Art of Accounting: Barry Melancon updated | Accounting Today

By Edward Mendlowitz

AICPA president and CEO Barry Melancon gave his annual update at the Accountants Club of America on Feb. 4. This was a can’t-miss program for me and likely for all of the other attendees at the sold-out breakfast.

An excellent article by Michael Cohn appeared that day reporting on the presentation. However, my interest in what Barry said is less global and pretty specific to small firms, so I am adding my views on what he said. There are really big issues confronting public accountants, but most of the firms are small and they face issues getting through the day, hiring and retaining staff, trying to keep up with the continuous tax and, for those reporting on financial statements, the equally onerous changes there. While I am part of a large firm, my career was spent in my own small firms that I started, and I now try to assist others in their own small firms. Thus, my focus in attending practice management and professional presentations is how small firm owners and partners could benefit. Here are some takeaways from Barry Melancon’s presentation. The quotation marks indicate what Barry said, but not necessarily are exact quotations.

• “CPAs help clients make the best decisions for their businesses. If we think of ourselves as CPAs, we limit ourselves, our opportunities, and the much greater impact we can have on our clients. We should look beyond the numbers to help clients make the best possible judgments.” Most of the CPAs I know are their clients’ most trusted advisors and are the first person called when a major decision needs to be considered or made. Barry said he knows this but is also urging us to stretch past the conventional data to grow that role even further.

Photographer: Walter Primoff

• “Diversification is necessary. If we were building a practice today, we would not narrow ourselves to the traditional accounting services.” The large firms are quickly expanding services and trending toward becoming advisory firms. I agree with this as far as large firms go, but not so much for small firms in general, with an exception. Large firms are in a different business. They work on larger clients with many more points of contact by staff and less by partners. Larger firms also have greater resources to develop additional services and also to absorb losses on services that do not become viable business opportunities. On the other hand, small firm owners and partners are much more hands on with clients and see them more frequently. Most have personal relationships with clients, and their services are less specialized and more generalized in nature. The exception is some small firms that develop niche practices with a service or become successful industry specialists. My opinion is that diversification is necessary but difficult for small firms. It should be done slowly but continuously while they concentrate on closer relationships with their clients.

• “There are two Top 100 accounting firms that do not do any financial statement audits. This is evidence of a sort of the changing nature of our profession.” I do not need to add to this.

• Barry shared an exciting initiative of the AICPA, which is its Dynamic Audit Solution project. To me, this is a very exciting opportunity for the 15,000 firms that perform audits and reviews to be placed technologically on a level playing field with the largest firms. Reread what Michael Cohn wrote in his article.

• A very interesting point Barry raised is the graying of the leadership of the large firms, but that is also the situation for smaller practices. I see two different issues. The big firms need to invest in the future by training staff today to eventually assume leadership and take over, especially to fund the buyouts of those retiring. Small firms have the graying issue, but many plan on selling their practice when the time comes for them to retire, so investing in a successor is not necessary. The question is who will the buyers be? The best opportunity for small firms is for a long-term employee to grow into the position to take over, but that is not typical, so the firm is sold. The usual buyers are larger practices. And then when the owners of those larger practices are ready, they sell to a still larger firm. The primary groomers of successors are the largest firms, and even many of those end up selling, i.e., merging upward. We’ve seen tremendous consolidation in the Top 500 firms with the big getting bigger. Meanwhile small firm owners tend to work longer and retire later, with the eventual proceeds shrinking because of client shrinkage without being replaced. But the proceeds aren’t as important for them, or shouldn’t have to be, since they’ve made their money while working.

The above are some of my takeaways, and I’m passing them on in expectation that there can be some benefit to you in your practice.

Barry Melancon is a leader of our profession and has a vision and feels a mission to carry it forward. Change is upsetting and unsettling to many, but I feel it is essential to take every opportunity to hear him speak and find out what’s on his mind, i.e., to get it firsthand. I find his views a window into the future. Nobody will be forced to make any changes against their will based on what he says or does, but I believe he is warning us about what changes could be forced upon us if we don’t adapt to the changing business and professional landscape.

The Accountants Club of America is a socially oriented organization of accountants and related professionals who meet four or five times a year over breakfast or lunch with speakers that are the top leaders of our profession, such as Barry. If you live in the Metropolitan New York area, I urge you to attend one of our meetings to see what we are about. You can come to your first meeting without being a member. Check out the ACA website at www.accountantsclubofamerica.org, or email me at emendlowitz@withum.com for more information.