January 18, 2021

The Truth About Public Accounting, Part I: How the Sausage Is Made and Those ‘Best Places to Work’ Surveys

Your biggest busy season assignment is a public company audit. The audit looks well-staffed six months before fieldwork starts. But by the time fieldwork begins, the staffing has completely unraveled. The in-charge has left the firm. You get a battlefield promotion to be the in-charge. High staff turnover in the office and the demands of unexpected new work strain office resources to the point that the two experienced professionals on your team are reassigned to other audits. To make up for the loss in manpower, you are promised a mid-year new hire and intern No. 3 (not yet identified by name).

Meanwhile, your client announces a major product recall, the disposal of a business segment, and a restructuring. Sales and the stock price plummet, raising serious questions about the possible impairment of intangibles.

During a planning meeting, the partner on your audit informs you that he is long overdue to be inspected by the PCAOB and he believes the audit you are leading will be selected by the PCAOB for inspection. The partner provides a stern warning that the audit must be fully compliant with PCAOB standards.

Fast forward to busy season. You have been working nights and weekends trying your best to make everything work. You barely have time to get home, sleep, and get back to work the next morning. If you are single, your social life is suffering. If you are married, you are dealing with a spouse who does not understand why you need to work so much. If you have children, there is an extra level of pressure because you are missing in action. In other words, your work-life balance is out of balance.

The audit hours and audit issues are piling up. You are worried that you are running over-budget. The client is increasingly frustrated with your inexperienced audit team. You are worried about getting several audit and accounting issues resolved, meeting the earnings sign-off deadline, and being PCAOB compliant. Making matters worse, your access to the partner and manager has been limited and they are well-behind where they should be in their review of the workpapers.

Many of you have seen this movie before. Is this the formula for audit quality or a train wreck?

You hear a ping on your smartphone. It’s an email from your Big 4 firm announcing that it is once again in Fortune Magazine’s 100 Best Companies to Work For in 2020. Wait a minute, how can that be?

That question has always perplexed me until I finally decided to investigate further for my new book, The Truth About Public Accounting. I learned that the Fortune survey is compiled by its research partner, a company called Great Places to Work. Survey data is compiled from five broad categories:

  1. Perks
  2. Diversity
  3. Paid time off
  4. Compensation
  5. Applicants per opening

Mysteriously, work-life balance does not factor into the Fortune “Best Companies to Work For” survey.

Vault.com conducts an annual survey of accounting firms using criteria identified as important to job seekers.  Those criteria, followed by their weight in the survey results, are as follows:

  • Prestige (35%)
  • Firm culture (20%)
  • Job satisfaction (10%)
  • Compensation (10%)
  • Work-life balance (10%)
  • Business outlook (5%)
  • Formal training (5%)
  • Informal training (5%)

The Big 4 are generally in the top four of this survey due to the heavy weighting given to prestige. However, commentary from the survey reveals that, “The Big Four … regularly score much lower (usually 20th place or below) along the dimensions that are most indicative of the desirability as places to work, most notably firm culture, work-life balance, and job satisfaction. … It suggests that the Big Four may be more desirable as resume-building stopovers in a career path pointed elsewhere than as long-term destinations.

This last observation should be troubling to investors and audit committees counting on reliable audits. It should also be troubling to the leaders of the largest audit firms and to the PCAOB. The largest audit firms are trying to differentiate themselves by hyping “data analytics” — hoping everyone will ignore the reality that corporate America is audited largely by young people just out of college who have not yet earned their CPA license.

Improving audit quality begins with making public accounting a better place to work so that the profession becomes known for delivering experience, continuity, and quality. Heavy workloads, high turnover, and low staff continuity are inherently inefficient and are a complete mismatch for the complexity auditors need to master to perform high-quality audits. Compounding matters, the high ratio of audit staff to partners creates a heightened risk that inexperienced audit staff will be inadequately supervised.

To draw attention to these problems and to advance potential solutions, I recently published The Truth About Public Accounting. My book identifies everything I wish I had understood when I first entered the profession. There is no shortage of conflicting pressures that can make your head spin and undermine good judgment. Whether you are an auditor, prospective auditor, investor, audit committee member, or regulator, it is important that you understand the Truth About Public Accounting. You can learn more about my book on Amazon by clicking here.

About the author:

Robert Conway is a retired Big 4 audit partner and former leader of a PCAOB regional office. He currently provides expert witness services in controversies pertaining to GAAP and PCAOB compliance. Mr. Conway’s website is at www.TheTruthAboutPublicAccounting.com and his email address is [email protected].

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