In a business landscape evolving at breakneck speed, CPA firms that cling to outdated models and mindsets risk losing their relevance.
So, what does it take to thrive in this new era? In a recent podcast episode, I put this question to Alan Whitman, former CEO of Baker Tilly. Drawing on his experience leading the firm through exponential growth, Alan shared how CPA firms can break the mold and position themselves for enduring success.
Alan argues that the key is embracing change. To remain competitive, firms must shift their focus from billable hours to delivering value, build scalable businesses, and adopt a forward-thinking “what will it take” mindset. In our conversation, Alan delved into the practical strategies behind these imperatives.
The billable hour’s last gasp
The traditional hourly billing model is showing its age. In an era where businesses demand agility, innovation, and value-driven service, the billable hour is increasingly obsolete.
As Alan puts it, “Firms that are able to shift from a production mindset to an outcomes and value mindset will break the mold and will be far ahead of those that don’t.”
But this shift is easier said than done, particularly for larger, established firms with systems and cultures built around tracking and billing time. It requires reenvisioning how the firm operates and generates revenue, a process Alan witnessed firsthand at Baker Tilly.
“We were starting that process when I was at the latter part of my tenure,” he recalls. “It’s a bold, nerve-wracking step. People would say, ‘How are you going to account for everything? How are you going to make sure projects are moving along?'”
Despite the challenges, Alan believes this transition is nonnegotiable for firms to stay competitive.
From inputs to outputs
So, what does a value-based model look like in practice? According to Alan, it starts with shifting focus from inputs to outputs.
“For fixed-fee projects like audits, the focus should be on effective project management and tracking out-of-scope hours rather than all billable hours,” he explains. “Firms often focus on hours to accrue revenue, but this can lead to inaccuracies and doesn’t reflect true project progress.”
Overemphasizing billable hours can disincentivize efficiency, innovation, and value creation. If employees are rewarded solely based on time worked, there’s little incentive to find more innovative ways to deliver better results faster.
As Alan puts it, “Nobody gets rich by doing more work. Quantity is not the goal. It’s quality, replication and automation.” By shifting focus to outcomes and value delivered, firms can reward the behaviors and skills that matter in today’s competitive landscape.
Adopting a ‘What will it take” mindset
Transforming a firm’s business model and culture requires rethinking how work gets done and how the firm is structured and led.
One fundamental shift is moving from a partner-centric model to a client-centric one. “CPA firms need to shift from being organized around partners’ individual books of business to client books of business,” Alan argues.
This enables firms to build “businesses within the business” — scalable, $100 million practices that create intellectual capital (knowledge and expertise) and financial capital for growth. Alan challenged his Baker Tilly leaders to think this way.
“I had many conversations with leaders: ‘How are we going to build a business to $100 million scale?’ Building businesses within the firm creates capital for growth.”
Tackling a transformation of this magnitude starts with a simple yet powerful question: “What will it take?”
“When approaching complex challenges, leaders should ask, ‘What will it take?’ and envision building from scratch,” Alan advises. “Beginning with a clean slate and working backward can help firms create a roadmap for achieving lasting relevance.”
This “clean slate” approach requires setting aside obstacles that hold firms back. “Don’t start with the ‘Yeah, buts,'” Alan says. “Start with the clean slate, ask what it will take, then decide if you’re willing to leap.”
The imperative for change has never been more apparent. Firms clinging to outdated models risk irrelevance, but those embracing change can position themselves for enduring success and become the proactive partners their clients need.
Transformation is never easy, but as Alan’s experience shows, firms must remain competitive. The future of accounting is here. Will your firm be part of it?
In a case involving phony documents and unpaid taxes, a prominent Washington, D.C.-based accountant pleaded guilty last week for making false statements on a mortgage application after failing to file IRS returns.
A certified public accountant with expertise on tax compliance and due diligence matters, Timothy Trifilo has held partner or managing director positions at several firms for over four decades. He also taught courses in taxation and real estate as an adjunct professor, the original Department of Justice indictment said. Trifilo was hired as a managing director with consulting firm Alvarez & Marsal earlier this year.
The fraud allegations resulted from a 2023 purchase, when Trifilo applied for a $1.4 million mortgage on a Washington property. When the unidentified issuing bank advised that they could not locate recent tax returns nor approve his application without them, Trifilo submitted copies of 2021 and 2022 IRS filings to the lender, who then originated the loan.
Investigators later discovered that, in reality, Trifilo had neither filed returns nor paid taxes for any year beginning in 2012 despite income over the subsequent decade totaling more than $7.7 million. His annual earnings ranged between $636,051 and $948,252 during that time, amounts that required him to file individual tax returns each year.
On documentation delivered to the lender in support of the mortgage application, a former colleague of Trifilo was identified as responsible for preparing, reviewing and signing the falsified returns purportedly submitted to the Internal Revenue Service.
“This individual did not prepare the returns, has never prepared tax returns for Trifilo and did not authorize Trifilo to use his name on the returns and other documents that Trifilo submitted,” a DOJ press release said.
A grand jury originally indicted Trifilo in September on seven counts, including bank fraud and failure to file tax returns, as well as aggravated identity theft. His actions led to a tax loss for the IRS of $2.1 million.
He faces a maximum sentence of three decades in prison for defrauding the lender, as well as one year for failure to file tax returns. Sentencing is scheduled for May 19.
In addition to potential prison time, Trifilo may be required to forfeit the original loan amount and property acquired through bank fraud, the original indictment stated. He also faces a period of supervised release, monetary penalties and restitution.
Attorneys from the DOJ’s tax division prosecuted the case, with evidence based on findings from the IRS criminal investigation unit.
Submission of phony forms and documents have played a role in multiple fraud cases this year, pointing to a pain point in the mortgage process that could end up costing lenders. Problems in income and employment data specifically had a defect rate of 37.01% to lead all underwriting categories between March and June this year, according to Aces Quality Management. The number surged from 23.42% in the first quarter.
The American Institute of CPAs is asking the Securities and Exchange Commission to reject the Public Company Accounting Oversight Board’s recently adopted standard on firm and engagement metrics, arguing they would drive smaller firms out of the auditing business and affect companies large and small.
The PCAOB voted to adopt the standard last month, along with a related standard on firm reporting, but the new rules still need to be approved by the SEC before they become official and take effect. Under the new rules, PCAOB-registered public accounting firms that audit one or more issuers that qualify as an accelerated filer or large accelerated filer would be required to publicly report specified metrics relating to such audits and their audit practices. The PCAOB made some changes from the originally proposed rules to accommodate some of the objections from the audit industry and public companies, but they remain far reaching in scope. The AICPA argues that the rules would affect more than just accelerated filers and large accelerated filers and could harm smaller companies and their auditors as well. Under SEC rules, accelerated filers are companies that have a public float of between $75 million and $700 million, annual revenues of $100 million or more, and have filed periodic reports and an annual report within the past year. Larger accelerated filers have a public float of $700 million or more. The AICPA expressed caution soon after the PCAOB voted to approve the new standards, but said it was still studying it. Now it is coming out firmly against the new rules and urging the SEC to reject them.
“Alternative approaches that better balance transparency, cost, and the needs of audit committees, while continuing to support the quality of audit services and choice of audit providers available to perform public company audits and serve the public interest should be pursued, rather than introducing potentially detrimental unproven regulations,” the AICPA said in a comment letter to the SEC.
The AICPA argues the new rules would hurt U.S. capital markets as well as the investing public, in addition to auditing firms of all sizes.
“We believe these rules will have unintended negative consequences, including driving small and medium-sized firms out of the public company auditing practice,” said AICPA comment letter. “This would result in fewer firms performing audits which are critically important for smaller and medium size companies seeking to access the U.S. capital markets. Consequently, companies will face greater challenges and higher costs in meeting necessary audit requirements to access to the U.S. capital markets. The PCAOB acknowledges that mid-sized and smaller accounting firms serving small to mid-sized public companies will incur substantial, if not prohibitive, costs in complying with the proposed amendments. The final rules reaffirm the PCAOB’s belief that the rules will disproportionately affect smaller firms.”
The AICPA contends it’s overly simplistic to believe the impact of the rules would mostly fall within the market for large accelerated filers.“Smaller audit firms often serve clients of varying sizes, and their departure from the broader public company audit market could result in a substantial loss of audit firm options, particularly for smaller, less complex accelerated filers,” said the AICPA. “The loss of competition and the reduction in available audit firms could lead to higher costs and less favorable engagement terms for these smaller issuers. A landscape in which smaller issuers have fewer options contradicts the PCAOB’s goal of promoting fair competition.”
The AICPA disputes the claim by proponents of the new rules that competition may increase in the non-accelerated filer audit market as firms exit the accelerated filer and large accelerated filer markets. “This fails to account for the fact that non-accelerated filers often rely on firms with specific expertise and resources,” said the AICPA comment letter. “Further, the firms exiting the accelerated filer space may not be able to effectively redeploy their capacity to the non-accelerated filer market. In fact, their exit could lead to a loss of specialized services and a further concentration of resources in the larger end of audit firms, making it harder for non-accelerated filers to secure high-quality, affordable audits.”
The AICPA disagrees with predictions that profitable firms in the larger audit markets could expand their market share against the Big Four. “The resources required to absorb and integrate such capacity are substantial, and many firms may not have the operational flexibility to do so without significant strain on their existing clients and resources,” said the AICPA comment letter. “This further risks driving up audit costs for smaller and mid-sized issuers, which are often less agile and unable to absorb such change without significant disruption.”
The Institute is also concerned about the use of performance metrics within the PCAOB’s inspection and enforcement program, and how they might drive up the risk of enforcement for minor, unintentional reporting errors. It said the PCAOB rejected calls for a threshold based on the severity of reporting errors. The PCAOB declined a request for comment.
Aiwyn, a provider of technology solutions for accountants and CPA firms, has closed a $113 million funding round.
The money will help the company continue its evolution from its original focus on payments and collections for accounting firms into a more comprehensive tool for practice management.
Among other things, that will include building a universal client experience portal, where accountants can access all of their engagements in one place.
The funding will also be used to accelerate product development on both the company’s practice management platform, and on a tax solution that it is working on.
“Aiwyn is committed to empowering CPA firms to elevate their operations and client relationships,” said chairman and CEO Justin Adams, in a statement. “With this investment, we are poised to redefine how firms manage their operations from the CRM to the general ledger, while setting a new benchmark for client experiences. For too long, firms have had to decide between a legacy vendor or modern point solutions. We are proud that Aiwyn is a trusted platform for CPA firms.”
The round was led by global investment firm KKR and Bessemer Venture Partners. KKR is funding this investment primarily from its Next Generation Technology III Fund.
“The accounting industry represents a large market that has long been served by legacy players. Aiwyn is solving a clear functionality gap in the market with a solution that is easily adopted and rapidly delivers tangible enhancements to the customer experience, most noticeably through significant reductions in days sales outstanding,” said Jackson Hart, a principal on KKR’s technology growth team, in a statement.
“Aiwyn’s product suite is already quite impressive, but the company is really just getting started on its quest to deliver compelling technology to the accounting industry,” added Bessemer partner Jeremy Levine, in a statement.
Cooley LLP served as legal advisor to Aiwyn; Latham & Watkins LLP served as legal advisor to KKR; and Arnold & Porter Kaye Scholer LLP served as legal advisor to Bessemer.