A drunk scrabbling on his knees under a street light tells the inquiring policeman that he lost his keys in the dark alley.
“So why are you looking here?” asks the cop.
“Because the light’s better.”
Here is why not to be concerned over the so-called “pipeline” problem with the future supply of new CPAs – what KPMG’s US head Paul Knopp recently called a “brewing crisis” that “calls for urgent reforms to halt the slide in the accounting ranks.”
Because much of the current discussion is both exaggerated and misguided in its failure to reach the core issues, its distractions pull attention away from two basic topics, usually treated separately but in fact deeply inter-twined.
That is, the concerns hand-wrung by Knopp and his colleagues in practice and academia mistakenly treat as two issues a single problem with two related parts – both to be resolved by the market, to allay any concern over the future stock of new entrants - namely the adequacy of qualifications, training and competencies before the rookies are unleashed in a way that will do minimal harm to the capital markets, and the adequacy of the incentives in their compensation plans and career paths.
To start, the supply issue is not profession-wide. That was made plain with EY’s postponement last fall of starting work dates for the cohort of hires for its strategy advisory practice in the US.
EY’s six-month pushback was procured with a lagniappe of between twelve and thirty-five thousand dollars, on the heels of delays for the prior year. The newbies will appear when summoned, at salaries flat to 2023. As put by a recruiting consultant, “’there is strong enough demand for consulting roles that it is still heavily outweighing supply’… meaning big firms do not feel the need to raise pay to attract students, particularly since starting salaries remain subdued in competing professions, such as banking or technology.”
In other words, on the consulting side the hiring strategy appears validated, that “if you pay them, they will come.” Human nature being what it is, the same should hold for the entry-level ranks of the audit practices as well. Or, in any event, it would seem hard to reconcile the existence of truly fundamental resistance to the “lifestyle” demands of an audit’s busy season, in favor of the non-trivial salary gap with young lawyers and bankers. The well-known brutality of the working conditions for Big Law associates leaves no time to enjoy their fatter pay packets, and suggests that young auditors are not by comparison actually suffering all that grievously.
No - it’s the audit practice itself – not just at the cannon-fodder level, but at its very heart.
Nor is it new. I’ve been saying for years that challenges to the legitimacy of the audit model are fundamental: clients and information users are happy to welcome the optimistic support of the consultants, but nobody is eager for the arrival of the auditors – looked on with distaste and disdain, as the proctologists of the professional services sector, poking around in dark places, exposing questionable behaviors and dirty little secrets, delivering cold and limited comfort before washing their hands of another year’s annual examination.
Simply put, money for staff won’t solve that perception problem, nor will proclaiming the importance of the audit function. That’s because it’s a circular claim, that investors should value a professional’s audit because it is performed by professionals. That fails to grasp a client’s real need - not that its audit be staffed by young CPAs, but that it should be performed, at least cost, to the level necessary to comply with the regulators’ requirements.
That is, the profession has no right or entitlement to insist on the qualifications of its assurance workforce, whether 150 hours of credit to qualify for the exam, or some variable amount of work experience. So long as clients get their reports, it’s a matter of indifference. Value in the marketplace cannot be achieved or demnded as of right, but is earned and legitimized by the choices of the consumers.
That being so, the “audit pipeline problem” elevates up from one of trends and head-counting to an existential level.
That is, the capital market most emphatically will have some forms of information assurance. That role that has figured in human society since the invention of trade, and the inscription on clay tablets by Sumerian merchants of contractual obligations for measures of wheat and bolts of cloth and herds of animals. Whether the future suppliers of that service will have emerged from the “pipeline” now decried as running down to a trickle, or bearing any designation resembling today’s credential as a “profession,” however – those questions remain very much to be determined.
At which point, the sadly-neglected analysis done by Sir Donald Brydon in 2019, his Independent Review of the Quality and Effectiveness of Audit, deserves a re-visit. For if the standard audit opinion whose origins trace to the Victorian era has indeed reached beyond its useful life, to be supplanted by company reporting on the full breadth of business activities embraced by the capacious rubric of Sustainability, that will require skills and competencies beyond those of today.
Which in turn requires the public dialog to be re-written. The expanded scope of skills required to staff an assurance function fit for future purpose exposes the profession’s reticence in the opening of its ranks, and in the practice-narrowing vision of, for example, EY’s proposed consulting and audit practice separation under its aborted Project Everest. “Shrinking to success” is a failing strategy, when the demands of the market go exactly the other way.
Because, as Brydon put it, “it is far from clear that an accountant is best placed to opine on many of the variables involved,” and while “only some would need to have an accountancy qualification as known today,” the implications for the market are clear: salary scales offered to graduates of traditional audit curricula will be obsolete and irrelevant, for the two symmetrical reasons that the needs for such staff will be steadily diminishing, while those qualified to become the auditors of the future will both require and respond to differently-scaled inducements.
Which means no “brewing crisis” – instead, the emergence of new pipelines.
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