Brace yourself: About a third of accountants are making multiple errors every week. Fifty-nine percent are goofing up on a monthly basis, in part related to closing the books. And a whopping 18% of accountants admit to making mistakes every single day that need to be corrected ASAP.
What’s going on here? A Gartner survey of 497 financial controllers indicates accounting is getting more and more challenging. One key reason: the flurry of new and revised financial regulations issued by the Biden administration as well as heavily regulated states like California.
“In the past three years, 73% of accountants report that their workload has increased because of new regulations,” says Mallory Barg Bulman, Gartner Finance senior director for research. “Economic volatility” was the most cited reason for accounting errors, mentioned by 82% of respondents.
Error rates could get even worse. “While capacity issues are not new to accounting, demands on accounting staff capacity continue to rise,” warns Bullman. “If financial and regulatory pressures continue to increase … the already limited capacity accountants will be stretched further and increase error rates.”
Controllers noted that accountants make errors in a variety of ways, such as misinterpreting data, failing to do thorough record reviews or when reopening books. Finance teams are forced to spend valuable time correcting the resulting data errors.
Gartner recommends companies utilize technologies such as automation and AI to help financial pros do their jobs better. The trick is implementing tech tools that staffers find are easy to use, easy to learn, able to be customized, and show all relevant data in one view.
Employees fail to embrace automation products that fall short in one area, so investing in technology that only hits on two or three of the four preferences ends up being a waste of time and money. Seventy-three percent of controllers surveyed by Gartner say they’re unlikely to buy, or will often end up abandoning, a tech solution that doesn’t satisfy all four staff needs.
Accounting pros miss IRS R&D tax write-off changes
Regs are coming down the pike so fast that some accountants are failing to warn clients their tax bills are about to surge. For example, the changes to research & development (R&D) tax write-offs under section 174 of the Internal Revenue Code threw small- to mid-sized companies in biotech, software and contract manufacturing for a loop.
When Congress passed the 2017 Tax Cuts and Jobs Act, one of the more significant changes was phasing out full tax credits for R&D expenses, such as software engineer salaries, from the previous year. Starting with the 2022 tax year, companies have to amortize salaries and other R&D expenses over five years. For foreign companies and tech workers outside the U.S., the write-off period is 15 years, making it an expense only the richest companies can afford.
As a result, tech firms are laying off software writers in droves to help pay their tax liabilities. A bipartisan bill to reinstate the previous law is in limbo since both parties in Congress are far apart on budgets and priorities.
Accounting board is scolding its practitioners
The Gartner survey results are mirrored by recent Public Company Accounting Oversight Board (PCAOB) inspection reports. PCOAB oversees audits of U.S. public companies, as well as brokers and dealers certified by the Securities and Exchange Commission.
PCOAB inspectors are finding as many as 40% of audits contain “one or more deficiencies where the audit firm failed to obtain sufficient appropriate evidence to support its opinion,” PCOAB chair Erica Williams told board members last fall. “That [error rate] is up six percentage points from 2021, which was already five points higher than the deficiency rate in 2020.
“This means audit opinions were signed without completing the audit work required to verify the accuracy of the financial statements. That is a serious problem at any rate, and 40% is completely unacceptable,” says Williams.
Williams dismisses accounting industry groups’ concerns that they’re stretched too thin. She instead blames the error rates on sloppiness and a lack of attention to detail. “I have challenged auditors to sharpen their focus and called on audit committees to hold firms accountable,” says Williams.
PCOAB inspections and citations are on the rise. Enforcement orders doubled from 2021 to 2022.
Where are the future accountants going to come from?
As Baby Boomer accountants retire, the demand for next generation talent will grow. Yet over the last decade, younger students have turned away from the field. The number of candidates who sat for the certified public accountant (CPA) exam plummeted by 33% from 2016 to 2021.
The main reason is starting salaries aren’t attractive enough to entice students, some of whom are taking on tens of thousands of dollars in student loan debt. Scholarships can be tough to come by. Students also complain about 150 credit hour requirement to sit for the CPA exam.
AI can help accountants but is unlikely to replace them anytime soon. Accounting giants Deloitte, PricewaterhouseCoopers and Ernst & Young all agree AI is great for time-consuming accounting tasks like data entry.
But AI isn’t programmed for “interpreting complex financial data, making strategic decisions, understanding the context behind numbers, and building trustful client relationships” like a human accountant is, according to Datarails. Researchers are discovering other AI limitations in finance and business functions.
