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There was an undercurrent of intergenerational tension in an important report on the workplace culture of the US’s largest audit firms last month.
Based on interviews with executives and partners at Deloitte, EY, PwC, KPMG, Grant Thornton and BDO, it highlighted grumbles that firms risked losing the old “apprenticeship model” in which entry-level employees learn from their elders.
The new model of remote and hybrid work created training challenges that have yet to be fully overcome, according to many senior figures, whose interviews were reported anonymously. Respondents from one firm even complained that managers and partners were having to step down a level to do audit tasks traditionally performed by more junior staff, meaning that some work was not then getting the second pair of eyes needed to check its accuracy.
Intergenerational tension is hardly unique to accounting firms as Gen Z — the age cohort born between 1997 and 2012 — makes its presence felt in the workplace, but it holds a particular significance at audit firms given their central role in the financial system. Last month’s report was produced by the Public Company Accounting Oversight Board, which is trying to puzzle out why its inspectors saw a surge in flawed audit work after the pandemic. The deficiency rate stabilised last year and is starting to come down, but the PCAOB says it remains unacceptably high, given the risk that auditors could be failing to find mistakes or even fraud at public companies.
“An audit firm’s culture contributes to the audit firm’s ability to deliver a quality audit,” the PCAOB wrote, explaining its focus on the issue. “Audit firm leaders, with the tone they set and the culture they foster, are responsible for ensuring that their professionals maintain independence, integrity and professional scepticism.”
The report noted, hardly uniquely, that “the younger generation have differing views on careers than their older counterparts, with many viewing their work more as a job, rather than a career, and are therefore more likely to leave the profession if presented with more attractive opportunities”.
Intriguingly, it also noted that audit firms with the highest deficiency rates in recent years seemed to have the highest percentage of senior managers and partners who were hired from other firms rather than having started their career in house. This suggests firms that can hold on to employees for the long term have an advantage in building a strong culture and keeping standards high.
That is not easy in a profession that is struggling to attract talent in the first place, amid competition from better-paying jobs in finance and technology. Firms have been trying to shed accounting’s reputation for brutal hours, especially during the annual busy season after the financial year-end. But not everyone in a position of authority is on board with firms’ focus on work-life balance initiatives. More than a third of the partners interviewed by the PCAOB said such efforts had lowered the productivity and delayed the professional development of younger recruits.
For firms such as BDO and EY that have been at the bottom half of the PCAOB quality league tables in 2022 and 2023 with the highest deficiency rates, a focus has been on centralising and standardising audit procedures. But centralisation and standardisation is hardly the stuff of career dreams for anyone, let alone Gen Z. It risks stripping auditors of their ability to make professional judgments and could reduce their work to box-checking. There are already plenty of disincentives for people to go into public company auditing and the PCAOB’s report acknowledges this includes scrutiny from its own inspectors, making the work more stressful with high downside risk for careers if staff slip up.
Another trend at many firms has been to send more routine tasks to offshore centres in India and elsewhere, but this presents a further quandary. It risks stripping new recruits of a grounding in business procedures and accounting principles, exactly the sort of apprenticeship that some of their elders are already bemoaning is being lost.
The most forward-thinking firms are reimagining the audit from the ground up. This includes sucking in and verifying financial data in real time, and layering on new AI tools to highlight anomalies. Such moves would allow staff to focus on sleuthing around issues raised by “red flags” and dealing with the interesting accounting issues that require the most complex judgments. That is a generational shift that cannot come soon enough.
stephen.foley@ft.com