By FCPA Jim McFie, A fellow of ICPAK
The accounting profession, especially in the US and in the UK, has had a reputation for providing stable work, good salaries and long-term job security for those who choose it. However, in recent years, there has been an exodus within the accounting and auditing industry in a number of countries around the world. In the US, over 300,000 accountants have exited the profession. A number of firms are struggling to fill open roles. Fewer college graduates are choosing accounting related courses and even those who have an accounting degree are not joining the profession.
Measured by revenue, the Big Four global accounting or audit firms are Deloitte, Ernst & Young (EY), PricewaterhouseCoopers (PwC), and Klynveld Peat Marwick Goerdeler (KPMG). In 2023, Deloitte was ranked the largest of the Big Four. Its workforce grew to over 457,000 employees during their 2023 fiscal year. The firm’s annual revenue was $64.9 billion. Deloitte operates in 150 countries and is ranked in the US the sixth-best workplace in 2023. PwC reported an annual revenue of $53.1 billion in 2023. PwC also added 36,000 more jobs during the year, boosting its workforce to more than 364,000 in 152 countries.
The firm made a $3.7 billion investment in talent and business acquisition to grow its expertise in cloud and technology consulting and scale its artificial intelligence capabilities. Ernst & Young reported $49.9 billion in firm-wide revenue in 2023. The firm rolled out an artificial intelligence platform and an AI assistant with a language model capable of conversing with users to assist with creating ideas and research. The firm operates in 150 countries. In 2023, KPMG reported $36 billion of revenue with strong growth across multiple divisions. KPMG employs over 273,000 individuals globally, has an office in every state across the U.S., and operates in 143 countries.
So, the Big 4 employ over 1,400,000 persons. But it must be remembered that the Big 4 operate in many countries around the world. Last year, I had dinner with the President of ACCA, Joseph Owolabi, who is originally from Nigeria, but now runs his own firm in Melbourne, Australia. When I told him that the number of young Kenyans registering for the Certified Public Accountant examinations of the Kenya Accountants and Secretaries National Examinations Board was decreasing, he said that this was a world-wide phenomenon. One country which is an exception to this trend is India. The Institute of Chartered Accountants in India claims that it is the largest accounting body worldwide. It has 5 Regional Councils, 175 Branches, 50 Overseas Chapters (including one in Nairobi), and 31 Representative Offices.
It has around 400,000 members globally and approximately 850,000 active students. According to the US National Association of State Boards of Accountancy (NASBA), on 1st September 2023, there were “approximately” 672,587 actively licensed CPAs in the United States: not all accountants who pass the CPA examinations register as members of AICPA, the American Institute of Certified Public Accountants; in 2020 AICPA had 428,000 members. So ICAI is probably the second largest accounting institute in the world. ICAI has the ambition of having 3,000,000 members by 2047, the one hundredth anniversary of India’s independence; the country became independent on 15 August 1947. To achieve this ambitious goal, ICAI needs to produce an average of 130,000 new Chartered Accountants annually, until 2047. The President of ICAI, Ranjeet Kumar Agarwal, addressing the press on the sidelines of the ICAI All India Managing Committee Members Meeting at Calcutta two months ago, announced that from now on ICAI will hold the Foundation and the Inter examinations for Chartered Accountants — the two preliminary exams — thrice a year instead of twice; it is interesting that this is exactly what KASNEB did a couple of years ago. In India, the number of students completing the Chartered Accountant course is 25,000: all of them find jobs within India or abroad.
Covid 19 caused a drop in the number of people applying for accounting courses in the US but most of the supply chain shortages from the pandemic era have eased, but the shortage of accountants is still very real. There are 340,000 fewer accountants than five years ago. And the talent pipeline is drying up. The number of candidates taking the CPA exam is the lowest since 2006. Businesses large and small are feeling the effects. Publicly traded companies lament in their financial statements an inability to find enough certified accountants, which may contribute to high-profile errors in regulatory filings. And the remaining accountants are increasingly working grueling hours and burning out, creating a vicious cycle in which a shortage of accountants is leading to even fewer accountants. The accounting field has been trying to figure out how to reverse the trend.
The CPA Journal, an industry trade publication, identified several possible factors behind the shortage. Some of these, like the perception that accounting is boring or the fact that the field has lower starting salaries than finance or tech, are potentially part of the problem but also nothing new. Other hurdles, like the rising cost of the extra year of training to acquire the 150 credit hours required for a CPA, may be part of the problem, too. Proposed solutions range from trying to make accounting cooler, raising starting salaries, dropping the 150 credit-hours rule and modifying the CPA exam.
But a research paper suggests the underlying dynamics of the accountant shortage are more nuanced than previous stereotypes. It suggests the declining number of accountants may also be due, somewhat paradoxically, to falling demand for accounting services. As corporations and individual tax preparers increasingly turn to automated software to perform tasks formerly handled by entry-level accountants, the demand for accountants has declined. By steering toward closely related majors like finance, students are possibly making rational decisions to avoid an industry that is perceived to be easily replaceable by software. These findings fit a broader literature on the complicated effects new technology has on employment. Particularly with the resurfaced angst over artificial intelligence, the story of the accounting profession over the last five years provides a glimpse of how the market responds to labour-saving innovations. Rather than being a simplistic story of people being put out of jobs — and, it would seem, producing a glut of accountants — in some cases the dynamic can be a good deal more complicated than that and actually result in a shortage of workers.
In the paper, UCLA Anderson’s Henry Friedman, MIT’s Andrew Sutherland and University of Mannheim’s Felix Vetter compared student major choices in undergraduate business schools with entry-level wages in related fields and firm-level investment in software. The researchers used American Community Survey data for college majors from 2009 — when the Census Bureau began collecting data on majors — to 2019 and Bureau of Economic Analysis data on industry investment in software, as a proxy for a sector’s overall technological resources. The results indicate that the number of accounting majors grew far slower as software investment increased. This was not the case with finance majors, for whom more technological investment was associated with faster growth than other business majors. One possible explanation is that tax preparation software like TurboTax and accounting software like QuickBooks became widespread over this period. Even undergraduate students would be keenly aware that technology was significantly disrupting the accounting profession and reducing the demand for workers.
This picture in the US is similar in the wage data as well. The researchers found software investment had little effect on business major wages overall, but US finance major wages significantly expanded whereas accounting major wages lagged behind. Essentially, investment in software was more likely to displace spending on accountants than those with other business majors. In the case of accountants, the researchers argue that, at first, demand for accounting labour declined as software made accountants redundant. Students who may have been considering accounting majors switched to related majors such as finance, in numbers large enough to contribute to the current shortage. But the shortage has not led to wage gains, as might be expected whenever supply falls short of demand. Software has continued to improve, and employers in need of accounting work have become less willing to raise wages due to the perception that entry-level accountants’ technical work could be addressed by investments in IT.
Rather than raising US starting salaries to encourage students to major in accounting and become accountants, the industry in effect responded that it would prefer to continue relying on technology instead of paying better wages. This, in turn, continues to send a negative signal to US students about the accounting profession’s prospects. The longer the shortage goes on, the broader the effects at higher levels of the accounting profession. Critically, many accountants work with software in a way that augments their work instead of replacing it. But the US talent pipeline is drying up, and there are fewer experienced accountants to do strategic thinking and other high-level tasks that cannot be done by software. Additionally, artificial intelligence is advancing in its ability to take on tasks historically performed by skilled managers trained in accounting. This can allow senior managers to leverage their expertise but can further squeeze the pipeline.
The researchers’ findings suggest that some industry “proposed solutions” to address the shortage may be misguided. For example, trying to change the image of the profession may backfire, particularly if it attracts people ill-suited to the profession who expect something different to what it actually is. Similarly, calls to raise wages may be misguided if they do not address the underlying issue that firms view technology as a more efficient solution than labour for many accounting tasks.
Other efforts may prove helpful, such as modifying the CPA exam and curricula to be more technologically focused. Even so, the researchers warn that the number of US accounting majors may continue to decline unless there are fundamental changes in the way accountants are educated and trained so their profession becomes less about applying rules and performing routine tasks, and more about working in tandem with technology to provide value to employers and clients.
An incredible amount of thought needs to go into these challenges; can Kenya be the country which provides the solution – or at least part of the solution?
