When trying to conserve funds, many businesses look to their CPA’s for help. Whether through tax breaks or better financial organization, having an accountant that is trustworthy and knows their way around the many changing tax laws is important for all businesses. Recently, executives representing the accounting industry met at the law offices of Holland & Hart in Las Vegas to discuss some of the issues they face as well as some of the important things businesses need to remember about their own accounting practices.
Connie Brennan, publisher of Nevada Business Magazine, served as moderator for the event. These monthly meetings are designed to bring leaders together to discuss issues pertinent to their industries. Following is a condensed version of the roundtable discussion.
How has your pricing structure changed to help your clients through the recession?
Sharon McNair, McNair & Associates: What we’ve done is go to regular billing rates instead of just maintaining the minimums. That helps a lot. We’ve saved a couple clients because of it, because they didn’t meet the minimum. The actual hours came to a couple hundred dollars less than the minimum. We went ahead and billed them at the regular rates.
Reg Baker, Nevada Society of CPA’s: We’re all classy people in this room, but there are some competitors out there that get very aggressive in their pricing and we’ve got to deal with that.
Lynda Keeton, Lynda R. Keeton, CPA, LLC: What I’ve been finding is that a practitioner who underbids gives the impression to the client that it’s a fixed fee. Then they get a change order that turns out to be even double of what I originally bid. What do you say to the client who says you came in three times higher than XYZ company? It’s an ethical dilemma. Do you tell the client, “I can only share with you what I know, and here’s what I know and you need to be prepared,” or do you match the bid knowing that you’re going to take a loss?
Brenda Stout, Stout Keeton: Nine out of ten times I find that the client comes back, because that person who’s charging half of what I charge knows the value of his work. They’ll go to the less expensive accountant and then a year or two later they’re back and say, “Oh, boy, now we need fixing.”
Ronnie Sloan, Fair Anderson & Langerman: You can ask them to be mindful of the change order process. We don’t give client change orders without communication. We want to explain that this is what needs to be done that’s different than the original scope of work. It’s going to cost you more, or some of your staff can take care of it for a lesser price. So what is your preference? They get to choose. We don’t just arbitrarily do it and then send out an invoice.
McNair: I’ve run into that situation, too. The key right now is communication with our clients. That’s the most important thing that we have. The economy is tough, we all know that, and if you keep in touch with your clients, you keep on top of things with them.
Katina Peters, Tompkins & Peters, CPAs: We’ve also worked with our clients in changing how they’re doing business to make things easier for us to practice, and doing more up-front training with their staff.
McNair: Maybe even employing the employees in their firm to do some of the things that they can do that they never did before.
Peters: Better utilizing their resources.
Baker: Client training can provide some real efficiency.
Stout: This is a very small town, and so a lot of times we do just eat the fees because we care about the client. We’ve had a relationship with them and we want to make sure that they’re healthy, even if they’re closing, as healthy as they can be. In that sense we do end up taking a hit because of those relationships, and because everybody knows everybody else in this town. You have to be careful to take care of the people who watch out for you.
What should a business look for when hiring an accounting firm?
Patrick Thorne, Kafoury Armstrong & Co.: One thing they can do is go to the Nevada State Board of Accountancy website and see if they actually are a CPA and the status of their license. I think that’s important.
Keeton: There’s a big difference too in the type of practitioner that you’re looking for. I don’t have a tax practice. I don’t know IRA rules and regulations. I am extremely overt in having that discussion. If you need somebody that has a deep tax background, well, you want to talk to tax professionals. If you need somebody because you know you have debt compliance audits or want to go public and have an audit issue, then talk to the audit professionals.
Stout: The question that I would say the client has to ask when they’re interviewing potential CPAs, is “who else in my industry do you do work for because each industry has its own peculiarities.” It’s important for the CPA that’s going to service that client to understand the peculiarities of that industry. If they can get a specific referral from someone else in their industry, then that gives them the comfort that that accountant is going to know what to do to help them.
Richard Bowler, Piercy Bowler Taylor & Kern: When you analyze the character of accounting firms, there are firms that understand generally accepted accounting principles (GAAP) and make sure that they apply it always. There are other firms that I don’t know whether they understand it or not, but maybe it’s more convenient not to apply it.
Matt Swan, Swan & Gardiner: We’ve found that when a potential client comes in and the first question they have is how much do you charge and they want to negotiate the fees, we sometimes just turn them away if that’s all they’re worried about. They’re just looking for cheap, not for good. And so we just learned over time that if they’re price shopping, they can go somewhere else.
Bowler: In our firm we like to turn it around and we select the client that we will accept. I think that attitude causes you to end up with a client that is coming to you because they recognize the value of what you do, they recognize the value of quality service, they recognize the value of coming to someone who has both the experience and knowledge to handle things. When we as an accounting firm are selective in the clients that we accept, it also mitigates the retention problem because we have clients that see the value of our work. They realize that what they’re paying isn’t too much. So, the question is not, what questions should they ask us, but, what questions should we ask them?
How big of an issue is collections?
Swan: We’ve actually put a little sign out on the front counter that when you come in to pick up your tax return, payment will be made or you don’t get your tax return. That has solved a lot of problems for us from a collections standpoint. We explain to people, do you walk out with a can of peas from the grocery store and say, “I’m going to eat them first and see if I like it and pay you next month.” That doesn’t happen anymore. We’ve lost very few clients because of it, and most of them have been understanding.
Sloan: What was a challenge for us was having a high-end client who has a great reputation, has paid us lots of fees, and then all a sudden is on the collection list. How do we handle that? At that point, I step in coming from being a partner and say, “what’s going on, how can we help you? This is unusual for you.”
Baker: Are you providing any financing? I’ve heard of firms taking the amount that’s due and then rolling it into a loan but just staying current on the earnings.
Keeton: I have a client that has asked for that.
Peters: We have taken liens.
Sloan: We have taken stock. It’s a new era of how to get paid. You have to be very creative and respectful at the same time.
Stout: This is my first year I’ve used a collection agency.
Baker: That’s interesting to hear, though, because that’s always been traditionally a taboo.
Peters: It’s our last resort.
Keeton: Once they hit collections they’re gone. It’s almost as if the second I say collections, they are gone.
Stout: This last year we’ve had to go to collections, and I’ve had clients come back to do their tax return and I’d say, “why didn’t you just return my phone calls and we could work out the payment?” Many people are finding themselves in that position.
Swan: You hate to see them leave, but that’s just what we’ve had to do.
What can businesses expect as far as new accounting and tax regulations?
Baker: The IRS has launched a taxpayer registration, and it’s a double-edged sword. It’s hard for CPAs to come out and be against that because the general public is going to see it as a good thing, and in some respects it is. You’ve already got a lot of registration right now. What we’re talking about is beginning a registration process for the rest of the competition, the H&R Blocks and some of the other tax preparers. When they get registered and start telling people, they took the IRS exam and passed, and are now approved and can do whatever you need to have done for the IRS. That raises what used to be a marginal competitor to a level that approaches what the CPAs had through their registration and their competencies.
McNair: In the eyes of the consumer.
Baker: That’s something we need to be concerned about, because we are talking about bringing a whole new category of competition.
Keeton: A great analogy would be if you go to a doctor. If you go to a doctor, you’re not going to the nurse practitioner or the LPN. That’s the equivalent of a non-CPA in that environment. And that’s a really great analogy. If you’re going to an attorney, you go to an attorney and not a law clerk or a paralegal. Swan: A lot of them don’t know the tax laws and that’s part of the reason why the IRS wants them all registered.
Peters: I think the biggest thing that business people can do is consult with their CPA before they make moves right now because so much is changing that they need to consider audit and tax rules. There’s so much going on and there are a lot of wrong steps that they can take making decisions without first consulting with us.
Is the IRS more aggressive in today’s economic environment?
Peters: The IRS is really trying to deny every little thing that they can possibly throw back.
Baker: It’s not just the IRS. It’s the states too.
McNair: I don’t know how many of you have had unclaimed property’s audit, but I’m involved with my first one right now. And what they’re looking for are those checks that haven’t been cashed that were written for payroll that people didn’t pick up. And they want the money. The state wants the money.
Peters: Another big issue is the independent contractor versus employee. The IRS and the states are trying to reclassify independent contractors as employees of the company so the companies will then have to pay out those back taxes. I went through a seminar on that specific issue and it’s becoming a bigger issue nationwide.
McNair: Also, tip compliance. The IRS has a brand-new group that goes after employers to pay their share of the Social Security/Medicare on the unreported tips of their employees. It’s that form that you file annually where you list your total sales and your credit sales and the credit card tips on it. You establish a percentage. They’re using that percentage to apply as cash sales now. In this economy it can really hurt.
Is the IRS conducting more audits now?
McNair: They are. They’ve beefed up their staff.
Keeton: We have a client under audit, one of my clients. They have Mexican subsidiaries. Anything foreign is tripping a trigger. We can be clean as a whistle. The only reason we got tripped is because it’s foreign.
Thorne: They are looking at cash in foreign accounts real closely now.
Peters: A lot of questions on foreign. Foreign this, foreign that. So they’re definitely looking.
Baker: There’s a big push for the IRS to get the electronic filing numbers way, way up. It makes it a lot easier for them to do audits. It’s easy for the computers to automatically start cranking out those letters asking questions. So I think you’re going to see the audit rate continuing to creep up particularly as to electronic filing, those percentages get higher.
Swan: It’s mandatory next year, to e-file. We chose to e-file this year everything that we possibly could, and when I look back on it, it was much nicer. We had a lot more control over things. We had a lot of them kicked back, but we figured it was better to work on them this year and clean them up.
Baker: For most clients it’s a good thing because they get their refunds faster.
Thorne: They get an almost instantaneous confirmation that it was filed.
Swan: Extensions too. When we did extensions, we now get the confirmation back that it had been approved right from the IRS.
Baker: There’s a lot of positive value, but there’s always going to be the more likelihood that those audit rates are going to go up as a result. Does anybody have any experience with audits that are just left dangling? I’m starting to see more and more of that, when the IRS will open up an audit and not close it out.
Stout: I can’t even get return phone calls from a supervisor.
Swan: We’ve called the taxpayer advocate three times this year to get problems resolved. And before it might have been once in a blue moon, but this year we’ve had three of them.
How has accounting software such as QuickBooks changed the industry?
Swan: Where we’ve seen issues is with Turbo Tax, not QuickBooks, because we aren’t doing the high-end clients. Turbo Tax is fine if you’ve got the very basics, but if you have any exceptions on there, the questions they ask can be misleading, and people will then answer them to the best of their knowledge, which is almost zero.
Stout: It’s not just the taxpayer who’s using the Turbo Tax. Before tax season, a waitress at a place where I have a monthly association meeting came up to me and offered me her services because she’s been doing taxes for everybody at that place for years, thanks to Turbo Tax. Because she can afford the bucks for Turbo Tax, that makes her a tax professional. So it’s not just the taxpayer themselves that are screwing themselves up. If you don’t know tax law then you don’t know how to answer those questions right.
Peters: We’ve seen that QuickBooks has been very beneficial in a lot of cases. They did a good job in marketing. It’s a pretty powerful program, it can do a lot for a small business and different businesses. We found that we have a little less work doing the actual write-up. But, we do a lot of helping with QuickBooks. We help set it up, clean it up, train them on how to use it appropriately. It’s a little more of a shift.
Swan: For us QuickBooks, where we can just transport files back and forth, has helped our firm. We might not be doing the day-to-day bookkeeping but we’ve transitioned into assisting them and being the expert in QuickBooks making us more valuable than had we been just been doing the bookkeeping. They realize how much they need us now because they messed up QuickBooks. We have to come in and fix it.
