Accounting Firms Adjust to a Modernized Industry
BY GIG PATTA
The lines continue to blur between accounting, financial, insurance and other service firms.
Many local accounting firms are adjusting to the rapid industry changes by merging into larger accounting firms or expanding the services they offer.
The San Diego Business Journal ranked the largest accounting firms in San Diego County by the number of local professionals. That total includes full-time and part-time CPAs, senior, junior and staff accountants.
Eight of the 25 accounting firms showed a decrease in the number of professionals in its local offices. The Big Five accounting firms, the five largest accounting firms in the nation, still dominate the local industry with at least 100 local professionals or more.
The major concern for smaller accounting firms is the increased competition among the firms and other industries entering the accounting niche.
In the past two years, there were three major acquisitions that affected the local accounting industry. The most recent acquisition was McGladrey & Pullen, LLP, which sold its non-attest assets and business to H & R; Block Inc., forming RSM McGladrey/McGladrey & Pullen, LLP, No. 6 on The List, in August 1999.
The other two acquisitions are the 1998 merger of Price Waterhouse with Coopers & Lybrand, forming PricewaterhouseCoopers LLP, No. 3 on The List, and the 1998 acquisition of Derizen Breier & Co. by American Express Tax & Business Services, Inc., No. 14 on The List.
“The industry became really competitive in the early 1990s, especially when the larger accounting firms went from the Big Eight to the Big Five accounting firms,” said Paul Nation, managing director of BDO/Nation Smith Hermes Diamond, No. 7 on The List. “There’s a strong demand internationally to offer other kinds of services.”
Nation said many firms are beginning to offer services beyond the traditional accounting practices, such as financial consulting, human resources and computer consulting.
Senate Bill 1289 passed last May amended the Business and Professions Code relating to accountancy to accept commissions from a third party.
“A lot of people see CPAs as conduits to sell their products,” Nation said. “It’s the trend towards the one-stop shop.”
Dan Schreiber, managing partner of Jassoy, Graff & Douglas LLP, No. 25 on The List, agreed the trend is to move towards consolidation.
Schreiber said the larger accounting firms have the size and capital to offer more services and an expanded marketing plan.
– Reasons Why Firms
Want to Consolidate
He cites two reasons why accounting firms may lean toward consolidation. One is the partners are getting older and have a strong desire for built-in retirement packages.
“Partners are getting older and being tired of the business,” Schreiber said. “The baby boom generation accountants will be looking towards future short-term payoffs.”
The other reason is a significant amount of money must be reinvested back into the accounting firm, Schreiber said. Most of the money is invested into equipment such as hardware, software and technological upgrades.
“We’re still debating on the process of what we’re going to do,” Schreiber said. “The real key issue is whether the client is getting the best service.”
Schreiber said his firm will look toward alliances with other different non-accounting firms for other services.
Nation said his firm, BDO/Nation Smith Hermes Diamond, is a member of the BDO Seidman Alliance, a network of accounting and consulting firms around the world.
He said the firm will service clients of the BDO Seidman Alliance, since it does not have a local office.
“The nice thing is we can keep our own corporate culture and make our decisions without selling out to a bigger firm,” Nation said.
“Consolidation is crossing the line into all industries and merging the banking, insurance, securities and accounting industries together,” Nation said. “The only decision left for an accounting firm is to decide on whether to go toward a narrow accounting niche or become the one-stop shop.”