When a colleague of mine recently traveled to one of our member CPA firms in Northern California, little did he anticipate the unexpected twist awaiting him. What began as a routine return flight turned into hours of delays, frustrated passengers and, ultimately, a canceled flight. The reason for the eventual cancellation? Crew fatigue.
In the airline industry, safety is paramount. Regulations and protocols are in place to ensure that every aspect of air travel is meticulously monitored and regulated to safeguard passengers and crew. Crew fatigue, recognized as a significant risk factor, is taken seriously, with mandated rest periods and stringent guidelines aimed at preventing fatigue-related incidents. Captain Sullenberger's "Miracle on the Hudson," with his chilling "Brace for impact" call, underscores the importance of pilot alertness, while a recent Alaska Airlines door panel incident highlights the critical need for pilots to be fit for duty.
In our profession, we encounter common challenges such as compressed deadlines, staff turnover, client unresponsiveness, new accounting rules and auditing standards, surprise transactions and more, often unfolding during our busiest seasons. These challenges significantly disrupt the planned course of the audit. With each passing billable hour, the path to the deadline becomes increasingly difficult to navigate. Despite mounting pressure, engagement leaders often push teams to meet deadlines, prioritizing completion over quality.
These challenges contribute to excessive workloads, leading to auditor fatigue. Workweeks often extend well beyond the standard 55 hours during busy season, with weekend work becoming a necessary evil. This reality is supported by data publicly disclosed in audit quality reports by major firms. For instance, at Big Four firm PwC, audit associates log an average of 220 hours of overtime annually, while senior associates work 256 hours, and audit partners and managing directors endure a staggering 349 hours. Shockingly, one regional firm disclosed 816 hours of overtime for its staff.
Furthermore, a PCAOB sanction against Marcum in June 2023 revealed alarming partner utilization rates, with figures as high as 146%. One partner was found overseeing 75 issuer clients, while another engagement quality reviewer had to review the work of 118 issuer clients. Similarly, a PCAOB sanction against Withum in February 2024 uncovered equally troubling findings, including one engagement partner with a monthly utilization rate of 220% who had been working approximately 100 hours per week for two consecutive weeks.
The pursuit of profitability often drives firms to maximize audit opportunities with minimal staffing levels, prioritizing financial gain over adherence to principles and guidelines within the AICPA Code of Professional Conduct and quality control practice aids.
Grounded by fatigue
Just as tired pilots and crew members pose risks to flight safety, auditors fatigued from excessive workloads compromise the quality and reliability of audits, potentially jeopardizing clients and stakeholders.
The ramifications of this reality are evident in the auditing profession's documented struggles with maintaining quality. In January 2024, the PCAOB released a spotlight on insights from its interim inspection program concerning audits of broker-dealers, highlighting a disturbing trend: Nearly 60% of such audit engagements in 2022 exhibited deficiencies. Similarly, the U.S. Department of Labor's report in November 2023 emphasized the need for improvement in audits of employee benefit plan financial statements, with major deficiencies in 30% of the audits examined.
These statistics paint a sobering picture of the challenges our profession faces. From our experience supporting dozens of CPA firms with PCAOB and AICPA matters, we often find that the real reasons behind deficiencies are not publicly aired. Firms may hesitate to acknowledge the impact of workload constraints on audit quality, opting instead for alternative explanations. Perhaps it's time for our profession to confront this reality head-on and prioritize solutions that address one the most likely root causes of poor audit quality.
Eyes wide open
As I reflect on my colleague's flight delay caused by crew fatigue, it serves as a poignant reminder of the paramount importance of prioritizing well-being in our profession. One can only speculate about the potential disaster that could have unfolded had the flight not been canceled due to crew fatigue. Reasonable passengers wouldn't board a flight if they knew the pilots and crew were exhausted.
Similarly, clients and stakeholders should demand the utmost quality in audits to protect their interests and investments. Recent inspections and deficiencies cast doubt on whether these expectations are being met. It's time to address the toxic culture prevalent in public accounting, where excessive workloads are normalized and employees are expected to prioritize work above all else. It's time to wake up.
Whether you're a CPA firm or a client, before you strap in for another bumpy audit ride, your pre-audit checklist should include these essential questions:
- How does your firm prioritize the health and well-being of audit team members, especially during busy seasons?
- What measures does your firm have in place to mitigate auditor fatigue and ensure quality in audits?
- How transparent is your firm in reporting audit quality metrics, including partner, manager and staff workload?
- What steps are being taken to address deficiencies highlighted by regulatory bodies such as the PCAOB and the U.S. Department of Labor?
- What efforts are being made to enhance the culture within your firm?
