VideoFinance executives who revel in arcane forms of financial modeling may soon get a rude lesson in a far more basic precept of economics: the law of supply and demand.
While colleges report a small rise in the number of accounting majors and degrees awarded, the number of recent graduates in such programs is near a 30-year low. Demand for accountants, on the other hand, has reached a high point, due to the requirements of Sarbox. The American Institute of Certified Public Accountants projects double-digit growth in hiring by most of its member firms for the next three years. Filling those jobs won't be easy: the increase in accounting degrees awarded between 200102 and 200203 (the most recent data available) was just 11 percent, and the total number of graduates—around 37,000—was well below the average of more than 50,000 students who regularly graduated from 1989 to 1996.
Add to that some anecdotal evidence that entry-level and early-career accountants are leaving the profession for other opportunities, and a bona fide labor shortage may be at hand. "This is one of the tightest markets I've seen in many years," says Brent C. Inman, partner for recruiting at PricewaterhouseCoopers in New York. "We're meeting our goals, but it requires much more work. We have to engage students earlier and more often." If the economy picks up, he adds, it will get even harder.
Some recruiters say that even without an economic uptick, the situation is grim. "The nature of the work is driving out the person with two-to-five years of experience," says Kent Burns, a partner at the Indianapolis office of Management Recruiters International. "For public accountants, the busy season never ends—people are kept running all year long."
While the private sector is more appealing for such people, Burns says that candidates are leery of internal audit or positions devoted to Sarbox requirements. "I advise companies to position such jobs as entrées into the organization," he says, "or as rotational positions."
Not everyone is pessimistic. Randolph Beatty, dean of the Leventhal School of Accounting at the University of Southern California, says the quality of students in the discipline has gone up, and demand for them is high. "Section 404 of Sarbox has created an industry," he says.
Colleges are not obliged to match demand, of course, and in fact it is in their best interest to fall short so that students can enter the workforce with plenty of prospects. But with Burns and others predicting intensifying competition among employers of all types for entry-level and early-career accountants, companies may soon pay more for their own hires and for the services of outside help.—Scott Leibs
Stuffed Suits
Companies are dishing out more dough to settle securities suits these days. While the number of suits settled in 2004 was up 23 percent from 2003, the total cost to settle those cases more than doubled, to $5.5 billion.
Even after factoring out the hefty $2.9 billion to be paid in conjunction with a suit filed against WorldCom in 2002, the average settlement still climbed from $21 million to a record $25 million in 2004, based on a study by Cornerstone Research. And six other cases, including suits filed against Global Crossing, Honeywell, and Raytheon, settled for more than $100 million.
The larger settlements are mostly due to larger losses incurred by the plaintiffs and pressure to settle quickly to focus on regulatory issues. "The claimed damages are massive," says Steve Scholes, of law firm McDermott Will & Emery LLP.
Laura Simmons, a principal at Cornerstone, says she expects the trend to continue. Already this year, former WorldCom shareholders settled claims with Citigroup for $2.6 billion and with J.P. Morgan for $2 billion, bringing the total value recouped from underwriters to more than $6 billion. That figure eclipses the prior record settlement of $3.1 billion by Cendant, approved in 2000.—Joseph McCafferty
Terrorism Coverage Lapse?
With the Terrorism Risk Insurance Act (TRIA) set to expire at the end of the year, insurers are getting antsy, and CFOs are getting worried that their capital-risk safety net could fail.
Enacted in 2002, TRIA established a federal program to provide partial compensation for insured losses in the event of a massive terrorist attack, but only recently has Congress begun to debate extending the act.
"Without the government backstop, there's not enough capital in the industry to cover massive terror-attack claims," says Robert Hartwig, chief economist at the Insurance Information Institute. Insurance companies say they are in a difficult position because they are beginning to negotiate terrorism-coverage contracts for coming years, but aren't sure they can count on the backing of the federal government.
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