Breaking down the top issues facing CPA firms

IRS service issues are a top concern for firms small and large, according to results of the 2022 AICPA Private Companies Practice Section (PCPS) CPA Firm Top Issues Survey. But those service issues are not the only concern.

Lisa Simpson, CPA, CGMA, AICPA vice president–Firm Services, and Carl Peterson, CPA, CGMA, vice president–Small Firm Interests, take a closer look at the issues and what those issues will mean for firms going forward.

Resources mentioned in the conversation:

• PCPS Top Issues Survey summary page.
• Article about best practices for hybrid work.

What you’ll learn from this episode:

• An overview of top takeaways from the survey.
• One surprising omission from the list of top issues.
• What Peterson calls “the hottest topic” now for CPA firms.
• The retention-related issues that Simpson says are “bubbling up.”
• The tie-in between cybersecurity and the shift to hybrid work.

Play the episode below or read the edited transcript:

— To comment on this episode or to suggest an idea for another episode, contact Neil Amato at Neil.Amato@aicpa-cima.com.

Transcript:                                                            

Neil Amato: Welcome to a special edition of the Journal of Accountancy podcast. I’m Neil Amato and this episode marks the first in a partnership between the JofA and the Small Firm Philosophy podcast, which is produced by the AICPA’s Firm Practice Management Section, also known as the Private Companies Practice Section, or PCPS.

Neil Amato: Today’s episode features former JofA podcast host, Jeff Drew, now a manager with PCPS, discussing the results of the 2022 PCPS CPA Firm Top Issues Survey with Lisa Simpson, the AICPA’s vice president of Firm Services, and Carl Peterson, the AICPA’s VP of Small Firm Interests. You’ll hear that conversation right after this word from our sponsor.

Jeff Drew: All right. Well, we’ll jump right into it. What are your biggest takeaways from the survey?

Carl Peterson: I have to tell you, Jeff, that I think that from a member’s perspective, the IRS services is finally broken maybe and that COVID relief programs have been really good and I think helpful for firms from a revenue standpoint and activity and servicing their clients. But it really created ongoing challenges affecting practice workload, processes, and everything else.

Lisa Simpson: I agree. When I look at the survey results overall, I think it’s indicative of the last two years where CPA firms were in such a vital support role for their clients, it put so much pressure on them to be the first responders basically for their clients. You see that and the challenges of keeping up with COVID relief and the challenges working with the IRS, the seasonality issues, which has I think impacted a lot of the people issues that you see in the results as well.

Drew: For the listeners, if in the show notes on both the JofA page and the Small Firm Philosophy page or however you got to us, we will have the top five issues listed or a link to the top issues page if it looks better. If you have not seen them yet, you can just go through there and then see the issues.

Carl, there was a big surprise I know that you and I have talked about before and the results for you, is that succession planning was not in the top five. It was in the top 10 for a few categories of the eight size categories we tracked, but it was not in the top five of any of them. Do you want to talk about that a little bit?

Peterson: I do. I’ll say it was the biggest surprise that I had because, as soon as tax season was over, I started to get calls and emails from firms that wanted to talk about succession planning, want to talk about mergers and acquisitions and more from a retirement strategy versus a growth strategy.

I was at ENGAGE. I talked to some people with CNA through our professional liability insurance program that focused directly on the smaller firms. They too said, on April 19, they started getting phone calls from members that were looking to say, what do I do? I’m going to retire. I’m going to sell. What about tail insurance? Everybody I talked to was talking about succession. It’s the hottest topic I’ve got right now. I’ve had, like I said, more firms want to reach out to me and meet with me one-on-one to talk about their future plans on succession.

Simpson: Carl, I agree. I think there’s going to be a lot of pressure on smaller CPA firm owners to sell or to try to figure out what to do with their practices. We’ve got some great resources in PCPS, in our Succession Planning Resource Center. Some good things to think about as you’re trying to prep your firm for sale to make sure that you’re positioning it appropriately, and how to do some due diligence on both the buyer and the seller side, some key considerations as you’re thinking about selling or retiring. Just want to make sure that our listeners know about the resources that we have available to help with those conversations.

Peterson: Yeah. I can add on a personal note there. Before I came to AICPA, we went through a merger to merge up into a larger firm. I remember buying a book on what you should be doing and reading that book. Then when I came to AICPA and got into our Succession Resource Center, I’m like, oh my gosh, I could have saved the money on the book and time and energy to grab the resources that we had already. We’ve got some great things.

Drew: In the succession area, it’s interesting that there were two main themes in the survey. There were the IRS issues and the extra work brought in with the COVID relief programs and the usual complexity and seasonality issues, and then also a ton of people issues. Most dramatically or prominently the finding qualified staff, the traditional number one issue.

For larger firms, especially retaining qualified staff. One thing that I think crosses over those two areas was that developing the next generation of leaders actually ranked pretty high. It was in several top 5s and quite a few top 10s or maybe most of the top 10s. But maybe if we could talk a little bit about just the overall patterns that we saw in the survey. Lisa, I know you have some thoughts on that.

Simpson: When we did the last survey, developing the next generation popped up in one of the firm size categories. To see it bubbling up into more of the firm sizes, I think definitely speaks to Carl’s point about firms thinking about succession planning, but also the need for firms to invest in their people, to retain their staff.

People want to work in a place where they feel like they’re valued and they’re being developed. I’m happy when I see that firms are thinking about how to continue that development and how to continue to invest in their people and help them grow.

Peterson: That ties right into retention and everything else, right? You know, helping them develop and grow and challenge them and all those things. I think it’s super important. That’s firms of all sizes, I think too.

Simpson: I think it’s important that in one of the larger firm categories that you analyzed for us, Jeff,  there was a focus on soft skill development. Again, as firms are thinking about that retention challenge that Carl mentioned, moving beyond just the technical training and helping people develop leadership, communications, business acumen. Business acumen is when I hear frequently as an area where firms would like to begin developing more competencies within their team. It’s not just those deep technical skills. It’s the soft skills as well.

Drew: When you say business acumen, it’s like developing the business, getting new business, or helping to run the firm more efficiently, or to be able to serve clients better in terms of business advice?

Simpson: I think of it in terms of helping the professionals serve the clients more deeply, more effectively in that business knowledge category. That’s my read into it.

Peterson: I agree. I think we’re also at a time where because of the leveraging of technology or technologies in practice today, we’re able probably to really accelerate those soft skills and the education and business acumen with these younger CPAs that are coming into profession that let the technology take care of a lot of the technical.

You need to have an understanding of it, but let it take care of that technical side and start then developing those skill sets to be able to advise and consult, interact with your clients in a way that maybe it wasn’t until you’re year 7, 8, or 9 before we really heard about those skills.

Simpson: That’s a great point, Carl, and it ties into what we’re seeing in terms of the growth and client accounting and advisory services. We know that firms are finding a real need for the higher-value level of services, some of the outsourced CFO or deeper financial planning and analysis roles. That’s where that business acumen training can really play in.

Peterson: That’s where all the fun stuff is. We try to encourage these young CPAs, young professionals to stay in the profession, to get to the fun stuff, and that’s where it’s all at.

Drew: Keeping people in firms. There’s an interesting trend in the results was mentioned finding qualified staff was in the top five for all categories except sole proprietors, of course, and was the number one issue for firms with 11 or more professionals on staff.

Retaining staff was second for the biggest firms and also for 11 and up. But it was not in the top five for either 2–5 or 6–10 as I recall. Why do you think there’s a disparity there? Just so many other priorities really hitting the small firms with all the extra work with the COVID relief, and then the IRS challenges adding onto it.

Simpson: That’s my perspective. I think if you dig into the 21-and-up results, everything basically revolves around people challenging the 50-plus professional level. I think the smaller firms were just challenged more with the operational day-to-day, oh, my gosh, I’ve got to deal with another IRS notice or oh, my gosh, they changed the PPP program again. Now I’ve got to do forgiveness and all of those things. I think that just weighed more heavily. The larger firms were able to focus a little bit more on the people issues.

Peterson: Yeah, you’re absolutely right. Small firms, they always have had a challenge finding qualified people and retention as a challenge. But we’re talking about staff size that’s relatively small. It’s not something they deal with day-to-day wishing they had somebody or trying to find somebody.

They have no other issues in running their practice that finding qualified staff is not the top of the list. But it’s not to say it isn’t a concern at times in practice, but you’re absolutely right.

Drew: Another area that was interesting because it didn’t rank higher was cybersecurity. It’s something you and I have talked about, Carl, is that it was not in the top five for any category. It was in a lot of the top 10s. It’s not like it’s fallen off to 74th place or something. But, Carl, what do you think’s going on there?

Peterson: I think you’re right, Jeff. It’s similar to the staffing size for the small firms. It’s an issue, but it’s been pushed down. It’s not one of the top issues these days. But I also think over the last few years, firms have gotten to where they were forced to leverage technology and find out they can work remotely and maybe now we’re in a hybrid mode. They leverage technology, and to some extent when they first started doing it, they may have opened themselves up to more security issues.

But I think what’s happened over the past couple of years, I think small firms are increasingly in the cloud and allowing the service providers, the ISPs, to provide and monitor their cybersecurity needs. I don’t think it’s as much of a phobia. There’s still a concern about it. But it’s not front and center as it was when they’re hosting everything internally. I think everybody has made this migration and leveraging technology to be closer to where they should be. But it’s certainly not an issue that’s gone away.

Simpson: Carl, that brings up an article that PCPS just released with Roman Kepczyk, who’s one of the well-known industry consultants on cybersecurity. He talks about the fact that we all made the move to hybrid basically overnight. But do we do it the right way? Did we build in the right best practices and protocols?

Jeff, I’ll ask if we can put a link in the show notes to that article because it’s really good. We’ve also got a cybersecurity checklist that’s targeted at small firms to help them make sure that they’ve got the right protocols in place as well. It is something that we always have to keep on the top of the radar. We’ve got some good resources to help firms with that.

Drew: Roman’s article is very thorough. He goes through a lot of stuff.

Peterson: I was just going to say the article was great. You wonder whether or not we’ve done it the right way. When you look at and you hear what’s happening in the claims area of cybersecurity and breaches and things like that, it hasn’t gone down. It’s not decreased. I just wanted to point out that while firms are better at it and there may be leveraging technology and utilizing outside resources that the amount of claims and the data breaches that are occurring, I don’t think it dropped at all.

Drew: I would remind the listeners that it’s something I heard over and over again during my time, my 10 years as technology editor for the Journal of Accountancy is that even when you’re in the cloud, the responsibility is still on the firm in terms of the safety of the data. So you have to check the SOC reports. You need to make sure you understand where your data is.

A lot of this is covered in the checklist and in Roman’s article. But it’s very important. It’s not as much of a day-to-day worry as when you’ve got the servers in house and you have to worry about applying the patches yourself and things like that, but you definitely need to be aware of it and you need to make sure that you know what your vendors are doing and that you’ve got all your your i’s dotted and t’s crossed and all that stuff.

Peterson: I think you hit it right on the point there, too. But I think you have to be actively concerned or actively monitoring, having somebody actually to monitor your security needs.

Drew: We talked a little bit about the 21-plus professional firms, which in the past we’ve looked at is, that has been the large firms. This year after some feedback from members from larger firms asking for more to break that up a little bit because they said there are big differences between a 21-professional firm, and a 100-professional firm and the results indicate, yeah, there are some definite differences is in there. What we did is we split it up. We had a 21–50 category, a 51–100, and a 101 and up.

The pattern that I noticed was that you could always see the same change from more of a focus on getting the task done, the extra work. You consider that two of the top three issues for the small firms, the IRS challenges and the COVID relief funds, managing all that process, they weren’t in the survey in 2019. They were introduced for the first time in 2021.

The IRS has just gotten worse, but the COVID stuff is new. You see the same transition to a lesser extent within the larger firms, like 21–50, the IRS issues are still higher. With the largest firms, all of the top issues were things like you had the effect of staff utilization management. You had managing work/life balance initiatives.

I think that’s the only one where we really had the one that mentioned compensation issues, for example. I’m not sure if there’s anything really to be gleaned other than you have more people, we have more people problems or things to worry about. But I thought it was interesting.

Simpson: Jeff, what I take from it is that every firm is still looking for the secret sauce. In this hybrid/remote/virtual/are we coming back to the office when, how often, who, and what’s going to be done where? I think the fact that every firm of 21 and up is dealing with so many people issues just shows that we don’t know what the new normal is going to be yet.

All firms are trying to actively figure that out. Some may be a little less focused on the operational aspects of dealing with the IRS and some of those challenges. But it’s a new environment, and firms are just trying to figure out what will work for the long-term success of both their talent, their clients, and then ultimately the firm.

Drew: Well, we are at the end of our time. I want to thank you both for joining me, and I will end this as I’ve ended almost all of my interviews during my career. Was there anything I should have asked but didn’t?

Simpson: I’ll throw in something, which is that we are actively working on mapping out these top concerns to the resources that are available to firms. We’ve got some great Tax Section resources and quarterly tax updates that are really insightful in terms of helping firms prepare for the future. Of course, we have that you’ll continue to join the AICPA Town Halls, as we’ll be talking about all of these issues going forward. But Jeff is actively working on outlining additional more detailed resources that’ll help you succeed in this changing environment.

Peterson: On top of that, I think people who read the survey results, I think firms should realize that and they’ll probably understand that everybody’s in a similar boat. Whatever you’re experiencing is not necessarily unique. We’re all dealing with the same issue. You’re not on an island.