The Top Tax and Accounting Stories of 2018

By Daniel Hood

From tax reform to Wayfair, to a new direction for audit and the ongoing impact of technology, here are the developments that shaped the profession over the past 12 months.

Two tax seasons at once

Questions from clients about the Tax Cuts and Jobs Act dominated much of tax season — even though most of its provisions wouldn’t apply until the 2019 tax season.

 

New blood at the PCAOB

In January, the Public Company Accounting Oversight Board swore in a new chairman, William Duhnke, a long-time Capitol Hill staffer, and over the next few months installed an entirely new slate of board members. In June, a major staff shakeup saw the departure of chief auditor Martin Baumann, enforcement director Claudius Modesti and a number of other senior staffers. In mid-December, the board announced that a new chief auditor, Megan Zietsman, would come on board in early 2019.

Out on April 17

Many critical IRS systems crashed for much of Tax Day, leaving taxpayers and tax professionals unable to file for 11 hours. The systems were back up before the end of the day, but it wasn’t until September that the cause was announced — a firmware bug that led a storage array to fail; the service had missed opportunities to fix the bug months before.

The Wayfair decision

The Supreme Court agreed to take up South Dakota v. Wayfair in January, heard arguments in April (at which point things didn’t look good for South Dakota, according to experts’ interpretations of the justices’ questioning), and finally ruled 5-4 in June to overturn 1992’s Quill decision and allow states to require out-of-state retailers to collect sales tax.

Everyone else — from states and retailers to accountants and tax experts — has spent the time since figuring out how to respond.

Three of the Big Four

In July, Kelly Grier (pictured) was installed at the helm of EY, meaning that three of the Big Four firms in the U.S. are now led by women. (She joined Lynne Doughtie at KPMG and Cathy Engelbert at Deloitte.)

It’s a high-profile achievement, to be sure, but the profession still has a long way to go: Women represent only 22 percent of all accounting firm partners, according to the American Institute of CPAs, and a third of women in the profession reported having been sexually harassed, according to an Accounting Today/SourceMedia research study.

A new direction for audit

Developments over the course of the year pointed toward a radical change in the direction of the traditional audit service, driven by broad technology trends in general, and spearheaded by the American Institute of CPAs in particular.

In June, the institute launched its OnPoint PCR tool, aimed at improving prep, comp and review engagements, while over the year it raised upwards of $50 million from midsized accounting firms to fund the development of a transformational Dynamic Audit Solution. And throughout the year, president and CEO Barry Melancon (pictured) led the charge in proselytizing the new direction, and encouraging CPAs, accountants and auditors to disrupt themselves and get ahead of the coming changes.

Formulating new forms

Prompted by the TCJA, over the summer, the IRS released drafts of a new Form 1040 that will replace the current 1040, 1040A and 1040EZ. With the goal of creating a “postcard-sized” tax return (which should not actually be mailed like a postcard, since it clearly displays the taxypayer’s Social Security number, along with other private information), the new forms move a lot of information off the old 1040 onto a series of six extra schedules.

The IRS also released a draft of a new Form W-4 for employee withholding. Pushback from groups representing tax professionals and others — including concerns that it would require taxpayers to predict things that are difficult to anticipate, and to reveal much more personal information to employers than they had in the past — caused the service to put off implementing the proposal for a year.

A new IRS commissioner (at last)

Chuck Rettig was finally installed as IRS commissioner in October, almost a year after his predecessor, John Koskinen, stepped down. Rettig was floated as a candidate in February, and confirmed by the Senate in September.

The Beverly Hills tax lawyer took the helm at an agency working flat-out to provide guidance on a host of areas surrounding the TCJA, fighting tax-related ID theft — and struggling with diminished budgets and declining staff numbers.

Big deals in M&A

Amid the usual flood of M&A in the accounting space, 2018 saw an unusual number of combinations between Top 100 Firms, including Plante Moran combining with EKS&H, CliftonLarsonAllen with Schenck, Marcum with Raffa, and Baker Tilly Virchow Krause with RGL Forensics.

Acquiring firms are also becoming choosier, improving their due diligence and looking for better cultural fits and more strategic value. They’re also looking more and more beyond CPA firms: Approximately 20 percent of acquisitions by large firms involve non-accounting firms (such as technology firms and boutique consultancies).

Major departures

A number of high-profile figures announced departures: Intuit president Brad Smith said he would step down at the end of 2018, to be succeeded by executive vice president Sasan Goodarzi, while Jon Baron, the long-time leader of Thomson Reuters’ services to tax and accounting professionals, named the same date for retiring, to be succeed by president of tax professionals Charlotte Rushton.

Meanwhile, Cindy Fornelli (pictured), the founding executive director of the Center for Audit Quality, announced that she would leave in the spring of 2019, and Information Technology Alliance president Stan Mork said he plans to turn over the helm in August 2019.

 

 

Originally published on Accounting Today.