How have CPAs responded to regulatory overload?

Andrew Barbe, CPA, CGMA, wishes he had more time to devote to strategic planning and development as vice president for accounting and senior controller of NorTex Midstream Partners LLC, a natural gas midstream service company.

But as the senior manager in charge of finance, accounting, treasury, tax, human resources, information technology and land management for the Texas-based private company, Barbe spends much of his day dealing with regulatory requirements that he said have grown significantly in the last few years.

Barbe has added staff, hired a human resources outsourcing organisation and is pursuing greater automation to help deal with regulatory compliance issues. Still, there are times when members of his finance staff have to extend their workday to make sure regulations are followed.

“Because of the piling-on effect [of regulations] we’ve had over the last three or four years especially, it’s become very onerous to be a business senior manager in any capacity, or even a business owner,” said Barbe, whose company employs about 50 people.

Barbe’s experience reflects that of many certified public accountants across the United States, according to a new survey that shows that compliance requirements from a number of regulators and regulations have increased the workloads of finance staff over the past five years.

Sixty per cent of CPA executives participating in the survey said their current employees have been required to produce more or work more hours as a result of increased regulatory pressures.

The second-quarter results of the American Institute of CPAs (AICPA) Business and Industry Economic Outlook Survey painted a picture of a profession that has been hit with additional regulations from many angles over the past five years.

More than half of CPA business executives surveyed (54%) reported at least a moderate increase in their finance staff’s workload over the past five years in response to requirements from the federal health care reform act.

A moderate, significant or very significant finance workload increase also was reported by at least one-third of respondents as a result of compliance requirements originating from:

  • The IRS or US Treasury (39%).
  • State and local government regulators (38%).
  • State and local tax authorities (35%).

And there are concerns that the burden of regulation will continue to grow as the health care reform act and more rules from the US Dodd-Frank Wall Street Reform and Consumer Protection Act are implemented.

“We’re trying to stay in front of it as best we can, and that includes our legal counsel, which is one of the bigger of the outfits that’s out there, and even they’re having a hard time staying on top of it,” Barbe said. “So when you look at a little company like us trying to stay in tune with what’s going on, it really makes things itch, so to speak.”

Not just Dodd-Frank

As an energy company, NorTex constantly monitors safety issues to ensure compliance with US Occupational Safety and Health Administration (OSHA) rules. The company also is carefully watching new federal health care regulations, communicating with employees and making sure its insurance brokers are providing the proper services and support to keep the company in compliance.

The Railroad Commission of Texas, which oversees the oil and gas industry in the state, has many rules NorTex is required to follow. The company also is affected by the Dodd-Frank Act, the federal law passed in 2010 in an effort to address some of the problems related to the recent financial crisis.

NorTex also follows the regulatory regime that a typical US company faces with regard to taxes and employment rules.

Because of the proliferation and complexity of such rules, employees and companies throughout the US are feeling the pinch. In difficult financial times, hiring additional employees to deal with the increased work has been a luxury many companies have not been able to afford, as just one-quarter of respondents reported adding staff to handle the extra work.

Instead, six in 10 respondents said they have required more output or hours worked from current employees, and one-third said they have outsourced work to outside contractors or vendors.

Meanwhile, 36% of respondents said their company has used technological advancements to increase efficiency in fulfilling regulatory requirements. Just 9% said their company’s workload has not increased as a result of regulatory requirements.

Lingering effects of financial crisis

Don Kluthe, CPA, CGMA, said the financial services industry has been hit especially hard by regulations intended to address the causes of the recent financial crisis. Kluthe is president and chief operating officer of Nebraska-based mortgage provider AmeriFirst Home Improvement Finance.

AmeriFirst’s employees are affected by the Secure and Fair Enforcement for Mortgage Licensing Act of 2008, known as the SAFE Act, which mandates a nationwide licensing and registration system for residential mortgage loan originators. Kluthe said that a number of Dodd-Frank Act requirements have cascaded down to affect his business.

The effects of the financial crisis, the new rules – and uncertainty about future regulations – were so significant that AmeriFirst’s costs increased significantly. These costs were passed on to customers, Kluthe said.

“When they started to just layer this stuff on, we pulled our horns in and said, ‘Timeout. Let’s take a step back, because this is about survival and sustainability,’ ” Kluthe said. “… We made some very painful adjustments here.”

At times, Kluthe was not sure AmeriFirst would survive. It did. But the company, which once employed 127 full-time workers, laid off many. Others left, and the company now employs 23 full-time and four part-time workers. Kluthe is planning to increase lending and add staff again, but he is moving cautiously.

When he hires, he is hoping some of the positions will be part-time. That would help the company avoid certain health care reform act costs.

“It’s not getting easier,” Kluthe said. “They continue to layer added regulatory kinds of burdens. It seems like every time there’s a change made, it’s not to make it easier. It’s to make it harder or to add another layer of regulatory oversight in some fashion.”

Revenue recognition

The next big shift in financial reporting that will affect companies will be the converged revenue recognition standard that is due to be released by US Financial Accounting Standards Board (FASB) and the International Accounting Standards Board (IASB) later this year. Almost one-third (32%) of respondents in the AICPA survey said the revenue recognition standard will not affect their company’s revenue recognition practices, and 14% said they don’t know how difficult it will be to assimilate into their accounting and business processes and systems.

Among those who will be affected and expressed an opinion, more than one-third (36%) said it will be neither difficult nor easy to assimilate. Another 36% said it will be at least somewhat difficult to assimilate. Just 6% said it would be difficult, but 30% said it would be somewhat difficult to assimilate.

Twenty per cent said it would be moderately easy to assimilate, and 8% said it would be very easy to assimilate.

Barbe said the revenue recognition standard will add some complexity for NorTex, but his staff is well prepared for it. He also is optimistic that some of the US generally accepted accounting principles (GAAP) exceptions and modifications FASB’s Private Company Council is attempting to make for private companies will make financial reporting easier for NorTex.

That relief would be welcome, because Barbe said his company has been “bombarded from all different directions” by regulations in recent years.

“When you’ve got limited resources with which to be able to handle all these respective issues, it’s cumbersome,” Barbe said. “…The more regulation that we see, that just adds complexity to something that already has its own level of complexity, and doesn’t necessarily need any more.”

Ken Tysiac ( is a CGMA Magazine senior editor.