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.

Respectfully,

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 www.verasage.com, 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.

Sincerely,

Ron Baker