As the Big 5 become multi-disciplinary practices, opportunities abound for tax executives.

• Author: Rosen, Robert Eli
• Position: Big 5 accounting firms

The transformation of accounting firms into multidisciplinary practices (MDPs) provides many opportunities for tax executives. The Big 5 are forcing more and more corporations to recognize that -- like cash management -- tax is a potential profit center. Because profit centers need to be managed, tax executives have increased opportunities to demonstrate the value of the tax department to their corporations.

Large accounting firms were the first to understand that tax work (that is, compliance work) needed to be complemented. Audit fees were fiat, in part because the consulting divisions of the accounting firms used audit fees as loss leaders. First, to obtain revenue the Big 5 pushed "outsourcing." Today, the Big 5 are marketing "products," "devices," or "black boxes" that offer their customers great savings, i.e., found money. With their ability to solicit clients, the Big 5 are spreading the word: Properly managed, tax can be a profit center.

Because of what is being sold by the Big 5 [on their own and in collaboration with investment banks), tax departments must spend more time on research and planning, offering managerial advice about the products being sold. This conjecture is supported by evidence. A 1991 survey of TEI members found that "the largest companies rely on their internal staff as their primary research and planning resource, whereas smaller companies are more likely to turn to outside advisers for assistance."(1) The size of the company was not, however, correlated with the percentage of department time spent on planning and research.(2) As a percentage of the work of the department, smaller companies had to spend as much time evaluating the outside advisers as the larger companies spent in making, rather than buying, research and planning. More aggressive marketing by external providers of research and planning services will only increase the need at both large and small companies for internal management.

The search for profit in tax -- the deals proffered by MDPs, as well as by law firms -- carries risk. These risks are not simply legal risks. They are business risks and they vary in size and kind. To decide for or against a particular tax deal is a classic executive decision: Should the company take this sort of risk?

At least one reason to question what the MDPs are selling lies in their search for increased revenues. Remember that, in 1993, the Big 6 paid 11.9 percent of their total audit fees in legal fees and settlements.(3) How hungry are they six years later? FORBES has already answered the question for us: They are ravenous.(4)

In the legal marketplace, the big story has been the numbers and quality of lawyers being hired by accounting firms.(5) Working in combination with accountants -- and in competition with them (especially with audit partners who wish to switch to the more remunerative consulting practice) -- these lawyers help provide advice on how a corporation can find tax savings. Their advice is so valuable to accounting firms that the Big 5 are...