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Older auditors exit to avoid regulatory spotlight AccountingWEB
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Older auditors exit to avoid regulatory spotlight

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The skills shortage in accounting is being magnified by experienced talent leaving the profession to duck regulatory sanctions, while fierce competition for new faces shows no sign of slowing.

1st Sep 2022
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With the Big Four becoming more selective of its audit clientele, senior partners are also pulling back, with some walking away from the profession early to avert regulatory attention.

Fines for poor auditing have more than tripled in the past financial year, with the outgoing regulator issuing a string of record sanctions as it gears up to make way for a more aggressive watchdog.

The pressure is forcing the top names, PricewaterhouseCoopers, KPMG, Deloitte and EY, to duck potentially risky clients, with challenger auditors and smaller firms struggling to handle the work cascading down.

With the industry already experiencing an extreme and sustained talent crunch, experienced heads are calling it a day at a precarious time for accounting and audit.

Michael Izza, head of the Institute of Chartered Accountants in England and Wales (ICAEW), said the worry of being dragged into a regulatory inquiry was also behind the decision of some audit partners to retire early.

“It can have negative consequences for your career if there is any deficit in the audit work you’ve done,” Izza told the Sunday Times. “Some of those people who are retiring over 50 are making a conscious decision to retire because they are managing their risk.”

Puzzlement at remarks

The Financial Reporting Council (FRC), which has dished out a record £46.5m of penalties in the past financial year, expressed puzzlement at the remarks. “We would be surprised that any audit professional would be planning their career on the basis of fearing regulatory fines or sanctions,” the FRC said in a statement. “If individual auditors are doing high-quality work supported by firms with adequate resources, they should have no concerns.”

The head of the FRC, Jon Thompson, had previously told the firms to stop “complaining” about big fines and to concentrate on improving audit standards.

"I take the FRC’s view on this," added John Toon, senior manager at Beever Struthers. "If you’re doing good work why retire early? Because you should have nothing to fear… If you are choosing to retire early because of the fear of fines, well, good riddance!"

Industry body the Association of Chartered Certified Accountants (ACCA) has observed firms introducing client waiting lists due to capacity shortages. 

“If you’ve got scarce resources you have to make choices,” Izza said. “It’s a perfectly logical decision and it’s happening across audit. There is probably more work than the firms can cope with.”

Who would be a junior auditor?

Almost £20m in penalties along with lengthy industry bans have been issued by the FRC so far this year, including a £14.4m penalty for KPMG for errors surrounding its audit of the collapsed outsourcer Carillion.

Aspects of the tribunal, which centred around the falsification of documents, generated controversy and industry condemnation when the senior staff at KPMG accused of wrongdoing tried to blame a junior auditor. The junior was later spared by the court, which chastised the bosses for deliberately misleading regulators.

The case illuminated many of the problems linked to the widening skills shortage, namely poor pay and working conditions for junior staff at firms where high achievers can earn bonuses of multiple millions.

Concerns of punitive sanctions and, as in the case of the KPMG junior, the fear of losing a house, are further reasons why young talent is avoiding a career in accounting.

For the partners involved, the punishments included six-figure fines and bans from the profession for varying periods of time. 

Jobseeker’s market

Salaries are going up in response to the shortage, and skilled employees also have the upper hand in negotiations regarding working conditions, recruitment specialists said.

“There are definite signs of upward pressure on salaries caused by competition,” said David Leithead, COO of recruiter Morgan McKinley UK. 

Professional services firms are desperate for technical skills, he said, as companies face more market, organisational and regulatory complexity. “For attracting talent, there's no doubt money talks, though jobseekers are expecting to hear emphasis on flexible/hybrid working patterns and will tend to prioritise this, certainly when deciding over two like-for-like salary offers,” Leithead said.

According to researchers at GlobalData, 13.4% of all jobs posted at the Big Four in 2021 concerned data analytics, up from 3.4% in 2020 and higher than the 6.4% sector average in 2021.

New intake

Deloitte, which is exploring a split of its audit and consultancy, announced last week that it wants to hire 6,000 audit and assurance staff over the next five years and will pump £125m into improving audit quality. Around 80% of the new intake will be auditors.

Azets, which has just under 4,000 UK employees, told the Times it has also begun a recruitment drive to increase its headcount by almost 25%. It aims to recruit 900 new staff – graduates and school leavers, but also older people. The firm is specifically targeting the over-50s to lure some talent back.

“Next year we will double our intake of trainees compared with 2021, as part of a wider recruitment drive to fill more than 900 roles within our UK group businesses,” said Rachel Rennison, group head of talent acquisition at Azets. “We are actively recruiting at all levels, with our investment in hybrid working creating more opportunities for existing staff and removing traditional barriers around location and flexibility.”

Big Four partners looking to wind down may also find themselves in demand by the challenger firms picking up their former clients.

Over the past five years, all the Big Four have reduced the number of listed companies they audit, according to data from Adviser Rankings.

Part of the drive to improve quality has required a slimmed-down client base, which allows them to focus on a smaller number of lucrative clients. Whether salaries and perks continue to swell in a downturn is a matter for the firms to contend with as they reassess their appetite for risk.

 

Replies (3)

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By Hugo Fair
01st Sep 2022 18:48

The head of the FRC, Jon Thompson, appears to be not so much tone-deaf as stone-deaf.
The reason that so many "Older auditors" are choosing to exit the field has nothing to do with age per se, rather it's the fact that they can afford to make this choice.

You don't have to rise to the bait proffered as "you should have nothing to fear… If you are choosing to retire early because of the fear of fines, well, good riddance!" - but you can just choose a better life!

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Replying to Hugo Fair:
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By Paul Crowley
02nd Sep 2022 10:55

John Toon, senior manager at Beever Struthers
"you should have nothing to fear… If you are choosing to retire early because of the fear of fines, well, good riddance!"

Good to hear that the speaker has never made a mistake or an error of judgement in his entire life

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avatar
By LGrainger
02nd Sep 2022 10:35

I am not surprised to hear that experienced auditors are exiting early.

The first 8 years of my career were spent in what is now the big 4 and when I left to start my own practice 50 years ago, at the age of 30, it was to exclude auditing completely – and to concentrate on investigations, turnarounds and what later became known as corporate finance.

Why no auditing? Honestly, I could never have made a living at it because I found it very difficult to issue a completely clean audit opinion – on just about anything!

There is far less risk in so-called "contentious high risk investigations" and there is in issuing a statutory audit report.

Bluntly, in terms of certainty, the insurance-level-expectations of the investment and corporate population far exceed what could be achieved even if all audit fees were immediately doubled.

50 years on from when I exited auditing, the pace of change is vastly faster – and the scope for "experienced industrial management teams" with no experience whatsoever of running their own business, to gravitate to a high-geared, low-asset plc base is far greater than ever before.

In short auditing is an extremely high risk activity – and I am not surprised that people with decades of experience are exiting early.

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