Switching from Private to Public Accounting (#246)
/In this podcast episode, we discuss the issues with switching from private to public accounting. Key points made are noted below.
Employee Sourcing for Audit Firms
The main source of employees for audit firms is people coming straight out of college. They’ve just gotten their accounting degrees and are more or less ready to sit for the CPA exam, so they’re a good source for filling the lowest-level audit positions. The second most important source of audit staff is poaching the auditors of other audit firms. These people are expensive, since it usually takes a significant pay raise to lure them away. But it’s worth it, because they already have experience, usually coming in as senior staff or managers.
Notice the difference in the slots being filled. People coming straight out of college go into the lowest positions, and people hired away from competitors move into higher slots. That’s pretty obvious, but hang on a minute.
This brings us to the third source of audit staff, which is trained accountants coming from the private sector. These people have accounting degrees, but they probably earned those degrees a few years ago, and so may be weak in some areas that they haven’t used since college. And on top of that, their practical knowledge of auditing is probably limited to taking requests from the auditors who show up for their annual audits. And that’s pretty thin experience.
Problems for Auditors from the Private Sector
This leaves people from the private sector residing in sort of a no-man’s land between the other two groups. They’re more experienced than new college graduates, but not in auditing, which is what really matters. So they won’t be hired into senior staff or manager slots. Instead, they’ll be hired into junior audit staff positions, because that’s the kind of work they’re capable of performing.
My first point in regards to a course of action is to get used to the idea that you may very well be taking a pay cut to switch from the private sector to the public sector, so decide up front whether it’s worthwhile to earn less money.
My second point is that some major brushing up will be needed to get ready to sit for the CPA exam. Don’t forget, this is all fresh knowledge for someone coming straight out of college, but that’s not the case for someone who’s already been working for a few years. This is not a minor point. Audit firms are famous for getting rid of their lowest-performing staff at least once a year, so if you don’t perform as well as the new college grads on the CPA exam, you may be kicked out of the firm. So my third point is to decide whether you can take the financial risk of quite possibly not making it in the audit industry. And don’t think it won’t happen to you. 80% of all recruits do not last.
Advantages for Auditors from the Private Sector
But – it’s not all doom and gloom. Someone coming in from the private sector has more real-world experience than a new college graduate, and so might become a better auditor over the long term. And on top of that, the private sector accountant is older and so is presumably more mature, and so is better able to deal with clients and other auditors. These aren’t minor advantages, but the real risk – again – is not making the initial cut as an auditor. And so my fourth point is to grind it out as hard as you can up front to learn how auditing works, because from then on, you might be in an advantageous position.
Another point in regard to being a bit older and more experienced is that you might be promoted more quickly, maybe shaving a year off the normal progression to partner. But don’t get too excited, since very few people ever make it to partner.
The more likely outcome, even for someone who succeeds as an auditor, is that you’ll make it up to the manager level and then get hired right back out of the firm by a client. But that’s OK, because the position you’ll be hired back into is probably going to be a controller or CFO, which presumably means a pretty hefty increase in pay over whatever you were making when you switched to auditing.
The Age Disparity
Another thought is to consider what it will feel like to start out in an audit firm where you’re the oldest person among the audit staff. This can be tough, so there’s sort of an informal cap on how old people tend to be who get hired in as new auditors. Very few people do it once they’re more than 30 years old. The age disparity is just too great.
An Additional Employee Source for Audit Firms
And a final comment is that there’s actually a fourth source of audit staff for an audit firm, which is people they’ve already hired, but into other parts of the business. So you may see a trickle of transfers from the tax and consulting sides of the business, and sometimes from the administrative staff. No matter where they come from within the firm, they already know the work schedule and they know the culture, so they usually have a higher success rate than people coming in from the outside. And from the perspective of the audit partners, these people are already a known quantity, which is always a plus.
Related Courses
How to Conduct a Compilation Engagement