1. The Power of Four. While it is true that the Big Four have a near monopoly on the audits of U.S. public companies (78% according to a 2003 report from the Government Accountability Office), the Big Four are perhaps being pushed into a position of merely being auditing firms. So while they do have a lot of power in one segment (audits) they have lost most of their consulting power and may eventually lose their tax practices as well.

2. Where the Money Is. Audits for a long time have been considered money losers, not that firms actually lost money doing audits, they just didn’t make as much profit as doing other work. Thanks to the Sarbanes-Oxley Act that has all changed. Not only for the Big Four but for all firms that are doing audits. AuditAnalytics.com reports that 2004 audit fees for the companies in the S&P increased 25% over the previous year.

3. Tax Shelter Crackdown. At least two of the top 10 accounting firms have been scrutinized during the past few years for abusive tax shelters. While this is nothing new in the history of tax shelters, it has not helped the profession re-polish its image after the major scandals of the likes of Enron and WorldCom.

4. The Middle Gets Bigger. The second tier firms are truly enjoying the benefits of the trickle down theory. As the Big Four shed many of their smaller clients, second tier firm are providing these clients with exception service. The middle though is also getting bigger through mergers. In the last few years, there have been some significant mergers among large regional firms. We can only assume that mergers within the Top 100 firms will continue throughout 2005.

5. The Cost of Controls. While the Section 404 work is still limited to publicly traded companies, more and more privately held companies are looking to review their current internal controls. While boom in this type of work may not last forever, it should surely feed many firms during the next year or two.

6. Adding Up Their Own Beans. Pay increases will certainly continue for several years until the balance between supply and demand for accounting graduates evens out. For accounting firms to recruit and retain the right people, they will have to become more competitive in the marketplace. This may force many firms to start looking at client profitability rather than just top line revenue that a client generates.

7. Stock-Option Showdown. This may not be that big of an issue. Nearly 1000 companies already expense their options. It’s just too bad that it takes so long for the FASB to actually decide on anything.

8. A Fairer Fair Value. The FASB has proposed a statement on fair value measurement to make them more accurate. We will just have to wait to find out what is “fair” fair value.

9. One World, One Set of Rules. The profession moves closer to one set of financial reporting rules as the International Accounting Standards Board (ISAB) and the FASB seek some common ground. As more public companies are listed on different exchanges throughout the world, the one world, one set of rules certainly makes sense.

10. Hedging Bets. Unless you are auditing major financial institutions, this last trend won’t impact your practice. It deals with the accounting standards for derivatives. However, if you find it hard falling asleep some evening you can pick up the 800 page FASB’s derivatives standard and related guidance publication.

AUGUST AQUILA consults with firms in the area of succession and strategic, partner compensation and mergers/acquisitions. He can be reached at aaquila@thegrowthpartnership.com.