"It is becoming more and more difficult for small CPA firms and sole practitioners to keep up with the increasing number and complexity of tax regulations and accounting standards, as well as the technology requirements needed to stay competitive. "
Scott B. Wragg is managing director of CBIZ Tofias’ Providence office and is a managing director of the firm’s tax group. Prior joining the company in 2005, he worked in the Boston office of Ernst & Young. He is a CPA with 25 years of experience in planning, supervising and coordinating comprehensive tax services for privately-held businesses and publicly traded multinational companies. He works with many of the largest companies in New England with a primary focus in the technology, manufacturing, professional services, retail and real estate industries. He has extensive experience with federal, state and international tax minimization strategies and frequently consults on topics related to accounting for income taxes, effective tax rate planning and tax risk management.
He is on the board of the Rhode Island Society of Certified Public Accountants and a member of the Massachusetts Society of Certified Public Accountants and the American Institute of Certified Public Accountants.
Wragg has a bachelor’s degree in accounting and a master’s degree in taxation from Bryant University.
PBN: The national press has discussed the increasing number of mergers and acquisitions of CPA firms. Do you see that trend holding true in Rhode Island?
WRAGG: The trend in CPA firm mergers and acquisitions started with the consolidation of larger firms due to the need to have an increased global presence to service multi-national public companies. These large international firms used to be known as the “Big Eight,” then became the “Big Six” in 1989, the “High Five” in 1998 and have been known as the “Big Four” since 2002. These mergers created a void that began to be filled by regional firms, which started another wave of consolidations. In 2004, Tofias PC, a top 50 regional firm out of Boston, merged with the Rhode Island firm of Rooney Plotkin & Willey, which was one of the first mergers in Rhode Island of a local firm with a regional firm. Since then there have been a series of mergers in Rhode Island among firms looking to increase their regional footprint. In 2008, our firm, Tofias PC, joined the national accounting provider CBIZ & Mayer Hoffman McCann, which is currently the seventh largest accounting provider in the country.
PBN: What do you see as the reason these mergers and acquisitions are taking place in the Ocean State?
WRAGG: There are a number of reasons why these mergers and acquisitions are taking place in Rhode Island and elsewhere. First, the complexities of tax regulations and accounting standards have increased significantly. As a result, firms need a depth of expertise and resources in a variety of specialized service areas and industries. Second, accounting firms need to stay abreast of the latest technology to provide greater efficiencies and value to their clients, which can be costly and time consuming. Finally, many local firms are managed by their initial founders who will be transitioning out of the business but have not made the appropriate arrangements for successful succession planning. Consequently, some firms are forced into looking at mergers and acquisitions as an exit strategy.
PBN: If these mergers and acquisitions continue or increase, do you regard that as having a negative or positive impact on smaller CPA firms or even individual CPAs in the state?
WRAGG: It is becoming more and more difficult for small CPA firms and sole practitioners to keep up with the increasing number and complexity of tax regulations and accounting standards, as well as the technology requirements needed to stay competitive. Like any industry, the accounting profession needs to adapt and change with the times. It is challenging today for a CPA to be a tax and accounting generalist, and instead firms and CPA’s must provide deep expertise in a variety of specialized areas. In order to succeed, small CPA firms should determine their areas of specialty, and focus on building their practice around those core competencies. In addition, it can be difficult and costly for small firms to conduct financial statement audits that meet the peer review requirements and quality standards set by the regulatory authorities. Therefore, a number of smaller firms elect not to perform financial statement audits and instead focus on compilation and review services. So there are both positives and negatives for smaller CPA firms looking to control their risk. The positive side is specializing in one or two services or industries that fill a need in the marketplace. The negative is these firms may not have the capital and resources to invest in the infrastructure to stay abreast of all the latest specialized regulations and standards.
PBN: Do you see Rhode Island’s financial services segment as being highly competitive, considering there are many firms and a somewhat limited number of clients? Or do you see many CPA firms reaching outside the state or the region for new business?
WRAGG: Unfortunately, the Rhode Island economy has not recovered as quickly as the regional or national economy, so we are faced with a highly competitive financial services industry. Rhode Island has always been a competitive financial services industry market, primarily due to the large number of firms competing for a relatively small number of clients. CBIZ Tofias has a regional presence with the ability to service clients throughout New England, and in many cases outside New England. While our focus has been on servicing clients in Rhode Island, we continue to experience significant growth outside of Rhode Island’s borders. As a national firm, we have the expertise to assist our growing clients with all of their tax and accounting needs, while still providing the personal relationships associated with a smaller firm.
PBN: What do you see as the biggest challenge CPA firms in Rhode Island will face in the next couple of years? What do you see as the biggest advantage?
WRAGG: One of the biggest challenges all CPA firms face both in Rhode Island and across the nation is recruiting, developing and retaining high quality talent. Our most important asset is our people. The accounting business is complex and challenging. Our goal is to recruit the best and brightest available candidates, build their technical skills, and develop their leadership abilities. To accomplish this, firms need to provide their staff with challenging client work and the opportunity for advancement. The Rhode Island area has a tremendous talent pool to draw from. CPA firms also need to keep up with the latest technology, with the increased standards and regulations, and with the pace of business globally. We are truly in a global economy and firms have an opportunity to assist their clients that are doing business worldwide with their international tax and accounting needs. It is imperative that firms are members of a global network to capably assist with their clients’ worldwide requirements.