In this article, McCabe has provided his views and opinions regarding the challenges faced by small accounting firms in the contemporary accounting business world. According to McCabe, the Economic Recession has caused a number of challenges for the businesses all over the world, among which accounting challenges are the major one. Although many big companies have managed to overcome the accounting issues, several small sized accounting firms are still struggling to deal with these issues (Vasarhely et al., 2015). A recently released report from American Institute of CPA’s 2017 shows that most of the small accounting firms include sole proprietors and businesses of 20 plus, whose top priority is to recruit and retain talented staff so as to plan effectively and attract more clients. The author says that one of the most important problems faced by small accounting businesses is identifying and keeping the calibre staff. This is because high quality, skilled, and experienced staff demand for high salary along with other non-monetary benefits which the small firms find difficult to afford. Moreover, these firms can provide only limited career prospects and opportunities for fresh individuals who have the ability to work for more dynamic and refined entities.
Peterson contended that smaller accounting firms need to be more creative and innovative in order to retain top people. However, these cannot meet the expense of higher salaries, incentives and vacation leaves for their employees but they can offer a flexible working schedule for employees and build family-friendly office environment to keep the employees motivated and happy. Another problem which the author observed for small accounting firms is the non-availability or non-actability to the needed technologies and funds for securing and upgrading the privacy requirements of the clients (Adapa et al., 2016). This threat sometimes proves to be critical for the existence of the newly established small firms. Furthermore, these firms are the prey of big firms who target the clients and customers of small firms to expand their own business at the loss of later. Since small accounting practitioners lack in expertise and know-how, they become unable to enhance their service quality and add customer value. The author viewed that if the firms are provided with these resources, they would be able to deliver management accounting services which would be appreciated by the clients and would increase the value.
As per the survey carried out in the recent years by Tax Strategy Group, small accounting firms also face the problem of high cost of operations and raising advances and loans along with statutory compliance burden. Although compliance problems are generally faced by all types and size of firms but the small ones find it more difficult to fulfil all the regulatory requirements effectively. A quarterly report released by ISME in 2011, reveals that there was a fall in business confidence and employment opportunities in small accounting firms due to job losses in the first and second quarter of 2011.
The establishment of International Financial Reporting System by IASB has committed to make the small accounting firms’ accounting activities cost effective and efficient by providing relief from using the new guidelines of IFRS specifically framed for SMEs. In this context, International Accounting Standard Board has also set new standards for small accounting firms. These standards are easy to understand and use while fulfilling all the reporting requirements of these businesses. These specifically designed policies are meant to benefit the small firms in the long run by meeting their capabilities and needs. Also, these accounting standards are more easily comparable globally and fewer complexities make the standards more flexible and stable. However, McCabe believe that these new standards have done nothing good but have increased the challenges for small accounting firms. This change has adversely affected the staff abilities and knowledge, which are responsible for preparing the accounts of the firms. It has created a need for advanced skills and education in the personnel so as to effectively apply the changed accounting policies. It not only increases the staff training necessity but also takes more time and resources of the organization, thus contributing in the increased operation cost of the small organizations.
According to a study carried out by the International Business Report 2010, small accounting firms were found to have the highest knowledge of IFRS at more than 85%. It was considered that the introduction of new IFRS will be helpful for small accounting firms in terms of improved transparency and availability of funds. In order to survive and sustain, these businesses need to provide training on the application of new accounting practices to their staff. If this step not implemented, the organizations may come into more trouble instead of overcoming them. Some accounting experts stated that new financial reporting policies will enable the small firms in cross border acquisitions and mergers as they do not possess the adequate experience and knowledge to prepare their accounts in line with new accounting standards (Sallem et al., 2017). However, due to the occurrence of various corporate crises for example in World Com and Enron, a number of small accounting firms all over the world, like Brown and Berns LLP, and New York’s Grassi & Co have ceased to offer several services such as audit of public limited corporations. Some of these firms claimed that they are not ready to harm their goodwill just by conducting single unfair audit or an unethical / unlawful piece of work for any such client. It indicated that small accounting firms can confront the threat from government regulations in case they function in an unfair manner. It could cost them their public as well as corporate image in the long term.
In addition to this, CPA Australia has observed that although most of the small accounting firms offer additional services along with accounting services such as business planning, financial advice, and strategic planning but this creates issues because many accountants fail to be involved properly in the delivery of such services as they think supply of these can bring more risk to them. It causes unfavourable results for the small practitioners as the clients then prefer to go elsewhere for availing such additional services, thus reducing the existing client base of the firms.
In this article, McCabe has also identified some factors which are responsible for discouraging the small accountants from providing additional services. These factors include Accountants’ comfort ability to deliver certain services and unwillingness to come out of their comfort level. Also, these small accountants never stay eager to learn new things and gain more knowledge which prevents them to provide competitive services and compete with big firms (Graves, & Seet, 2017). They feel too much rivalry and risk in dealing with traditional services. Moreover, it has been noted that these small accountants have their own image as a narrow book keeper, which is incompatible with new emerging modern accounting demands. Inadequacy of financial, human, and intellectual resources is also a big issue with small practitioners. In the article, the author has also realized that may small accounting firms think that they are too small to provide advisory services. This is only their self-created limitation as these firms can staff up to free their time and execute consulting too.
In order to ensure that the small accounting firms’ leaders are capable to develop and extend their practices and utilize the opportunity that are brought with the cloud technology, the firms require to search for talented people. Also, the small practitioners should change their perceptions and outlook they perceive the recruiting and hiring activities. The firms should go for the latest technology adoption and should not be afraid or feel insecure of the cloud. They need to move ahead everywhere and with everything. According to the author, the small accountants require to review their existing processes and design the new and effective ones. It would allow them to become more successful in less time (Kocakulah et al., 2016). The introduction of training programs and up gradation of accounting systems on the regular basis is also vital for small accounting firms in order to effectively deal with the new clients.
Apart from this, the article suggests that the small accountants should emphasise on what they can deliver more efficiently in context of taking the time for strategic review and thriving. The firms must properly determine its strengths, limitations, threats, and opportunities and establish goals and objectives accordingly. They can concentrate on some different areas. This speciality sometimes partly covers into other areas such as the tax law (Cherry, 2016). Just as law firms, accounting enterprises have to ensure that their services are satisfying the requirements of different customers. A good option towards overcoming the shifting business environment, which is a key challenge confronted by most of the small accounting firms would be to invest in supplying as many services as possible. Clients choose working with firms where they can get a lot of services all under one roof. Providing standardized services would confirm that accounting firms place themselves in top rankings in the professional service sector.
Expose draft are the basically documents that are presented by the accounting standard management bodies to change in the current standard due to the misusing of the concurrent accounting standard. There are many accounting system management bodies such as FASB , IASB and AASB which seeks to enhance the proposal in order to create the better system as compare to the before or existing (FASB, 2017). Accounting standard board in the Australian accounting management system is an important body that is authorized to deliver the amendments in current accounting standard to mitigate the challenges arises in the present accounting principles.
Financial accounting standard board has issues an exposure to build the changes and implement new revised standard in relation to Australian accounting standard management. FASB has released the draft in reference with the Technical Corrections and Improvements to Topic 942 which is concerned to the financial service and intended to eliminate of certain guidance for bad debts reserves of savings and loans which prioritize under the depository and lending service of the business. This technical guidance is facilitated to the removing the issues in financial service for bad debts which comes in action of the Accounting for Net Deferred Tax Charges (Circular 202) and US Comptroller of the Currency’s Banking Circular 202 (Earnst and Young LLP, 2017). On the other hand, accounting bodies are not having any misleading presentation to influence the financial service of perspective organizations. Along with this, the main aim of the FASB is to enhance the financial reporting that supports entities to take worthy decisions and can also be imperative for the external stakeholder to use the detained information to build significant strategies. Apart from this, accounting standard management body has also released a comment proposal to provide the relevant and adequate suggestion or the proposed correction that the board can treat for its final implementation. Entities are open to share its suggestions in order to the File Reference No. 2017-260 with the technical correction and improvement project improvement in reference to the topic number 942. Comments and suggestions in concerned to the Bad debts reserves and savings are also invited from the recipients to pose their comment if they are satisfied or not.
Bragg, 2011, described that the financial services are the important for institutions to support the business in relation to delivering the financial assistance in order to expand and develop the business in perspective market. With this, there are three main financial services are conferred by the institutions as depository, lending and loans which is mostly managed and controlled by the commercial banks, credit unions and savings institutions. The corrections and amendments are linked to the subtopic 942-740 that perceived the guidance over the tax concerns in reference of bad debts reserves and loans. With this, the bad debts reserves is also an major accounting terms that is subjected to the fund which is kept for the concern of account receivables and can tempt to the perspective business (Wahlen, et. al, 2012). It is also conceived that the bad debts challenges is influenced by the low level of customers. On the other hand, large bad debts are also not good for the institution and it also negatively impact over the institution’s credit policy.
Comments in relation to the following amendments exposure draft are also invited to deliver the consequences over the technical codification (FASB, 2017). The due date to pose the perspective suggestion is October 25, 2017, if the recipient entities are not in favour and it can also share the scope attached to the suggestions.
Review over the comments of various industries market players
As per the given responsibilities in relation to assessment and evaluate the perspective changes and amendments in accounting standards which is related to the bad debts reserves for depositing and lending over financial services. From the comment referring four firm’s reviews are also assessed to depict over the suggestions and influence of the codification changes that are made over the financial services.
Comments from the four different organizations are involved; the market players are as KPMG LLP, NYS Society, BDO USA LLP and Deloitte. It is known that all are the competitive firms in the market so their comments are better to consider for any type of suggestions in the adaptable manner
Review and Assessment of comments from the client
The comments from the four major corporations are derived moving towards the significant suggestions over the amendments in codifications. Invitation latter sent to the market players is returned back to the FASB to cater the suggestion over the elimination of certain guidance for bad debt reserves of savings and loans.
On the basis of analysis of following comments from the four leading market players in the perspective industry, it can be stated that the all the recipients have accepted the proposed elimination in relation to bad debts reserves for the financial institutions. All participants agreed with the codification which is removed from the paragraph of topic 942 because it was not for highly relevant to the concurrent accounting standards. On the other hand Authors argued in support of the recommendation from the BDO LLP, that the provided comments from the organization would be supportive to the enhancement of guidance relating to the depository and lending service with positive effective over the accounting standards.
On the basis of comments from the client, overall four clients are satisfied with the change and elimination made in the bad debts reserves and supporting to the authorized body to make the elimination that are effective to use and upgrade the accounting standards. On the other hand, BDO LLP is not fully satisfied with the codification in topic 942 regarding the deferred tax liability over bad debts reserves. Authors described that the technical correction would influence various institutions such as stock and mutual fund, savings banks and with this the financial corporations would also be impacted which has made a reserve for bad debts. With this, BDO business also commented that it would refer to the board to address the proposed comments so that it can be a valuable modification in the accounting standards.
Further, Deloitte is happy with the correction, it stated that the following changes would not impact negatively the underlined firms and might not derive the cost for the administration of proposed eliminations in depository and lending services. With this, this corporation is in favor of the perspective amendments and interested to follow the guidelines over the corrected topic 942. Further, BDO LLP has delivered some of the recommendations that might enhance the exposure of following elimination. As FASB is intended to remove the technical errors in the accounting standards which are arose by 1987. At the same time, it is also reviewed that the subtopic 942-740 is subjected to new guidance but the BDO Corporation suggested that the accounting standard management body should not remove the paragraph as “However if circumstances indicates that the association…because of the US GAAP does not have codified guidance for this extraordinary item. With this, it has also stated that the impact of the income tax would be tempted from the different subjects that come under the subtopic 740-30. In accordance to this, it is also contempt that the paragraph as 942-740-35-3, issues the percentage of deduction which is not available for longer time period. Furthermore, the guidance over the circular 202 which is referred to the deferred tax charges should also remove from the technical codification as it also supported that it is more relevant to the subjectivity of accounting standards. It is also interested that if board want to simplify the technical issues regarding the up gradation of accounting exposure in reference to the US GAAP for circular 202 can also remove as it would also be useful for the users those are conducting and adopted the codification.
With this, the KPMG and NYSSCPA are also supporting the changes and elimination in the reserves for bad debts as it is evaluated that the proposed amended standards would not influence the performance of the corporation those have adopted this accounting exposure. It’s also interested that the arisen guidelines are also not much value creating for the business so it can be superseded from the derived codification for topic 942 (FASB, 2012). In relation to public interest FASB issued that the following amendments in topic 942 would not affect the interest of general public and it be for the betterment of concurrent accounting standards.
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