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Accounting Services

Industry Overview

The US accounting and tax preparation industry includes about 90,000 firms with combined annual revenue of $65 billion. Large companies include PricewaterhouseCoopers, KPMG, Deloitte Touche Tohmatsu, Ernst & Young, and H&R Block. Despite concentration at the top, 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.

Competitive Landscape

Demand for services depends on new business formations, the increasing complexity of corporate business, and higher personal income. The profitability of individual firms depends on effective marketing and the right mix of services. Large firms can provide a range of services to large corporate customers and have the resources to serve customers with many locations. Mid-sized firms can effectively compete for large customers if they have special expertise. Although the industry is labor-intensive, the high value of services produces annual revenue per employee of about $175,000 in large offices.

Products, Operations & Technology

Major services include tax preparation, bookkeeping and accounting, financial auditing, and tax consulting. Tax preparation accounts for 35 percent of industry revenue, bookkeeping for 20 percent, auditing for 20 percent, tax consulting for 10 percent, and other services, including business valuations, for 15 percent. Firms may concentrate on providing services to businesses, individuals, or both. Some accountants have branched into information technology consulting, business consulting, personal financial planning, and the design and sale of tax-shelter strategies. Small business owners often rely heavily on their accounting firm for all kinds of business advice. The majority of the revenue of many large accounting firms comes from consulting rather than from audit or accounting work.

Bookkeeping and accounting work is mainly done for a large number of small businesses. Accountants may handle all accounting tasks directly for a customer, or may supervise the customer's own accounting practices. Such work mainly involves the classification of business transactions into appropriate account categories in the double-entry accounting system used in the US. Although many small companies still use manual accounts, various computer software programs are commonly used for small business accounting.

Tax preparation and consulting for businesses often follows directly from bookkeeping and accounting work and is typically done by the same firm. A detailed understanding of various business accounting software products is required. Tax preparation work for individuals typically involves gathering details of a customer's financial transactions and situation, and processing them with specialized software that produces final tax documents.

Audit work typically involves investigating the adequacy of the client's accounting systems and detailed tracking of a sample of financial transactions. In many cases, the work can be done using special auditing software. An audit is usually done by a small team of accountants over a period of weeks or months. In large corporations with complicated transactions, outside auditors may have a permanent presence. To conduct a proper audit, an accounting firm must maintain an almost adversarial relationship with the client, but to retain the client's business, the client must find the audit acceptable. Publicly-traded companies are required to have their accounts audited every year. Accounting firms that perform audits of publicly-traded companies are not allowed to provide some other services to the same customer, including consulting work.

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