The 4 pillars of starting or growing a CAS practice

Client advisory services (CAS) practices are growing rapidly, and Kalil Merhib, the vice president of Sales and Client Services for CPA.com, has details. Merhib discusses the recent CPA.com & AICPA PCPS Client Advisory Services Benchmark Survey along with the opportunities for firms interested in starting or growing CAS practices.

Here are several resources related to the topic:

• The CAS survey download page and the JofA‘s coverage
• Other CPA.com CAS resources

Also, get a preview of the upcoming AICPA & CIMA Corporate Finance and Controllers Conference and an article on a conference session about building an anti-fraud wall, and stay up to date on news related to Social Security, the IRS, and the PCAOB.

What you’ll learn from this episode:

• The key takeaways from a survey on CAS.
• The CAS growth opportunities for CPA firms.
• Defining top CAS performers and why they have been able to set themselves apart.
• An article preview for how organizations can prepare employees for “the anti-fraud moment.”
• Updates on news of the Social Security wage base limit for 2022, IRS taxpayer FAQs, and PCAOB inspections.

Play the episode below or read the edited transcript:

To comment on this podcast episode or to suggest an idea for another episode, contact Neil Amato, a JofA senior editor, at Neil.Amato@aicpa-cima.com.

Transcript:                                                            

Neil Amato: Welcome to the Journal of Accountancy podcast. This is senior editor Neil Amato. Today’s episode focuses on a growth in client advisory services and how top-performing firms are using such services to grow their practices.

Our next guest on the podcast is Kalil Merhib, the vice president of Sales and Client Services for CPA.com. He’s going to provide details on a recent survey about client advisory services, or CAS, which is definitely a growth opportunity for firms. Kalil, first, thank you for being on the podcast, and second, for people who may not know, what is CAS, and what are some of the opportunities around CAS for firms?

Kalil Merhib: Good morning, Neil. I’m happy to be here with you and talking about the exciting topic of client advisory services and some of the trends we are seeing in the profession as this practice area continues to grow.

First and foremost, client advisory services is really the term now that I believe is defining the spectrum of services that are emerging and continuing to grow that are really moving the firm and client relationship towards the trusted adviser relationship in many areas.

After the last decade or so, this has really been growing out of the financial accounting outsourcing or client accounting services expanding into other services that really aligned with some of the emerging needs in the market, such as cybersecurity, ESG reporting, etc. And the client advisory services category is really about just tightening that firm-to-client relationship and strengthening, giving better insights, proactive advice, and really being a trusted adviser to new clients.

Amato: The Journal of Accountancy recently had coverage of a survey, the latest client advisory services benchmark survey, from CPA.com and the AICPA. What to you are some of the key takeaways from that survey?

Merhib: I think one of the first things that is really obvious when looking at this latest survey compared to the one a couple of years ago is the category of CAS is really evolving and professionalizing. We’re starting to see CAS really have a seat at the table, if you will, next to tax and next to audit, and we’re starting to see things that show that trend towards that professionalizing of the practice area and evolution of that area with things like new KPIs emerging that firms are starting to measure their practices by, dedicated staff that firms are starting to put in place that focus specifically on CAS.

Sometimes this includes the partner track, if you will, that gets back to that previous point about where CAS is living in the firm. Overall, what we’re seeing is higher growth rates, more focus, more opportunity, more businesses looking for this type of service, and also some emerging trends around new services that are being introduced as part of the CAS relationship between firms and clients.

Amato: Given these opportunities — I guess it seems obvious there’s growth opportunities. Do you want to talk specifically about why firms should consider building a CAS practice if they haven’t already?

Merhib: Absolutely. I think, first and foremost, as we know now, business relief for a number of businesses was a critical part of survival during and through the pandemic and here today where we are. That has led to a lot more interest from businesses looking for that type of advisory relationship and insights around their business from firms.

The report actually shows that there has been a median growth rate of 20% for CAS practices in the respondents of that survey, which is up almost double from the report a couple of years ago. We’re also seeing a higher margin attached to CAS services, both from our top performers — and then we can talk about what those practices are defined as — but really in the 35% to 47% margin range compared to some other surveys on firms services across the board, which were in the 28% to 34% [range]. Then I also think that firms have seen the increase in the demand for these services. Again, the top performers are seeing some much higher growth rates, some in the 40%, 50%, or even 60% areas as well.

Amato: What are some of the ways that technology is enabling CAS practices, especially among those top performers?

Merhib: Sure. So, that’s exactly right. Technology is the enabler of a strong business strategy, and we really talk about CAS as being a four-pillar approach. There’s some core elements and it starts with governance and firm strategy, but there has to be a very sound practice development strategy, and then, of course, the technology and the design of those technologies in configurations that really support the CAS service. Then, of course, firms that are in that top performer category are really focused on creating a center of excellence or standardized approach.

I think when you look at technology as an enabler to the practice area, what we’re starting to see is firms really look to technology to begin automating a lot of the transactional work. There’s 35% or so of firms now say that they are using RPA or AI in some of their CAS engagements.

You’re seeing a focus on things like budgeting and forecasting. You’re seeing some of that modeling of what that looked like, that used to be done manually in Excel, starting to migrate and move into new FP&A solutions — financial planning and analysis as an emerging area for firms to focus on.

Then the other thing, of course, is we are all getting much more comfortable interacting in remote environments. One of the trends we see with CAS is expanding beyond a geographic area and focusing on verticals that may span across the country or even across the globe. You’re also seeing things like client collaboration tools, staff collaboration tools, workflow tools, financial close tools, all of these things that help the finance function operate more smoothly in a remote environment as well as maintain and enhance the client and firm relationship in the remote environment are really some of the focus areas of technology.

I’ve mentioned this top performer category a couple of times. I just want to define that here, which is really, of the respondents to the survey, those CAS practices operating with a net client fee per professional in the 75th percentile or above. It is the firms that have the largest amount of revenue per staff person as well as indicators that the profitability because of that leverage are greater in those practices as well. It’s really the firms that are leading the way on this practice area.

Amato: To get more information on CAS for people or firms who are listening, what are some resources available to them?

Merhib: CPA.com has a lot of resources out on our website and through our events and workshops and Digital CPA conference. So listeners can go to CPA.com/CAS and take a look at some of the whitepapers and case studies about firms that are in this practice area already, some of the emerging trends we’ve talked about. Of course, you can go out to the website and download the latest benchmarks survey, and there’s also an on-demand webinar where we explore some of these insights and findings in more detail as well.

Amato: Great. We will link to our article and also the survey mentioned in the show notes for this episode. Kalil, thank you very much for being on the podcast.

Merhib: Thanks for having me, Neil.

Amato: The AICPA & CIMA Corporate Finance and Controllers Conference begins Oct. 27 in Las Vegas. There are in-person and virtual attendance options. No matter the way you attend, you’ll be able to hear a session on six building blocks for an anti-fraud wall in your organization. John Hall is a CPA and consultant presenting at the conference on that topic, and he spoke with Journal of Accountancy freelance writer Andy Kenney for an article on those building blocks. Hall shares some tangible steps organizations can take related to written policies, behavior by leaders, and training for what he calls “the anti-fraud moment.” We will post a link to the article and to the conference website in the show notes.

In other news, the Social Security Administration announced recently that the maximum amount of an individual’s taxable earnings in 2022 subject to Social Security tax will be $147,000. That’s an increase from $142,800. The wage base limit applies to earnings subject to the tax, which is officially known as the OASDI, or old age, survivors, and disability insurance tax.

Also, under a new policy announced by the IRS, taxpayers who reasonably rely on FAQs posted by the Internal Revenue Service will have a reasonable-cause penalty defense. The IRS also said it will keep original versions of FAQs, or frequently asked questions, on its site after those FAQs are updated.

And a PCAOB staff report shows that there was some improvement in audit performance during 2020 PCAOB inspections compared with the previous year. For the majority of annually inspected audit firms, PCAOB inspectors identified fewer findings in 2020 compared with 2019, and some improvements were noted at the board’s audit firms that are inspected once every three years.

However, the report also said that inspectors continue to identify deficiencies that recur from year to year. Internal control over financial reporting is one of several areas in audit deficiency that has remained consistent with past years.

Again, we’ll link to these articles in the show notes for the episode. Thank you for listening to the Journal of Accountancy podcast.