Rick Telberg's Insider: CPA Firms as Business Incubators
July 12, 2000 (SmartPros) — Business incubators, those hothouses of entrepreneurial fervor and investment, have been springing up across the nation. But they're nothing new to many accountants.
In fact, accountants have long been pioneers in making their own firms into test labs for ingenuity.
In Nashville, Tenn., for example, Kraft CPAs says only half of the firm's clients are actually clients of the core CPA firm. The rest buy from the Kraft Technology Group (a computer consultancy), or Second Generation Capital (merchant bankers), or Centennial Valuation Group (for asset and business appraisals), or the Kraft CPAs Employee Benefits Team (for qualified benefit plans). When the units get healthy enough, they get spun off, like the HR Group did last year.
You'd hardly think that the firm is 42 years old. "Everything we do within the firm is to meet the needs of our clients," Kraft chief Vic Alexander says. "If our clients have these needs and we don't meet them, the competition will."
What's next? Maybe a division to handle eldercare services.
Here's another example: BDO Seidman is spinning-off its e-business consulting practice as WaveBend Solutions LLC. The unit, which was launched in 1995, saw its revenues grow 51 percent last year. WaveBend's clients include Barnes & Noble, DaimlerChrysler, and Northrup Grumman. Although a separate entity, WaveBend will continue to deliver e-business services to BDO Seidman clients and will continue to have access to the BDO International consulting practices.
"We believe that by spinning-off the Business and Technology Solutions consulting practice into a separate entity, we can unleash this practice from the constraints that are often associated with traditional accounting firm partnerships,'' said Denis Field, chairman and chief executive officer of BDO Seidman.
The entrepreneurial bent at BDO must be working. Field yesterday announced revenue for the fiscal year ended June 30, 2000, of $408 million, a 37 percent increase over last year’s level. The revenue jump was led by growth in the firm’s taxation, technology and specialized services business lines.
Or take Deloitte & Touche: The London branch of the firm has confirmed that it would float its CSL outsourcing subsidiary early next year in an initial public offering worth up to $500 million. A wholly owned subsidiary of Deloitte's British partnership, CSL had profits last year of about $15 million on revenues of about $250 million, mostly from streamlining government agencies. But it has work in the pipeline of over $1 billion and must go public to make the acquisitions it needs to scale up. Deloitte acquired the unit in 1993 when it was spun off by the government.
Big Five firms are complaining that independence-minded regulators are forcing them to break up their practices. And maybe that's part of the story. But CPA firms seem today to be merging and de-merging, acquiring and divesting, dissolving and re-forming at a pace unheard-of in the past.
Monday, July 03, 2000
Accounting Education Gets Blame
by Rick Telberg
July 3, 2000 (SmartPros) — Some college accounting professors appear to be poised to recommend that accounting education and recruitment begin in high schools. While none of the supporters of the idea asserts that it's the only remedy for the profession's brain drain, it has stirred some passion and debate.
The proposal was aired by W. Steve Albrecht, associate dean at Brigham Young University. Along with professor Robert J. Sack of the University of Virginia in Charlottesville, Albrecht will present the findings of "Strategic Thinking on Accounting Education for the 21st Century" in August at the American Accounting Association annual meeting in Philadelphia.
"Steve and Bob are correct in the causes of the decline but I don't like their recommendation at all," commented Ed Ketz, an outspoken professor at Pennsylvania State University. "One thing they leave out is that academics are mostly Ph.D.s trained in financial economics. Many have no experience. The problem that this causes is that they don't appreciate the changes in practice. And consequently they don't care about changing the curriculum. Changing the teaching of accounting in high schools is ridiculous. The vast majority of my accounting students never took accounting in high school, and I suspect that this true for other schools as well. I sure didn't. The high schoolers tend to be weak students who couldn't get into college."
"The issue is the value of the services," says Bob Elliott, chairman of the American Institute of CPAs, a top executive at KPMG and one of the profession's true visionaries. "If it doesn't rise, we can't charge clients more and therefore can't pay CPAs enough to attract them away from information systems."
"Why is the value down relatively?" Elliot asks. And answers:
· "We are functioning at the middle of the information value chain (the production of information), not at the top (the use of information to create wealth), where the high compensation is." His solution: move up the value chain to consulting services.
· "We are auditing financial statements of declining relevance (backward-looking, annual balance sheets filled with the tangible assets of the industrial revolution, not the intangible assets of the post-industrial world)." His solution: refresh the accounting model. "That's the FASB's job, and they're working on it, though too slowly," he says. The profession must "move toward more frequent reporting, real-time assurance."
· "Companies a generation ago lacked the internal capacity to prepare GAAP financial statements. They needed the CPA to do it. Today (through hiring many CPAs from practice, to the extent that CPAs in industry now outnumber those in practice), most companies have internalized all the skills they need. Solution: "Provide value-added services that companies have not yet internalized," Elliott says.
"If we don't do these things, the sweetest talking recruiter -- whether in high school or college -- won't be able to attract students to accounting."
"Having said that," Elliott adds, "I believe that the profession is working on the solutions. I believe that the profession is more attractive (in the sense of opportunities) today than it has been in a long time. But students (like most people) are still laboring under obsolete information and images."
Irv Gleim, the straight-talking head of the Gleim CPA review based in Gainesville, Fla., is tired of waiting. He says succinctly: "What would you have your child major in, accounting or computer information systems?"
In fact, they are all correct. Solving the profession's brain drain must begin everywhere at once -- in colleges, providing professors with practical experience; in the marketplace, by enhancing the value of the services delivered; and in the high schools, by letting youngsters know that accounting provides a surefooted entrée into the business world.
July 3, 2000 (SmartPros) — Some college accounting professors appear to be poised to recommend that accounting education and recruitment begin in high schools. While none of the supporters of the idea asserts that it's the only remedy for the profession's brain drain, it has stirred some passion and debate.
The proposal was aired by W. Steve Albrecht, associate dean at Brigham Young University. Along with professor Robert J. Sack of the University of Virginia in Charlottesville, Albrecht will present the findings of "Strategic Thinking on Accounting Education for the 21st Century" in August at the American Accounting Association annual meeting in Philadelphia.
"Steve and Bob are correct in the causes of the decline but I don't like their recommendation at all," commented Ed Ketz, an outspoken professor at Pennsylvania State University. "One thing they leave out is that academics are mostly Ph.D.s trained in financial economics. Many have no experience. The problem that this causes is that they don't appreciate the changes in practice. And consequently they don't care about changing the curriculum. Changing the teaching of accounting in high schools is ridiculous. The vast majority of my accounting students never took accounting in high school, and I suspect that this true for other schools as well. I sure didn't. The high schoolers tend to be weak students who couldn't get into college."
"The issue is the value of the services," says Bob Elliott, chairman of the American Institute of CPAs, a top executive at KPMG and one of the profession's true visionaries. "If it doesn't rise, we can't charge clients more and therefore can't pay CPAs enough to attract them away from information systems."
"Why is the value down relatively?" Elliot asks. And answers:
· "We are functioning at the middle of the information value chain (the production of information), not at the top (the use of information to create wealth), where the high compensation is." His solution: move up the value chain to consulting services.
· "We are auditing financial statements of declining relevance (backward-looking, annual balance sheets filled with the tangible assets of the industrial revolution, not the intangible assets of the post-industrial world)." His solution: refresh the accounting model. "That's the FASB's job, and they're working on it, though too slowly," he says. The profession must "move toward more frequent reporting, real-time assurance."
· "Companies a generation ago lacked the internal capacity to prepare GAAP financial statements. They needed the CPA to do it. Today (through hiring many CPAs from practice, to the extent that CPAs in industry now outnumber those in practice), most companies have internalized all the skills they need. Solution: "Provide value-added services that companies have not yet internalized," Elliott says.
"If we don't do these things, the sweetest talking recruiter -- whether in high school or college -- won't be able to attract students to accounting."
"Having said that," Elliott adds, "I believe that the profession is working on the solutions. I believe that the profession is more attractive (in the sense of opportunities) today than it has been in a long time. But students (like most people) are still laboring under obsolete information and images."
Irv Gleim, the straight-talking head of the Gleim CPA review based in Gainesville, Fla., is tired of waiting. He says succinctly: "What would you have your child major in, accounting or computer information systems?"
In fact, they are all correct. Solving the profession's brain drain must begin everywhere at once -- in colleges, providing professors with practical experience; in the marketplace, by enhancing the value of the services delivered; and in the high schools, by letting youngsters know that accounting provides a surefooted entrée into the business world.
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