Small Firms: Think Big! More Work at Large Firms Means More Opportunity for Smaller Ones (2004)

EXECUTIVE SUMMARY * THE SARBANES-OXLEY ACT HAS CREATED new requirements for public companies, spurring greater demand for professional services and for a range of engagements that offer opportunities to well-positioned smaller firms. * ONE RESULT IS A CHAIN REACTION in which the big firms are going to focus on certain services and push the rest down to midsize firms. They in turn will push down work to smaller firms. * SINCE THE ACT PREVENTS AUDITORS from helping their public company clients with much of the compliance work, there is an opportunity for the CPA to perform internal control testing and review internal control systems. In addition, there will be increased demand for business valuation and tax work. * THE FIRMS BEST ABLE TO CAPITALIZE on these prospects are those in or with access to cities that are home to a number of public They should determine which public companies are nearby and what services they might need, and which large audit firms in the area might be seeking second CPA firms--both midsize and smaller firms--to whom they can refer some projects. * IN MANY CASES CPAs WILL HAVE only to reorient their practices or expand their knowledge and then create a marketing strategy to get some of this work. * CPAs SHOULD BE AWARE that professionals in other fields are offering services such as internal audit engagements. Smaller firms planning to seek such engagements may have to invest in staff training and marketing. For small firms there has never been a better time in the history of the profession to grow a practice, says Richard Caturano, CPA, president of Vitale, Caturano & Co. in Boston, the Sarbanes-Oxley Act has created new requirements for public companies. That has spurred demand for professional services mandated by the act and for a range of engagements that audit firms now either cannot or choose not to take on themselves for their own audit clients. Because of the volume and variety of work needed, a well-positioned smaller firm has an excellent chance to offer its own expertise in numerous areas and thus become what is being labeled a CPA firm. This article reviews what kinds of engagements smaller firms can pick up from larger firms (also see 404 Opens A Door, JofA, May04, page 55) and describes marketing strategies that can enable such firms to position themselves for growth. A RANGE OF POSSIBILITIES Section 404 of Sarbanes-Oxley focuses on companies' internal controls and financial reporting procedures. Since auditors can not help their clients with much of the compliance work the act requires, there is an obvious engagement opportunity for the second CPA firm to perform internal control testing and reviewing. Not only does this present a new practice opportunity, but it also is a way to balance your workload because this work can be done in nonpeak times, says David Morgan, CPA, comanaging partner of Lattimore Black Morgan & Cain in Nashville. Our audit staff is looking at a busier spring and summer than we've had in a long time. Similarly, Caturano reports this year, for the first time in its history, his firm is fully booked for the summer. While internal-control-related engagements might be best suited for firms with 20 or more professionals, that's not the end of the story. There are numerous other services auditors may not be allowed to offer because of the act's restrictions or that large firms may choose to forgo. Audit workpaper preparation. For their public-company clients, audit firms can no longer develop certain workpapers, such as cash reconciliations, intercompany account reconciliations or depreciation schedules, so smaller firms may be called upon to pitch in. It really adds up to offering accounting assistance to companies because their auditors can't help them in these areas anymore, Morgan says. …