Excel's got a new World Champion and how CAS can cause lots of liability

"The skills gap" chart from the Journal of Accountancy August 2018 issue

Blake and David chat about three stories this week: 1) A 15-year-old is the new Microsoft Excel world champion, 2) How businesses are failing to help employees keep up-to-date with their digital skills, and 3) the risk of performing Client Accounting Services (CAS) (AKA outsourced accounting) in public accounting firms that aren't equipped to manage client expectations when it comes to the scope of services offered.

Stories in this episode:

Meet the 15-year-old who's the Microsoft Excel world champion (which is a real thing) — CNN

Minding the expectation gap in a CAS engagement — Journal of Accountancy

      Transcript:

      Cloud Accounting Podcast E29: Excel's got a new World Champion and how CAS can cause lots of liability

      Welcome to the Cloud Accounting Podcast, a show for accountants, and bookkeepers using cloud technology to make their jobs more strategic and impactful. I'm Blake Oliver-

      And I'm David Leary. Hey, Blake, how's it going this week?

      It's going great. How about you, David? .

      Last week- the last two weeks were super-super-crazy busy. I feel like there's not a lot happening this week, which is good. I feel like, also, this is the feel-good week. I have a good feel-good story, if you wanna to jump right in?

      Let's hear it, yeah.

      This is on CNN. Meet the 15-Year-Old Who is Microsoft Excel's World Champion, "and yes, this is a real thing," it said. Apparently-

      I love the picture. I love the picture. It's the guy holding the trophy, and he's got his slicked-back hair, his Transitions lenses in his glasses, and he's holding up an American flag, with a giant medal around his neck.

      Yeah, and he's even got a little American-flag lapel, and he's got his tie, and his vest on. It's amazing.

      That's great.

      Apparently, there's a team - Team USA - so, this is a very patriotic victory. I did not know this was such a big deal, but I think, if I just look- scroll in the article, there was 760,000 candidates from around the world entered the competition.

      Wow, that's a lot.

      Think of it, 152 ... The final round, 152 students, 51 countries competed. They competed from the 29th, to August 1st, so it was a couple of days-

      This is an actual competition that- is it Microsoft puts this on? No, it's hosted by Certiport, a provider of performance-based IT-certification exams. I guess this is the second year in a row that Team USA has won the Excel portion of the competition.

      He had a thousand points out of a possible thousand.

      Wow.

      I thought that was kind of easy. The only part of this that disappointed me, though ... Now, he wants to be the best at PowerPoint, I was like, "Aww ... There's no hope." It was like, "Just own Excel; be proud," but no, now it's like he's going to join the doldrums of corporate America, and head down the PowerPoint path, as well.

      The amazing thing is he started learning Microsoft Excel, only one year ago. In one year, he knocked out the Excel world champion. I did not know there was such a thing. It's a cool feel-good story. I almost thought, reading the article, we should bring him on as a guest.

      Kevin Dimaculangan ... He's 15 years old, from Florida. Go Florida.

      Yeah. It's a cool article, and hopefully, maybe it'll ... The spelling bees are on ESPN, now. Is this gonna be next, people will watch TV of people working on Excel?

      Of course, the question is, is he gonna become an accountant? Unfortunately, it looks like that's not in the cards for him. He is more interested in becoming a software engineer, but, maybe he'll figure out how to make life better for accountants, by developing awesome Excel-integrated software.

      It's cool. I think, if I go back to my high school days, I think, yeah, 15-16 years old, I remember I was in a math class with upperclassmen, and then, they all graduated, so I had an extra week, because they got out of school earlier. I remember being introduced by the teacher to Excel. It maybe is what got me to where I am, today. I was like, "This is amazing!" I could see the appeal of Excel, when you're 15 years old.

      Well, moving on, I got my copy of The Journal of Accountancy magazine -August issue, and, a lot of times, I open it up, and I'm ... I have a hard time, as a tech guy, getting interested in GAP changes, or FASB regulations, or standards, that sort of thing.

      I was really surprised. I found multiple articles in this issue that really appealed to me, so, I thought I'd share one, or two of those with you, David.

      Yeah, definitely.

      First is actually just a stat from a survey. Deloitte Digital, and MIT Sloan did a survey of about 4,300 global business respondents. They asked these survey-takers, "Do you think that you need to update your skills yearly, to work effectively in the digital world?" 90 percent said yes. 90 percent of respondents in this business poll say, "I need to update my skills on a yearly basis, to keep up in a digital world.".

      Then, they asked, "How satisfied are you with how your organization is helping you to do so, to learn those skills?" Only 34 percent said yes. 90 percent say, "I need to update my skills." Only 34 percent say that, "My organization is helping me to do that.".

      Got it. It's just there's a disconnect. Where they gonna get these skills from, then, if the organizations aren't helping them get them?

      Yeah. I'll bet you that, like in accounting, it's the same situation, and with all the rapid technological change going on in accounting, people need to update their skills. If their organizations aren't helping them, that might be a reason for an accountant to leave, a CPA to leave, and go to another organization, where they're going to be able to get skills that they need.

      I would say if you're having a hard time hiring, and finding/hiring/retaining talent, consider adding training into your benefits package. Allow people to go in, go to ERP conferences, or learn new technology. What's worse - if they leave, or if they stay with you, and they learn stuff? I think I said that all wrong, but there's a [crosstalk] .

      Well, it's expensive to ... You've talked about this before, finding talent's hard; hiring people's hard right now for growing accounting firms. You've gotta keep the people you have. That's the most efficient thing to do.

      The reluctance of firm owners, or team leaders to train is they say, 'Well, if I train my staff, then they'll just go, and get a different job. They'll get a better job. I'm training them to leave." What's worse, if you don't train them, and they stay? They're probably gonna leave anyway, if you don't train them, because they want the training, I guess is what I'm trying to say.

      Yeah, it's inevitable.

      There's one other article that I really liked, and I gotta find it-.

      Is it in the newspaper? I hear you fitzing around there. Tt's like a physical [crosstalk].

      I'm reading a physical magazine. It's such a weird experience for me. I wanted to share one of these stats, and I had to take a picture with my phone to get it into my notes. All right, this article is by Sarah Beckett Ference, also in the J-of-A magazine for August 2018. It's about CAS, client accounting services, my favorite thing to talk about, because I had my own CAS firm.

      CAS is getting a lot of attention recently, because it's recently hit 10 percent of all CPA-firm revenues are now from client accounting services, doing outsourced accounting, that sort of thing.

      It's more than doubled since ... It's more than doubled in large firms; firms with at least revenue of $10 million per year. CAS has doubled since 2014. From 2014 to 2016, it went from 3.9 percent to 9 percent of firm revenues. That's a big thing. Partners are starting to pay attention to it, right?

      Previously, I guess two CPA firms-assume ones that did tax, and audit, etc.-pretty much weren't doing any of this type of accounting services, client accounting services.

      Yeah, or it was just like ... It was like the ugly stepchild.

      Okay, because I feel like, from my point of view, the last like 15 years, QuickBooks world ... That's what everybody was doing. That was the game. They were all growing, and they were all having success, but, apparently, I was just seeing a small fraction of the rest of the world. Now, the rest of the world's kind of waking up to, "Oh, there's opportunity there."

      Exactly, yeah. That's the world I was living in, as well. Especially in the cloud, these are firms that have embraced client accounting services. Most of their revenue might be from that, but those were small firms; cutting-edge firms. That was distorting our view.

      If you look at the entire accounting-firm profession - revenue, all that stuff - if you look at all across the country, it was very small, until recently. Now, it's basically hit 10 percent, which, to me, is like a threshold that says, "This is significant; people should pay attention. It's gonna grow.".

      This article is about the risks of doing CAS. A lot of firms that are doing tax, and audit, they don't know about the risks of CAS. What I like about this article is it uses some real-world examples of insurance claims that occurred as a result of liability, from firms practicing CAS, but without the proper engagement letters, and whatnot.

      Here are the two examples I'll give you. There was a CPA acting as a de facto CFO for his or her client, and didn't alert the client to some uncollectable accounts receivable. The client had a large amount of accounts receivable that was stale, uncollectable, and didn't, or claimed not to know that it was stale.

      What happened is that the client borrowed on that A/R, secured a line of credit, based on that accounts receivable. Then, of course, the owner couldn't collect on the accounts receivable, defaulted, and went out of business, and then, sued the CPA, saying, "Hey, you should have notified me that this A/R was uncollectable. You never said anything about it."

      If you're gonna do client advisory services, you're just putting yourself at risk, because small businesses, now, are gonna expect you to assume the liability for business decisions, and business mistakes they make, because you didn't advise them the right way.

      Right.

      It's kind of where this article heads towards. Got it.

      There's a lot of opportunity in getting involved as a business advisor, but there's also risk associated with that - if the business falls apart, that you might get blamed for it.

      It's really important to have clearly defined scope services; an engagement letter that says whether you will, or will not notify about this sort of thing, and whether or not you will, or will not have liability. That may not stop you from getting sued, but if you do get sued, it's going to save you, or at least help a lot, when it comes to settling that.

      There was one other example I wanted to share with you; an example of a CPA, who was doing outsourced accounting services, had an engagement letter, and then, the client also wanted sales-tax returns. The firm started preparing sales-tax returns, based on the client's data.

      This, unfortunately, was never added into the original engagement letter, so they were basically doing the sales-tax returns, without having an engagement letter for it, or a contract for it.

      During this years-long sales-tax-preparation engagement, the sales-tax law changed, but the firm didn't change the way it was doing these returns. Then, the government came back, and hit the client with fees, and back taxes, and all this stuff, and the firm got blamed for it.

      Again, example of when you need to clearly define your engagement letter; what you're doing. You also, if you're providing these ongoing services, you've gotta make sure that you stay up to date with the changes in the laws, so that you're not putting your clients at risk, or yourself at risk.

      It kinda reinforces the use of some of the tools, like a Practice Ignition, or tools that help you create those engagement letters, and those proposals, because, if you constantly have to ... It's almost not scale, but if you just have a Word doc, and that's your standard engagement letter, you either have to cover every possible thing in it, and then, it's like overkill for people to sign that engagement letter, because, like, "Well, I don't want you to do that stuff for me ..." You're gonna have to have some tool to dynamically create these, or dynamically modify that contract, right?

      Absolutely. Yeah, every- the author, Sarah Ference, points this out in the article that you cannot just use a standard engagement letter. Every CAS engagement is different, and you have to have a way to define the scope very clearly, and not just one time. You have to periodically review that, and make sure the client understands that, so they have the proper expectation of what you are providing, and what you aren't.

      That's where a tool like Practice Ignition, or any of these other proposal-management tools - PandaDoc is another one that I've used - are super-super-critical for outsourced accounting.

      This'd be interesting. We should try to actually bring her on, and the reason why is ... You've been on this side of the fence for a while. I've been on this side of the fence. Outside of payroll filings, and sales-tax filings, people haven't really talked about the risk to their firm very much. I think there's an interesting conversation that maybe hasn't taken place at all, yet.

      Yep.

      It would be cool. We should try to get her on. I think it would be pretty valuable.

      Let's do it.

      All right, I'll reach out to her. If you're listening, Sarah, please get a hold of me on Twitter (@DavidLeary), or get ahold of Blake (@BlakeTOliver),and join us, please.

      Well, David, that's all I've got for this week. Oh, and I'm gonna be on vacation in Seattle, so we might skip a week. We might do it. We'll see how it goes with me being mobile.

      Okay, or we could drop a bonus episode ... It depends on the news. I guess that will dictate. If nothing happens, you just enjoy your vacation, but if we have to, we'll have to pull you out.

      All right, David. Great chatting. Talk to you again, soon.

      Awesome. Later. Bye, everybody.

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      Blake Oliver

      Los Angeles, California, United States