Reckless, risky and richer: meet the new breed of sexy accountants

Since scandal swept through the industry five years ago, changes in corporate law have raised issues of legal liability, yet also created new demand for services, a rush to recruit and a rise in salaries. Abigail Townsend, Clayton Hirst and Irene Hell investigate
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The Independent Online

Once, accountants never made the news. Toiling away in the background, the men in grey kept their heads down and stayed out of the spotlight. That, however, has all changed. First there were the financial scandals, and now accountants are hot items again because there are simply no longer enough of them to go round.

Once, accountants never made the news. Toiling away in the background, the men in grey kept their heads down and stayed out of the spotlight. That, however, has all changed. First there were the financial scandals, and now accountants are hot items again because there are simply no longer enough of them to go round.

It is a state of affairs that has been a long time coming. A few years ago, the profession endured its darkest hour. In the aftermath of multi-million-dollar financial scandals such as Enron and WorldCom, one of the big five accounting firms - Andersen - collapsed, a number of accountants quit for less controversial pastures new, and regulators turned their full attention towards the profession.

Tough new laws governing the way accountants are regulated and financial reporting is carried out have since been introduced. Companies need advice on legislation such as the Sarbanes-Oxley Act, which is shaking up corporate governance in the United States, and on the new International Financial Reporting Standards, which means the workload for accountancy firms has surged. Yet recruitment has waned. "The profession is trying to deal with all the additional work coming on board while finding sufficient well-qualified people," says David Sproul, the partner in charge of talent at Deloitte. "It's definitely a problem. There's been a spike in demand and it's been very hard to respond effectively."

Nor is that spike going to ease any time soon. Jeremy Boadle, national head of assurance and business services at the mid-tier accountants Smith & Williamson, sums it up: "It will be a pretty tight market over the next few years until all the new rules gradually become familiar. This really is the biggest shift of most of our lifetimes, in both approach and work levels."

Accountancy, once the safest of all white-collar careers, is also a more risky profession now. In the UK, the industry has tried to persuade the Government to include a cap on liabilities in the upcoming overhaul of company law, the Companies Bill, due to be published next month. A compromise deal has been brokered, but it fell short of a cap. The Bill is also likely to include a criminal offence, punishable by imprisonment, for knowingly and recklessly giving an incorrect auditing opinion.

In Ernst & Young's latest annual report, the company's global chairman and chief executive, James Turley, identified heightened liabilities as a key concern. He writes: "[One] risk to the profession's sustainability is the potential for catastrophic losses stemming from outsize lawsuits, which are increasingly numerous. The cost for our profession to defend against these claims is extremely high. In fact, we face ever-increasing costs for practice protection, which include insurance premiums and the cost of settlements, when we can reach them."

It is a sentiment echoed by many. PricewaterhouseCoopers' global chief executive, Samuel DiPiazza, concedes that there is now "very little insurance available for a company like ours". He has scant regard for many of the regulators' recent actions. "The regulators were far too aggressive in dealing with Andersen. They should have dealt with the people responsible for the Enron debacle and not with the firm as a whole. In this way, they put the firm out of business." He also points out that, with 97 per cent of all public companies audited by the Big Four, the loss of Andersen was hardly helpful. "I wish there were five. We were very sorry that Andersen collapsed. We thought it was a tragedy to lose that firm."

Yet despite his reservations, even Mr DiPiazza accepts that changes were necessary. "The accounting profession is much more focused today. There is a much higher understanding of the expectations of investors and the public. Yes, the profession has changed, but all for the positive. The requirements of the markets for more in-depth auditing create opportunity. People should be held accountable, including my own profession, when failures or negligence occur."

Far from putting people off, recruitment levels are once again rising as firms, buoyed by increased workloads and a healthier economic climate, aggressively look to plug the skills gap.

"Following the accounting scandals, as well as the aftermath of 9/11, graduate intake figures went into decline but they have increased again," says Kate Tregoning, director of the recruitment firm Accountancy Additions. "The initial decrease culminated in a skills gap for many of the larger firms. But having suffered no real long-term negative publicity, graduates are again turning to the profession."

Deloitte expects to hire around 1,000 graduates this summer, compared with around 850 last year. Its rivals are following suit. Despite the increased interest, with so many spaces to fill, applicants can afford to be choosy, meaning salaries are also on the up.

The Institute of Chartered Accountants in England and Wales says many firms are recruiting students straight from university on salaries of £25,000, compared with between £15,000 and £20,000 two years ago. Salaries have also been increasing for qualified accountants, many of whose former colleagues had quit. Equipped to deal with complex legislation straightaway, unlike trainees, these are important recruits for firms and are often offered incentives such as signing-on bonuses. Smaller firms are also hiring aggressively, benefiting from the increased workload as well as from the jobs bigger rivals - conflicted out in the new regulatory environment of auditor independence - can no longer do.

This issue of auditor independence has been one of the biggest changes the profession has had to deal with. Auditing was a lucrative area for the top-tier firms, with other services such as advice on tax, corporate finance and due diligence regularly cross-sold to clients.

But the collapse of Andersen threw the spotlight on conflicts of interest, and fee income from audit clients has diminished as firms were forced to restrict the amount of additional work they carried out. According to a report published last week by the Professional Oversight Board for Accountancy, PwC's fee income from non-audit work for audit clients was £480m in the past financial year, down from £585m in the previous 12 months.

However, the upside has been a surge in fee income from non-auditing work carried out for non-auditing clients. According the POBA report, PwC's fee income in this area was £663m, up on £572m in the previous year. And KPMG last month revealed a hefty 14.7 per cent surge in global revenues, to $13.4bn (£7bn), and growth of 6 per cent to £1.06bn in the UK. Around $700m of global revenues was attributed to advisory work on Sarbanes-Oxley, and the firm was optimistic for the current year.

Of course, not everything is rosy in the accounting garden. Recruitment may be up, but few expect the Big Four will get all the people they need. As Nick Land, UK chairman of Ernst & Young, concedes: "We're managing to recruit people and bring them in, but it's not easy." Keeping people is also tough. For many entrants, becoming a partner in an accountancy firm is no longer a goal; instead, their sights are set on a career elsewhere, such as in-house as a finance director or within investment banking.

Yet, undeniably, the accountancy profession has entered a dynamic new phase in its history. Lawmakers on both sides of the Atlantic have responded aggressively to the financial scandals that hit the profession, and accountancy firms have been put under the microscope. As a result, the way they operate has fundamentally changed. But more than that, the companies they serve must now show greater transparency and comply with a raft of legislation intended to prevent another Enron-scale disaster. In other words, never have accountants been more in demand. The men in grey, it would seem, are suddenly sexy.


The Sarbanes-Oxley Act 2002

Taking its name from Senator Paul Sarbanes and Congressman Michael Oxley, this US legislation was introduced following accounting scandals at some of America's best-known companies, such as Enron and WorldCom. It amends and supplements existing securities laws, with the specific intention of protecting investors from the possibility of fraudulent accounting activities, and applies to companies based in the US or with US listings and/or subsidiaries. Under the Act, a criminal conviction is now more likely should accounts be wrong.

Section 404

Arguably the most controversial part of the Sarbanes-Oxley reforms. To comply with the demands of section 404, companies must ensure that they have adequate fraud prevention in place within their internal systems. Auditors must then check and sign this off. Critics say that, in effect, the process counts as two audits and will ramp up costs.

International Financial Reporting Standards

The International Accounting Standards Board published new guidelines last year, and Europe's top companies were expected to be compliant from 1 January. The idea was to create a single set of accounting standards that could be applied anywhere in the world, thereby saving companies money and allowing investors to compare a company's performance regardless of its geographic location. IFRS cover a host of areas from mergers to revenues and employee benefits. There is also a greater emphasis on disclosure.

International Accounting Standards Board

An independent body responsible for setting global accounting standards. Based in London and formed, in 2001, out of the Board of the International Accounting Standards Committee.

Financial Reporting Council

The regulator for the accounting industry in the UK saw its remit significantly expanded last year after a government review. It consists of five operating bodies: the Accounting Standards Board, Auditing Practices Board, Professional Oversight Board for Accountancy, Financial Reporting Review Panel and Accountancy Investigation & Discipline Board.

Companies Bill

The Government is reforming company law via this Bill, expected to be published next month. Auditors had wanted it to include a cap on liabilities. After a compromise deal, hopes are high that the Bill will at least allow auditors to negotiate proportionate liability in return for increased responsibility and transparency. The Bill also introduces a criminal offence of knowingly and recklessly giving an incorrect auditing opinion.

Big Four

The biggest accountancy firms: Deloitte, Ernst & Young, KPMG and PricewaterhouseCoopers.