Monday, February 26, 2024

America is short on certified public accountants. India should bridge the gap

The US is facing an acute shortage of certified public accountants (CPAs), with large numbers set to retire soon and insufficient numbers training to replace them.

Financial Times columnist Stephen Foley wrote recently that one response from business has been to outsource more accounting work, particularly to India. Another response has been to raise salaries and hasten promotions.

However, the demand for accountants continues to rise in the tech and financial sectors, and is bound to grow in the area of carbon accounting as well. This induces people with accounting knowledge to take up lucrative jobs in these industries, further shrinking the supply of CPAs.

India could potentially gain from this development, both by absorbing more outsourced work and by sending qualified people to the US to become CPAs.

A CPA is like an Indian chartered accountant. According to the US government’s Bureau of Labour Statistics (BLS), “Public accountants work with financial documents that clients are required by law to disclose, such as tax forms and financial statements that corporations must provide to current and potential investors. Some public accountants concentrate on tax matters, advising corporations about the tax advantages of certain business decisions or preparing individual income tax returns.”

Other public accountants specialise in forensic accounting, and offer advisory services on cash flow, insurance, investment, retirement, financing children’s education or buying a home.

All public accountants are not CPAs. That C, which stands for certified, makes a big difference. CPAs are certified by the Association of International Certified Professional Accountants, follow their code of conduct, and are required to put in a certain number of hours of continuous learning throughout their career. The AICPA demands 150 credit hours of college, in contrast to the standard 120 credit hours, as a pre-condition for certification. This typically calls for an extra year of tuition and a longer wait to enter the job market.

Therefore, according to a career profile from a university, CPAs are seen as better qualified to perform accounting functions and are allowed to perform duties that other accountants cannot, including:

Preparing audited financial statements: This is needed for reports filed with the Securities and Exchange Commission (SEC), a requirement for all public companies.

Representing clients before the Internal Revenue Service: A CPA can represent taxpayers and companies in the event of an audit. While accountants can prepare tax returns, only a CPA can defend a return if the IRS or state tax authorities have questions or concerns.

Conducting company audits: While in-house audits may be completed by an accountant, external audits or auditing of public companies is always handled by a CPA.

The demand for accountants and auditors is forecast by BLS to rise by 4% a year over 2022-32, faster than the 3% overall growth in demand for workers.

America’s Society for Human Resource Management also reports that fewer students are keen to become public accountants. To make matters worse, as Stephen Foley points out, about a quarter of active CPAs are slated to retire in the next few years, along with other members of the baby-boomer generation.

The world’s largest accounting firms have been coping with this by outsourcing more accounting work to places where there are plenty of accountants, such as India. Some also try to offer financing for education in the field in the US.

At present, the US does not consider India’s chartered accountants to be automatically eligible for accreditation as CPAs. Aspirants have to be certified first. This, however, is no big hurdle for Indian chartered accountants, who undergo a gruelling course to qualify as CAs.

The new, credit-based system of graduation in the National Education Policy should help students who wish to qualify as CPAs to accumulate the 150 credits needed to take the certification exam for CPAs. Accountants could well join the stream of high-skill workers moving from India to the US, which currently includes information technology and medical professionals.

The work that big accounting firms outsource to India will create many high-value jobs here as well. Our education system must gear up to produce greater numbers of accounting professionals to meet the growing demand both within and outside India. The government should also continue its efforts to have Indian professional standards in accounting recognised in major economies.

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