There was an undercurrent of generational tension in a major report released last month on the workplace culture at America’s largest auditing firm.
The report, based on interviews with executives and partners from Deloitte, EY, PwC, KPMG, Grant Thornton and BDO, finds that companies risk losing the old ‘apprenticeship model’ where entry-level employees learn from their elders. highlighted the dissatisfaction.
New models of remote and hybrid work have created training challenges that have not yet been fully overcome, according to a number of executives whose interviews were reported anonymously. Respondents from one company said that managers and partners have had to step down to perform audit tasks traditionally performed by junior staff, and that some tasks require the necessary oversight to check their accuracy. He even complained that he wasn’t getting a second look.
Generational tensions are not limited to accounting firms, as Generation Z (those born between 1997 and 2012) make their presence felt in the workplace, but given their central role in the financial system. This is especially important for audit firms. Last month’s report was written by the Public Company Accounting Oversight Board, which seeks to understand why auditors found a sharp increase in flawed audit work after the pandemic. Although defect rates have stabilized and begun to decline over the past year, the PCAOB said they remain unacceptably high given the risk that auditors will fail to detect mistakes or fraud in publicly traded companies.
“An audit firm’s culture contributes to the firm’s ability to conduct high-quality audits,” the PCAOB wrote, explaining its focus on this issue. “Audit firm leaders have a responsibility to ensure that the tone they set and the culture they foster enable the profession to maintain independence, integrity, and professional skepticism.”
The report notes that while this is not the only thing, “younger generations have a different view of careers than older generations, with many viewing their work as a job rather than a career. Therefore, if more conditions are presented to them, they are more likely to leave the profession.” A fascinating opportunity.”
Interestingly, they also noted that the audit firms with the highest defect rates in recent years also appear to have the highest proportion of senior managers and partners hired from other companies, rather than those who started their careers in-house. This suggests that companies that are able to retain employees for the long term have an advantage in building strong cultures and maintaining high standards.
That’s no easy feat in a profession that struggles to attract talent in the first place amid competition from higher-paying jobs in finance and technology. Companies are trying to shake off their reputation for accounting with grueling working hours, especially during the annual busy period after the end of the financial year. However, not everyone in a position of authority agrees with the company’s emphasis on work-life balance initiatives. More than one-third of partners interviewed by the PCAOB said these efforts reduce productivity and slow the professional development of young new employees.
Companies such as BDO and EY, which had the highest deficiencies in 2022 and 2023 and were in the bottom half of the PCAOB Quality Rankings, have focused on centralizing and standardizing audit procedures. But centralization and standardization aren’t the career dreams of anyone, let alone Gen Z. It risks depriving auditors of their professional judgment and reducing their work to mere checking. There are already many disincentives for those participating in public company audits, and the PCAOB’s report acknowledges that this includes scrutiny by their own inspectors, adding to the stress of the job. This increases the risk of career decline in the event of staff failure.
Another trend for many companies is to send more routine work to offshore centers such as India, but this poses further difficulties. This risks stripping new employees of the fundamentals of business procedures and accounting principles, and is eliminating the very apprenticeship that some senior employees are already lamenting being lost.
The most forward-thinking companies are fundamentally rethinking auditing. This includes ingesting and validating financial data in real time and layering new AI tools to highlight anomalies. Such a move would allow staff to focus on investigating issues raised by “red flags” and addressing interesting accounting issues that require the most complex judgments. It’s a generational shift that won’t happen soon.
stephen.foley@ft.com
