The Status of the Accounting Profession

The September 2024 edition of “The Journal of Accountancy” landed in my email yesterday. It has been only digital for some time now. I obviously prefer the real thing, but that is because I am considered a “dinosaur.”

I scanned the articles headlines and saw that this month’s edition was mainly devoted to the accounting shortages of personnel, in all areas of public accounting, government, and academia.

One article dealt with “outsourcing services” as a means to counter the reduction in accounting graduates in the workforce. Another article dealt with changing the workforce requirements from pay, to working conditions, and the length of the work week. The other article dealt with what “Academia” was doing to attract more people to major in accounting.

These articles dealt not only with “public accounting” and their personnel requirements, but industry and government as well.

I was somewhat surprised by “outsourcing.” Apparently, this has been going on for some time, not only by industry, but also CPA firms. The international world of accounting is larger, and I am sure less costly. With CPA firms there is also the issue of liability, as well as competence and confidentiality. I recently read an article where a number of the major CPA firms have seen significant issues in peer reviews of their audit clients. The standards of their audits have decreased significantly. In fact, a number have decided to drop a number of their audit clients because they don’t have adequate staff. There is a belief that that has contributed to the lowering of standards.

There is also a belief that starting salaries are too low and need to be increased. This is believed to be a barrier for why the number of accountants is down. A study of mean starting salaries of seven professions from 2017 through 2022, by the National Association of Colleges and Employers, indicated that accounting starting salaries was the lowest compared to engineering, computer and information sciences, management information systems, mathematics, statistics, and financial management services. In 2017, starting mean accounting salaries amounted to $52,343. In 2022, the mean staring accounting salary was $60,698. The highest mean staring salary was in computer and information sciences and amounted to $72,677 in 2017 and $86,964 in 2022.

Another barrier is the work-week. The current graduates want a better work/life balance. In the CPA world, working greater than 50 hours a week is not satisfactory, even in the “busy season.” As a result, some CPA firms have instituted a work/week balance that limits the number of hours that one can/will work. A more reasonable work week is seen as a requirement to get more young people interested in accounting.

Another factor that is deemed to be a deterrent is the 150 credit hours required to obtain CPA licensure. Graduating students want to start to earn a salary, because they have school loans to repay and don’t want to be saddled with another year of school and the associated costs.

The average accounting student enrollment decreased approximately 17% between 2017/18 and 2021/22 according to the AICPA Trends Report. Some schools indicated as much as a 50% reduction in accounting students. As a result, some schools are allowing students a second chance to pass, by retaking mid-term or final exams if the failed the first time.

I have to admit, I have no empathy for today’s accountants. I grew up in another era. I started my accounting journey in 1961. I was first an accounting intern with the Federal Government’s Department of Commerce. After ten months, getting married, and being told by my supervisor that I needed to slow down because I was doing too much, I found a job as a junior accountant with a “Big 10” accounting firm, Main & Co, in Washington, DC.

I have to admit, I wasn’t sure what a CPA firm did, but I would soon learn. Main & Co.’s main headquarters was in Pittsburgh, Pa. and they had offices in approximately 10 large cities. Their clients included a number of large public corporations as well as many labor unions, not for profits and other service related companies.

The firms District of Columbia’s clients included a number of labor unions, not for profit organizations, construction firms and medium size manufacturing companies. Among the labor unions was the AFL-CIO, the American Federation of State County & Municipal Employees (AFSCME), and the International Union of Electrical Workers. Not for profits included National Geographic, American Council on Education, Association of University Professors and Meridian House Foundation. We also audited a number of Savings & Loan organizations as well as real estate developers. A well rounded client base.

I started work in November 1961, and one of my first assignments was to monitor the inventory taking at Westinghouse’s warehouse in Richmond, Va. I was told what I was to do and I was sent to Richmond without on-site supervision. What an experience! After that I was assigned to work with one of the resident partners as a junior accountant on a number of audits. I did the “grunt” work. I learned to reconcile bank accounts, do account analysis, analyze trial balances create financial statements, review internal controls, and whatever else the partner wanted me to do.

Remember, there were no personal computers then, and there were no small electronic calculators. Worksheets were on what was known as 7 column, 14, 21 and 28 column green accounting pads. IBM accounting machines were just being used. They used punch boards for each accounting application.

Everything was run in a batch mode. The IBM 1400 series of computers were just being introduced. Many companies were using the National Cash Register (NCR) or Remington- Rand accounting machines.

In that time period, the CPA exam was a uniform exam and all states used it. The requirements varied from state to state as to who, and when one could take it. The exam was 4 parts, Auditing, Law, Theory and Practice. Each part was approximately 4 hours except for Practice. It was given in two parts, 4 hours each. Taxation was included in Practice. Maryland had an Economics section as well.

I decided to look forward to taking the exam in the District of Columbia. There, the requirement to sit, included graduating from college with an accounting degree, and two years of experience with an accounting firm, doing attestation work (auditing). Government and industry experience was not satisfactory.

If you did not pass the exam the first time, you needed to pass at least two parts to retain them, and you only needed to take the other two within a certain period. If all parts weren’t passed within a certain timeframe then you had to start all over. Main & Co. had an unwritten rule, “ if you didn’t pass within a certain time period, then it was time to move on.” They would try to place you with one of their clients but that wasn’t guaranteed.

In the 60’s, there was no specialization in the accounting profession. You were an auditor, a tax preparer, and a management consultant. What a way to learn not only business from an auditing perspective but business in general.

I was fortunate to be in the right place at the right time. Main & Co.’s Washington office was just starting to expand, and I was on the ground floor. I worked on all types of audits. We prepared tax returns for our clients as well as senior officers of our clients. We did no outside tax work. The consulting aspect of public accounting firms was just beginning and I was again on the “ground floor.”

Within a year, I was a semi-senior accountant, and then after 2 years, a senior accountant. As a senior, I was in charge of a number of audits, under the supervision of a resident partner. I decided to wait until November 1964 to take the CPA exam. I then had three years of experience and I felt ready. The exam was given twice a year, May and November. The “busy season” ran from November to May. The first time pass rate wasn’t very different then, as it is now, low 20%. It was recommended to take a prep course if you wanted to try to pass the exam on the first try. The CADES course was the preferred course at that time. It was run by Seymour Kaufman, a CPA as well as an attorney. Starting in May, until the exam, we went to class 3 nights a week for 4 hours each evening, and another 4 hours Saturday morning. The course also included homework. On the first night of class, Seymour said that if we were serious, tell our spouse that for the next 6 months they would have to cut the grass take care of the kids as well as everything else, because we would not have time. Oh, how right he was!

During the week we covered auditing one night, Theory one night and Practice one night. On Saturday we took simulated exams. Toward the last month we started to also concentrate on Law. I must say that I learned more in those six months then I had in 4 years of college. Of course, I had three years of experience and that was a big help.

When it came time to take the exam, we took it in the DC Armory. A large open area. Today, I understand that the exam is multiple choice. That wasn’t the case then. You had to work out the problems and you had no calculator. Fortunately, I had tried not to use our large bank calculators for the past 6 months at work, and that helped. I must say that the exam was grueling. When I finished Friday, I went home and just wanted to sleep all week-end. It wasn’t until early February when we received our results. Fortunately, I passed all 4 parts the first time.

As I was approaching the end of my 5th year with Main LaFrentz & Co. ( Main & Co. & F.W. LaFrentz had merged by then), I was told that my compensation was close to that of a Resident Partner, but I was too young for that consideration. I needed to just wait my time. Maybe another 5 years. That wasn’t in my nature, so I decided to move into industry. I was offered a position with Fairchild-Hiller, a helicopter manufacturer with offices in Rockville, Md. and manufacturing facilities in Hagerstown, Md. The compensation was 50% more than what I was making in Public Accounting.

As I look back on that time, my public accounting background was significant in my future promotions. However, now I had the opportunity to use that experience in a meaningful way.

As I progressed in industry, I dealt with a number of the now “Big 4” CPA firms, and I have watched the specialization of the profession. In my opinion, not for the better! There is not the well - rounded CPA today as there was then.

I see a number of issues today with the accounting profession. The CPA exam has become more of an academic exam and not a “real life” exam. I believe the requirement to have 150 hours of academic credit before licensure is a major issue. The experience requirement of essentially one year in either public accounting, industry, or government, under the direction of a CPA, has watered down what the designation of CPA means. In the past, being a CPA meant that you had the experience and background of those at the top of the accounting pyramid. Not so today.

The CPA exam today consists of 4 hours each of Auditing & Attestation, Financial Accounting & Reporting, Regulation and a 4 hour exam on one of the following areas of your choice: Business Analysis & Reporting, Information Systems & Control or Tax Compliance & Planning.

If one has not been involved in actually auditing/attestation, how can one expect to be competent enough to pass the auditing section?

Today, one has 30 months to pass all 4 sections, and the tests are given at least every month. In the past one must have received a score of 75 on each section and that is still true today. However, it appears that everything concerning being a CPA has been watered down. Is it no wonder that it is difficult to attract folks to the profession.

The CPA overall pass rate is approximately 50% while those who pass on the first attempt is only 20%. These rates are not significantly different than similar rates in the 60’s. I am not sure that those, finally passing, have the same competence as those in the past. I believe, experience is much more important than the extra 30 hours of accounting courses.

I realize that change is necessary to move forward. I know that there is a significant difference in technology today, compared to the past, and we must adapt. When computers became popular in the 60’s, the issue was “ do we audit around or through the computer.” I am not sure that isn’t the same today.

Not all accounting students have being a CPA, in their future. The CPA designation was primarily for those that were going to serve the public through auditing or tax preparation or consulting on financial matters. I saw a recent definition of a CPA and it was “CPA’s are accounting specialists with demonstrated accounting proficiency and state licensure.”

A statement that the American Institute of CPA’s (AICPA) made, states, “in most cases, the additional academic work needed to acquire the technical competence and develop the skills required by today’s CPA is best obtained at the graduate level.” I can’t agree with that statement at all. Where is “experience in the equation?”

The question today is, “how do we attract more young folks to consider accounting as a profession.” First, I think that the AICPA should reconsider their academic requirements of 150 credit hours. They also need to do a better job of promoting the fact that “accounting forms the basis of how a business operates.” It is often a “springboard” to upper management positions.

Also, the experience requirement should be reconsidered. We need to return to what the CPA designation should mean. We cannot rely on high school guidance counselors to recommend “accounting’ as a profession. One does not need to be a CPA to be successful in the accounting profession. However, accounting is the basis of many business school concentrations. It should be promoted as such.

There are accounting organizations other than the AICPA. A co-operative effort with those organizations, promoting accounting as a profession, should be considered.

Someone needs to take the lead on this, and I think the AICPA should be that someone. If not, the initiative to promote accounting as a profession to young folks will fail, and we will see the continuation of a reduction in those considering accounting as a profession.