Hey! What’s New?

A random collection of news items I hope you will find interesting.
By Gundi Jeffrey, Managing Editor 

Fraud on the Rise During Coronavirus Pandemic

An article by Michael Cohn in accountingTODAY, September 11, 2020, notes that anti-fraud experts are seeing a rise in various types of fraud this year, due in large part to the COVID-19 pandemic. A new report released Friday by the Association of Certified Fraud Examiners (ACFE) notes that the ACFE is undertaking a series of benchmarking surveys exploring how fraud risks and anti-fraud programs are changing in the current environment. The Fraud in the Wake of COVID-19: Benchmarking Report summarizes the results of the second of these surveys, which was conducted from late-July to mid-August 2020. 

Overall, more of the 2,096 anti-fraud experts who responded to the survey have noticed an increase in fraud since the previous quarter. In May, 68% said that they were seeing an increase in fraud, compared to 77% in August.

“What we’re finding is that the uptick in fraud that our members are seeing is continuing,” said Andi McNeal, director of research at ACFE. “Ninety-two percent expect they’re going to see even more fraud over the next 12 months. As we talk about the wake of COVID-19, we’re not just talking about the near future. We’re looking at over the next year. At least in terms of fraud risk, this is going to continue to have an impact.”

Anti-fraud professionals are seeing fraud increase in nearly every category. The largest growth was in insurance fraud (12% increase), loan and bank fraud (11%), financial statement fraud (11%), identity theft (10%) and employee embezzlement (9%).

Cyber fraud remains the area where most anti-fraud professionals are perceiving the biggest growth, with 83% reporting an increase and 90% anticipating an increase in the next 12 months. In the latest report, the ACFE added unemployment fraud and found that 73% of the respondents reported seeing an increase in that area, making it the second-most reported type of fraud.

According to McNeal, insurance fraud has been on the rise as well. “We see 58% of respondents have already seen an uptick in insurance fraud, and 80% are expecting that to continue over the next year.”

There has been an increase in financial statement fraud as well, said McNeal. “From our research, 41% of respondents said they’ve already observed an increase in financial statement fraud, and almost three quarters, 72%, expect that to keep growing.”

For more on the story, go to: https://www.accountingtoday.com/news/fraud-on-the-rise-during-coronavirus-pandemic, or order the report at: https://www.acfe.com/covidreport.aspx.

Building a Coherent, Global Approach to Corporate Reporting

In early September 2020, five global organizations – the International Integrated Reporting Council (IIRC); the CDP, a global not-for-profit that drives companies and governments to reduce greenhouse gas emissions, safeguard water resources, and protect forests; the Climate Disclosure Standards Board (CDSB); the Global Reporting Initiative (GRI).; and the Sustainability Accounting Standards Board (SASB) – issued a joint statement announcing a shared vision of what is needed for progress toward more comprehensive corporate reporting and the intent to work together to achieve it.

This builds support for a statement by the International Federation of Accountants in April that noted the current corporate reporting system “needs to evolve quickly to deal with the challenge posed by a myriad of different jurisdictional requirements and an absence of widely agreed standards in various areas beyond financial reporting. The result is variable quality and lack of comparability, leading to greater cost and inefficient capital allocation for both companies and investors.”

IFAC said at the time that “a global solution is needed to achieve relevant, reliable, and comparable narrative information and metrics.”

It's hoped that by sharing and collaborating, the global organizations will establish a worldwide consistency in reporting that will reduce burdens on reporting organizations while facilitating analysis, interpretation and action by users of information.

Since April, IFAC has proposed the creation of a new sustainability accounting standards board that would address the urgent and growing demand from investors, policymakers and regulators for a reporting system that delivers consistent, comparable, reliable and assurable information relevant to enterprise value creation, sustainable development and evolving stakeholder expectations.

"The time for a global solution is now," IFAC CEO Kevin Dancey said in a news release. “IFAC believes the IFRS Foundation, with the backing of public authorities, is optimally positioned to lead and coordinate this initiative, and they would do so with our full support. We recommend that the proposed board adopt a 'building blocks' approach, working with and leveraging the expertise and disclosure requirements of the CDP, CDSB, GRI, IIRC and SASB."

Barry Melancon, CEO of the Association of International Certified Professional Accountants and chair of the IIRC board, said in a news release that IFAC's recommendations are powerful and come out at a time when the world is in search of answers. He said this is an important moment for the IFRS trustees because businesses and investors need robust and trusted standards and interconnected oversight. "A cohesive approach to reporting is not just more efficient, it is essential to unlock the positive force of value creation. We also need innovation to complete the corporate reporting system, to ensure we have an assurance process that is fit for purpose and the technology to support high-quality reporting and governance."

For the whole story, see Journal of Accountancy online, September 11, 2020: https://www.journalofaccountancy.com/news/2020/sep/global-effort-unified-sustainability-corporatereporting.html?utm_source=mnl:cpald&utm_medium=email&utm_campaign=14Sep2020

Ransomware Accounted for 41% of all Cyber Insurance Claims in H1 2020

An article in ZDNet September 10 says that ransomware incidents have accounted for 41% of cyber insurance claims filed in the first half of 2020, according to a report published by Coalition, one of the largest providers of cyber insurance services in North America. The high number of claims comes to confirm previous reports from multiple cyber-security firms that ransomware is one of today's most prevalent and destructive threats.

"Ransomware doesn't discriminate by industry. We've seen an increase in ransom attacks across almost every industry we serve," explains the Coalition report. "In the first half of 2020 alone, we observed a 260% increase in the frequency of ransomware attacks amongst our policyholders, with the average ransom demand increasing 47%.”

Among the most aggressive criminal gangs, the cyber insurer listed Maze and DoppelPaymer, which have recently begun exfiltrating data from hacked networks, and threatening to release data on specialized leak sites, as part of double extortion schemes. Based on cyber insurance claims filed by customers who faced a ransomware attack in the first half of 2020, Coalition said the Maze ransomware gang was the greediest, with the group requesting ransom demands six times larger than the overall average.

But, besides ransomware incidents, Coalition also recorded a spike in the number of cyber insurance claims filed for funds transfer fraud attacks and business email compromise (BEC) events, with the first growing 35% from 2019 to 2020, and the second growing 67%. Both are similar types of incidents, where criminal gangs trick a company into making a payment into an attacker-controlled account. The difference is that funds transfer fraud attacks can also occur via phone call or mail; BEC attacks are carried out purely via email.

Reported losses from these incidents have ranged from the low thousands to well above $1 million per event, but Coalition says that companies using Microsoft Office 365 have seen 3.2 times more BEC incidents than organizations using other types of email providers. Nonetheless, Coalition said that in many cases of funds transfer fraud attacks, as well as BEC attacks, lost funds can be recovered, with quick intervention.

For more on the report, go to: https://www.zdnet.com/article/ransomware-accounts-to-41-of-all-cyber-insurance-claims/ or check out the Coalition report itself at: https://www.coalitioninc.com/blog/coalition-releases-new-2020-cyber-insurance-claims-report.

Fees and income still growing at firms 

A survey released earlier this month shows that Accounting firms are still managing to see increases in their fees and income per partner this year, despite the economic downturn from the COVID-19 pandemic. The latest annual Rosenberg Survey, now in its 22nd year, reports on the performance of 338 US accounting firms, most of which range from $2 million to $20 million in annual fees. 

Despite the challenges this year, the survey found that net fees per partner grew from $1.6 million to $1.7 million, and net fees per person increased from $183,000 to $191,000 in firms with revenue greater than $2 million.

Top Findings in this Year’s Survey

  • Revenue growthof 7.7% is UP from last year’s 7.0%, hopefully starting an upward trend! As one might imagine, the larger firms lead this trend with higher growth rates than the smaller firms.
  • Organic growthgrew from 4.3% to 5.9%, proving that the accounting profession is really cultivating a focus on business development.
  • The income per partnerwas $470,000, 6.6% higher than the prior year. Finally, the growth in profitability (6.6%) catching up to the top line growth (7.7%)!
  • This year once again proves that leverage and rates drive profitability. There are many parts of the survey dedicated to this correlation.
  • The firms that are in the lowest quartile of performing audit work (as a percentage of fees) actually outperform (in terms of IPP) those firms in the other three quartiles. This comes as no surprise as our profession movesfrom compliance to advisory.
  • The percentage of female partnerscontinues the increasing trend and moved from 21% to 23% for all multi-partner firms. A trend we hope to see continue into the future!
  • There was an increase in the percentage of firms, across all firm sizes, offering investment advisory services. These types of services are a logical extension to the traditional accounting firm offerings and certainly help as firms are trying to add more advisory services.
  • Finally, those firms in the lowest quartile of the percentage of billable hours during busy season (meaning their work is spread more evenly throughout the year) outperform (in terms of IPP) the other three quartiles.

For more survey results, check out https://cpatrendlines.com/shop/map-survey/.

New Research: Compensation Trends Amid COVID-19

Employers have a growing list of concerns lately, including losing their top performers, new research – described in a September 10, 2020 news release – from global staffing firm Robert Half shows. A majority of senior managers surveyed (82%) said they are worried about their company’s ability to retain valued staff, with 34% being very worried. Of those respondents, 41% attribute their concern to salary reductions or planned salary freezes for the near future.

The research findings were aired with the release of the Robert Half 2021 Salary Guides, which provide starting salary ranges for nearly 400 positions in the accounting, finance, technology, creative, legal and administrative support fields.

“The pandemic has caused organizations to shift into high gear, and many employees have taken on heavier workloads,” says David King, Canadian senior district president of Robert Half. “Although some companies are offering non-monetary perks such as options for greater flexibility in the workday or access to important health and wellness resources, many have also been forced to reduce or freeze salaries. Because of this, employers have growing concerns about their ability to retain high-performing employees as they continue to weather the economic impact of COVID-19.” 

Even in a time of high unemployment, a majority of companies are offering new recruits pay that meets or exceeds pre-pandemic numbers. More than half of senior managers surveyed (56%) said starting salaries for new hires have held steady since COVID-19 began. And about one in five respondents (19%) noted an increase in base compensation. 

More than 8 in 10 senior managers (81%) noted they are as likely to negotiate salary with new hires today than a year ago. Of those, 24% said they are more open to discussing starting pay with candidates now compared to 12 months ago.

“Employers are putting a premium on professionals with the skills and expertise needed to support new business priorities resulting from the pandemic” adds King. “When it comes to negotiating job offers, not only do these candidates have an edge, but we’re finding employers are also more open to discussing compensation earlier in the hiring process. Now is a critical time to be aware of current salary trends to ensure you’re prepared to offer the competitive salaries needed to quickly secure top talent.”   

The online survey was developed by Robert Half and conducted by an independent research firm from July 10 to August 9, 2020. It includes responses from more than 600 senior managers at companies with 20 or more employees across Canada. Find the news release at https://www.roberthalf.ca/en/new-research-compensation-trends-amid-covid-19.

How Covid 19 Helped Cement a Top 10 Accounting Firm Merger 

A September 8, 2020 article in Bloomberg Tax describes how the CEO of Baker Tilly US LLP and the managing partner of Squar Milner LLP set the stage for merging the two fast-growing operations to create what is slated to be the 10th-largest accounting firm in the US with a workforce of 4,300 professionals.

According to Alan Whitman, Baker Tilly’s top executive, the two firms had just decided to formally pursue a merger when the pandemic broke in March. “We collaborated with Squar Milner from the get-go and it actually brought us much closer than we already thought we were,” he says.

Industry watchers say the combination, effective in November, could be a sign of more mergers to come. The pandemic is expected to accelerate the pace of technology adoption by the accounting industry and shift the types of services that clients require.

Baker Tilly’s acquisition fits squarely within the Chicago-based firm’s growth strategy—targeting new regions, industries, and services. And the firm believed that Squar Milner’s own aggressive pace and focus on business transformation and leveraging new technology fit neatly into that plan. “We have big aspirations for where we are going,” says Whitman.

The firm, already among the 15 or so biggest firms, had its sights set on California for some time, as many of its clients were there. But getting a foothold in the state would also open the door to new clients in the fifth-largest economy in the world. Squar, a fast-growing top-50 firm, operates offices in all of the state’s major markets.

“We’re here to build the advisory-CPA firm of the future,” Whitman said.

The deal, announced Aug. 13, also strengthens the larger firm’s financial position—crucial in a year when demand for certain services has dried up or been put on hold for many firms. The firms said that their combined revenue last year would have been $920 million.

Competition is tight among the largest firms as they look to set themselves apart in an industry dominated by six big brand names. Technology that makes accounting more efficient and state-of-the-art business tools that wow clients are increasingly the differentiator.

Fogarty said firms can’t afford to sit back, but have to aggressively pursue mergers in order to survive. He called it the perfect time to merge.“This pandemic has caused everybody to reflect upon who they are, what they want to be and how they do their business,” Fogarty said. “The larger companies are using this as an opportunity to go places they never have been before.”

For more in this merger, see https://news.bloombergtax.com/financial-accounting/how-covid-helped-cement-a-top-10-accounting-firm-merger.

COVID-19 Decisions Create Data Dilemma for Businesses

Jerry Ravi, CPA, writes in the September 2, 2020, Journal of Accountancy online that businesses have struggled for years to control and track the movement of data throughout their organizations. “The COVID-19 pandemic has further exacerbated this issue.”

As people are continuing to quarantine, businesses are now forced to evaluate the impact this transition has had on their own security posture. The paramount question that has resulted from this introspection is one that has been looming for several years: “Where is my data?”

One thing many organizations have not fully thought through is where they can be exposed in terms of managing their own data. To facilitate remote work capabilities, many organizations were forced to quickly adopt and deploy remote access solutions and migrate to SaaS-based environments. Says Ravi, “while effective at meeting the immediate business needs, these implementation and migration efforts were largely performed agnostic of compliance requirements. As such, many companies may be facing potential fines and sanctions and could be forced to figure out solutions to deal with regulatory violations.”

As remote work and migration to the cloud continue to become more commonplace, it is important for organizations to review their risk and compliance frameworks to ensure that the use of these services adheres to any and all applicable regulatory requirements.

Noes Ravi, “historically, data loss prevention and e-discovery tools have been very effective at identifying sensitive data and monitoring data flow throughout an organization because they have capabilities such as automatically watermarking or tagging data movement through designated applications and groups. More recently, cloud security brokers have started offering dedicated platforms and tools that allow organizations to more effectively monitor the use of known SaaS-based services.”

While tools such as these serve as means of detection, organizations should give top priority to prevention because it will save them money in the long run. To help implement and enact preventive controls, check out: https://www.journalofaccountancy.com/news/2020/sep/coronavirus-decisions-create-data-dilemma.html?utm_source=mnl:cpald&utm_medium=email&utm_campaign=04Sep2020.

Windows Computers Were Targets of 83% of All Malware Attacks in Q1 2020

Jason Cohen writes in an article in PC magazine, published August 28, 2020, that malware is everywhere, but computers that run Windows – the world's most popular operating system – are especially prone to attacks. According to AV Test’s 2019/2020 Security Report, 114 million new pieces of malicious programs were developed in 2019, and 78.64% of all attacks were distributed on Windows systems.

Those numbers are expected to rise in 2020, with 160 million new programs by the end of the year. One reason for this increase is the COVID-19 pandemic; many hackers are taking advantage of the uncertainty to spread malware and increase phishing attacks. As a result, the percentage of malware targeting Windows computers has risen to 83.45% in the first quarter of 2020.

Windows such a common target not only because it's the most common operating system in the world with the most targets available, it's also prone to security issues. According to the CVE database, which tracks known system vulnerabilities, Microsoft had more than 660 dangerous security gaps, and 357 of them were attributed to Windows 10.

In addition to backdoors found in the operating system, Windows users also have to contend with trojans (64.31% of all malware), viruses (15.52%), worms (7.79%) and other forms of malware. Users can also be at risk because of security vulnerabilities in the applications they use or through attacks on connected devices.

As a result, says Cohen, “Windows 10 is considered the least secure operating system. Since around 51% of the world's computers are loaded with Windows 10, that means cybercriminals are able to take advantage of a highly vulnerable system that is widely distributed.”

For more survey results, visit: https://www.pcmag.com/news/windows-computers-account-for-83-of-all-malware-attacks-in-q1-2020.

Miss the Camaraderie of the Office? 

According to a September 4, 2020, blog on the FastCompany website, many people who work from home miss the camaraderie of the workplace. And companies that recognize how important workplace relationships are have been experimenting with team-building tactics for far-flung workers – some of whom are moving even farther away from the office. But various organizations, large and small, have found some clever ways to keep teams bonded and effective as they work remotely.  

Slack, for example, has become a place for employees to share information about clients and projects, but also a place to communicate in real time. Employees like the Giphy function to share GIFs, which allows them to keep up the banter and “jib-jabs” of in-person office interactions. They might also use Google Hangouts to connect and share work.

Amit Digital Marketing created a separate Slack channel for colleagues to interact and share more personal information and photos. “[Team members] share the view from their window, pictures of their pets, or just talk about other random stuff,” says founder Amit Raj. Slack’s voice note feature “helps add that extra edge in terms of making everyone feel they have more human connection and interaction with others.”

It may be tougher to go out for happy hour after work, but teams are still finding ways to have a few laughs together. One company has created “Whacky Wine Wednesdays,” where the team members grab their adult beverage of choice and hop on a Zoom call to play games that engage the creative side of their brains. 

Companies such as Delicious Experiences create interactive team-building activities around food and drink. “It lifts the team spirits to receive a fun package and engage in something that feels like our old life, or at least like our new life of virtual experiences,” says cofounder Inbal Baum. Events can be centered around cooking, baking, mixing special cocktails or participating in wine, sake, whiskey, or other tastings. 

Employees working from home have different challenges, experiences and priorities. Tax compliance software company Avalara has developed a range of virtual activities that meet these needs. To help support parents, the company launched AvaKids Online, a series of fun, educational 30-minute virtual classes for kids. The company also partnered with the KrowdFit app and gave every employee a credit in the Fitbit store to purchase a Fitbit Inspire. The company has a virtual wellness community, and participants can earn rewards for participating. 

Technology has made it possible for companies to address employee needs and create a sense of connection among team members. For more ideas, visit: https://www.fastcompany.com/90546984/the-one-characteristic-that-will-make-you-an-all-star-according-to-science.

Deloitte and KPMG Are Exploring New Office Designs

recent survey by the JLL company Big Red Rooster found that 94% of employees want the option to return to a physical office, and that remote work should augment but not replace the traditional office. According to an article posted on the FastCompany webpage September 1, 2020, companies – for their part -- don’t want to waste money on office space when everyone’s working from home—but they do want to make space available when workers need to come in. Enter the hub-and-spoke model.

“Many corporate occupiers are saying let’s have a downtown hub, and suburban west, east and north spokes, so that people can have their office close to their home if and when they want to go to the office,” says Sheila Botting, president for the Americas at the commercial real estate company Avison Young. Instead of leasing a big office building or a whole floor, she adds, companies may start renting out smaller chunks of real estate that are spread across a broader geography.

Botting, who’s based in Toronto, says she’s seen companies such as Deloitte, KPMG and the Bank of Montreal exploring their own hub-and-spoke approach. They’re not alone.

“What I’m hearing about hub and spoke is bigger companies offering drive-to destinations for office opportunities for people to gather without having to get on mass transit,” says Byron Carlock, real estate leader at PwC. “We were already beginning to see an uptick in suburban leasing, mostly for cost reasons, but now we’re also seeing it for access reasons.”

That’s led to more companies thinking about where their workers want and need to be, according to Adam Segal, cofounder of Cove, which uses software to help companies manage their office space by scheduling the use of facilities such as conference rooms and shared desks. He says companies are increasingly looking for ways to reduce their unused office space while maintaining a physical presence when they need it.

“Our real estate footprint needs are changing and expanding very rapidly,” says MotoRefi CEO Kevin Bennett “I think we’ll be flexible where needed, but won’t be having a lot of remote-first options, generally speaking. We won’t require five days per week, but we like for as many people as possible to be able to get to the office.”

For more on this development, see https://www.fastcompany.com/90545418/see-the-unusual-new-office-design-that-deloitte-and-kpmg-are-exploring.

AICPA and CPA.com Announce Long-Awaited Launch of .CPA Domain

The AICPA and its business and technology arm, CPA.com, have begun an early-phase rollout of .cpa, a restricted Internet domain that allows CPAs to connect with clients and the general public with greater trust, security and verification.

Writing in the CPA Practice Advisor, September 1, 2020, Gail Perry, CPA, Editor-in-Chief, says that the use of specialized or restricted top-level domains has grown dramatically in recent years as businesses, organizations and online communities seek to promote their visibility and authenticity in the digital world. The restricted domain designated for the CPA profession is .cpa.

“Trust is a crucial commodity in business and on the Internet, and it’s a cornerstone of the CPA profession,” said AICPA President and CEO Barry Melancon. “The .cpa domain will signal you’re doing business with a licensed CPA firm or individual CPA, so it provides an additional level of trust, security and brand recognition in online interactions.”

“The digital presence of firms has never been more important.,” said Erik Asgeirsson, president and CEO of CPA.com. “The .cpa domain will reduce risks associated with phishing and spoofing attacks and the growing number of online bad actors. Just as importantly, it will give clients and the public-at-large greater peace of mind they’re dealing with legitimate CPA firms.”  

Check it out at https://www.cpapracticeadvisor.com/home/news/21152565/aicpa-and-cpacom-announce-longawaited-launch-of-cpa-domain.

Which Technology Tools Will Maximize Your Bottom Line During the Pandemic?

Although the COVID-19 pandemic has accelerated the rate at which accounting firms need to integrate technology into their daily practice, the number of available tools can seem overwhelming. Ian Khan, Chief Futurist at Futuracy, discusses areas to focus on and programs to try in his latest blog on accountingWEB, September 1, 2020. These, he says, are some of the top platforms that you can use to change the state of your work.

For Document Sharing: Cloud-based document sharing platforms, such as Google Drive, Dropbox and iCloud, are very common. Some users propose utilizing enterprise-level document management systems, while others swear by Google Drive. Some of the options for the former include solutions by Open Text, Laserfiche, DocuWare, OnBase and ITGlue. 

For Project Management: Project management is an essential function for accounting firms. Traditional methods include using desktop software or Excel sheets; however, there are better ways that are faster, nimbler and more applicable to all needs. My favorite project management platforms are Trello, Base Camp and Asana. Asana, for instance, is well suited for project management and also to manage tasks and lists, but it’s complex to learn how to use. Trello, on the other hand, is much easier to work with and is more visual. I’ve chosen to use these three because they all performed really well when I have to collaborate with other people or teams for tasks, updates, sharing assets and more.

For Task List Management: On an everyday basis, there are hundreds of tasks you probably need to track. My favorite app for tracking and creating lists is Google Keep. This is a very simple, straightforward and lightweight app, and it even allows you to share your lists with others. 

For Communication: One of the things that has come out of the pandemic is the acceleration of technology adoption. We now have businesses who are using video conferencing multiple times a day and departments that are solely using video communication instead of in-person meetings. There are many options for video communication, and they do not have to be overwhelming. Quite simply, if you do not want to be on video, switch off the camera and just use the audio as you would in a phone conference call back in the pre-pandemic days. Some of my favorite video communication tools include Zoom, Google Hangouts and Microsoft Teams. They all have a different user experience and all of them are efficient and will get the job done.

 For more advice on what tools you need to manage your practice in these trying times, go to: https://www.accountingweb.com/practice/practice-excellence/which-technology-tools-will-maximize-your-bottom-line-during-the.

Seismic Shifts in the Public Accounting Profession

A recent report from the US reveals some seismic changes in the accounting profession. “Technology is advancing. Staffing models are changing. Partnerships are evolving. Pricing models are shifting. Services are expanding. Business models are transforming,” says Michael Platt, a principal with INSIDE Public Accounting (IPA).  “And we believe that many of the trends discussed throughout the report are accelerating due to the effects of COVID-19.”

IPA has just released what it considers to be “the most comprehensive report on the state of the nation’s largest public accounting firms. IPA’s 30th annual National Practice Management Benchmarking Report is the largest of its kind, covering firms with fiscal year ends from June 2019 to May 2020 and boasting a 90% return rate of participating firms. The report highlights in-depth data from more than 500 accounting firms across the U.S., including 165 firms under $10 million, 257 firms between $10 million and $50 million and 89 firms above $50 million in net revenue.

Some key highlights from the 2020 IPA National Practice Management Benchmarking Report:

  • The average billing rate for equity partners is $376 for all participating firms, up slightly from the average last year. Partner rates now exceed $500 for the largest ($150+ million) firms. Rates are highest in the Northeast ($396) and in the West ($395).
  • At 28.4%, net income as a percentage of net revenue continues to drop, and organic growth averaged 6.1% for all non-Big 4 firms.
  • Overall, average equity partner compensation for all non-Big 4 firms is up $6,500 from last year, now at $502,417, but that varies significantly based on firm size. Professional staff compensation remains steady at an average of $83,014.
  • Staff turnover inched up again this reporting year – to an average of 13.7% across all firms – with increases seen in every region of the country. While the largest firms saw turnover remain steady, the largest increase in turnover percentage comes from firms in the $10 million to $30 million range.
  • Revenue per full-time equivalent (FTE) (including partners, professional staff and administrative staff) now exceeds $225,000 in 18% of reporting firms. 

For more details on the report and other practice management reports on issues of concern to public accountants,  visit the IPA website at: http://insidepublicaccounting.com/.

What Defines the Accountant of Tomorrow?

In an article posted on the International Federation of Accountants (IFAC)’s webpage August 26, 2020, Alta Prinsloo writes that Covid 19 has disrupted nearly every single business, NGO and government. “As these entities navigated urgent digital transformation, workforce continuity and, quite simply, how to stay operational, leaders turned to accountants. In the words of one CEO, ‘healthcare workers are on the frontlines of saving lives, and accountants are on the frontlines of saving livelihoods.’ Because of this, the profession has benefitted in important ways.”

According to Prinsloo, “the profession has been able to defend its relevance to governments and citizens during this time. Businesses have a renewed sense of the value accountants bring to their long-term success. And cooperation with regulators is also evolving. For many, striving for better harmony and balance with regulators to ensure smarter and more strategic regulation (as opposed to just increased regulation) is critical moving forward. Overall, this crisis has presented profound challenges but also an opportunity for the profession to build on its strong foundations, evolve the skills of its members and become even more central to a high-functioning society.”

Before the pandemic, nearly 80% of respondents IFAC surveyed from small- and medium-sized practices said technology was affecting traditional accounting roles. Post-pandemic, however, digital skills and capabilities have become more like table stakes. As remote work became routine and online client services quickly advanced, one accountant said of digital transformation, “the future became yesterday.”

Prinsloo explains that “the profession is now even more acutely focused on skills that enable stronger relationships with clients, better interdisciplinary collaboration, and increased resiliency and flexibility. In fact, when asked what skills have emerged during the pandemic, the response from these conversations was unanimous: change management — the ability to anticipate, respond to and adapt to changes — is essential. Across the board, firms are shifting focus from outdated inputs, such as hours logged in the office, toward high-value outputs. Accountants today have to show up as true strategic partners, problem solvers and change agents. To remain relevant, accountants can’t just produce numbers; they are being called to tell the larger story behind the numbers and help solve societal needs in the process.”

For more on Prinsloo’s vision of the future, go to: https://www.ifac.org/knowledge-gateway/preparing-future-ready-professionals/discussion/what-defines-accountant-tomorrow.

 Financial Services Sector Set to Lead the SME Covid 19 Recovery

Financial services SMEs have emerged as the most resilient and confident sector group in the wake of lockdown, according to the UK’s Sage SME Sentiment Index. According to the Index, businesses in this sector are the most likely to have been profitable by the end of Q2 2020, with 63% expecting to turn a profit by mid-year. They are also the most resilient to future disruption; 55% say a second wave of Covid-19 and tightening of lockdown restrictions would not have a severe negative impact. And this group reports the highest confidence – 90% are comfortable they are coping well with issues caused by Covid-19.

The Sage SME Sentiment Index ranks each UK SME industry sector based on its average recovery trajectory, growth outlook and ability to withstand further disruption. It is based on data from 2,000 SMEs across the UK, but the results are indicative of the situation in other industrialized countries.

Financial services are the most confident sector, with SMEs rating their confidence in their business’ future an average 6.4 out of 10. The vast majority – 90% – say they are coping well with the issues they face, compared to an average 64% for the hospitality, beauty and wellbeing and creative sectors, and 77% across all sectors.

The three sectors leading the Index are financial and insurance services, telecommunications and technology. Notably, these three sectors are also the most likely to be embracing technology, trade and other initiatives to drive growth. 

SMEs in financial and insurance services, telecommunications and technology are among the most likely to say that technology will be an important tool to help restart business post-lockdown, and among the top four who say they would most benefit from a government grant to invest further in technology. They are also among the top five most likely to be actively taking, or planning to take, measures to boost export revenues.

In contrast, less technologically advanced sectors like the creative industries, beauty and wellbeing and construction are less likely to make use of technology and pursue growth initiatives, with overall lower confidence scores.

According to Sabby Gill, Managing Director of UK&I at Sage, “these figures are encouraging for financial services firms, but the overall picture for all SMEs remains deeply concerning. Small businesses are facing a perfect storm of challenges during the second half of the year – ongoing restrictions, a stalling economy, the winding down of government support and the ongoing threat of a second spike… and we must remain vigilant to the challenges ahead.”

For more information or to download Sage’s Survival, Resilience and Growth report in full, go to: https://www.sage.com/en-gb/news/press-releases/2020/08/financial-services-sector-set-to-lead-the-sme-covid-19-recovery/.

Three Keys to Correctly Pricing Consulting Engagements

In a mid-August, 2020 post, Megan Bloomfield, Solutions Advisor at Boomer Consulting, Inc., explains that pricing consulting services by the hour simply doesn’t work anymore, “so firms have to get outside of their comfort zone and price in a different way than they’ve traditionally priced compliance services. Correctly pricing (and winning) consulting engagements requires getting a full scope of the service you’ll be providing, setting expectations and having confident pricing conversations.”

Bloomfield offers three major tips on how to go about it the right way.

  • Determine the scope of the engagement, which comes from the clients’ pain points. What are they hoping to get from you? Clients want to work with someone who has authority and expertise in their industry and the skills to facilitate the process. That’s you! But how many days will you have to spend onsite to get everyone on the same page? And how will you deliver ongoing accountability to help the client complete the strategic planning process and start making progress toward their goals?
  • Get an understanding of the client’s expectations, which ensures that you’re both on the same page as far as what you will or will not be doing. Without this understanding, you may price a strategic planning engagement envisioning spending two days onsite with one follow-up call for accountability. If your client was expecting you to be onsite for a full week and to facilitate monthly coaching and accountability calls, they’ll be disappointed no matter the price.
  • Have pricing conversations, which is usually the most challenging part for CPAs who are accustomed to pricing by the hour. But with a few tips, you can become more confident in having these conversations. For example, always ask if the client has a budget for the service before giving your price. Some clients might be hesitant to share their budget because they deem it to be “sensitive information.” But understanding the client’s budget is a base upon which you can build ideas to help them find success.

For more useful tips, check out:

https://www.boomer.com/post/3-keys-to-correctly-pricing-and-winning-consulting engagements?vgo_ee=hWOOe2fo%2FA%2BQ7DEj9BGorOLBlDRMwTuldmHo0viuA5U%3D.

The Agenda for the New Reality

The 2020 KPMG CEO Outlook COVID-19 Special Edition finds the world’s chief executives using this unparalleled moment in history to lead with increased purpose and impact, both societal and economic. They are protecting their people, building trusted relationships with customers and communities and defining a new future of growth and success for their organizations.

KPMG initially surveyed 1,300 CEOs in January and February, before many key markets were beginning to feel the full impact of lockdowns. Then, in July and early August, the firm conducted a follow-up ‘pulse’ survey of 315 CEOs to understand how thinking has evolved.

According to global chair Bill Thomas, "The significant change in CEOs' priorities over the past six months is a clear indication that businesses have had to pivot at breakneck speed to deal with the challenges of the pandemic. Business leaders the world over are seeking to manage uncertainty with decisiveness. This crisis has accelerated strategies that were already in place around digital transformation and social responsibility. However, in other areas planning for the future is a lot harder, particularly thinking about future ways of working and problem solving. So, it’s perhaps no surprise that CEOs are focused on the importance of talent to sustain and grow any future business."

At the beginning of the year, most CEOs saw the primary objective of their organization shift from purely profit to also consider their purpose in society. Less than a quarter (23%) saw the organization’s overall objective in narrow “managing for shareholder value” terms, with 54% taking a broader, purpose-driven approach focused on multiple stakeholders. And around one in five (22%) going as far as to say that their primary objective is to improve society.

Today, 79% say they feel a stronger emotional connection to their corporate purpose since the crisis began. At the same time, however, the massive disruptive impact of the pandemic has caused many CEOs to question whether their current purpose really meets the needs of stakeholders: 79% say they have had to re-evaluate their purpose as a result of COVID-19.

CEOs recognize that climate change also offers a significant threat over the coming decades and they are not being deflected from their Environmental, Social and Governance (ESG) goals as they look to rebuild their organizations in a way that supports a new and sustainable economy. The seriousness with which CEOs take the issue of climate change is reflected in the fact that 65% say that managing climate-related risks will play a part in whether they keep their jobs or not over the next five years; 71% say they want to lock-in climate change gains made as a result of the pandemic.

CEOs are also not taking their eye off the future of work. COVID-19 has effectively forced many organizations to experiment radically with how work is done. With the pandemic transforming the world of work, 77% say they will continue to build on their current use of digital collaboration and communication tools, and 73% believe that remote working has actually widened their available talent pool.

For a more in-depth look at KPMG’s latest research, please go to:

https://home.kpmg/xx/en/home/insights/2020/08/global-ceo-outlook-2020.html.

EY Study Finds Pandemic Low Prices Accelerating Job Automation in Oil and Gas

Over the next 20 years, technologies such as robotic process automation, artificial intelligence, natural language processing and machine learning could gradually reduce oil and gas workforce jobs by up to 30% and automate 50% of job competencies in the upstream sector. The EY’s Preparing for the future now: Rethinking the oil and gas workforce in 2040 report, written in partnership with the Petroleum Labour Market Information (PetroLMI) Division of Energy Safety Canada, examines the future job landscape.

“Recent black swan events are pushing oil and gas companies to drive down operating costs and transform how work gets done to improve margins — and the unfortunate reality is that these cuts have resulted in job layoffs,” says Lance Mortlock, EY Canada Oil & Gas Leader. “As the prospect of a jobless recovery becomes more of a possibility, companies will be looking to fill roles and add capabilities through technology and automation to increase optimization and reduce costs even further. While many companies had already began this digital transformation, the pandemic created a sense of urgency to accelerate technology adoption.”

The report outlines the varied impact of automation on organizations. Technical competencies — such as managing finances, operations monitoring or quality control analysis — are more likely to undergo automation, whereas leadership competencies — such as troubleshooting, persuasion or conflict management — continue to require human interaction. Each job encompasses a broad grouping of job competencies, which determine their range of automation potential. 

“Understanding the impact on different competency types can help individuals, organizations and educators retool skillsets as the shift gradually takes place,” says Mortlock. “These impacts may seem overwhelming, but they’re not unattainable. Knowing the potential impact on individual competencies, jobs and job families provides valuable insight into strategically planning the workforce of the future.”

To understand the range of automation potential for job families and individual job competencies, visit https://www.ey.com/en_ca/news/2020/08/study-finds-pandemic-low-prices-accelerating-job-automation-in-upstream-oil-and-gas.

How Could Automation and AI Change the CPA’s role?

CPA Canada is inviting you to explore its resources covering the potential impact of automation and AI on the accounting profession, how it could affect the audit and finance functions and the many ways it could transform the way you work.

According to Cathy Cobey, FCPA, FCA, the global trusted AI advisory leader at EY Canada,

“Every challenge in business is an opportunity for AI, and yet organizations are holding back due to a mistrust in AI. CPAs can play a leading role in developing the governance and controls needed to trust in AI, while at the same time utilizing AI to transform management and financial accounting.”

CPA Canada would like you to take an in-depth look at current and future uses of AI and automation in accounting and get the knowledge required to initiate thinking in your organization about using this technology. “Our AI and automation guidance resources take you from a foundational knowledge of the technology to a greater understanding about the opportunities and challenges AI and automation can bring to your role. In addition, learn more about implementing Robotic Process Automation (RPA) and the exciting future possibilities of cognitive automation.”

CPA Canada has prepared a video presentation that tells you:
  • What you should know about AI and automation as a CPA.
  • How AI and automation might change your role.
  • Considerations for an AI-enabled audit.
  • How AI and automation could affect the way you do business.
  • The types of processes best suited for RPA implementation. 
 Key takeaways from the video include:
  • AI and automation will improve productivity while reducing human errors.
  • CPAs need to develop new proficiencies in AI and automation to better support their clients and the organizations they work for.

Check out the video at: https://www.cpacanada.ca/en/business-and-accounting-resources/other-general-business-topics/information-management-and-technology/publications/ai-automation-for-cpas?sc_camp=8A0D112A82EB4DE3A2506E6CBA8E4D13/.

How COVID-19 Unexpectedly Advanced the Future of Auditing

“All the lessons we’ve learned from the pandemic so far have played a role in disrupting the status quo and the same holds true for the auditing profession. As those in the profession are all too aware, we have audited the same way for decades.”  So says Jen Wood, CPA, in the August 19, 2020, edition of the CPA Practice Advisor.

Wood notes that, prior to COVID-19, “a distinct shift had started to occur as clients saw an opportunity for accountants to audit differently and analyze the full depth of available financial information in order to access more valuable insights to guide their business strategies. Clients also realized that they could benefit if accountants utilized technology solutions instead of working onsite taking up their conference room space for several weeks at a time. While auditing professionals were hesitant to make these changes and shift away from their longstanding methods, COVID-19 made change inevitable.”

To prepare for the future, Wood believes, accounting firms need to build tech-savvy teams who can respond faster and more efficiently. The world is changing, and the audit of the future is going to require more than just CPAs. “Firms need to diversify and prepare their people, providing them with the technology experience and knowledge necessary to perform audits in a different way. Firms also need to reemphasize and prioritize critical thinking skills, encourage their teams to use data to generate deeper insights. Additionally, whether in person or remote, a healthy sense of professional skepticism is always important in auditing, but even more so when you aren’t physically with someone. Communication skills are also increasingly important among both teammates and clients as face-to-face interaction dwindles.”

Without diminishing the challenges and tragedy experienced worldwide in the past several months, Wood believes that this pandemic has advanced the accounting profession by at least five years. “It’s forced us to change, because well, we had no choice! It’s forced us to think about different ways to audit. It’s forced our people to use technology when being on site at a client wasn’t an option. In those changes (that may have been difficult to navigate at first), we’ve found more efficient and forward-thinking ways of working and thinking that will serve us well for years to come.”

For the complete article, go to: https://www.cpapracticeadvisor.com/accounting-audit/news/21150910/how-covid19-unexpectedly-advanced-the-future-of-auditing.

Responding to Client Requests for Confidentiality

Increasingly, clients of CPA firms impose confidentiality agreements as a precondition to engaging the firm to perform professional services, says an August 1, 2020, article in the Journal of Accountancy. Authors Joseph Wolfe and Stanley D. Sterna note that these may appear in the form of a separate nondisclosure agreement (NDA) or as a required provision to be included in the engagement letter. Requests for signed confidentiality agreements also may occasionally arise during the engagement as documentation is requested from the client.

Wolfe and Sterna advise that, “in many situations, such requests are not warranted or necessary given the fact that CPAs are subject to the AICPA Code of Professional Conduct's ‘Confidential Client Information Rule’ and the confidentiality requirements of Internal Revenue Code Sec. 7216 respecting a client's tax return information.” They suggest that CPAs begin by explaining to the client that the "Confidential Client Information Rule" and relevant ethics interpretations already require the CPA firm to protect the confidentiality of all client information. As such, a separate agreement or engagement letter provision should be unnecessary. “However, that may not satisfy all clients. Before considering how to respond to the situation, it is important to understand the problems that may be presented in requested confidentiality agreements and engagement letter provisions.”

For a useful discussion of the ins and outs of how to handle such situations, see: https://www.journalofaccountancy.com/issues/2020/aug/responding-to-client-confidentiality-requests.html?utm_source=mnl:cpald&utm_medium=email&utm_campaign=19Aug2020.

New COVID Phishing Scams Target Tax Pros

In the US, The IRS, state tax agencies and the nation’s tax industry say tax firms need to review and heighten their data protection plans this summer as cybercriminals step up efforts to steal client tax information. Crooks are targeting tax professionals as well as taxpayers, says an August 17, 2020 article in CPA Practice Advisor.The same is true for many other countries.

“The coronavirus has created new opportunities for cybercriminals to use email to try stealing sensitive information,” said IRS Commissioner Chuck Rettig. “The vast majority of data thefts start with a phishing email trick. Identity thieves pose as trusted sources – a client, your software provider or even the IRS – to lure you into clicking on a link or attachment. Remember, don’t take the bait. Learn to recognize and avoid phishing scams.”

Phishing emails generally have an urgent message, such as “your account password has expired.” They direct you to an official-looking link or attachment. The link may take you to a fake site made to appear like a trusted source and request your username and password. Or, the attachment may contain malware, which secretly downloads malware that tracks keystrokes and allows thieves to eventually steal all the tax pro’s passwords.

Tax professionals should also beware of emails from criminals posing as potential clients. As people practice social distancing these days, criminals may exploit this process to try to trick tax practitioners into opening links or attachments. The IRS’s Security Summit urges tax professionals to create “trusted customer” policies and contact potential clients by phone or video conference.

For more information, go to: https://www.cpapracticeadvisor.com/tax-compliance/news/21150431/new-covid-phishing-scams-target-tax-pros.

Professional Responsibilities in the Virtual Age

An article in the AICPA’s newsletter, The Tax Advisor, August 1, 2020, confirms that 

new technologies have changed how tax practitioners provide and store client deliverables and generally make it easier to provide tax services to a broader base of clients. Recent remote-working arrangements due to COVID-19 have, however, highlighted that complications come with the increased use of tools and technology in CPAs' jobs. What are CPAs' professional responsibilities in the new working world?

The article focuses on three areas that are especially affected by technology changes: (1) attracting new clients; (2) providing services virtually; and (3) protecting client information. 

While IRS and AICPA guidance does not directly address issues related to obtaining new clients online or through social media, these rules still have a direct bearing on what is allowable when seeking new clients through virtual mediums. Rules relating to solicitation are particularly relevant for practitioners who are advertising online through email marketing campaigns or social media. Prospective clients developed through social media should be screened carefully to avoid having to terminate a client relationship. It is also important to remember to appropriately use engagement agreements and obtain required consents before providing services.

Although there is no formal requirement for a tax practitioner and a client to enter into annual engagement agreements, it is generally a best practice to do so to clarify services being offered and technology used in the services provided and to outline the terms of the business relationship. To the extent that external third parties or technology tools are used when providing the services, consideration should be given to providing details on the tools or parties that will collect, use or store this information. This process can be facilitated by using technology such as digital signature features in PDF documents or electronic signature tools. 

Technology is increasingly interwoven into successfully providing professional services to clients. Currently, although there are no professional standards that consider the practitioner's reliance on tax tools, practitioners should, through continuing education, maintain an understanding of existing tax compliance tools and remain up to date on new tax laws and regulations.

Tax practitioners understand that the data being gathered and/or transmitted could be subject to applicable privacy laws. Given this information, many tax preparers wonder after putting together security plans, becoming knowledgeable about various forms of fraud and having a recovery plan in place, what else can be done to thwart an inadvertent loss. Before even reaching into the world of electronic interaction, there are a number of steps that can be taken, such as: (1) incorporating privacy filters and screens; (2) physically locking down devices; and (3) using nonstandard passwords that both time out for a locked screen and expire after a short period of time.

When evaluating secure data repositories, practitioners may want to consider: (1) limiting who can access client files (i.e., allowing access to the engagement team only); (2) understanding the security infrastructure of third-party vendors, including network and internet/cloud providers; and (3) establishing an information backup policy. Lastly, a tax practitioner's staff plays an important role in the proper handling and storing of client documentation, and any documentation retention policy should be included when training staff. 

This and much, much more advice can be found at: https://www.thetaxadviser.com/issues/2020/aug/professional-responsibilities-virtual-age.html?utm_source=mnl:cpald&utm_medium=email&utm_campaign=12Aug2020.