[Federal Register Volume 64, Number 106 (Thursday, June 3, 1999)]
[Proposed Rules]
[Pages 29813-29814]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 99-14012]


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SMALL BUSINESS ADMINISTRATION

13 CFR Part 121


Small Business Size Standards; Accounting, Auditing, and 
Bookkeeping Services

AGENCY: Small Business Administration.

ACTION: Advance notice of proposed rulemaking.

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SUMMARY: With the recent consolidations of the largest firms in the 
accounting, auditing, and bookkeeping services industry and their 
expansion into providing services of other industries, the Small 
Business Administration (SBA) has undertaken a review of its small 
business size standard for this industry. To supplement its review of 
this industry's size standard, SBA is requesting public comment as to 
what factors should be considered in establishing a definition of a 
small accounting, auditing, and bookkeeping services firm, what the 
public's views on several developments within the accounting industry 
are, whether the current size standard should be changed, and what the 
actual definition should be. Should SBA decide that a change is 
warranted, it would publish a proposed size standard in the Federal 
Register and seek public comment on a specific size standard before any 
change in the size standard is put into effect.

DATES: Submit comments on or before July 6, 1999.

ADDRESSES: Send comments to: Gary M. Jackson, Assistant Administrator 
for Size Standards, Small Business Administration, 409 Third St., SW, 
Mail Code: 6880, Washington, DC 20416.

FOR FURTHER INFORMATION CONTACT: Harvey Bronstein, Office of Size 
Standards, (202) 205-6618.

SUPPLEMENTARY INFORMATION: Size standards are numerical indicators to 
define what is a small business. They have been established to 
determine eligibility for firms for SBA and other Federal small 
business programs, such as loan guarantees, Government contracting 
assistance, minority enterprise development, and small disadvantaged 
business preferences. Currently, SBA defines a firm in the accounting 
industry (Standard Industrial Classification (SIC) 8721) as small if it 
has $6 million or less in average annual receipts, including any 
affiliates. By comparison, SBA uses $5 million as a size standard for 
most service industries. Other illustrative size standards in business 
and professional services include $18 million for computer services, $9 
million for security guard services, and $2.5 million for architectural 
and engineering services. A list of the SBA size standards by industry 
category is available in 13 CFR 121.201, or on SBA's Internet web site 
(http://www.sba.gov/regulations/siccodes).
    SBA bases its size standards on an analysis of an industry's 
economic structure and other information describing the relative 
standing of smaller businesses within an industry. SBA generally looks 
at factors such as average firm size, start-up costs, degree of 
competition, distribution of sales by firm size, and the objectives of 
SBA's programs. Other factors that may have an impact on the position 
of small businesses in an industry may also be considered, such as 
technological change, growth trends, and comparison with size standards 
in similar industries. By examining quantitative indicators for these 
factors from generally available sources of industry data, SBA is able 
to identify a small business segment within an industry and maintain a 
degree of comparability among size standards in different industries.
    A review of data on the accounting industry and discussions with 
industry associations and accounting firms indicates a need for 
additional information on several issues before SBA can decide whether 
to propose a change to the current accounting size standard. Several 
issues are discussed below that have come to our attention that we 
believe merit a request for comments from the public. Other information 
the public believes is relevant to the question of an appropriate 
accounting size standard is also welcomed for our consideration.
    One issue we specifically seek comments on concerns the available 
industry data on the accounting industry. According to data from the 
U.S. Bureau of the Census' 1992 Economic Census, of the 76,000 
businesses in that industry, more than 99 percent are considered small 
businesses under the present size standard and they cumulatively 
obtained 60 percent of total industry revenues. Approximately 450 firms 
exceed the present size standard, and the top four firms with the 
largest operations in accounting obtain 19 percent of industry 
revenues. We are concerned that the recent changes in the industry are 
not fully reflected in the Census Bureau's data and other data sources. 
Thus, we are interested in the public's view on the changing nature of 
the industry since the early 1990s, and whether data from 1992 
adequately characterizes the industry today. If not, the public should 
address what changes have occurred to alter the makeup of the industry, 
what data exists to verify and gauge the extent of these changes, and 
how these changes should affect the size standard.
    Another issue concerns a prominent trend that is affecting the 
accounting industry--the expansion of services being offered by many of 
the larger firms. Some firms, especially the largest ones (often 
referred to as the ``Big 5''), which at one time primarily provided 
accounting services, have been diversifying into other areas of 
business and professional services such as management and economic 
consulting, information technology, computer systems integration, 
public relations, and legal services. Thus, while some of these firms 
originally offered only accounting services, they now offer a range of 
other business and professional services while still maintaining a 
considerable accounting and auditing capability. We are interested to 
know whether this trend is also occurring for small firms, and how it 
may affect the current size standard.
    The SBA programs and other Federal programs which seem to be most 
affected by the accounting size standard are those that accord 
preference for Federal contracts, that is, the small business set-
aside, 8(a), and small disadvantaged business programs. Federal 
contract award data supplied by the General Services Administration's 
Federal Procurement Data System indicate that small businesses have a 
substantial share of Federal accounting

[[Page 29814]]

contracts, capturing close to one-half of about $115 million worth of 
contracts in both fiscal years 1996 and 1997. We have received 
information from accounting industry groups concerned about the 
procurement preference programs and the relationship of these programs 
to the accounting size standard. Some believe that the $6 million size 
standard is too limiting in terms of allowing firms they believe to be 
small accounting firms to access larger Federal contracts. The issue, 
then, is whether firms above the present size standard should become 
designated as small businesses because they have difficulty competing 
against the largest firms in the industry for Federal contracts. Thus, 
we also seek comments on whether some or all ``mid-sized'' firms (those 
larger than SBA's $6 million size standard but smaller than the ``Big 
5'') are at a competitive disadvantage with the largest firms in the 
industry for Federal contracts. If so, please comment on whether an 
increase to the size standard to include some mid-sized firms as small 
businesses would be helpful.
    There also has been concern expressed that the largest accounting 
firms are receiving large-sized Federal contracts to the detriment of 
small- and mid-sized firms. In particular, we are told, accounting and 
auditing services are combined or bundled with other types of business, 
management, or financial services into larger contracts. When contract 
requirements in more than one industry are grouped together, this is 
known as contract bundling. These bundled contracts tend to limit 
opportunities for small businesses since the combined requirements 
become too large of a contract for a small business to handle. Yet, a 
small business could capably perform on one or a few requirements if 
they were separate and smaller contracts. We are interested in finding 
out the extent that accounting services are being bundled with other 
business and professional services to form large-sized contracts which 
are out of the reach of small- and mid-sized businesses. Also, if such 
practice is extensive, the public should comment on whether it should 
influence the level of the size standard for accounting.

    Note: SBA has issued a proposed rule to define contract bundling 
(64 FR 2153) and its intent to determine the impact on small 
business of bundled contracts with expected value of $5 million or 
more.

    In addition to these issues, comments on other issues concerning 
the accounting industry and the size standard that would be helpful to 
SBA include:
     Recent changes in the structure of the accounting 
industry;
     Competitiveness of small accounting businesses versus the 
largest or ``Big 5'' accounting firms;
     Growth of accounting firms;
     The role of and problems affecting ``mid-sized'' firms in 
the industry and how they may differ from small businesses; and
     Whether firms approaching the $6 million size standard are 
disadvantaged because of their size and if so, how?
    The purpose of this advance notice is to obtain additional 
information on the accounting, auditing, and bookkeeping services 
industry to assist us in deciding whether a sufficient basis exists to 
propose a different size standard or to retain the current size 
standard. If we decide to propose a change to the size standard, this 
notice would be followed by a proposed rule published in the Federal 
Register indicating a specific new size standard. After evaluating 
public comment on a proposed size standard, a final rule would put into 
effect any new size standard.

    Dated: May 17, 1999.
Aida Alvarez,
Administrator.
[FR Doc. 99-14012 Filed 6-2-99; 8:45 am]
BILLING CODE 8025-01-P