Accountants are facing unique challenges during the coronavirus pandemic — but the profession is rising to the meet them at all levels, according to leaders from the American Institute of CPAs.
“This is a defining time for the AICPA and our firms,” said Erik Asgeirsson, president and CEO of CPA.com, the technology arm of the institute, on a conference call with leaders of the profession last week. “Leadership is so critical at this time.”
Martin Lowy, a former banking attorney, is the author of the books “High Rollers: Inside the S&L Debacle” and “Debt Spiral: How Credit Failed Capitalism.”
The Honorable Eugene A. Ludwig, the 27th comptroller of the currency, is a business and civic leader and expert on banking, regulation, risk management and fiscal policy. Mr. Ludwig is managing partner of Canapi Ventures, a venture capital firm focused on investments in early to growth-stage fintech companies, and CEO of Ludwig Advisors, which counsels financial firms on critical matters. He is the founder and former CEO and chairman of Promontory Financial Group, where he was an IBM executive after the firm was acquired in 2016. He is also the founder and former CEO and chairman of Promontory Interfinancial Network (now IntraFi Network), an early fintech company with approximately 3,000 bank members. Under his leadership, the Promontory family of companies became synonymous with excellence in compliance, risk management and financial services innovation.
In 2019, Mr. Ludwig founded the Ludwig Institute for Shared Economic Prosperity, or LISEP, a nonprofit organization dedicated to improving the economic well-being of middle- and lower-income Americans. Its research includes new economic indicators for unemployment, earnings and cost of living. LISEP's statistics aim to provide policymakers and the public a more transparent view into the economic situation of all Americans as compared with traditional metrics. He co-founded the Carol and Gene Ludwig Family Foundation, which provides grants to organizations that accelerate medical and scientific discovery in neurodegenerative diseases and enable access to educational and economic opportunity for young people.
Mr. Ludwig was previously vice chairman and senior control officer of Bankers Trust New York Corp., then the fifth largest U.S. banking organization. He was instrumental in steering the firm through its landmark merger with Deutsche Bank.
As comptroller from 1993 to 1998, Mr. Ludwig served as the Clinton administration's chief banking regulator and point person on the policy response to the credit crunch of the early 1990s. He fashioned an 11-point plan that was instrumental in ending the crunch and helping banks begin to lend again and fulfill their role of supporting the economy. He modernized and revised the bank regulatory framework, leading a multi-agency effort to overhaul the Community Reinvestment Act. Under his purview, lending to low- and moderate-income Americans increased tenfold, as did national bank investments in community development corporations. He brought the first fair-lending case in the nation and over the course of his leadership, 27 cases in all, resulting in tens of millions of dollars in fines against violators.
While he was comptroller, Mr. Ludwig served as chairman of the Federal Financial Institutions Examination Council, a member of the Basel Committee on Banking Supervision, a director of the Federal Deposit Insurance Corporation and chairman of the Neighborhood Reinvestment Corporation.
Mr. Ludwig was previously a partner at Covington & Burling, specializing in banking law. He has been a guest lecturer at multiple colleges and universities, including Yale and Harvard's law and business schools and Georgetown's International Law Institute.
Given his unique perspective as a regulator, lawyer, banker, business leader and trusted advisor to leading financial institutions, he is a sought-after thought leader. His pieces have been published in The Financial Times, The New York Times, The Atlantic, The Wall Street Journal, The Washington Post, Politico, Democracy Journal, American Banker, Time, Newsweek, Bloomberg, and on CNBC.com. His book, "The Vanishing American Dream," was published in September 2020.
Gene was born in Brooklyn, New York, and raised in York, Pennsylvania. He graduated magna cum laude from Haverford College and received a scholarship to Oxford University, where he earned a Master of Arts degree as a Keasbey Fellow. He earned a J.D. from Yale University, where he was editor of the Yale Law Journal and chairman of Yale Legislative Services.
As the crisis deepened in late March and early April, “we received hundreds if not thousands of emails from CPAs,” Asgeirsson said. “They were worrying about employee safety, and then worrying about the business.”
Even as the institute became a leading voice in shaping the direction of the federal stimulus, it worked to help firms make sense of the new environment.
“We are very actively engaged in what we need to do to provide guidance and leadership, and thinking about what a historic time this is for firms in their role as the most trusted strategic advisors,” Asgeirsson said, before adding a warning: “We’re thinking about this in sprints, but we also need to think about it as a marathon.”
For instance, while many firms were able to make the move to remote work relatively quickly, they are also still struggling with the same questions around staffing in uncertain times that have plagued the rest of the economy.
“I have talked to a lot of firm CEOs,” said institute president and CEO Barry Melancon (pictured) on the same call, “and firms basically look at this as a valley that they are working through now. They want to hold onto their people because they know their clients are going to need them. … The profession is pretty well positioned to be successful, if they can hold onto their staff, and I think firm leaders see that.”
He also noted that the impact on firms has varied, depending on their geographic location and size. For instance, “all of the large firms feel good about how quickly they were able to go remote,” he said. “But further down the size spectrum, there’s more uncertainty, particularly around small businesses and how do you see them surviving. Cash flow is a big issue — are clients paying? CPA firms are not generally overcapitalized.”
Overall, he expects to see firm revenue to shrink as much or more than it did during the recession of 2008-2009, and for firms to take other steps to make difficult decisions to make it through the crisis.
“We know there have been certain percentages of people laid off in firms, but not as many as if the Paycheck Protection Program wasn’t there,” he said. “Generally speaking, people are positive about their clients and their relationship with them. And in terms of tax, they’re going to have greater productivity in May, so that’s a positive tradeoff.”
Both the PPP and the postponement of the tax filing deadline to July, as it happens, were major components of the AICPA’s response to the pandemic.
A focus on small business
With the pandemic kicking into high gear in mid-March, just a month before the original April 15 filing deadline, the institute strongly urged Congress and the Internal Revenue Service to push the deadline back to July 15 — not least to create space to focus on other priorities.
“We worked really hard to get the tax extension,” Melancon explained. “We actually had some pushback from our members who didn’t want to extend tax season, but that just wouldn’t work. We said, ‘Where can we make the most impact?’ and that was really the small-business component. We had groups inside the institute working on that, and we said, ‘Congress will pay attention to the big industries, but this is really going to be about small businesses, and they’re critical to the economy.’ So we focused on the small-business component, and said there needs to be a focus on small business as an industry, much the way you might think about, say, the airline industry. There are about 6 million small businesses with employees, most with under a hundred employees.”
The institute and a number of partners strongly advocated for a payroll-based approach to supporting small businesses, and the resulting PPP has kept the accounting profession busy since the minute it was launched.
“Our firms are overwhelmed — clients are calling all the time,” said Mark Koziel, executive vice president for firm services at the American Institute of CPAs “They’re now glad about the delay in tax filing — they’re saying, ‘There was no way we could do all of this and handle tax season at the same time.’”
While the PPP has proven popular, with its initial tranche of funding running out very quickly, there have been some questions about its effectiveness.
“This wasn’t intended to be a perfect program,” Melancon said. “It was intended to be a fast program. And when you look at it, it’s been incredibly effective — though that’s not to say there haven’t been issues.”
“With a program of this size, there are always unintended consequences,” Asgeirsson said. “But in $300 billion of loans, you’re talking about a couple of billion. This is a perfect trusted advisor discussion to have with clients, to be able to help them explain the ‘why’ behind their getting this loan.”
The institute is recommending that accountants and their small-business clients carefully document their “self-assessment of need.”
“What I’ve been advising firms is to think about those issues and document them, because when the question comes, it’s not going to be with a lot of lead time,” Melancon said. “Go back to the intent, and document what you were thinking of.” He also advises firms not to sign PPP applications on clients’ behalf — the head of the business should do that.
Koziel agreed: “This issue hasn’t been new for us to recommend that firms that help clients around the PPP and the federal programs should be documenting their work. It is critical for the firms to make sure it’s well-documented, just like any engagement.”
It’s just as important for firms that have applied for the PPP to document their own self-assessment, he added. “Firms originally only included employees in their applications, and did not include partners, and that will be a positive data point for them down the line — ‘We were focused solely on keeping our staff employed,’” he said.
At the same time, he recommended that firms look beyond the PPP, rather than just responding to client fears and reactions: “They came in like their hair was on fire and demanded to apply for the PPP — but did they step back and consider all the other stimulus that’s available?”
Going forward
As the country makes its way through, and eventually out of, the coronavirus pandemic, the institute leaders stressed the opportunities and responsibilities that accountants bear.
“Just as the medical profession plays a critical role in health, we play a critical role in the health of the economy,” explained Melancon. “The profession is incredibly well positioned to be part of the solution going forward, particularly when you think about small businesses. If you look at history, when it comes to climbing out of negative economic times, our profession has played a critical role.”
He pointed to a number of potential growth areas for accounting firms to pay attention to now and when they come out of the crisis, including private equity and others looking to deploy capital in a recovering economy; the medical profession; the government sector; commercial business clients (particularly in terms of revising their business models and strategic plans); and the many clients who will need help with refinancing in the aftermath of the pandemic.
“There are a lot of opportunities in terms of helping firms with their business models going forward,” agreed Koziel. “A lot of firms are saying their business model won’t be the same after this, and their office models will change, too.”
