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In the US over the past couple of years, what we’ve seen is a shortage, a very persistent shortage of accountants. And so the first motivation for the research paper was to try and understand what it was about accounting that made people not want to enter the profession.
There are explanations out there in the literature that essentially say that maybe it’s the education requirements and the licensing barriers that are preventing people from entering the profession. And there’s other research that basically documents that maybe employers have some kind of wage-setting power that essentially allows them to set the wages at an artificially low level. And I think I wanted to contribute to the conversation and to try and understand whether it was something about the work of accountants that really deterred people from entering the profession.
But to give you a little bit of context, the way that financial accounting works in the US is that, essentially, allowable financial accounting practices are governed by the Financial Accounting Standards Board, or the FASB. And essentially what the FASB does is it sets allowable guidelines for how you can account for things. And what accountants do in their day-to-day work nowadays is, essentially, they have to account for different transactions within the guidelines of what the FASB allows.
And there had always been this historical concern in the accounting profession about what would happen if we delegated more of our authority away in the profession to, kind of, the centralized standard-setting body. How would that change the nature of what accountants do? Because historically, the value add or the value proposition for accountants was really that they could sit down, think about the economic transactions that firms were engaging in, and reflect that in a set of financial statements where, if an outside stakeholder were to look at those transactions and that set of financial statements, that they could understand something about how the company operates.
So the way that I try to approach this research question, and the way that I try to measure the restrictiveness of each accounting standard, is first to look at all the standards that the FASB releases. And so you can imagine a standard that’s very restrictive in the sense that it lays out a specific set of conditions that accountants have to kind of check off in order to account for things in a certain way for that specific topic. Or you can have a very nonrestrictive standard where, essentially, the FASB just sets out general guidelines or general principles. And accountants can apply their professional judgment and critical thinking as they think about the best ways to, kind of, reflect the economic reality of the company and the financial statements.
And so I try to go through each of those statements and I pick up the share of legal restrictions within each of those standards. And so these are terms like “must,” “shall,” and “should” that are really legal terminology that denotes what you are or are not able to do. And that’s kind of how I quantify the restrictiveness of each of those standards.
What I see when I look at the job task and the activities that are being recruited for in the accounting profession is, essentially, that when the standards are becoming more restrictive, it’s shifting the nature of the profession away from creative and critical thinking and applying professional judgment. And it’s moving the profession’s work tasks more toward rules following and compliance.
And what I actually find is that this has a very meaningful impact on people’s decisions on whether or not they want to become an accountant. And it seems to be deterring people that are currently working as accountants from continuing in the profession. And it actually also deters students from wanting to become accountants in their future career.
The next outcome that I look at, the last main outcome that I look at in the study is how these rules essentially impact the pay that accountants are able to get. And so there are kind of these two opposing forces when we’re looking at the pay of accountants. And so, the first force is that the types of work that accountants are doing seems to be less desirable. And so, in order for firms to recruit more accountants, they might need to raise wages to essentially convince people to come into a profession that offers less interesting work. And so, on that hand, we might have an increase in wages, but the nuance here is that the other thing that’s happening in the profession is that the typical skills that are required for people to kind of follow rules and comply with the standards is lower than the skills that are required for kind of applying your professional judgment and critical thinking as you think about those economic transactions for the company, right? That opposing force kind of pulls down the average wage as well when we look at what happens with the pay of accountants there. And that’s very consistent with what we see in practice.
So if we look at junior accountants within the accounting firm and junior auditors, they’re really dealing with a lot of the tasks that have to do with rules following and kind of going through a checklist. And so those are relatively simple accounts where, essentially, they’re just going through a set of conditions and checking off certain boxes. A lot of the judgment-oriented tasks we’re actually seeing being handled by midlevel accountants or senior accountants, and the reason why is because those are relatively more complex skills.
And what I actually find is that when the rules become more restrictive, it seems like this nuance is very important, that the skill requirements are fundamentally changing. Because what I find is that on the average level, pay for accountants is actually going down.
And then in terms of students, it’s also not clear whether or not students would be impacted by these changes, because it’s really leading to a change in the nature of work for people that are working in the profession. But students are not directly involved in that kind of work yet. And so, it’s very unclear whether or not these students are actually impacted, but what I find is that the pipeline is also impacted, especially in areas where there’s some kind of connection between people working in practice and those students.
And so it seems like the general sentiment around accounting within the profession and also among the general public is becoming significantly more negative as the rules become more restrictive, and that might be deterring students from entering the profession.
I think the paper really shows that it doesn’t only matter how much accountants are getting paid or whether they have to go through certain hurdles to become an accountant, but what really fundamentally matters is the kind of work that people are doing. And the kinds of work that accountants are doing seems to be unappealing to people that are considering whether or not they want to become an accountant. So this is potentially something very meaningful for standard setters to consider as they write their standards in the future.
