Accounting
Tech agnostic or exclusive? Weighing the pros and cons
Every firm leader has been faced with the same question: Will you use your clients’ tech, or will clients use your tech? Whether a firm pursues a tech-exclusive strategy or a tech-agnostic one, the choice will have major ramifications down the line, so it is important to understand the tradeoffs.
Pursuing an agnostic strategy means that the accountant will adapt to the client’s tech stack. Perhaps the firm prefers QuickBooks Online, but the client uses Xero or some other platform. Under this strategy, the professional will work with the client regardless, doing whatever they need to do to successfully migrate data and accommodate different workflows.
Kim Blascoe, senior director of CAS professional services for CPA.com said that this approach can let a firm access a broad set of clients in a variety of sectors, as it involves meeting the client where they are.
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“I think if we were going to dive a little bit deeper into that, you think about client-centric flexibility, so you might potentially be more open to work with a variety of clients, and maybe potentially in different industries, so certainly, maybe a broader market when it comes to attracting potentially new clients into your business,” she said.
Katherine Bunschoten, founder of North Carolina-based Certum Solutions, emphasized the client-centric aspect as one of the strengths of being a software-agnostic firm. While her firm began as a QBO-only practice, longtime clients would ask about wanting to try a new solution or bring in software of their own. While she did not plan to be a software-agnostic firm at first, “We did have a strong focus on listening to our customers.”
“And what does that mean to me? It means moving the focus from myself as a firm owner and more towards seeing through the eyes of my customer, what’s going to work for them. … I’m not a manufacturer, and what works best for a manufacturing customer or a construction customer may not be something that I worked with historically, but in order to meet that demand and be the best service provider for my client, it’s something my team needs to learn,” she said.
Right now her firm works along what she called an “ambassador” program, where individual staff members train on different platforms, whether because a client asked about it or even because the staff member was curious about it. Over time this has developed into a sort of ecosystem where they can find the best software fit for a client’s specific needs.
“If it was just me alone, I probably could not have done it as easily. But knowing who your colleagues are and what their strengths are within your firm definitely has been a boon for us,” she said.
Pat Camuso, head of digital asset-focused accounting firm Camuso CPA, made a similar point in that, even within the crypto space alone, accountants have literally dozens of solutions to choose from before even considering the dozens more that exist on the enterprise side. There’s no one-size-fits-all approach for clients, and so he doesn’t want to restrict himself to a single solution.
“And even to this day, I would say there’s not one software out there that’s going to have perfect data coverage and quality and completeness and the exact reporting that you want. There’s not one perfect solution,” he said.
Another major advantage he cited was independence. He said there are a lot of firms that will choose just one crypto accounting software platform, then funnel all their clients onto it as a way to get affiliate bonuses for referrals, regardless of whether that platform is the best fit for the client. By being open to different platforms, he said he can give clients options, as well as the peace of mind that he is thinking in terms of their own success.
“If I just put them blindly on one [platform] and don’t take them through the whole process [of evaluating different platforms], and then they find out I’m getting a referral fee or something, they’ll be like, ‘What is this guy doing? Is this the right thing for us?’ But taking a transparent approach and really being able to give them through this fragmented software provider landscape is a value add,” he said.
Not that there aren’t any tradeoffs. Both Camuso and Bunschoten said that this approach is more complex, needs more training, and requires the firm to develop different workflows for different platforms, which tends to eat into efficiency.
Bunschoten added that there’s limited time available to learn new platforms, which also affects recruitment, as it can be difficult to find people with the years of experience needed to be an ambassador out the gate. She also mentioned that each of these platforms generally need to be maintained, which eats into capacity.
“Instead of juggling one software platform and the maintenance releases and the IT aspect … we now have to coordinate multiple variables when we’re dealing with those IT situations. So there is an element of complexity to it,” she said.
Camuso added that it takes time and effort to develop different standard operating procedures, especially considering the complexity of crypto accounting, which also means switching between workflows and closely monitoring their implementation to ensure nothing goes wrong. But at the same time, he said it’s allowed them to understand many different platforms and develop standard procedures for ingesting, normalizing, reconciling and categorizing data appropriately using standardized due diligence methodologies “regardless of software.”
“That does add complexity … [though] I think it works to our advantage now, and it definitely puts us in a stronger position. But there is that problem,” he said.
Tech exclusivity
To be a tech-exclusive firm is to require that clients adapt to the firm’s tech stack, or already be on it themselves — and if they object too hard on this point, the firm will calmly say they’re not a good fit for each other and refer them to a colleague.
While still a minority, the number of firms pursuing this strategy are growing fast, with
“From a standardization perspective, being able to build consistent processes, reporting, formats and workflow across multiple clients is something that certainly is an advantage when you’re working on the same tech stack. … On the efficiency aspect, you have less time learning multiple platforms, which makes it more scalable, easier to train your staff, easier to automate your workflows, build repeatable processes, and even potentially gives you fewer data errors,” she said.
Dawn Brolin, leader of Connecticut-based Power Accounting and an accounting technology advisor, knows this well. When she first started her firm, she said she was open to any client on any platform because, bluntly, she needed the money. Over time, however, the drawbacks of this approach began weighing on her, and she realized that the best client service was offered through the software she knew the best, which in her case was QuickBooks Online. Narrowing her focus from dozens of different platforms down to one that she knew top to bottom led to less stress and more money.
“Over many, many years, I realized that the quicker that I was able to laser focus on utilizing the technology I was really good at and stop trying to please everybody, [the quicker we] became more efficient, we became more productive, we became more profitable because we were just really good at the tools we use. So we asked, ‘Wait a minute, why are we even entertaining other tools when what we’re using is working?’ That’s where a lot of things changed for us,” she said.
With only one platform to learn, training becomes much easier to manage, as people don’t need to “learn 80 different things as opposed to the tech stack you’re familiar with.” They just need to learn one thing: QuickBooks. Yes, there aren’t as many new clients, but this isn’t as big a deal as one would think, as Brolin said she is able to derive much more value from the ones she already has.
“Our decision together as a team, as a small team, is we don’t want to be a firm that grows and has 500 clients. We have about 200 right now between businesses and individuals that we do taxes for, and because of that our work is so under control, we are OK with not growing the team. Where we’re at is where we’re going to stay,” she said, noting that this decision also came with the choice to move away from hours-based billing and into subscription or, for one-off needs, outcome-based pricing.
Keila Hill-Trawick, founder and CEO of Washington, D.C.-based Little Fish Accounting, reported a similar experience. When she started, she was willing to work with both QuickBooks and Xero, but as time went on she found her small firm did not have time to keep up with all the changes and updates of two major platforms at once. They decided they would focus on QuickBooks.
While they at first expected they’d eventually expand back, new solutions they implemented before then needed to integrate with what they were using now. Eventually anything they used had to be able to connect with QuickBooks anyway, so they decided to remain a tech-exclusive firm.
“My expectation is that we would grow to a point where maybe we could have somebody who was an expert in Xero and somebody who was an expert in QuickBooks. What I found, though, as we started integrating more tech at Little Fish, is that those integrations started mattering. And so now everything that we use also talks to QuickBooks. … So many softwares that are talking to QuickBooks require a certain setup that it felt easier to streamline that way than to expose ourselves to additional tech that we needed to learn and keep up with,” she said.
Not only is training easier, client onboarding is a lot faster, as everything centers around one platform.
“Because everything is streamlined, and because we have tools that are pulling from one system, it’s really easy to get them set up in our other systems, review their information to see whether they’re a good fit for us, and then clean up the information, because it always goes exactly the same way … because my team is on QuickBooks, it makes it really simple to bring people in,” she said.
Like Brolin, she acknowledged that this has led to a narrowing of her client base but this has not been especially troubling as Hill-Trawick was never as interested in sheer volume. She always preferred a smaller number of higher-value clients. A drawback she did mention, though, was vendor lock-in: When you’re exclusive to one platform, you’re generally at the mercy of whatever company is behind the platform.
“So when QuickBooks raises their prices or changes their format or does something that I don’t like, it is a huge overhaul for us to make a decision, because it would essentially have to be an all or nothing. I don’t think we could halfway put some of our clients into this other system and keep some of them over here. And so it means a huge ordeal if and when we decide to change,” she said.
The spectrum
Being tech-agnostic or exclusive is not a hard dichotomy, and so even if a firm leans one way or another, they don’t necessarily have to go 100% in that direction. A tech-agnostic firm might still have preferred platforms while a tech exclusive firm might have areas of flexibility.
Camuso, for example, requires clients to use ShareFile for cybersecurity reasons, as “we’re not going to have a policy to just click any sharing link and create a security risk.” Conversely, while Brolin’s firm insists the client be on the same GL software, they’re more flexible around things like payment solutions, noting that they don’t do bill pay or AP services, so it doesn’t really matter what the client uses.
Blascoe said she has also seen tech-exclusive firms making concessions for extra fees, sometimes on the spot and other times as official policy.
“We would look at going tech-agnostic with this particular client, but you have to pay for it. So we’re going to do it, but there’s definitely going to be a premium pricing that comes along with that. And we see firms sometimes do it in the tier model too. So they’ll say Tier One and Tier Two, this is our tech stack, you know, this is exactly the services we’re going to offer in these different tiers. And then you get to Tier Three, and maybe that’s a custom tier, and the pricing on that is significantly different from your more standard model that you’re using with your tech stack,” she said.
Blascoe agreed that specific circumstances and contexts, as well as long-term vision and goals, will affect what model works best for a firm. For instance, if scaling fast and onboarding lots of new clients is important, it may be better to pursue a tech-exclusive model, especially if the services being offered are more transactional; if the priority, instead, is more focused on providing data-driven insights for advisory clients, and the firm collects information directly from the client’s own system, then a tech-agnostic approach may be more appropriate.
Still, based on what CPA.com has been observing over the years, she said that firms are trending more tech-exclusive than agnostic.
“I think definitely the trend is to go towards exclusivity, because all the practices are trying to figure out how they can scale quicker and build their teams faster … there’s a lot of advantages to exclusive technology. I think the only time that you probably don’t stay in that concept is if you really have a high-level CFO-type of business insights practice, and you’re not focused on the back end,” she said.
This is the final part of our series on Managing Your Firm’s Technology. You can find the other parts linked here.
The Financial Accounting Standards Board met this week to discuss its projects on accounting for transfers of cryptocurrency assets and enhancing the disclosures around certain digital assets, such as stablecoins.
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During Wednesday’s meeting, FASB’s board made certain tentative decisions, according to a
At a future meeting, the board plans to consider clarifying the derecognition guidance for crypto transfer arrangements to assess whether the control of a crypto asset has been transferred.
FASB also began deliberations on the
The board decided to provide illustrative examples in Topic 230, Statement of Cash Flows, to clarify whether certain digital assets such as stablecoins can meet the definition of cash equivalents. It also decided to include the following concepts in the illustrative examples:
- Interpretive explanations that link to the current cash equivalents definition;
- The amount and composition of reserve assets; and,
- The nature of qualifying on-demand, contractual cash redemption rights directly with the issuer.
FASB plans to clarify that an entity should consider compliance with relevant laws and regulations when it’s creating a policy concerning which assets that satisfy the Master Glossary definition of the term “cash equivalents“ will be treated as cash equivalents.
“I agree with the staff suggestion to look at examples,” said FASB vice chair Hillary Salo. “From my perspective, I think that is going to help level the playing field. People have been making reasonable judgments. I agree with that. And I think that this is really going to help show those goalposts or guardrails of what types of stablecoins would be in the scope of cash equivalents, and which ones would not be in the scope of cash equivalents. I certainly appreciate that approach, and I think it has the least potential impact of unintended consequences, because I do agree with my fellow board members that we shouldn’t be changing the definition of cash equivalents, and it’s a high bar to get into the cash equivalent definition.”
“I’m definitely supportive of not changing the definition of cash equivalents,” said FASB chair Richard Jones. “I believe that’s settled GAAP in a way, and we’re not really seeing a call to change it for broader issues. I am supportive of the example-based approach. The challenge with examples, though, is everybody’s going to want their exact pattern, but that’s not what we’re doing.”
The examples will explain the rationale for how digital assets such as stablecoins do or do not qualify as cash equivalents and give a roadmap for other types of digital assets with varying fact patterns to be able to apply.
“We really don’t want to be as a board facing a situation where something was a cash equivalent and then no longer is at a later date,” said Jones. “That’s not good for anyone, so keeping it as a high bar with certain rigid criteria, I think, is fine.”
Stablecoins are supposed to be pegged to fiat currencies such as U.S. dollars and thus provide more stability to investors. “In my view, while a stablecoin may meet the accounting definition established for cash equivalents, not every one of those stablecoins in the cash equivalent classification represents the same level of risk,” said FASB member Joyce Joseph.
She noted that the capital markets recognize the distinctions and have established a Stablecoin Stability Assessment Framework to evaluate a stablecoin’s ability to maintain its peg to a fiat currency. Such assessments look at the legal and regulatory framework associated with the stablecoin, and provide investors with information that could enable them to do forward-looking assessments about the stability of the stablecoin.
“However, for an investor to consider and utilize such information for a company analysis the financial statement disclosures would need to include information about the stablecoin itself,” Joseph added. “In outreach, the staff learned that investors supported classifying certain stablecoins as cash equivalents when transparent information is available about the entities at which the reserve assets are held. Therefore, in my view, taking all of this into consideration a relevant and informative company disclosure would include providing investors with the name of the stablecoin and the amount of the stablecoin that is classified as a cash equivalent, so investors can independently assess the liquidity risks more meaningfully and more comprehensively by utilizing broader information that is available in the capital markets and its emerging information.”
Such information could include the issuer, reserves, governance and management, she noted, so investors would get a more holistic look at the risks that holding the stablecoin would entail for a given company.
The board decided to require all entities to disclose the significant classes and related amounts of cash equivalents on an annual basis for each period that a statement of financial position is presented.
Entities should apply the amendments related to the classification of certain digital assets as cash equivalents on a modified prospective basis as of the beginning of the annual reporting period in the year of adoption.
FASB decided that entities should apply the amendments related to the disclosure of the significant classes and amounts of cash equivalents on a prospective basis as of the date of the most recent statement of financial position presented in the period of adoption.
The board will allow early adoption in both interim and annual reporting periods in which financial statements have not been issued or made available for issuance.
FASB also decided to permit entities to adopt the amendments to be illustrated in the examples related to the classification of certain digital assets as cash equivalents without the need to perform a preferability assessment as described in Topic 250, Accounting Changes and Error Corrections.
The board directed the staff to draft a proposed accounting standards update to be voted on by written ballot. The proposed update will have a 90-day comment period.
Senators introduced several pieces of tax-related legislation this week, including measures aimed at improving customer service at the Internal Revenue Service, cracking down on tax evasion and curbing the carried interest tax break, in addition to efforts in the House to repeal the Corporate Transparency Act.
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Senators Bill Cassidy, R-Louisiana, and Mark Warner, D-Virginia, teamed up on introducing a bipartisan bill, the
The bill would establish a dashboard to inform taxpayers of backlogs and wait times; expand electronic access to information and refunds; expand callback technology and online accounts; and inform individuals facing economic hardship about collection alternatives.
“Taxpayers deserve a simple, stress-free experience when dealing with the IRS,” Cassidy said in a statement Wednesday. “This bill makes the process quicker and easier for taxpayers to get the information they need.”
He also mentioned the bill during a
“I’m happy to meet with the team … and do all I can to make it as good as you want it to be,” said Bisignano.
“My bill would equip the IRS with the legislative mandate to create an online dashboard so that taxpayers can monitor average call wait time and budget time accordingly,” said Cassidy. He noted that the bill would allow a callback for taxpayers that might need to wait longer than five minutes to speak to a representative, and establish a program to identify and support taxpayers struggling to make ends meet by providing information about alternative payment methods, such as installments, partial payments and offers in compromise.
“I know people are kind of desperate and don’t know where to turn for cash, so I think this could really ease anxiety,” he added. “This legislation is bipartisan and is likely to pass this Congress.”
Cassidy and Warner
“Taxpayers shouldn’t have to jump through hoops to get basic answers from the IRS — and in the last year, those challenges have only gotten worse,” Warner said in a statement. “I am glad to reintroduce this bipartisan legislation on Tax Day to ease some of this frustration by increasing clear communication and making IRS resources more readily available.”
Stop CHEATERS Act
Also on Tax Day, a group of Senate Democrats and an independent who usually caucuses with Democrats teamed up to introduce the Stop Corporations and High Earners from Avoiding Taxes and Enforce the Rules Strictly (Stop CHEATERS) Act.
Senate Finance Committee ranking member Ron Wyden, D-Oregon, joined with Senators Angus King, I-Maine, Elizabeth Warren, D-Massachusetts, Tim Kaine, D-Virginia, and Sheldon Whitehouse, D-Rhode Island. The bill would provide additional funding for the IRS to strengthen and expand tax collection services and systems and crack down on tax cheating by the wealthy.
“Wealthy tax cheats and scofflaw corporations are stealing billions and billions from the American people by refusing to pay what they legally owe, and far too many of them are getting a free pass because Republicans gutted the enforcement capacity of the IRS,” Wyden said in a statement. “A rich tax cheat who shelters mountains of cash among a web of shell companies and passthroughs is likelier to be struck by lightning than face an IRS audit, and Republicans want to keep it that way. This bill is about making sure the IRS has the resources it needs to go after wealthy tax cheats while improving customer service for the vast majority of American taxpayers who follow the law every year.”
Earlier this week. Wyden also
The Stop CHEATERS Act would provide the IRS with additional funding for tax enforcement focused upon high-income tax evasion, technology operations support, systems modernization, and taxpayer services like free tax-payer assistance.
“As Congress seeks ways to fund much-needed policy priorities and address our growing national debt, there is one common sense solution that should have unanimous bipartisan support: let’s enforce the tax laws already on the books,” said King in a statement. “Our legislation will make sure the IRS has the resources it needs to confront the gap between taxes owed and taxes paid – while ensuring that our tax enforcement professionals are focused on the high-income earners who account for the most tax evasion. This is a serious problem with an easy solution; let’s pass this legislation and make sure every American pays what they owe in taxes.”
Carried interest
Wyden, King and Whitehouse also teamed up on another bill Thursday to close the carried interest tax break for hedge fund managers that
Carried interest is a form of compensation received by a fund manager in exchange for investment management services, according to a
Under the bill, the
“Our tax code is rigged to favor ultra-wealthy investors who know how to game the system to dodge paying a fair share, and there is no better example of how it works in practice than the carried interest loophole,” Wyden said in a statement. “For several decades now we’ve had a tax system that rewards the accumulation of wealth by the rich while punishing middle-class wage earners, and the effect of that system has been the strangulation of prosperity and opportunity for everybody but the ultra-wealthy. There are a lot of problems to fix to restore fairness and common sense to our tax code, and closing the carried interest loophole is a great place to start.”
Repealing Corporate Transparency Act
The House Financial Services Committee is also planning to markup a bill next Tuesday that would fully repeal the Corporate Transparency Act, which has already been significantly
If enacted, the repeal would eliminate beneficial ownership reporting requirements, removing a transparency measure designed to help law enforcement and national security officials identify who is behind U.S. companies.
“This repeal would turn the United States back into one of the easiest places in the world to set up anonymous shell companies, something Congress worked for years to fix,” said Erica Hanichak, deputy director of the FACT Coalition, in a statement. “These entities are routinely used to facilitate corruption, financial crime, and abuse. Rolling back the CTA doesn’t just weaken transparency, it signals to bad actors around the world that the U.S. is once again open for illicit business.”
The Internal Revenue Service rarely penalizes taxpayers who have high balances in foreign bank accounts and fail to file the proper forms, according to a new report.
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The
Taxpayers with specified foreign financial assets that meet a certain dollar threshold are also required to report the information to the IRS by filing Form 8938. Failure to file the form can result in penalties of up to $60,000. However, TIGTA’s previous reports have demonstrated that the IRS rarely enforces these penalties.
The IRS created an Offshore Private Banking Campaign initiative to address tax noncompliance related to taxpayers’ failure to file Form 8938 and information reporting associated with offshore banking accounts, but it’s had limited success.
Even though the initiative identified hundreds of individual taxpayers with significant foreign bank account deposits who failed to file Forms 8938, the campaign only resulted in relatively few taxpayer examinations and a small number of nonfiling penalties. The campaign identified 405 taxpayers with significant foreign account balances who appeared to be noncompliant with their FATCA reporting requirements.
The IRS used two ways to address the 405 noncompliant taxpayers: referral for examinations and the issuance of letters to them.
- 164 taxpayers (who had an average unreported foreign account balance of $1.3 billion) were referred for possible examination, but only 12 of the 164 were examined, with five having $39.7 million in additional tax and $80,000 in penalties assessed.
- 241 noncompliant taxpayers (who had an average unreported account balance of $377 million) received a combination of 225 educational letters (requiring no response from the taxpayers) and 16 soft letters (requiring taxpayers to respond). None of the 241 taxpayers were assessed the initial $10,000 FATCA nonfiling penalty.
“While taxpayers can hold offshore banking accounts for a number of legitimate reasons, some taxpayers have also used them to hide income and evade taxes,” said the report.
Significant assets and income are factors considered by the IRS when assessing whether taxpayers intentionally evaded their tax responsibilities, the report noted. Given the large size of the average unreported foreign account balances, these taxpayers probably have higher levels of sophistication and an awareness of their obligation to comply with the law.
TIGTA believes the IRS needs to establish specific performance measures to determine the effectiveness of the FATCA program. “If the IRS does not plan to enforce the FATCA provisions even where obvious noncompliance is identified, it should at least quantify the enforcement impact of its efforts,” said the report. “This will ensure that IRS decision makers have the information they need to determine if the FATCA program is worth the investment and improves taxpayer compliance.
TIGTA made three recommendations in the report, including revising Campaign 896 processes to include assessing FATCA failure to file penalties; assessing the viability of using Form 1099 data to identify Form 8938 nonfilers; and implementing additional performance measures to give decision makers comprehensive information about the effectiveness of the FATCA program. The IRS disagreed with two of TIGTA’s recommendations and partially agreed with the remaining recommendation. IRS officials didn’t agree to assess penalties in Campaign 896 or with implementing performance measures to assess the effectiveness of the FATCA program.
“From our perspective, TIGTA’s conclusions regarding IRS Campaign 896 are based, in part, on a misguided premise and overgeneralizations, including the treatment of ‘potential noncompliance’ as tantamount to ‘egregious noncompliance’ that warrants a monetary penalty without contemplating the variety of justifications that may exempt a taxpayer from having to file Form 8938,” wrote Mabeline Baldwin, acting commissioner of the IRS’s Large Business and International Division, in response to the report.
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