Talent, technology, and ESG remain top concerns against a backdrop of economic pessimism.
During the past two years, we’ve witnessed Russia’s attacks on Ukraine, a clogged global supply chain, rising prices at the gas pump and in grocery stores, soaring housing costs, and increased spending as the COVID-19 pandemic eased. These societal upheavals, coupled with inflation, are causing the stock market to fluctuate, along with interest rates, as the federal government labors to steady the economy.
The fallout from these events will continue to affect the accounting profession, businesses, and taxpayers in 2023, said Barry Melancon, CPA, CGMA, CEO of the Association of International Certified Professional Accountants, representing AICPA & CIMA. “Rising to those challenges means committing to rapid responses to the marketplace; continuing to embrace innovation, agility, and our commitment to continuous reinvention; and remaining invested in the digital world and technological advances,” he said. “For 2023 the focus will be on finding and retaining talent, the impact of inflation, accelerated digital transformation, maintaining culture, broadened corporate reporting, and service development.”
Here’s how experts in a variety of practice areas foresee the next year unfolding in accounting.
Technology, talent, and sustainability are three areas affecting audit firms today and into 2023, said AICPA chief auditor Jennifer Burns, CPA.
“Technology continues to impact how audits are performed as auditors adapt to client use of emerging technologies and integrate new solutions into their audit approach,” she said. “Talent also continues to be top of mind for auditors — from hiring new staff to retaining current talent and upskilling existing auditors to meet client needs.”
The demand for enhanced sustainability reporting and assurance continues to grow, Burns added.
“CPAs are the best positioned to provide assurance on ESG [environmental, social, and governance] information due to their expertise, professional standards, systems of quality management, objectivity, and independence requirements,” she said. “Further, practitioners who audit financial statements are the best positioned to also provide assurance on ESG information in a connected way, because auditors are already well acquainted with their client’s companies and their processes and controls.”
Accountants in executive positions, including CEOs, CFOs, and controllers, are turning a pessimistic eye toward the U.S. and global economy in 2023, according to the third-quarter AICPA Economic Outlook Survey. They predict the organizations they work for will have zero profit growth in the next 12 months, and only 18% of them have a positive view of the U.S. economy.
Against this backdrop, management accountants will play crucial roles, said Tom Hood, CPA/CITP, CGMA, executive vice president–of Business Engagement & Growth at the Association of International Certified Professional Accountants, representing AICPA & CIMA. Citing findings from the Future of Finance Leadership Advisory Group, he observed that management accountants will continue to evolve into “value partners” or “chief future officers” who help CEOs set the direction for their organizations.
Finding and retaining talent will be one of the organizations’ major concerns in 2023, Hood said, along with investing in digital transformation, which was accelerated due to the pandemic. Finance professionals, he said, will need to “upskill and reskill to keep up with digital transformation.” In particular, he said, the Future of Finance group identified agility as a top skill finance professionals need to cultivate to keep up with the accelerating pace of business.
Sustainability and ESG “will become part of the organizational fabric” of businesses in the near future, Hood said, and management accountants are eager to “move beyond reporting” in this space to add value to their organizations. Diversity, equity, and inclusion are also a priority for senior finance leaders, he said, mentioning the AICPA’s new Registered Apprenticeship for Finance Business Partners as an initiative that can help improve diversity in the profession.
Staffing innovations will be the biggest headline in 2023, said Jennifer Wilson of Bellevue, Neb., partner, and co-founder of ConvergenceCoaching LLC.
“More firms will try nontraditional staffing strategies, including offshoring, outsourcing, fractional staffing, hiring retirees and stay-at-home moms, and adding strong client-facing operational and administrative resources to manage client expectations and the client experience within their service delivery workstream,” she said.
One of the big winners in 2023 may be the solo or small practitioner who could benefit from the client-culling efforts of larger firms by trading their client base up but keeping it manageable, and establishing higher fees and higher-quality relationships, Wilson added.
And consolidation will be on the rise as leaders at small and medium-sized firms feel increasing pressure to move their succession and buyout challenges to larger firms, she said.
Wilson noted that the difference between firms that will thrive and those that will falter will be the degree of self-interest with which the leaders make decisions that affect their firms and their future.
“The firms that continue to allow existing partner compensation processes, long-held partner buy/sell expectations, and the desire of traditionalist partners to maintain control until they retire may find they are risking their overall sustainability,” Wilson said.
Top of mind for tax professionals will be the Inflation Reduction Act, P.L. 117-169, which was signed into law in August. Brenda Graat, CPA, a partner with Baker Tilly in Milwaukee, said that while the Inflation Reduction Act will result in significant changes in 2023, it was not as far-reaching as anticipated.
“The act did not modify a large number of items, but one positive aspect of it is the renewable energy credits to offset costs and reduce carbon emissions,” she said.
The Inflation Reduction Act also includes the new 15% alternative minimum tax for corporations with a three-year average adjusted financial statement income in excess of $1 billion.
Declining capacity and expanded services are stressing day-to-day workloads at many accounting firms. To help alleviate that workload stress, automation will continue to be a prominent trend in 2023, said Wesley Hartman, founder at Automata Practice Development, director of technology at Kirsch Kohn & Bridge in Los Angeles, and a contributor to the JofA’s Technology Q&A column.
“I think RPA [robotic process automation] is going to help firms compensate for the capacity problems we have in the industry right now and in the future as our work continues to grow and become more complicated,” Hartman said.
Technology is helping firms continue to build out their advisory practices, said Jim Bourke, CPA/CFF/CITP, CGMA, managing director, of advisory services with Withum, who works out of the firm’s Red Bank, N.J., office. “I believe in 2023 we will continue to see firms get their technology house in order with best-of-breed technologies from around the globe,” he said.
Remote work and training environments are “here to stay,” Bourke said. “I believe firms will settle into what the future of the profession will look like, and with this in mind, technologies that support this continuing hybrid model of work will continue to enter our profession.”
Robust internal controls will be at the forefront of organizations’ concerns in 2023, driving a need for forensic accounting expertise, according to Ernest Patrick Smith, CPA/ABV/CFF, owner and senior partner at Nawrocki Smith on Long Island, N.Y.
He warns a possible recession could result in staff reductions that would create compliance challenges for many firms as they struggle to maintain internal controls.
“If organizations cut workforce, they won’t have the kinds of employees they need on the front lines,” Smith said. “And I think, as we head into 2023, the need for forensic accountants skilled in internal controls as they relate to compliance will be at an all-time high.”
Smith predicts that many organizations will need to look more closely at their processes to ensure they’re adhering to tax rules and requirements.
He also cites growing risks related to white-collar crime, including identity theft, employee fraud, and insurance fraud, and he recommends firms explore digital tools to help protect themselves.
As firms increasingly combine data analytics and AI tools with effective internal controls, they will be able to extract, visualize, and analyze large amounts of data to predict cyber threats and put strategies in place to ward them off, he said.
“Cybersecurity is of utmost importance to people everywhere,” he said. “Firms must have the right kinds of controls built into their systems to be able to ward off a cyberattack.”
PERSONAL FINANCIAL PLANNING
The turbulent economic environment, including inflation, rising interest rates, and the Great Resignation, will continue to affect personal financial planning as we head into 2023, said Chris Benson, CPA/PFS, principal at L.K. Benson & Company in Towson, Md.
Pending legislation will also be at the forefront of CPA financial planners’ minds, with the SECURE Act 2.0 (the Securing a Strong Retirement Act, H.R. 2954) a piece of legislation likely to be passed late this year or next year, he added.
“From an economic perspective, I think we are all curious to see how long the current inflationary environment stays in place and how much longer the Fed will increase interest rates and whether this will push us into a recession,” Benson said.
Customized investing is also a growing trend, he said. “Investment brokerage firms have eliminated transaction fees on stocks, and many now offer fractionalized investing,” he observed, “both of which have combined to lead to more customized investing options for consumers.”
“Direct indexing and customized investing are already playing out, and I expect it to continue to expand over the next year,” he said.
He added that many asset classes now are available for people to invest in that used to be available only to high-net-worth investors, and companies are allowing individuals to buy small shares of real estate, rental properties, artwork, collectibles, and other items. These have been popular investment products.
“There has been a flood of money pouring into these types of companies, and investors need to tread carefully,” he said.
The coming year, marking the final months before the revised CPA Exam comes online in 2024, will be a year of transition for many college and university accounting programs, said Houston-based Jan Taylor, CPA, CGMA, Ph.D., academic in residence and senior director–Academic & Student Engagement at the Association of International Certified Professional Accountants, representing AICPA & CIMA.
“Educators, as they continue to prepare students for the changing environment of the profession and the revised exam, will be working to incorporate available technologies and how they are used in practice into their curriculum,” she said.
Among the areas, faculty will place greater focus on are data analytics, cybersecurity, risk management, and other topics graduates will be expected to be familiar with when they enter the profession.
And students will need to know how to tap into technology including advanced Excel, machine learning, RPA, and data visualization software, she added.
AICPA & CIMA have spent months helping educators prepare to teach these newer topics.
“Now, and into 2023, educators can participate in webinars, faculty discussion hours, and they can access a resource hub to locate materials we’ve curated, including articles, case studies, white papers, and other content,” she said.
Taylor expects 2023 to be a growth year for the CPA Exam as a greater volume of students is likely to sit for the current exam rather than take the new one in 2024.
“We know that whenever an exam goes through any significant change, there is often a spike in participants before that change takes place,” she said.