As you know, the "Big Six" international accounting firms are busy merging with each other. Of the original "Big Eight," only one remains on its own. Even "Big Eight" firms which have already merged are merging, again! What's going on? The firms are strategically positioning themselves to compete in a rapidly changing, global business services environment. And no, "business services" does not just mean "accounting." In fact, the firms seem to be actively avoiding the use of the word, "accounting" in their marketing and public relations.

For example, consider the announcement of the merger of Coopers & Lybrand with Price Waterhouse. On September 18, 1997, I was driving home from work, listening to the news on the radio, and I heard: "Coopers & Lybrand and Price Waterhouse, two of the world's most prominent professional services organizations, today announced plans to merge their practices worldwide." After thinking about it for a minute, I realized that the announcer had not referred to them as "accounting firms" or "CPA firms," but rather as "professional services organizations." The press release for the merger of KPMG Peat Marwick and Ernst & Young was similarly devoid of the word, "accounting."

If you doubt the significance of this shift in terminology, surf the World Wide Web and take a look at the home pages of the national firms to see how they describe themselves. I did, and here's what I found:

"Welcome to Coopers & Lybrand L.L.P., a professional services firm." "Deloitte & Touche L.L.P. is one of the nation's leading professional services firms." "Ernst and Young is the global professional services organization that delivers value that clients care about." "KPMG... (has) expanded our role into that of a comprehensive consultancy firm..." "For more than a century, Price Waterhouse... has been helping the world's great companies solve complex business problems by turning strategic insight into tactical action." And so on.

The primary focus of the national firms' home pages is clearly business consulting services. Often, when they list the types of services they provide, the firms do not even mention traditional accounting services. For example, one firm lists the following services: Business Assurance, Computer Assurance Services, Consulting Solutions Thru Technology, TeleSim, Financial Advisory Services, Experfind, Human Resource Advisory, Survey/Research Unit, Tax, The Tax News Network, Entertainment Industry Services, Entrepreneurial Advisory Services , and Trendsetter Barometer. While some of the home pages do mention auditing, most prefer the word "assurance services." Even those that do mention audit and tax avoid the use of the word "accounting."

Most of the Big Six Web sites devote far more space to information technology than to accounting. One even brags that it is "terrifically pleased to have been recognized by Computerworld magazine's most recent survey as Number One in a list of 100 best places to work for information technology consultants." (Doesn't it strike you as a little odd that a Big Six firm would receive such a recognition as opposed to, say, a recognition from the Journal of Accountancy as the number one place to work for accountants?)

Clearly, the firms' emphasis is on solving problems for clients. Rather than advertising accounting, auditing and taxation, they instead depict their skill in improving business performance, effecting organiza tional and strategic change, and using information technology for competitive advantage.

Why is "Accounting" a Word to be Avoided?

Why are these CPA firms dumping the word "accounting" from their promotional literature? Perhaps an analogy might help. Imagine yourself as the president of a railroad corporation in about 1960, considering what strategic direction your company should take for the new decade. You see all sorts of changes in the external environment. The Interstate highway system is being built. The first jet airliners are coming off the assembly line. You realize that the world of transportation is being turned upside-down. You have a choice: either define your company as a "railroad" and die, or define your company as a "transportation" firm and thrive by exploiting the market opportunities created by the new environment.

CPA firms face a similar strategic scenario, today. Just as "railroad" once was a respected label synonymous with transportation, "accounting" was once a respected label synonymous with business information. However, with the advent of the "information age" and its attendant explosion of abundant sources of instantaneous, inexpensive information, this perception is changing. Increasingly, the word "accounting" is becoming associated with mundane recording and reporting of historical transactions. This unfavorable stereotype is reinforced every time the Wall Street Journal refers to the profession as "Bean Counters."

Just as passenger and freight customers discovered new alternatives to railroads in the 1960s, no longer are audited financial statements the only sources of business information available to managers and investors, today. Other competing sources of information are becoming increasingly available. Because they are not bound by GAAP rules, these new sources enjoy some competitive advantages over traditional financial statements in this expanded information market. For example, investors are becoming increasingly less interested in what has happened in the past and more interested in what is happening right now, and what will happen in the future. Thus, information users are increasingly looking for real- time and forward-looking information. Additionally, users are looking for nonfinancial measures such as customer satisfaction and quality, that are not included in financial statements. Most importantly, many of the things that can generate future profits in high-tech and service firms, such as brand names and "intellectual capital," don't even show up as assets on the balance sheet because they are systematically excluded from financial statement recognition.

For these reasons, financial statements are increasingly being viewed as confirmation of information already known rather than as primary sources of information. Although CPAs' audits do add value, the fact remains that the market is willing to pay less and less for that attestation as time goes on. It all boils down to this: If the financial statements don't contain information anyone cares about, then who's going to care whether someone has attested that they are fairly presented? Perhaps this may be an overstatement now, but it seems to be the direction in which things are headed.

Strategic Issues

These trends are already affecting the national CPA firms' profits. For example, total revenue from auditing in the United States has remained flat at approximately $7 billion dollars for the last five years, while the number and size of enterprises being audited has grown with the robust economy. This implies that in real terms, audit revenues have shrunk, while audit work has increased. Ever-increasing price competition and shrinking profit margins are expected to continue as audits of financial statements become a "commodity market."

While the demand for traditional auditing services has declined, markets are opening for other kinds of assurance services. For example, opportunities are growing for attestation to the trustworthiness and reliability of all sorts of forward-looking and non-financial information. Additionally, other types of assurance services range from "Elder Care" (attesting to the quality of care given to persons in nursing and retirement homes) to "CPA Web Trust" (attesting to the quality of information on the Internet). (For an idea of the enormous scope of these new markets for assurance services, visit http://www.aicpa.org and follow the link to "assurance services.")

It is important to note that the CPA profession possesses a regulated monopoly on only one thing: "auditing" traditional, GAAP-based financial statements. But these new types of assurance services the profession is rapidly expanding into are ones in which it enjoys no monopolistic advantage. CPAs will be in competition with anyone who chooses to enter the assurance services business. For example, consider the implications if Microsoft were to decide to get into the information assurance business. They can legally do so anytime they choose to. Thus, in various meetings with leaders of the national CPA firms, the feeling they have conveyed is essentially, "Either we jump in and establish ourselves in these markets, or someone else will beat us to it."

While the national CPA firms' revenues from traditional accounting and tax services have stagnated, their revenues from consulting services, particularly in enterprise-wide management information systems installation, has skyrocketed and now rivals audit revenues at more than $5 billion annually. All the firms admit that the profit margins on consulting services exceed those from audit and tax. Thus, it should not be surprising that the firms' differentiation and marketing strategies are now almost completely focused on business consulting services.

What about Industry?

Given the enormous changes in public accounting, what changes are taking place in the accounting departments of corporations? Is "accounting" a naughty word there, also?

The American Institute of Certified Public Accountants (AICPA) has a new program called the "Center for Excellence in Financial Management," which has been created by the AICPA's members who work as accountants, controllers, and finance directors for corporations. This group has embarked on an ambitious project to redefine the role of accountants in industry. They have coined a new phrase: "The New Finance," which is an attempt to describe the expanding role of accounting professionals in industry. Note that they did not choose to call it "The New Accounting." In fact, this group, all of whom are CPAs, has virtually eliminated the words "accountant" and "accounting" from their vocabulary. A visit to their web page (again, visit the AICPA's site at http://www.aicpa.org and link to the Center for Excellence in Financial Management) will reveal almost no hint of the fact that these people are accountants. Rather, they are billing themselves as "finance professionals."

The skills they are touting as "competencies for the New Finance" include strategic business orientation, risk and return management, streamlining business and human performance, and imaginative and dynamic thinking. Does this sound like your stereotypical accountant? No, and that's precisely their motivation. They know that to be valued members of the management teams in world-class organizations, they must do more than merely report results of past operations. They also know that the word "accountant" conjures up images of people who have no imagination, can't think dynamically, have no business sense, don't think strategically, and can't work with or manage people. So, they are marketing themselves as non-accountants. They seem to be trying to shed their discipline along with their insecurity.

Implications

Do you think they are overreacting? The new Chairman of the AICPA, Stuart Kessler, doesn't think so. He even proposes changing what the letters "CPA" stand for!

"The letters "C", "P", "A" are formidable in the public's mind. All indications are that the public believes those initials stand for honesty, integrity, objectivity and knowledge. But I believe the letters no longer relate to the actual words they stand for — public accountant. I would change the word public to professional because more than 50% of our members work outside of public practice and the term public is confusing. Who does it refer to — the client, the consumer or the service provider?

"As for the "A", unfortunately, accountant does not conjure up a strong image of the abilities CPAs bring to the table. Rather, the letters CPA should stand for something that reflects what will set us apart in the current environment and in the new century. I believe CPA should stand for "certified professional adviser." We would still be referred to as CPAs but now those initials would reflect the position of all our members — public, business and industry, government, academe and others. The term certified professional adviser also solidifies the image of an information professional, a trusted adviser in all of the areas in which CPAs work" (Stuart Kessler, CPA/PFS; Chair, AICPA Board of Directors; The CPA Letter; November 1997).

Decades ago, the major railroad companies failed to redefine themselves into the broader field of transportation services, and chose to remain "just railroads." We all know what happened to them: there aren't many around, anymore. Similarly to railroads in the 1960s, CPAs today have a choice of defining themselves as accountants and dying, or redefining themselves in the larger, rapidly expanding market of professional business services. Most are wisely choosing the latter course of action.

To email the author, link here.

To read other articles by this author, link here.