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Close-Up: Edward Kitrosser

Sarbanes-Oxley fueling accountancy growth

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Most people don't associate accounting with entrepreneurship. But for Edward Kitrosser, managing partner of the San Diego office of Moss Adams LLC, the two go hand-in-hand.

Kitrosser, who grew up in Brooklyn, ran his own accounting practice with a childhood friend for more than a decade. With two offices in New York City and New Jersey, he credits these responsibilities at the helm for bolstering his management skills and developing the entrepreneurial instincts he uses now in day-to-day operations.

"There were many times when my partner and myself, we wouldn't be able to take any money for a couple of months because we had to make payroll," said Kitrosser in Moss Adams' plush meeting room. "We had to pay rent; we had to keep the electricity on, especially in the early years. It teaches you to be very businesslike in the way you do things. There's more than just serving clients; there's running a business."

Seattle-based Moss Adams is now the 12th largest accounting and consulting firm in the United States, and the largest headquartered in the West, according to the company's Web site.

Kitrosser's San Diego office employs 60 people and handles a wide range of business assurance, tax and accounting services to both public and private companies, although the majority of clients are "closely held" companies, according to Kitrosser. The firm's niche is in serving nonprofits, construction, manufacturing, distribution and high-tech companies with an emphasis in the life sciences, he said.

Kitrosser came to the position of managing editor at Moss Adams after his firm, Turnquist, Schmitt, Kitrosser and McMahon, merged with the national accounting house. Judging from Kitrosser's track record, serving clients and running a business are among his talents. Although he has only been at Moss Adams since 2002, he has managed the office's revenue growth at an annual 30 percent clip for the last four years (including this year's projection).

The growth has been largely fueled by Sarbanes-Oxley and a general increase in demand from local companies, according to Kitrosser. The tightening of accounting regulations for public companies has opened opportunities to work alongside the Big Four accounting firms, working not as auditors but in helping larger publicly traded companies with their compliance work and preparing for the audit, he said. "The big firms, if they are doing the audit, they can't do this type of work because it causes an independence problem. So that's where we provide services."

Industry observers echoed this perception. "(Sarbanes-Oxley) has caused a large increase in the volume of work and demand in accounting services," said USD Vice President and Provost Julie Sullivan. "It's almost doubled the demand for work. You don't have to grow by getting new clients if your current clients have that kind of demand."

While Sarbanes-Oxley has opened many doors for Moss Adams, Kitrosser says the regulatory law has actually hindered the firm's business in its relationships with mid- to small-size public companies. "With publicly traded companies in the past we might be able to provide a wealth of services. Now with Sarbanes-Oxley some of those services you provide in addition to the audit you no longer can provide because of the independence rules."

In the San Diego-area, Moss Adams faces competition from CBIZ Accounting, Tax & Advisory of San Diego, LLC, McGladrey and Pullen LLP and J.H. Cohn LLP. But Kitrosser says the word used to describe their relationship is "co-opetition," or friendly competition.

While the boom in demand for accounting services has been good for business, it has created a tough environment for recruiting new employees, an essential component of successful growth. "I've been practicing since 1966 and always one of the biggest challenges was marketing for clients and getting clients. Now the client opportunity is huge; they almost walk in the door. It's just making sure we have the people that can staff it," he said. When Sarbanes-Oxley was instated, a lot of accounting professionals who had worked in the public accounting sector left for private industry.

"All of the firms are all looking for the same people," Kitrosser said.

Another factor contributing to this problem, according to Kitrosser, is the cost of living in San Diego -- specifically, housing. Whereas recruiting used to a breeze for accounting offices in San Diego, the lure of leaving the cold eastern winters has faded with the rising costs of housing.

In response to the limited supply of accounting professionals, Kitrosser said the firm has gotten more aggressive with its recruiting program both on a national and local level, spending a significant amount of time on the campuses of San Diego State University, California State University San Marcos and University of San Diego. Moss Adams also pays bonuses to staff that refer future employees to the company, as well as granting signing bonuses to new employees. The San Diego office also recently created the position of recruiting coordinator to oversee and ensure efficiency in the recruiting process, as well as receiving help from recruiters in the firm's Los Angeles and Seattle offices, Kitrosser said.

Despite the strong growth over the last three years, Kitrosser doesn't expect the trend to continue much longer. One of the reasons is the looming adjustment to Sarbanes-Oxley, which if executed, would slacken the guidelines and requirements for smaller businesses.

"As I understand it, it's probably going to happen. It's very, very expensive for the smaller public companies to comply with all of those requirements."

Although Kitrosser says this amendment could hurt the firm's business "a little bit" he says there's nothing to do other than to continue serving niche clients and marketing aggressively for new opportunities.

"Frankly, we can do all the marketing we want, but if we continue to serve our clients well, they and their other advisers become our best new business referral sources."

One of those who has recommended the firm's services is Barbara Warden, president of the not-for-profit Downtown San Diego Partnership. She said Kitrosser's Moss Adams office has conducted three audits for her organization and that she has recommended the firm to colleagues.

"I'm very pleased with the advice that we get from Ed. With the Sarbanes-Oxley rules, we're very conscious of making sure we've done everything right and on that we're on the right path," Warden said.

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