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Business of Tax: Why Aren’t Accounting Firms Hiring Accountants?

Posted on Aug. 26, 2019

A recent report by the American Institute of CPAs suggests that accounting firms are drastically cutting back on hiring accountants straight out of school in favor of graduates with a technological background, but some academics say it’s more complicated than that.

The AICPA’s latest biennial report on trends in the accounting profession, released August 13, found that from 2015 through 2018, the number of accounting graduates hired for accounting functions at public accounting firms declined more than 30 percent.

“The marketplace continues to demand different competencies and, while accounting graduates are still being hired, firms are seeking other skill sets to expand services,” the report found. Non-accounting graduates are being hired to fill an emerging skill gap in the profession, “especially as it relates to technology needs,” it continued.

“There is also anecdotal evidence to suggest that some of this technology-specific hiring is occurring at the experienced hire level,” the report states.

According to the report, non-accounting graduates now make up 31 percent of new graduate hires, up from about 20 percent in 2016. However, in a footnote, the report clarifies that the most recent version of the survey expanded the non-accounting categories, meaning the later figure “is likely artificially inflated in 2018 and isn’t directly comparable to previous years.”

The report notes that it is limited in scope to the study of public accounting hiring of new graduates, and doesn’t include hiring trends for experienced accountants or trends outside public accounting. It further notes that “those seeking accounting careers are hired into a multitude of positions out of college and have even more opportunities as they gain experience in the profession.”

Big Picture

For the AICPA, the message is clear: The accounting firm hiring model is undergoing a tectonic shift as employers demand greater technology skills.

“This is leading to more non-accounting graduates being hired, particularly in the audit function,” AICPA President Barry Melancon said in a press release that accompanied the report. This means future CPAs “will require an increased focus on technology,” he added.

Some academics remained skeptical that this skill gap represents a crisis.

Donald Williamson, chair of the accounting and taxation department at American University’s Kogod School of Business, mused that the report’s findings seem to be “driven by the Big Four” accounting firms.

“The trend at that level of practice is away from the traditional practice groups of tax auditing,” Williamson told Tax Notes. “Smaller accounting firms simply don’t have the same access to ‘big data,’” while the Big Four’s business model is often focused on engagements where they can add value and increase audit efficiency, he explained.

Other factors — not just the uptick in new technology like automation, data analytics, and artificial intelligence  could also explain the drop in new graduate hires, from a peak of around 44,000 in 2014 to just 31,000 in 2018, according to Williamson.

For instance, large accounting firms are continuing to offshore some of their work to places like India, where firms can get “a skilled person for a fraction of the cost that you’d have to pay in this country,” Williamson said.

H. Fred Mittelstaedt, accounting department chair for the University of Notre Dame Mendoza College of Business, noted that the report changed its statistical method before 2017. “They’re using a different methodology, so that could be contributing to the big dip,” he said.

“I don’t think I’m questioning the direction of the dip at all, but the magnitude could be affected by some other things,” Mittelstaedt added.

Like WilliamsonMittelstaedt said much of the shift could be attributed to changes at the Big Four, in part because they have such large advisory practices. Those firms are also chiefly responsible for driving investment in technology, he noted, but added that other large accounting firms and even some smaller firms “have been seeing how they can use technology to improve things.”

Mittelstaedt suggested that part of the increase in the number of non-accountants being hired could be attributed to accounting firms being “in the middle of a build-out” of their technology tools, perhaps similar to the hiring bubble in the late 1990s as firms prepared for Y2K.

Similarly, firms may be in the middle of a hiring burst, getting people to write programs or build software to improve audit efficiency, and to do that, “you need some different skills,” he said.

He also noted that hiring of new accounting graduates could have shifted to private accounting firms, which often have better pay and more attractive working conditions.

Training for the Future

For Melancon, the industry has a responsibility to ensure that accounting graduates have the technology skills “needed to support the evolution of the audit.”

Accounting programs are responding to the influx of new technology into the profession by expanding the number of required courses on statistics or coding or other non-accounting courses to meet employers’ expectations, Mittelstaedt said.

But the shift is creating some quandaries as academics decide how to structure their programs.

“It’s almost counterintuitive; if you’re gonna push towards technology, some might argue you need to abandon what you’re currently teaching accountants and teach them all this new technology,” Mittelstaedt said.

Many of the new technologies are replacing the grunt work of the profession, pushing new graduates into analytical roles sooner than they would have otherwise, Mittelstaedt explained. “So now, it’s become almost more important that students really understand the tax issues in accounting because they don’t have as much time to learn on the job,” he said.

New graduates might be better trained to use data analytics software, but if they get an error report, they still have to be able to determine whether that’s an outlier that can be explained or if there’s a real problem.

“It means that those financial accounting courses they’re taking or the tax courses or the auditing courses they’re taking are every bit as important, if not more important, under those circumstances, than a world without technology,” Mittelstaedt said.

Who’s Responsible?

Accounting firms, professional organizations, and universities are all stepping up to equip new accounting graduates with more technology skills.

The AICPA report highlighted several initiatives aimed at developing those skills.

The AICPA, in partnership with the National Association of State Boards of Accountancy, formed the CPA Evolution Project in 2018 to explore tweaking the requirements for initial CPA licensure to require more understanding of technology. The groups proposed guiding principles earlier this year and will present feedback from the professional community and next steps in October, according to the report.

The AICPA has also established a practice analysis research team for the CPA exam that focuses on the impact that technology has on the work of new CPAs.

Both Williamson and Mittelstaedt said their accounting programs are offering courses focused on using data analytics software like Tableau or Alteryx, but they maintain that much of the burden of filling the technology skill gap lies with employers.

“We can give general ideas using different software on how to clean up data, but then the specifics are up to the firms,” said Mittelstaedt, who noted that “every firm is using its own technology.”

Accounting programs in general are trying to “beef up the skills in the data wrangling part of statistics,” as well as the storytelling aspect, like using Tableau to create data visualizations, Mittelstaedt added.

Williamson likewise said that laying a foundation for understanding the concepts of technology is the main goal at the university level.

“I’ve found that generally, if you are an accounting major and have the basic accounting classes, it’s nice if you take a few of these other classes, but ultimately it won’t matter because they’ll train you,” Williamson said.

Williamson noted that EY has “EY University,” while Deloitte invested $300 million to create a training center in Dallas.

“If I was one of their partners, I’d say, ‘My God, where is all my money going?’ But they’re smart!” Williamson said. “They know the next generation has to be prepared to take over.”

Follow Jonathan Curry (@jtcurry005) on Twitter for real-time updates.

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