CREATIVE PRICING ISSUES IN CPA FIRM PRACTICE FOR ETHICAL AND PROFITABLE ACTIVITY

Abstract

The CPA office of “yesterday” was comparatively devoid of technology, relying on extensive labor, pencil pushing, manual spreadsheets, and green-bar printouts. A few adjusting journal entries could have taken several days to apply. The office of “today” still carries the traditional breakdown of total cost into raw materials, direct labor, and overhead. Significantly different, however, is the emergence of a swing in relative percentages of each cost to the firm. Client services are frequently spelled out in engagement letters, but some CPA firms are witnessing an increasing disadvantage of retaining the generally accepted approach of billing their work performed as a function of direct labor hours at the rate of the individual(s) performing the services. With increased emphasis on technology applications in processing client needs for financial statement services, income tax returns, management consulting, and other work, overhead costs balloon over the labor costs. Accordingly, incremental true costs tend to avoid capture in the pricing formula for client work. This paper offers a creative value pricing approach as superior to any method relying on cost drivers, one which CPA firms may apply to either public or private clients.