CPA Practices
Industry Profile Report
Dive Deep into the industry with a 25+ page industry report (pdf format) including the following chapters
Industry Overview Current Conditions, Industry Structure, How Firms Operate, Industry Trends, Credit Underwriting & Risks, and Industry Forecast.
Call Preparation Call Prep Questions, Industry Terms, and Weblinks.
Financial Insights Working Capital, Capital Financing, Business Valuation, and Financial Benchmarks.
Industry Profile Excerpts
Industry Overview
The 52,200 CPA practices in the US provide accounting, tax preparation, and auditing services to businesses, non-profit organizations, and individuals. Tax preparation and tax planning work for organizations and individuals comprise about one-third of overall CPA client fees, but are typically over half of client fees for smaller firms. Tax work is about evenly split between individuals and organizations. An additional 36,500 solo accountants operate with no employees and generate $2 billion in annual revenue. CPAs are licensed by their State Board of Accountancy.
Changing Tax Laws and Accounting Standards
Keeping up with changes in complex tax laws and accounting rules is a major challenge for CPA practices, particularly smaller ones.
Liability Exposure
Difficult economic times can cause business owners to blame their advisors for financial difficulties.
Industry size & Structure
The average CPA practice has $2.6 million in annual revenue and 11 employees.
- There are about 52,200 CPA firms in the US operating about 55,000 locations and generating about $132 billion in annual revenue.
- Any accountant filing a report with the SEC is required to be a Certified Public Accountant (CPA).
- About 85% of firms have less than 10 employees.
- An additional 34,900 establishments are owner-operated with no employees. These solo accountants generate $2.2 billion in annual revenue.
- CPAs are licensed by their State Board of Accountancy. All States require passage of the Uniform CPA Examination prepared by the American Institute of Certified Public Accountants (AICPA) for licensing. Less than half of candidates pass all four parts of the exam on their first try.
- Nearly all States require CPAs to complete a specific number of continuing education hours before their license can be renewed.
Industry Forecast
CPA Practices Industry Growth
Recent Developments
Jun 21, 2024 - IRS Gets Tougher on COVID-era Employer Tax Credit Claims
- The IRS recently announced plans to maintain a moratorium it put in place last fall amid a flood of pandemic-era employer tax credit claims, according to The Wall Street Journal. Known as the ERC, the employer tax credit was implemented by Congress to help employers keep their workers on payrolls during the pandemic. However, the IRS has struggled to pay legitimate claims promptly while processing applications carefully enough to weed out fraudsters and ineligible good-faith claims. Since the ERC’s creation, an industry sprung up to help companies file their claims with the IRS. Many of those claims came in after the emergency phase of the pandemic had ended, and many were illegitimate. As of May, the backlog of unprocessed ERC claims was about 1.4 million.
- In late May, the IRS announced it would make permanent the Direct File free tax filing system that it piloted during the last tax season. Over 140,800 taxpayers in 12 states used Direct File to file their taxes directly with the IRS during the last tax season. During the pilot, all states and the District of Columbia were eligible to use Direct File. The IRS hopes the expansion will encourage more states to participate and increase taxpayer eligibility while continuing to integrate with state tax systems. The Direct File program has met with pushback by some Republican lawmakers and some in the tax preparation industry. Direct File’s critics suggest it’s unnecessary, as taxpayers already have access to free, third-party tax prep services through the IRS’s Free File partners program. IRS officials counter that Direct File is just another tool to help taxpayers file quickly, easily, and at no cost.
- A recent study found that companies modify their tax strategies based on shifts in the IRS’s budget, according to Accounting Today. The study appeared in the American Accounting Association’s Journal of Forensic Accounting Research and sought to examine the relationship between IRS budgets, corporate tax strategy, and tax fraud. The study’s results suggest that companies’ appetites for tax risk and the potential for fraud increase if firms feel IRS resources and its ability to perform audits have been reduced. The study’s researchers examined financial documents of nearly 11,000 companies between 2011 and 2021 and looked for effective tax rates and tax benefits claimed. Researchers also studied IRS budgets. Previous studies suggested companies use past audit rates to determine their tax aggressiveness, but the new report found evidence that firms seem to rely more on IRS budget data to plan their tax positions.
- Some S&P 500 firms offer an alternative picture of their financials by excluding some types of expenses, including litigation costs and amortization of intangible assets, according to Accounting Today. Data provider Calcbench and Suffolk University analyzed the 2023 financials of about 260 randomly selected S&P 500 firms, according to reporting by Bloomberg. Using non-Generally Accepted Accounting Principles (GAAP), the firms took combined 2023 adjustments totaling nearly $182 billion. Public firms are required to report their financial results using agreed-upon GAAP. However, firms may also provide supplemental, non-GAAP financial accounting assessments. The SEC has sometimes asked firms to justify removing certain expenses from non-GAAP reports. The Financial Accounting Standards Board intends to ask for public comment before the end of 2024 on whether it should more clearly define non-GAAP methods.
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