As you may have seen, RSM US laid off a bunch of people yesterday — at least 460 to our knowledge. Accounting Today reported 5% of consulting was slashed, that seems more than the figure of 260 people we were told by a tipster (with another 200+ in audit). Safe to say times are tough.
But are they? Are they really? Sure, demand for consulting services is down as businesses clench their buttholes in anticipation of a significant economic downturn — sphincters have been getting a workout for like two years now and so far a spectacular crash hasn’t come — but how do you explain all the audit cuts? The official line from firms is “lower than expected attrition” on top of “business conditions” but there’s got to be more to it than that.
More importantly, how can these firms look people in the eye as they recruit on college campuses and go into high schools to preach the joys of a career in accounting when you have headlines like this followed by large layoffs just two months later?
A total coincidence, surely.
Last year BDO told the Financial Times it was the accountant shortage that was driving them to double its offshore workforce. “We are seeing a tremendous talent shortage in the profession,” said BDO USA CEO Wayne Berson to FT. “While it would be nice to just hire domestically, you have got to be open to the notion that maybe someone else has something that you don’t have, that you can buy.”
In early 2023, BDO laid off about 125 people and then leadership hopped on a plane to India to party. Bad optics to say the least.
“Accounting is stable,” the peddlers of the profession say. We say it too. I was working in CPA review back in 2007 when the economy began to sour and as the shit was unceremoniously introduced to the fan in 2008, business was booming. Accounting and government, those are the two industries that consistently hired throughout the financial crisis. Perhaps the only two. Stability has always been the profession’s biggest
Sure there were layoffs back then. Offers occasionally got rescinded, incoming classes of associates were slimmer than the fat years that had come before. But on the whole, unemployment in the sector remained low.
What’s different now in 2024 compared to 2008, besides needing to Klarna your groceries, is that outsourcing was practically unheard of back then. In 2010, less than 2% of PwC UK’s audit work was performed offshore. We’ve heard of firms with as much as 60-70% of work being done needfully these days.
I don’t want to hear shit about an accountant shortage anymore.
The people have told firms what needs to be done to get students interested in accounting, meanwhile firms are thumbing their noses at the idea of paying people with five years of education what they’re worth and holding out for a near future where AI can effortlessly do the work of 25 interns, supervised by offshore seniors getting paid 1/6th of onshore ones. Firms are doubling and tripling down on offshore staff, stretching their tentacles into smaller cities in India because, get this, rent’s too high in Mumbai. This is Reuters in July 2023:
The world’s major accounting firms are stepping up investments in new Indian facilities away from bigger cities as global demand for cheaper back office operations grows and smaller towns move up the economic value chain.
…
Business service exports have become a critical part of India’s economy but the sector has been hit by a slowdown in global demand for software and challenges in big urban centres such as rising costs, high attrition and slow progress in getting workers to return to the office after the pandemic.
And then you’ve got The Powers That Be who, in their infinite wisdom, are opening up the gates so that foreigners don’t even have to leave their town to be licensed as a Certified Public Accountant in this country. Some 300,000 workers in the Philippines currently answering customer service calls for US businesses are about to be put out of work by AI, that’s a whole lot of bodies to throw at accounting grunt work. The outsourcing industry has its own training programs that can turn an unemployed call center worker into an offshore associate for a US-based accounting firm in a matter of months or even weeks. See where this is going? Nothing against offshore workers, this isn’t their fault.
Of course students aren’t buying what the profession is selling. Look at what the biggest, most profitable accounting firms in the country — and world, really — are doing.
Lemme loop in this comment quick:
Comment
byu/Tiny_Basis1852 from discussion
inAccounting
The experience is being offshored as well. What’s the next generation going to learn if all the work they used to do to cut their teeth is sent overseas?
Maybe in five or ten years when excessive offshoring starts blowing up in firms’ faces things will change for the better. Or maybe that’s a quixotic position to take and we should all start being extra nice to the offshore team because they’ll be the managers some day in the not-so-distant future.
See also:
My friends and I (all CPA’s) talk about this issue quite often. Seems like this industry is in a death spiral. Firms are sending the work offshore and as the article pointed out, the experience goes along with it. I would wager that in 5 or 10 years, we are not going to have enough experienced managers here in the U.S. to manage the offshore teams. Because let me tell you, I don’t care how much experience the offshore team members have, their work is always trash in my experience. I’ve had managers send me tax returns riddled with mistakes. Nothing against the offshore people, tax is difficult even for people who have lived in the U.S. their entire lives.
Lastly, I believe this is going to create a ton of opportunity for CPA’s here in the U.S. to startup their own firms because Americans are not going to want to virtually deal with offshore people with heavy accents. I know I don’t want to deal with them, it made me want to pull my hair out when I did.
I would be very surprised to find out that the partners at these firms that are offshoring have not thought this through. I’m sure they have but they don’t care. The boomers (and gen Xers to an extent) are hell bent on raising the value of their firms as much as possible and then dumping them on private equity and riding off into the sunset. The future stability of their firms and the industry be damned.
I agree that ultimately this is a race to the bottom (or a death spiral, as you described). Offshoring has reached a fever pitch in the last few years, with firms outside of the top-20 in revenue beginning back-office operations in India and the Philippines. I’ve worked on some teams where our offshore teams were legitimately helpful, but it required a ton of training on front end, and at least annual visits from US-based seniors managers and partners to perform “maintenance”. If companies don’t put in that effort, they’re going to get poor results. As you said, tax is complex, even if you’ve been working within the system for decades.
I think the real complicating factor is private equity. Before their involvement, only the biggest firms could set up offshore teams. It requires a significant upfront investment of time and money, and the gains are marginal initially. Offshore teams pay off financially when they’ve been established for a few years, have reliable processes in place, and have substantial support from the US organization. Private equity investment has made offshoring possible for smaller firms. And because private equity’s sole concern is increasing profits, the death spiral begins on both sides of the ocean. US firms backed by private equity will spend money now to save money later through offshoring, and save money now to pay for offshoring by reducing staff levels domestically. The offshore teams, while dramatically cheaper than their US counterparts, still have to navigate a challenging labor market. In India, for instance, it’s much more difficult and time-consuming to change firms than it is in the US. US firms know this and will take advantage of local labor laws to save more money where possible, which suppresses salaries on the offshore teams. Couple that with a PE-backed US firm that probably doesn’t care about long-term success, and you have a recipe for a race to the bottom.
Where does it end? I believe the pendulum will swing back the other way in a few years. The PE-backed firms that are starting offshoring operations now won’t do the tough work necessary to make their offshore teams successful. If AI grows and performs as expected, it can replace a significant portion of the services performed offshore. Some firms are beginning to see a real dearth of experience in the associate through manager level, and I agree that situation will get worse before it gets better. There’s no substitute for domestic tax or audit professionals, and eventually firms will realize that again.
The accounting industry has been in a race to the bottom for decades, and the recent spate of mergers combined with an influx of PE dollars has only accelerated the problem. The current crop of boomer partners running firms are viewing this through a short-term life window and they know when all of this comes to roost they will not have to deal with cleaning up the disaster they have created. I say this as a non-equity partner at a Top 100 firm, I have literally had the senior partners laugh in meetings when they tell us junior partners that none of this is their problem because they will be gone by the time it hits the fan.
The profession is dying as the previous value propositions are no longer relevant or appealing to the current generation. At most of the big and mid-sized firms, becoming a partner seems increasingly less relevant as the role increasingly becomes that of a highly-credentialed manager whose main priority is managing the sweatshop overseas, and not that a trusted professional advisor.
“…meanwhile firms are thumbing their noses at the idea of paying people with five years of education what they’re worth…”
The fundamental problem with this statement and with the 5th year from inception is that they are not worth more to employers just because they have a 5th year of school. Staff accountants take time to train to the point where they can produce at a level equal to or greater than their salary. Most of the time in my experience that falls around the 1 1/2 point, with a wide variation based on the individual. Now that they can leave after 1 year and get their CPA, many of them never reach that point.
I’m not buying that I need to pay people more to subsidize an inefficient system created by the Big 4 and AICPA.