard are finding ways to create economies of scale, cut costs, choose the best systems, and in some cases even eliminate spending that could be deemed wasteful because it wasn't closely monitored.
"I think the silver lining in the implementation of the leasing standard is that some companies realize they have been overpaying on some leases," said Mike Cheng, CPA, national professional practice partner with Frazier & Deeter in Atlanta. "Or they found a better process in tracking their leases by centralizing the function. If properly implemented, companies may actually spend less time recognizing, measuring, presenting, and disclosing lease arrangements for financial reporting."
Meanwhile, the CECL effective date will have a significant effect on public business entities that are SEC filers at the beginning of next year. The standard requires a more forward-looking approach to loan loss reserves and is one of the most significant and challenging new standards financial institutions have ever implemented. Detailed financial credit risk modeling and forecasts based on observable past data will be required for loan loss estimates, and it's widely perceived that publicly traded financial institutions will be well prepared for the change because it has been so heavily emphasized.
Perhaps because the standard's effect on financial institutions is so well known, there is a concern that other companies aren't taking the standard seriously enough. Allowances for uncollectible trade receivables, for example, may be subject to the CECL standard and require new methodologies from a wide variety of companies.
"Financial institutions have been focused on CECL for a while, but it has increasingly become an area of focus for other entities," said Bob Uhl, CPA, a partner and the national director of accounting standards at Deloitte & ToucheLLP. "Although the implementation of CECL may not have a significant effect on many entities' financial statements, documentation of their analysis can be a significant effort."
The profession also will be adjusting to a groundbreaking new PCAOB auditing requirement to identify and communicate "critical audit matters," which took effect in 2019 for audits of large, accelerated filers. This auditing requirement gives practitioners the opportunity to communicate new information about the audit in the auditor's report.
"One of the most significant changes to the auditor's report in generations, critical audit matters will raise transparency and give investors a sense of what auditors consider to be especially challenging, subjective, or complex auditor judgment," said John Farrell, CPA, chief innovation officer for audit at KPMG.
Meanwhile, the transition will continue this year toward automation that gathers data, completes it, and formats it, freeing auditors' time for judgment-based opinion work, according to Farrell. He said that as more data is created, audit-risk analyses will be able to compare increasing amounts of data with company data to identify gaps and anomalies for further analysis.
Accountants have heard for years that emerging technologies such as blockchain and artificial intelligence (AI) are going to radically reshape the profession. The reality has yet to live up to the hype, but major strides could be made in 2020 on a couple of fronts.
The first of those is the continued development and adoption of robotic process automation (RPA). Most current RPA iterations are perhaps best described as Microsoft Excel macros on steroids. These RPA "bots" can watch a human perform a multistage process and then repeat that process. Unlike Excel macros, however, RPA can perform these processes across multiple applications.
"Whereas RPA was merely a cool concept a few years ago, it is now a reality for many businesses," said Lauren Kovar, CPA/CITP, CGMA, senior director, Professional Services Operations Center of Excellence lead, and strategic consultant at Thomson Reuters. "Processes that were highly manual and repeated frequently are now being performed by bots. Further, these bots are able to move between systems and therefore provide an aspect of 'integration' in complex accounting/tax technology ecosystems, where multiple data sources and applications are in use."
Donny Shimamoto, CPA/CITP, CGMA, founder and managing director of IntrapriseTechKnowlogies LLC, said that RPA is the technology that will have the greatest short-term impact on accounting. "It can be used by management accounting, audit, and tax," he said.
As RPA makes inroads in the accounting space, significant advances are expected next year in two key areas of data communications: 5G cellular service and Wi-Fi 6 short-range wireless networks.
"2020 will be a breakout year for 5G, as handset manufacturers begin to make a 5G chipset standard equipment," said Rick Richardson, CPA/CITP, CGMA, founder and CEO of RichardsonMedia & Technologies LLC. "The major telecommunications companies will continue major deployment of network coverage."
5G technology will make cellular data transfer as much as 100 times faster than the current 4G networks. In addition, 5G networks have virtually no lag time, opening the door for real-time data sharing.
"5G networks won't just mean your phone will get faster, but everything will get faster," Richardson said.
Faster and more efficient data communications won't come only from 5G devices. Wi-Fi 6 is set to hit the market in 2020, delivering data transfer rates as much as three times faster than the current Wi-Fi 5 protocol. In addition, Wi-Fi 6 will allow more devices to be connected to a given network and also reduce latency, Richardson said.
Why is this important? Faster, more efficient broadband connections are essential for the real-time data connections needed to power continuous auditing and KPI dashboards that provide live results and analysis. In addition, 5G networks can handle massive amounts of data, such as that produced by the internet of things. Data is the fuel that powers the machine learning and deep learning essential to the development of AI-powered bots that can automate large swaths of repetitive, rote accounting work, freeing up accountants to focus on analyzing real-time business data and providing prescriptive business advice.
"Many firms are already tackling mundane time-intensive back-office tasks with automation tools," said Amanda Wilkie, a consultant with Boomer Consulting. "As firms become more confident with the technology, they will expand their process automation efforts to client-facing tasks; some will even discover additional revenue opportunities by offering automation services to their clients."
While progress will be made on 5G, Wilkie advises CPAs to keep their expectations in check.
"We will certainly see mobile device manufacturers start adding 5G chips; however, few carriers have 5G equipment deployed," Wilkie said. "It's only available in a few cities, and it will take years for those networks to be updated."
The AICPA and the National Association of State Boards of Accountancy are addressing how the CPA profession can continue to flourish in the future as technology evolves and newly licensed CPAs need deeper skills and knowledge. The CPA Evolution project that will continue this year is designed to evolve initial CPA licensure requirements to maintain the strength of the profession and serve the public interest in a changing environment. More information is available at www.evolutionofcpa.org.
TAX AND PERSONAL FINANCIAL PLANNING
Technology also is having a profound effect on tax return preparation and personal financial planning. As automation is used more for tax compliance services and robo-advisers provide mechanized investment advice, CPAs will continue shifting toward a trusted adviser role using their professional experience and deep knowledge of their clients to offer personal financial planning services that automation cannot provide, said Susan Tillery, CPA/PFS.
"Presently there are four generations in the workplace: Baby Boomers, Generations X, Y, and Z," said Tillery, the president and co-founder of Paraklete Financial in Atlanta. "I believe this movement will propel Baby Boomer tax professionals who are now offering personal financial planning on a limited basis to increase their service offerings and initiate mentoring the younger personal financial planners and/or recent accounting graduates."
Meanwhile, David Oransky, CPA/PFS, a financial planner with Laminar Wealth in Chesterfield, Mo., said the regulatory debate over fiduciary standards will intensify. He said consumers are becoming increasingly aware of conflicts of interest in the financial services industry, and they are starting to ask important questions before engaging an adviser. Because CPAs are regulated and held to extremely high standards, they are well positioned to provide these services in the way that the public is looking for.
"At the same time, changes in legislation and professional standards are blurring the definition of what it means to be a fiduciary or act in the best interest of the client," Oransky said. "This has the potential to confuse consumers even though they're asking the right questions."
Meanwhile, federal legislative tax action pending as of October 2019 that could remain uncertain into 2020 has further impeded decisive planning for businesses and individuals with respect to taxes. Expired federal tax "extenders," that raft of perennially temporary provisions, have been grappled with by both the U.S. House and Senate during 2019, but with some procedural and policy differences as sticking points — especially with respect to other, tacked-on tax provisions.
Many extenders are narrow in application but either dear to particular industries, such as the Sec. 25C credit for certain nonbusiness energy property, or relied upon by individuals in dire straits, such as the exclusion from income of forgiven home mortgage debt under Sec. 108(a)(1)(E). Those are among the nearly three dozen provisions in S.B. 617 in the Senate and/or H.R. 3301 in the House.
The way forward is also far from clear for technical corrections to the law known as the Tax Cuts and Jobs Act, P.L. 115-97. Perhaps the most prominent among these is the act's omission of qualified improvement property from 15-year depreciable property under Sec. 168(e)(3)(E) (known as the "retail glitch"). Retail businesses have pushed for the glitch's fix, which is said to have broad bipartisan support.
The trend toward hiring nonaccounting graduates at CPA firms is expected to continue as firms seek the expertise of technology specialists. Nonaccounting graduates constituted approximately 31% of all new graduate hires in public accounting in 2018, an increase of about 11 percentage points over 2016, according to the 2019 Trends in the Supply of Accounting Graduates and the Demand for Public Accounting Recruits report released in August by the AICPA.
That trend is reflected in an unwritten rule observed over the last two years at Lauterbach & Amen LLP, a midsize firm based outside of Chicago. The firm has decided that one in every four new hires needs to come from outside the traditional recruiting target population of accountants and CPAs. The nontraditional recruits are sought for their technology and data analytics expertise and also for skills such as project management, financial services, and forecasting.
"Our firm believes there will be a continued push to integrate technology into how firms internally operate as well as how they externally provide services to their clients," said Jamie L. Wilkey, a partner at the firm. "With the increased role of technology in the public accounting firm, internal infrastructure and recruitment is also likely to shift as demand for more tech-savvy team members continues."
Meanwhile, CPA firms' shift toward providing more advisory services is expected to continue. Sean Lager, CPA, is a partner in Atlanta at Frazier & Deeter, which recently opened an office in London. He said the focus there initially will be on compliance work as the firm establishes a reputation in the United Kingdom. But ultimately, the long-term focus will be on advisory work.
All these changes reflect broader movement in the economy as implementation of technology fundamentally alters the way work is done. Fortunately, CPAs have plenty of skills that technology can't easily replace. CPAs have a unique ability to connect with clients, to understand their needs, and to make sense of the trends that emerge from the mechanically analyzed data to plot the right path forward for clients and businesses.
"I've always embraced change because it presents an opportunity to improve, which makes what we do fun," Lager said. "This is going to change us as a firm, and that's exciting."
Prognostications for the year ahead
A turbulent year could be on the horizon for the accounting profession and business in general in 2020. Professionals in public accounting and industry offer the following perspectives on what to expect:
‘With low inflation and continued lower interest rates, there will be the opportunity for CFOs to exit high-cost debt for lower-cost debt.’
Bob Sannerud, CPA, CGMA, the CFO of Life Link III, a Minnesota provider of emergency air medical transportation
‘Many in the profession are sighing a deep breath of relief thinking they’ve missed the blockchain bullet as hype around the technology dwindled somewhat in 2019. Accountants should take notice of the impact blockchain is having on their clients’ industries.’
Amanda Wilkie, consultant with Boomer Consulting
‘RPA and automation will continue to appear in an entity’s ICFR process, changing the preparer of spreadsheets from human to machine and creating new risks in the internal control environment.’
Jon Raphael, CPA, partner and National Managing Partner of Digital Transformation and Innovation, Deloitte & Touche LLP
‘The most significant technology trends impacting the accounting profession next year are the heightened expectations that clients and employers will have over the accountant’s ability to use at least the baseline capabilities of the newly available technology (AI, analytics, machine language).’
Joel Lanz, CPA/CITP, CGMA, visiting professor at the State University of New York College at Old Westbury and principal of Joel Lanz CPA PC
‘The continued trends toward virtualization will reduce the focus on physical assets and will lead to changes in how traditional businesses have deployed capital, talent, and resources.’
Brenda Morris, CPA, CGMA, a partner at CSuite Financial Partners
About the authors
Jeff Drew (Jeff.Drew@aicpa-cima.com) is a JofA senior editor. Ken Tysiac (Kenneth.Tysiac@aicpa-cima.com) is the JofA's editorial director. JofA senior editors Neil Amato, Paul Bonner, and Courtney Vien contributed to this report.
- "Report Finds Shift in Accounting Firm Hiring," JofA, Aug. 13, 2019
- "What Tax Firms Need to Know Now About Technology," JofA, June 12, 2019
- Credit Impairment — Financial Instruments: Mastering the New FASB Requirements for the Allowance for Credit Loss (#164923, online access)
- Leases: Mastering the New FASB Requirements (#164933, online access)
- Robotic Process Automation Fundamentals for Accounting and Finance Professionals Certificate (#188710, online access)
- Robotic Process Automation Strategy for Business Leaders (#188700, online access)
- Digital CPA, Dec. 9—11, Seattle
- AICPA ENGAGE, June 7—11, Las Vegas
- Artificial Intelligence for Accounting and Finance Professionals Webcast Series (#WCAIAFP19120B, Dec. 13)
For more information or to make a purchase or register, go to aicpastore.com or call the Institute at 888-777-7077.