A FIRST LOOK AT THE EDUCATIONAL COMPETENCIES DESIRED BY MID-SIZED CPA FIRMS

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1 A FIRST LOOK AT THE EDUCATIONAL COMPETENCIES DESIRED BY MID-SIZED CPA FIRMS Loren Margheim 4834 Judi Hora 4220 Diane Pattison 4850 Introduction Research examining the educational competencies desired by public accounting firms has generally focused on the professional staff of the Big-4 CPA firms. However, mid-sized firms have grown since the consolidation process that led to the Big-4. Mid-sized firms are now engaged in hiring more staff directly out of accounting programs and, in many instances, have their own national training programs for new staff. Further, many of these mid-sized firms have also developed their own internship programs to attract new staff to their firms. However, midsized CPA firms often try to differentiate themselves from the large CPA firms by indicating in their recruiting process that they have different needs and desires when hiring and promoting members of their professional staff. The primary purpose of this study is to examine the educational competencies that mid-sized CPA firms value in their professional staff when making promotion decisions to senior, manager, and partner levels. Prior research has not examined the educational competencies desired by mid-sized CPA firms. Secondarily, the study examines the perceived advantages of working for a mid-sized CPA firm versus the large, Big-4 firms. This study surveyed partners in mid-sized CPA firms. The partners were asked to indicate the educational competencies that they felt were in important in their firm to be promoted from staff to senior, from senior to manager, and from manager to partner. They were also asked to indicate their perceptions of the advantages of working for a mid-sized CPA firm. Subjects Mid-sized CPA firms were identified from Public Accounting Report s Top 100 Largest Public Accounting Firms. The Big-4 firms were excluded and mid-sized firms were determined by a 1

2 combination of number of partners and annual revenue. An AICPA list of randomly selected partners from those mid-sized public accounting firms of interest yielded 1,381 partner names who were mailed the survey instrument. There were two mailing of the survey instrument resulting in a total of 699 usable responses. This represented approximately a 51% response rate. Demographics, Credentials, and Work Experience of Respondents An examination of the personal characteristics of the survey respondents indicates that out of the 699 respondents, 298 were audit partners, 86 were consulting partners, 271 were tax partners, and 44 were other types of partners or did not specify a specific field. In addition, 90% were male and 98% described themselves as being Caucasian. Examination of the professional credentials and work experiences of the respondents indicates that 70% of the respondents held a single bachelors degree while the remainder held multiple undergraduate degrees or an advanced degree. Overall, 99% held CPA certificates. Interestingly, only 36% of the respondents indicated that they started their career at their current firm while the other 64% indicated they started with another employer. Not surprisingly, out of that 64% that began their career at another firm, 84% of them began their career at another public accounting firm and, further, 65% of them were hired into their current mid-sized firm at the manager or partner level. These results tend to confirm what many public accountants have long suggested, namely, that in the past, mid-sized CPA firms often hired a significant amount of their professional staff directly into manager and partner positions after those individuals had gained significant experience at other, larger firms. Educational Capabilities Desired Respondents were asked to indicate on 5-point Likert scales the importance of each of the following competencies and skills for promotion from staff to senior, from senior to manager, and from manager to partner: Technical competence Communication skills Leadership skills Interpersonal skills Administrative skills Practice development The scale ranged from 1 (not important) to 5 (very important). Staff to Senior Competencies for Promotion. The results for the staff to senior promotion process indicate the following mean responses as to the desired competencies needed for promotion: Technical competence Communication skills Leadership skills

3 Interpersonal skills Administrative skills Practice development As can be seen in the table above, the partners in our mid-sized CPA firms perceived technical competence as the most important educational competency needed for promotion to senior in their firm. This was followed by communication skills and interpersonal skills. Ranking lower were leadership skills, administrative skills, and practice development skills, respectively. These results were almost identical when examining the responses of partners from the different accounting specialties (e.g., audit, consulting, and taxation). Overall, these results suggest that partners in mid-sized accounting firms believe that the technical competencies and the communication skills that their entry level professional staff brings to (or acquires within) their position will be critical to the firm when making promotion decisions. This reinforces the notion that accounting educational programs must provide their students both strong accounting technical skills and strong communication skills if the student plans on being successfully promoted to senior in the firm. Senior to Manager Competencies for Promotion. The results for the senior to manager promotion process indicate the following mean responses as to the desired competencies needed for promotion: Technical competence Communication skills Leadership skills Interpersonal skills Administrative skills Practice development As can be seen in the table above, the rankings of the qualities needed for promotion to manager are identical to those previously seen as needed for promotion to senior. Specifically, technical competence and communication skills were ranked the most important skills, followed by interpersonal skills and leadership skills, respectively. Administrative skills and practice development skills were the lowest ranked skills needed for promotion to manager. There are, however, some key differences in these results examining promotion to manager versus those for promotion to senior. Specifically, the individual mean responses were higher for all of the competencies and skills for the promotion to manager than for the promotion to senior. In particular, four of the competencies received mean responses over 4.0 for the promotion to manager decisions while only the top two competencies for the senior promotion decisions received mean responses above 4.0. These results suggest that to be promoted to manager, the same competencies that drove the decision to promote a individual to senior are still key, but the individual must excel in a broader range of competencies than was required for someone being promoted to the senior level. Similar to the senior promotion decision, these results were almost identical when examining the responses of partners from the different accounting specialties (e.g., audit, consulting, and taxation). 3

4 Manager to Partner Competencies for Promotion. The results for the manager to partner promotion process indicate the following mean responses as to the desired competencies needed for promotion: Technical competence Communication skills Leadership skills Interpersonal skills Administrative skills Practice development Examination of the competencies and skills needed for promotion to partner indicate that individuals must show strong skills over the entire range of competencies with five of the six competencies receiving mean responses well above 4.0. However, the relative importance of the individual competencies seems to be quite different than for the prior two promotion decisions. In particular, the communication, leadership, interpersonal, and practice development skills rank as the most important to be promoted to partner in mid-sized accounting firms. While technical competence continues to get a very high mean importance response, it falls to being fifth in importance followed by only administrative skills. Again, these results were almost identical when examining the responses of partners from the different accounting specialties (e.g., audit, consulting, and taxation). Perceived Advantages of Working in a Mid-sized Firm The responding partners were also asked to indicate their perceived advantages for working in a non-big 4 public accounting environment. The survey provided a list of potential reasons and a blank for the respondent to include additional reasons. Two key advantages emerged from the results. First, 88% of the respondents indicated that developing more personal client relationships was a key advantage of working in a mid-sized firm over a large firm. Second, 72% of the respondents indicated that having a more personal work environment was a key advantage of working in a mid-sized CPA firm. Several other advantages were noted by the respondents, but were cited by significantly fewer of the respondents than the two key advantages noted above. Specifically, less travel was cited by 38% of the partner respondents, while more flexible hours and a less stressful environment were both cited by 21% of the respondents. Only 4% of our responding partners cited less overtime as a key advantage of working for a mid-sized CPA firm. These results are somewhat surprising in that many students believe the main reasons for joining a mid-sized firm is for the less stressful environment and the lower amount of overtime that would be required. Perhaps with the growth in these mid-sized CPA firms since the large firms merged into the Big-4, those perceived advantages may have, in actuality, dissipated. Further research would be needed to examine and confirm this possibility. 4

5 Summary and Conclusions The critical results of our survey of partners in mid-sized CPA firms are summarized below: 1. Technical skills are critical skills needed for promotion to senior, manager, and partner positions in these firms. However, technical skills fall in relative importance in the partner promotion decision and ranks below softer skills (e.g., communication, interpersonal, leadership, and practice development skills). 2. Communication skills are very important for individuals in mid-sized CPA firms and the importance of those skills grows all the way through the partner promotion decision where they were ranked as the most important skill. 3. Leadership and interpersonal skills are also very important to these mid-sized CPA firms and, similar to the communication skills, their overall importance grew as the promotion to partner decision approached. 4. There is broad consensus among the responding partners as to two key advantages of working in a mid-sized CPA firm versus a larger firm. Specifically, the respondents indicated that working for a mid-sized CPA firm produced more personal client relationships and a more personal work environment. However, relatively few of the respondents perceived that there would be less overtime or there would be a less stressful work environment in mid-sized CPA firms. 5