Industry Overview: Accounting
For an industry that plodded along fairly unchanged since the turn of the century, the world of accounting has experienced some tectonic shifts in the past decade. As the memories of Enron, WorldCom, and Arthur Andersen begin to fade and the industry, especially the portion occupied by the Big Four, rebuilds investor trust, accounting doesn't appear to be returning to its staid, old bean-counter roots. Well, at least not entirely-auditing is auditing and tax season will surely outlive us all. But the face of accounting has changed. Its role in business, particularly big business, is much more complex. The industry is being forced to redefine itself and not just to satisfy the new federal regulations.
One upshot of the accounting scandals from the early part of this century is a new realization of the critical role accounting practitioners play in business decisions. New security regulations now reach directly into boardrooms, dictating certain requirements about how companies operate-a place no one thought securities law could go. While this gives most executives the jitters, it reveals an incredible opportunity for the accounting profession to carve out a new identity. Accounting has now become a basis for corporate behavior, decision-making, and ethics, and the skills demanded of accountants are much broader as a result.
From 1989 to 2002, a series of consolidations and closures transformed what had been the Big Eight into the Big Six (Ernst & Whinney merged with Arthur Young to form Ernst & Young and Deloitte, Haskins & Sells merged with Touche Ross to form Deloitte & Touche), then the Big Five (Price Waterhouse merged with Coopers & Lybrand), and finally the Big Four (Arthur Andersen, following the Enron and WorldCom accounting debacles, lost all of its clients, saw many of its state licenses revoked, and started winding down its operations). Toward the end of this period, all of the accounting firms except for Deloitte & Touche also spun out or sold their consulting practices, which in some cases had grown as large as their accounting practices and more lucrative, but also represented a potential conflict of interest.
Beginning in 2001, ethics became a central industry focus as Enron, WorldCom, and Arthur Andersen collapsed. Tougher government laws under 2002's Sarbanes-Oxley Act ("Sarbox") were imposed to stop misleading and faulty financial reporting and gave birth to a new regulatory entity, the Public Company Accounting Oversight Board (PCAOB).
The years following Sarbox have been tumultuous to say the least. Opening the books of the nation's largest corporations has revealed layers of disorder, haziness, and fraud. Executives have loudly bemoaned the expense in both services and time of the new regulations, while accounting firms have struggled to interpret the new laws and keep up with the increased demand for their services. In May 2007, the SEC relaxed certain requirements to allow more efficiency and reduced costs in reaching compliance, but any significant changes to the new laws seems unlikely.
Despite this tumult, it's a great time to be pursuing an accounting career. Firms are not only ramping up staff to deal with increased business resulting from economic reforms and shortages due to job cuts earlier in the decade, but also in response to predictions of an impending talent crunch in coming years. The Economic Policy Foundation estimates that the U.S. economy will suffer a shortfall of 6 million workers by 2013, and 35 million workers by 2035. Deloitte & Touche estimates that between 2011 and 2014, only about 5.4 million college graduates will enter the workforce, and based on surveys measuring the interest of high-school aged kids in accounting careers, the number of people entering the accounting profession could decline by as much as 43 percent within five to ten years.
Competition for top candidates is fierce and will only become fiercer, meaning firms will have to do more to recruit and woo their candidates of choice. That puts you, the fresh new talent, in an enviable position.
But don't think you'll be handed a plum position just like that. As the business world becomes more global and diverse, accounting must adapt to keep up. Age-old professional practices are converging with newer methods, such as principals-based accounting and International Financial Reporting Standards (IFRS). Accounting professionals today need a wider range of skills than ever before to survive in an industry that grows more technical and international every year. Interpersonal and analytical skills-the kind typically required in demanding fields like consulting-are becoming increasingly important in accounting as well. Recent graduates armed with the most current knowledge should have an edge in the job market.
Licensing is also a must if you want to move higher in the ranks. Along with the traditional CPA (Certified Public Accountant) license, more accountants are obtaining additional licenses such as CMAs (Certified Management Accountants) and CIAs (Certified Internal Auditors). An increased focus on hiring accountants with real-world business experience in addition to formal accounting education also exists, so be prepared to talk about the impact your experience will have on your job performance. And new and experienced accountants alike are being required to expand their knowledge base to include accounting regulations updates associated with Sarbox.
When you enter the industry, don't expect to be handed big decisions and cutting-edge projects right off the bat. The accounting profession will always contain a certain dose of tedium. There's simply no way around that in the practice of auditing and many other standard accounting procedures. But put your nose to the grindstone early and keep an eye out for opportunity, and you should begin climbing the ladder in no time.
The Sarbanes-Oxley Effect
The Sarbanes-Oxley Act was passed in response to a flood of corporate accounting scandals. Its most famous provision requires chief executives to sign off on their companies' books, guaranteeing that the financial statements released to investors are not fraudulent. But it contains a morass of other requirements of companies-meaning a more complex and expensive job for the public accounting firms auditing companies' books. In response, some smaller accounting firms have stopped auditing publicly traded clients, citing increased costs associated with such engagements. The Big Four, meanwhile, are licking their chops. More complexity in corporate accounting regulations means more complex audit engagements, after all-complete with higher fees. Indeed, according to a survey conducted by Financial Executives International, companies needing audits in the wake of Sarbanes-Oxley expect to pay more than a third more than they used to for audit engagements.
But Sarbox is a double-edged sword, requiring that companies use different firms for tax and audit work. That's creating a window of opportunity for second-tier public accounting firms, such as Crowe Group and Grant Thornton, which are picking off more and more Big Four clients. This is happening in many cases because Big Four firms are ending audit relationships with companies they consider more risky to audit. Regardless, the second tier of accounting firms is enjoying a bigger bottom line as a result of the significant new clients coming their way-meaning these are becoming increasingly good places to find jobs.
Changing Skills, Changing Job Titles
Accountants are becoming more integral to their employers' decision-making processes than ever. Rather than being simple bean counters, keeping track of companies' businesses without really having an impact on the direction of those businesses-even if they work in-house-accountants are enjoying a greater voice in strategic business decisions. Rather than just collecting data and presenting it to management, accountants are being called on to analyze the numbers and the business environment and then to tell management about how companies are truly performing, how they can be expected to perform moving forward, and what steps management might take to improve future performance. This new emphasis on strategic input in accounting means that it will be more important than ever for accountants to have a deep working knowledge of technology, leadership ability, an understanding of the broad business environment, and the ability to communicate with colleagues in a diversity of corporate departments and functions.
The Big Four
This group used to be the Big Five, but since the demise of Andersen in the wake of the Enron scandal, it's been the Big Four: Deloitte Touche Tohmatsu, Ernst & Young, KPMG, and PricewaterhouseCoopers. They are mammoth in size, with annual revenues in the billions of dollars and tens of thousands of employees. These are the most prestigious employers for accounting grads. Why? Big Four clients are Fortune 1000 companies, which means that employees are exposed to complex accounting issues. A job with a Big Four firm is a great career move for someone entering the accounting profession. If, instead of moving up the ladder in your Big Four firm (to partner, preferably), you decide to work for another public accounting firm or to take an in-house position in industry or government-or even if you decide to hang out your own shingle-your Big Four experience will shine on your resume.
The central focus of the Big Four firms is audit services: the verification of the accuracy of clients' books. This also includes non-audit lines of business, including actuarial work (risk analysis and management), tax consulting, human resources management, and merger and acquisition advice.
Other Public Accounting Firms
Although the Big Four get most of the publicity, there are many smaller, less well-known national players and regional public accounting firms that hire lots of people. Representative national firms include Grant Thornton, McGladrey & Pullen, BDO Seidman, and Moss Adams. Within different regions of the country, there are also strong regional players that usually affiliate themselves with some national network of other such players. Insiders tell us that the hours are often a little better at these smaller firms than at the Big Four, the path to partner a little quicker, and the work itself more varied and interesting. If you go to a Big Four firm, your only responsibility for the first three months might be to audit the cash account at IBM. Ugh! At a regional firm you'll be a bigger fish in a smaller pond, doing more substantial work.
Whether publicly traded or not, every company has internal accountants to set budgets, manage assets, and track payroll, accounts payable and receivable, and other financial matters. For medium and large firms, the internal staff works closely with the public auditors at the fiscal year-end and with senior management and IT staff year round. Controllers and CFOs at smaller firms often enjoy even more important and influential roles in running and developing the business. These jobs are just as demanding as those in public accounting.
Most accountants in the private sector stay in one place, in one job, working with the same colleagues, for extended periods. However, should you choose to move around, accounting skills are very portable.
Internal Audit Outsourcing Some businesses prefer to outsource their internal audit functions to a third party. For these companies, and for auditors who want to work in this capacity, accounting firms like Jefferson Wells are the answer.
Although it's not the biggest blip on the radar of aspiring accountants, the government hires a lot of people with accounting skills. The biggest federal employers are traditionally the Department of Defense, the General Accounting Office, the Securities and Exchange Commission, and the Internal Revenue Service. In addition to monitoring individual and corporate tax returns, government accountants at the state and federal levels formulate and administer budgets, track costs, and analyze publicly funded programs.
As an accountant, you can always hang out your own shingle, individually or in partnership with other accountants, especially once you have your CPA. There is plenty of business preparing tax returns and advising small businesses, provided you have relevant expertise, such as a thorough knowledge of tax law. You will also need to market your services and manage your own business-time-consuming activities that not everyone enjoys.
It's a good time to be looking for a job in public accounting firms. The Bureau of Labor Statistics expects demand for accounting services to grow faster than average. There are a number of reasons for this; increasingly complex tax law and health of the business environment are just a couple of them. And, as more entrepreneurs enter the scene, accountants practicing as soloists or at small firms will be in high demand.
Far and away, the most positions available in public accounting are in audit, with tax coming in second. The need for forensic accountants-specialized accountants who focus on digging into clients' balance sheets to look for red flags-is growing as the industry and its clients continue to look to rebuild their reputations. Demand for in-house corporate accounting and finance employees is expected to grow, as well.
Big Four Jobs = Resume Gold
Let's face it. Big Four accounting firms' retention rates are low for a reason: These jobs make great stepping-stones. Insiders say their exposure to a wide range of companies and industries and the vast responsibility given to them allows them to develop impressive skill sets, whether they want to hang out their own accounting shingle, go into finance in industry, or go into another profession entirely.
The good news about the regulatory changes that have affected accounting firms in recent years are that they offer newer accountants a more level playing field to gain ground on their more seasoned counterparts. Everyone is learning on the job.
Despite the fact that Andersen fell flat on its face earlier this decade, forcing thousands of people to scramble to find new employers, the accounting industry remains a bastion of stability. After all, in good times and bad, corporations and other institutions need accountants. And the career path remains pretty set in stone. Assuming you can do the work and do it well and are willing to put in a few extra hours when necessary, you can fairly accurately predict where you'll be in 5, 10, or even 15 years.
It's the People
Many young accountants in big firms enjoy the fact that they're surrounded by other folks who are a lot like them: young, college-educated, and up for going out and socializing with coworkers. One insider says, "It's great in the Big Four. The people are smart-they all graduated with good GPAs from good schools-and they're fun."
Big = Bureaucracy
The Big Four are mammoth companies, and some insiders say that they feel overwhelmed by their size at times. According to one, "If you're not used to a big corporate atmosphere, it can come as kind of a shock. You go to office-wide meetings where you see people you've never seen before and will probably never see again." And bureaucracy is a natural offshoot of these firms' size and business focus. Accounting involves myriad rules, regulations, reviews, and checklists, and some insiders say that a feeling of administration overload creeps unnecessarily into other aspects of their professional lives. One insider says, "I'm really busy, and it just seems like a lot of the administration stuff isn't really necessary." If you dread red tape, beware!
Especially during tax season, accountants are notorious for working late. There are always client demands to be met and numbers to be checked-and double-checked. During busy season, accountants can expect to work 55-hour weeks, and depending on the client, may be required to work 60- or 70-hour weeks. Be prepared to do what it takes to get the work done-even if it means sacrificing your personal life. One insider says of a particularly grueling assignment, "I didn't see anyone for 3 months. I became a social loser." For some in the industry, the travel can be a drain, too. An insider says, "A lot of people get sick of going from client to client, especially as they grow older."
Not Rocket Science
Several insiders use the phrase "it's just accounting" when describing their line of work. While accounting does offer more flexibility and variety than most people think, you won't be asked to reinvent the wheel or build a better mousetrap. A large portion of the work involves checking to make sure that numbers conform to the Generally Accepted Accounting Principles (GAAP). If you long to create and innovate, accounting is probably not the ideal place for you.
Although with few exceptions all accountants are involved with a company's financial statements, there are several different career tracks to consider. At public accounting firms, employees usually join either the audit or the tax practice-movement between the two is relatively uncommon. Auditors review the books of their clients; tax accountants prepare the taxes. In private accounting, the lines aren't quite as sharp. However, the larger the organization, the more you'll probably specialize in a certain kind of task: cost accounting, tax, or government reporting, for example.
This entry-level job at public accounting firms goes by various names depending on the firm. Associates sometimes go into the audit pool, a large group of accountants who get picked out from time to time to work on audits under the supervision of a more senior accountant. Typically the newer faces get the easier audit assignments-cash accounts, for instance-leaving the Swiss bank accounts and money-laundering operations to older hands. Increasingly, however, even associates are beginning to specialize in particular industry audits such as banking, entertainment, or health care. In private accounting, the staff accountant may have responsibility for managing particular accounts, such as accounts receivable or accounts payable.
In this typical first position for an industry accountant, you'll basically do for a company what a public accountant does for the public record: Make sure that the value is where it should be. It used to be a position where you'd cut your teeth before moving on; now accountants are staying at this level longer. Salary range: $39,000 to $48,000; toward the higher end if you have expertise in a particular field.
Budget and Credit Analysts
The budget side plans and manages corporate finances over a 12-month period or longer. They present findings and recommendations either themselves or through a controller. The government also employs thousands of budget analysts to do the same type of work for public programs and expenditures. Credit specialists focus on whether or not customers or institutional clients can repay a loan or credit line. Banks are the biggest employers for these analysts. Salary range: $36,000 to $57,000.
This is the second level in the public accounting hierarchy. After a year or two at a public accounting firm, your paycheck improves and you might get sent out alone to run an audit. Depending on your firm, you might begin supervising teams of other accounts, so now is the time to take your CPA. In the states that have such prerequisites, you'll have logged enough hours by this point. This is also when a lot of accountants-as many as eight out of ten-leave their firms for some form of private corporate accounting.
This is a watershed position at a public accounting firm. If you get to this point, the firm thinks you're partner material, and you're probably giving the idea serious thought. You don't do as much hands-on auditing anymore, although managers often handle sensitive issues such as an important client's creative bookkeeping. Mainly, you plan and assemble audit teams and allocate their time at various jobs. At the end of an audit, you report back to a partner, who signs off on your work. This is a 5- to 7-year test with significant competition from your peers who are also on the partner track. Salary range: $62,000 to $115,000.
A catchall title for a key financial officer at a corporate firm. The responsibilities and pay will vary considerably depending upon the size of the firm. Controllers generally leave most of the actual number juggling to junior accountants and take a more strategic role in the support side of the business, planning the allocation of various funds throughout the company. Salary range: $110,000 to $237,000.
You made it! It took you probably 10 or more years to work your way through. Now you sign off on audits, work on client development (that is, bringing in the business), and train younger accountants. Oh, and you also collect a salary well into the six-figure range.
You can apply for accounting jobs with a BA or BS and build a highly successful career with nothing more. Nevertheless, the more accounting courses you take in school, the more employable you will be. If you pass the CPA right out of college, you're that much further out in front. Many states now require several months' worth of public accounting experience before allowing accountants to take the exam, but most firms are well aware of this and will allocate time for you to prepare. And though certification seems to be more in demand now than before, most places don't insist on it until you reach the level of manager. You can also get an MA in accounting, but our insiders agree your time would be better spent on information management and technology courses. Consider these things as you look for a job in accounting:
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