AccountingWEB, in conjunction with Sommella Market Strategies recently surveyed over 300 accounting professionals through an AccountingWEB Survey entitled, "The Impact of Enron: How Far Will It Go?"
The survey, conducted during April/May 2002, was designed to determine attitudes towards the profession and reforms, uncover activities of CPA firms in the after effects of the Enron affair, and better understand how the changes will impact firm management and marketing efforts in the future.
Responses to questions varied widely, depending on one factor alone - the size of the firm that the participant worked for. In general, larger firms (over 1000 staff) feel the impact of Enron, and are formally addressing changes within their firms, and have proactively contacted clients and recruits to manage fears and anxieties. Smaller firms (under 100) in general have done nothing formally, feeling that it is too early to decide what they need to do, and are waiting for direction and leadership to move forward.
Specific findings of the survey are identified below. After each finding, commentary is provided by SMS (Sommella Market Strategies) and/or AccountingWEB. This commentary reflects our opinion, ideas and suggestions for what each conclusion may mean to your firm. At the end of the report, you will find some additional ideas - labeled "Damage Control" - that can help your firm address the issues uncovered in this survey.
Among the findings:
- The majority of firms have strong opinions about their post-Enron world, but are complacent when it comes to taking action.
Firms are being reactive to questions from clients and referral sources. Forty-four percent of small firms indicate they have not done anything in response to recent developments. Across the board, a minority (15%) expressed any proactive leveraging of the event either with clients, prospects, referral sources or the community and press. The inconsistency between large firms and small firms is most apparent in this issue.
SMS: Small to medium size firms have the greatest opportunity to differentiate their firms in contrast to the Enron/Andersen situation. Now is the time for these firms to communicate unique aspects of their services, product lines or culture, while the question of independence is still an issue in the minds of potential clients and referral sources. Firms need to be thinking about which industry sector in their geographic market is most opportune in the aftermath of Enron and then focus marketing resources toward that sector. A window of opportunity exists for firms to capture marketshare that will not be open for long. Whichever firm in a particular market "brands" itself for a unique aspect first, will have an opportunity to rise above the competition.
- An overwhelming two-thirds of the respondents indicate a desire for the AICPA to take the lead in audit reform, but preserve most of the audit standards and responsibilities in place currently.
AccountingWEB: A number of participants express frustration that the AICPA is not leading as they should. Firms are looking for guidance on how to get from point A to point B. Many continue to believe that the priority and focus of the AICPA has drifted from where it should be. Through initiatives like the Global Credential and CPA2Biz, respondents are very concerned that the AICPA has moved from its core purpose, and want the AICPA to return to its roots of leadership for the accounting profession. The perception that the AICPA is aligning themselves with Big Five interests continues to be a strong one.
- Respondent comments point to a perception of a greater acceptance of respected local firms as an alternative to the Big Five among small to medium size publicly held companies.
SMS: During the last three to four years, there has been a measured increase in firms actively marketing themselves as an alternative to the Big Five. This is due, in part, to an increase in the number of accounting associations which can afford a firm the resources needed to service both national and international clients effectively and compete in the Big Five arena. While the ‘Big Five only’ mentality had limited the success of these firms in capturing referral sources in the past, we are now seeing referrals - lawyers especially - recognizing business opportunities with local firms as a result of recent events.
- Eighty-five percent of participants believe that they are "very confident" or "somewhat confident" that their firm adheres to auditor independence standards.
Smaller firms tend to be much more confident in their assumption of independence than larger firms.
AccountingWEB: "Independence" may be a front-page issue in publicly traded company audits, but what about local school districts, your entrepreneurial contractor client, or the privately held medical practice you have as a client? Will the concern about independence trickle down to this level? Most respondents seem to be reacting to the headlines but need to consider what this issue means to their current client base, and address those issues proactively.
- Separation of services and penalties against corporate executives who mislead auditors lead the list of desired reforms.
Two-thirds of respondents feel that there should be separation of certain consulting services and audit functions, and over 75% feel that internal and external audit functions need to be separated. A proposal to rotate audit partners on jobs every few years was embraced by twice as many respondents as that of a rotation of audit firms every few years. Forty-five percent of respondents embraced a more comprehensive auditors report, while only 24% supported the proposal for accounting firms to publish annual reports.
SMS: The most interesting discovery in this conclusion was the issues respondents mentioned that could be embraced on a firm-wide rather than profession-wide level as differentiators. If 75% of respondents feel that the internal and external audit function should be separated, how is this being handled within their firms? Are firms communicating this as a differentiator to their clients and the business community? What if a firm announced a policy of rotation of partners every X years for certain high-risk industries in response to the Enron affair? None of these ideas will be right for every firm but we are beginning to see firms that are distinguishing themselves in this direction.
- Support for the end of self-regulation is uncharacteristically high.
Approximately one-third of all respondents support a call for independent regulation of the profession, as opposed to the current state of self-regulation. Support for this proposal was fairly even across all firm sizes.
AccountingWEB: While this response may be a reaction to recent headlines, the implications of an independent regulatory board will affect all firms. From peer review to disciplinary action to how an audit is funded to the future role of the AICPA, firms of all sizes will be impacted if such a board is created and given the authority now resident with the self-regulatory bodies.
- Only 17% of all respondents indicate that their firm partners/owners have met to formally address the implications of Enron or to make changes to their strategic vision and planning based on recent events.
These numbers drop to 4% for smaller firms and grow to 61% for larger firms proactively and formally addressing the situation. Even with this "wait and see" attitude," two-thirds of respondents viewed the Enron situation as having ramifications that will change the profession forever. It is clear that CPAs recognize that they are waiting for something before making decisions about how to proceed.
SMS: The low overall percentage of 17% is indicative of the tremendous level of opportunity presented to firms willing to take action. With two-thirds of respondents acknowledging that the Enron affair will change the profession forever, a “wait and see” approach is not in a local firm’s best interest. If and when changes are made to oversight, these firms will be in a stronger position to weather the storm of change if market position is established ahead of time, while the majority of firms are "waiting."
It is possible that many firms need the leadership and guidance to identify the steps needed to get from Point A to Point B. Firms may be concerned that additional time will be required for completion of audits of entities without providing any additional value-added benefit to their clients. This is a legitimate concern and one that is likely to be occurring to savvy clients as well. What can firms do now? Make some decisions as to how the firm can position itself to the best advantage should this occur. "How can we communicate to our clients and referral sources that our firm has these issues under control?" "What can we say that will impart peace of mind?" The most immediate way to make things right is to take control of the situation at the firm level and send the message that the clients' best interest is at the center of all decisions.
- Survey respondents indicate that they want to differentiate themselves from the Big Five, SEC firms, and other regional or local firms (perceived by the respondents as having less objectivity) but have no idea how to go about accomplishing this objective.
SMS: Right now, partners and staff members want the business community to know that they are not Andersen. They want to send the message that their clients will not end up on the front page of the newspaper. This is an important message for clients, especially, to hear. If firms have taken an introspective look and feel confident about their objectivity, now would be a good time to express the reasons for that confidence to the client group. In terms of the business community, a firm cannot take out a full-page ad saying, "We’re honest so you can trust us." It can however, be clever in sending this message indirectly. A firm’s marketer can do much in the way of damage control by placing the right spin on public relations efforts and by keeping the firm visible within the community. The business community will have an easier time believing a firm has nothing to hide if it is visible.
- The survey revealed that smaller firms feel they are "immune" from major impacts of Enron.
Only 19% are concerned about the ability to maintain current organizational structures, 12% show concern for the ability to retain staff, 14% worried about landing new clients, and 13% fear the ability to keep and service current clients. The numbers rise to 27% of smaller firms concerned about the ability to recruit new staff, presumably because of the perception the overall impact the Enron affair will have on students entering the profession.
AccountingWEB: While the numbers reflect 2-3 times more concern by the larger firms over these same issues, smaller firms should not assume that because they are not a Big Five firm that nothing will really affect them. Major changes are in play in the profession, and all firms need to assess the impact on their firms now and in the future in order to thrive.
- Participants of the survey want an extensive public relations campaign to inform the public that what happened at Andersen was an isolated incident, that the CPA designation still represents integrity, honesty, competence and trust.
Over 50% of firms 100-1000 in staff indicated they need marketing ideas to help focus the local media on the positive image of the profession.
SMS: In our opinion, it is unlikely that an extensive campaign similar to the AICPA’s re-branding campaign, “Never Underestimate the Value” will be launched to accomplish this goal. The reality is that CPA firms are going to have to do what law firms have been doing all along, brand their firms individually. The good news is that the strategy works and has a proven track record among professional service providers.
- Respondents want to get the integrity of the profession back to being the number one concern.
AccountingWEB: CPAs are proud of their heritage, and are anxious to restore the image that they have cherished for so long. Again, this is an issue that requires a coordinated effort between the AICPA, state societies, associations and local firms. All segments of the public accounting profession need to cooperate equally to accomplish this restoration of the image. Firms, as well as the professional bodies they are affiliated with, must play their part to accomplish this.
II. Damage Control: What You Can Do
- Firms are retreating from the public eye. Now is the time to get aggressive with your visibility strategy. Increase press releases being sent to the media. If firms go dark, the perception will be that there is a reason for the behavior.
- Step up the writing of articles for outside publications. No time? Dust off older articles and brighten them up. Everyone knows this trick but how many firms take advantage of the valuable backlog of professional advice in the firm’s archives? Make a commitment to do one article, just one. Alternatively, hire a ghostwriter to write the article for you. Pitch the article to publications read by decision makers in your target market. If you are not sure what CEO’s read in your industry specialization, ask. Don’t think the clients expect you to know. They don’t and would be delighted to share what they know.
- Do something of value for the community. Get your entire team involved in something positive and invite the media. Participate in a local Habitat for Humanity project as a firm. Provide the media with a legitimate reason to give positive press to an accounting firm. Community projects have a positive affect on staff morale and client relations as well.
- Contact your local government office and volunteer to sponsor a firm clean-up day for a visible area of your community, such as a median strip in a business district. Even if it costs you $25 a month to hire a contractor to beautify the area, it is less expensive than most print ads at the end of the year. It would go a long way to promote a positive image of your firm in your community.
- Focus on clients first. Correspond with your clients formally, expressing internal procedures on your end and recommendations for what they can do in order to protect everyone against an Enron type of event. Think about this situation from the client’s perspective and take steps to put the clients’ minds at ease.
Additional Resource: See Ten Steps to Branding Your Firm