Shortage of Accounting Students Raises Concern on Audit Quality
By MELODY PETERSEN
NEW YORK -- Kevin Lee wanted to be an accountant.
But that was before Lee, a 22-year-old student at
New York University, worked one summer at a New Jersey
accounting firm. "Accounting is stable," he said, "but
it's not exciting because you're doing the same thing
over and over." And he says he can make much more
working on Wall Street.
Plenty of young people are reaching such conclusions
these days. A result is a worsening shortage of
accountants, even as the demand for qualified
accountants rises amid a boom in small risk-taking
companies whose books cry out for careful scrutiny.
That has raised concerns about a corresponding decline
in the quality of auditors as the profession reaches
deeper to fill its ranks.
From Georgetown University to the University of
Colorado, the number of students graduating with an
accounting degree this spring will be only about half
what it was a few years ago. Accounting professors fret
about classrooms that seem empty. The largest
accounting firms, in the midst of their busy season,
are aggressively recruiting liberal arts majors,
science majors -- any student with an affinity for
numbers.
"We're too short now," said Herb Schoenfeld, who runs
his own accounting firm in Woodbury, N.Y. "It's almost
impossible to find people. Every good accountant is
working."
As accountants debate what to do, the profession's
largest and most powerful group has proposed making the
job more attractive by, in part, reducing the
requirements. The group is lobbying state legislatures
to eliminate the two years of on-the-job experience
that most accountants now need at a public accounting
firm to earn the right to put the letters CPA -- for
certified public accountant -- behind their name. And
the group also wants to rewrite the tough exam that
accountants consider a rite of passage.
But some accountants, regulators and investors
adamantly oppose the plan, saying it makes about as
much sense as lowering the standards for emergency-room
nurses or police officers if shortages developed in
those jobs.
"This is not in the public's best interest," wrote
members of the National Conference of CPA
Practitioners, a group that represents about 1,000
small accounting firms, in a letter to the much-larger
American Institute of Certified Public Accountants, the
group that is pushing to relax the standards.
But almost everyone agrees that something must be done
quickly. Even before the recent steep declines on many
campuses, the number of people sitting for the CPA exam
had declined by 15 percent between 1990 and 1997. And
even as the number of public companies in the United
States has grown by more than 20 percent in the last 10
years, the number of professionals in public accounting
has remained almost unchanged at roughly 131,000.
While some may not see the urgency of finding more
people wanting to do what many like to refer to as
counting beans, public accountants play a key role:
acting as watchdogs for the millions of Americans who
are investors. Ever since the Depression, every public
company has been required by law to hire outside
auditors to review its financial reports and give an
independent, expert opinion on whether the numbers
reported by corporate executives are trustworthy.
Computerization has eased some of the crunch by
allowing accounting firms to send fewer accountants out
on some jobs. Nonetheless, many financial experts say
that, given the freewheeling finances of so many of
America's newest companies in industries like high
technology, there has never been a greater need for
sharp, tough auditors.
John C. Bogle, the founder of the Vanguard Group, the
giant mutual fund company, said it "would be very
troublesome" to relax the standards for public
accountants. "It is full disclosure and accurate
financial statements," he said, "that are the basis for
our capital market system."
Ordinarily, the laws of supply and demand would take
care of any shortage, by raising accountants' salaries
to make the profession more enticing. And certainly,
accountants would like little more than being able to
charge more for their services. But they find corporate
clients reluctant to pay much for their annual audits,
even if that stinginess means running a higher risk of
later being sued by shareholders.
Because the large accounting firms cannot pay as much
as investment banks, which also hire bright students
with accounting degrees, more accounting majors like
Kevin Lee are choosing a Wall Street career instead.
At Lee's school, Paul R. Brown, chairman of New York
University's accounting department, said that while the
accounting rolls are down only slightly, more
accounting majors are showing little interest in
actually becoming licensed as CPAs.
Other students are changing their majors from
accounting to information technology, intending to
become consultants, a job they view as more glamorous
and possibly more lucrative.
At the University of Colorado in Colorado Springs,
Professor Paul B.W. Miller has only 13 students in his
intermediate accounting course this semester, down from
23 last year.
And, at McDonough School of Business at Georgetown
University, Scott Whisenant, an accounting professor,
said 50 percent fewer students are expected to graduate
with degrees in accounting this spring than in 1996.
"We're seeing the really bright students deciding not
to become auditors," Whisenant said. "What does this
mean when it comes to the quality of future auditors?"
The 1997 results of the CPA test, which all accountants
must pass as lawyers must pass the bar exam, provide
some evidence that Whisenant's observation may be true.
In November 1997, according to the National Association
of State Boards of Accountancy, which represents the
licensing bodies in each state, only 12.5 percent of
the candidates taking the test for the first time
passed all four parts -- the lowest percentage since
1985, the year the association began keeping track.
Regulators at the Securities and Exchange Commission
say they already see signs that auditors' work may be
slipping. Indeed, the accounting firms that audited
companies like Cendant Corp., Waste Management and
Livent Inc. have recently been sued after some numbers
in the financial statements proved to be wishful
thinking.
The commission has formed an expert panel to study why
auditors failed to detect some of the recent
high-profile financial frauds. Regulators say they
worry that some auditors may lack the experience needed
to spot problems at companies with complex operations.
The regulators have told the big accounting firms that
"it is essential" for experienced partners to spend
more time on complicated audits rather than leaving
most of the work to auditors fresh out of school.
Lynn E. Turner, the commission's chief accountant, said
this week that the proposal to reduce the on-the-job
experience requirement for auditors might only make
matters worse. "The classroom is a great primer,"
Turner said, "but it sure doesn't get you there."
Leaders at the American Institute of Certified Public
Accountants, the national organization that administers
the test aspiring accountants must take to be
certified, say they do not believe their efforts to
relax the experience requirements will hurt auditors'
competence. Instead, they say, the changes are needed
to attract talented people back to the profession.
Because fewer accountants are choosing to work as
auditors at public accounting accounting firms,
institute officials say that accountants should no
longer be required to work at a public accounting firm
for two years as an outside auditor to be licensed as a
CPA. They are asking state legislatures to change laws
to require only one year of experience, which could be
obtained by working for any licensed accountant, even
one who works only as a personal financial planner.
Barry C. Melancon, the institute's president, said the
new experience requirements would include measures
aimed at maintaining high quality audits. For example,
accountants supervising an audit, he said, would be
required to have much more experience than other
accountants.
"The quality of auditors is going to improve in this
environment," Melancon said.
The institute has flexed its political muscles before
to get the majority of states to pass its proposals.
For example, in recent years, the institute has asked
the states to pass a proposal that would require CPAs
to have 150 hours of college credit, up from 120 hours.
Almost every state has now passed that measure.
In the last year, the institute has worked to gain new
members and make the profession more attractive by
pushing accountants into new fields like financial
planning. After the institute's lobbying efforts, more
state legislatures have recently passed laws that allow
CPAs to earn commissions by selling such things as
stocks and computer software.
The institute's leaders have even suggested stripping
the words "public accountant" from the once-coveted CPA
title so that it stands instead for "certified
professional adviser," signaling that the career is
about more than just numbers.
Recently, the institute has raised concerns among some
of its members by proposing changes to the exhausting
two-day 15-and-a-half-hour exam that is used to weed
out those that lack the knowledge, skills or stamina to
be an accountant.
The test would be shortened so that accountants would
have to pass only two sections rather than the four
sections now required.
The pencil-and-paper exam would be changed so that
candidates would be tested on a computer. The exam
would be interactive, so that if candidates score well
early in the test, they would have fewer questions to
answer.
Arleen R. Thomas, the institute's vice president for
professional standards, said the exam would still cover
the same material. "We don't want to change the
difficulty of the CPA test," she said.
In Kansas, Paul Allen, the chairman of the state's
board of accountancy, which licenses CPAs in the state,
said board members were concerned about the institute's
proposal to reduce the work experience needed to be a
CPA.
"It's only by real-life experience in public
accounting," Allen said, "that you can gain the skills
and the objectivity that we believe are key qualities
of our profession."
Labor experts say other professions have tinkered with
their qualifying standards when there were either too
few or too many applicants. Peter Capelli, a management
professor at the Wharton School of Business at the
University of Pennsylvania, said the number of flight
hours needed by airline pilots had been raised and
lowered over the years depending on the number of
pilots needed.
And, in the early 1900s, Capelli said, the medical
profession raised its requirements when a glut of
doctors appeared.
Some accountants say they believe, if anything, that
raising the bar is the answer, even for the shortage in
their profession.
"Toughening the standards increases the prestige and
attractiveness of a profession," said Howard Schilit,
the founder of the Center for Financial Research and
Analysis in Rockville, Md., which provides independent
financial research to institutional investors.
Copyright 1999 The New York Times Company
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