All Hail the CPA
Accountants want to do the right thing. As students, they like math and business. They work hard, they study, they take tests. Many stay in college for 5 years to get a masters degree in accounting. Then they sit for the CPA exam.
The CPA Exam is brutal. “Officially called the Uniform CPA Examination (CPA Exam), the CPA Exam is a 16-hour, four-section assessment that professionals must pass to become a Certified Public Accountant (CPA). [1] The four sections are too boring to enumerate.
Half fail on the first attempt. They spend their nights and weekends studying for hundreds of hours learning the arcane rules of a backward facing system that is guaranteed not to help small businesses. Ok, maybe we are exaggerating.
A CPA is useful once per year. A four or five year degree and a grueling test qualifies a CPA to do exactly one thing for small businesses: file taxes. Somebody needs to do it. We all know IRS rules are bad and getting worse. So bad it seems we have to dedicate a good segment of humanity for a long period of time to learn how to file them.
The system is working as designed. An audit by an independent CPA firm is required for public companies annually. The trust created by this requirement is one of the reasons the market capitalization of US listed companies is 10 as large as the next 10 countries combined.[2] The system works. So there is no reason to change it. Or is there?
The accounting profession has a fundamental problem.
A degree in accounting is a reliable path a Good Job but:
- Student populations in accounting degrees are plummeting.
- People are leaving the profession.
- Big firms have crumbled
Over 300,000 accountants and auditors in the US have left their jobs in the past two years, a 17% decline. Students are increasingly not choosing to study accounting, and even those who do major in it are often put off by the tedious, time-consuming nature of the work and are choosing to work in other sectors.[3]
This should not be surprising to anyone. When an auditing firm is shredding documents to hide its client’s fraudulent practices [4], it’s not surprising that the profession would sound less desirable to young professionals looking to make the world a better place.
A Worthless Tax on Small Businesses
How could accountants have gotten it so wrong? There are three reasons: CPAs have the wrong intention, the wrong view and the wrong data.
- The Wrong Intention. The intention of an audit by a CPA is to protect investors and creditors from fraud perpetrated by nefarious management teams. They act as agents of the IRS and the Securities and Exchange Commission (SEC) to look at past transactions and financial statements to find materially significant deficiencies. Small businesses without public company investors don’t need this.
- The Wrong View. CPAs make the most of their money auditing past financial statements. The audits are usually completed months after year end – long after anyone running the business cares. Anyone who has ever run a business knows there’s a lot more to running a business than this – they need more timely information than accountants have historically provided.
- The Wrong Data. Accountants focus exclusively on historical financial transactions. Imagine all the data a business generates from all of its systems every day like a stream of music from an orchestra. Its as if accountants can only hear when the key of F is played. They are ignoring most of the music of the business.
CPAs provide a valuable function facilitating investor trust in financials reported by management. But, because they have the wrong intention, the wrong view and the wrong data, they do not help small businesses.
CPAs only need the books to be right once per year. When you let a CPA do your books their goal is to do the bookkeeping in a way that makes it easier to file taxes. That’s a worthy goal. But it’s not what helps a small business achieve its owners goals.
So what do small business owners want?
Small business owners want their businesses to be easier to run.
People start companies to be free. Free to be creative. Free to pursue their passions. Free to believe they can have a positive impact on the world. People start companies to be their own boss. They see an opportunity to do something in a better way, and they go for it. Most don’t know where to start so they search the Internet.
There is an overwhelming amount of advice for small businesses, most of it bad. Recently we asked ChatGPT to do a little research. She came up with the Top 100 Things an Entrepreneur Must Do. Really, #47 is “Develop a crisis communication plan.” Oh there is going to be a crisis alright – especially if you follow any of that advice.
We think it’s simple. Small business owners want their businesses to be easier to run.
No one else wants that. Accountants don’t want that. Lawyers don’t want that. They bill by the hour! The AICPA doesn’t want that:
“The AICPA’s mission is powering the success of global business, CPAs, CGMAs and specialty credentials by providing the most relevant knowledge, resources and advocacy, and protecting the evolving public interest. In fulfilling its mission, the AICPA works with state CPA organizations and gives priority to those areas where public reliance on CPA skills is most significant.”[5]
The Securities and Exchange Commission doesn’t want that.
“The SEC oversees securities exchanges, securities brokers and dealers, investment advisors, and mutual funds in an effort to promote fair dealing, the disclosure of important market information, and to prevent fraud.”[6]
We don’t know what most of that means, but it doesn’t sound anything like what small businesses want.
We think the ideas in this book will help make small businesses easier to run.
That’s what we’ve always done. That’s what we always do. It’s simple and there won’t be a test. It starts with the Right Intention.
— more to come —
Chapter 1: Introduction – There is a better way
Chapter 2: All Hail the CPA
Chapter 3: Making a business easier to run
