The slow economy and the increasingly complex task of auditing business performance are combining to send seismic ripples through the accounting industry.
Recent acquisitions involving some Central Connecticut firms, as well as diversifications at still others are reflective of what may be a fundamental shift in the nature of the industry here.
Earlier this summer, Farmington-based accounting-consulting firm Kostin, Ruffkess & Co. LLC, purchased Adnet Technologies Inc. of Farmington, expanding its client services to include information technology consulting. Kostin, Ruffkess Managing Partner Richard Kretz, CPA, said it was natural fit.
“A couple of years ago, we became a client of theirs,” Kretz said. “We learned we both serve middle-market companies and there wasn’t a whole lot of overlap in our client list. We thought we could probably do big things together by serving both of our client lists, reaching out to our clients and saying, ‘We have a new solution for you.’”
Kretz said the lagging economy has meant the accounting services business has become even more competitive.
“Just like we were 10 or 12 years ago, accounting firms are looking at what other client services we can provide,” he said. “I think that’s where a lot of us are going these days.”
Laurie Londergan, a CPA and managing partner of the Hartford office of financial advisory and accounting firm Deloitte & Touche LLP, agrees, saying the economy has created new opportunities for companies.
“As a result of the economic downturn, many companies ceased to exist — which has created capacity in the audit profession,” Londergan said. “That, combined with pressure on rates, has caused firms to look to other means, including a focus on consulting services, to grow their businesses.”
At Kostin, Ruffkess, that opportunity presented itself in the information technology consulting business.
“It’s a service we know our clients use,” Kretz said. “We had Adnet come in and they provided a great solution to us and we realized there are so many folks that can use them.”
Kretz said many of the company’s middle market clients don’t have internal IT departments, so there is a definite need for this type of business solution for many clients.
The one-stop shopping that comes with combining client services into one firm can be appealing to clients, Kretz said.
“It makes it easier for them — it’s having one less relationship to manage,” he said. “We’ve done the vetting and the due diligence process, and we’re making sure they’re dealing with people who know what they’re doing and can get the job done.”
But other factors beyond the economy also are helping reshape the landscape.
Marcia L. Marien, a CPA and managing partner at Marien and Company of Norwich, said she believes recent changes in the industry reflect a shift in the way the industry does business, but she doesn’t believe it is a result of the economic slowdown.
“We’re all trying to find what’s best for our clients — how do we serve them — and more and more, it’s bringing more pieces in under the umbrella,” said Marien, who also serves as president of the Connecticut Society of CPAs.
Marien believes the change has much to do with accountability.
“There’s been so many of these frauds — what if we reference someone to a financial advisor and there’s a problem?” she said. “The best way to control it is to control the financial advisor portion and create a partnership there.”
Marien said technology plays an increasingly more prominent role in the accounting business.
“What’s the line when you’re trying to help a client install a new accounting system? Is it a software issue or a hardware issue? That line gets very fuzzy,” she said. “We’re finding more and more, we’ve got to cooperate with these other disciplines.”
Marien said new accounting regulations have made the industry more complex, especially when it comes to audit technology.
“We need more support from IT people to make sure we’re testing it properly and to make sure we understand the controls involved,” she said. “We can’t do it without some of that shared knowledge.”
At Manhattan-based accounting firm Marcum, LLP, Managing Partner Jeffrey M. Weiner said the company’s purchase earlier this year of tax and business consultants UHY Advisors’ New England practice was part of the company’s strategic growth plan.
Weiner, who’s a CPA, said the economic slowdown presented opportunities for expansion.
“We saw the opportunity with the economy slowing to really take the brand we had and the services we provide and expand it into a national footprint,” he said.
Last year, Marcum merged with firms in South Florida and Philadelphia. The firm will expand into California before the end of the year, adding an additional 150 employees. Weiner said the company has its sights set on Chicago for next year.
Weiner said with each acquisition, the company has acquired additional expertise. The growth also makes it easier for Marcum to serve its clients locally, and grow its existing client base.
“It makes it easier to attract new clients because of the depth of our bench, so to speak, and the locations we have,” he said.
Londergan said she expects to see more firms seeking to grow in the near future.
“Firms will continue to expand their service offerings and seek to grow through both audit and non-audit services,” she said. “Large firms are likely to continue to grow through acquisitions of firms providing niche service offerings. There will likely also be divestitures of service offerings for which conflicts of interest exist or are perceived to exist.”
