America’s most famously boring profession is in trouble, and that’s bad news for Chicago.
The city is a hotbed of professional services, including lawyers, consultants and the now-endangered species of certified public accountants. CPAs are essential for financial reporting, advanced tax preparation and other dull-but-important tasks that keep the economy going.
These days, the accounting profession is in crisis as CPAs retire and the pipeline to replace them dries up. Addressing the shortage means changing the time-consuming path to becoming a CPA, without lowering the standards that make the work of these unsung financial heroes so critical. The health of the capital markets depends on breathing new life into the profession.
CPAs are experts in generally accepted accounting principles, or GAAP, the complicated rules and procedures that govern the financial world. Among a CPA’s most important functions is auditing public companies to ensure their financial statements conform with GAAP. If CPAs sign off, they certify to the public that the numbers can be trusted, so in that respect these behind-the-scenes gnomes are guardians of the public trust.
Chicagoans with long memories know that being a CPA can be anything but boring. Consider Arthur Andersen, once the nation’s most admired public accounting firm and a pillar of the Chicago business community.
In the 1990s, Andersen’s auditors were determined to make more money, not least to keep up with the fast-growing consulting side of the firm’s business.
Andersen held in-house rallies urging their auditors to sell, sell, sell their high-profit advisory services, at one point adopting the rock anthem “Eye of the Tiger” as a theme song. Accountants who failed to adapt to the firm’s new direction got shoved aside. In their place, Andersen promoted a slicker breed who could turn modestly profitable auditing assignments into consulting gold mines.
To further its business interests, the firm went easy on Enron, a lucrative consulting client that was cooking its books — and the rest, alas, is history. Enron imploded, and Andersen got blamed for failing to live up to its role as a public watchdog. The accounting firm shut down, though fortunately for Chicago the consulting side had split off to become Accenture, which maintains a big presence in the city today.
Yet another challenge is that these days one of the big trends in the accounting world is the interest of private equity firms in grabbing a piece of the business. For generations, accounting firms mainly have been partnerships, governed in ways similar to law firms and other partner-dominated fields. Private equity is becoming a primary means for retiring senior partners to cash out their stakes. How the influx of these outside owners changes the profession remains to be seen. But CPAs will need to push back against any reputation-damaging schemes from their new overseers to boost revenues, a la Andersen.
Consulting, investment banking and other high-paying finance and tech jobs are still competing for the same up-and-coming number crunchers who used to pursue accountancy. Many of these math-savvy young adults see no reason to invest so much time and money into becoming a CPA.
Bear in mind that every accountant is not a CPA. To get that designation, a newly minted college graduate usually needs additional schooling, often a master’s degree, and must pass a grueling, four-part test that typically requires cram courses. CPAs also must keep up their skills with continuing professional education throughout their careers.
Worth it? Only licensed CPAs can certify the financial statements of public companies, for instance, and they also qualify to represent taxpayers in audit hearings before the Internal Revenue Service. For generations, CPAs took great pride in being CPAs: Andersen adopted the image of closed, heavy doors to suggest how CPAs got access to the inner sanctums of leading companies, ensuring the books were accurate and setting straight any captains of industry tempted to cut corners.
That’s still the role of the CPA, but it doesn’t take an accountant to see the numbers no longer add up. Approximately three-fourths of CPAs today are expected to retire within the next 15 years. At the same time, the number of new candidates taking the CPA exam has plunged. High-profile errors in regulatory filings are starting to pop up, a warning that America’s certified accountants could be losing their edge.
The industry has struggled for years to address the shortage. Starting salaries have increased, though earning potential over a lifetime career still falls short of competing occupations. Dropping the school requirement, shortening the CPA exam and giving credit for relevant work experience are all under consideration.
Some accounting firms are doing their best to make the CPA seem cooler, though hopefully not going as far as Andersen did to turn it into a flashy sales role. Yet easing the grueling workload in the interest of work-life balance has proven difficult; CPAs face an exhausting cycle of monthly, quarterly and annual deadlines.
CPAs also confront a technological challenge. Sophisticated software and artificial intelligence increasingly can take over many of the repetitive tasks typically assigned to junior CPAs. That’s corrosive, because it will leave fewer experienced CPAs equipped to perform the strategic thinking and high-level tasks that machines can’t do.
The profession is made up of well-organized, thoughtful people who should have solved this problem by now. But CPAs tend to be hidebound and suspicious of any steps that might dilute their exacting standards. Instead of continuing to wring their hands about the shortage year after year in research reports and conferences, the time has come for aggressive action. CPAs need to save the CPA, and soon.
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