The Soul of Enterprise - One of Our Own - Second interview with Mark Koziel

Thank you, Ron. Thank you, Ed. It's great to see you guys as always. Wow. You know, I knew when I met you back way back in Buffalo when you did the young CPA, I think you took me to the place that has the famous Buffalo wings and I said, 'Mark, someday you're going to be the president of the AICPA' and here you are. I mean, just amazing. You ruled it.

You know, I am excited. I'm optimistic. I keep talking about as a profession, we just need to show up and be more positive about who we are. It is the greatest profession in the world. Continues to be. And I just think that there's so much opportunity. But at times we as a profession have to kind of realize how special we can be and understand and appreciate what we've come from, what we've become and what we can be into the future. So that's really been the biggest part for me.

Yeah, it's been interesting because there's been a variety of ways that we've been able to get it in. And then you also have kind of the US version of it, CPA and the CGMAs that are here, but then you also have the global version of it with CGMA. So I'll just focus this primarily on US. But first and foremost, don't forget about the small firms. Small firm issues, small firm standards, over standardization, all of those pieces kind of lumped in there. One that was surprising to me was the lack of support for state and local governments and the fact that we're losing auditors in that space and a lot of it is because it's just so painful, right? Because a lot of the state and local governments don't have the support that they need. So creating a sense of community definitely was another one that people want to feel like they're home in some way inside the profession. And so all of those pieces really have been the strongest three for me coming out of it. I've talked to the team internally, and what's interesting is I don't know if we... Oh, branding was in there, too. Everybody wants a brand. And the 'Accountant Too' came out, everybody go out and watch it, and there's our movie version of why you should be a CPA. You could go out and kill people, I guess. So there were actual watch parties that happened. Yeah, I saw that. But anyway, I think the small firm perspective, standards, we have a lot of standards, we have a lot of regulation, and it's become more complex to be in practice, it's become more complex to be in small business even. So trying to simplify that, and I think we got some ways to do that.

Well, you know, we had this, we created an OCBOA, you guys are both familiar with an alternative comprehensive basis of accounting, saying we don't have to use GAAP, we can use something else, tax basis. AICPA created FRF for SMEs, a financial reporting framework for SMEs, 10, 12 years ago. I was involved in that, and so it's there already. And I think that one of the it is underutilized in a lot of ways. We know some firms that have taken strategic advantage of it and they've promoted it to their client, which has actually given them additional marketing opportunities with the banks. When that first launched, I had a firm call me and say, 'We want you to come down and we want you to help talk to the banks with our people we're going to send in there.' I said, 'Well, as AICPA, I'm not going to go in there on behalf of the firm and sell it for you, but I would love to be a fly on the wall. So I'd love to go to that meeting of all the banks and just listen to what the bankers were saying.' And I thought going in there, all of the community banks would be all over it, saying that that would be a strategic advantage for them. And actually, the opposite became true. It was the larger banks who made local loan decisions up to about $10 million in revenues, Bank of America, SunTrust, all the like at the time, versus the community banks who said we are so scared of CFPB that we are not deviating from anything that's going to be standardized, and so therefore we're not going to be able to use it. And so it was just great learning for me and I think great opportunities for people to figure things out. The CFPB's Nelson has been eliminated, so who cares. SSARS 27 came out for client accounting services, that was approved I think in late December. That is to say that if you are doing strictly a CAS project for a client, you can follow the consulting standards, not SSARS 21. SSARS 21 says you do a duplicative review, you got to have all of these standards in place and potentially be subject to peer review, which scared a lot of small firms away. And so I think with that change, incredibly positive to understand what the business is. Firms were saying in their engagement letters because in SSARS 21 it said if you are not engaged to prepare a financial statement, you do not have to follow SSARS 21. So they would specifically put in their engagement letter, 'You are not engaging us to provide a financial statement.' Well, in our terms that means a full set of financial statement footnotes. You know what a proper financial statement package is, not here's a balance sheet and income statement that I just popped out of QuickBooks, right? And so, but clients look at this, they don't know what the difference is, and they're saying, 'Well, wait a minute. I thought you are giving us a financial statement.' Well, no, we are giving you a financial statement, but we're not really hired to prepare a financial statement. I mean, these I'm like, what? And our standards just kind of, the ARSC committee did a great job with everything and it just there was confusion in the marketplace. I think the standards were good, but it just there was confusion out there and that people wanted to kind of overread what the standards were saying. SSARS 27, I think, just cleans that up a bit from where it was before and eliminates the potential for confusion, let's put it that way. And I think that's a small firm advantage. I don't want to hear a firm saying, 'I'm not going to be a CPA firm because I don't want to follow the rules.' Right? That's what we started to hear and I think now it's a great opportunity because the CPA, that's our brand. We should be promoting being a CPA. Right. Right.

All I can say is the train has left the station and plus two is being adopted in many states. I worry very much so about mobility right now. We need to get that cleaned up as quickly as possible. It's interesting because I didn't realize where the 150 hour rule started, but it actually started in 1988, right? Florida. Florida passed it on its own, which was an immediate break to mobility. Now, all of a sudden, there were other states that started to talk about it. And here we are now going in the reverse. And I was at a meeting here in New York. New York's introducing legislation, but they're talking about 120 hours. Wouldn't it be great, Ron, if we could stop talking about hours as being a measure of success, which is why we've said bachelor's plus two, not 120 hours plus two. Because what if you got your bachelor's in 90 hours? There's a lot of southern schools that are actually starting to do that. Sure. So let's look at the competency and the level of education that it attains and then figure it out from there. So 150, master's plus one, still be in the rule books if people want to follow it that way. The 150 could actually apply for states where you say okay you need so many accounting credits. I graduated with an undergrad in history and now I want to be an accountant. So in those 30 hours I could get the accounting education credits. I don't have to wait for a master's or do something else fancy, but I could get the credits to be able to sit. Now I only have to do it for a year rather than for two years.

I do and I think it all depends on what you want to be when you grow up, right? So if you want to stay the five partner firm, one of the things that you have to change is in fact the governance change is how we pay out at the end of term. Right. Sure. So, you know, telling the next potential partner, 'Congratulations, you're a new partner. By the way, you owe us $300,000 and you're going to get that plus a little bit more when you decide to retire. And by the way, when you decide five years within retirement, we're having a partner meeting. We say we need to spend a million dollars on a new technology.' You're saying, 'Wait a minute. My compensation is going to be based on what we do in the last three years of income, and I got to keep beating my income of the prior year.' So all of this idea of we're going to eat what we kill and we're going to take it all home at the end. We're going to eat it all. We're not going to store anything away. Those are the governance issues that are problematic. And that's right, this is why these five partner firms are selling out because they don't have the ability to be able to pay that off and they get worried that the next generation won't be there in the check clearing when they're ready to go.

Yeah, that's a good question. I don't know that I've had mentors that have listened to me the whole way through. And I think, first of all, and it's a quote that I've stolen from Ron, but I always give him credit. You know, 'Please think with us, not like us,' right? And I think especially when I see this polarized environment that we're in today, it's just amazing. Our town halls for AICPA get now over 12,000 listeners every other Thursday and we give an update on DC politics and what's happening with the IRS and the like. We had Chuck Rettig a month or so ago, former IRS commissioner appointed by Trump in his first administration, and you had to see the number of responses to talk about Chuck Rettig being such a liberal, and then the others who were offended by Chuck Rettig being such a conservative. Well, then you knew you got it right. I mean, everybody wants to only hear it in their lens and everybody wants to be offended versus, you know, I'm a big Ted Lasso fan and it was a Walt Whitman quote that he made incredibly famous. Ted Lasso is, you know, 'Be curious, not judgmental.' And I think that is such an important trait for all of us, always assuming positive intent. So more so, I think it's really through the younger age group that made me want to think more and think with others rather than immediately saying I have all the answers.

Yeah, you know, I think well on planes it's the ultimate to think and you both had your fair share of frequent flyer miles. To me it's an incredible time and if I'm flying seven hours to London, I have a lot of time to think and I do shut off and I go a little more manual and I have my script notes that I'm jotting down and just getting my thoughts cleared and thinking about different things. So it's an incredible time and usually it's twice a week that I have that opportunity. The damn Wi-Fi now on the plane, they're chasing you down there, too. Typically, I won't turn on my computer. I'll only do it by phone and that way. And more so, if I get a text from my wife Maryanne or something else just to have it available, I'll check email and do all that along the way, but it still gives me the opportunity to think. In fact, I did a speech last night and I've been known to write out my notes and I just need like word prompts, right, in any speech I ever do. I've been known to kind of scribble my notes on a cocktail napkin from the plane on my way to be able to do it. So it's just great opportunities to have that, just process through those things.

Not all, but some, right? That's for sure. And I do feel like, and I've talked to a number of the PE investors, too, and they've been kind of hands-off approach in what they're doing. And I do think it'll allow for deeper conversations in the future, but it really has still been CPA-led CPA firm. And so they've been allowing them to still go on their current measures. I do think there's opportunity for that. There's a couple of firms that I've talked to, I actually had one of the firms that I know well that they actually have been three-tier pricing their audit engagements. And the first one that they ever did, I was talking to the CEO of the CPA firm and he was all excited. He said, 'You know, they took our top tier price.' And I looked at him and I said, 'You know what? I'm going to say next.' Like, don't tell me I undersold it. I'm like, how fast did they take that top? I don't know. But at least it's trial and error. At least they're trying. And I think that it was incredibly positive and I do think we'll see more of that. I do think that technology investment, AI, these are natural pushes into us doing this because if it's not and we still come back to this hours times rate thing, we're going to be in trouble because we're going to be giving it all away. We're investing heavily in technology and pricing model. I know Ron's not a big cost accountant guy, but now take a look at all your costs that are generally there. Your costs on technology is going up. Your payroll is coming down a little bit, but you need to offset that. You need to get paid. You need multiples to stay the way that they are. Every firm is being judged on a standard of EBITDA. And so what does that do to it if profitability is going to continue to shrink every time you try and still calculate it the old way?

Yeah. So, it really is interesting to see. But that, to me, that's the foundational problem. And unless people begin to move off of that, I think we're still going to be in a world of hurt.

Right. And I think that Verisage is a community, right? Community for a long time of common thinkers. And I think very similarly in a lot of ways at Aligno we did this and we had an app to be able to manage communities where they could share resources, they could have meetings, they could get updated on things, they could share work, they could do all these things. And I said coming back to the AICPA that that was something that was severely missing. Whether it's a small firm community that says, 'Okay, I want to deal only with sole practitioners who deal in tax' or 'I only want to do client accounting services' or 'I only do craft breweries' or 'I only do construction companies.' There's a thousand ways that we could slice and dice this. Yes, we plan on talking to the state society. Some states have been better than others, better than us at creating those communities already. But we just want to provide that sense of connection. Could be audit, could be tax, could be SOC reporting, could be the industry, could be the geography. And so we're going to pilot in a couple of the communities that make the most sense. We started a, and I shouldn't say we, Tom Hood specifically started a Finance of the Future where he has CFOs from some of the largest companies in the country getting together, about 25 to 40 of them, and they've become a community in this way. And he was amazed at how much they were missing having that type of community and how successful it's been in them really kind of advancing the finance function together by being able to do that.

No, I do think that overall we can't keep using that as our ultimate measure of value because, just based on all the changes we're making and how we do it, it's going to be a race to the bottom. You're going to give away pricing to clients just because we're measuring value the wrong way. And the clients don't necessarily measure it that way. In fact, what's interesting is that years ago, a CFO with a lack of understanding of value — because they came out of a firm — they're our own worst enemy. They go, 'Show me your hours, right? Show me that that's the value because that's how I was trained to see value in it.' Now boards and audit committees are starting to ask about innovation: 'What can you bring to the table that is innovative? What can you tell me about my data that is innovative?' So all those things have to be measured differently. That thinking measure that Ed talked about — thinking with them, being able to take that data, analyze it, and provide some semblance of insight to your client — I think becomes the most important. We can value off of that rather than saying, 'We got your audit done faster.'

What's interesting to me when we talk about burnout and what things look like inside the profession: I do think there is the opportunity for being better at what we do. So many will blame the Big Four, or the largest firms or smallest firms. I'm on a small firm practitioner Facebook group, and they're all talking about how bad busy season was and all the things that would make it better — if we could extend due dates by certain days and all these wonderful things. To me, most of the burnout is self-inflicted. There are firms out there that will be an option for many. If I'm driven by money, I'm probably going to work incredibly hard and work a lot. If I'm driven by family values and being with family, I'm probably going to want to work less. When I look at those who have left public accounting to go into business and industry, I don't think they're working less hard, if that's such a term. I think it's ingrained in them. All of us have been through hard work — pass the exam, those first couple of years. Yes, the work is hard, but we don't own hard work. So a lot of it is self-inflicted. You and I have had conversations — my three years in political media, politics, and public affairs — you can measure 'busy' in dog years in that environment. So I do think we have the ability to manage it. People are afraid to at times. I have to do all this for my client even though my client is a complete PITA, coming in late. How do we price? 'Okay, client, you're going to get three prices. You want it done by the original filing date? That's the highest price. You want it done close to the extended filing date? That's the second highest price. If you want it done during the summer on a date we provide and you must have your stuff in, that's the third highest price.' Imagine the behaviors we could have with our clients. But yet I'm watching all these folks complaining about their clients being so bad. I just think at times it's self-inflicted behavior. So I think there are a lot of opportunities for us to make it different. Why is it that those who complained about the hours and stress — it was all there 10, 20 years ago — they are now in charge of these firms, and yet it hasn't changed? If it was so bad for them and now they're in charge, fix it. I used to say this to my partners all the time. When we first started our young CPAs, we started with a happy hour, and one of the partners came to me and said, 'Should we be worried about our partners or our young CPAs going to this happy hour?' I'm like, 'I don't know. You tell me. Is there a problem working here? Because if there is, fix it. You're in charge. If we shouldn't be afraid of our people going out into the public to talk to people who work in other firms, if we're a lightning rod for talent, then we should want them out there recruiting all the others.' So from that, I said, 'I am going to fix our turnover problem because I know what the number one source of turnover is for us.' He said, 'Well, what are you going to do?' I said, 'We're going to stop sending all our people to clients.' He's like, 'Well, we can't do that.' I said, 'Yeah, but that's our number one source of losing people: they go and get hired by a client.' All of this, I think as a profession, we could all come together, talk about it, and try to improve it as best we can, but we have to get around the table. If the market starts to drive in a way that some firms are standing out differently and others are losing folks to those firms — we're hearing this about the PE environment. There's a lot of turnover now, all these rumors. I don't know if that's fact or fiction. The non-PE firms are saying all these people are leaving, but has it changed any from where it was before? People are going to move around. It's a matter of focusing on our own culture. I used to say to our partners, 'Is this firm good enough for your kid?' Because I'm recruiting someone else's kid, and in Buffalo I actually know who the parent is. I have to look them in the eye and tell them this is going to be a good career for their kid.

Yeah, I do think that's right. I think the more we talk about it — we're having all these pipeline issue discussions. How do we improve the pipeline? Improve the culture inside the profession and then tell a better story of who we are. It's like all these surveys about best places to work, best for moms, best for dads, and yet when you're boots on the ground talking to folks, the cultures may not reflect all those wonderful awards.

Well, I'd still keep audit around because that is what — I say this time and again — audit equals trust. Trust equals permission for all these other things we do. Whether or not I would do audit, I would have a good practicing firm focusing on only a select number of clients that we all come in and collaborate on the great things we're going to do for that particular client. Maybe independence is looked at differently, or the client accounting piece. That concierge medicine you keep talking about — having some concierge level of service for clients, only focusing on a select few, doing incredible things, having a great relationship. I think that's paramount. It's hard in the public company space for serving the public interest, but in all the other spaces, we are Main Street America. We are a huge part of it. PPP proved how much of a trusted advisor we truly are to our clients. Couldn't agree more. We're still and will continue to be a relationship-based business. And tariffs are going to follow right along with that depending on how they flush out. Last Thursday at my cigar club, a manufacturing owner said he just had a bunch of products come in, a portion of which are made from steel produced somewhere else. The tariff came in, he paid an extra $50,000 on a part that only a portion of it was steel. The rest was assembled elsewhere. Now he's overpaying. I see that as an opportunity for our firms to work with our clients, like cost segregation back in the day. We have to pick apart what is being tariffed, what is appropriate, and make sure our clients are paying no more than they should.

It's interesting. When AICPA and NASBA first introduced proposed language to the Uniform Accountancy Act to go to bachelor's plus two, there was an element of competency assessment in the original proposal, and the profession wasn't ready for it. That was the sticky point. So they adjusted and said they'd do a study on competencies down the road. I think ultimately that's it. Do we care about the input? I could read the darn thing for eight hours. If it's on rocket science, I don't know at the end of eight hours if I can say I'm compliant and that CPE will help me build the rocket. Do I have the competency coming out of it? It's not the 35 questions or the eight hours to read it. Where are my competency levels? Each of us will be different. Can we do some level of competency assessment so your learning could be different from mine, and it's enough to develop where we want it to be? That's why we wanted competencies built into the licensing system. Firms, from a liability perspective, may resist, but continuing education is the same thing. We need to get over the ethics requirement. Many states require an ethics course — one, two, four hours — but they regurgitate the same ethics course I took last year. I could recite it rather than read it again. These are all compliance pieces we need to challenge ourselves on going forward.

Somebody is working on it. There is some semblance of that already. You could get close with current technologies. Right now they say, 'Do you have any W2s? Yes. Where are they? They're at ADP. Okay, link us up.' Not just from the PDF perspective but because of the connectivity and open APIs, many firms have created their own portals to make it happen. So I think we're pretty close. It's the next iteration. I don't know that it's AI on its own. Ultimately, our value is not numbers in boxes. So what if the production of the return is done? We have access to that AI. It's not like another company will offer that AI to the general public and they'll just do it themselves because there's no way for the general public to understand whether they got it right. You're making a lot of chances. What else is missed? There are questions in there. You think you put all the right documents in, but what if you're missing something? What if you get an amended 1099 that wasn't included? How do you make that adjustment? There are so many nuances. I don't think it's accurate that the general public will all file their own returns on AI. It's more about firms leveraging AI inside their tools and still producing value for their clients.

Yeah, it's like the computer playing against the chess player — never-ending. We want to see what technology can do against the human.

And so people want that personal contact. We are a human business, and that will remain forever. AI is going to help supplement what we do and give us additional service lines. Companies will want assurance over their AI inside the organization. If we rely on AI to produce insights for business decisions, we need to be darn sure the AI is producing good information. AI doesn't have to be perfect; it just has to be better than the human.

Thanks. This was refreshing because it was the first time I didn't have to talk about the IRS, PCO, or... we will gladly yield that to all other podcasters. I'm obviously very actively involved in all of that, and it's a lot, but I appreciate the firm focus and the profession focus.