The Transition from Auditing to Industry (#112)
/In this podcast episode, we discuss the many differences you will face when switching from auditing to industry. Key points made are noted below.
This episode is a bit different. A professor at the University of Denver asked me to speak to her accounting students about the job transition from being an auditor to working in industry. The differences are huge, which makes this an interesting topic, so I’m putting a much shorter version of it on the podcast.
The Reason Why We Audit Right Out of School
A lot of students get their accounting degrees and go straight into auditing, because there’re auditing firms who want to hire them right away. And there’s a fair amount of prestige in working for one of the Big Four audit firms, or one of the larger regional firms. So, there’s a good chance you’ll start your career in auditing.
When you’re an auditor, you’re main task is judging the work of your clients. That makes you similar to a policeman, or a judge – a very well-trained one, but that’s what you are. That also means you’re not in a creative job. You don’t get the satisfaction of making things. You don’t create systems. You may review the systems that other people created, but that’s it. And furthermore, clients don’t like you. They throw a party after you leave. That’s the essence of the job.
As you progress as an auditor, you do pick up quite a bit of knowledge about how different companies operate, and you’ll learn about how to apply a lot of accounting standards to real-world situations. At some point, you’ll start to specialize in a particular industry, and you’ll have a core group of clients in that industry. Then your learning curve starts to go down, and you’ll find that you’re still a policeman or a judge, but you don’t have the offsetting benefit of learning about a lot of new things. In short, you’ve reached a career plateau, probably with the title of audit manager, and with about four to six years of experience. And if you can’t bring in new business, this is as far as you’ll go as an auditor.
When to Switch to Industry
And this is the point where a lot of auditors decide to make the switch to working in industry. Chances are good that you’ll end up working in whichever industry you specialized in as auditor. When you get there, you’ll probably be in an assistant controller position, or if the company is a small one, you’ll be the controller.
How the Job Changes
Now, the first massive difference you’ll see is that your emphasis just went from rendering an opinion on financial statements to making the next payroll. You may have noticed that constructing a cash forecast is not on the CPA exam, but now it’s really important! So you have to start thinking in terms of cash flow instead of financial disclosures. Welcome to operations.
The next thing you’ll notice is that you’re really a process engineer, because a large part of the job at this level is transaction processing. You have to know how information flows through the company, and how it rolls up into the financial statements. Depending upon the level of mess you walked into, there could be control problems everywhere, and you need to fix them.
This requires setting up policies and procedures, and training people to use them, and being diplomatic about it. And if you get it right, no one really notices. But if you get it wrong, everyone does. So this is one of those basic structural issues that you have to pay attention to all the time. And, guess what? When you were an auditor, you never learned about policies and procedures, or how to do hands-on training. Though you should have a pretty good feel for how a process ought to work, and where to fit in control points.
Another transition item is that you no longer have to be quite so conversant in either U.S. or international accounting standards. You’re now working in a single industry, and you only have to know about the standards for that industry – and those standards probably haven’t changed much for a number of years. So, you’ll find that you just don’t have to keep up as much on accounting standards. And that means that accounting knowledge goes from being your first job requirement as an auditor to maybe the third or fourth most important thing in industry.
You’ll also have an interesting time creating financial statements. So far, your mindset has been to create financials that present accurate results. And as an auditor, you pick over the presentation and the disclosures to get the financials package just right. Now you need to produce financials every month, and management screams bloody murder if you don’t get them out fast.
This means that, again, you’re in process engineering mode.
You have to know the closing process really well, and where the trouble spots are likely to be, and you put out something that’s pretty close to accurate in a couple of days. More than likely, you’ll have a few corrections floating around that you’ll fix in the next month’s financials.
So you can see the difference. Auditors always complain about client financial statements that are not exactly right, with perfect supporting documents. Whereas company controllers have to create financials 12 times a year, and they accept that it won’t be perfect every time.
The Work Environment
And then there’s the work environment. Two issues that play a big part in the work environment are intelligence and age. The best audit firms pick from the best accounting candidates in the best colleges, and the result is a group of smart, young people. Sure, the senior managers and partners are in their 30s and 40s – or older – but the bulk of the people are in their 20s, maybe up as far as 35 years old. And a lot of them are singles. And as an auditor, you get used to being in this environment.
Then you move into industry, and it can be quite a shock. You’re likely dealing with a large clerical staff. They know their jobs very well – they may be great at accounts payable, or billings, or payroll, or collections. But they may not have college degrees, and their knowledge of accounting may be totally from in-house training. And they may be much older. Some people may be close to retirement. Many are married, with kids.
I’m not saying this a bad environment, it’s just an extremely different one. You have to get used to a family environment where everyone does not go partying after work, because they’re having dinner with their kids and then they’re helping them with homework.
And if it’s a small company and you’re the only trained accountant, this can feel a little lonely.
The Promotion Issue
And a final item is promotions. In a audit firm, the rule is up or out. You expect a promotion every year or two, and if you don’t make the cut, you leave. In industry, and especially in a small firm, there may be no promotions unless someone above you leaves. So if you’re hired into a specific position, expect to stay there. A lot of the time, the only way you can get a promotion is to leave and apply for a higher position at a different firm.
Parting Thoughts
So, bottom line on the transition from public accounting to industry – there are very few points of similarity between the two, which can make this a tough transition. On the other hand, a lot of auditors don’t find their work to be very creative, so they enjoy the switch. But, there are others who really get into accounting standards, and they can’t figure out the daily grind of an accounting department. Those people usually head back into auditing. And that’s it.