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There were undertones of intergenerational tensions in a major report last month on the workplace culture of America’s largest audit firms.
Based on interviews with executives and partners at Deloitte, EY, PwC, KPMG, Grant Thornton and BDO, it was highlighted that companies risk losing the old “apprenticeship model” where entry-level employees learn from their elders.
The new model of remote and hybrid work has created training challenges that have yet to be fully overcome, according to many senior executives, whose interviews were published anonymously. Respondents from one company even complained that managers and partners had to stoop to a lower level to do this revision tasks traditionally performed by junior staff, meaning that some work was then not getting the second set of eyes needed to check its accuracy.
Intergenerational tension is hardly unique to accounting firms as Gen Z — the age group born between 1997 and 2012 — is felt in the workplace, but it has particular significance in 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 figure out why its inspectors have seen a rise in flawed audit work since the pandemic. The deficiency rate stabilized last year and is beginning to decline, but the PCAOB says it remains unacceptably high, given the risk that auditors could be failing to find fault or even fraud in public companies.
“An audit firm’s culture contributes to an audit firm’s ability to conduct a quality audit,” the PCAOB wrote, explaining its focus on the issue. “The leaders of audit firms, with the tone they set and the culture they foster, are responsible for ensuring that their professionals maintain independence, integrity and professional skepticism.”
The report noted, not uniquely, that “the younger generation have different career attitudes to their older counterparts, with many viewing their work more as a job than a career, and therefore more likely to leave the profession if offered a more attractive possibilities”.
Intriguingly, it has also been noted that the audit firms with the highest attrition rates in recent years appear to have the highest percentage of senior managers and partners who are employed by other firms rather than starting their careers in-house. This suggests that companies that can retain employees for the long term have an advantage in building a strong culture and maintaining high standards.
It’s not easy in the profession that it is struggling to attract talent above all, in competition with better paying jobs in finance and technology. Companies try to lose the reputation of accounting due to brutal working hours, especially during the high-stress season after the end of the financial year. But not everyone on the authority agrees with the company’s focus on work-life balance initiatives. More than a third of partners interviewed by the PCAOB said such efforts reduced productivity and delayed the professional development of younger recruits.
For firms like BDO and EY that were in the bottom half of the PCAOB quality league tables in 2022 and 2023 with the highest deficiency rates, the focus was on centralizing and standardizing audit procedures. But centralization and standardization are hardly the stuff of dream careers for anyone, let alone Generation Z. It risks stripping auditors of their ability to make professional judgments and can reduce their work to a clutch. There are already many disincentives for people to audit public companies, and the PCAOB report acknowledges that this includes controlling their own inspectors, making the job more stressful with a high risk of career decline if staff get it wrong.
Another trend in many companies has been to outsource more routine tasks offshore centers in India and elsewhere, but this presents an additional concern. It risks depriving the new recruits of a foundation in business procedures and accounting principles, exactly the kind of apprenticeship that some of their elders already lament is being lost.
The most forward-thinking companies are reimagining audit from the ground up. This includes vacuuming and verifying financial data in real time and layering new AI tools to highlight anomalies. Such moves would allow staff to focus on investigating issues raised by “red flags” and dealing with interesting accounting issues that require the most complex judgments. It’s a generational shift that can’t come soon enough.
