Wednesday, October 13, 2021
Danielle Higgins Green (Fordham), & Stanley Veliotis (Fordham; Google Scholar), Law vs. Accounting Firms: Competing Over Three Decades of Change, 173 Tax Notes Fed. 13 (Oct. 4, 2021):
In this report, Green and Veliotis investigate how major regulatory and legislative changes over the past three decades have affected the competitive market for tax services between large U.S. law firms and accounting firms — particularly the supply side of the market for tax services provided to corporations.
The annual global market for tax services is more than $30 billion,156 and the U.S. market is certainly a large portion of that amount. For example, our data show that the six studied accounting firms have U.S. revenue of $17 billion for 2020 (although this likely also includes revenue for the portion of fees paid out to the firms’ overseas affiliates on cross-border projects).
This report details three major regulatory and legislative changes that were expected to affect the market for tax services provided to corporations by the large law firms and accounting firms in the United States. Through the novel use of three decades of hand-collected data of tax professional head count, this report demonstrates important trends. Large law firms have increased their tax head count but not as much as the large accounting firms. It appears that the concerns some had that SOX and PCAOB constraints on the provision of tax services by accounting firms to audit clients did not materialize, although there was a slight period shortly after SOX during which the accounting firms’ tax work was not growing. Accounting firms have seen their tax work steadily and annually increase over the last 15 years as they outpace law firms.
Rarely do academics have an opportunity to study both the internal operations of law firms and the interaction of firms in an industry. This report adds to the limited literature. Besides being of interest to tax lawyers and accountants — as well as policymakers — in the United States, this report may also interest such parties in other countries. For example, some countries are concerned about potential conflicts caused by the joint provision of tax and audit services by the same accounting firm, and they have considered requiring tax firms to be spun off from accounting firms that do audits. This article may also be of interest to corporate tax advisers not now working in law firms or accounting firms. For example, some large tax consulting firms have many accountants as owners and staff yet do not provide audit services and are thus less constrained by SOX and PCAOB rules.