Selecting a Top Tier CPA Firm is Counter Intuitive

A prospective client asked me how many CPAs we had. I didn’t think much of it at the time. Later I realized he was probably evaluating us on that number.

This is a common error, assuming quantity is identical to quality. Big mistake.

I started my public accounting career with the biggest & best public accounting firm in the world, Arthur Andersen. They were the only firm that was a true international firm. Today’s Big 4 are all associations of firms. When Enron killed them, they were the largest auditing firm in the world, Accenture (formerly Andersen Consulting) was the largest consulting firm in the world and Arthur Andersen Consulting was the 2no largest consulting firm in the world.

When I started at Arthur Andersen, every recruit at my office had graduated at the top of their college class. The major daily newspaper published a story about us saying, “The firm had to widen its halls so we could walk by each other, such a collection of egos we were.”

So Andersen hired the best people and were the best firm in the world. But we didn’t have a lot of CPA’s on staff. Out of a hundred professional staff, no more than 15 were CPAs. Most of our professional staff were still aspiring to become CPAs. But we cycled them through pretty fast. It didn’t take more than two or three years to figure how bright they were. You move out those who will never be what you want them to be. And you bring in a bunch of new people looking for that one. For those who were nearly the best but not not good enough for the firm, they generally got executive placements at our clients. This is the way good CPA firms  work. “Move up or move out”. The only people we kept at Andersen were best of the best; the kind of person who could move the needle.

Here’s where I’m going with this diatribe.

If you see a “CPA Firm” with a lot of CPAs, that’s a bunch of individual CPAs sharing an office and overhead trying to give the impression of a real firm. These are the people who get moved out by the Big 4 but weren’t good enough for an executive placement, or never got to the Big 4 in the first place. In other words these are the drones taking up office space and clogging everything up so that if a really good person would actually come along, he could never advance through the seniority system. All his drive would be killed long before he ever got there.

The more CPAs per capita, the greater the risk of getting an incompetent firm. The fewer CPAs the greater chance of excellence. This is because at every firm, the strategies & complex ideas come from the very top. That is not happening at every person in the firm. They are either developing or on the way out.  The worst thing you want to do is select a firm with 17 CPAs and two other employees. The better firms go through accountants like they were water. And most of their staff haven’t yet become CPAs. But they’re better accountants. They’re actually doing something other than just cluttering up an office and collecting a check.

You’ve been warned.

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