JAY NISBERG & ASSOCIATES, INC.

JAY NISBERG & ASSOCIATES, INC. WHAT THE FUTURE HOLDS THE ACCOUNTING PROFESSION IN THE 21st CENTURY

JAY NISBERG & ASSOCIATES, INC. Presented by: Jay N. Nisberg, Ph.D. Jay Nisberg & Associates, Inc. 9 Chipmunk Lane Ridgefield, CT 06877 203-525-4802 (cell) 203-797-1539 (fax) jaynisberg@snet.net (e-mail)

WHAT THE FUTURE HOLDS • MY GOAL IS TO HELP YOU THINK ABOUT THE FUTURE AND TO LEAVE YOU WITH SOME IDEAS AS TO HOW TO APPROACH THE PLANNING PROCESS.

CHANGE! • THE ONLY THING WE CAN COUNT ON IN THE FUTURE IS CHANGE AND CHANGE HAS BECOME NO STRANGER TO US IN THE CPA PROFESSION.

CHANGE!(cont) • THERE HAVE BEEN SIGNIFICANT CHANGES IN THE SUPPLY AND DEMAND RELATIONSHIPS FOR ACCOUNTING SERVICES.

CHANGE!(cont) • IN THE LAST TEN YEARS, THE NUMBER OF COMPETENT CPAs HAS DECLINED SIGNIFICANTLY. • THE RATE OF GROWTH IN THE NUMBER OF CPAs HAS BEEN SUBSTANTIALLY LOWER THAN THE RATE OF GROWTH IN THE NUMBER OF BUSINESS UNITS IN THE ECONOMY.

CHANGE! (cont) • CPA OF THE PAST RELIED ON COMPETENCE • TODAY’S CPA • COMMUNICATIONS • TECHNICAL COMPETENCE • INTERPERSONAL SKILLS

CHANGE!(cont) • TODAY’S CPA IS EXPECTED TO BE A RAINMAKER. • SPHERE OF INFLUENCE IS ONLY OBVIOUS TO THE CLIENT.

RE-REGULATION • THE PROFESSION HAS BECOME INCREASINGLY MORE REGULATED IN RESPONSE TO PRESSURES FROM THE FTC/SEC. THIS CHANGE HAS BEEN NO LESS DRAMATIC THAN THOSE EXPERIENCED IN THE AIRLINE AND TELECOMUNICATIONS INDUSTRIES.

RE-REGULATION(cont) • WHEN THE SANCTIONS AGAINST DIRECT SOLICITATION OF CLIENTS AND ADVERTISING WERE LIFTED IN 1972, CPAs WERE FORCED INTO NEW ROLES AS MARKETERS. • MARKETING PLANS • SALES SKILLS

RE-REGULATION (cont) • THE LIABILITY CRISIS IS ALSO CAUSING A WAVE OF CHANGES IN THE PROFESSION. • INCREASE IN THE NUMBER OF LAW SUITS • EXPANSION OF THE DEFINITION OF LIABILITY

RE-REGULATION(cont) • EFFECTS: • TODAY’S CPA IS UNABLE TO OBTAIN ADEQUATE LIABILITY INSURANCE AT A REASONABLE PRICE • PREMIUMS WILL INCREASE • COVERAGE WILL BE CUT • CPAs FORCED TO TAKE A NEW LOOK AT THE RISK/REWARD RATIOS

RE-REGULATION(cont) • THE GROWING NUMBER OF WOMEN IN THE PROFESSION IS CHANGING OUR PREVIOUSLY MALE DOMINATED FIRMS IN TERMS OF CAREER PATH EXPECTATIONS AND PERSONNEL POLICIES.

RE-REGULATION(cont) • THE WORLD CONTINUES TO SHRINK WHILE THE RECOGNITION OF A GLOBAL ECONOMY CONTINUES TO EXPAND. EVEN BUSINESSES LOCATED IN RURAL STATES LIKE NORTH DAKOTA ARE INVOLVED IN INTERNATIONAL TRADE. THE WORLD IS FLAT!

TECHNOLOGY EXPLOSION • THE TECHNOLOGY EXPLOSION IS FORCING SIGNIFICANT CHANGES IN THE PROFESSION. • LAPTOPS HAVE REPLACED BRIEFCASES AND WORK PAPERS AS A SYMBOL OF THE PROFESSION. • FACSIMILE TRANSMISSIONS ARE OBSOLETE • EXPERT SYSTEMS AND ARTIFICIAL INTELLIGENCE APPLICATIONS ARE BEING DEVELOPED

TECHNOLOGY EXPLOSION (cont) • ECONOMIC SOPHISTICATION CONTINUES TO CHALLENGE THE PROFESSION. • THE COMPLEXITY OF FINANCING OPTIONS AND FINANCIAL MARKETS IS ACCELERATING. • POLITICAL PRESSURES CONTINUE TO CHANGE THE CPA’S WORLD. • EFFECT • ADDITIONAL GOVERNMENT IMPOSED CHANGES

CHANGE! CHANGE! CHANGE! • THE ENTIRE CONCEPT OF SPECIALIZATION IN THE PROFESSION IS NOW INSTITUTIONALIZED. • THE AICPA HAS CREATED NEW PRACTICE SECTIONS WHICH WILL LEAD TO ADDITIONAL TESTING AND CERTIFICATION OF SPECIALISTS WITHIN THE PROFESSION.

CHANGE! CHANGE! CHANGE! (cont) • FIRMS ARE ALSO SPECIALIZING IN VARIOUS INDUSTRY AREAS AND MORE BOUTIQUE-LIKE SPECIALTY ACCOUNTING FIRMS WILL DEVELOP TO CHALLENGE THE DEPARTMENT STORE FIRMS OF TODAY (e.g. WTAS). • CPA FIRMS ARE ADDING CONSTANTLY TO THE ARRAY OF SERVICES PROVIDED.

CHANGE! CHANGE! CHANGE! (cont) • EFFECT • IT IS NOW COMMONPLACE FOR CPA FIRMS TO EMPLOY TELECOMMUNICATION CONSULTANTS, ACTUARIES, INDUSTRIAL PSYCHOLOGISTS, APPRAISERS, INDUSTRIAL ENGINEERS AND OTHERS WITH DIVERSE TRAINING AND BACKGROUNDS.

CHANGE! CHANGE! CHANGE! (cont) • THERE IS A SIGNIFICANT INCREASE IN THE NUMBER OF COLLEGE GRADUATES ENTERING THE ACCOUNTING FIELD. • EFFECT • THIS WILL SIGNIFICANTLY INCREASE THE FLOW OF PERSONNEL AND PROMOTE ADDITIONAL USE OF LABOR SAVING TECHNOLOGY.

THE CHANGING STRUCTURE OF CPA FIRMS • SOME FIRMS FACE SERIOUS CHALLENGES IN HANDLING THEIR UNFUNDED RETIREMENT OBLIGATIONS DURING THE YEARS WHEN THEY WILL ALSO EXPERIENCE SIGNIFICANT PERSONNEL COST INCREASES ALONG WITH THE NEED FOR INCREASED CAPITAL TO FUND NEW TECHNOLOGIES AND NEW SERVICES.

THE CHANGING STRUCTURE OF CPA FIRMS(cont) • THE TOTAL SUPPLY OF COLLEGE GRADUATES WILL CONTINUE TO INCREASE IN THE NEAR FUTURE. FUTURISTS EXPECT THE POOL TO GROW BY 25%. • THE RELATIVELY LARGE NUMBER OF BABY BOOMERS WILL REPRESENT THE EXPERIENCED POOL OF PERSONNEL RETIRING IN THE NEXT 3 - 5 YEARS.

THE CHANGING STRUCTURE OF CPA FIRMS (cont) • THE OVER 55 YEAR OLD SHARE OF THE POPULATION WILL ACTUALLY DECLINE. • WOMEN WILL CONTINUE TO MAKE UP A MAJORITY OF NEW RECRUITS. • MORE AND MORE WORKERS WILL COME FROM TWO-INCOME HOUSEHOLDS.

THE CHANGING STRUCTURE OF CPA FIRMS (cont) • OVER ½ OF ALL EMPLOYEES WILL HAVE UNATTENDED CHILDREN AT HOME. • THE AVERAGE U.S. HOUSEHOLD INCOME IS PROJECTED TO CONTINUE TO DECLINE DUE TO A REDUCTION IN THE NUMBER OF MIDDLE AND UPPER INCOME JOBS.

THE CHANGING STRUCTURE OF CPA FIRMS(cont) • ALL FIRMS WILL BE FORCED TO MAKE MAJOR IMPROVEMENTS IN PRODUCTIVITY IN ORDER TO PROSPER. • EMPLOYERS WILL MAKE MAJOR INVESTMENTS IN NEW WORKPLACE TECHNOLOGY AND WORKER TRAINING.

THE CHANGING STRUCTURE OF CPA FIRMS (cont) • THE NUMBER OF PEOPLE WORKING ON A SELF-EMPLOYED BASIS WILL GROW FASTER THAN THE NUMBER OF SALARIED EMPLOYEES. • EDUCATION AND TRAINING IS EXPECTED TO BECOME AMERICA’S LARGEST INDUSTRY, SURPASSING MEDICINE AND HEALTHCARE.

THE CHANGING STRUCTURE OF CPA FIRMS (cont) • BUSINESSES WILL CONTINUE TO RELOCATE FROM CITIES AND SUBURBS TO SMALLER COMMUNITIES IN ORDER TO REDUCE THEIR OPERATING COSTS. • THE FASTEST GROWING COMMERCIAL AND CONSUMER MARKETS WILL BE IN THE DEVELOPING THIRD-WORLD COUNTRIES.

THE CHANGING STRUCTURE OF CPA FIRMS (cont) • THERE WILL BE A CONTINUING TREND TO FEWER AND FEWER COMPANIES INVOLVED IN MATURE INDUSTRIAL MASS MARKETS. • AUTOMOBILES • AIRCRAFT

THE CHANGING STRUCTURE OF CPA FIRMS (cont) • THIS CONSOLIDATION PROCESS WILL EXTEND INTO RETAIL AND SERVICE MASS MARKETS. • RESTAURANT MEALS • MEDICAL CARE • LEGAL SERVICES • AND, SOME EXPECT, EVEN THE BIG-4 FIRMS

THE CHANGING STRUCTURE OF CPA FIRMS (cont) • WORKING PARENTS WILL MAKE UP MORE THAN ½ OF THE WORK FORCE AND WILL EAGERLY ADAPT TO FLEX-SPACE CONCEPTS WITH MORE THAN 10% OF ALL INFORMATION PROCESSING WORK DONE IN THE HOME.

THE CHANGING STRUCTURE OF CPA FIRMS(cont) • POPULATION WILL FOLLOW THE OUT-MIGRATION OF INDUSTRY FROM CITIES AND SUBURBS TO SMALLER COMMUNITIES IN SEARCH OF LOWER LIVING COSTS AND JOB OPPORTUNITIES.

THE CHANGING STRUCTURE OF CPA FIRMS (cont) • ECONOMIC PERFORMANCE WILL NOT BE ABLE TO ADEQUATELY FUND ALL OF THE SOCIAL DEMANDS CREATED BY POLITICAL ACTIVISM. IN FACT, MEDIOCRE ECONOMIC PERFORMANCE WILL CONSTRAIN PUBLIC SECTOR REVENUES.

THE CHANGING STRUCTURE OF CPA FIRMS (cont) • TECHNOLOGICAL INNOVATION WILL CONTINUE WITH FURTHER ADVANCES IN COMPUTERS, ROBOTICS, ARTIFICIAL INTELLIGENCE AND SIMILAR NEW TECHNOLOGIES.

THE CHANGING STRUCTURE OF CPA FIRMS (cont) • WE WILL SEE ACCELERATING RATES OF TECHNOLOGICAL INNOVATION IN BOTH THE OPERATIONS AND THE OUTPUT AT ALL LEVELS OF PRODUCTIVE ENTERPRISES.

THE CHANGING STRUCTURE OF CPA FIRMS (cont) • THESE TECHNOLOGIES WILL FOSTER AN INCREASE IN NEW SOCIAL WORKPLASE TECHNOLOGIES. • NEW MANAGEMENT SYSTEMS (MATRIX MANAGEMENT) • NEW ORGANIZATIONAL STRUCTURES CENTRALIZATION, ENTREPRENEURIAL SPINOFFS) • NEW DECISION-MAKING PROCESSES (QUALITY-CIRCLE CONCEPT, WORKER DESIGN TEAM)

THE CHANGING STRUCTURE OF CPA FIRMS (cont) • LOCAL AND REGIONAL FIRMS WILL CONTINUE TO BE THE FASTEST GROWING SEGMENT OF THE CPA MARKET. • THESE FIRMS WILL SPECIALIZE OR RELY ON NETWORKS TO OBTAIN THE SPECIALIZED KNOWLEDGE TO SERVE THEIR CLIENTS.

THE CHANGING STRUCTURE OF CPA FIRMS (cont) • THERE WILL BE AGGRESSIVE SOLICITATION OF CLIENTS BY OTHER CPAs. • NETWORKING WILL DEVELOP INTO AFFILIATIONS OF FIRMS WITH OTHER CPA FIRMS AND NON-CPA FIRMS.

THE CHANGING STRUCTURE OF CPA FIRMS (cont) • CLIENTS MAY BECOME CONFUSED ABOUT THE IDENTIFY OF FIRMS AND LOWER LOYALTY MAY RESULT. • AS THE YEARS GO BY, MORE AND MORE SERVICES WILL BE BILLED BASED ON VALUE-BILLING CONCEPTS RATHER THAN HOURLY RATES.

THE CHANGING STRUCTURE OF CPA FIRMS (cont) • THIS WILL BE RELUCTANTLY ACCEPTED BY MOST CPAs AFTER LOWER PROFITABILITY CONVINCES THEM TO CHANGE THEIR BILLING CONCEPTS. • THE INITIAL JUSTIFICATION FOR THE CHANGE TO VALUE BILLING WILL ARISE OUT OF THE USE OF LABOR SAVING TECHNOLOGY SUCH AS COMPUTERS AND EXPERT SYSTEMS.

THE CHANGING STRUCTURE OF CPA FIRMS (cont) • YOU WILL HAVE TO REEDUCATE YOUR PERSONNEL AS TO DIFFERENT METHODS TO ESTIMATE AND BILL WORK PROJECTS. • THIS CHANGE COULD RESULT IN A LOSS OF TRUST BY CLIENTS, ESPECIALLY IF THERE IS A LACK OF A BUY-IN TO THE CONCEPT OF VALUE BILLING BY SOME KEY PARTNERS.

THE CHANGING STRUCTURE OF CPA FIRMS (cont) • THE STAFFING STRUCTURE OF CPA FIRMS, WHICH IS OFTEN DESCRIBED AS A PYRAMID SHAPE WITH THE PARTNERS ON TOP AND ENTRY-LEVEL STAFF AT THE BOTTOM, WILL GRADUALLY CHANGE TO MORE OF A HOUSE SHAPE.

THE CHANGING STRUCTURE OF CPA FIRMS (cont) • THERE WILL BE A CONTINUED SQUEEZE ON THE PROFITABILITY OF CPA FIRMS WHICH IS A LOGICAL OUTGROWTH OF THE CHANGES IN SUPPLY AND DEMAND AS WELL AS SOLICITATION, COMPETITIVE BIDDING, ADVERTISING, ETC.

FUTURE TRENDS • 2012 AND FORESEEABLE FUTURE: • NO SUCH THING AS A “SOLID” OR SUBSTANTIAL LEAD OVER ONE’S COMPETITORS, BIG 4, NATIONAL, LOCAL • TOO MUCH CHANGE TO BE COMPLACENT • CHAMP TO CHUMP CYCLES GROWING SHORTER (7 MONTHS)

END OF ERA OF SUSTAINABLE EXCELLENCE • FRENZY • MERGER MANIA BUYING AND SELLING – • BIG 4 – HIGH 5 – FINAL 4 • ANDERSEN/L&H • REGIONALS • LOCALS • CBIZ (TOFIAS – MAHONEY COHN) • UHY • RSM/BLOCK • GREAT HILL/SMART • FTI/SCONBRAUN

END OF ERA OF SUSTAINABLE EXCELLENCE (cont) • NEW BASICS • WORLD CLASS QUALITY AND SERVICE – ENHANCED RESPONSIVENESS – INCREASED FLEXIBILITY – TIMELINESS • “EVERY MAJOR SERVICE FIRM IS UNDERGOING TRAUMA.” (EY, BDO) TOM PETERS

END OF ERA OF SUSTAINABLE EXCELLENCE (cont) • EMERGENCE OF THE SPECIALIST PRODUCER OF • HIGH-VALUE-ADDED SERVICES (HVA) • VALUE-ADDED BILLING

END OF ERA OF SUSTAINABLE EXCELLENCE (cont) • EMERGENCE OF INTRAPRENEURIAL UNITS IN BIG FIRMS • HVA: SERVICES WHICH EMPHASIZE INNOVATIVE DESIGN TAILORED FOR NARROW MARKETS AND RESULTING FROM CLIENT DESIRES. • ENERGY TAX CREDITS • COST SEGREGATION

JAY NISBERG & ASSOCIATES, INC.