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Stay ahead with essential CPA resources

ESG and the Future of Small Accounting Firms

Small accounting firms may believe ESG challenges are the domain of larger firms with larger clients. But in truth, these aspects represent opportunities—and risks—for every accounting practice.

The Transformative Role of AI in the CPA Profession: Part 1

From automating repetitive tasks to providing advanced predictive insights, AI tools are fundamentally transforming how CPAs operate. Here's a look at some tools and benefits of AI in the CPA profession.

The Transformative Role of AI in the CPA Profession: Part 2

While there's no doubt AI is quickly transforming the accounting profession, there are also risks and concerns that need to be addressed before deploying the various tools available.

2025 CalCPA Firm of the Year Finalists

Congratulations to the following finalists for the 2025 CalCPA Firm of the Year Award, which honors firms making a real impact through leadership, vision and values in action. Winners will be announced at the Members Club Summit on July 31—be sure to join us and be part of the celebration.

2025 CalCPA Firm of the Year Nominees

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Looking for an old article or a past issue from California CPA magazine? You're in the right spot!

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CPAs: Making Sense of What Comes Next campaign

As a CPA, what can you do from your side of the ledger to assist your business clients in avoiding wage and hour pitfalls with their workers? Employment law, and wage and hour issues specifically, are not your area of expertise, but there are several things that you can safely do that would assist your clients in recognizing the issues so an employment law specialist or HR professional can rectify those deficiencies before they blow up. This is especially true if you provide payroll services. Let’s discuss a few.

 Your client likely has both salaried (exempt) and hourly (non-exempt) employees. Only non-exempt employees are eligible for mandated overtime. Misclassification cases arise when the company has paid someone as a salaried employee, but the employee should have been classified as hourly non-exempt and eligible for overtime. This has a cascading damages effect concerning meal and rest break violations and associated penalties. If your client has an overabundance of salaried people, or you are working with an A/P, A/R or payroll person whom you know to be on salary, those are red flags for misclassification. Also, note that federal law and state law differ substantially on this subject, and the more rigid state law takes precedence (as it typically does in 95 percent of wage and hour issues). 

The state requires salaried employees to spend more than 50 percent of their time performing higher-level management or senior administrative duties to remain in the exempt category. Federal law doesn’t use a bright line percentage. Think Starbucks store managers. They hire, fire, manage, budget and troubleshoot with customers and generally are indeed managers. But because they spend upwards of 80 percent of their time working on the floor with their team, they cannot be exempt salaried employees (Starbucks found that out the hard way, settling a class action 15 years ago). 

If you are overseeing payroll and observe that certain exempt employees are paid a salary that is less than twice California's minimum wage ($68,640 for 2025), that’s a violation of the “salary” test under California law. You can’t include commissions or other forms of compensation in that number.

 If you have an opportunity to review client paystubs (and perhaps timesheets during payroll), be on the lookout for how the client’s employees track their time. If you notice that meal breaks are not recorded, tell your client to look into the issue. Meals not noted on timesheets, are shorter than 30 minutes or routinely commence after completing five hours of work, are violations. “Auto-deducting” for meals should never occur. If timekeeping is done electronically, urge your clients to implement daily end-of-shift electronic attestations for hourly employees to acknowledge compliant (or not) meals and rest breaks before they finish clocking out for the day.

 You may have no way of tracking rest breaks, but you may know about the nature of your client’s business and if rest breaks are likely required. Ask whether employees are receiving compliant, paid 10-minute rest breaks, generally twice during an eight-hour shift, for example. 

 Rounding time, though technically still legal, is an absolute no-no these days, especially if it is handled electronically. Courts take the position that if you can track to the minute, there’s no need to round. Also, when we perform a statistical analysis of whether rounding favors employees or the employer over time, it’s often 80 percent or more in favor of the company. 

 If your client has business expenses related to employee travel or expense reimbursement for the use of personal phones or other personal equipment, you will be able to see that in the tax work that you do or in the payroll process. Alert clients that they need to reimburse employees for the use of personal equipment, such as using a personal phone to record time on an app. The usage may be minimal, but it still requires reimbursement. 

If you have clients in construction or vehicle repair, for example, employees are likely using their personal equipment, such as tool belts, hammers and screwdrivers. If employees are required to provide such personal equipment, the employer must pay them twice the minimum wage ($33/hour for 2025). Otherwise, employees must be reimbursed for the use of that personal equipment. Many employers in these industries have no idea about this law, even though It has been in effect for decades.

 Every pay period, employers must provide their workers with the amount of sick time (or PTO) they have available. The amount is typically shown on the pay stub. If it is not there, the employer likely is not providing that information as required. It is also good to know whether workers accrue sick time, or it is “front-loaded.” 

 If your client has 1099 workers beyond obviously legitimate vendors (like you and me), you might give them a heads-up about California’s “ABC test” for engaging independent contractors. State law has tightened up tremendously on who can be an independent contractor. That test is difficult to meet, despite its simplicity: who controls the means of production; is the worker performing work that is outside the regular scope of the company’s business (often the biggest hurdle); and does the worker have an identifiable business of their own? That could be a tough standard in many situations. Inquire about the services performed by those 1099 workers to see if they likely violate the test for independent contractor status. 

 If clients provide bonuses to their hourly people, which will show on pay stubs that you may see during your work, those bonuses likely need to be added into the regular rate of pay for determining the overtime rate, sick time rate and meal/rest break premiums. This will depend on whether the bonuses are “discretionary” or “non-discretionary.” Non-discretionary bonuses are performance-based, but clients are often unclear about what that means in less obvious situations like payment for not using sick time, recruiting bonuses and longevity bonuses. Note that the overtime calculation differs depending on whether the non-discretionary bonus is static or fluctuates.

 If your client has a commission structure, all such commission agreements must be in writing and signed by both the employee and the client. Those agreements often have vague language about the basis for the commission payment, and what happens if someone departs (regardless of reason) while the commission is “in the pipeline” (sometimes known as “tail commissions”). The client may also have “independent reps” who don’t qualify for that non-employee 1099 designation. There is also a major distinction in compensation between “inside salespeople” versus “outside salespeople” as far as overtime requirements. The definition of outside sales is exacting, and if the employee is performing inside sales, they may well be owed overtime, including on their commissions beyond their base draw, salary or hourly pay.

CPAs, accountants and bookkeepers are not insurers of their clients’ businesses, but they can certainly help protect clients from wage and hour pitfalls. You don’t have to be an expert on the merits of these issues, but alerting the client is a safe way for you to provide value-added service. It will also certainly reinforce your relationship with them for the future as their trusted adviser.

Alert Your Business Clients To HR Pitfalls

As a CPA, what can you do from your side of the ledger to assist business clients in avoiding wage and hour pitfalls with their workers? Employment law may not be your area of expertise, but there are several things that you can safely do to assist your clients.

For years, environmental, social and governance (ESG) considerations were seen as exclusive to large corporations with published comprehensive sustainability reports and dedicated teams. The rise of transparency and accountability demands from key stakeholders, including investors, regulators, customers and consumers have propelled ESG practices into mainstream organizational operations. 

Accordingly, small accounting firms may believe ESG challenges are the domain of larger firms with larger clients. But in truth, these aspects represent opportunities—and risks—for every accounting practice, regardless of size.

The role of accountants as trusted advisors exists because we deliver essential insights about our clients’ financial health, risk management and long-term strategic planning. With the rise of ESG, this role is expanding. 

Small firms that neglect ESG considerations risk losing their clients to competitors who integrate ESG into their operations and offerings. 

ESG is not just about ideology, it’s about financial risk. Issues like supply chain disruptions, climate-related impacts and shifting consumer expectations all have material financial consequences. Businesses that proactively engage with ESG will be better-positioned to navigate evolving market expectations and risk landscapes, ensuring long-term stability in a growing sustainability-conscious economy. 

While the current federal administration may be reluctant to champion ESG, many states continue to push forward with ESG-related policies, and Europe remains steadfast in its regulatory commitments. 

In this environment, smaller firms can gain substantial advantages when they incorporate ESG principles into their operations. The demonstration of ESG strategy is critical in retaining clients and attracting new ones. Clients will need accountants who understand ESG regulations and practice those values themselves. 

Many clients expect their service providers to show commitments to social and environmental sustainability and adopting ESG principles allows firms to stand out in competitive markets by strengthening client relationships.

Numerous firms already showcase their ESG values by participating in community activities while maintaining ethical labor standards and practicing responsible resource management. The key is to be intentional and communicate these efforts.

ESG also enhances firm reputation. A firm that pursues ESG initiatives actively demonstrates its commitment to long-term resilience and forward-thinking to clients and potential employees. In the accounting field, where talent shortage is an ongoing issue, this benefit is extremely important. Increasingly, younger accountants are looking for value-aligned employment opportunities.

Implementing ESG principles with a focus on governance and ethics functions can also help mitigate regulatory risks. The financial reporting environment continues to transform as jurisdictions increasingly mandate ESG-related disclosures. Firms that understand and integrate ESG principles now will be compliance-ready and avoid last-minute adjustments when regulations make these practices mandatory. 

For smaller firms looking to start their ESG journey, the approach does not need to be overwhelming. A few examples to incorporate sustainability and governance practices into daily operations include enacting energy-efficient office practices by reducing paper use and adopting cloud-based systems. Firms can also lean into ethical vendor selection, collaborating with suppliers who focus on fair labor practices and sustainable sourcing methods. 

Transparency is key. Take a page from the larger corporations' playbook by sharing your ESG values through digital platforms and marketing communications. A firm can set itself apart through a concise declaration of its ethical obligations and community involvement. Accountants who demonstrate their ESG commitment publicly attract purpose-driven clients as they seek partnerships with organizations that share their values.

Organizations across many industries will rely on expert advice to apply best practices as ESG reporting standardization progresses. Accounting firms can take advantage of this development to grow their service offerings, generate new revenue streams and position themselves as leaders in an emerging area of financial expertise. The AICPA has many ESG certificate courses for practitioners to grow their knowledge. 

Sole practitioners who are concerned about their place in the wider ESG framework can improve their positioning through deliberate choices like sustainable business practices and mission-driven client work. Even taking small steps like removing single-use plastics from home offices or choosing banks that prioritize sustainability are a move in the right direction. 

Sole practitioners can use networking to connect with ESG initiatives. Participating in sustainability-focused industry groups, engaging in ESG discussions at professional conferences, and collaborating with other ESG-focused professionals generates substantial insights and opportunities. Sole practitioners who educate themselves in this area can become known as ESG experts and gain access to clients who require that expertise but lack funds to hire large firms.

Sole practitioners can integrate ESG criteria into their process of selecting clients. Aligning professional values with business operations becomes possible when collaborating with organizations that emphasize sustainability and ethical leadership while maintaining ESG alignment. Providing ESG advisory services, even at a basic level, can serve as a competitive advantage in today's marketplace.

The accounting field is at a significant crossroad as ESG has evolved from “something trendy” into an essential business strategy. As global awareness increases the material business impact of ESG initiatives, more people understand ESG risk is financial risk. Accounting firms that integrate ESG principles now will protect their future viability while helping their clients navigate the changing business environment. ESG serves as a strategic business tool that helps build trust while enhancing long-term sustainability and driving value creation.

Accounting professionals who lead firms or manage their own small practices or solo operations have a distinct opportunity to guide how business approaches ESG implementation. Taking proactive steps now can strengthen your own businesses and help shape a more sustainable and ethical future for the profession.

 of this two-part series, we looked at various AI tools that are or can be used in the CPA profession and how the technology is transforming accounting. In this article, we look at potential risks to consider when it comes to AI in the profession and strategies for addressing these risks.

Despite AI’s impressive capabilities, human judgment remains a critical component of accounting. AI can automate many processes, but it cannot replace the nuanced decision-making and ethical considerations required in complex financial matters. CPAs bring professional expertise, ethical standards and human insight to areas, such as:

AI should be viewed as a tool that complements, rather than replaces, human professionals in the accounting field.

As AI continues to evolve, it is expected that large companies and certain highly educated individuals will develop unique AI tools tailored to their own functions. These in-house systems will likely be highly specialized and designed to address specific needs while reducing confidentiality concerns.

The rise of AI-powered automation and customization is leading to a future where accountants and auditors can focus more on higher-value advisory roles and less on routine tasks. Additionally, AI can streamline operations in real-time, offering greater transparency and enabling faster decision-making processes.

For those interested in developing their own AI tools, there are several educational programs and platforms available. Institutions like MIT and Stanford offer courses in machine learning and AI, while platforms like Coursera and edX provide certification programs for individuals looking to learn how to develop AI systems.

As AI tools continue to evolve, so to will the role of CPAs toward more advisory, value-added services, with AI handling the repetitive, data-driven aspects of the profession. However, as the benefits of AI become more pronounced, it is essential to address the accompanying risks, particularly regarding data confidentiality and the need for human oversight.

CPAs of the future will be aware of AI capabilities and the tools that best suit their needs and those of their clients while also understanding how to protect themselves from the risks arising from AI use.

By integrating AI while maintaining critical human judgment, the CPA profession will continue to thrive in the AI-powered future.

From automating repetitive tasks to providing advanced predictive insights, AI tools are fundamentally transforming how CPAs operate.

These innovations are enhancing efficiency, improving accuracy and allowing accountants to focus on higher-value advisory roles. With this transformation, however, come challenges, particularly regarding data confidentiality and security, as well as the evolving role of human judgment in decision-making.

This article explores the benefits of AI in the CPA profession and discusses various AI tools being used. 

In Part 2, we take a look at the risks and strategies for addressing them

Benefits of Using AI in the CPA Profession

AI tools are transforming different facets of the accounting profession. The following are just some of the tools in use, categorized by their function. Note that CPAs and firms should evaluate the effectiveness and suitability of these tools on a case-by-case basis, considering the specific needs and context of their businesses.

AI-powered productivity tools streamline everyday tasks, enhancing efficiency across various business functions and allowing CPAs to focus on higher-value tasks.

Congratulations to the following finalists for the 2025 CalCPA Firm of the Year Award, which honors firms making a real impact through leadership, vision and values in action.

—be sure to join us and be part of the celebration.

BPM LLP is a California-rooted firm with a global reach and a people-first philosophy that powers everything it does. As a certified B Corp, BPM pairs cutting-edge innovation—from AI and VR to cybersecurity and ESG advisory—with a deep commitment to inclusion, sustainability and leadership development. With recent expansions into the UK, Canada and across the Western U.S., BPM is redefining what it means to be a modern accounting firm: tech-forward, globally connected and deeply human. True to its guiding principle—Because People Matter—BPM proves that when people come first, excellence follows.

Founded in 2022, CPAClub is redefining what an accounting firm can be. With an innovative subscription model, a four-day workweek and a steadfast commitment to people, purpose and progress, CPAClub is transforming the profession from the inside out. This veteran-led, proudly inclusive firm delivers high-impact audit, advisory and quality services to clients of all sizes—while actively investing in the future of the CPA designation. More than just a firm, CPAClub is a movement: one that blends integrity with innovation, creates space for bold leadership at every level and proves that meaningful change in the accounting profession isn’t just possible—it’s already happening.

EisnerAmper stands out for its unwavering commitment to cultivating talent through a people-first culture that prioritizes individual growth and development. Their innovative "buddy" mentorship program ensures new employees receive personalized guidance and support, fostering both professional excellence and personal connection from day one. The firm's leadership demonstrates remarkable alignment in their vision, creating an enthusiastic workplace environment where engagement flourishes both within the office and in broader community involvement. Their dedication to developing people as whole individuals, rather than just professionals, exemplifies the gold standard for modern accounting practices and makes them a deserving finalist for this prestigious recognition.

In an era where many firms are merging or accepting private equity, GHJ is proudly taking a different path—choosing to grow intentionally, remain independent and invest deeply in its people and clients. GHJ’s culture-first philosophy is more than a message—it’s a movement, embodied in their #BeMore mantra and lived across every level of the firm. With a track record of purpose-driven growth, standout leadership, and a culture built on empowerment and service, GHJ isn’t just navigating industry change—it’s shaping what the future of accounting could look like.

What stands out most about HCVT is their collaborative outlook and focus on continuous improvement and engagement of their people. They encourage and honor the individuality of their people and their office locations. Each location has its own unique culture, formed by its people, which are brought together under the HCVT umbrella through collaboration and open sharing of best practices. They illustrate continuous improvement in their ongoing investment in learning initiatives, mentorship and staying on the cutting edge of AI and technology advancements and women's support initiatives. Their commitment to people further shows through the investment in off-site training designed for learning and skill development, as well as for furthering the culture and connection among their team.

This firm impressed with its intentional, people-first culture and unique structural choices—like eliminating titles to foster collaboration and reduce ego. Their commitment to community service, both locally and globally, is deeply embedded in the firm’s identity. They’re not chasing growth for growth’s sake, but instead focused on building a sustainable, values-driven environment where people want to stay. Their forward-looking embrace of AI, including internal GPT projects and weekly challenges, shows a thoughtful approach to innovation.

Miller Kaplan sets themselves apart through their thoughtful commitment to their people, clients and community. They illustrate their commitment to their people through investment in education and use of a unique competency-based framework to guide continuous growth and development of their team. They have gone above and beyond traditional accounting services to truly meet their clients’ needs, creating a "family office" style service targeted towards the unique needs of their industry clients, offering branding, licensing, business management, etc. Finally, their commitment to community shows through ongoing support to LA Family housing and very intentional donations to LA Fire recovery, specifically waiting to contribute additional funding to support the ongoing rebuilding efforts.

This firm stood out for its strong alignment between values and action. As a B-Corp, it’s clearly committed to sustainability and inclusivity, with over 40 group initiatives to encompass DEI and a culture that prioritizes mental health and work-life balance. Their innovative approach to partner compensation, investment in non-traditional coaching, and structured development programs reflect a forward-thinking mindset. They’re not just adapting to change—they’re leading it, with intentional strategies that support both people and performance.