Price Battles

When certified public accountant Kevin Fordyce bid on audit work for a local nonprofit organization last year, he thought he made a competitive offer. Then came the shocker: a larger firm undercut him by several hundred dollars. Fordyce, who runs his own accounting firm in Glendale, didn’t get the job. That’s not an unusual story for those in the accounting industry, regardless of whether the firm is small or large. The tough economy has businesses looking closely at every dollar they spend, and in the accounting industry, that’s manifested into fee pressure and increased. “I have to say that has left a mark,” Fordyce said. “I have bid more competitively than I would otherwise.” In a recent survey by the private companies practice section of the American Institute of CPAs, fee pressure and pricing of services was identified as a top issue by firms with six to 10 professionals and those with more than 20 professionals. Accountants say they are responding to the low-cost by marketing their customer service and experience. Mark Koziel, director of specialized communities & firm practice management for the AICPA, makes a comparison with buying a small economy car and a Mercedes Benz: both get you to your destination but one does it in better style. The background of a certified public accountant is far more comprehensive than any other type of basic accounting services provider or tax preparer. They have professional standards they abide by and colleagues to turn to for advice, Koziel said. “You are not just getting the CPA,” Koziel said. “You get the network and the education and experience that the CPA went through.” Accounting firms were most likely to experience fee pressure during the low point of the recession in 2009. During that year, revenues eroded due to fee cuts between 5 percent to 15 percent and low-priced bids for audit work, a survey by the International Accounting Bulletin concluded. The BNG Accountancy Corp. in Sherman Oaks incurred a 15 percent to 20 percent drop in fees the first couple of years of the recession, but has since seen a rebound, said President Chris Brooks. Clients with ties to the real estate industry were particularly hard hit, as were those in the retail business and some manufacturing sectors, he said. “We were never at risk (of harming the firm) but we did see an impact,” Brooks said. Pricing challenges are more likely to occur for tax work and other compliance services, because they are viewed as commodities, said Michael Landau, the managing partner at Woodland Hills firm Landau, Swartz & McCarty LLP. “With consulting and other specialties the value is perceived and the feeling it is being delivered,” Landau said. The IAB survey also found that another source of competition was the larger accounting firms, including the Big 4 — KPMG, PricewaterhouseCoopers, Ernst & Young, and Deloitte & Touche. They were going after a broader client base and approaching companies or organizations typically reserved for mid-tier firms, the survey found. This was the experience of Fordyce, who used to work for PricewaterhouseCoopers and McGladrey & Pullen LLP before striking out on his own in 2010. In the not for profit sector, the local offices of the Big 4 had generally reduced their service offerings to all but the larger nonprofit and educational clients until the recession hit, and then they returned to those markets to keep their staffs busy, Fordyce said. When the fee pressure starts at the top, it trickles down to the mid-level firms and then to the smaller shops, he said. In the area of tax preparation, competition is stemming from advancements in technology and software programs that allow for returns to be done at home. Enrolled agents, federally licensed professionals who do only tax returns but who are not CPAs, also contribute to the decline in prices, accounting professionals said. Enrolled agents lack the expertise to give clients advice about financial planning for the future, Koziel said. “They are not giving you advice on maximizing your 401(k) or minimizing the tax liability,” he said. “All of those are wrapped up in the CPA does.” Robert Woodford, an enrolled agent working in Mission Hills, disagrees that those in his profession put pressure on accountants to charge less. Until 2008, Woodford had a partner who was a CPA and the pair did not discuss what each charged. “The whole time I was in the partnership there was never an issue,” said Woodford, a past president of the Valley chapter of the California Society of Enrolled Agents. “I did my pricing and he did his.” Emphasizing education and experience is only part of the way accountants are responding to the lower cost of a competitor. Fordyce uses the personal service he provides as a selling point, and tells clients he is a partner from day one. That differs from the low priority a big firm assigns to the low-paying clients, he said. Landau said when a client says the fees are high or unreasonable he explains the pricing to the client. He said he evaluates each price adjustment on a case by case basis and on whether it is warranted, Landau said. “If I cannot find something to hang my hat on, and it is important to the relationship, I may take the adjustment,” Landau said. To address price pressures in recent years the accounting industry has introduced value pricing or charging based on the value given to the client. Firms have also considered billing per tax return or audit rather than on how much time it takes to complete those services, Koziel said. “Who doesn’t want to know what it costs at the end of the day,” he said.