For anyone following our profession, it's no surprise that there's been a drastic drop in the number of college students graduating with a degree in accounting, further adding to the years-long decline in new CPAs. But there's also a more acute problem at the other end of the pipeline, where many midlevel professionals are leaving public accounting and auditing in droves.
Let's look at some of the available data. According to
Showing a similar trend within its own publication, EY reported attrition of 27% of its audit seniors and staff and 26% of its audit senior managers and managers in FY 2022, as compared to the 22% of its audit seniors and staff and 17% of its audit senior managers and managers in FY 2016. Similar statistics likely exist for other CPA firms, but these details alone show how badly the traditional partner pipeline is leaking.
A multitude of reasons exist for the exodus, including long, grueling hours, the lip service paid to the concept of work-life balance, low comparative pay when viewed through the lens of hours worked, and that elusive and lengthening path to partner in an antiquated business model.
Whether suffering from burnout, frustrated by firm politics or looking for something fresh, people leaving an auditing firm typically follow a few paths, which include corporate or governmental accounting, internal auditing, or a switch into a related field such as finance. There are still too many who choose to hang it up altogether, scarred by their public accounting experience, and this is something our economy and profession can no longer afford, especially in an era when trust is more important than ever.
The lack of audit entrepreneurship
There are plenty of sole proprietors who hang up a tax shingle, but entrepreneurship in auditing is almost nonexistent for its own reasons. While emerging audit technology startups continue to launch, often backed by financial support from venture capital and even the American Institute of CPAs and CPA.com's Startup Accelerator Program, very rarely do we see audit entrepreneurship from a service angle.
Too often, a typically risk-averse CPA looking for an exit from a current firm seeks a new gig that promises better work-life balance combined with better pay. Without a viable entrepreneurial option, the job-hunting auditor sacrifices upside and career satisfaction for predictability and the safety of a guaranteed paycheck.
Only a bold few decide to start their own audit firms from scratch. Those who do venture out on their own often give up when faced with the challenges of running a small business. Eventually they realize how difficult it is to be on their own, their time quickly consumed not only by serving clients, but also by tending to licensing requirements, searching for staff, investing in a website and other technology, keeping up with regulations and even trying to figure out the right marketing strategies.
Resigning to these challenges, they end up selling themselves short as just another independent contractor or gig worker trading time for money, still basically controlled by those they used to work for.
One of the main reasons for the lack of entrepreneurship in auditing is the nature of the audit itself. Auditing is heavily regulated, and firms must comply with a range of standards and regulations. This regulatory environment can make it difficult for solo practitioners to enter the space and compete with established firms that have deeper expertise, far more resources and extensive capital. In addition, auditing is a highly specialized field that requires a significant amount of expertise and knowledge, including an active CPA license. This expertise can take years to develop, which can be a barrier to entry for entrepreneurs who lack the necessary experience.
Another aspect that stifles entrepreneurship in auditing is the reality that auditing, overall, is an oligopoly concentrated within the Big Four and the megafirms. This oligopoly creates a disincentive to innovate and differentiate. Instead, these firms end up competing only on price and, in doing so, have created a commodity out of the only thing a CPA has a monopoly on. They can justify poor performance on an audit as a loss leader that benefits the top line of other internal service lines. This can make it difficult for new firms to get into the game.
Established firms have a significant advantage in terms of scale, reputation and resources, which can make it challenging for new firms to compete effectively. This can create a situation where new firms struggle to attract clients and build a sustainable business. However, opportunities do exist for midtier accounting firms and even startups as a result of larger firms shedding those audit clients that are both short on resources and challenged by the conflicts of consulting services.
NANY beats SALY
Despite the opportunities, the lack of entrepreneurship in auditing has significant implications for a noble profession that protects investors and others who place their trust in audited financial statements or other information provided by the field. One of the main impacts is that it limits innovation. Without the innovation that comes from entrepreneurship, the profession can become stagnant and resistant to change. This is clearly at issue in auditing due to the prevalence of a long-standing mantra: SALY (same as last year).
Auditing is largely a compliance dance, and without the introduction of movers and shakers changing how the profession operates, there will continue to be a lack of value-add services to clients. A new approach next year, or NANY, would move the profession forward.
What if there were an alternative way to retain our best and brightest auditors within public accounting by combining the freedom of independence with the power of community? What's not often talked about is how the profession can buck the negative trend by capitalizing on the popularity of today's gig economy combined with a new focus on assisted audit entrepreneurship.
One step that could be taken is to create more opportunities for collaboration between established firms and entrepreneurs. This could involve setting up mentorship programs or partnerships between established firms and startups. By working together, firms can share knowledge and resources, which can help to spur innovation and growth in the industry.
Other paths will be forced by disruptors who will challenge the status quo by building new firms from scratch that promote autonomy, but that rely on the power of a community which benefits from shared resources, infrastructure, and advanced audit technologies.
Without a doubt, there is a need to change the culture of the profession to be more supportive of entrepreneurship. This could involve creating a culture that values innovation rather than simply relying on stability. Given that the talent crisis continues to worsen, standing still is no longer an option and will only stifle innovation, which can limit the profession's ability to adapt and grow. By creating a more supportive environment for entrepreneurship, the profession can foster greater innovation and quality, which can benefit firms, professionals and clients alike.
