The post-SARBOX accounting industry, Part V
Malcolm McLelland
4 Comments
The evidence in "The post-SARBOX accounting industry, Parts I-IV" suggests a not-too-widely-held view that (1) the U.S. accounting industry's output is becoming less valuable over the last several years, and (2) although Sarbanes-Oxley has undoubtedly generated revenue for the industry the windfall has not really changed a broader trend. (To my knowledge, Dennis Howlett is one of the few people with good insights into what's happening in these regards.) The evidence also suggests the general labor market outlook for the U.S. accounting industry is somewhat bleak since professional employment levels, real professional wage levels, etc. all exhibit a downward trend in recent years.
So the accounting industry is using higher levels of IT capital inputs despite lower real revenue growth rates and human capital inputs. While this evidence might not be surpising on its own, it is interesting that trends in IT capital inputs in post-SARBOX periods now move in the opposite direction of human capital inputs. Although accounting industry professional employment, wage rates, and IT capital inputs roughly moved together pre-SARBOX, IT capital costs now move in a direction opposite to accounting human capital inputs.
Taken together the evidence presented thus far suggests accounting industry profits are being maintained or (perhaps) increased by using less human capital and more IT capital. Trivial, you say? I don't think so: Most services traditional to the accounting profession required IT capital primarily to more efficiently deliver the services. Audit, tax, and accounting work could be done without large investments in IT; the use of IT capital inputs only made the services more efficient; it just lowered the cost of delivering the services. It is true that IT investments in the form of accounting and tax software have allowed accounting firms to deliver traditional services using less professional accounting labor, but substantially all such investment has been in place since the late-1980s to early-1990s.
The rapid increase in IT capital investments and costs beginning in the late-1990s, in combination with the rapid decrease in professional accounting labor inputs beginning in the early-2000s, suggests (at least to me) that accounting industry profits are increasingly being made through a careful combination of human and IT capital inputs; not through the application of the relatively narrow knowledge and skill sets traditional to accounting per se. There's certainly evidence to support this assertion: At random I looked at Deloitte & Touche USA's "Experience Hires" webpage on October 6th and found that only about 20% of the roughly 4300 listed job openings were classified as "audit", "enterprise risk services", and "tax services"; the service areas constituting traditional services. The remaining listed job openings were clearly weighted toward jobs requiring individuals with IT and information systems knowledge and skills.
So is the accounting industry simply turning into another industry; perhaps into an industry selling a particular flavor of IT consulting and information services? Maybe, maybe not. But based on the developing evidence, my co-authors and I think the observed trends in the accounting industry can be understood by recognizing that accounting knowledge and skills (and, indeed, "accounting information") are rarely valuable taken by themselves; accounting knowledge and skills must be combined with other knowledge and skills to become valuable. I'll take up the discussion of how and why this might be so in later postings ...
(This posting draws on my joint research with co-authors, Matt Anderson and Greg Gerard, presently titled "Sarbanes-Oxley and the shrinking accounting labor market: Exploring potential causes and their implications".)
Reader Comments (4)
Thanks
Thanks for reading my (poorly updated) blog! I don't think you or anyone else should worry too much about selecting accounting as a career: There are a lot of excellent careers *based on accounting*, and these don't seem to be going away; it's the narrow technically-focused jobs in accounting that seem to be going away. This makes sense from the perspective that a lot of accounting is rules based, and rules based work can often be automated using computers. For example, a lot of "consolidated financial reporting" is largely automated now with relatively minimal input from accountants. About 15-20 years ago, accountants were heavily involved in developing consolidated financial statements; now they basically take consolidated output from a computerized financial reporting system and make relatively minor adjustments to it.
As to what to combine accounting with? I think of it like this: Accounting systems are basically designed to provide data for use in a wide range of decisions. If accountants are going to do a good job of designing such systems, they actually need to have a fairly good understanding of how such decisions are made. Similarly, non-accountants are often unable to convert accounting data into the information they need to make decisions. I think there's a huge demand for people who understand how to covert accounting data into decision-relevant information.
So, accountants collectively need to have a good basic understanding of economics, finance, strategy, marketing, production and supply chain, information systems management, etc. I think combining accounting with any one of these other disciplines would make you exceedingly valuable to an employer and help you avoid the post-SARBOX trends in the accounting industry. There are great jobs in the accounting industry; they just tend to be in non-traditional areas.)
I would say this: Get an accounting degree, but plan on either getting a double major in another discipline you're really interested in; or plan on getting a grad degree in another discipline after you have a few years of work experience and know better how you would like for your career to develop!
Best regards,
Malcolm
Thanks,
John
Google around on search terms like "outsource accounting services" and I think you'll see we live in a much broader world than we did even 5 years ago!
MMc