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Reader Profile

Carl Famiglietti, CPA, ABV, CVA
Managing Partner
Moody, Famiglietti & Andronico

Editor's note: Each month, we ask a Directors & Boards reader to comment on critical issues facing directors today. If you'd like to participate in this section in the future, please email Scott Chase.

You’ve mentioned you see the CPA and consulting world evolving. Why should leaders take notice?

Sarbanes-Oxley and directives for Boards and corporate policy have changed company structure quite a bit, and the effects go well beyond internal controls. By streamlining and increasing transparency, compliant companies have access to more advanced data streams and measurement techniques that allow them to be fiercer and more nimble competitors.

One of the most striking changes is the ease with which an organization can be viewed top to bottom, and Boards are more equipped than ever to gather reliable intelligence from the front lines of their enterprise. This provides the opportunity to understand needs earlier, recognize the areas in which specialized knowledge can bring benefits, and explore alternatives in rapidly changing consumer, business and capital markets.

Progressive companies that compete on ingenuity see that specialized knowledge is best sourced from specialist firms, which were much less common a decade ago. The evolution of the CPA and consulting world is evident in the rise of these specialized firms, as they gain strength by addressing this market need for quick, innovative, and exacting execution.

Corporate leaders that tap these resources enjoy improved independence, cost savings, and senior level expertise that helps drive the speed and depth of achievement of their company’s strategic and tactical objectives.

Didn’t we already see a big shakeout last decade, when the Big 8 split these disciplines up?

Absolutely, and that shakeout had significant short term effects that laid the groundwork for these structural changes.

The names are as familiar to executives as the consequences: Enron and the numerous other companies that are now infamously synonymous with fiscal disaster. Their collapses plunged the corporate world into fierce ethical restructuring; transparency was demanded, SOX was born, accounting and consulting split to avoid conflict.

What’s striking is to find that today’s news is eerily similar. Some segments of corporate America may inadvertently find themselves on that path already-traveled, as major accounting and consulting firms are revisiting their old bonds. While options may soon exist for cross-disciplinary relationships in that industry, Boards and company leaders should remember that it hasn’t been that long since these conflicts led to tremendous problems. Companies suffered from fractured alignments between Boards and key members of management, lack of transparency of information between these two groups, and the pursuit of short-term quarterly performance objectives at the cost of long-term shareholder returns.

So it’s all about avoiding conflict?

Not quite. That’s of course a big part of this, but the long term effects of the shakeout are presenting opportunities for bottom line savings and more sustainable profit generation through independence. What I mean to say is that forward thinkers are tapping into emerging, specialized organizations including CPA and consulting firms that have over the past several years adapted to allow clients to flourish in a conflict-free environment. These firms use agility and flexible fee structures to perform services that complement the company’s objectives, ensure speed of delivery, and offer more in-depth solutions at more competitive pricing.

Could you give us an idea of the opportunities you’re talking about?

Some services are required by law to be handled by a firm independent of a company’s auditor. Under the “caution is king” risk philosophy, these and tangential areas are best left to firms that are completely independent of audit execution:

Valuation services, including

international and inter-state transfer pricing
U.S. GAAP, IASB and tax jurisdiction purchase price allocations, and
restricted stock and option pricing for U.S. GAAP, SEC registration and other regulatory and tax authorities,

Strategic tax planning of U.S. domestic and international tax laws,
Sales, use and local income taxes (silent harbingers of increased complexity and intrusiveness into corporate earnings),
Outsourcing of part or all of a company’s tax compliance reporting,
Control studies and testing,
GAAP and IASB support and reconciliation,
Fringe benefit program to certain members of management covering financial planning, tax planning and other related services, distinguishing a corporate culture and sense of strategic alignment.

It seems you wouldn’t need a specialist firm to handle these areas. Why not stick with the large nationals?

That’s a common route, for certain, but a change in that habit is part of this evolving landscape. Given the availability, scope and brand recognition of the Big Four machine, it is easy to tunnel through all service areas under their execution.

However, it remains critical for companies to distinguish areas that are best served by the consultative giants from those that demand a specialist approach. Simply put, the differences between auditing and consulting should not be lost in the shuffle.

Auditors are keyed in on the past, on assessing existing controls. They’re dealing with stock currency compliance and regulatory issues, whereas tax and consultative work is subjective and focused on the future. Specialist firms are unique in their ability to rely on expertise without negotiating matters of audit-impairing conflicts of interest and independence violations. From a logistical business perspective, they also ensure timely use and availability of intellectual resources.

Why are specialists more equipped to deliver this kind of expertise?

Specialist firms have built entire practices around staying true to their core expertise. Companies that engage these teams already know the competitive advantage that can be mined by having the right knowledge base on hand and committed to a project. Fair Value in tax work, for instance, has become so intertwined with GAAP that internal accounting departments need deep expertise in both areas to properly execute. This can be rare, and specialized firms are more likely to have the combined skill set necessary to step in and resolve issues at a reasonable cost.

Going a step further, specialized firms allocate their expertise in different ways that are directed to a specific client base. They are by nature focused on providing non-attest services based on their specific knowledge base, offering an undiluted focus on delivering results.

Could you give us an example?

We’ve performed work for a national energy company with disparate sites that found itself knee-deep in specialized accounting issues. They needed fast, detailed analysis of the situation and recommendations that brought industry insight to bear. This is a great case for specialized firms: those like us with expertise in this specific area have the agility to commit senior-level talent to the project, deliver on deadline and easily liaise with client financial departments without the challenge of keeping a team intact or pulling resources from disparate offices. These are clear client advantages of doing business with a firm that understands its sector and can commit high level resources to get the job done quickly and correctly.

You refer to this as an “evolution.” Are we in the midst of change, or is this something on the horizon.

We are in the thick of it, and the growth of firms like MFA serves as a testament. That said, there will be much more to come: specialist firms will continue to demonstrate their effectiveness, meanwhile national firms will make a play to rejuvenate their consulting arms.

Won’t that put a quick end to specialist efforts?

Not at all. There are simply too many competitive advantages that can be derived from keeping auditing separate from CPA and consulting work. It goes beyond independence to strike at the most motivating of all factors: cost. A package that combines bottom line savings with timely, insightful solutions is an exceptional catalyst for change.

Carl Famiglietti, CPA, ABV, CVA is Managing Partner of MFA - Moody, Famiglietti & Andronico. Mr. Famiglietti has more than 20 years of experience in auditing, consulting and evaluating the operations of a wide variety of companies.

MFA is a proactive CPA and consulting firm located north of Boston with national and global reach. Founded in 1982, the firm is composed of 11 partners and nearly 100 professionals; clients include leaders in diverse industries including emerging technologies, life science, finance, software, manufacturing, product distributors and professional service organizations.