We have a CPA pipeline problem.
A few years ago, the AICPA forecasted that three out of four current certified public accountants would retire in 15 years. Yet, we aren’t minting nearly enough new CPAs to replace them at the current rate.
According to the most recent AICPA Trends Report published in 2022, accounting graduates trended downward in the 2019–2020 academic year, with decreases of 2.8% and 8.4% at the bachelor’s and master’s levels, respectively. The number of new CPA exam candidates is the lowest in 10 years, and fewer than half of accounting graduates are now sitting for the CPA exam.
Meanwhile, public accounting firms continue to increase their hiring of nonaccounting graduates, who now represent 31% of all new hires at those firms.
Some CPAs see this as a positive trend. After all, a shrinking supply means higher wages for current CPAs. Yet a shrinking supply also means that the CPA brand is losing market share. If the downward trend continues, the value of the CPA will also decline because it is no longer a “must-have” but a “nice-to-have.”
So, what is the cause of the CPA pipeline problem — and how do we fix it?
Recruitment is the tip of the iceberg
The most common view of the problem — the one you hear most often from leaders in our profession — is that we aren’t recruiting enough students into the profession.
In other words, the problem is at the beginning of the pipeline.
Universities are not producing enough accounting graduates who want to sit for the exam, and the high schools don’t produce enough accounting majors who want a career in accounting.
To fix the problem at the universities, we are updating the CPA exam to include more technology and analytics. Professors will modernize their curricula. Students will value more relevant knowledge in a job market that values expertise in subjects such as data science and information systems.
To fix the problem in the high schools, we are working on adding accounting to the STEM curriculum (science, technology, engineering and math). The hope is that more students will become interested in accounting as a career in high school and then choose to major in accounting in college.
But this won’t work alone.
For one thing, it won’t be fast enough. Even if we encourage more students to take the exam in the future, this effort won’t deliver results for five to 10 years or more. And with so many CPAs set to retire in that same timeframe, the overall number of CPAs will continue to decline precipitously.
This solution also fails to address the top reasons accounting graduates choose not to sit for the CPA exam.
The hard truth is that most accounting students, graduates and young professionals do not plan to have a career in public accounting. The CPA exam is closely associated with that career path.
In a recent study, the Illinois CPA Society found that only 27% of respondents saw themselves spending most of their careers in public accounting. A third saw themselves working in business. Nearly a quarter weren’t sure if they’d continue in accounting, period.
That last group is the one we should be most concerned about. Why are 24% of young accountants thinking about leaving the profession entirely?
The same study gives us a clue.
The No. 1 challenge for those who started down the CPA path is “workload time commitments.” The No. 2 challenge is “personal time commitments.”
It is challenging to earn a CPA while working in a firm. Most firms still require long staff hours during busy season, if not the whole year. Finding time to balance work, life and studying is not easy. It’s a “pick two” sort of situation.
The same study also finds that after age 22, the odds of becoming a CPA drop precipitously.
Perhaps this is because, by 22, young accountants have experienced what it is like to work in a typical CPA firm. They experience long hours, inflexible work schedules and low pay relative to other white-collar jobs.
The hours are long, but let’s talk about pay first.
Compare Robert Half’s compensation reports over the past decade. In 2012, entry-level tax associates earned between $51,400 and $63,500 at “large firms.” In 2022, they earned between $50,250 at the 50th percentile and $59,500 at the 75th percentile. Auditors earn in a similar range.
As you can see, not much has changed.
But do you know what has changed? Our economy.
We’re just beginning a global talent shortage that will continue to worsen year after year. It is not a surprise to anyone who has followed the numbers. A 2018 report by consulting firm Korn Ferry projects a deficit of 1.2 million or more knowledge workers in the United States by 2030.
The pandemic only accelerated an existing trend. Now it is driving up wages across the board and leading companies to implement employee-friendly policies such as permanent remote work and flexible schedules.
Once upon a time, young accountants were willing to accept long hours for job security. But now, there are plenty of opportunities outside our profession that pay better. These opportunities offer perks you won’t find at most CPA firms.
Retention proves to be a greater challenge
It’s not that accounting is losing students to other fields because they feel that an accounting degree or the CPA exam doesn’t give them relevant skills. They’re leaving because the job itself isn’t as appealing as it used to be.
This is why changes to the exam won’t solve the pipeline problem alone. Accounting students pursue CPA licensure primarily because it offers access to a promising career and secondarily for the skills they learn in obtaining it. If they can choose a promising career without the cost and effort to get the CPA, they will — and they can now more than ever thanks to a job market that favors employees.
Accountants leave the profession in large numbers in the first few years of their careers. Making the job more appealing by reducing billable hours and increasing pay is a starting point.
If public accounting wants to solve the pipeline problem, it needs to look inward. Firms must rethink the work environment for their junior staff and all their employees. Firms also need to do a much better job of creating an inclusive environment that welcomes employees of all backgrounds.
A recent Institute of Management Accountants (IMA) study found that only half of the respondents of all backgrounds view the profession as equitable or inclusive. The study found that: “43% to 55% of female, nonwhite, Hispanic, Latino and LGBTQIA respondents have left a company due to a perceived lack of equitable treatment. At least 30% of the respondents from each group have left companies because of a lack of inclusion.”
Think about that. Close to half of the nonwhite, nonmale respondents left their company after feeling like they were not treated fairly. Almost one in 10 racially or ethnically diverse, or LGBTQIA respondents reported inequitable and exclusive experiences that contributed to them leaving the profession entirely.
Our profession has a retention problem, not a recruitment problem. It doesn’t matter if we recruit more CPAs if we lose them early in their careers. If we seriously want to turn around our decline as a profession, we need to focus on retention. That means improving working conditions and treating our employees fairly.
We also need to make it easier for career-changers to become CPAs. The traditional CPA pipeline makes this extremely difficult. You can see it in the drop-off starting at age 22.
If you didn’t go to college intending to take the CPA exam, it’s almost impossible to get the CPA later in life while working and raising a family. I should know. I myself am a career-changer and I almost gave up. I’m glad I didn’t, but I understand why so many people do.
Finding solutions
One way the profession could remove barriers to entry is to eliminate the absurd 150-hour requirement, which has been proven to offer little benefit other than to the bottom lines of accounting departments at universities offering Master of Accounting degrees.
Improving working conditions in our firms will also help to attract midcareer professionals who are more likely to have started families or simply desire more flexibility to enjoy life.
The big challenge is that the traditional business model of public accounting is still rooted in leveraging labor and billable hours. According to their metrics to measure themselves, firms are most profitable when staff are the busiest. This thinking is what will ultimately have to change for our profession to transform.
The pipeline problem isn’t at the beginning — it’s in the middle. Adding more future CPAs into the pipeline at the beginning won’t help if we don’t plug the leak first.
This article originally appeared in the August/September 2022 Footnote, a publication of MNCPA.
