Automating Tax Compliance

“We always overestimate the change that will occur in the next two years and underestimate the change that will occur in the next ten. Don’t let yourself be lulled into inaction.” – Bill Gates

In the next few years, CPA firms are going to see the profession change at a record pace. These changes are primarily due to automation and artificial intelligence. Tax return preparation has always been a core competency of CPA firms. However, technology is making it easier to prepare returns every year. While this makes tax departments more productive, unfortunately, those same advances also make it possible for more clients to prepare their own returns, place fee pressure on firms and expect more done in less time.

Within the next few years, tax return preparation will be almost entirely automated. Tax return documents from banks, governments, and employers will download automatically into tax software programs. Firms can either transform to differentiate themselves from machines and move up the service value continuum, or face extinction.

Moving up the service value continuum

 Automating Tax Compliance will help firms move up the service value chain

The continuum begins on the far left with the transactional services of bookkeeping, payroll, and bill management. Data connectors take the firm from transactional services up the continuum to compliance services. Data connectors are the ability to extract client data and bring it into the firm’s software. Cloud technology made it possible for firms to move up the continuum. Today, firms access a client’s transactional data in QuickBooks, Xero, Sage or other accounting application. They pull this data into trial balance software that integrates with the firm’s tax preparation engine.

Moving up the continuum from transactional to compliance services gives firms the ability to provide a broader range of services to clients. But growth is limited by capacity. Most firms are already working at or above capacity during tax season.

Obstacles in moving up the continuum

When we work with firms to move up the continuum from transactional/compliance services to performance and strategic services, we see two different sets of obstacles: technical and psychological. The technical obstacles are:

  1. Skillsets. Services at the higher levels require different skills than compliance services. Many of the people working in your firm today have technical ability. But they lack competence in analyzing and designing workflows, consulting, emerging technology, onboarding clients, and performing client assessments. Firms must determine whether they can provide training to bring their existing staff up to speed, or hire new people with the capabilities. Either way, moving up the continuum requires an investment in human capital.
  2. Toolsets. To operate at higher levels, firms also need to invest in the tools that will automate compliance work. Reliance on spreadsheets and manual processes will hold firms back. Investing in technology will create capacity for accountants to contribute more strategically to their clients’ organizational decision making.

The psychological obstacles are:

  1. Mindsets. Some of today’s leaders do not have the mindset needed to transform their tax departments to be future-ready. They believe there is no need to change because they’re being well compensated. Also, they see technology as a disruption rather than an opportunity. They refuse to delegate and thus train the next generation of firm leaders because they believe nobody can do it as well as they can. Lastly, they continue to bill by the hour and service, rather than the client and value. As long as these old mindsets stifle growth, CPAs will continue to be technical advisors rather than the trusted strategic advisors that their clients

Becoming Future-Ready

Tax services will always be about the numbers, but future-ready firms are moving beyond simply compiling and reporting those numbers to offer insight into the numbers. Invest in technology that will reduce the time spent on compliance so you can devote more time to analyzing the data and helping your clients’ businesses grow.

Making the switch requires a level of discomfort and perhaps even pain in the short term, but it is good for your firm, and the profession as a whole, in the long term. Accounting firms can shift to a broader range of services offered year-round. When this happens, firms can increase their revenues, escape the brutal cycle of tax season, attract more talent into the profession, and enjoy better client relationships.

If firms can accomplish this, then we can welcome the changes we’ll see in the profession in the coming years as profitable and successful, rather than disruptive.

Changes are coming to the accounting profession. To find out what you should expect, download the whitepaper, The Future of Tax.


L. Gary Boomer

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