Accounting Talent Gap: Implications for the Audit Market

Abstract

This study examines the implications of accounting pipeline shortages on the audit market. Using education data from IPEDS, we demonstrate a significant decline in the accounting pipeline post 2015. The scale of local accounting graduates is negatively correlated with future audit quality. Importantly, investing in human capital with data science skills mitigates the harm of accounting pipeline shortages: clients hiring more accountants with such skills do not suffer from their auditors’ labor shortage, particularly when their likelihood of non-clerical restatements is examined; auditors employing more dedicated data science personnel also do not see their labor shortage being associated with their clients’ likelihood of non-clerical or material restatements. The harm of labor shortages is more pronounced for clients in the same state facing similar labor shocks, clients with weaker market power, and auditors in states with a smaller stock of accountants or lower wage growth for accountants. 

Keywords: accounting pipeline shortages, accounting graduates supply, audit quality, restatements, data science skills