The operating revenue of the accounting, tax preparation, bookkeeping and payroll services industry, fuelled by national economic growth, rose by 4.6% to $20.3 billion in 2018. Operating expenses rose at a similar pace, up 4.7% to $14.8 billion. As a result, the profit margin held steady at 27.0%. The accounting industry is relatively concentrated, with the top 10 companies comprising 46% of all of the industry’s operating revenue in Canada.
That means that 10 firms out of more than 16,186 earned 46% of the revenue.
In our accounting profession – as happens too often in our world – large and successful organizations tend to take a leadership role. The assumption is that “big knows better”. The truth is that big firms do know their world better.
It’s just that theirs is a different world.
The 16 thousand or so public accounting offices that earn the remaining 54% of industry revenue have markedly different clients, revenue streams and business models.
In our view this is disastrous for the profession and only serves to accentuate the arrogance and self-importance of our profession’s leadership.
The tax compliance and compilation work that together accounts for well over 90% of the revenue for the 78% of firms with 1 or 2 practitioners (from a 2019 study by CPA Canada), is of no importance to our 10 largest firms.
Consequently, the leadership has re-configured competency requirements to require audit and advisory experience for new CPAs to qualify. This effectively eliminates smaller firms from access to new staff.
The small businesses that represent the clients for the vast majority of the 16,000+ CPA firms in Canada, have little or no need for audit services. The “advisory” services that the biggest firms allegedly have expertise in, represent the largest single source of revenue for our largest 4 firms – the so-called BIG 4.
The supply chain when it comes to professional services is simple. In fact, it’s pretty much dead simple. So, if it’s so simple, how did CPA CANADA get things so wrong when they launched the ACAF program (the ADVANCED CERIFICATE in ACCOUNTING and FINANCE) in 2015 – then had to admit defeat and kill the program in 2019 (just 4 years later)?
Peter Drucker – perhaps the best known – and in my view the best “management scientist” of the 20th century – was reputed to have said that “you can’t manage what you don’t measure”.
BUT the corollary is that you can’t necessarily manage something, just because you measured it.
CPAs are certainly skilled at measurement. That is an important part of what we do.
But still, we’re not nearly as good at management as we’d like to think we are.
In our view, CPAs should stick to what we do best.
For the majority of small CPA firms, that means tax and regulatory compliance.
As our profession struggles to re-define itself, in our view, we appear to have lost the plot.
According to the CPA BC website there will be more than 40 thousand job openings between 2019 and 2028. According to WORK BC there will be 11,150 between 2020 and 2031.
And…the median compensation of BC CPAs was $108,000 in 2018 – according to our website. According to WORK BC, the median compensation of the 72% of CPAs that comprise the NATIONAL OCCUPATION CODE 1111 for financial auditors and accountants was only $60,000 in 2020.
Did the remaining 28% of BC CPAs shift the median income from $60 thousand to $108 thousand? That seems almost impossible to believe.
Perhaps more damning, the median income for accounting technicians and bookkeepers was $51 thousand in 2020. In our view the differential doesn’t compensate for the significant difference in educational requirements.
These discrepancies suggest either a lack of competence or a serious ethical lapse on the part of our profession.
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