The Accounting Podcast

Attention: This is a machine-generated transcript. As such, there may be spelling, grammar, and accuracy errors throughout. Thank you for your understanding!

Blake Oliver: [00:00:05] Hello everyone, and welcome back to the show. I'm Blake Oliver and I'm.

David Leary: [00:00:08] David Leary, and.

Blake Oliver: [00:00:09] We're talking today about the accounting talent crisis and the CPA pipeline problem. We're joined by Lexi Kessler and Sue Coffey. Lexi Kessler is the Mid-Atlantic regional leader at Aprio and a board member at the AICPA. She's also a past chair of the Maryland Association of CPAs. Lexi, welcome to the show.

Lexy Kessler: [00:00:29] Thank you.

Blake Oliver: [00:00:30] Sue Coffey is the CEO of public accounting at the American Institute of Certified Public Accountants. Sue, it's great to have you back on the program.

Sue Coffey: [00:00:39] Happy to be here. Thanks for inviting us.

Blake Oliver: [00:00:42] Lexi Kessler is the chair, and Sue Coffey is a member of the National Pipeline Advisory Group, a committee created by the AICPA in May of 2023 as a profession wide effort to tackle the talent shortage and attract more people to a rewarding career in accounting. The National Pipeline Advisory Group delivered a progress report to Aicpa's Governing Council in October, and is expected to deliver a draft national Strategy Plan in May of 2024. We are very excited. David and I are very excited to talk to you about this, because the talent shortage is a topic that we, I think, probably discuss the most on our podcast and that our listeners are very passionate about. And so we really appreciate you coming on the program.

Lexy Kessler: [00:01:26] Sure. A pleasure too. Glad to be here.

Blake Oliver: [00:01:29] So, uh, Lexi, I will start with you. The committee, the National Pipeline Advisory Group, has stated that nothing is off the table. So what is an example of a topic that is on the table that hasn't been before when it comes to the pipeline problem?

Lexy Kessler: [00:01:45] Well, I don't know if I can speak to what hasn't been on the table before, but I can speak to now. Um, the elephant in the room was one 2150 substantial equivalency. Um, we are definitely having conversations about that and understanding perspectives that come with that, whether it be from the regulators side, academia, uh, big firm, small firm, business and industry, and really trying to understand the perspectives as well as the data that's behind it. But that is very much in the conversations.

Blake Oliver: [00:02:13] And when we say in the conversations, are we talking about completely eliminating it, creating alternate pathways like Minnesota is considering how far is the committee thinking about going?

Lexy Kessler: [00:02:26] The committee has nothing off the table. Um, we are talking about all possibilities and then understanding if this then what? Right to make sure that we're making informed recommendations. Um, but we are I would say we're probably about. Uh, maybe about halfway through the conversation, uh, of that and considering it, we do have a working group that is focusing solely on substantial equivalency within the with in Plaid, we call it impact to save you the words during the conversation.

Blake Oliver: [00:02:55] Okay, good. That's what I've been calling it to. But now it's official. Yes.

Lexy Kessler: [00:02:58] In fact, it's official. You can call it that. Um, so yeah, we are we are looking at, at different perspectives on it though.

Sue Coffey: [00:03:05] And I could just add one of the things that we're going to be doing throughout the months of January and February are, um, testing some of the solutions that that working group has been considering. So we've got a national survey that's going to be going out probably towards the end of, I don't know, March. But throughout the months of January and February, we're going to be speaking with a number of groups, because this process was designed to be highly inclusive, to engage as many people as possible in the solution, because you guys know our profession is at its best when we work together to address challenges. And we've had significant success over many years with that approach. And this is no different.

Blake Oliver: [00:03:49] So sounds great.

Lexy Kessler: [00:03:51] So is that I think also that that working together concept is really important. It's how we started off our meetings when we first met in July was we all want the same result, right? We may not agree on how to get there, but we certainly can have the conversation to figure out how to get there. So that together piece is is a huge piece of of how we're focusing on this.

Blake Oliver: [00:04:14] Sue, you have identified two leaks in the pipeline. The first is in college when we lose accounting majors. You said on the Accounting Today podcast something that really stuck with me. You said that 208,000 students per year declare an accounting major, but only 50,000 per year graduate with an accounting degree. Where does that data come from? That is a kind of shocking stat that only 25% of accounting majors complete their degree.

Sue Coffey: [00:04:42] Yeah. So one of the things that we agreed on when we started down this path with the N.pag was that we needed to be data driven. There's a lot of opinion out there. And so we started gathering all of the data we could find about our pipeline. And so some of that data comes from the National Vital Statistics report. Some of it comes from statistics. Some of it comes from the National Center for Education Statistics. Some comes from research.com, some comes from Ipeds. So there's a whole bunch of kind of, you know, third party research that's been done that we compiled to see if we could put together a picture and to see where those leakage points were. And that happened to be one of them. And candidly, that was shocking to us that we were losing that many people in just, you know, that four year period. And, and so many people were declaring accounting as a major and then dropping out. And we've been asking ourselves why. And interestingly, the triple A, the American Accounting Association has been thinking about that as well. And what are some things that they can do to make a difference. And so they've been talking about, you know, turning the principles of accounting course on its head or its side and really looking at the content and really looking at the format of the course and who the instructors are. And if we could just if you think about it, if, if we could just increase that by 50% or even 100%, like add one more student, we'd um, we'd be in a much better position as a profession and then we need to get them over the finish line. You know, we need to get them interested in the exam. And I think, you know, we're rolling out a new exam in January 2024 with new content as well as a new structure that I think allows students to focus on their interests. And so hopefully that will have a positive impact. And, you know, drawing students to take the CPA exam and then getting them over the finish line.

Blake Oliver: [00:06:47] One of the one of the things that. I'm trying to wrap my head around is the scale of this problem the scope of it? Um. The Bureau of Labor Statistics says that there are about 126,000 openings for accountants and auditors projected each year, on average over the next decade. But we're only producing 50,000 accounting majors every year. And so you said on on the Accounting Today podcast Su, that we need to double the number from, you know, 50,000 to 100,000. That's the goal. And that would get us like a little closer. It wouldn't quite fill the gap, but it would get us closer to fill in the gap of of accounting jobs and accounting majors. Yeah. Um, I mean, like, how do we I guess my question is just like, how can any of the things that we've talked about. Plug this gap, even even removing the 150 hour rule. I think the most, the most rosy projections by academics who have studied this suggest that we can increase the number of CPUs by 25% if we did that.

Lexy Kessler: [00:07:58] So like I think we're looking at short tum midtum and then a longer terme of modernizing the license, the license, the CPA license itself. Right. And so you're right, some of it, if we can just get more of a piece of the pie of when of just students that enroll in accounting and getting them to stay and then going on to to sit for the exam and then pass the exam. That's short terme, right. Because they're they're in college right now. But then if we start looking at high school, getting them into college, making them aware of what accounting is, changing the narrative about what accounting is and getting the just the top of the pipeline, let's call it when they get into college to be bigger, then we have a better shot to. So there's simultaneous irons in the fire on this. Um, that that will take a little bit more of a midtum because the kids have to get through school, right? Or. Yeah.

Sue Coffey: [00:08:46] Yeah, guys, I also think we have to look, um, just maybe a little, even a little bit more broadly and the entire ecosystem and not everybody's going to go on to be a CPA. Right. And when you think about, um, CPA firms and corporate finance departments, they're not just hiring individuals who are CPAs or are going down the CPA path. They're looking at paraprofessionals, they're looking at professionals, um, outside of their organizations through outsourcing and maybe even offshoring. So when we've been talking about it, we've we've actually been talking mPEG is focused on accounting and CPAs, but I think we have to look at the broader ecosystem as well, technologists and engineers and, and all of those, um, individuals that the profession needs to support the work they're doing for the capital markets and our local communities.

Blake Oliver: [00:09:44] Yeah. The go ahead, David.

David Leary: [00:09:46] Before we jump off, like the leaks in the pipeline, is there any other piece of data that kind of surprised you? You were like, whoa, that's a big thing we didn't know about before based on the committee's research.

Sue Coffey: [00:09:56] That was probably the biggest. And I know, um, you guys mentioned on one of your recent podcasts, firm Culture and Firm Business Models. And one of the areas that we're looking at as part of mPEG is the retention rates in the 1 to 5 years of employment, particularly at firms, and the impact that those individuals who leave have on the front end of the pipeline, you know, if they're not happy with, you know, their situation, the culture of the firm, and they leave. What do they say on social media that then impacts middle, middle school and high school and even college? And so, in fact, just very recently, earlier, I guess late last week, mid last week, the Illinois CPA society issued a report that updated a study they had performed, I don't know, a couple of years ago. You guys are probably aware of that, and there's a lot of really interesting information in it that wasn't surprising, but just validated some of the things that we were hearing about why people are leaving firms. And it's the top three reasons are work life balance. They want fewer hours and avoid burnout and salary. You know, it's like it's the ROI of the effort. So, um, not that that was shocking to me, but it was a very recent validation of what we've been hearing.

Blake Oliver: [00:11:19] I'm glad to hear that there's data to support what we've been hearing from our listeners. It's it's hours and pay when it comes to those first few years in public accounting. Um, and we all agree that the pay has stagnated for, for starting salaries, especially for auditors, um, which is where two thirds of accounting grads end up when they graduate. They go into auditing, typically at large firms, and those salaries have inched up. But when you take into account the inflation we've had over the last few years, they're basically where they were ten years ago or even longer. So that's the second leak in the pipeline is in public accounting years 1 to 5, let's say. Uh, the staff life cycle which which is normal. That's how public accounting firms have always operated. Where staff come in, they get experience. And then some of them stay, become managers, directors, partners, and then some of them, most of them leave and and go do other things in industry. Um, but it seems that a lot of the folks who are leaving now are just leaving accounting entirely. And that was the shocking stat in the Wall Street Journal. Back in 2022, 300,000 US accountants and auditors left their jobs in just two years, and that was a 17% decline for the profession. So. In thinking broadly about how we solve this pipeline problem. It seems to me like the people who left recently are actually great candidates to come back. So is the committee considering anything to bring back those 300,000 people who quit?

Lexy Kessler: [00:12:53] You know, that's certainly been the conversation is the boomerangs that are coming back. The challenge I think gets to be a little bit more. It's really up to the firms a little bit more. So and I'm a firm believer that the accounting, the business model needs to change. Right. Especially for this next generation of Gen Z coming up. They're not going to they don't want to wait for five years for it to be a higher paying profession. They're not willing to do that. And there's just a reality that we need to face. And what I'm hoping is that some of this survey data that we get back, that what we can actually do then is work with PCP s private company practice section and see if we can develop some toolkits for some of the smaller firms that don't have the resources, like some of the large firms do, to try to help them of how do you change that business model, like what are some of the key things people are looking for and try to do the whole, you know, the broader ecosystem of it? It's not just the large firms, the large firms. They have some deeper pockets. They're able to put initiatives into place to do those things. Um, and I know firms have done things like alumni clubs to have people stay in touch and to invite them back. But I do think that that's a big pool that we could use. And even with today's world, when you look at it not being the pyramid, but maybe the diamond shape a little bit, you know, for public accounting that you maybe they go into industry first and then they come into private into public accounting because they understand what industry is. So but we still need them to be in accounting. Right? First, first and foremost, we got to get them into accounting.

Blake Oliver: [00:14:18] So that's a like if you think of the pipeline like a fire hose going from university into public accounting, shifting that hose over to industry would be a massive change because that's not how it's been done.

Lexy Kessler: [00:14:34] I it hasn't been in generations.

Blake Oliver: [00:14:36] Right. If.

Lexy Kessler: [00:14:38] Right. And and when you have, you know, it used to be that, you know, when I was a long time ago when I was in college. And I think it's still somewhat true, is that you go into public accounting, you get your two years and you go into private. Yep, that's what you do. And so now that people are into. What's happening is that they aren't going into private, though, to your point. And what's happening is now some of the corporates are now recruiting on campuses. So there's fewer people and more people on campuses. So you've got like a perfect storm kind of in that in that space right now.

Blake Oliver: [00:15:10] So let's get to the, the, the, the thing we can well, the thing that's actually we've identified is, um, causing people to leave, which is the salaries and the hours. So I'll let you pick which one we start with. How do we address the low salaries, or how do we get firms to stop burning out their staff with too many hours?

Lexy Kessler: [00:15:34] That's a great question. Oh go ahead.

Sue Coffey: [00:15:37] Go ahead. Yeah. If I was going to start, you know, because I mentioned it as ROI. To me it really depends on what motivates the individual. You know, for for one, it may be they need the flexibility. And the flexibility is worth a certain salary. For another, they don't need the flexibility and they're willing to work as many hours as needed, but they want to be paid for it. I think about my oldest son was a finance major, and he made the choice not to work on Wall Street because he didn't want to work 100 hours a week, you know? And, um, my other son decided the opposite. So it's, uh, candidly, to each his own. The ROI just has to be there for them.

Blake Oliver: [00:16:22] Right. Well, I know that some small firms allow their staff to choose how many hours they work, and. They don't require everybody to be full time or more than full time. What about some small firms?

Sue Coffey: [00:16:35] Some small firms have really done some innovative things, and I almost think that smaller firms, they're not like the aircraft. It's not like turning an aircraft carrier of a massive organization. Right. Sometimes I think smaller firms can be way more nimble when they decide they need to do something. So it's it's been kind of interesting watching what's going on.

Lexy Kessler: [00:17:01] So an example of that creativity is do you want to work 40 hours a week in tax season, or are you willing to work 55 or 60, whatever it is, right. And if you want 40, this is your compensation. If you want 55 or 60, this is your compensation, your choice. Right? When do you want?

Blake Oliver: [00:17:18] Now we can encourage firms all we want to offer that kind of flexibility, but it's not really in their interest. Short terme anyway to do so because it's more expensive to have more people working fewer hours. And that's why firms prefer to have fewer staff working 50 to 60 hours, especially when they don't have to pay them overtime. Now, accounting is one of those interesting professions where staff are often exempt from overtime. And I wonder, is that one of those things on the table? Should we as a profession, say staff need to get paid overtime when they work overtime?

Lexy Kessler: [00:17:55] Yeah. I'm not sure I'm qualified to answer that question, Blake.

Blake Oliver: [00:17:58] Has it been part of the discussions?

Sue Coffey: [00:18:00] Let's, let's. So let's set aside legal over time from just I think you're suggesting maybe just the concept of overtime, right? Not like what constitutes legal.

Blake Oliver: [00:18:09] Well, it's like, um, I mean, it depends on obviously on the state. Um, but. Its professional staff are exempt from overtime rules that apply to many workers in the United States. You know, over 40 hours in a week and you get time and a half, right, that sort of thing. Uh, and so, like, firms are allowed to work half as many hours as they want. Uh, in many places. So would the, you know, perhaps the AICPA could advocate to eliminate those overtime exemptions, which would improve the quality of life and work life balance of all the staff.

Sue Coffey: [00:18:46] But this is a business model issue. Candidly, guys, and if a firm wants to do that, they could do that today. And I think it just gets back to what type of culture do you want within your firm? How do you want to treat your employees and what do you want to give them in terms of compensation? And how do you want to regulate their hours? There is nothing that says a firm can't pay their staff overtime or give them bonuses for those hours. So I guess I, I, I put it in the it's all part of thinking about how you want to operate your business, what you want to be.

Blake Oliver: [00:19:27] Well, the issue though is that if I'm a firm that does that, if I offer my staff overtime and I pay them more as a result, I'm at a competitive disadvantage against a firm that doesn't. I'm watching that show, The Gilded Age. I love that show on HBO Max. And this is exactly the sort of, uh, arguments that factory owners were having with factory workers back in 1890.

Sue Coffey: [00:19:50] But maybe, maybe I'm more competitive because, um, I have a lower turnover rate, and I, and I, um, get higher quality people in whatever market I'm working in. So I'm not sure when equates to the other.

Lexy Kessler: [00:20:04] I think you have to look at it as an investment, quite frankly, because if you can invest in your people, um, stay. Right. And hopefully they continue to, to work on and then they tell their friends they come and join, you get more people working for you, which frees up partners to be able to go out and bring in more work, which then will keep those people busy.

David Leary: [00:20:25] It sounds like you're suggesting this is a carrot to get the firms to change their behaviors, but do we really need a stick? Like at some level.

Lexy Kessler: [00:20:33] I am. I'm saying that this is a philosophy of how you want to run the organization, which I think is needs to. We just need to change how we're thinking of this.

Blake Oliver: [00:20:43] Another side of the the problem. And I'm picking on an audit because it's easy. And that's where most people go, um, is the commoditization of audit the regulation of audit that is led to, in my view, every audit being the same to the marketplace, to an audit committee, an audit by one of the big four is the same, and an audit by a regional firm is the same as every other audit by every other regional firm. So this has led to competition on price, because when you can't differentiate a product, what do you compete on? You compete on, well relationships. And that works to an extent. But in the end it becomes price right after service. So you have, you know, auto partners who have to like bid very low. And so the margins become thin. And and the only way to make a profit in a commodity type environment is to, you know, get as many hours out of your staff as you can and bid low, like so. It feels like we've created this problem in the profession. And. No individual firm can actually change it because salaries are determined by the market, not by individual firms. Is there a need to revisit how we have regulated audit?

Sue Coffey: [00:21:55] So go ahead, Lexi, and then I'll follow up.

Lexy Kessler: [00:21:58] Yeah, I'll speak more from the firm perspective is that I, um. I do understand what you're saying about the commoditization, and there is some of that. I agree, I've been there. I've been an audit partner most of my career. But I also do believe that. It's not all that though. There is so much more in that with the relationship with the client and I am not in public. The public company space. So you need to know that that's not I don't work in that world and that is a little bit different. Just the regulations around it are a little more strict. Um, but the ability to work with a client. Yeah, it's an audit, but there's so much more than you do than an audit. An audit is just one piece of the entire relationship. That's what we talk about, is that it's not just here's your financial statement. Anybody can give you just a financial statement if that's what you want. But the firm, I think the profession as a whole needs to. Well, whatever. So I'll let you finish that question before I get off.

Sue Coffey: [00:22:53] Well, no, I just Lexi, because you guys know what I do and probably I don't know if you, um, know, kind of my career path, but I've spent a large, um, the bulk of my career around audit and the value proposition of the audit and making sure that firms are invested in quality. Um, and they've put all of the, you know, quality control and quality management things in place to create a quality product that has value in the marketplace, whether it's value to investors or value to lenders or sureties or to nonprofits, um, donors, etc.. Um, and I actually think there's a significant value to the audit, and I think a lot of firms are starting to see that, you know, we've invested organizationally in quality to help the profession in this space. And we're significantly invested in a technology based tool that basically looks at the audit differently. It's it's designed to transform the audit and it's providing it's being used in the marketplace and providing firms with rich information, richer information about their clients that they can then share with their clients as part of the value proposition of the audit. So I do see it a bit differently. I see it less as a commodity and more of, um, just the value our profession offers.

Blake Oliver: [00:24:20] I'd love to keep on that topic because I'm very passionate about it and I can tell you are too. But I've got one more question I want to get to before we run out of time. And that is something that's, um, I'm also very passionate about, which is career changers. As you know, Sue, I'm a career changer. I was a music major before I became a CPA, and it was very difficult. It was extremely difficult to go back to school to earn all the specific credits I need and then sit for the exam. And while I'm not saying that we should water down the. Standards. I think we should still have high standards to become CPAs. I feel like it's hard for career changers, and I feel like there's a lot of Americans, millions of Americans, in fact, who majored in something other than accounting that would love to be accountants. Because for them, as for me, even the starting salary and accounting was great compared to what I was making as a musician. Mhm. Uh, busking on the street. Right. So what are we doing? What are we thinking about when it comes to bringing more career changers into the accounting and the CPA world?

Sue Coffey: [00:25:20] So I'll start and then Lexi if you want to pick up. So I think you you raise an amazing point. We need to be just as focused on career changers as we are at, you know, middle school and high school levels and bringing people into our profession. Career changers bring a wealth of knowledge with them. Um, to your point, musician, you bring a lot of creativity, which is super important to a lot of the work we do in our profession. And actually, if you think about the breadth of the services we offer, I mean, there really is something in our profession for everybody, and we need to talk about it differently. But we also have to, um, create the flexibility for career changers so that it is not as much of an uphill battle as, for example, you've articulated. It was for you.

Lexy Kessler: [00:26:13] Yeah, I echo what Sue says is that the life experience is huge when it comes to the table. When somebody changes a career, it really is. It's just a different perspective that they can bring to the table in a conversation with a client and a conversation in a meeting. Whatever it is, it's just a different perspective. And we need differences at the table in conversations.

Blake Oliver: [00:26:33] That's great to hear. We've got just a few minutes left, so I wanted to give you the opportunity. Is there anything you'd like to say to the listeners of the accounting podcast about N.pag or the pipeline, and where should they go to learn more?

Lexy Kessler: [00:26:47] So we do have a website. Um, I should know this.

Blake Oliver: [00:26:52] Accounting accounting pipeline.

Lexy Kessler: [00:26:53] Org thank you. Accounting pipeline.org I was just on it. But yeah. Um and so there's some information that websites being developed. But I would love for people to stay tuned. Really we're trying to get out into the media a little bit more. Not a little bit more more, be more vocal about what we're working on. We want people to respond to our survey data lake, because if we don't get that feedback, then we don't have the data points that we need to make the right recommendations to move all of us forward. And is it going to make everybody happy? No, but we're going to try to make the best decision for our profession to move it forward with, with the input from, from multiple people and multiple perspectives. It is a complex situation. There is not one easy fix. If if we had one, if we would have had it fixed by now, you know. But but we really want to welcome the engagement. We are working on being transparent and just busy, but the intent is there. And to continue to provide feedback to all of you. We appreciate the opportunity to be here today.

Sue Coffey: [00:27:52] Well said, Lexi, and I'll just follow up with what I started with and that we are a profession that really is at its best when we work together, and this is no different. So thank you guys for affording us this opportunity to speak with you.

Blake Oliver: [00:28:06] Thank you so much for joining us. We've been talking to Lexi Kessler and Sue Coffey from the National Pipeline Advisory Group. Thanks so much for your time, and we look forward to hearing more in the future.

Lexy Kessler: [00:28:17] Thank you. Thank you.