Readers weigh in: ‘Do we need accounting firms?’
On Aug. 26, 2022, readers of Accounting Today were invited to respond to the article “Do we still need accounting firms?” This question was crafted around Susskind and Susskind’s new edition of their highly acclaimed book, “The Futures of Professions: How Technology Will Transform the Work of Human Experts.” Among the article’s criticisms of accounting firms is that firms do not “aggressively cross-sell services to a single client base.” Solutions offered included that, aided by new technologies, accounting firms might eventually reformulate either as independent platforms or independent practitioners who pool expertise as needed or as “genuinely” corporate entities.
We conjecture that, at a minimum, to supplant accounting firms, new organizational structures would have to overcome the following advantages of accounting firms:
1. Pooling of resources via ownership of accounting experts. Accounting firms benefit from economies of scale allowing them to fund resources more efficiently than sole practitioners or independent platforms could, whether these resources are technology, liability insurance, marketing expenses, workspace, staff, etc. Only “genuinely” corporate entities, which we take to mean publicly traded corporations, might raise more capital. However, these entities would be disadvantaged by the ownership of public stockholders. Ownership by non-professionals would create competing interests and conflicts that would drain the productivity of professionals with know-how. Additionally, the professional-as-owner approach places the risk of failure directly on professionals, rather than on third-party stockholders. This serves as a much better deterrence to malpractice. In fact, we believe the need for the accounting firms to be professionally owned is so important, that we do not consider the “genuinely” corporate entities alternative further.
2. Branding & reputation. Accounting firms’ reputation and branding signals quality to customers much more efficiently than would accountants reorganized as myriads of platforms or solo practitioners that collaborate ad hoc to manage jobs. Thus, consumers of accounting services would be at a considerable disadvantage under these proposed organizational structures.
3. Staff. In a departure from Susskind and Susskind, we believe that the current firm structure produces superior staffing arrangements for both employers and employees. When firms hire their own staff, the staff will be available when needed, rather than owners having to compete with free market forces for staffing every time a job needs to be done. The staff will also be trained based on how the firm operates, rather than having ad hoc pools of workers who follow different workplace protocols and are accountable to the employer only on a short-term basis. We also believe most workers value the financial benefits and security of being an employee rather than being an independent contractor.
4. Germinating the next generation of accountants. Accounting firms are largely responsible for propagating our profession on several levels. Independent platforms or sole proprietors who collaborate ad hoc on specific engagements would have no incentive to do this, and even if they did, they would be unlikely to do it as well due to their independent arrangements. For example, accounting firms offer invaluable internships that allow future accountants to explore the profession. They provide the indispensable service of shepherding inexperienced graduates, also allowing them to satisfy initial employment requirements for licensure, and usually reimbursing their CPA exam fees and providing free study materials. Furthermore, they provide practice rotations, which allow even experienced accountants to reenergize their careers or to start a new career path.
5. Social interaction. Social interaction through the physical presence of others is sounder under the present firm structure. “Do we still need accounting firms?” expressed a sentiment akin to Susskind and Susskind’s work when it stated that during the pandemic people learned they can do without “the physical presence of other human beings.” To the contrary, mental health declined during the pandemic, with much of this decline being attributed to isolation. For example, the World Health Organization reported a 25% increase in anxiety and depression worldwide. A recent study reported increased deaths from drug and alcoholism, as well as increased mental health problems, among those who worked alongside robots. People need people.
As a lesser point, we suggest that accounting firms currently do not cross-sell primarily due to independence rules. It is likely that new independence rules would be drafted if these rules are circumvented via new organizational types.
Rather than changing the organizational structure in which accountants work, we suggest that technology is likely to change the nature of the work and training that accountants will need. For example, grunt work in accounting is likely to be less common. While largely positive, this change creates new challenges for improving analytical thinking skills among entry-level accountants, who used to engage primarily in grunt work. Other challenges will include teaching new generations of workers to understand what machines are doing because they have not had to do accounting manually. The ability to prevent and overcome cybersecurity threats is another key training issue, associated with advances in technology.
