THE VIRGINIAN-PILOT
Copyright (c) 1995, Landmark Communications, Inc.
DATE: Monday, March 20, 1995 TAG: 9503180140
SECTION: BUSINESS WEEKLY PAGE: 14 EDITION: FINAL
TYPE: Cover Story
SOURCE: BY TOM SHEAN, STAFF WRITER
LENGTH: Long : 209 lines
By today's standards, the computers were cumbersome to carry and slow to operate.
``They were the size of briefcases. They weren't the slick laptops that we have now,'' says Gregory F. Lawson, managing partner of the certified public accounting firm Eason, Lawson & Westphal, P.C.
Beginning in 1985, the Hampton firm provided its accountants with computers to take to clients' offices. Using the portables helped the accountants speed up the firm's audit and tax work.
But the machines did something more. They prompted questions from clients about choosing and installing their own computers and software.
Eason, Lawson & Westphal responded by developing a specialty in computer consulting. Last October, the firm's partners added resources to that specialty by acquiring a Virginia Beach consulting and software company, Automated Accounting Professionals, Inc.
Faced with stiffer competition for audits and other accounting work, small CPA firms throughout the country have turned to consulting for revenue growth.
With the wave of bank mergers and the disappearance of companies during the recession of the early 1990s, many small accounting firms lost longtime clients.
Today, more of these firms are following the tracks of accounting giants like Arthur Andersen & Co., KPMG Peat Marwick and Ernst & Young by developing expertise in nonaccounting fields that appeal to existing clients and attract new ones.
Smaller accounting firms ``realize what clients really want is guidance and advice,'' says Rick Telberg, editor of the trade newspaper Accounting Today. ``Clients want to know how to save money on taxes and how to run their businesses better. They'll pay anyone who can tell them how to do that.''
For the nation's 100 largest CPA firms, total revenues increased only 9 percent last year, while their revenues from consulting grew 20 percent, according to a survey that Accounting Today published earlier this month.
Consulting revenues at the 100 largest firms climbed to $4.9 billion in 1994, and their total revenues rose to $16.8 billion, the accounting periodical said.
Consulting has become an essential part of the service at several smaller firms in Hampton Roads. At Eason, Lawson & Westphal, services ranging from business valuation to financial planning and employee benefits generated almost 20 percent of the firm's $1.5 million of revenues last year.
Auditing, which brought in 40 percent of the firm's revenues a decade ago, dropped to only 25 percent of total revenues in 1994.
Eason, Lawson & Westphal, which was organized in 1978, has 16 accountants, including 14 CPAs.
Before the purchase of Automated Accounting Professionals last October, computer consulting generated about 9 percent of the firm's annual revenues. With Automated Accounting Professionals, ``we expect that percentage to become 20 to 25 percent,'' Lawson says.
The prospect of bringing in those additional revenues was a factor in the firm's decision to open an office in Chesapeake in January, Lawson says. In the process, Automated Accounting Professionals moved from Virginia Beach to the firm's Chesapeake office.
Because they often understand the intricacies of their clients' businesses, accountants have routinely provided clients with specialized advice, especially if the company is too small to have a chief financial officer.
``Our clients call with questions about leasing equipment versus purchasing it and about business expansion or divestiture,'' says Lawson. When these clients have no one in-house with the necessary expertise, ``the CPA becomes a consultant.''
What's different today is that more firms bill for that advice as consulting rather than folding it into their traditional services, such as auditing. In fact, clients are less concerned about the cost of advice that will help their profitability than about the cost of an audit, local accountants acknowledge.
An audit is a detailed examination and verification of the accounting records of a business, a government agency, an organization or an individual by an independent certified public accountant.
Lenders, creditors and investors routinely require that a company provide them with audited financial statements. And companies whose shares are publicly traded must provide their shareholders with an annual report that includes an independent auditor's report.
But the risk to CPA firms doing this work has been an painful issue for the profession since the late 1980s. Scores of firms have come under attack for the quality of audits performed at companies that eventually collapsed. And some nationwide firms have paid out hundreds of millions of dollars each in recent years to settle court cases involving their audits of failed banks and savings and loan associations.
For the first time in the eight years that Accounting Today has been compiling its survey of revenue growth at major CPA firms, revenues from auditing and accounting services slipped below 50 percent of total revenues.
``That's a milestone,'' says Telberg, the newspaper's editor, ``because the thing that CPAs are known for is auditing.''
Some smaller CPA firms have turned to consulting after deciding that auditing has become too risky and too volatile, says Bowman of Bowman's Accounting Report. Their attitude, he says, is: ``Why risk the entire firm in an areas where we can't make that much money?''
Other firms, including several in Hampton Roads, have stepped up their concentration on consulting to offset a seasonal drought in accounting work. Because of the Tax Reform Act of 1986, many companies whose fiscal years did not match the calendar year were forced to adopt a fiscal year ending in December.
For CPA firms, that meant handling a deluge of tax and audit work between late December and mid-April but having slack periods during the rest of the year.
At many firms, ``you might have 40 to 60 percent of your revenues coming in during 3 1/2 months of the year,'' says Arthur Bowman, editor of the industry newsletter Bowman's Accounting Report.
The 100 firms participating in Accounting Today's recent survey of annual revenues cited these specialties as some of the fastest growing areas of consulting:
Litigation support, which involves serving as an expert witness in court cases involving financial or business issues.
Business valuation, which puts a value on a business for a sale or for parties involved in a divorce or ownership dispute.
Employee benefits.
Computer installation and training.
Whatever their expertise, some accounting firms discovered that building a consulting practice isn't trouble-free.
During the 1980s, many CPA firms around the country jumped into computer consulting only to find it more costly and more complicated than they expected, says Bowman of Bowman's Accounting Report.
In Hampton Roads, some CPAs acknowledge that they have been circumspect when deciding which types of consulting to provide. Baker & McNiff P.C. in Virginia Beach had considered investment advisory services as a way to build on its financial planning work.
``We decided not to go down that road,'' partly because of the increased liability that the firm would have to bear, says Eugene McNiff, vice president of Baker & McNiff. In addition, becoming a registered investment adviser would have jeopardized business relationships that the firm had already established, he says.
Meanwhile, Goodman & Co., the largest CPA firm based in Hampton Roads, ruled out actuarial services as a consulting specialty. If a firm develops an actuarial specialty and its actuary departs, ``you're left in a lurch because their skills aren't transferable says Donald M. Dale, the firm's managing partner.
Goodman, which already has a large consulting practice in the health-care field, has begun planning for a computer-consulting division and is investigating investment-advisory services.
``We see (computer consulting) as a logical extension of our existing services,'' Dale says.
But the fervor for consulting is not universal. James K. Hall, managing partner of Edmondson, Ledbetter & Ballard in Norfolk, figures his firm can continue to grow by refining its traditional services and strengthening its ties to existing clients.
As the business environment becomes more complicated, many companies need help avoiding surprises, says Hall. ``The last thing a business needs is a tax return with an an amount due that they didn't expect,'' he says.
Even those clients with sophisticated computer systems sometimes need help discerning which pieces of information are important to their business. ``We help them interpret the data and advise them on how to act on it,'' says Hall.
To reflect its emphasis on consulting, Eason, Lawson & Westphal began identifying itself three years ago in marketing materials as `consultants' as well as `certified public accountants.'
Will the day arrive when consulting will dominate the firm's work and its identity?
``We don't have any plans to do that,'' says Lawson. ``But some people in the profession may decide to drop the term `certified public accountants' and market themselves as consultants providing CPA services.'' ILLUSTRATION: [Cover illustration by John Earle]
Illustration by John Earle
[Color Photos]
Katherine M. Little, and John F. Everling are now collegues, a
result of Eason , Lawson, & Westphal's diversification. The
accounting firm, who bought Automated Accounting Professionals, Inc.
last October, made Little resident Manager of Eason's Chesapeake
office earlier this year. Everling is executive vice president of
Automated Accounting.
Eason, Lawson & Westphal P.C.
Headquarters: Hampton
Organized: 1978
Offices: 2; Hampton and Chesapeake
Accountants: 16, including 14 certified public accountants
Administrative employees: 4
Shareholders: Gregory F. Lawson, G. Fred Westphal Jr. and James M.
Haggard
Revenues in 1994: $1.5 million
Specialties: business valuation, employee benefits, estate
planning
Major clients: Langley Federal Credit Union, Hampton; Amphibious
Base Federal Credit Union, Virginia Beach; Victor Management Co.,
Newport News; Seema Inc., Hampton; City of Poquoson,
1994 REVENUES SOURCES
Auditing: 25 percent
Compilations and reviews: 18 percent
Tax services: 38 percent
Consulting: 19 percent
by CNB