Staffing CPA firms in the information era.

• Author: Lewis, Eric E.

Dramatic changes in information processing over the last decade have affected accounting firms in several ways. The audit portion of the practice has shifted from tests of transactions to control testing and process documentation. In addition, firms have expanded into several assurance service areas,and management consulting has continued to expand as a source of fees. These shifts have necessitated a change in the basic skills that practitioners look for in their staff. Firms are telling educators that they must respond to the new environment and change the competencies of their graduates. What is the effect on staffing and profitability?

To address this question, we gathered data at a Practitioner's Symposium. We began by establishing standard staffing levels for CPA firms. We then ranked all firms from highest to lowest based on net income per owner. Staffing levels were significantly different between the lowest and highest groups.

The data represent 83 firms with gross fees ranging from $200,000 to $14,000,000. The median firm had $1,850,000 in fees. We used survey staffing levels for each firm in the following categories: owners, professionals, paraprofessionals, and support.

One of our goals was to develop standard staffing levels for each staff category for any size firm. We used chargeable hours as a measure of firm size.

The "typical" practice

We used a regression analysis to predict the staffing of a "typical" practice. One question was "Based upon the survey information, what would the staff look like in a typical firm?" The standards, which we developed based findings, represent a typical practice rather than an optimally staffed practice. In other words, the results to compare themselves to each other, but do not necessarily represent the best staffing. Staffing levels for performing firms are presented later in this study.

The regression provides a formula that starts with a constant number, the intercept, and adds an increment size. The increment indicates how many people at that level must be added based on the total chargeable firm. Exhibit 1 shows the formula. To use the formula, divide the total number of chargeable hours of the firm by the incremental chargeable hours per person and then add the intercept term. For example, to predict the typical number of owners reported in the survey, 1.489 would be added to one additional owner for every 9,686 hours. Exhibit 1 also illustrates the typical staffing for a firm that has...