For accounting firms, now is the time to catch their breath before tax season shifts into high gear. That’s why Richard Kaplan, managing partner at Yarlas, Kaplan, Santilli & Moran Ltd., had some time to answer five questions about tax season and the state of the accounting profession.
Kaplan has a bachelor of science degree in economics from the Wharton School of Finance at the University of Pennsylvania (1963) and a law degree from Suffolk University Law School (1970). He’s been a CPA in Rhode Island since 1965, and he is accredited in business valuation by the American Institute of Certified Public Accountants.
PBN: Now that we’ve entered a new year and last-minute tax planning is over, there must be a small respite before your attention starts to turn to tax returns. When does it start to get busy?
KAPLAN: We do have a couple of weeks to catch our breath after a busy December of tax planning. … However, much of January is spent planning and scheduling for the busy season. We have found that every hour spent by the partners and managers pre-planning and budgeting major audits and accounting projects results in many hours [saved] for our staff and thereby improves efficiency and enables us to keep fees reasonable for our clients. We are also completing a number of audits for fiscal year businesses and nonprofit organizations. In addition, this month we are updating our tax- and project-scheduling software as well as holding in-house educational seminars to keep our people up to date on new accounting and tax rules. With newer software and technology, many of our clients have their records ready in January, so much of our staff will be able to begin working on those clients shortly. By mid-February we are in full gear, working overtime to meet the corporate tax due date of March 15 and the personal due date of April 15, as well as bank-required due dates for financial statements.
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PBN: Can you outline a few of the bigger recent accounting rule changes you’ll be dealing with and how they will affect your clients?
KAPLAN: New Risk Assessment Standards, mandated in response to fraud-related business failures such as Enron, now apply to all audit engagements. These standards require more time be spent with clients to review, understand and document their internal control systems and their compliance with those systems. We are required to identify areas susceptible to errors or manipulation that could cause a material misstatement to the financial statements. We are also now required to provide formal written communication to the client as to material weaknesses and significant deficiencies in their internal control systems. Such communication could previously be communicated orally or in the form of an informal management letter. These new requirements require more staff time and the formal letter does not always please clients. Our mission is to educate our audit clients about these new requirements. A new controversial rule also requires the disclosure in financial statements of any questionable tax positions taken. After planning for implementation, we were recently notified that the [American Institute of Certified Public Accountants] announced a partial deferral of its application for private companies until next year.
PBN: The sputtering economy, of course, seems to be affecting every industry. Even law firms have had hand out pink slips. What’s the employment picture look like in the accounting industry?
KAPLAN: Fortunately our industry has not seen any major layoffs. In fact, we just hired a staff person with national-firm experience because of the additional audit clients we have obtained. It appears to me that our services will continue to be in strong demand due to the current concern about corporate fraud and the need for businesses to improve financial management, oversight and efficiency, and deal with ever-changing tax rules. We are also fortunate in having a mix of clients with various fiscal years so that we are able to keep our people quite busy throughout the year. In fact, some have trouble finding free time for vacation in the summer. We have already hired six college interns to assist us with the tax season, and it gives us a chance to consider them for future full-time employment. We also provide special consulting services that do not depend on the general economy. For example, I specialize in succession planning and business valuation, as well as divorce and litigation support for attorneys. Other partners are certified fraud examiners, alternate dispute resolution officers and estate planning specialists.
PBN: In this economic environment, many a business has gone bust, maybe even some of your clients. Have you had difficulty collecting fees?
KAPLAN: Because of the rather sudden economic downturn and tightening of credit, we have become concerned about the cash flow of our clients as well as for our firm. By helping our clients weather the storm through improved management, we help ourselves. We all know that some businesses will not survive in 2009. Most of our clients are family-owned businesses or professional practices with whom we have worked for many years, some for multiple generations. They are friends as well as clients, therefore we will extend them every courtesy in regard to credit. However, we cannot pay our staff and overhead if we don’t maintain a reasonable cash flow. Cash is king, and that is more true now than ever. Fortunately, collections in 2008 held up quite well, but we will be paying more attention to our clients’ cash flow this year in order to help them and ourselves.
PBN: Recently there have been some mergers and acquisitions of accounting firms. For example, two Midwest firms recently purchased regional player Tofias. And Boston firm Sullivan, Shuman & Freedberg LLC merged with Rhode Island’s largest accounting firm, Kahn, Litwin, Renza & Co. Ltd., on Jan. 1. Do you see more consolidation on the horizon? What does the future hold for the accounting industry?
KAPLAN: It is a fact that local firms are merging into larger firms at an increasing rate. I think this is occurring because it gives larger regional firms the opportunity to provide services to large private and public companies in competition with the shrinking number of national CPA firms. It also provides economies of scale and a succession (retirement) plan for partners of the smaller firms. Our philosophy is quite different. We have brought in managers as partners at a younger age and merged in local firms with good clients and staff resources, in order to assure the continuation of YKSM as an independent local/regional firm. Our partners enjoy working with family businesses and maintaining close relationships with our clients. It provides a great deal of operating flexibility, satisfaction and security, while maintaining local governance. I think this benefits all stakeholders – our clients, staff and the community.
