By Chip Knighton
Picture a pyramid. Wide at the bottom, narrow at the top, perfect for burying royalty. (That last part may not be entirely relevant to this discussion.) For years, the shape has been an apt representation of the structure of a public accounting firm — a large class of entry-level accountants at the bottom, some of whom rise to the mid-level manager role, even fewer of whom make partner. The career progression worked, and firms rarely had much difficulty filling out the pyramid.
Problem is, the pyramid isn’t the shape of things to come. The firm of the future is more of a diamond or hexagon, with the bottom corners of the pyramid taken out by outsourcing and automation. Those two factors are creating a tight squeeze at the bottom of the pyramid, with only a few entry-level spots necessary at most firms. But the wide mid-career class remains.
The issue isn’t new. American Institute of CPAs (AICPA) President & CEO Barry Melancon, CPA, CGMA, has been discussing it for a while now, and he’s not the only one. As he put it at the AICPA & CPA/SEA Interchange 2018 conference, the key to filling firms’ staffing needs is the development of a “highly skilled, digitally proficient middle layer.” But without entry-level positions where young CPAs can learn the ropes, how do we create that layer?
That’s what the VSCPA, AICPA and numerous other professional groups are trying to figure out. One part of a potential solution could lie in the extra 30 hours (on top of a bachelor’s degree) required to sit for the CPA Exam. The main issue with relying on those 30 hours — essentially an extra academic year’s worth of classes — is that there’s no requirement for what those 30 hours need to be. Data analytics, technology and master’s level accounting courses offer a great, useful addition to an accounting student’s skill set; tennis and basket-weaving, not so much. But many experts don’t even think those extra hours will sufficiently prepare students for the working world.
“They can pass the CPA Exam, which is fine for now, but are they really at that stage where they can use it and apply it?” asked Gabriele Lingenfelter, CPA, an accounting professor at Christopher Newport University in Newport News and a member of the VSCPA Board of Directors’ Pathway to CPA Task Force. “Do they have the critical thinking skills? Do they know what a ratio means and why it’s important for the audit? I don’t think you can get that with just a bachelor’s degree.”
Different skill sets needed
Industry data bears out the concerns about hiring entry-level accountants. The 2017 AICPA Trends in the Supply of Accounting Graduates and the Demand for Public Accounting Recruits report (Trends) found that CPA firms hired 34,889 new accounting graduates in 2016, a 19 percent decrease from the 2015 Trends report, which reflected 2014 numbers.
To put that in perspective, the 2014 numbers were the highest since the AICPA began the Trends report in 1971, and 2016 was still the fourth-best year on record for accounting graduates to find a job. The sky is assuredly not falling.
As Melancon said, “It doesn’t mean there aren’t ample jobs. There are ample jobs. But the mix is changing.” Still, it’s hard to look at the numbers and not notice a slowdown after years of record growth, and technological advances are only going to exacerbate the trend.
“What I’m hearing from the firms is that they're expecting to see a change,” said Yvonne Hinson, CPA, CGMA, Ph.D., the AICPA’s academic-in-residence and senior director of academic & student engagement. “They’re expecting to see not only the mix change, but they’re really looking at the different skill sets that they need. [Firms are] talking about hiring more from the STEM area. They’re still hiring accounting, but they’re looking at some different skill sets.”
Technology is a major part of those changing skill sets. Data science and data analytics, as discussed in the May/June 2018 issue of Disclosures, is a major area of focus for CPA firms, which are putting their money behind those skills — witness KPMG’s Master of Accounting With Data and Analytics program, offered at Virginia Tech and eight other universities, and Ernst & Young’s Day One Ready program, which is expanding after being piloted at the University of Dayton in Ohio.
That program offers courses in Lean Six Sigma, robotics process automation, Excel power modeling, data analytics and visualization, autonomous systems, coding and mindfulness. That last item is telling, as firms are seeking graduates who can take data given to them by automated programs and interpret it in a meaningful way.
“Thinking about this as if I were advising my son, I would advise him to broaden his technical skill set, but also ensure that he’s getting the communications, the critical thinking that’s so incredibly important,” Hinson said. “If you have the data analytics skills, that’s great, but it’s putting it into context that’s important. From the university side, it’s not about having a data analytics course, but it’s about integrating data analytics into your courses so that students are learning it in the context of accounting.”
Lingenfelter doesn’t have to venture into the hypothetical to offer that kind of advice. Her daughter, Sabrina, is a junior pursuing an accounting degree at the University of Virginia. Advanced Placement credits from high school will have her close to the 150-hour mark by the time she graduates, but her mother still wants her to get some additional education in addition to her degree requirements.
“I’m pushing her a little bit toward the technology side, hoping that she’ll have more experience in those areas,” Lingenfelter said. “They’re not tested on the CPA Exam right now or required by CPA firms, but that’s where the profession is going — blockchain, artificial intelligence, data analytics. I’m hoping that will help her get an edge up on the other students.”
A new path?
Accounting students who fill their extra 30 hours with classes in technology and data science will remain in demand. But larger firms are pushing even beyond that in their hiring, with STEM majors, data scientists and data analysts being brought on board to work on audits. Hiring of non-accounting graduates at CPA firms has more than doubled since the Trends report began tracking that data in 2007, accounting for 20 percent of new graduate hires in 2016. That means a full one-fifth of new hires at accounting firms are students who don’t have a current path to the CPA credential.
That may not always be the case. The AICPA and the National Association of State Boards of Accountancy (NASBA) have created a joint task force to explore the possibility of an alternate pathway to the CPA credential for non-accounting graduates working at CPA firms.
“The firms are working with non-accounting graduates to get them the base accounting knowledge they need to handle the data analytics in the context of accounting,” Hinson said, “but what’s the long-term play for these people? If they’re working on audits and protecting the public interest, we want them to have a pathway to CPA and the ethical requirements that come along with it.”
The reasoning for the alternative path is to bring these professionals — many of whom, as Hinson noted, are already working on audits — under the regulatory umbrella of the AICPA Code of Professional Conduct, which is incorporated by reference into the accounting statutes in Virginia and numerous other states. With those professionals working with sensitive data and charged with protecting the public interest, leaders in the profession are beginning to see the benefit of holding them to the rigorous ethical requirements of the CPA credential.
“Two things are certain: The pathway will be equally rigorous to what is required for current CPA pathway and the credential will be equivalent for those who would come through either pathway,” NASBA Vice President of State Board Relations Dan Dustin, CPA, said at the NASBA Executive Directors Conference in March. “A CPA will continue to be equal to a CPA.”
“We’ve been doing this for a long time,” Hinson said. “We’ve had valuation experts engaging on audits for a long time. Some of those are CPAs and some of them are not. But our goal is to make sure that the public is protected and the profession is protected. The more people that we have performing these critical functions who are CPAs, the better.”
Those non-accounting graduate hires tend to skew toward the larger firms, which are a bit ahead of the trend. The Big Four are expected to take on that diamond shape within two or three years, with larger regional firms following in four or five years and smaller firms following suit over the course of the next decade.
That trend could have knock-on effects outside public accounting as well, as entry-level jobs have led many students into a successful career in corporate finance. Without the opportunity to cut their teeth at the bottom of the pyramid, those students will need to stand out in other ways.
“I’ve never heard one of my students say they were on the bottom and didn’t make it and now they’re unemployed. I have a lot of former students who didn’t like the hours or didn’t get promoted as fast and went into industry,” Lingenfelter said. “They change, they switch into other areas, some not in accounting anymore, but if you don’t have the bottom part for those students who are just finishing that education, is industry going to approve of that?”
Promoting the CPA to a new audience
Concerns about diluting the CPA credential aside, it’s easy to spot an opportunity for the profession through this alternative path. Extending the opportunities that come with the CPA to technology-oriented students means more takers for the CPA Exam, more members for the VSCPA, the AICPA and other organizations that serve CPAs, and — perhaps most importantly — an infusion of talent with a different perspective into the profession.
“There are a lot of good students who are not even considering becoming CPAs because they don’t know much about it,” Lingenfelter said. “If we can promote our profession as something that’s really interesting, working with IT, doing fraud and working with cybersecurity, we can get the students as high school freshmen and sophomores who never thought about becoming accountants. We may attract some talent that we currently aren’t getting.”
That last sentence has been a focus for the profession and the VSCPA for years, whether it’s related to educational background, demographics or a simple lack of awareness. The Society has focused on getting in front of students through campus visits and work with educators. The “CPAs in the Classroom” initiative was discussed in the March/April issue of Disclosures, highlighting member Phil Umansky, CPA, and his visit to Hermitage High School in January.
The recently retired Umansky has been active in promoting the profession, hitting Deep Run High School in Glen Allen and Douglas Freeman High School in Henrico in the Richmond area, as well as Wakefield High School in Arlington. And several VSCPA members and staff promoted the profession at the Mission Tomorrow career fair last November, which brought more than 12,000 Richmond-area eighth-graders to Richmond International Raceway to learn about career opportunities. (The VSCPA’s life-sized Monopoly-like board, which showcased the different career paths open to CPAs, was particularly popular.)
The CPAs in the Classroom initiative is an element of the VSCPA’s Ready, Set, CPA! initiative, which highlights the diverse career paths available to CPAs and shows students how to get there. Another part of that program is the My Path to CPA video series, which features VSCPA student members interviewing established professionals about what they do and how they found and advanced in the profession.
The next phase of Ready, Set, CPA! involves the CPA Ready workshops, which provide similar training to the VSCPA’s Leaders’ Institute, an intensive, on-campus program that was discontinued after a decade of helping college students prepare to take the CPA Exam and succeed in the profession. The CPA Ready workshops are scheduled for early 2019, with events currently scheduled at Virginia Commonwealth University in Richmond, Old Dominion University in Norfolk, George Mason University in Fairfax and Virginia Tech in Blacksburg.
The common thread of the VSCPA’s on-campus programs and the potential alternative path to the CPA credential is twofold. These initiatives help protect the health of the CPA pipeline by expanding the pool of potential CPAs, and they keep the profession responsive to changing needs for essential services that clients demand.
“We can talk about it as an alternative pathway, but really we're exploring how we can continue to meet the needs of a changing profession while continuing to protect the public interest," Hinson said.