Accounting Services
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Industry Overview
The US accounting and tax preparation industry includes about 100,000 firms with combined annual revenue of $95 billion. Large companies include PricewaterhouseCoopers, KPMG, Deloitte Touche Tohmatsu, Ernst & Young, and H&R Block. The industry is fragmented: the 50 largest companies hold less than 50 percent of the market. Most firms are small, with annual revenue under $1 million; large local firms may have revenue of $5 to $10 million.
The industry includes firms that provide primarily accounting, tax preparation, auditing, bookkeeping, and related services, but doesn't include companies like law firms that may provide such services as a secondary line of business.
Competitive Landscape
Demand for accounting services depends on new business formations, the increasing complexity of corporate business, and higher personal income. The profitability of individual firms depends on the right mix of services and effective marketing. Large firms have advantages in providing a range of services to large corporate clients and having the resources to serve customers with many locations. Small firms can compete effectively by specializing and providing superior service. The industry's average annual revenue per worker is $100,000.
Products, Operations & Technology
Major services include tax preparation, payroll services, auditing, bookkeeping, tax consulting, and general accounting. Tax preparation accounts for 25 percent of industry revenue, payroll services for 25 percent, and auditing for 15 percent. Bookkeeping represents 10 percent of industry revenue, and tax consulting and general accounting, 5 percent each. Other services include computerized accounting systems, training, financial statement review and procedures, and management consulting. Some accountants have branched into accounting-related information technology consulting, business consulting, and personal financial planning. Small business owners often rely heavily on their accounting firms for advice.
Operations focus on providing a set of accounting-related services to businesses, individuals, or both. Most activities involve preparing, analyzing, and verifying financial documents as a way to provide information to clients. Common activities include setting up and maintaining accounting procedures and books, developing budgets, auditing accounting records, preparing financial statements and tax returns, processing payrolls, and billing. Metrics include client retention and acquisition rates, billing recovery rates, and quality, as measured by percentage of results contested by government or lawsuits.
Bookkeeping and accounting work involves the classification of financial transactions into appropriate account categories in the double-entry accounting system used in the US. Accountants may handle tasks directly for a client or supervise the customer's own accounting practices, whether manual or computer-based. Successful bookkeeping and accounting work often leads to tax preparation and related consulting for the same clients.
Audit work typically involves investigating the accuracy of a client's accounting system and tracking sample financial transactions through it. Typically, a small team of accountants conducts an audit over a period of weeks or months. In large client corporations with complicated businesses, external auditors may have an ongoing onsite presence. Auditing is challenging: to audit properly, an accounting firm must ask hard questions of the client, but to retain the client's business, the auditor must present an acceptable audit. The government requires publicly traded companies to have their accounts audited annually, and forbids an external auditing firm from providing consulting and certain other services to audit clients.
Technology helps accounting firms operate more efficiently and accurately. Software tailored to the industry is common and typically has separate modules for specific functions, such as accounting, auditing, tax preparation, and payroll and billing services. Software producers update industry-specific products to reflect changes in accounting, tax, and auditing rules. An accounting firm's knowledge of a variety of commercially available accounting programs helps serve clients who use different software in their own businesses or personally. Accounting firms often use websites to project the firm's image and promote services.