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It could be a question in the “economic influences on business” section of the US exam to qualify as a certified public accountant: if it were cheaper and easier to become a CPA, would there be more of them?
Squeezed between a wave of retirements and a slump in the number of people taking exams to become a CPA, the profession in America will have to confront the obvious answer in 2024.
About three-quarters of CPAs are now at or near retirement age, and the pipeline looks threadbare. Fewer US university students are taking accounting courses, and under current rules they need the equivalent of a whole extra year of study before they can qualify as a CPA — a costly deterrent, especially for those from diverse backgrounds.
The talent shortage hasn’t yet reached the Big Four, who still have their pick of graduates, but even these firms are tiring of subsidising a fifth year of schooling of uncertain value and worry about the long term. Smaller accounting firms are feeling the pinch already and, forced to pick between business priorities, have pulled back in areas such as local government auditing or, in some cases, audits of public companies.
Membership of the American Institute of Certified Public Accountants, the US professional body, fell from 430,000 in 2017 to 415,000 last year and it has missed membership targets in four of the past five years. Yet it opposes dropping the fifth year, or final 30 hours of the current 150-hour requirement of university classes, which only became standard in the 1990s. Some states such as Minnesota are examining legislation that would once again allow licensure with 120 hours, with enhanced work experience requirements instead. The AICPA says that could lead to widespread problems, since other states may refuse to recognise Minnesotan CPAs.
Before Christmas, the organisation distributed “guidance” to firms about what to do if a state changed its laws, including a scary-looking “interstate practice compliance checklist”. Since no state has changed the law and it is not clear how others would react, it looked more like a way to pressure Minnesota into staying in line.
The AICPA thinks backers of the change are hopelessly naive. From the other side come accusations that the organisation is stuck in the past. Some accounting firm leaders are pinning their hopes on a forthcoming change at the top. The search is on for a replacement for Barry Melancon, who will be retiring after 29 years as AICPA chief executive. The organisation might come around and agree to work to ensure an orderly transition to 120 hours. It has a working group promising solutions for the talent shortage by May.
For many accounting firms, the problem is too pressing to wait. For all the disagreements on the 150-hour rule, no one could argue with what the AICPA’s Sue Coffey told me last month: namely that this single change “isn’t going to bring in thousands of people”. Demographic trends will continue to impose themselves.
Hiking pay for junior staff can stick in the craw at partnerships, where it comes straight out of partners’ profits, but there is evidence that accounting firms have begun to reverse the long relative decline in starting salaries for new recruits. These have failed to keep pace with raises in investment banking or tech for a generation. Faster pay progression and earlier elevation to the partnership will also be needed.
But firms will still have to make do with fewer licensed professionals, so business models will need to be reimagined.
The Big Four already make extensive use of people based offshore, notably in India, to perform routine tasks. Midmarket firms are now rapidly scaling up. BDO USA expects to double its offshore workforce in five years. Brian Becker, chief executive of RSM US, tells me he is aiming to increase the amount of work done overseas from less than 10 per cent now to around 40 per cent. For smaller firms that cannot build their own overseas infrastructure, there are a burgeoning number of outsourcing options available.
At home as well as abroad, as much work as possible will have to be shifted from licensed professionals to other staff. Coffey says accounting has to transition “from being a CPA profession to a CPA-led profession”.
It will still need CPAs, though, and in numbers. The risk is that the profession enters a downward spiral where an increasing workload on those who remain drives even more away. It needs to be cheaper and easier to become an accountant.