Corporate finance teams and their external auditors are going through this financial reporting season with fewer staff available to provide accurate financial statements to investors.
Accountants are leaving their jobs in record numbers, both in corporations and in auditing firms, joining the wide range of workers who are reassessing what they want from their careers. Some leave the profession altogether. Others may take advantage of a tight job market to seek higher wages and more flexible hours.
In the rush to meet Securities and Exchange Commission filing deadlines, with more work piled on the shoulders of fewer people, important checks can be skipped, errors go unnoticed, and assumptions go unchallenged.
“If you choose to file on time, there is absolutely a high risk that your financial statements will be materially inaccurate,” said Bruce Pounder, executive director of GAAP Lab, a consulting firm. “It’s not good for anyone.”
Revenue is only piling up on an ever-changing pandemic-era set report risks it could weaken the reliability of corporate results even as new regulators at the head of the Securities and Exchange Commission are eager to crack down on what they see as accounting abuses blank check companies how companies report errors at auditor independence.
Decrease in supply
About 4.3 million Americans quit their jobs in December, when 10.9 million jobs were open, according to data released by the federal government this month. It’s unclear how many of those quits were accountants and auditors, but the unemployment rate for those professionals averaged just over 3% in 2021, lower than the national unemployment rate, according to Department of Labor estimates. job.
“We’re not immune to what a lot of people call the ‘big resignation“,” Paul Knopp, CEO of KPMG LLP, told Bloomberg Tax when he announced a salary increase at the accounting firm Big Four on January 25. “We believe this will not only help us retain the great talent we have, but it will also help us attract more talent to KPMG.”
The resignations have only compounded the challenge of the dwindling supply of accountants that predates the pandemic. According to a 2019 American Institute of CPAs report, most recent data available.
Hirings have not kept pace with resignations and staff are leaving even in the middle of financial reporting season – something that would once have been taboo, said Wendy Cama, managing partner of audit and assurance services at Crowe. LLP. “There just aren’t enough people available.”
High turnover and unfilled jobs have compounded changes in the way accountants work in the age of the pandemic, replacing team camaraderie with people working alone, for long hours, connected only by phones. laptop.
Crowe may need to reshuffle the work to meet deadlines faced by publicly traded companies. Meanwhile, the firm’s clients have turned to outsourcing to bolster their accounting teams and in-house expertise, Cama said.
To combat the crisis, the four largest U.S. accounting firms have relied in part on their size and flexibility to dispatch staff from offices across the country, and even around the world. They also went on a spending spree to fill openings and keep existing staff on the job.
Ernst & Young LLP said it has spent more than $2 billion since 2020 to raise salaries and provide bonuses and other benefits to attract and retain staff. PwC LLP, which considers hiring experienced accountants a priority, said it recruited more than 2,000 new hires to its tax and audit firm in January alone.
Deloitte LLP and KPMG said technology investments that streamline and centralize certain aspects of auditing will make the job easier. “Not only do we expect this strategy to propel quality over the long term, but it will also pay dividends here and now,” KPMG audit partner Becky Sproul said in a statement.
Regulators from the Public Company Accounting Oversight Board are watching. George Botic, the council’s director of inspections, told an academic conference Jan. 21 that turnover of experienced staff is an emerging audit risk, repeating a similar warning he delivered in December.
The council urged listeners to up their game in the face of unprecedented market risks as SEC enforcement officials have warned companies to insure their internal controls are up-to-date and can provide reliable results to investors.
The turnover rate is now nearly double what it would be in a typical year, and the demand for accounting services has never been higher, said Gary Boomer, strategist at Boomer Consulting Inc.
“I’m worried about businesses and their shortages,” Boomer said. “It just puts more pressure on the people who are there.”
The pandemic has unleashed a torrent of complex work for corporate accountants, including reassessing the value of leased assets and more frequent impairment testing. Ongoing supply chain disruptions and inflation both impact financial statements.
Companies have also had to modify their internal controls – security controls designed to ensure accurate reporting – to address the risks of remote or hybrid working. Checks can be as simple as having multiple people perform a task such as paying a vendor, which can frustrate understaffed finance teams.
Small- and mid-cap companies with smaller accounting teams could be particularly vulnerable to the pressures of accounting vacancies compared to larger companies and even larger CPA firms with more resources to distribute the work, Daniel said. Taylor, associate professor of accounting at the University. of Pennsylvania.
“The fear is that a weakness in internal control will lead to a material misstatement or lead to the possibility of something larger, such as a fraud“, said Taylor.
Even small accounting errors, often compounded control failures, can cause a company’s stock price to plummet. Restatements soared last year amid the boom in special purpose acquisition companies, or SPACs, after more than decade-long decline following the adoption of corporate governance reforms which imposed annual tests of control for the largest companies.
Companies need qualified personnel and enough time to establish proper accounts and ensure that internal controls are working as intended.
If you are understaffed, skilled or time consuming, the risk of material misstatement increases. The same goes for auditors who might miss an accounting error, said Pounder, a consultant at GAAP Lab.
Filing delays cause distinct problems: withholding critical performance details from investors and running afoul of registration requirements and corporate mandates set by the SEC, which has offered a rare but temporary extension of time at the start of the pandemic.
Business leaders, facing enormous market pressure to meet filing deadlines, are unlikely to miss them this filing season, said Yelena Barychev, a partner at Blank Rome LLP who advises boards.
Still, institutional knowledge lost with department staff can slow down audits, said Janet Malzone, national managing partner for audit at Grant Thornton LLP.
“So could it take a little longer, could we all spend more time? Yes. And that’s what we’re all going to have to do,” Malzone said. “A lot more effort, a bigger and heavier load, because we all still want that result of high quality financial reporting.”