Auditing: Go All-In or Get All-Out
Last weekend I spent some time with my neighbors who both recently left their careers with PWC. They are both in their early thirties. A few years before my neighbors began their public accounting careers (maybe more than a few?) I started mine in the audit department at E&Y. We were sharing our stories about starting out in the audit world.
As our conversation unfolded, it dawned on me just how much has changed since my early days. For a rather telling example, I remember having to go into the office on the weekend to pick up paper supplies to take on-site. We used to use a lot of paper! This sounded completely foreign to our friends, having come up in a virtually paperless environment.
Fast forward…earlier this week, I spoke with an owner of a small CPA practice who asked me to advise her on how to get her practice ready for a sale 5 years from now. Her firm has just under $ 1 million in annual fees and they perform only one audit per year. My advice to her was -first – let that client go and build the practice up in other areas to make up for the loss.
Today, CPA firms that offer audit need to be heavily focused on them in order to make an acceptable profit, and to avoid unnecessary risk. To do them well and efficiently, you need to do a lot of them. You need to be all-in!
Auditing is going to be even more specialized in another 5 to 10 years. So much so, that the number of firms involved in audit will sharply diminish. According to E&Y:
‘The audit of the future will bear little resemblance to the traditional audit CFOs are accustomed to receiving today. In fact, the way organizations conduct audits will change more in the next 5-10 years given the evolution of technology and analytics.’
If you have practice that is only doing a handful of audit engagements per year, it may be time to re-evaluate the decision to stay in this space.
Here are a few questions to consider:
- Why are you doing these engagements? Is it only because you’ve always done them? Is it because of a big client or two?
- Do you know if this is a profitable segment for your firm or not? Have you run the numbers lately? The real ones that take into account training, continuing education, etc.?…What about your opportunity cost?
- Are you willing to invest in the tools necessary to compete in this space in the future?