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The U.S. Demand for Accounts Rises

Industry Overview

Bean counters. Ebenezer Scrooge. Mention accounting, and until recently these would be the images people typically conjured. Who knew that the accounting industry could be the source of so much intrigue, that the public would open the newspaper each morning to eagerly read about the inner workings of accounting firms?

Of course, we're referring to the scandals that have rocked the accounting world and contributed to the greatest undermining of trust in corporations and the markets in recent memory. Because of the misdeeds of Arthur Andersen accountants working on Enron's books, Andersen, once considered the gold standard of the accounting industry, is now for all practical purposes out of business. Before Andersen's collapse, the top tier of the public accounting industry was known as the Big Five; now, it's the Big Four (Deloitte Touche Tohmatsu, Ernst & Young, KPMG, and PricewaterhouseCoopers).

But Andersen isn't the only firm implicated in accounting scandals. Ernst & Young, KPMG, and PricewaterhouseCoopers (PwC) have all faced scrutiny in recent times. In 2002, KPMG was censured by the SEC for auditing a money-market fund it was invested in; in 2001, PwC paid the SEC $5 million to settle allegations of audit-independence violations of its own, the largest fine ever for such violations; and Ernst & Young is being investigated by the SEC for alleged violations of audit independence for teaming up with an audit client to sell software. Clearly, there's a problem with how the accounting industry has operated of late.

Critics of the industry think they know what that problem is. In the 1990s, they say, accounting firms became overly reliant on revenue generated by their consulting arms. Indeed, in 2000, KPMG, General Electric's auditor, was paid $23.9 million to audit GE's books-a fraction of the $79.7 million GE paid KPMG for IT and other consulting work in that same year. How, critics ask, can auditors maintain their objectivity if their firms are so beholden to clients for consulting revenue? Because IT consulting has recently become less lucrative (since companies cutting costs often cut back on tech consulting purchases), accounting firms have already been moving away from their reliance on consulting revenue; indeed, Ernst & Young, KPMG, and PwC have all sold off their IT consulting arms. But due to the crisis in accounting and the markets, the clamor to split accounting and consulting is louder than ever. A number of states are going so far as to consider legislation barring accounting firms from doing consulting work for audit clients.

As you step into the wonderful world of accounting, you have three obvious career options: 1) work for a Big Four public accounting firm; 2) work for a smaller national or regional public accounting firm; or 3) work in the accounting department of a private or government organization.

If you go the public accounting route (options 1 and 2), you'll typically start by studying for and taking the CPA exam and then working for several years on a variety of tax or audit assignments. At that point, assuming you want to remain in accounting, you'll either leave to join a client or stay and try for the partner track. If you start in the private sector (option 3), you may or may not be able to get your CPA (some states require experience working for a public accounting firm to do this), but you will learn about one business in far greater depth than your public accounting pals will in their short-term auditing assignments.

All three options can eventually lead to lucrative and interesting responsibilities in senior management. And all three will also serve as excellent preparation for a variety of business careers should you want to leave the world of debits and credits behind.

Ethics
In terms of how would-be accountants are being affected by the accounting scandals, the accounting industry is refocusing on ethics. A number of schools have beefed up ethics-related aspects of their accounting programs. The Big Four, the American Accounting Association, the American Institute of Certified Public Accountants (AICPA), and the Institute of Management Accountants have all announced plans to join with universities to develop changes in accounting curricula. And the AICPA is considering changing the CPA exam to better gauge test-takers' ability to think independently as accountants. So if you interview for an accounting job, expect to be asked to shed light on your high ethical standards. (Of course, there are those who are cynical about this new focus on ethics. One insider says that the accounting industry put a similar focus on ethics following the Savings & Loan crisis, only to have ethics become a secondary consideration during the 1990s.)

Cutting-Edge Technology
As recently as 1990, you'd go into an audit with nothing but a legal pad and a couple of sharp pencils, according to one senior accounting recruiter. Now, auditors arrive with far more serious electronic artillery in tow, in some cases boasting expertise in various specialized software applications that automate accounting tasks, from spreadsheets to ledger packages. To do well in this field, you'll still need to have your journal entries down pat, but increasingly you'll need to be able to use computers. Big Four firms are renowned for their technology. These firms have been among the most savvy and aggressive users of intranets, extranets, and e-commerce technologies. One insider says, "I take a lot of it for granted, but we really have an unreal amount of information at our fingertips. The intranet, external Web, the research capabilities-it's almost information overload at times."

Globalization
Like so many other facets of economic life, accounting is increasingly immune to international borders. As corporations become multinational, so do their accounting firms. While each country still has its own canon of standard accounting practices, there is a gathering movement toward international accounting rules. Numerous issues have been raised by globalization, but few if any have been resolved. One thing is sure, however; international accounting bodies, such as the International Federation of Accountants (IFAC), the International Accounting Standards Committee (IASC), and perhaps the Institute of Social and Ethical Accountability (ISEA), will have more influence than in the past.

The obvious breakdown in accounting is the one we made above: Big Four, smaller public-accounting firms, and private and government accounting. In public accounting, most people will go into either audit or tax. In private accounting there's a wider range of jobs, including in-house accounting.

The Big Four
This group used to be the Big Five, but with the demise of Andersen in the wake of the Enron scandal, it's now the Big Four. These are the major public accounting firms: Deloitte Touche Tohmatsu, Ernst & Young, KPMG, and PricewaterhouseCoopers. They are mammoth in size; each has annual revenues in the tens of billions of dollars, and the smallest among them in 2001, E&Y;, had 88,000 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. And a job with a Big Four firm is a great career move for someone entering the accounting profession. Either you'll move up the ladder in your Big Four firm (to partner, hopefully), or, if you decide to go to work for another public accounting firm, an in-house accounting position in industry, or a government accounting position-or decide to hang out your own shingle-your Big Four experience will shine on your resume.

Big Four firms' central focus is audit services: The verification of the accuracy of clients' books. They also include non-audit lines of business, including actuarial work (risk analysis and management), tax consulting, human resources management, and merger and acquisition advice.

In the wake of the Andersen collapse, the other big public accounting firms are picking at the Andersen carcass. By mid-fall 2002, Ernst & Young had picked up more than 200 ex-Andersen clients, while the other Big Four firms had picked up in excess of 100 each. In some cases, the Big Four have acquired entire Andersen offices; in other cases, teams of accountants have gone from Andersen to the other firms, bringing clients with them.

Regional 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 do a lot of accounting and hire lots of people. Representative national firms include Grant Thornton, RSM McGladrey, 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 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 three months might be to audit the cash account at IBM. Ugh! According to one insider, at a regional firm you'll be a bigger fish in a smaller pond.

In-House Accounting
Whether publicly traded or not, every company has internal accountants to set budgets, manage assets, and keep accurate track of payroll, accounts payable and receivable, and other financial matters. For medium-sized 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.

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 International are the answer.

Government
Although it's not the biggest blip on the radar screen for 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.

Independent
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 the relevant expertise, such as a thorough knowledge of tax laws. You also will need to be able to market your services and manage your own business-time-consuming activities that not everyone enjoys.

According to the Bureau of Labor Statistics, accounting and accounting-related jobs will grow on average with employment overall between 2000 and 2010. CPAs will continue to enjoy a wide range of opportunities, especially as more and more states require a minimum 150 hours of coursework to take the exam making the certification harder to obtain. Proficiency in accounting and auditing software, excellent communication skills, and a strong sense of teamwork will give you an advantage over the competition.

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