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Art of Accounting: The vanishing buyers of small practices

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There is no question that there is widespread consolidation of accounting practices, but this is taking place among the larger firms. You can read about a merger or acquisition multiple times a week in Accounting Today. The trend I have seen is difficulty in small practices finding suitable buyers.

I believe the shortage of buyers of small practices is because the potential buyers are not qualified to handle a small practice. When I “grew up” in public accounting, I worked for small firms where I needed to do everything a client needed done. Sure, it was a less complicated period, but I needed knowledge and skills preparing all types of tax returns, as well as financial statements that were mostly compilations but still with a fair amount of reviews and even some audits. I also had to do systems review, not just filling out internal control questionnaires but helping a client work through weaknesses they had discovered or that kept them awake at night. The job involved speaking with bankers about what they wanted, the purpose of the business’s covenants and compensating balance amounts and quality of collateral.

We were reviewing escalation clauses in leases, calming down an IRS revenue officer when a client fell behind paying the withholding taxes, helping a client understand the total costs of their products and their breakeven sales amounts, the layered structure of payments to their salespeople and representatives, how to calculate their interim inventory and industry expertise. We also became sounding boards to our clients and “unlicensed” psychologists. I tell a lot of stories about this in my Memoirs book. 

What has been occurring over the last two dozen or so years is a trend toward specialization or partitioning of skills. The reasons are the growing complexity of tax returns, combined with digitization of the input and many of the repetitive processes, along with the even greater difficulty of financial statement preparation, reviews and audits.

The use of virtual work has been growing over this period, with a great acceleration since the COVID shutdown in March 2020 that has reduced the relational interaction with clients. That was an important driver of queries and discussions, providing insights into a client’s thinking and concerns. A lot of higher-level discussions were with the partner but plenty of them also took place with the “kid” spending that day with the client. None of this is good or bad, it is just different, and while it raised specialized skill levels it also served to reduce the one thing that I felt created the smaller firm’s raison d’être as well as a training ground for future CPA practice owners. 

Do not misunderstand me. The relationships and interactions still exist, especially with older practitioners. But it is a declining skill or talent. The younger staff are not being presented with the opportunities that were ubiquitous during my and some later generations, but no longer so. This means that the skills needed to succeed in a smaller practice have declined and this serves to decrease the pool of available buyers.

Furthermore, moonlighting, which was prevalent in my day, has become less frequent, primarily because of the longer work hours. When coupled with the drop in skill levels needed to properly service smaller clients, it has reduced the staff people’s “desire” to seek out after hours work opportunities. Again, things have changed, not just one thing but a confluence of actions.

Considering what I suggested here, the pool of available buyers of small practices has declined. It has not exactly vanished as the headline title suggests, but I think we are past the beginning of this trend. That has made it harder to sell a small practice and has served to reduce the prices and lengthen the time to consummate a sale, stretching out the exit period.

Twenty years ago selling a small practice was pretty easy since there was an abundance of buyers. That’s not so anymore. This is a trend that is occurring because of changing circumstances, not because of any predestined plan or conspiracy. 

These comments are based on my limited observations of colleagues I have met or spoken with who have had extreme difficulties selling their practices that I know would have been easy sales 20 years ago. The purpose of sharing my thoughts is to provide a heads up of what might be expected, including a longer sale process and a lower sales price. I suggest factoring my thoughts into your planning. If I am wrong, you will have lost nothing.

Comment: My Memoirs as a CPA book has been published and is available in Kindle and print editions at amazon.com. Buy it, read it and enjoy it! 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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