An Interesting Letter from an Accounting Student

Brenda Richter teaches accounting at Santa Barbara City College, and she always assigns an essay for her students to complete, usually on Value Pricing. One of her students, David Lehman, wrote to me and asked the following questions. I thought I would share his letter, and my response, with our readers. If this is the caliber of thinking that is entering our profession, it is a good harbinger of our future. This gentlement is a true knowledge worker, and I only hope the firm lucky enough to hire him realizes this fact.

Dear Ron,

I am a student at Santa Barbara City College. I am taking a business class under Brenda Richter, CPA. One of my term projects is to write a 4-6 page essay on “Value pricing in the CPA industry”.

I received my B.S. in Business Administration (1996), started my own business in child care (1996), then recently closed my business in order to pursue getting my CPA license. So, I am taking a few classes to complete my necessary CPA education, and also to reeducate myself since I have never worked in the accounting field other than doing my own books for my child care business (no employees). I intend to find work with a local CPA after this semester, and complete my internship.

The reason I tell you this is so that you will understand me better when I ask a few questions. I have read much of what you and others have said on the verasage website, and I probably only understand half of what I read. I think I understand value pricing (considering the customer and his/her needs, expectations, wants; discussing this with them, and communicating what you can do for them, the value, and what it will cost), but since I have not done it (or hourly pricing/billing), I still have yet to experience it in the real world. Which brings me to my first practical question (regarding my term paper).

I will be interviewing a couple of CPAs and asking them about value pricing and the method(s) they use. Since I don’t know that much myself, (and they may not either), what would be some questions to ask them?

Now, my next two questions are for my own interest, but I will probably incorporate your answers into my paper. (If you will answer them).

Are you seeking to transform the entire accounting industry, not only in terms of how they charge clients, but in terms of how they think about themselves, their business, and their clients?

Third and final question…I am aware that your ideas are revolutionary, personally transforming to individual businesses, and potentially transforming to the accounting industry worldwide…one of the ideas I’m not quite sure of is whether you think that GAAP should be done away with. You acknowledge the need for government regulation, but I wasn’t sure of how much, or what kind of regulation your in favor of. Would you please share more of your thoughts about this?

I have one thought (actually I have many, but only one that I will share now) that I would like to share with you.

As I was reading your article “Old Dogs Don’t Create New Tricks”, the story of Moses frequently came to mind. Moses leads the Israelites out of Egypt, where they were slaves, in order to take them to a land “flowing with milk and honey”. [There are many analogies that I see with this story and your ideas but I will stick to just one. By-the-way, I think you would enjoy the story of Moses.] On the way to the new land, the Israelites (those over the age of 20) died in the wilderness before reaching the new land. One of the reasons they died was because of their slave mentality. They kept wanting to go back to Egypt and be slaves again and do things like their slave masters. My point in connection with your article, is that many people (and there are many other historical events that reveal this also…even our own civil war) either don’t want to be free, are afraid to be free, or etc. (freedom is not easy, which you have also said about value pricing), and would rather die than change. Historical reality check…maybe many of the “old dogs” will have to die before a real change can take place. I can say this more freely, because I am an “old dog” myself, even though I have never worked in the accounting world.

Thank you for this opportunity to ask questions and share some of my thoughts with you.


David Lehman

Hi David,

Thank you for your letter and questions. We believe the folks entering the profession should be taught the correct theory of value, and why the current practice in the profession doesn’t work for it, or its customers. That way, you can challenge the status quo in the firm(s) you work for.

I believe you have experienced the difference between value pricing and hourly billing in running your day care business. I bet you gave your customers a fixed price? CPAs, for the most part, don’t do this. Nor do they discuss the expectations of the customer up front, so they have no idea how the customer will judge their success. It would be as if you had no idea how Brenda was grading you in your college class—tests, final exam, absenteeism, class participation, term paper, etc. This is an appalling statement regarding the profession’s service ethic. No other business operates this way (except law firms, and a few others that charge by the hour).

As for questions to ask those you interview, take a look at the “Are You Value Pricing” quiz one of our Senior Fellows, Ed Kless, has developed.

Yes, VeraSage is committed to transforming the accounting, legal, and advertising worlds to Value Pricing and no timesheets. Our Purpose is spelled out in our Declaration of Independence at, and we take it very seriously.

As for GAAP, that’s not really government regulation, per se (though now with PCAOB they can develop GAAP). I think it needs competition, so other standards can arise, and the marketplace can sort out which they prefer (consistency is much overrated, since GAAP is highly subjective and consistency is not achieved now).

Also, I believe the CPA profession should not have a monopoly on audits, that any one should be free to offer attest services. This means banks, insurance companies, and others could enter this arena, and competition is the best way to protect shareholders. You would see audit insurance offered by Lloyd’s of London, limited audits done by banks, stock market exchanges hiring the auditor in order to insure real independence. These are radical ideas, but they go a long way to fix what’s wrong in the profession. The profession should not have a monopoly on audits—since when is the USA in favor of granting monopolies?

I appreciate the Moses story, and think it’s very relevant to a whole host of issues relating to innovation. I’m not a big fan of books like “Built to Last” because that’s the ideology of socialism and communism, not capitalism. I enjoy creative destruction and they vibrance and dynamism it brings. That’s what makes capitalism so great, it takes out those not willing to change. That’s why CPAs, protected by their little monopoly, don’t have to change. They get regulatory revenue, not by adding real value, but by complying with arbitrary governmental rules.

Your comment about old dogs needing to die used to repel me. The physicist Max Planck essentially said “Science progresses funeral by funeral.” This is sad if it’s true, since I don’t believe if we shot our elders we’d progress. However, when it comes to changing paradigms, I think Planck is right. We say an old dog can learn new tricks, they just can’t innovate new tricks. There is a huge difference between those statements.

I hope that helps David, and I hope you join VeraSage and sign our Declaration of Independence. We will be starting a Young (or Emerging) CPA program in the future, as we know getting our message out to people not tied to the status quo is essential if we are to overthrow it. I hope you will join our Revolution.


Ron Baker


  1. Dear Ron,

    Thanks for responding. And thank you especially for making that connection with my child care business. This helps me to understand value pricing, because what we did before any parent ever brought their child to me was sit down and talk about what I would be giving them in terms of care for their child. Then I would give them a “Fixed Price Agreement” (although I never called it that), which they would go over and decide if the value I was offering them was what they wanted at a price they could afford. This is great, thanks, that helps me understand.


    David Lehman

    P.S. If I offended you regarding the death of older CPAs, please forgive me. In this case we are not talking about their physical death, but their retiring from the CPA field. I understand that it would be better if there was understanding rather than departure, but in my experience, there are few (even as your article on “old dogs” points out) older people that have new ideas. And I understand that you’re not asking them/us to have new ideas, but to be willing to listen and use the new ideas that come along with the younger people (am I understanding you correctly?).

    Part of what keeps my thoughts young is having four children that challenge my thinking.

    It seems to me that an interesting question is, “if someone is content with the way they do things, and they ‘know’ how to do it, what can one say to get them to consider doing what they do a different way?” Why should they even listen to a different way when they are content? I am listening and learning because I am in school, and I am not being challenged to do something differently than I’ve done it before (if fact, through your insight, I now understand that I will continue doing things the way I have learned before in child care…to sit down with customers and discuss what I have to offer them, what value I can give them in their lives, according to their expectations, and even more, for a fixed price.)

    I look forward to learning more, and reading more of what you thinkers are thinking. David

    One other thought to share is that I have truly been blessed by my teacher, Brenda Richter, and by your website (and others), because it is refreshing to here that people are actually considering other people’s needs and wants, and not just what they’re going to get out of it. This seems somewhat novel in the business field, but it is wonderful to hear. Thanks.

    Hi David,

    Thanks for your reply. As you can tell, we get frustrated with CPA firms for not understanding what you intuitively understood in your childcare business. That is, you have to quote a price up-front to the customer, before they buy, so they can make a price vs. value comparison. It’s not rocket science, it’s common sense. It’s how all other businesses on the planet operate, which is why CPA firms are the anomaly.

    As for offending me, no way. We have a cardinal rule in VeraSage: No one has the right not to be offended. If people get offended by what we write, they need to grow up. I took a beating on that Old Dogs article I wrote, people calling me an ageist, racist, etc. They missed the entire point. And the fact that they are offended illustrates the shallowness of their thinking. VeraSage is a think tank, not a bastion for political correctness. We aspire to seek the truth, no matter where that leads.

    Your interpretation of my article is exactly right. We do think old dogs can learn new tricks (many of the firms that have adopted Value Pricing are led by partners in their 50s and 60s); they’re just not likely to invent new tricks. Therefore, they should allow their younger team members the opportunity to innovate and try new things (including the inevitable failure that will bring). Otherwise, firms will remain sclerotic.

    You are also right on about contentment, which can lead to unwillingness to change. This is the lack of the so-called “burning platform,” so CPAs don’t have to change. They are doing quite well, thank you. This is myopic. They are eating their young, and not planting for the future. Overcoming this is a herculean challenge, but it is one VeraSage is dedicated to attempting.

    I also loved your very last paragraph. We are often accused (quite falsely) of only wanting to bilk customers for as much as we can get. And that is not the message of Value Pricing at all. The message is the customer is the ultimate arbiter of value, which is why we advocate offering a 100% Unconditional Money Back Guarantee on all services. This is about creating more value, not a zero-sum view of the world whereby firms gain only at the expense of their customers.

    Thanks again for your letter, David. I appreciate your thinking, and hope you become a regular contributor to our Blog.


  2. http://Muriel%20A.%20Taylor%20MBA%20(cpa%20184%20-%202005) says

    Hi David and Ron – I have 3 areas of comment:

    1)I’m in total agreement that value could never be determined based upon hours worked multiplied by an hourly rate. I hold to standard economic theory here. Yes, value is subjectively determined. The seller makes a value proposition and success is determined by the volume of customers willing to pay the price the seller has set. If the components of the value proposition are all valued by the customer and cost to provide the services turn out to be less than the customer agreed to pay, then a profit is made and the customer is happy. If however, the value proposition includes items that have no value to the customer; these components are by definition, waste. (I for one enjoy staying at 4 star hotels but do not want anyone ?turning-down? my covers before bed – waste.)

    I think it is more realistic for the supplier of services to set prices based upon their expertise and the complexity of the tasks than to expect the buyer to somehow know how much those services are ?worth? to them. In the case of large or recurring projects a detailed RFP could be prepared, allowing the market to provide pricing, but I don?t think this is the situation you are considering.

    2)As David?s question relates to GAAP, I have stronger views. Most in our profession would agree that GAAP has failed to fulfill its original purpose. There was always the fatal flaw (un-recognized by GAAP) that the various readers of the financial statements had different needs. Investors certainly had different needs than managers. Lenders, sureties had different concerns yet. Thankfully, this problem is finally being worked on with the long overdue FASB exposure draft which for the first time addresses the fundamental ?Conceptual Framework for Financial Reporting? (see This document explicitly states that published financials will be intended for the external investor. Yikes! I won?t get started about my concerns; but for at least this one set of users, if the objectives of the ?Decision-Useful? Financial Reporting Information can be achieved, comparability between financial statements should become useful again.

    3)Lastly, while not in the question or response or in VeraSage Institute?s scope, I would like to align myself with ?The Center of Professional Integrity & Accountability?. Their slant is that acting in the public interest is a key component of being a member of this profession. More information on their Purpose, Objectives, Core Values, etc. can be found via Portland State University ? School of Business Administration.

    Best Regards, Muriel Taylor

  3. Hi Muriel,

    Thank you for your comment. I agree that the seller, ultimately, must set their price. But that price should be based on the value delivered, not the costs of the inputs. That way, the customer can accept or reject the value proposition before they purchase. Cost is a fact, price is a policy.

    I also understand your views of GAAP and the “expectations gap.” Our profession has not done a good job managing this gap, and with SOX it’s now worse. There is an enormous “moral hazard” out there now, since investors now believe CPAs are responsible for detecting fraud.

    We also teach the “alternative financial reporting model,” a deep passion of mine. The traditional GAAP financial statements are the “three blind mice,” and they are lagging indicators. It’s like timing your cookies with a smoke alarm.

    What investors need are leading indicators, and those require we posit theories, much like economists. Our profession doesn’t have the intellectual capital, yet, to do this, which is why we have not taken the lead in this arena. The Balanced Scorecard, and other models, have been developed by the consulting profession, not ours.

    In fact, the Big Six recently wrote a paper about this very topic (, but they are waiting for a consensus to emerge. But innovation isn’t based on consensus. These firms should just dive in and start offering this service, and furthering the model. We learn more from the leap than the look.

    I also agree with your last paragraph that our profession is here to serve others. We at VeraSage Institute don’t get up every morning trying to figure out how to make more profits. We are deeply passionate, instead, about bettering the posterity of our profession.

    Thank you Muriel, I hope you contribute to our Blog more often.


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