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Art of Accounting: Barry Melancon’s parting words about future of small firms

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Barry Melancon is retiring as president and CEO of the AICPA  at the end of this month. One of his last presentations in that role was at the Accountants Club of America last week. I have been fortunate to know Barry and to have attended many of his presentations and especially his annual visits to the ACA, which he has been doing since he started at the AICPA in 1995.

Much has been written about Barry and I am sure much more will be written about him. I am looking forward to reading much of this. Also, he will not withdraw into the sunset and will continue to make an impact on whatever he chooses to get involved in.  

His presentation at the ACA covered a lot of ground and included expected tax legislation under the Trump administration, the growing federal debt, private equity incursion into public accounting, the growing use and reliance on artificial intelligence, training new skills for staff and accelerating their growth into the new services they will be needed to perform, and his thoughts about the future of small practices, which make up about 43,000 of the estimated 44,000 accounting practices in America. I took extensive notes on everything he said, but I want to share some of his comments about small practices along with some of my thoughts.

Barry Melancon - Engage 2021

AICPA president and CEO Barry Melancon speaking at Engage 2021

Barry did not define the size of a “small” practice, but I believe they are practices with a single owner working alone up to those with not more than 50 people; and with possibly 15,000 practices with not more than a half dozen people. However, in the whole scheme of commerce, even firms with 50 people are small businesses. The Big Four are huge, ranging from over 50,000 upwards to 170,000 personnel worldwide and revenues from $12 billion to $33 billion. The next dozen firms have revenues over $1 Billion and employ from 4,000 to 17,000 people. These numbers are based on the 2024 Accounting Today Top 100 Firms, published in the March 2024 issue. That is pretty big, but many at the lower end of that group and just below them evidently feel they cannot compete effectively and are merging together, being rolled up to create bigger organizations or joining in with private equity firms. 

Barry feels there is an important and definite need that small firms are filling. But he suggests that small practices would be better positioned for the future if they concentrated on developing a specialization in a niche. To do this, they should decide on their business model, who their market is, what they feel they could do better than anyone else or at least excel at, examine what their clients’ needs are and what the market would value. They should also recognize who they could partner with when a client requires services beyond their expertise. He suggested that a small firm can no longer be all things to all clients as many have been in past times through to the present. 

I liked what Barry said, how he said it and I agree with him. However, I think that when niches are identified, they refer to technical services, types of accounting services or industries. I think that small accounting practices need to consider “trusted advisor services” as a niche. I would define this as being available to clients when they need guidance, want a knowledgeable and independent sounding board, need someone who is aware of their entire situation and who is responsible for keeping everything on track. That is what small firm partners do for their clients. Incidental to this, they also do tax returns and prepare financial statements, give necessary tax, financial, estate, succession and business planning advice and the overall coordination and execution to make sure everything is done properly. I know that because that is what I did my entire career, along with my partners. We also trained our staff to follow our lead and many of them have evolved into their own successful practices. In effect I considered myself an “expert generalist” and that was my niche.

It wasn’t easy, but neither is anything else, especially becoming an expert in a specialized area. Becoming an expert generalist needs a stronger than basic knowledge in each of the areas I mentioned in the previous paragraph. It doesn’t mean becoming an expert in any of those areas but being very good in them. You need to be good enough to handle about 90% to 95% of the issues that arise and able to recognize when you cannot handle something and need to bring in a “real” expert. That is why Barry’s advice about establishing a network of other accountants that could be brought in to consult with your clients is prescient. Without that network, I don’t think you could serve your clients properly and would actually be doing them a disservice.

Small business clients are primarily family owned or have two or three partners. However, some can have revenues into the hundreds of millions of dollars with substantial bank debt. The financial statements of the smaller revenue clients can usually be handled completely by the accounting firm, but any audits and especially the audits of the larger revenue clients can be done by larger accounting firms with the regular firm preparing the workpapers, writing the financial statement and perhaps performing an occasional internal control review. Likewise, a larger firm could review the tax returns before they are finalized, as they can with tax plans and other issues as necessary or as they arise.

A small business client cannot expect their accounting firm to have all the expertise necessary for all situations but would trust them to recognize when they need to call in an expert and would understand the added charges. The client is buying the relationship, trust, availability, overall knowledge of the client with crucial insights and proven judgement.

A lot will be written about Barry Melancon’s impact on the profession and moving it forward … really forward. I also learned a lot from him that has influenced a lot of what I did and will be doing. He was a giant in our midst, and we all owe him gratitude for redefining our profession in a way that puts accountants ahead of the changes rather than us trying to catch up. He saw the future and moved us forward to meet it. 

Mark Koziel will be succeeding Barry as the president and CEO of the AICPA and will be continuing Barry’s pattern of presenting his views of the profession and where it is heading at the ACA on Feb 10. Here is a link to register if you wish to attend either in person or virtually or if you want additional information about this fine group. https://accountantsclubofamerica.org/.

Do not hesitate to contact me at [email protected] with your practice management questions or about engagements you might not be able to perform.

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Accounting

IAASB tweaks standards on working with outside experts

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The International Auditing and Assurance Standards Board is proposing to tailor some of its standards to align with recent additions to the International Ethics Standards Board for Accountants’ International Code of Ethics for Professional Accountants when it comes to using the work of an external expert.

The proposed narrow-scope amendments involve minor changes to several IAASB standards:

  • ISA 620, Using the Work of an Auditor’s Expert;
  • ISRE 2400 (Revised), Engagements to Review Historical Financial Statements;
  • ISAE 3000 (Revised), Assurance Engagements Other than Audits or Reviews of Historical Financial Information;
  • ISRS 4400 (Revised), Agreed-upon Procedures Engagements.

The IAASB is asking for comments via a digital response template that can be found on the IAASB website by July 24, 2025.

In December 2023, the IESBA approved an exposure draft for proposed revisions to the IESBA’s Code of Ethics related to using the work of an external expert. The proposals included three new sections to the Code of Ethics, including provisions for professional accountants in public practice; professional accountants in business and sustainability assurance practitioners. The IESBA approved the provisions on using the work of an external expert at its December 2024 meeting, establishing an ethical framework to guide accountants and sustainability assurance practitioners in evaluating whether an external expert has the necessary competence, capabilities and objectivity to use their work, as well as provisions on applying the Ethics Code’s conceptual framework when using the work of an outside expert.  

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Accounting

Tariffs will hit low-income Americans harder than richest, report says

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President Donald Trump’s tariffs would effectively cause a tax increase for low-income families that is more than three times higher than what wealthier Americans would pay, according to an analysis from the Institute on Taxation and Economic Policy.

The report from the progressive think tank outlined the outcomes for Americans of all backgrounds if the tariffs currently in effect remain in place next year. Those making $28,600 or less would have to spend 6.2% more of their income due to higher prices, while the richest Americans with income of at least $914,900 are expected to spend 1.7% more. Middle-income families making between $55,100 and $94,100 would pay 5% more of their earnings. 

Trump has imposed the steepest U.S. duties in more than a century, including a 145% tariff on many products from China, a 25% rate on most imports from Canada and Mexico, duties on some sectors such as steel and aluminum and a baseline 10% tariff on the rest of the country’s trading partners. He suspended higher, customized tariffs on most countries for 90 days.

Economists have warned that costs from tariff increases would ultimately be passed on to U.S. consumers. And while prices will rise for everyone, lower-income families are expected to lose a larger portion of their budgets because they tend to spend more of their earnings on goods, including food and other necessities, compared to wealthier individuals.

Food prices could rise by 2.6% in the short run due to tariffs, according to an estimate from the Yale Budget Lab. Among all goods impacted, consumers are expected to face the steepest price hikes for clothing at 64%, the report showed. 

The Yale Budget Lab projected that the tariffs would result in a loss of $4,700 a year on average for American households.

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Accounting

At Schellman, AI reshapes a firm’s staffing needs

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Artificial intelligence is just getting started in the accounting world, but it is already helping firms like technology specialist Schellman do more things with fewer people, allowing the firm to scale back hiring and reduce headcount in certain areas through natural attrition. 

Schellman CEO Avani Desai said there have definitely been some shifts in headcount at the Top 100 Firm, though she stressed it was nothing dramatic, as it mostly reflects natural attrition combined with being more selective with hiring. She said the firm has already made an internal decision to not reduce headcount in force, as that just indicates they didn’t hire properly the first time. 

“It hasn’t been about reducing roles but evolving how we do work, so there wasn’t one specific date where we ‘started’ the reduction. It’s been more case by case. We’ve held back on refilling certain roles when we saw opportunities to streamline, especially with the use of new technologies like AI,” she said. 

One area where the firm has found such opportunities has been in the testing of certain cybersecurity controls, particularly within the SOC framework. The firm examined all the controls it tests on the service side and asked which ones require human judgment or deep expertise. The answer was a lot of them. But for the ones that don’t, AI algorithms have been able to significantly lighten the load. 

“[If] we don’t refill a role, it’s because the need actually has changed, or the process has improved so significantly [that] the workload is lighter or shared across the smarter system. So that’s what’s happening,” said Desai. 

Outside of client services like SOC control testing and reporting, the firm has found efficiencies in administrative functions as well as certain internal operational processes. On the latter point, Desai noted that Schellman’s engineers, including the chief information officer, have been using AI to help develop code, which means they’re not relying as much on outside expertise on the internal service delivery side of things. There are still people in the development process, but their roles are changing: They’re writing less code, and doing more reviewing of code before it gets pushed into production, saving time and creating efficiencies. 

“The best way for me to say this is, to us, this has been intentional. We paused hiring in a few areas where we saw overlaps, where technology was really working,” said Desai.

However, even in an age awash with AI, Schellman acknowledges there are certain jobs that need a human, at least for now. For example, the firm does assessments for the FedRAMP program, which is needed for cloud service providers to contract with certain government agencies. These assessments, even in the most stable of times, can be long and complex engagements, to say nothing of the less predictable nature of the current government. As such, it does not make as much sense to reduce human staff in this area. 

“The way it is right now for us to do FedRAMP engagements, it’s a very manual process. There’s a lot of back and forth between us and a third party, the government, and we don’t see a lot of overall application or technology help… We’re in the federal space and you can imagine, [with] what’s going on right now, there’s a big changing market condition for clients and their pricing pressure,” said Desai. 

As Schellman reduces staff levels in some places, it is increasing them in others. Desai said the firm is actively hiring in certain areas. In particular, it’s adding staff in technical cybersecurity (e.g., penetration testers), the aforementioned FedRAMP engagements, AI assessment (in line with recently becoming an ISO 42001 certification body) and in some client-facing roles like marketing and sales. 

“So, to me, this isn’t about doing more with less … It’s about doing more of the right things with the right people,” said Desai. 

While these moves have resulted in savings, she said that was never really the point, so whatever the firm has saved from staffing efficiencies it has reinvested in its tech stack to build its service line further. When asked for an example, she said the firm would like to focus more on penetration testing by building a SaaS tool for it. While Schellman has a proof of concept developed, she noted it would take a lot of money and time to deploy a full solution — both of which the firm now has more of because of its efficiency moves. 

“What is the ‘why’ behind these decisions? The ‘why’ for us isn’t what I think you traditionally see, which is ‘We need to get profitability high. We need to have less people do more things.’ That’s not what it is like,” said Desai. “I want to be able to focus on quality. And the only way I think I can focus on quality is if my people are not focusing on things that don’t matter … I feel like I’m in a much better place because the smart people that I’ve hired are working on the riskiest and most complicated things.”

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