A core part of most CPA firms for over 40 years has been the quarterly or monthly preparation of CPA-issued compilations or reviews for clients. This has been the bread and butter for many CPA firms, a constant revenue source and a way to constantly deliver to financials to clients. This is the way it has always been done, and some CPA firms continue to operate this way today. But do these compilations and reviews still hold value for the modern-day small business?
With the advent of cloud accounting, the task of reconciling most small businesses can be done remotely or be heavily automated, so that someone with the proper training can monitor the books on a monthly, weekly, or even daily basis. Clients can access their accounting reports instantaneously, 24/7, in multiple formats customized to their business.
This has led to the rise of bookkeeping firms, which have figured out that what clients need more than compilations is help setting up their accounting systems, finding the latest technology and processes so that their bookkeeping becomes as efficient as possible. Since technology does most of the work, most small businesses don’t need a full-time bookkeeper, so they often outsource this role to a bookkeeping firm as well. CPA firms still doing compilations and reviews have been left behind, and the AICPA, state societies, and state agencies have failed to recognize this shift. A compilation is regulated, requiring peer review and other documentation to issue a meaningless report that a cloud accounting system can produce without regulation, faster, and sometimes more accurately.
Some smart CPA firms have caught on to this, building “accounting service” wings of their practices that have shifted away from compilations and reviews. These firms focus on advisory work for their clients—how to efficiently and effectively run their back office—providing meaningful, tangible action items. Instead of issuing compilations three months after the period closes, these firms are providing management reports to clients three to five days after the month ends. This management report might not even include an income statement or balance sheet, but will include key performance indicators specialized for the client’s business, with meaningful insights the client can actually use.
This shift has occurred because a compilation or review provides little to no value for the modern-day client. Clients don’t want raw data—they want a professional to take that data and turn it into something meaningful. If a CPA sends a client a compiled income statement and balance sheet, most likely the client never looks at them, and clients who do look at them probably don’t understand them. If the same CPA looks at the numbers and tells the client too much is being spent on advertising, or that revenue is looking up over the next few months based on receivables and new support staff might be needed, that is invaluable to the client, and something the client is willing to pay a premium to know.
Traditional CPA firms still performing compilations for clients should strongly reevaluate their practice and consider a shift away from CPA-issued financials to management reports. Clients will pay even more for these reports than for a traditional compilation, and often they require less time (albeit more critical thinking).
This author’s firm is just as guilty as any of performing compilations, just because it’s been done for the same clients for over 30 years. It’s a 2019 goal, however, to completely eliminate them unless required by a bank, government entity, or not-for-profit funding agency and shift these clients to something more meaningful in order to provide a better client experience.