industry experience

I am CPA - equivalent in rather small regional audit practice in a country in Middle Europe. Locally, big four companies are considered top experts in audit, excelling in larger companies audits. But they also do smaller and mid size companies. They do it charging much more in fees than mid tier companies not to mention smaller regional auditing firms like the one I work for. Once or twice our paths crossed. Me a CPA doing a statutory audit and audit teams of 2-3 people at their 20s doing an audit of a consolidation package of the same client. I sometimes audited the same client the next year after it was audited by a Big four. Well, the clients' comments apart (young clueless people stressed to do the job they don't understand), I was not really impressed. One client had to go through major fundamental error adjustments. I can't believe the partner or manager at Big 4 was unaware of the omission or maybe he didn't care to understand. It could be this type of reckless approach that led to big accounting scandals. Some companies cooked their books for years while they were being audited even though it was very easy to see how they did it. I think that there is too much time being spent on procedures, "planning" and creating volumes of files, doing stuff complicated beyond understanding and too little in trying to understand how a client is trying to fool you knowing the young blokes just don't get the sh#$$#. Don't you think young associates should first gain some industry experience before they join audit firms? 



That's an interesting idea, and I'm sure industry experience will help, but once you start in the industry, it is really hard to switch to public accounting. And to be honest, the model works best for young kids out of college who still have the energy to work long hours. And to be honest, as a staff accountant in the industry, you usually don't get to see enough to have that valuable knowledge to add to the audit practice. The same applies for banking and consulting - they need young and hungry, not old and experienced and content unfortunately.
Certainly an interesting idea though, maybe having certain controllers serve in an advisory role to the Firms while they develop their audit programs would help.

dealing with ex auditors

I have a question - how do you deal with auditees (especially those who have prior audit experience and therefore think that they know everything) who question your audit methods? I could explain my audit methods, but I don't see why I should, and it seems like the client is just being difficult for no reason (or to stall for time). 


To be honest,  back when I was a staff associate, I liked it when clients challenged my audit methods - this made me understand why I'm doing what I'm doing so I could create an effective argument for it. Clients are inherently difficult just because they don't like doing additional work if it doesn't add value for them - unfortunately nature of the beast, and this is a majority of clients. Best way to overcome this is to explain why your methodology is necessary. Sometimes, if you don't agree with the methodology or think the requests are excessive, sympathize with your clients but explain to them that it's just the rules we have to follow. Some will get it, some won't. 

Clients who were previously auditors are an interesting lot - the worst of them being ones who spent less than 4 years in the audit practice, and now think they know everything there is to know about auditing. You'll see this everywhere - you'll win some over, and butt heads frequently with others. Unfortunately there is no magic answer. Adapt and achieve.

Future of the Big 4

How do you see the future in this industry, say 5 years down the road? Hours are inevitably longer, and pay may never catch up to the hours worked since no one ever agree on the fee inflation. All of our work are statutorily based, and we are never really adding too much value that will generate revenue for the clients in my opinion. Is it better to switch out to other areas of the firm like non assurance services where it may be more meaningful? 

The way I see it, audits aren't really a growth area for the Firms, but rather, just their bread & butter to chug along at a mature growth rate. And the Firms know that, they've known that for years, which is why they invested heavily in consulting, and then got completely sidetracked by the Arthur Anderson fiasco. Now the Firms are slowly building back their consulting business, albeit very careful to make sure that everything's straight from an independence standpoint. They know if that they want their profits to increase, given the increased regulation in the audit world, they can build on their resources and consult on a variety of projects. This can be very uneven and cyclical due to the economy, and will not provide the job security that auditors have, but it's definitely what the Firms intend to do over the next 10-15 years. 

In terms of whether you should switch out, it all depends - do you value job security, do you like the consulting aspect (travelling a majority of the time, uneven times where it's really busy or not busy at all), your future career goals, etc. All these factors play a role in what you want to do.

A little history is in order here for anyone interested:

a) PWC sold its consulting business to IBM in 2002 - IBM's consulting unit is doing pretty well.
b) KPMG spun off BearingPoint in 2000. BearingPoint is now bankrupt.
c) Ernst & Young sold its consulting business to Cap Gemini in 2000. Cap Gemini is doing well.
d) Deloitte elected to keep its consulting business, and it has proven to be a great decision in hindsigh.
e) Arthur Anderson split its consulting business in 2001. That consulting business is Accenture, which has obviously gone on to do really well, unlike Arthur Anderson.

Notice something about these years? All occurred during 2000-2002.The Enron scandal happened in 2001.
Now we're slowly trying to build it back up - with the benefit of history though.

New world

I've posted a few blogs earlier on this new world that we live in. This is a world where we're auditing for the regulators (PCAOB) instead of auditing for investors. We're auditing in fear of the PCAOB or our internal reviews finding something instead of auditing using a sense of reason. This is an era of upheaval that, from my understanding, harkens back to when 404 was first implemented. There is a sea change going on at the Firms because of the new PCAOB demands. It's certainly painful for the people implementing this now, but it'll be fascinating to see if this changes. Once the dust settles on this internal control rehaul, will the PCAOB choose a new battle to fight that will cause another upheaval in the near future. The PCAOB is turning into a dangerous animal, especially since it's backed by the government and is paid for by the private sector (mandatory PCAOB fees for all issuers). With that kind of funding, and with teams dedicated to different accounting firms, what is the incentive for them not to find new issues every years in order to prove their usefulness. Now, don't get me wrong, some of the "clarifications" by the PCAOB of its standards makes sense. You'll hear from most partners informally that the PCAOB is neither just right, nor too much, but somewhere in between. The Firms are certainly pushing back against the PCAOB, but they aren't winning all the battles, and so the auditors have to bear the burden of the battles they lost. Until the SEC conveys this message to the clients instead of the audit firms, there will continue to be even more hostility shown by the clients towards the additional requirements we're asking to be implemented.
The problem with this, for many of the individuals working at the Firms, is that the burden falls on us. This leads to increased hours and increased stress, with the rewards not increasing in proportion. Our fees are not increasing proportionally with our hours, leading to more stress on profitability. A majority of the partners believe that this is just a cycle, and that we will revert back to the mean soon. They may be right,since they've spent more years and have seen several more cycles than us. What is interesting is that since many managers and snr mgrs haven't experienced something like this, they're dealing with the unknown and do not expect this to go away, leading to many of them looking to go away. At the same time, the new blood at the Firms wouldn't know anything else, and it could only get better from here. All in all, the audit factory continues to churn, like it always has.

salary change upon transfer

Quick question - If you're given the opportunity to stay within the firm and transition cross functions in a Big 4, say from Audit to Advisory/IT Risk, do they adjust your salary to match your peers in the destination function? Would a first year audit senior transitioning to a first year advisory senior make the same as if he started at the firm as an advisory staff? 


It depends on when you leave, and it depends on the Firm. If you transfer after the Firm's decided your salary for the upcoming year, then you will have the same salary that your previous group had agreed to until the next year. Also, some Firms claim that your pay is based on your previous year's work, which was in a different group, so they'll carry over that salary, and some Firms will adjust your pay. Timing is basically key. In terms of your second question about the audit senior going to an advisory senior, yes, you will be within a close range based on the level you are at. Keep in mind that while audit is more structured, the pay bands in advisory are wider and a little more performance-based than audit. There are also some groups that hire externally that pay you based on your experience at other companies, and your prevailing wage at that company. This is usually the exception.

hobson's choice

I've been reading through the posts and I get the feeling that many people feel that they have no control over their actions; they are driven. What if you and they knew that it is up to the individual to determine their own response to e-mails, to stress, to unrealistic demands - to whatever they encounter? You and they have a choice. What makes people so readily give up the power over their own lives? 


Deep. You are right - most people have a choice. They can choose to leave at any time to pursue other opportunities. But they stay since they know they have to put a few years in in order to get a better opportunity elsewhere.  And so they've effectively reconciled themselves to staying for a few years.

Now, in terms of determining responses to emails, stress and unrealistic demands, individuals do have a choice, but they can't control the consequences. That's where the issues rise. Let's take email responses. You have a choice to do the following:
a) Ignore the email/saying no without a justified reason - This angers your boss, since he or she is still waiting on your recognition of the emai/task-at-hand, and so this could lead to many things - negative attitudes, bad reviews, and unfavorable opinions provided to others.
b) Follow the instructions in the email - None of the above happens, your bosses like you, and continue to provide more work to you, and put you on tough jobs, making your life more painful.

So you likely go with b), and effectively give up control. There are many who would say exactly what you're saying: you always have a choice to leave. I will not disagree. The issue though, is that after we've made that choice, there's this illusion of choice we have that doesn't exist. And because of that,we suffer, knowing that there's ways to improve this but we don't have the power to do so. Sometimes, we know it can't be improved, so we vent as a way to release our stress, and then keep plodding along until we reach a point where we can't take it anymore or accept that this is the best path for us career-wise.

Now, there are several choices we can make, and strategies we can utilize, to survive successfully at any Firm. But it could only be utilized effectively to an extent. 

It's the same reason why the smartest people choose to be bankers at goldman sachs and hate their lives instead of choosing to be  teachers or working in non-profits and feel fulfilled. They made that choice. It's sad. But they do it for the same reason we work at these firms, it's  all about the benjamins unfortunately.

Compensation!

Been a month or so since we found out about our compensation. People asked me how I thought the raises would be, and I honestly had no idea. The higher up you go, the less you hear the gossip since many of your colleagues who started with you have left. It is really funny how open some people are about compensation sometimes. The staff always seem excited because they've never been through this process before.
 Overall, compensation this year seemed to be within expectations. I've really become numb to it at this point, it's nice to have the number increase, but that's about it. For those of you interested in numbers, head to going concern.