The Connected Accountant

Not rocket science, but....

The Proactive Accountant Blog (a part of the UK's Accounting Web) has details on the four steps to take to help clients through a recession.  The genesis for this was a survey that said that 17% of business owners do not expect their business to survive the current downturn. 

So the steps, and, like I said, this is not rocket science, are:

ONE - Proactively start a dialogue with clients about the recession and how to beat it

TWO - Proactively help them to understand the facts about the recession and the facts about what it means for their businesses and their families

THREE - Proactively help them to create action plans for dealing with the implications of these facts for them and their family

FOUR - Proactively help them to implement those plans – and update them in the light of what happens

To which I would add:

FIVE - Provide a flow of benchmarking information on the economy and their industry to allow them to see their progress

SIX - Gently remind them of the progress they have made with your help.  How they have survived and are positioned to thrive

"Accountants Drag Their Feet When It Comes To CRM"

Or so says the UK website Accountingweb.co.uk.

While the information may appear to be UK-specific, it does have some interesting findings/suggestions:

• Accountants want a way to manage cross-sell/up-sell e-mail campaigns - and not much else.

• Accountants are reluctant to adapt generic CRM to their practices.  Niche providers such as Sage or CCH are having better luck by integrating CRM into their other software offerings.

• Thereare more options for CRM - at a  variety of price-points - than ever before. 

It is clear that the usage of CRM is growing within accounting firms, although there appear to be few ardent champions of its use at the moment.  This seems to be the opposite from the legal community, where its adoption has been deeper and stronger.

The Law Firm Meltdown - Are Accountants Next?

O.K., first the caveats and disclaimers:

I know that law firms are not accounting firms and that law firms are even more transaction driven than accounting firms. No transactions = no work.  Secondly, a lot of the 'sky is falling' stuff comes from the UK, home of one of the deeper recessions currently underway.  Thirdly, and a combination of the two above, a lot of the firms in trouble are related to The City, London's financial sector hub.

Having said that, the news in the Daily Mail was chilling. A Top 200 law firm preparing to 'go into administration.' (A sort of Chapter 11 filing.) With typical British stiff upper lip, a partner is quoted as saying 'the firm is having some difficulties.'

The rot goes deeper too. Clifford Chance, a firm with offices in New York and D.C. has laid off partners and is reviewing all 30 of its global offices for viability.  These are big guys - In New York they boast of being able to house 500 lawyers in their 14 floors of midtown real estate. Allen & Overy, another Top 5 London firm, has frozen rates and cut support staff by 10%. 

Of course, this might all create work for the insolverncy practices of accounting firms! 

Accountants have no sense of humor?

Apparently, it's true.

The best April Fools joke that was (attempted to be) perpetrated on or by accountants in the media realm appears to have been in Accountancy Age from the UK.  Among the obvious clues that this was bogus was the line:

‘There is a really challenging scene where one auditor sharpens a pencil for almost eight minutes. It’s electric. Almost as good as Omar Sharif’s entry on a camel in Lawrence of Arabia.'

The premise is that Jason Statham (Transporter, Italian Job) plays an audit partner in a drug and drink fueled romp through the high stress world of attestation.

Nobody enjoys good satire more than me - but this was useless.  If this is the best that accountants can do at mocking themsleves then it is a doomed profession!

I hope that somebody out there has better examples.

Economics & Accountants

A little off topic perhaps, and definitely controversial, as we delve into the world of economics.  But this does have relevancy for accountants and for accountants that do business across borders especially.

 

And the question is, ‘when did the rules change’?

 

In a great article in Ireland’s Sunday Business Post, David McWilliams asks:

 

“Two years ago, Iceland was judged by Transparency International to be the least corrupt country in the world. The place is totally bilingual, and life expectancy is the best in Europe. The prime minister is the world’s only openly gay leader, and it has the oldest parliament on the planet. The country has no enemies. It doesn’t even have an army.

So how did a country with the highest level of educational achievement in Europe, free energy and a brilliant health service come to be regarded as a financial pariah? How come financial markets can judge a place like Iceland as delinquent and yet regard a place like Dubai - where women don’t have the vote and an immigrant underclass slaves away with no rights - as a safe haven? How do we explain this quandary?”

 

Add to this the fact that global economic recovery might well hinge on the willingness of China (a country whose democratic and human rights record is, well, mixed) to purchase even more western, specifically US, debt.

 

It is also worth pointing out that the UN also judged Iceland, as recently as last year, as having the world’s highest standard of living.

 

Viewed with 20/20 hindsight, a couple of things are clear:

 

1.     The UN, and others, when rating wealth, do not appear to distinguish between true wealth and cash flows.  Iceland had great cash flows as their companies and citizens bought up assets globally.  These assets came encumbered with debt, which did not matter as long as cash flows allowed payments to continue.  As asset values and cash flows declined, the debt remained, and goodbye Icelandic economy.

2.     The ‘accepted model’ that non-democracies spend too much on their own internal corruption, armed services and security operations to be successful as a ‘business’ may no longer be the case. 

3.     The ‘global financial system’ is far from the well-oiled machine that many would have us believe. What it actually is is another question, and perhaps it is too early (and too volatile) to tell.

4.     The long marriage of successful capitalism to successful democracy is strained, and other models may yet emerge that, at least in the short term, are as valid.

 

So where does this leave the accountant?  The biggest effect is on risk.  Very few accountants, advising a client expanding into places such as Iceland, the Baltic States or Ireland, would have got a hearing if they started telling the client about the risks involved.  The economic collapse has led to a precipitous decline in asset value, as well as the potential loss in foreign exchange as their currencies decline.

 

Additionally, if that new found ‘poverty’ in such locations translates into a state where the rule of law is less strong, or where corporate and individual malfeasance rises, then the risk profile in audits will change.

 

 

Apres le deluge? (After the flood)?

According to George Bernard Shaw, if all the economists in the world were laid end to end, they would still not reach a conclusion.

Having said that, there is a fairly strong consensus that this downturn/recession/economic crisis will be:

1.       Deeper

2.       Steeper

3.       Last longer

4.       Have a shallower recovery

than most of the similar situations that the global economy has faced since the end of World War II.

With just over a month to go in the US ‘busy season’, there is a growing sense that April 16^th will bring a stark reality for accounting firms.  Effectively, April 16^th represents a cliff, and nobody knows how long the drop will be.  Based on what I have heard around member firms of IGAF Worldwide and the industry in general, here are some key points:

A.      Staffing:  Employment is a lagging indicator in an economy. Entities shed jobs too slowly for the situation that they see, and then staff up too slowly for the recovery.  A focus on the jobs numbers reported is a poor indicator of where we are going (but a great indicator of where we have been!).  Employment in accounting firms will be down, but firms will try and determine ‘where is bottom’ before they make draconian cuts.

B.       Partner Compensation: This might be the year where partner income takes a bit of a beating in order to position the firm for growth in recovery.  In other words, staff will be retained at a lower utilization so that they are available for assignment when work picks up. This will drive down leverage, and the fallout will be in partner income.

C.      Fraud & Risk: Clients that played it ‘a little loose’ in the good times will have even greater temptation now.  Risk assessment and fraud awareness will need to be pumped up in order to protect the firm.

D.      The Hunt for Cash: Long term business development will be replaced, at least partly, by a search for quick projects that dump cash into the firm.

E.       Firm Management: WIP and A/R management, perhaps even extending to a more formal retainer and progress billing system, will be to the fore

So what do your employees REALLY think about your company?

Or, for that matter, what do they think about you.  You could hang out at the water cooler to try and find out, but there are also some other tools out there that might help you peek behind the curtain.

One of the best that I have seen is www.glassdoor.com.  Just enter your company's name (or the name of a client company) and see what the anonymous employees (or ex-employees) are saying about you.

A few gems:

Reznick Group: (an IGAF Worldwide member) “A fast growing, young firm, that is a great place to start and could be a good place to stay.”  Reznick scored a 3.7 average

Crowe Horwath: (not an IGAF Worldwide member) “A descent (sic) place to work.”  Crowe Horwath scored a 3.4 average. 

(One could perhaps suggest that elementary grammar and spelling lessons might be in order at some firms!)

KPMG: (a member of the 'Final 4') "A great company, but beware of the internal politics and backstabbing." KPMG scored a 3.6 average.

All of which is to say that your employees MAY tell you what they think of working for you - but they will DEFINITELY tell their peers, and these days that is not confined to the water cooler! 

Accountants in Congress

I don't know what to make of this but, according to a report on the 109th Congress  from the Library of Congress, 6 members of Congress were (or are still) accountants.  That is a little over 1.1% of the 540 individuals who serve in Congress from the 50 states, as well as delegates from places such as Guam, Puerto Rico and D.C.

During the same time period, a Bureau of Labor Statistics report states that there were 1.3 million auditors and accountants employed in the US. With non-farm payroll at the same time quoted as 137M, it could be argued that accountants were slightly over-represented in Congress - although the loss of one member would have changed that to slight under-representation!

Compare that to vintners (two members) and radio broadcasters (five members) and accountants might certainly seem to be outnumbered - at least proportional to their numbers in society.  The real discrepancy comes when you look at lawyers (42% of the 109th Congress) and Congressional staffers (20% of the 109th Congress).

Any accountants out there want to answer the call to public service?

Disaster Recovery? I mean a REAL disaster

First of all, the really bad news.  IGAF Worldwide member firm Stone Carlie, based in St. Louis, MO recently lost their Managing Partner, Tom Valenti to a senseless act of violence.  Family, friends and IGAF Worldwide member firms were able to follow Tom's ordeal through the postings that his wife, Carla, made on a website designed for this purpose.

And while it might seem gauche to even ponder 'business' at a time like this, it is worth pointing out that in addition to attending the funeral and other events to memorialize Tom, IGAF Worldwide members sent their internally developed 'partner loss' programs to Stone Carlie.

And so the question is this - Many firms have 'key man insurance' on their Managing Partner and/or other partners.  And while cash is always handy, what plans to you have to deal with clients, the media and perhaps most importantly the lost partner's family? 

For you, will a crisis like this truly become a disaster, or the implementation of plan that works, but that you hoped you would never have to use?

Value Billing/Pricing

O.K, I am not sure if lawyers are the ones to follow here, but there does seem to be more traction for this in the legal community than among accountants.

A post on Jim Hasset's blog has a neat summation of all of the reasons why lawyers should at least look at this - and most of them apply to accountants too. 

Best Firms to Work For

Any accounting firm would just love to be in this group.  Accounting Today put together a report Download BestFirms2008  on this, and, unlike some awards, they have some pretty robust criteria in order to be able to make it on the list.  These criteria include:

Job Sharing

Telecommuting

Adoption assistance

And while not all firms had hits in all of the metrics, Accounting Today has found 60 stellar firms.

Of course, I am very pleased and proud (but not at all surprised) that 10% of the winners are members of IGAF Worldwide!

Even in a down economy, the ability to attract and retain quality team members within the firm is a key to success, and my bet is that these firms have the ability to thrive at that metric.

Congratulations to all of the winners!

Billing

Yup, billing.  The slow gains that the concept (and implementation) of value billing/pricing have been making over the last decade appeared (at least to some) to raise questions as to its viability.

Now, from our colleagues in the legal profession, comes news that the client community is moving towards a greater demand for a billing system other than the billable hour.  Tom Kane's excellent blog gives some great examples of the trend that he sees as corporations large and small demand a move away from the billable hour - driven at least partly by the current economy.

Within the legal profession it appears that the adoption of alternatives to the billable hour might be being led by smaller, boutique firms that can develop and deploy a nimble response to client demands that larger firms might not be able to.  Think of turning a supertanker around as opposed to a dinghy.

With IGAF Worldwide, perhaps 10 - 15% of firms use some form of billing other than billable hour on a regular basis - but few do it with all clients, all of the time.

We are likely going to add this as a tracking item in upcoming Practice Management surveys - to see if there really is a trend in accounting firms.

Aha - Pt. II

Ever had a BFO moment? A BFO is a Big Flash of the Obvious – when something that should have been apparent ages ago all of a sudden reveals itself to you – A Damascene conversion, if you like.

At a recent ASAE (The association for associations!) event, the buzz was all about social media and that was where I got it.  At this point, other IGAF Worldwide staff members probably said, “at last – we have only been telling him for the past 2 years!”  -  But if associations are really about bringing people together then this is really the way forwards.

So (tooting own horn alert) it is great to see that a couple of early adopters of this coolness (not to mention representatives of pretty far-sighted firms by any measure) appear to be somewhat pleased with IGAF Worldwide, but perhaps more importantly with the peer firms that are in the membership.

First of all, Mark Bailey in his Innovative Practice Management blog said nice things about our member firms, and then, in Scott Heintzelman's   blog, he was also very complimentary.  Finally, a group that sometimes gets short shrift in accounting firms - the marketers - got some very positive comments on guru Bruce Allen's  blog.

So, turning off the self-promotion, communication is key - building member loyalty takes consistency of communication and a judgment as to the 'right amount' to keep the message to the forefront without being overwhelming.  Your members want to hear from you - Do they, or do they get an unnerving silence?

Getting the most out of your association

It's actually pretty simple - get involved!

The Exuberant Accountant blog, written by Scott Heintzelman, is a case in point.  Scott blogged from our event at the  Grand America Hotel, in Salt Lake City, UT. (A great location, BTW).  Scott's firm (McKonly & Asbury, in Harrisburg, PA), truly understands how to get the most out of an association - They attend most if not all events - globally, they respond to association-wide requests for information and service, and share their successes and challenges with all members.

Attempting to be diplomatic about Harrisburg, I think that even natives of Central PA would agree that it is not exactly a global commercial center.  However, firms like Scott's are able to move beyond limitations by establishing relationships and then exploiting the relationships they build for the benefit of clients.

While not trying to diminish the power and potential of web 2.0, the plain fact is that we all do business with people that we know, trust and like.  And there is still no better way to develop knowledge and empathy than by spending time with someone.

So if you are in an association, be it professional, technical, trade or social, and you are not getting what you think you should, get involved - you might be surprised how it turns around for you!

IFRS - The Sound of One Hand Clapping?

IFRS is coming to the US and Canada.  In Canada, implementation is set for 2011, while in the US companies will be allowed to report under IFRS in 2010, and it will be mandated by 2014.

As this looms, the question is why is there so little education on IFRS within North America?

One possible reason, at least within colleges and universities, is that they are so focused on preparing students for the CPA exam that until IFRS is a full part of the CPA exam scant attention will be paid. 

For those already in the profession, there seem to be some better - and growing - resources. A quick review of the AICPA's website shows that they are starting to take it seriously, with a special website http://www.ifrs.com/ exploring the issues for US-based issuers and accounting firms.

Associations of accounting firms are also addressing the issue with education, in some cases drawing on the experience of their firms from outside North America to start the education of those in North America.  Within IGAF Worldwide, we are going to be having a one-day training session at our annual Business Assurance meeting in early January 2009.

Seismic Change - Or Moving The Goalposts?

In the four years since the Parmalat Fraud case hit, regulators have been attempting to define groupings of accounting firms.

Broadly, they wanted to prevent looser affiliations of accounting firms marketing themselves as a 'joined up global solution' and then denying responsibility when one of the affiliates made an error.

This meant that regulations were designed (based on an IFAC model) that defined networks and associations of accounting firms.  Networks could brand under a single name, rely upon work performed in another network office, and gain traction in the marketplace hungry for alternatives to the Final 4.  Associations would not have to do system-wide independence checks, might gain some liability protection for members, but were also enjoined from developing a 'market identity'.  And then it all went pretty quiet. Until now.

The Swiss-based grouping of Horwath now has a 'standard bearer' firm in the US, the old Crowe Chizek firm, now known as Crowe Horwath, and heavily branded as such. Where this leaves the members of Horwath in the US other than Crowe is a good question.  A similar occurrence has taken place at Baker Tilly, where WI based Virchow Krause are, "pursuing a name change that will make us the exclusive U.S. branded firm in the Baker Tilly Globally Branded Network."

It is very possible that we will see further changes among firms and their network/association affiliations as firms map their strategic and tactical needs to the direction that their grouping of firms has selected.

Associations & Networks - Supporting SMEs

The accounting industry/profession isn't the only one to benefit from having associations/networks that can:

• Increase the reach of member firms
• Provide support for clients 'going global'
• Develop benchmarks for best practices among members

Many of the professional services that SMEs (Small to Medium Enterprises) can be accessed through using a local member that is a part of a global association or network.

Examples of this would be:

• Legal Services (www.interlaw.org)

• Insurance Broker Services (http://www.wbnglobal.com/)

So, when dealing with a local/regional provider of any given service, ask how they will handle your business as you expand across the country or around the world.  The more sophisticated providers will be able to direct you to their association and talk about their experiences and those of peer clients.

Financial Crisis - Accountants and Associations

Just three short months ago, IGAF Worldwide had Bill Freund, the former Chief Economist of the NYSE as a speaker.  He was one of our best rated speakers  - ever.  But, just 90 days ago, the current financial meltdown was not a predicted outcome for even this recognized expert.

So what does all of this mean for accountants and associations?

Firstly, members are going to demand that association events provide insight on the new environment for business as a result of the credit meltdown.

Secondly, as issues of governance, risk and control trickle down from the Fortune 500 to SMEs, (small and medium sized enterprises) associations need to be educating members on how to deliver services to clients in these areas.

Thirdly, associations will need to be assisting their members in working with clients on the financing of business expansion now that typical credit streams have dried up to a trickle.

The AICPA is urging congress to ' keep working until a viable solution is found,' while providing little input on what might consitute a 'viable solution.'  The AICPA-affiliated Center for Audit Quality is however lobbying against the suspension of 'mark to market'  accounting rules.

Associations of independernt accounting firms, which have little or no lobbying capability, are (like much of America) sitting on the sidelines watching the process unfold.  As the rule changes (if any) and changed focus within the coporate world occur, these associations may have to alter their service offerings to members in order to remain relevent.

Value Billing - The background noise grows

No lesser an authority than 'The Economist' is now addressing the issue of hourly billing and potential replacements.  Although their article was focused on the situation present within law firms, the questions that it poses for accounting firms are almost the same.

Within IGAF Worldwide, we have seen a number of presentations from the gurus in this area such as Ron Baker, but it would be fair to say that the take-up among member firms has been minimal.  A couple of our members have adopted a 'blended system', with perhaps two firms going for almost total value billing and no longer selling blocks of time.

What selling blocks of time does is create a 'shift in uncertainty.'  The firm (assuming it can make its employees billable to targets) knows its likely income for any given period - It is the clients (collectively and individually) that have the uncertainty of the magnitude of their total bill.  A shift to value billing (or a hybrid) is a way of equalizing this uncertainty between the firm and client, and could be viewed as another way that the firm builds true cooperation with the client base.

With the apparent shift in the fortunes of the global economy, clients might be looking for that greater degree of certainty when it comes to the bills from their professional advisors - So is this a good time to again look at the concept of value billing?

Are You Connected?

Jimi Hendrix asked, 'are you experienced?'  I ask, 'are you connected?'

The goal of this new blog is to explore ways in which accountants 'connect' with their peers around the corner and around the World.  Revealing my bias, associations are a huge way in which you can do that, but there are many other methodologies and opportunities too.

As an example of how accountants are connecting using what is commonly called 'Web 2.0' take a look at what the Maryland Society of CPAs has done in Second Life.  Tom Hood, their CEO is quoted as saying 'It's all about social networking - which is what associations are about.'

I know that those of you that have heard of Second Life are probably worried.  You think you will loose control, that communication will happen without running through a centralized 'system' and that your employees will use it in work hours.  All of your fears are not only justified, but possibly correct!  However, being a facilitator (or better yet, a champion) of this type of interaction within and across firms means that professionals in the firm and those looking at an accounting career will set you and your firm apart from many others.

So, are you connected?  Let us know how.