Accounting firms are facing unprecedented challenges. With the rise of automation, changing client expectations, and staffing challenges, traditional differentiation strategies—competitive pricing, incremental service improvements, or modest technology adoption no longer create sustainable competitive advantages.

Continuous innovation is no longer something only tech and “forward-thinking” individuals should do to remain relevant. It’s an imperative to the longevity of every business in today’s quickly evolving market—including accounting firms.

The Innovation Imperative

Recent data from McKinsey shows that companies that prioritize innovation outperform their peers by 30% in revenue growth over a five-year period. Yet many accounting firms still approach innovation reactively, waiting until market pressures force their hand.

This reactive approach creates three common pitfalls:

1. Rushed innovation often results in half-baked solutions that fail to address core client needs.
2. Reactive innovation creates organizational whiplash, as teams struggle to adapt to rapid, unplanned changes.
3. Lagging response time to market changes creates risk that competitors have already established themselves.

The accounting firms that will thrive in the coming decade aren’t necessarily the largest or most established—they’re the ones that develop the organizational muscle to innovate continuously as client needs evolve and market conditions change. This is where having an innovation framework is key.

How do you build an innovation framework? Consider these three components:

1. Customer-Centric Problem Discovery

True innovation begins with deeply understanding your clients’ needs—not just what they tell you, but what their behaviors and pain points reveal. Too many firms rely on superficial feedback instead of identifying fundamental problems worth solving.

2. Create a Rapid Experimentation Culture

Innovation thrives in environments where testing new ideas is encouraged and failure is viewed as a learning opportunity. Accounting firms often struggle here, with risk-averse cultures that prioritize precision over exploration.

To foster rapid experimentation:

• Create dedicated “innovation sprints” where teams can prototype new ideas
• Establish appropriate metrics for innovation initiatives that balance short-term performance with long-term potential
• Develop a “minimum viable product” mindset that emphasizes quick market feedback

3. Cross-Functional Innovation Teams

Innovation rarely emerges from isolated departments. The most powerful ideas come from combining diverse perspectives and skill sets.

To break down silos:

• Form cross-functional innovation teams that include representatives from technology, client services, and business development
• Create clear accountability structures without imposing rigid processes that stifle creativity
• Establish regular forums for sharing insights across the organization

Take a Phased Approach to Innovation Implementation

For accounting firms looking to enhance their innovation capabilities, a phased approach makes this shift more manageable:

Phase 1: Assessment

• Evaluate your current innovation capabilities
• Identify organizational barriers to experimentation
• Set baseline metrics for innovation outcomes

Phase 2: Foundation Building

• Develop structured innovation processes
• Establish cross-functional teams
• Allocate resources specifically for innovation initiatives

Phase 3: Execution

• Launch pilot programs in targeted areas
• Scale successful initiatives
• Measure and communicate results to build organizational momentum

Common Pitfalls to Avoid

In our innovation journey, we’ve encountered several common pitfalls that accounting firms should be wary of:

• Over-reliance on competitor analysis: While understanding the competitive landscape is important, innovation requires looking beyond what others are doing.
• Analysis paralysis: Gathering data is valuable, but at some point, you need to act on incomplete information.
• Insufficient resource allocation: Innovation requires dedicated time and funding—it can’t be an afterthought.
• Fear of cannibalizing existing products: Sometimes, the best innovation requires disrupting your own successful offerings.

Measuring Innovation Success

Effective innovation measurement requires both leading and lagging indicators:

• Leading indicators might include the number of experiments conducted, client feedback on service prototypes, or team feedback on new technologies.
• Lagging indicators include revenue from new services, client retention improvements, or efficiency gains.

The key is balancing quantitative metrics with qualitative assessments of how innovation is changing your firm’s capabilities and market position.
Conclusion

In today’s accounting landscape, innovation isn’t optional—it’s a survival requirement. Firms that create systematic approaches to identifying client needs and testing new solutions, services and technologies will have a true advantage in an increasingly competitive market.

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The Consumer Financial Protection Bureau, the Internal Revenue Service and the Department of Education have all been caught in the crosshairs of the Trump administration and Elon Musk’s Department of Government Efficiency. Now, accountants predict that the Public Company Accounting Oversight Board could be next.

Trump’s nomination of Paul Atkins to replace former SEC Chair Gary Gensler has been seen by many to be a sign of deregulation on the horizon, with further estimates that Atkins will reshape the PCAOB’s leadership makeup if confirmed to the SEC. Other possible scenarios include the consolidation of the PCAOB into the SEC.

Lara Long, managing director at the New York-based business advisory firm Riveron, said players in the capital markets see Republican control of the White House and Congress as a strong sign that regulatory actions will “either be reversed or will significantly decline.”

“So far, no one is 100% sure of the PCAOB’s future, including whether the agency will be folded into the SEC,” Long said. “Many insiders feel that whatever happens with the PCAOB will not eliminate the need for the financial markets to have an audit regulator.”

Read more: The regulatory forecast: Less, and lighter

Data published by Cornerstone Research in February recapped the PCAOB’s enforcement action trends over the last 20 years. In the decade that followed the first finalized enforcement action from the board in 2004, activity was calm, with 72 auditing actions against a mix of 126 respondents that included 53 audit firms and 73 individuals. Monetary penalties were roughly $5 million.

That trend took a dramatic shift in 2015, when the PCAOB finalized 34 auditing actions and submitted close to $10 million in penalties — double the total for the prior 10 years.

Between 2015 and 2024, the board finalized a total 302 auditing actions against 466 respondents and issued monetary penalties in excess of $86 million. Last year accounted for roughly 40% of the penalties issued for the decade.

“The PCAOB continued aggressive enforcement in 2024, finalizing 30 auditing actions in the first half of 2024, more than triple the number of actions finalized in the first half of 2023,” Jean-Philippe Poissant, one of the report’s co-authors and co-head of Cornerstone Research’s accounting practice, said in a statement. “In one in five auditing actions, the PCAOB alleged violations of not only auditing standards, but quality control standards and ethics and independence, as well.”

Similar data released in a March report by the Brattle Group offered predictions into how this trend could change under the new Trump administration.

“We expect that the combination of Trump 2.0 and ongoing constitutional challenges [like] Jarkesy and Doe vs. PCAOB matters will bring a sea change in auditor enforcement activity,” the report said.

Read more: Expect a tempest in tax under Trump

Learn more about the recent activity from the PCAOB and what experts across the profession think the future will hold for the organization.

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PCAOB sanctions nine firms in KPMG’s network

Officials with the PCAOB censured and fined nine firms in KPMG’s global network of firms for both violating quality control standards and neglecting to shed light on who performed the audits.

Firms impacted by the sanctions and roughly $3.374 million in fines include KPMG Auditores Independentes Ltda. in Brazil, KPMG LLP in Canada, KPMG S.p.A. in Italy, Somekh Chaikin in Israel, KPMG LLP in the U.K., KPMG Cárdenas Dosal, S.C. in Mexico, KPMG Samjong Accounting Corp. in South Korea, KPMG AG in Switzerland and KPMG in Australia.

“It is essential that investors and audit committees know where issuers’ audits are being conducted and by whom so that they can make informed selection and ratification decisions,” Erica Williams, PCAOB chair, said in a statement this month. “These violations prevent investors and audit committees from obtaining important information.”

Read more: PCAOB sanctions KPMG network firms in 9 countries

Is it the end of the PCAOB and SEC’s crackdown on auditors?

The first half of 2024 was rife with enforcement actions from the PCAOB and Securities and Exchange Commission, but that trend was quelled in the second half of the year due to a notable Supreme Court ruling and a rash of lawsuits against the PCAOB.

Data from the Brattle Group showed that both organizations brought 58 enforcement actions against auditors last year, keeping pace with the 60 actions the previous year and the 59 actions in 2022. But experts predict that leadership changes at the PCAOB and SEC, coupled with a second Trump administration, could drastically hamper this trend.

“Activity appears to have been substantially impacted by the Supreme Court’s SEC vs. Jarkesy ruling, which found that the regulator’s use of administrative proceedings to seek financial civil penalties for securities fraud was unconstitutional,” Alison Forman, co-leader of Brattle’s Accounting Practice, said in a statement. “We expect fallout from Jarkesy and similar constitutional challenges facing the PCAOB — as well as the new presidential administration — to dramatically shift the enforcement landscape moving forward.”

Read more: PCAOB and SEC crackdown on auditors appears to be ending

Auditor outcry sees rollback of PCOAB firm and engagement metrics

Following widespread outcry from auditing firms and companies, the PCAOB has walked back two proposed standards on firm reporting and firm and engagement metrics it approved last November.

Both standards failed to obtain the required additional approval from the SEC in order to take effect. Under the new guidance, firms would have been required to provide the PCAOB with details on their partner and manager involvement in audits, workload, training hours, experience of audit personnel, retention, allocation of audit hours, restatement history, fees, governance, network relationships, cybersecurity and more.

“Among our concerns was the potential unintended consequence of the rules prompting small and midsized audit firms to stop performing public company audits, impacting companies that depend on those audit firms as they seek access to U.S. capital markets,” Sue Coffey, the AICPA’s CEO of public accounting, said in a statement, according to the Journal of Accountancy.

Read more: PCAOB withdraws rules on firm and engagement metrics, firm reporting

Could the Trump administration dissolve the PCAOB?

Industry experts eyeing the governmental downsizing led by Elon Musk’s Department of Government Efficiency are beginning to prepare for a similar scenario at the PCAOB.

In speaking at a February meeting of the Accountants Club of America in New York, AICPA and CIMA president and CEO Mark Koziel remarked that the lack of general public awareness of the PCAOB leaves the organization with a smaller pool of advocates working to keep it alive when compared to other organizations.

“When you think about the fact that the PCAOB, if they were to shut it down, and DOGE would be able to take credit for it, who would oppose it?” Koziel said. “It has a $400 million budget, none of which is paid for by taxpayers. … But it’s a $400 million win, if [Elon Musk’s DOGE] could say it publicly in some way, shape or form.”

Read more: AICPA prepares for the possible end of the PCAOB

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Diving into the PCAOB’s record $35M in fines in 2024

Last year was an active enforcement year for the PCAOB, as officials levied more than $35 million in fines.

The largest of the bunch was a $25 million fine against KPMG Netherlands, after the PCAOB found via a 2022 whistleblower report that employees were cheating on the firm’s internal training program by sharing answers with one another over a five year period. This was the largest civil money penalty in the PCAOB’s history.

Further actions include the board’s decision to revoke a firm’s registration after repeated rule violations and failing to comply with the organization’s investigation, as well as a $150,000 fine for KPMG China partners for audit standard violations.

Read more: PCAOB imposed $35M in fines in 2024

Although filing season began smoothly and proceeded with little fanfare, there are still some issues that are on the minds of tax pros.

“While it began looking like a smooth year, it has been anything but,” said, according to Misty Erickson, tax content manager at the National Association of Tax Professionals. She listed the following as contributing to the angst felt by many preparers:

• With the IRS laying off employees, there are a lot of questions on how this will impact the filing season. The IRS will shift staff to help with return processing, but if a return stops for review, or if it is paper filed, there may be a delay. To help combat this, tax pros should double check the return before filing and compare last year’s return to this year’s; they should also ask about any missing income or other discrepancies. 
• There’s also concern about the likelihood of delayed response from the agency. Erickson recommended using online tools whenever possible. The IRS has online accounts for individuals, businesses and tax professionals that can be utilized to reduce the need to call for assistance. Those who need to call should expect to be on hold for some time
• Dealing with current law versus campaign rhetoric around not taxing overtime, tips, or Social Security. Until these promises become law there will be no changes. The challenge, Erickson warned, will be to convince clients that even though this has been in the news, it is not certain until it is signed into law.
• Beneficial ownership information reporting for small businesses is an ever-changing landscape. Any enforcement actions have currently been suspended, and it appears that the focus will be on foreign entities reporting their BOI.

There has not been a lot of last-minute legislative changes, so the chores this tax season have revolved around all the other compliance work layered in, according to Kelly Myers, of Myers Consulting Group LLC, who spent 30 years at the IRS, including 20 as a senior technical advisor at the SB/SE Division. 
(Read more: See the most recent IRS tax season data.)

“A lot is crystal ball work — how to make strategic decisions to minimize the tax effect influencing future returns,” he said. “The IRS is still trying to process Employee Retention Credits, with taxpayers waiting for refunds. There are ERCs from 2020 still in the queue. Meanwhile the statute of limitations is running, so make sure to get the claim in before it runs.

“There was a bit of a domino effect,” he added. “When they released 6,700 employees, it caused compliance efforts to stop. People have called in regarding an audit and were told that it had gone on hold until further notice. They had new and probationary hires working on audits, but now those are gone.”

“The reality is we really don’t know what the future holds regarding people getting reinstated,” said Myers. It’s a season of adjustment — that’s different because the technical side of tax season is not here. When four probationary hires leave, the audits they were working have to go to someone. What do you do with clients when the IRS has shortages in the field causing the process to change? It affects filing season indirectly because things take a lot more time when the practitioner is dealing with the ripple effect of IRS staffing.”

Myers praised industry associations and professional organizations for stepping up and providing free membership and advice to departing IRS agents and outgoing staff to help them land jobs. 

Waiting for the other shoe to drop

“We have had no major issues or delays,” said Mark Steber, chief tax Officer at Jackson Hewitt Tax Services. “As with IRS guidance, we continue to see refunds being issued for nine out of 10 taxpayers within 21 days, and in many cases even faster than that. We also have not had any disruption in communication with the IRS.”

Bill Nemeth, immediate past president and education chair of the Georgia Association of Enrolled Agents, agreed. 

“E-filed returns are being accepted and refunds are being disbursed in a timely fashion just like we would expect,” he observed. “But as we get deeper into filing season, we may have more complicated paper returns that we have to mail in, and we are concerned whether they will be processed in a timely fashion. Someone has to open the envelope, and read and review the return. That’s our biggest concern — it’s still early but we are crossing our fingers.”

“Another concern is that tax revenues may be down 10% this year. If the IRS is not going to pursue people, fewer will file or file correctly,” he added. 

Nemeth files an extension for every return. “I then file the return later on. If I discover by looking at the transcript if something was left out, I can file a superceding return — a replacement return. Some people had two jobs in 2024 and forgot one of them. Kids are terrible at giving documents to their preparer, especially 1098-T,” he observed. 

“When we call the IRS, the answering assister will give their name and employee number,” Nemeth remarked. “New employees start with ‘100,’ which means that you’re talking to a ‘newbie’ that may not know what they’re doing. I always prefer to speak to someone with a number that begins with a number over ‘100’ that has been there awhile.”

“If you’re talking to a newbie, a polite way to end the call is simply to hang up while you’re talking,” he suggested. “It sounds like an equipment failure on your end as opposed to saying, ‘You don’t know what you’re doing.’ The other trick is calling during lunch time. Managers will often answer their own phone, and they’re the ones you want to talk to. They can make decisions while clerks cannot.” 

BOI, EV, Etc.

“The Treasury said they would not enforce the BOI requirements to file, so that’s taken a load off a lot of preparers,” said Stephen Mankowski of Mankowski Associates CPA LLC, a former tax chair of the National Conference of CPA Practitioners. “It was absolutely the right call, since there was no way they were going to get 20 million-plus reports filed, especially during filing season. It was almost as if they were setting us up just to be able to issue a whole lot of fines. The AICPA did a lot on their end. We don’t know if they might come up with something after filing season. I don’t know what filing that report has to do with money laundering because the bad guys will not file.”

“If you were a money launderer would you file?” he asked. “They were just going to get a bunch of moms-and-pops, with carve outs for really small businesses. So keep on top of it pending further action, but for now nothing needs to be done.”

The majority of returns are getting accepted and refunds are being issued in a timely manner, Mankowski said: “We always get a couple of juicy rejects, but even with those, we know what to do to get things resolved. That’s been good so far. The only potential hiccup is the giant elephant in the room: how the reduction in force at the IRS will affect filing season. I’ve been fortunate not to have to call the IRS, but I’ve heard mixed reviews. Some had a hard time while others have gotten straight through.”

The bigger issue is how it will play out with IRS employees at retirement age. “The problem is when people take retirement, they have the knowledge base that goes along with their career,” he explained. “‘Probationary’ just means new to a specific department or a switch from IRS to Treasury, but when all is said and done you could have 10 years and be viewed as probationary. The fact that the IRS is putting together a workforce reduction plan during tax season is almost a power play to other departments — they can say if the IRS is doing this, what’s your problem?”

Tax attorney Barbara Weltman, author of J.K. Lasser’s Small Business Taxes 2025, noted that, new for 2024, the clean vehicle credit for buying new electric vehicles and the previously owned clean vehicle credit for used EVs can effectively be “sold” to the dealer to reduce the purchase price of the EV. 

“Opting to transfer the credit to the dealer means the taxpayer does not have to wait to file a return in order to reap the tax savings from the credit,” she said. “The Treasury says that about 90% of the qualifying consumers buying a new EV have transferred their credits to dealers. But the taxpayer must file Form 8936 and Schedule A of this form. The taxpayer should have received a time-of-sale report from the dealer, which has information necessary to complete the form and schedule.”