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Tuesday, Nov 29, 2022
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Local Accounting Industry Thrives Despite Its Size

Talk to accounting professionals in the greater San Fernando Valley and they will tell you that they have more business than they know what to do with. The excess work can be traced to a robust economy and the changes made to the industry following the passage of the Sarbanes-Oxley Act. “When the economy is good usually the CPA does well,” said James Macklin, a lecturer in the accounting program at California State University, Northridge. The accounting field in the Valley is a mixture of mid-size firms, small firms and sole practitioners. The largest of those firms have not differed much in the past several years, with Miller Kaplan Arase & Co. and Grobstein Horwath & Co. as the only ones with more than 100 employees. Of the Big Four accounting firms only Ernst & Young and KPMG LLP have Valley offices. Michael Grobstein, the managing partner of Grobstein Horwath, called accounting a tough business because it requires saying no to a client and presents opportunities to do the wrong thing. “When I was young, I used to say that character was the most important ingredient to success in our business. If you didn’t have the character you can fail,” Grobstein said. “You’ve got to be able to turn self interest away and do what’s right.” The general public didn’t think the right thing was being done when it came to the accounting scandals of five years ago involving Enron, WorldCom and other major corporations, many of which filed for bankruptcy. The fallout led to the failure of accounting giant Arthur Andersen and Congress taking action with Sarbanes-Oxley to create stricter internal auditing and accounting guidelines for publicly traded companies. For Valley firms this meant picking up the work the Big Four were no longer allowed to do and the chance to specialize in services for public companies and set up niche practices related specifically to the SOX guidelines. Niche practices Getting into niche practices is key to growth at accounting firms. Having that niche allows an accountant or firm to distinguish themselves from their peers, said Mark H. Fowler, a management consultant to CPA firms. “You want people to remember you,” Fowler said. Human resources, investment services, broadcasting, estate planning, and cost segregation, or how to reallocate costs to accelerate depreciation on a piece of property to save taxes are hot niche areas in the industry. Fowler involves himself with the sale and merger of accounting firms and if a deal does not bring the purchaser talented people, additional locations and niche practice areas he won’t complete it. Miller Kaplan Managing Partner Mannon Kaplan estimates that his firm starts a new niche practice every decade to capture more of the market. The large number of technology companies in the Valley region also provides a growing client base, Macklin said. With their broad business experience and connections within the industry, a CPA is suited to help out tech companies. “When you have lots of clients in different industries and involved in different business activities, there is nobody like a CPA,” Macklin said. Fred Greenspan, a sole practitioner, concentrates on tax returns and compilations and sees that a lot of small firms do the same. In fact, many accountants skip public practice altogether and go into the private sector. One advantage to an accounting degree is the opportunities it presents in working for corporations or for government agencies such as the IRS or the state Board of Equalization, said Al Partington, a professor who teaches accounting at Pierce College in Woodland Hills. According to data from the American Institute of CPAs, 40 percent of its membership is in public accounting while 43 percent are in private practice in such positions as controllers or chief financial officers. The remainder of the membership is in consulting, government work, education, law or is inactive. The California Society of CPAs has 30,000 members and about 5,000 members are in private business or industry although that number is not precise, said spokesman Bill Spaniel. Mergers, acquisitions Niche practices can be started from scratch or be brought in to a firm through mergers and acquisitions. In the Valley, mergers and sales of firms have taken place on a lower level among small and mid-size firms. Kellogg & Andelson Accountancy Corp. in Sherman Oaks is among the firms actively looking to buy others. Acquisition, however, helps firms get around one of the most severe challenges the industry faces finding qualified accountants to come to work for them, especially those with three to seven years experience. The reasons for the shortage vary. The dotcom boom lured accountants away from public practice and into private technology companies. The meltdown of Arthur Andersen in the face of accounting mismanagement with Enron showed accountants their careers could be affected by what happened in other offices. At that point, the accounting profession was not seen as glamorous, said Allan Fisher of Premier Financial Search, a headhunting firm based in Valencia. On average, the firms he’s working with are looking for two to four people, Fisher said. And because firms are not hurting for business, they need employees with skills to maintain the existing client relationships, he added. “The local firms have the work to do but graduates lack the communications skills,” Fisher said. Added into the mix is a generation entering the workforce with a different work ethic than their parents and grandparents. Workers in their 20s and 30s take more seriously a work-life balance and may not put in the extra work needed to get ahead at an accounting firm. When CSUN’s Macklin worked for Andersen in the 1960s, putting in hours over a weekend was not unusual. “In today’s environment you suggest to someone they work a Saturday or Sunday and they look at you as though you are from Mars,” Macklin said.

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