By Pamela W. Baker, CPA, CGFM

Public accounting firms have long been known for being “full service,” providing tax, advisory, and audit services to virtually every sector of our economy. This is changing. Public accounting firms increasingly are becoming more strategic in how they use their resources and the types of services they will provide and to whom. This trend is the result of a number of converging factors: fewer new accountants, more retirements, increasing compliance standards, and cultural shifts.

Fewer accounting professionals entering the workforce – According to the American Institute of Certified Public Accountants (AICPA) Trend Report for 2021, the number of accounting graduates dropped for the 2019-2020 academic year, and the number of new CPA Exam candidates entering the pipeline has been declining since 2020. The closures of testing centers because of the pandemic may or may not be a significant factor, but the fact remains that there are fewer trained professionals entering the accounting field. Projections indicate this trend is expected to continue for the foreseeable future, so it’s not fully a testing center issue.  

Retirements of public accounting firm leaders – The public accounting field is not immune to the “great resignation” or to the large numbers of normal retirements of the baby boom generation, a very large group of individuals who are aging out of the workforce.

Increased compliance requirements and more complexity – While the profession has had requirements for continuing education for generations, most CPA’s find it necessary to go above and beyond the basic requirements to stay abreast of a rapidly changing business environment, driven in large part by advances in technology. CPAs are forced to make a choice in where they will focus the use and development of their skills.

Changes in the way that people work – A healthy integration of career and personal goals has become the focus of the workplace. Public accounting firms that want to remain current, relevant, and attract and keep talent have decreased the traditional 60- to 80-hour work weeks to more flexible schedules and fewer work hours.  

All of these adjustments are hitting auditors in unanticipated ways. Here are several examples of how these trends are playing out in the audit arena:

• Public accounting firms are determining that they will no longer provide audit services. They anticipate focusing on specific niche markets, such as tax and consulting.
• Small firms, with little or no succession plans in place, are abandoning long-standing audit clients as the principals retire.
• Firms that remain capable of providing audit work are responding to the growing demand for services (and a lack of available staff) by raising fees or refusing new clients (or both). In some cases, firms are electing to reduce the number of audits they will perform.

The trends and consequences noted above will not reverse in the near term (if ever). Several simply represent an evolving society.  

In the specific sectors of government and not-for-profit audits, the shrinking pool of service providers will have a ripple effect through society. Independent audits provide an important “report card” on the financial health and compliance of governments and nonprofits that are heavily relied upon by others, such as concerned citizens, legislators, and bondholders.  

Here are some suggestions for how to move forward if you operate in the government/nonprofit audit space:

• Consistently apply the deadlines for completed audits. Currently, depending on the type of governmental entity (city, township, borough, authority), the audit deadline may be set as a specific date. More recent revisions to some municipal codes have incorporated language that is more flexible and establish regulations that audits should be completed as soon as practical after year-end. For nonprofits, many are held to audit deadlines based on grantors and others. Consistency would greatly enhance the ability to manage all the deadlines. With fewer firms to perform audits, it is increasingly unrealistic to expect that fieldwork will be complete by a specific date. While timely audits are important to maintain, flexible scheduling is necessary to ensure efficiency and completeness.  
• Budget higher audit fees and educate elected officials/board members that the pool of available auditors is decreasing. Issuing requests for proposals most likely will not generate fees lower than what an existing auditor is quoting. A change in auditor for the purpose of soliciting lower fees can add to the stress of finance office personnel who might already be struggling with insufficient staff resources.
• Build up the team. Schedule a detailed planning meeting involving internal staff and audit firm staff. Be clear and specific about when information will be ready and provided to the auditor. Consider scheduling a recurring status meeting on a weekly basis to track progress. Rely on the technology that most firms now have in place. One of the largest contributors to a delayed audit timeline is the delay in receipt of information and the resulting loss of efficiency.
• Consider outsourcing audit preparation of key accounting functions. Staffing is not only an issue with accounting firms: it also affects the ability of governments and nonprofits to find and retain accounting staff.  
• Maintain a clear and consistent communication link between the audit partner and the board. Delays, difficulties, and setbacks can and will happen. The governing board will be better equipped to respond appropriately if they are informed along the way and can observe the coordination happening with the auditor.

Building a bench of well-trained auditors is the responsibility of all of us. It is vital that you get involved! The PICPA’s Pennsylvania CPA Foundation’s mission is to “inspire students to pursue careers in accounting and to provide educational, motivational, and financial support to those working to attain the CPA credential.” Last year 7,000 high school students participated in virtual events. This is great, but we need more. If you can contribute to building the pipeline today, in any way, it will help ensure more auditors in the future.

Pamela W. Baker, CPA, CGFM, is managing partner with Barbacane, Thornton & Company LLP in Wilmington, Del. She can be reached at pbaker@btcpa.com.

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Statements of fact and opinion are the authors’ responsibility alone and do not imply an opinion on the part of the PICPA's officers or members. The information contained herein does not constitute accounting, legal, or professional advice. For actionable advice, you must engage or consult with a qualified professional.