The World Practice of Public Accounting is [Becoming] Flat

From the Oct. 2008 Issue

Thomas Friedman made quite an impact with his 2005 best-seller “The World is Flat.” His list of 10 “flatteners” — technologies that interconnect the people and economies of the world in ways never before possible have proven to be eerily accurate. What originally felt a little distant suddenly feels much closer to home.

Here at The CPA Technology Advisor, we work hard to make sure our content is appropriate across the breadth of public accounting, and we take special efforts to keep the stereotypical “small practitioner” always at the center of our efforts. Remember that firms of fewer than 10 comprise over 90 percent of all practices in the United States. It’s with this backdrop that I found a few nuggets from our latest reader survey to be so fascinating. Our survey tells us that nearly one-third of you (32.41 percent to be exact) have “clients doing business on an international level.”

Coupled with the well over one-half of you (56.48 percent) serving clients that “sell products directly on the Internet,” one very quickly begins to understand that our profession IS changing, and it’s changing to better serve clients who are, in turn, changing to better serve their customers who are, in turn, living in a flat world!

Technology is at the heart of all of Friedman’s flatteners … except the fall of the Berlin Wall (which to many is attributable to the Star Wars imitative technology), which Friedman admits is metaphorical anyway. Technology is not only the enabler (i.e., the root CAUSE), but it’s also the SOLUTION to the problems the flattening causes. This isn’t an unusual situation for our profession. Does anyone REALLY think we could handle passive losses or AMT without computers? Certainly not! Their availability makes complexity possible — the problem — and that availability makes the solution practicable. And around we go.

Enter IFRS. International Financial Reporting Standards are standards and interpretations adopted by the International Accounting Standards Board (IASB). In “bygone days” (say the late ’70s!), the appearance on PCPS and the SEC Sections of the AICPA seemed to be foreshadowing a true big GAAP/little GAAP divide. As we all now know, that certainly didn’t happen. Instead, what happened was an almost crippling growth in standards and a flight to cash basis accounting (and OCBOA) by smaller firms serving smaller clients. Fast forward 30+ years, and we’re back at the same dance. IFRS will soon be mandated for all U.S. public companies.

That will almost immediately be expanded (if only by practical market force) to all subsidiaries and then quickly to major trading partners. The professional accounting educational system has already begun incorporating IFRS into its curricula, and the AICPA has announced that the CPA exam will soon include IFRS as part of the “body of knowledge.” But this time things are different. HALF of us serve clients selling on the Internet (note: the Internet is not good at recognizing international borders!), and nearly ONE-THIRD of us serve clients doing business internationally.

Our profession is neatly arranged in firm sizes designed to properly serve clients who, when stratified by size, roughly mirror our own stratification. Firms tend to serve clients up to about five times their own size. And there are just enough of US to serve THEM! And if THEY (our clients) begin doing business in ways that will require their reporting to meet IFRS standards, then WE will have no choice but to help them comply. This isn’t going away, and we will have to deal with it. Technology caused it.