AICPA finds public accounting hiring model shifts
The AICPA recently released the 2019 Trends in the Supply of Accounting Graduates and Demand for Public Accounting Recruits report. The report shows that the accounting profession requires new skill sets because of the rapid advancement of emerging technology, especially in data science and analytics. This is changing who we do business with and how we do it. As a result, non-accounting graduates make up about 31% of all new graduate hires in public accounting — an increase of 11 percentage points from 2016 to 2018.
Accounting graduates and newly licensed CPAs must have the skills and expertise to support the growing technology needs. One of the ways the AICPA seeks to address this trend is through the CPA Evolution project, in partnership with the National Association of State Boards of Accountancy. This project strives to ensure that CPAs can support an accounting profession that plays a critical role in protecting the public interest.
Accounting enrollments for bachelor’s degrees remain high and are the second-highest since the inception of our Trends report. While enrollments declined 4% from 2016, they remained higher than 2014 levels.
This year, there was a continued shift in bachelor’s versus master’s enrollments. Master’s and Ph.D. enrollments continue to decline, with many opting to enter or remain in the workforce or to pursue other avenues for advanced education. Economic conditions and an expansion of the alternatives available to potential graduate accounting students may be behind this trend.
After the 2017 launch of the exam led to a significantly higher number of new CPA Exam candidates in 2016, the number in 2018 was the lowest in 10 years.
The report’s more telling projections about the profession come from the demand side in public accounting.
While new hires assigned to audit-related services increased 4%, hiring of new accounting graduates declined about 30% over the last two Trends reports. The marketplace continues to demand different competencies and, while firms still hire accounting graduates, they seek other skill sets. This is especially true as it relates to technological needs to expand services — often met with non-accounting graduates.
The report found that racial and ethnic diversity increased, with the highest percentage of non-white enrollees to date. Enrollment by gender is nearly even at both the bachelor’s and master’s levels.
The decline in new exam registrants and the increase in non-accounting graduate hiring present opportunities. The AICPA is working with key stakeholders on a number of profession-wide initiatives that attract, inspire and engage the next generation of CPAs.
Along with the CPA Evolution project, some initiatives include:
The Association is also working with organizations to increase the likelihood that racial and ethnic minority students consider accounting early in their career decision-making process. AICPA scholarships and programs such as the Accounting Scholars Leadership Workshop help ensure accounting students have a meaningful and successful experience as they work to earn their CPA license.
On a parallel effort, the AICPA is working with universities to deepen the connection between practice and academia to better incorporate the skills of the future into current curricula and bring more CPAs into the classroom.
While this Trends report focuses on public accounting’s hiring of new graduates, those seeking accounting careers are hired into a multitude of positions out of college and have even more opportunities as they gain experience in the profession. According to the Bureau of Labor Statistics Occupational Outlook Handbook, employment in the broader accounting and auditing field is expected to grow faster than the average for all occupations through 2026.
We believe that for CPAs to continue to serve the marketplace, they must incorporate new and different skill sets and the profession must take steps to cultivate these rapidly changing skills in accounting graduates and newly licensed CPAs. We are committed to achieving this by investing in several initiatives. If you want to get involved by speaking to high school or college students about joining the accounting profession, visit AICPA.org/presentertoolkit to learn how to get started.
Yvonne Hinson, CPA, CGMA, Ph.D., Academic-in-Residence, Senior Director, Academic & Student Engagement, Association of International Certified Professional Accountants
New business challenges call for CPAs to take on new roles
Many factors have contributed to vast changes in the corporate reporting landscape in recent years. These include accounting standards changes such as revenue recognition, leases, and credit losses. However, it’s widely recognized that financial statements and financial information alone may not tell the whole story when evaluating businesses. What do these changes mean and how can CPAs take a leadership role?
Surveying the landscape
According to a 2015 Ocean Tomo study, off-balance-sheet intangible assets in 1975 represented, on average, 17% of the market value of companies. That figure drastically increased to as much as 87% in certain sectors in 2015. Intellectual capital (including workforce “know-how”), customer relationships, brand value and confidence in the management team drive more of the value of a business today than ever before. As most of these “assets” are unrecognized on the financial statements, traditional financial metrics alone may not entirely explain the created value and the risks to the value inherent in these off-balance-sheet items.
A growing number of companies and their investors or other stakeholders are trying to better understand performance in this area through environmental, social and governance (ESG) metrics. Given the appropriate framework, these new key performance indicators may help companies and their stakeholders in their ongoing dialogue about generating sustainable, long-term value. Although there’s no single global standard-setting body, several endeavors provide such a framework. One worth noting is the Embankment Project, a joint effort of EY and the Council for Inclusive Capitalism. The final report was the result of a market-driven effort of more than 30 organizations representing all facets of market participants. Additionally, the Sustainability Accounting Standards Board (SASB) — focusing on financially material ESG topics and metrics for investors — codified industry-specific disclosure standards in November 2018.
While sustainability reports are nearly universal today among large and even medium-sized firms, they often lack relevance and reliability for investors. Furthermore, a large part of the value in tracking data is the ability to benchmark against industry averages, peer performance and internal targets. This requires a level of standardization among the company reporters, whether public or private.
Understanding the standards
SASB codified its standards in 2018 after a six-year due process involving technical research, extensive market input and public transparency in response to this need. This process included the input of hundreds of investors, preparers and other market participants. Since ESG issues represent no difference from other general business issues, a sector-specific focus was deemed important as these standards were developed.
SASB’s 77 standards enable consistent, comparable, reliable information about corporate performance on such industry-specific business drivers as:
- Energy and water management
- Employee engagement and labor relations
- Data security and privacy
- Supply chain management, and more
SASB strives to identify topics that are most likely to be financially material to investors and stakeholders in those industries. For example, where the standards address greenhouse gas emissions and water management in extractive industries, they focus on data security and business ethics in the financial sector. Companies, of course, still make the determination about materiality in their own circumstances.
Taking advantage of opportunities
As corporations have evolved and adopted more sophisticated approaches to these new ESG metrics, there’s a desire among investors and issuers to make sure that the data is high quality and reliable. Broadly, investors say that the quality of the data is more important than the location of the disclosures in terms of whether to include them in regulatory filings. There’s a need for CPAs to consider how they can help companies identify the right metrics for disclosure, help them find ways to accumulate the data to produce those metrics, build controls to enhance trust in the reliability of the information, help companies decide when, how and where to report these new metrics to their stakeholders and provide assurance over the reported ESG metrics.
It’s clear that corporate reporting is changing within and outside of financial statements. CPAs have an opportunity to be integral in the ongoing development of new corporate reporting models and participate in this evolution of the capital markets and marketplace demand.
Looking to dive right in? The AICPA’s sustainability toolkit is designed to help you meet the growing demand for sustainability reporting and assurance. The toolkit includes a brochure outlining the benefits of CPA-provided sustainability assurance; a document defining key sustainability terms; a guide to implementing the United Nations’ Sustainable Development Goals; a checklist to help organizations identify and manage environmental, social and governance-related risks; and a backgrounder on sustainability assurance. The AICPA’s sustainability assurance online course is a good place to start if you are looking to perform examination or review engagements on sustainability information.
Marc Siegel, CPA, Partner - Ernst & Young LLP. Marc is a former FASB member and is on SASB’s standard-setting board.
This material has been prepared for general informational purposes only and is not intended to be relied upon as accounting, tax or other professional advice. Please refer to your advisors for specific advice. The views expressed by presenters are not necessarily those of Ernst & Young LLP.
Developing a resilient staff who’s ready for anything
Five years ago, could you have predicted the challenges you and your team would face in 2019? And if you had a crystal ball, what challenges would you see approaching over the next five years? The AICPA’s Private Companies Practice Section (PCPS) team asked firms of all sizes to predict their top challenges between now and 2024 in the 2019 PCPS Firm Top Issues Survey. They say they’d be most affected by staffing, emerging technologies, competition, changing client needs and the regulatory environment within the next half-decade.
With all the potential disruptions in the works, it’s easy to see the need for strong and resilient staff who can handle themselves with confidence and grace. Especially within small firms.
My team rose to the occasion over the last year to integrate into Pannell Kerr Forster of Texas, P.C. (PKF Texas). I continue to work with staff in a number of ways to make sure they feel empowered to make decisions and act quickly during what I call “triage” moments. Here’s how I do it.
- Require the core technical skills—and more. Technical know-how is table stakes at any firm, but you want your team to connect with clients, think strategically, collaborate with others and build trusting relationships. I expect my staff to complete soft-skill CPE and other training in emotional intelligence, communications and negotiations to make sure they can tackle more than technical concerns in the field.
- Offer job shadowing for real-world learning. Help your team learn how you and your senior staff make decisions on site by including them in client meetings and other pivotal strategic discussions. In these moments, my staff sees how experienced professionals approach challenges in real time. This modeling of behavior allows my team to gain confidence as they learn prioritization and sound decision-making.
- Coach staff about why/how you make the decisions you make. You may not be able to stop and explain in the middle of a client meeting, but taking a moment later to offer your insights will help them understand your decision-making process. In the future, they’ll be better able to determine “what would Fill-in-the-Blank do?” when facing a challenging situation on their own.
- Teach them that it’s OK to have to think about a decision. Sometimes I have to take time to think through a problem. When I’m really feeling challenged, I’ll tell my team about the pros and cons I am debating in my head. I will often explain my thinking and ask them to weigh in about which way we should go. I coach my team to understand there are times when they will need to make the best and fastest decision in the moment, and later develop a long-term solution when they have more time to consider all options.
- Question ideas and not the individual. My team works in a collaborative environment and we are at our best bringing ideas from our diverse backgrounds to the table. The collaboration process involves challenging one another in a professional manner and iterating upon each other’s ideas. This environment is built on trust, so it’s important that everyone feels respected and valued, and challenged to grow rather than shrink.
In 2019, my team faced challenging moments, but because I coached them to be resilient, I never doubted they would rise to the occasion and blossom as a result.
If you’re looking for resources to help you strengthen your team, the AICPA can help. The PCPS Human Capital Center offers solutions to better engage your team. Go Beyond Disruption resources can help you adapt and thrive in these changing times. And, this small firm resource center connects you to technical and soft-skills resources from across the organization.
Danielle Supkis Cheek, CPA, Director, Entrepreneurial Advisory Services, Pannell Kerr Forster of Texas, P.C. (PKF Texas)
3 signs your client’s investments aren’t tax friendly
You know a lot about your tax clients — their jobs, their kids’ names, what kind of cars they drive — and you know even more about their finances. Most of the time, your clients are happy to share their complete financial lives with you. But, occasionally, when delving into the numbers, you’ll uncover financial moves you didn’t know about. Often, those moves involve their investments.
You may be hesitant to talk to your clients about their investments. But remember, proactive conversations about all the financial issues affecting them are part of a CPA’s job. In addition, talking about investments as a part of their entire financial picture is a great way to start planning conversations — especially as we head into year-end. Not to mention, this is an added chance to cement your relationship as their trusted adviser.
You want to help your clients avoid investment-related tax headaches, but you can only do that if you know what could cause them. Here are three examples of how investment choices could negatively affect your clients’ taxes and what to do to get them back on track.
Schedule D woes
When preparing a client’s taxes, pay close attention to the number of Schedule D transactions. If your client reported significant capital gains from multiple investment sales that will be taxed as short-term gains, something in their lives may be changing their financial situation.
Schedule a meeting with your client to dive deeper. You may find that they are going through a difficult situation that requires your attention. Or perhaps they just needed cash for that empty-nesters trip to Cabo. In any case, you’ll want to explore whether there are plans for such sales, and plan for the tax liabilities associated with them.
A short-sighted portfolio
Year-end investment statements contain more information than just account balances, holdings and transaction information. These statements can reveal when a client is — frankly — too dependent on a couple of assets.
If you notice your clients’ portfolio is heavily weighted in one or two assets, you may want to find out why. Your client may not realize they haven’t diversified their portfolio. Or maybe they think this emerging company is a “sure winner.” Either way, talk through these investments with them and make sure they’re aware of the potential risks and tax-efficient ways to diversify.
Publicly traded partnership issues
If your client owns shares in a publicly traded partnership, make sure they understand that the placement of these investments could result in major tax implications. Unlike other investments, you must carefully plan unique tax treatments for these companies.
You may also want to explain to these clients that a Schedule K–1 will be needed to complete their taxes. As the K–1 isn’t due until March 15 for publicly traded partnerships, this delay of the receipt of tax documents could mean your client will need to plan to extend their return. Let them know these investments come with more complicated reporting, and their resulting delays could make preparing tax projections and future tax planning more difficult — and more expensive.
Bonus: Talking about timing
When your client buys or sells a stock or shares in a mutual fund, it can be just as important as what investment they sell from a tax perspective. Not only should your clients focus on long term vs. short term capital gains, they should consider how sales of stocks during the year could affect how the gains from the sales are taxed. Purchasing shares of a mutual fund before the end of the year could subject the individual to a full year of capital gain distribution without the benefit of the full year of the funds’ appreciation.
As you head into year-end planning with your tax clients, make sure you’re talking with them about all of the pieces of their financial puzzle. These resources can help:
Smart tax planning plays a vital role in a sound investment strategy. Being ready to address this issue and other planning topics with your clients can contribute to your firm’s continuing success.
Matt Rosenberg, CPA/PFS, President of RoseCap Financial. He is the recipient of the 2018 AICPA Outstanding Young CPA award and is on the National CPA Financial Literacy Commission. He has received tenure as professor of finance and accounting at Colorado Mesa University and recipient of the AICPA’s Standing Ovation Award for excellence in personal financial planning.
April Walker, CPA, CGMA, Lead manager — Tax Practice & Ethics, Association of International Certified Professional Accountants
What the current political environment means for CPAs
Ron Elving is a senior editor and correspondent for NPR’s Washington Desk. Ron delivered the keynote address at this year’s AICPA Governmental Accounting and Auditing Conference. We sat down with him to get his insights on what’s going on in Washington and how it affects CPAs.
What would you say are some of the legislative and political issues that CPAs should be following? What issues will most affect them?
In the next year, it’s likely that less will change in terms of federal law and regulation than has changed in the past two years. The Tax Cuts and Jobs Act (TCJA) of 2017 was the first big reform in 33 years, and it continues to affect businesses and individuals as regulatory adjustments to its administration continue. Some tax policy may be debated in Congress in 2020, but the next round of real change in tax rules is probably two years away. We should expect that next round to be significant, either by extending TCJA or largely repealing it — depending on who wins the critical races in 2020.
Government spending will be off to the races again in 2020 as all budget caps (and the threat of sequester) from the Budget Control Act of 2011 were removed this month. New debt to finance the federal budget deficit will exceed $1 trillion in each of the next two budget years. There is no end in sight to this reliance on fresh borrowing, and the debt ceiling has been raised as the accumulated debt passed $22 trillion.
What effect will the debate on the taxation of the digital global economy have on the political and economic landscape?
Congress has held hearings on this issue, notably last month. It is a looming issue for the future, but not likely to be salient in the 2020 conversation. Confusion over state laws and over the apparent violations of the Internet Tax Freedom Act of 1997 are bad enough. Efforts to tax digital downloads in other countries — notably in Asia and the EU — are more confusing yet. On the political front, there is great fear and consternation about the power of the big platforms (Google, Facebook and Apple), but there is also a natural reluctance to restrain free enterprise or penalize an innovative and productive industry for its success. Members of Congress are more immediately interested in determining how these platforms might help or hurt their own re-election prospects. But they are getting an earful from constituents in retail and other sectors about the economics of all this as well.
Government tends to be the final frontier on cyber-related changes. The IRS is working with Kennedy-era technology. States and municipalities often need to communicate through systems that don’t “talk to each other.” What is the landscape for cybersecurity that may have trickle-down effects on state and local government today?
Computer modernization is an enormous obstacle for contemporary governance. The funding is often a slow process over multiple sessions of Congress, meaning that software and even hardware that’s approved is superannuated before it’s even been bought. The Air Traffic Control system is an egregious example. Treasury is probably light-years ahead of some other agencies, yet not state of the art. All this is complicated by issues of cybersecurity, in part because the government has so much of our vital data and generates so much of it (Social Security numbers, for example). It is also caught up in the political crossfire over the security of our computer systems vis-a-vis government-sponsored hackers from hostile countries. Even discussing it becomes fraught with these tensions.
We’re not far from a world in which governments may begin accepting cryptocurrency and CPAs might one day be required to work with cryptocurrency or value it in some way. What does the regulatory environment look like for cryptocurrency?
Congress has done little but talk about cryptocurrency. There was a lot of anxiety about Libra earlier this summer in Senate Banking and House Financial Services and Facebook backed off, claiming it welcomed regulation. Since then, congressional committees have also held back because they are concerned about restraining legitimate private enterprise — even as they fret about the effect on conventional banks and other entities with long histories of supporting congressional campaigns. Ultimately, the Fed may need to be the lead actor here in concert with Treasury. Congress would rather play the role of approving or disapproving what these agencies decide to do. Members still tend to see cryptos as more a tool for anti-governmental or extra-governmental actors than for legitimate business or for government itself. But this is still an evolving space and greater acceptance could come rapidly.
If our audience could take away one point from our conversation, what would it be?
It is difficult to overstate the importance of the election of 2020. The campaigns for president, Congress and in the states will be tumultuous. It will be the longest, most intense, most expensive election in our history, and possibly the most divisive since the Civil War. We may see a test for the 230-year tradition of a peaceful transfer of power, and we may hear questions raised about the long-term viability of a 50-state union. Major issues to be discussed include the longtime U.S. leadership in world business and economics, our commitment to free trade as a means of raising world living standards, our immigration principles and practices, our tax and spend policies and our willingness to carry a national debt that exceeds our GDP.
Watch our interview with Ron to hear more about his views on the current political landscape.
Veronica Vera, Senior Manager, Public Affairs, Advocacy & Media — Tax, Association of International Certified Professional Accountants