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Thoughts on the rise or fall of accounting

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I’m a lover of history. I could write an entire book on what history means. Perhaps the most fascinating aspect of history to me are the long-term changes (over decades or even centuries) that have occurred, some good, some not so good. 

The common denominator of these changes is that few could have predicted these changes before they happened. Who could have predicted that the Romans, the English, the Dutch and the Spaniards would cease to be the most powerful nations in the world? Who could have predicted the catastrophic impact of the 1918 flu and the 2020 COVID? Why didn’t the Jews of Europe see the handwriting on the wall and flee to friendly countries as Hitler began his scourge in the early and mid-1930s? I can go on and on.

I start with the above to ease into your central question (“A setting sun, or a rising?): Is the CPA profession declining? You’re correct to state that revenues and profits of CPA firms are strong and growing and that demand for accounting services are at an all-time high. 

But as Chad and Jeremy sang, “That was yesterday and yesterday’s gone.” I’m not a chess player but I know enough about chess to know that you win by planning your moves several moves ahead. Those of us in the CPA profession, from managing partners to consultants to journalists, are painfully aware of the very real threats, such as declining labor pools and the possible negative impacts of artificial intelligence and private equity (both great examples of glass half-empty or half-full discussions).

Our profession has withstood many sea changes and survived them … and then some. Looking over the most recent 40 years of the CPA industry, there have been epic positive changes that the CPA profession made to avoid declining:

  • Being able to sell without ethical restraints. 
  • Providing services other than basic compliance work.
  • Running a firm like a real business instead of a bunch of collegial buddies with no one really in charge.
  • The advent of computers, causing legions of CPAs to do things with technology that they used to do by hand.
  • The consolidator storm of the late 1990s, closely followed by merger mania that shows no signs of letting up.
  • Remote work, necessitated by COVID, prevented legions of staff, especially younger ones, from benefitting and developing from the collegiality and learning that is best cultivated by being in an office with co-workers. Today, the trend is getting back to more time in the office, such as hybrid schedules that require staff to be in the office three days a week. 

In the mid-1990s, the subject of a front-page article in The Wall Street Journal was the demise of smaller firms due to CPA firm mergers, which, of course, never happened and never will happen. I sent a letter to the journalist who wrote the article tactfully explaining that his premise was grievously in error. I never received a response.
The two biggest threats to the profession, to me, are:

  1. Declining labor pool. Most firms today are not comfortable with the progressive ways to solve the problem — offshoring and outsourcing personnel, hiring people from outside a firm’s market and hiring non-CPAs. But as of today, firms are moving very slowly on this. It reminds me of firms in the late 1980s and early 1990s fighting the trend to do their work with computer software instead of manually. Nobody today has a problem with the analysis and diagnosis of MRIs and x-rays regularly performed by invisible, trained doctors abroad. Why should CPA firms have a problem with some of their basic work being done by CPAs in the Philippines, India and other countries? Many CPA firms are fighting this trend, but they will eventually see the light. The way things are going, they might not have a choice.
  2. The fear that AI will substantially reduce CPAs’ present work and processes. Yes, the way we do our work today and the fees we charge for this work will decline, perhaps greatly, as a result of AI. But this gives CPAs an opportunity to re-engineer themselves, just as they did in the 1990s when they started adding ancillary services to accounting work, thus doing a better job of satisfying clients’ needs. This reminds me of the time in the early 1990s when Quicken and QuickBooks were introduced. The dilemma presented to CPAs was twofold; first, there was the negative: “These programs will reduce our work.” Then the positive, which more than offsets the negative, is that with these technologies, CPAs can focus more on helping clients run their businesses, supported by client reports that the clients effortlessly create. Again, the result is more time to focus on clients’ needs instead of focusing on pumping the work out.

CPAs in the 1960s and 1970s would be dumbfounded and shocked to see the monumental changes that have occurred through today. I think that CPAs today will be equally stunned to see what the profession looks like in 30-40 years, a profession that continues to adapt and thrive.

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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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