Thank you for the invitation to speak to you today. One of my favorite activities as a PCAOB Board member has been to meet with student groups like this one to share my enthusiasm for the accounting profession and to hear from students about their future plans and questions or concerns. We frequently have student groups visit us at the PCAOB's offices, and we have a strong internship program, so if you have the interest and opportunity, we would love to hear from you.
I would like to speak to you today about the accounting profession, the bright future of students entering this important profession, and the impact that regulation has had on accountants in recent years. Along the way, hopefully I will be able to convey some things to think about as you decide on your future career paths.
But before I go further, I must tell you that the views I express today are my personal views and do not necessarily reflect the views of the Board, any other Board member, or the staff of the PCAOB.
The Accounting Profession
The accounting profession has been around for thousands of years. Historians tell us the first accountants began their work in ancient Egypt, Mesopotomia, Greece and Rome. Significant advances in accounting were made in Italy during the early years of the Renaissance, but modern accounting really emerged during the 19th Century in Scotland, England and the United States. Since then, the importance of high quality accounting and auditing has been increasingly recognized around the world, as reflected by laws and standards in virtually all countries governing accounting and auditing to ensure the integrity of financial reporting.
In the United States today, there are over 1.3 Million accountants, many of whom are Certified Public Accountants. Demand for accountants continues to increase, with recent statistics from the U.S. Department of Labor stating that the "[e]mployment of accountants and auditors [in the United States] is projected to grow 11 percent from 2014 to 2024, faster than the average for all occupations." According to a 2015 study by the AICPA, accounting firms are hiring record numbers of accounting graduates, and most firms expect to continue to do so in the near future. And the news gets even better, as starting salaries for new accountants continue to rise and are expected to increase between 3 and 4% in 2017, while salaries for current accountants will increase at levels between 2.8 and 6%. According to the Labor Department, the continued strong demand for accountants and auditors is due to "[g]lobalization, a growing overall economy, and an increasingly complex tax and regulatory environment."
In addition to good news on job prospects for accounting students, the accounting profession also appears to have recovered from the loss of confidence it suffered in the wake of the accounting scandals that led to the passage of the Sarbanes-Oxley Act, including the bankruptcies of Enron, WorldCom, Tyco, Adelphia and others. According to the Center for Audit Quality, in 2016, 75% of investors expressed confidence in audited financial statements and 81% of investors expressed confidence in independent public company auditors (after suffering set-backs in these confidence ratings following the 2007/2008 financial crisis). Likewise, restatements of financial statements of public companies are at their lowest point since 2004, and the severity in restatements has decreased for nine consecutive years, suggesting that accountants and auditors are doing increasingly better work.
But the accounting profession does not just offer good prospects for a well-paying job. It also provides an opportunity to do important work in the public interest to protect investors and keep our economy on track. Let's start with the word "profession." Simply defined, a profession is "a type of job that requires special education, training, or skill." But it is also referred to as a "calling" and a "body of persons engaged in a calling." And while accounting may be viewed as highly technical and focused on "recording and summarizing business and financial transactions and analyzing, verifying, and reporting the results," public accountants, and certainly auditors, also have an important responsibility to the public.
In the context of audits under PCAOB auditing standards, the auditor's task is to "state whether, in his [or her] opinion, the financial statements are presented in conformity with generally accepted accounting principles and to identify those circumstances in which such principles have not been consistently observed in the preparation of the financial statements." The goal underlying this somewhat complicated statement, of course, is to protect investors from fraudulent or erroneous financial reporting and to foster confidence in the securities market.
As such, the auditor has a duty to investors and to the public which relies on healthy capital markets to drive our economy. The auditor must remain independent of management and skeptical of management's assertions, gather evidence to provide reasonable assurance that management's approach to the financial statements complies with the applicable rules and challenge management's actions when the evidence is not persuasive. In some cases, an auditor may need to issue a qualified or adverse audit opinion, or resign from the engagement. These are not easy tasks, particularly in light of the many pressures faced by auditors, including tight deadlines and demands that auditors bill hours, market the firm, obtain new clients, and perform high quality work, all while balancing work with home and family.
The importance of this public interest work cannot be overstated. Without high quality audits, investors get hurt, the economy crumbles, and ordinary Americans lose their jobs and financial security. We have seen it periodically throughout history, including, of course, in the early 2000's when Enron and WorldCom collapsed. The impressive financial results these and other companies had reported in the preceding years, even after they were audited by a major public accounting firm, turned out to be erroneous and, in some cases, fraudulent. The need to reform aspects of management's responsibility and accountability, corporate governance and internal control quickly became clear, along with the realization that the accounting profession had a problem. The "peer review" system – under which one audit firm reviewed the quality of the work of another firm to provide oversight – turned out to be insufficient. Some auditors were doing insufficient or low quality work because nobody was holding them to a higher standard, and the independence of many was compromised by their relationships with their clients. Investors paid the price, not only in direct losses suffered by shareholders of some of the largest companies in the world, but also because the subsequent loss of investor confidence in the capital markets caused stock markets worldwide to plunge. Ultimately, investors lost hundreds of billions of dollars, and employees of these companies lost their jobs and their retirement savings. As you know, Congress responded by passing the Sarbanes-Oxley Act, imposing new requirements on corporate governance, accountability and internal control over financial reporting and establishing the PCAOB to regulate auditors.
The PCAOB began operations in early 2003, and its activities include:
- Registering firms that conduct public company audits and (based on more recent amendments to the Act) audits of brokers and dealers;
- Setting the rules and standards to govern the work of those auditors;
- Inspecting their work to ensure that auditors are complying with the rules; and
- Sanctioning auditors through our enforcement program when we see egregious auditor behavior.
We have a staff of over 800 employees and a five member, full-time Board to guide their activities, all under the oversight of the U.S. Securities and Exchange Commission ("SEC"). The vast majority of PCAOB employees are CPAs and former auditors who regularly conduct inspections of public accounting firms that audit public companies. Inspections take place annually at firms that issue over 100 audit reports each year, and every three years for firms that issue 100 or fewer audit reports. The Board also has an interim program of inspections for auditors of brokers and dealers, and we are in the process of establishing a permanent program that, among other things, will address the frequency of inspections for those auditors. The PCAOB's Enforcement Division conducts investigations and brings disciplinary actions against auditors for violations of auditing standards and related rules, as well as for independence violations and failure to cooperate with PCAOB inspections or investigations.
Of course, most people go into a career planning to do their best work and to follow the rules governing their profession. For many people, including auditors, that remains true – they need not be reminded of the rules or have someone look over their shoulder to ensure that they comply. Others, however, stray from the rules if nobody is checking. Sometimes this is due to the outside pressures I mentioned – not enough time to cross all the t's and dot the i's, a pushy client, or financial pressures. In other cases the auditor may simply not be sufficiently competent. And finally, there are some who will not follow the rules even if there is someone to check up on them – we have found a few examples of this type of conduct through our enforcement program – and for them the only remedy that works is to bar them from doing public company audit work.
In addition to checking for compliance, regulation can also help foster consistency and provide tools to help people do a better job. Our inspectors, for example, may see areas where auditors struggle and can work with our Office of the Chief Auditor to issue guidance in difficult areas. Our inspection reports are designed to highlight for auditors areas that need improvement, and they are intended to be remedial rather than punitive. For example, in the context of firm quality controls, our regulatory approach was designed by Congress to provide firms with information about deficiencies privately – in the non-public portions of our inspection reports – and to afford firms an opportunity to make improvements and thereby avoid public disclosures of these issues.
While engaging with large and small firms on inspections and the remediation process over the last ten years, the PCAOB has found that many auditors initially resisted change but ultimately took advantage of the opportunity to learn from inspections and began to drive change and improve audit quality. Sometimes, this took time, as auditors had to change the way they had done things in the past, in some cases for decades. Firms also have taken advantage of the opportunity to provide us with feedback on existing or proposed rules and standards that may need to be improved. And with the implementation by the Board in recent years of economic analysis of any new auditing standards issued by the Board, we are more conscious than ever of striking the right balance between the benefits and the burdens of regulation.
We have also seen over the last decade an evolution in the types of challenges that audit firms struggle with the most. Early in the PCAOB's existence, some auditors had difficulty complying with fairly basic auditing requirements, what some have referred to (using a football metaphor) as the "blocking and tackling" of an audit. More recently, as auditors' performance began to improve, our inspection findings were focused on more challenging and nuanced areas, particularly in the context of auditing management estimates and fair value and in audits of internal control over financial reporting.
Another challenge auditors currently are facing is how to audit in an environment where technology is becoming ever more relevant and increasingly sophisticated. Not only do auditors have to figure out how best to audit companies that use complex and advanced technology in their financial reporting and other operations, but auditors also are trying to leverage technology in their audits methodologies, for example by employing automated processes to identify unusual transactions or inconsistencies. This trend presents another exciting opportunity for students, as firms are increasingly looking for broader skills in their new hires, including statistics, mathematics, and data analytics.
Not all auditors, however, will spend their careers crunching numbers. My own career began as a junior audit staffer in a public accounting firm, but, over time, I developed interests and expertise that led to a position in my former firm's national office, where I was responsible for the firm's accounting and auditing standards guidance and training practices. After thirty-two years in public accounting, I joined the PCAOB, where my work has shifted to a stronger public policy focus. My second term with the Board ends in two years, and I look forward to figuring out what my next career will be!
Even accountants who spend their entire careers at public accounting firms have opportunities for a variety of career paths. Some stick to highly technical accounting and auditing work, while others focus on managing or developing the business or become experts in regulatory compliance. Those who leave public accounting firms may take on roles as financial statement preparers or internal auditors, or they may move to an organization like the PCAOB or SEC. All of this is to say that there are many opportunities in this field and many different ways to contribute.
This also means that success as an accountant may require more than good technical accounting and auditing skills. Many young accountants do not think about the importance of strong skills in written communication. Indeed, some of you may have chosen to study accounting in part because you concluded that you are more comfortable with numbers than with writing or literature classes. The ability to write clearly and concisely, however, is a critical skill for most professions, including accounting and auditing. A large part of the job of an auditor is about documenting the procedures performed and conclusions reached. PCAOB auditing standards require that audit documentation be "prepared in sufficient detail to provide a clear understanding of its purpose, source, and the conclusions reached." A young auditor's description must be sufficiently clear and detailed to allow the senior to obtain a clear understanding of the work, followed by the manager, partner and, ultimately, the engagement quality control reviewer. Months later, PCAOB staff may inspect the relevant audit engagement, and if the work was not clearly documented, our inspectors will not know that it was performed.
Soon, auditors also may be facing a new communications challenge: expanded auditor reporting. As you may have heard, the PCAOB has been working on a new standard to govern auditor reporting. If adopted, this standard would require auditors to discuss so-called "critical audit matters" in their audit reports, in order to provide information to investors and the public about the challenging, subjective, or complex aspects of the audit.
More broadly, whatever your future career goals may be – financial controller or chief financial officer of a company, corporate board member, venture capitalist, regulator, standard setter or pretty much anything else – communicating concisely and effectively is a prerequisite to success in virtually any career. This also includes oral communication skills, whether in the context of one-on-one communications with a co-worker or client, or speaking publicly in front of a large group. Take advantage of any opportunities now to practice these skills, so that there is one less source of anxiety when you enter the "real world."
Also crucial to success in public accounting, and certainly in auditing, are three traits that build on each other: intellectual curiosity, critical thinking and professional skepticism. You probably have the first one covered, as you have clearly come far in your academic careers, but accounting is constantly evolving field and you will spend a lifetime learning if you decide to spend your careers in this profession. New technologies, globalization, changing business priorities – all of these are developments that have a constant impact on accountants and accounting standards. To be at the top of your game, you need to keep up with these changes and understand how they affect your work.
Next is critical thinking. As I am sure you are discovering for yourselves, accounting is not like arithmetic. There is not always a single right answer under the accounting standards, unlike the cases you may see in your textbooks. Accountants and auditors must use judgment in reaching the best answer in a given situation, and that means not simply accepting the solution presented by someone else. Auditors, in particular, must not accept the approach or information put forth by management without thoroughly analyzing the information presented and understanding impact of management's decisions. And that brings me to what is certainly the single most important skill for an auditor: exercising professional skepticism. Under PCAOB standards, professional skepticism is defined as "an attitude that includes a questioning mind and a critical assessment of audit evidence." The auditor is required to "diligently perform, in good faith and with integrity, the gathering and objective evaluation of evidence." This means that the auditor may not assume that management's views and evidence are provided in good faith but must satisfy him- or herself that the evidence supports the conclusion reached. Again quoting from PCAOB standards, the auditor "should not be satisfied with less than persuasive evidence because of a belief that management is honest."
In addition, however, even the most well-intentioned, highly skeptical, and technically competent accountant or auditor can run into trouble if he or she is not well organized and willing to work hard. Accountants and auditors have to gather and process a great deal of information, usually under tight deadlines. Often, the most difficult issues come up near the end of an audit, when time is particularly tight. In order to have sufficient time to deal with last minute questions or emergencies, auditors are well-advised to plan their audit well in advance and do as much of the heavy-lifting as possible early during the audit. Organization is also important when dealing with clients. Nothing will derail an audit more quickly than a client's inability to respond to an auditor's information requests because those requests are confusing or poorly timed. And while most people who go into accounting are naturally detail-oriented, important information does get lost if the auditor is not sufficiently organized to stay on top of it.
But perhaps the most important ingredient to success during your first years as an auditor is your mindset about your new career. You will be overwhelmed at times with too much work and too little time, and bored at other times by the mundane (but important!) tasks involved in an audit. Remember that you are just at the beginning of what can be a long and satisfying career. Enjoy the enormous amount of learning you will do over the first few years as an accountant, and be open to new experiences. Ask lots of questions and show interest in the work. Armed with the wonderful education you are getting here at Wayne State University, you already have an important building block for success and a bright future in the accounting profession.
With that, let me thank you for your attention and for inviting me here today to speak. I look forward to answering your questions and hearing your feedback.
 Carol Wiley, The History of Accounting, available at http://www.accountingedu.org/history-of-accounting.html (updated April 2013).
 Bureau of Labor Statistics, U.S. Department of Labor, Occupational Outlook Handbook, 2016-17 Edition, Accountants and Auditors, available at http://www.bls.gov/ooh/business-and-financial/accountants-and-auditors.htm.
 The American Institute of Certified Public Accountants (AICPA) has over 400,000 CPA members, though not all CPA's are members of the AICPA. AICPA, 2016 Annual Report at 4.
 Bureau of Labor Statistics, U.S. Department of Labor, Occupational Outlook Handbook, 2016-17 Edition, Accountants and Auditors, available at http://www.bls.gov/ooh/business-and-financial/accountants-and-auditors.htm.
 AICPA, 2015 Trends in the Supply of Accounting Graduates and Demand for Public Accounting Recruits at 2 (August 2015).
 Continued rise predicted for accountants' starting salaries, Journal of Accountancy (Nov. 2016) at 9.
 Center for Audit Quality, 2016 Main Street Investor Survey at 10-11 (Sept. 2016).
 Audit Analytics, 2015 Financial Statements: A Fifteen Year Comparison at 1 (April 2016).
 AS 1001.01, Responsibilities and Functions of the Independent Auditor.
 AS 1215.04, Audit Documentation.
 See Proposed Auditing Standard—The Auditor's Report on an Audit of Financial Statements When the Auditor Expresses an Unqualified Opinion and Related Amendments to PCAOB Standards, PCAOB Release No. 2016-003 (May 11, 2016) and Proposed Auditing Standards—The Auditor's Report on an Audit of Financial Statements When the Auditor Expresses an Unqualified Opinion; the Auditor's Responsibilities Regarding Other Information in Certain Documents Containing Audited Financial Statements and the Related Auditor's Report; and Related Amendments to PCAOB Standards, PCAOB Release No. 2013-005 (Aug. 13, 2013).
 AS 1015.07, Due Professional Care in the Performance of Work (emphasis added).
 AS 1015.09.