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Where Have All the CPAs Gone?

As the pool of accounting students shrinks, employers scramble to beg, borrow, or steal entry-level finance staffers.
Kris Frieswick, Others
December 1, 2000

Like a river after a drought hits at its source, the flow of newly minted certified public accountants is thinning. The shortage has reduced Corporate America's options for filling entry-level finance posts, and has led the Big Five and other bastions of the accounting profession to find ways to attract and retain future generations of students.

Experts offer a number of explanations for the dearth of CPAs. The Securities and Exchange Commission's new conflict-of-interest rules, which block accounting-firm managers from owning stock in client companies, certainly do their part to make the prospect of Big Five work less appealing to business students. So does the proposed SEC ban on providing consulting services to audit clients. Until recently, the bull market also created a surplus of corporate finance opportunities, especially among start-ups, making a career path through the Big Five no longer seem mandatory for ambitious business grads. And, of course, accounting remains hindered by its old image problem as something less than a glamour profession.

Whatever the reasons for the shortage, though, statistics point to a serious problem. Undergraduate and graduate accounting programs enrolled 149,800 students in the 1998­99 school year, down 22 percent--from 192,300--just three years earlier, according to the American Institute of Certified Public Accountants (AICPA). And in 1998, 117,000 students sat for the CPA exam nationally, 18 percent fewer than in 1990. The number taking the exam spiked to 126,800 last year, but that reflected another problem: Applicants flooded the system to get in before the expansion of state-enacted regulations that require CPA candidates to complete 150 college-credit hours--a full year more than a standard four-year diploma requires. The regulations have already been enacted in 33 states, and state legislatures in 15 more have voted to enact them in the next few years.

Some accounting experts cite the increased course requirement as a big factor in the drop in CPA applications. "Students are thinking, 'Why would I go to school for another year and incur the costs?'" says Dana Ellis, global director of recruiting for Arthur Andersen, which hires more than 6,000 new employees in the United States a year, 4,000 of them from campuses. "The 150-hour requirement is really a cause for concern on our part," he says, especially when combined with the students' perception that "CPAs aren't doing interesting, dynamic work."

Meanwhile, the AICPA, a chief supporter of the increased CPA course requirements, suggests that the issues go even deeper. The organization cites a general lack of awareness of the profession among high school students who are selecting colleges. A recent study done for the AICPA by The Taylor Research & Consulting Group Inc., in Portsmouth, New Hampshire, showed that of 1,000 students polled, only 10 said they wanted to go into accounting. "We were concerned about whether the 150-hour rule was an impediment to students entering the profession. Our research shows that it wasn't," says Bob Elliott, a former AICPA chairman and a partner at KPMG. "Students are saying that they'll jump a hurdle of any height if it's worth it to them," he says, but most don't think it's worth it. Too few of them understand that accountant training exposes students to how businesses operate financially--knowledge still considered crucial for top corporate jobs.

Among the students who do appreciate what accounting can contribute, the new and proposed SEC restrictions certainly give pause. The value of a CPA career can be restored, Elliott believes, "if we refresh the accounting standards" to make the profession attractive again. "The SEC hasn't been a real change agent in this regard," he says. "And that, to me, is the real issue."

What Students Say
Students themselves add another note. Some emphasize that accounting is simply too hard, especially given the decreased likelihood that the CPA path will lead to the key strategic corporate posts they seek.

"I know several students who didn't want to take the CPA exams, and didn't want to put in the hours," says Michael Mewborn, a recent accounting graduate from North Carolina A&T State University and a new auditor at Arthur Andersen in Atlanta. "They simply realized that it's difficult to master accounting."

Francine Salazar, who recently graduated with a B.S. in accounting from California State University, Northridge, agrees: "Many of my fellow students had double majors in finance and accounting, or MIS and accounting, and it was because of the difficulty...that they dropped accounting. They didn't like the hours they had to put into studying for it." Salazar started as an accountant in Arthur Andersen's Woodland Hills, California, office in September.

From the accounting firms' standpoint, of course, their recruiters are now being forced to get extremely creative in hiring and retaining accounting students--going almost to the same extremes as the talent-hungry information technology industry. Accounting firms not only face a smaller pool of graduates, but they also find increasing competition for those graduates from start-up ventures and established operating companies that are looking to plug holes in their own finance teams.


At KPMG, which hires 2,500 graduates a year from more than 350 colleges, this means recruiting starts earlier than ever before. "We're going to campuses early in the freshman and sophomore years. We didn't used to have to do that sort of thing," says Jeri Calle, KPMG's national partner in charge of university relations. KPMG visits 150 campuses a year and works with the career services department at another 150. Once it identifies the students it wants, the company offers a $1,500 incentive bonus for new hires who pass the CPA exam in their first year of employment, and a $750 bonus for those who pass in the second. And to help clear up misconceptions about the profession, KPMG starts its promotional work before the university years. "We talk to high school students, because teachers are teaching that accounting is about number crunching, and that's not what it's about anymore," adds Calle.

Palm Pilots, Laptops, and Tuition
Arthur Andersen also is recruiting earlier in the college years. And it has changed its methodology to allow it to examine candidates who might not have been considered before.

"This shortage has taken recruiting to a whole new level," says Ellis. "In addition to interviewing accounting majors, we're expanding out to other business degrees and going to schools where we previously did not interview." Finance and economics majors are now considered prime candidates. Once hired, the new employees at Andersen are put through an intensive summer accounting program to prepare them for the CPA exam. In states with the 150-hour course requirement, many Andersen offices have developed their own programs with local universities, allowing new hires with traditional four-year degrees to get the necessary extra course hours to meet the requirement while on the job. Andersen also commonly uses signing bonuses as a recruiting tool, along with providing Palm Pilots, laptop computers, and tuition reimbursement in some markets, says Ellis.

New accounting graduates can expect to receive offers averaging $36,710, 31 percent higher than the $27,493 average salary in 1995, according to a survey by the National Association of Colleges and Employers. Still, turnover at the major accounting firms, which in the past was below 25 percent annually, "has been taken up another notch," suggests Ellis. Indications are that turnover is now in the high 20s.

Farther down the supply stream, that same pressure ripples through recruiting programs in corporate finance. Finance departments "go through it doubly--to get these students out of school, where there are fewer of them in accounting, and to get them from us" at the Big Five, where CPAs often start out, says Ellis. "We're going to fight to retain every person we can," he adds, so companies in search of young CPAs have "to pay more and offer more incentives to hire them away."

Jim Larsen, the human-resources manager in charge of finance recruiting for the big Minneapolis-based agricultural concern Cargill Inc., confirms that "the competition is heating up dramatically. The Big Five efforts at recruiting have redoubled, and that has put us at even more of a disadvantage," he says. When Cargill does hire, "the entry-level salaries have been on a steady increase," he adds. "We're seeing a lot more signing bonuses; three years ago, signing bonuses were just an IT thing." Among the other changes the shortage has caused is a rush to offer internships a year earlier--to sophomores--in an attempt to start long-term relationships that can lead students to postgraduate employment.

Accountants from other countries who have experience using different accounting rules and methods and who come to the United States to work are benefiting from the tight market as never before, adds Ken Martin, manager of the Boston office of recruiting firm Winter, Wyman Co. "Today, the [accounting] firms are scooping them up and training them. Four years ago, it wouldn't have been that easy," he says. Indeed, Martin sees candidates who lack business degrees of any kind being successful in the market. "Now, when I put out a job for a $50,000 accountant, I get back a résumé from someone with five years' experience and an art history degree," he says. "I think [he or she] won't get the job, but the next thing I know, [he or she] gets an offer."

Gone, too, is the "Easter Parade" that used to come every May, at the end of the tax season, when the public accounting firms announced widespread layoffs of second- and third-year people. Today, according to Ellis, firms are going out of their way to hold on to those same accountants--especially third-year staffers, a group that today has a turnover rate near 50 percent because of increased demand for its talents.

The Birth of the "Cognitor"
Meanwhile, back where the CPA stream emanates, there's a drive to change the very definition of an accounting professional. It's a change necessitated by the recognition among educators and executives alike that corporate finance prizes strategic skills more than ever in its accountants. Accounting "is no longer necessarily associated with the endgame of becoming a CFO, CEO, or COO," says John Wilson, San Francisco­based managing director and co-head of the Financial Officers Practice of recruiting giant Korn/Ferry International. "The discussions I've had with CEOs and directors show there's a change of thinking. They're saying, 'I'm not interested in a CFO with heavy accounting, because I already have a controller.'"


For its part, the AICPA has unveiled a proposal to create a professional classification called "cognitor," a sort of uberaccountant. "When you think about auditors and CFOs, they alone among business professionals see the entire enterprise," says KPMG's Elliott. "This [cognitor] credential would certify the breadth of their understanding in areas like operations, logistics, sales, MIS, and infrastructure. A simple CPA credential doesn't convey this fact to the public."

A cognitor, he says, would be a consultant with a broad range of business skills beyond the accounting base, from business law to operations. As envisioned, CPAs could self-test for certification as a cognitor, although the requirements have yet to be set. Once licensed, cognitors could either act as consultants or work on staff at a company as a sort of multipurpose expert with "an understanding of how information and knowledge management systems can be designed to help organizations," says Elliott.

Of course, this future CPA vision may contrast somewhat with the view held by the SEC, which restricts CPAs to providing auditing services for clients rather than performing the range of services for which the cognitor would be responsible. But there is at least a little time to work out such differences: The new concept must still be approved by the AICPA's full membership, although Elliott hopes the group will issue cognitor credentials as early as the summer of 2002.

Kris Frieswick is a CFO staff writer.




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