The Tax and Audit Career Tracks (#219)
/In this podcast episode, we discuss whether a student should go into tax or audit in a public accounting firm, and what type of exit strategy to have. Key points made are noted below.
Personality Matching
A job in tax is quite different from auditing. You might want to consider how your personality meshes with each one before making a decision. For example, in tax, you work in a cubicle or office in one place, most of the time. In auditing, you’re nearly always working off-site at client locations. So, which do you prefer? If you like to live in the city, you may not even own a car, in which case auditing could be tough.
At the more senior levels of tax work, this can change. You may end up visiting clients to give them tax advice, so there might be some travel – but still a lot less than what an auditor goes through.
Client Interaction
Another difference is in client interaction. In tax, a lot of it is over the phone or with e-mails, where you’re just trying to get clarification about information that’s going into a tax return. In auditing, you’re constantly asking clients for information, and questioning why they did things – and it can get adversarial – which is one of the reasons why the turnover rate in auditing is so high. So if you’re a major introvert and especially if you don’t like confrontation, taxation may be better for you. If you’re an extrovert, auditing might be a better choice.
Working Hours
Another issue is the working hours. Tax is well known for having epic working hours during tax season – say, 90-hour work weeks, or more. And being better at scheduling or being more efficient doesn’t make that much of a difference, because the real problem is the clients – they usually don’t send their financial information over until the last minute, so the tax staff can’t get started until the last minute either.
However, that is during tax season. There are some other work spikes at various times during the year, but tax season is by far the worst. Most of the time, the working hours for tax people really are not that bad. In comparison, auditors routinely work long hours, but not in one massive burst, like the tax people have. Instead, extra work hours tend to be associated with particular clients, so if one client is a mess, the work level goes up. At other times, it could be a normal 40-hour week.
If you look at hours worked over the course of an entire year, I would say that auditors work more hours.
Specialization
A major difference between audit and tax is that once you’re in tax, you stay in tax. It’s a very specialized field, so even if you leave the audit firm, you’ll probably keep doing tax in the private sector. Smaller companies almost never have an in-house tax person, so that means your options are to do tax for a large company, or to be a tax consultant and do taxes for individuals or smaller companies.
An auditor, on the other hand, goes into managerial and financial accounting in the private sector. That means there’re all kinds of sub-specialties to branch out into, such as preparing SEC reports for public companies. And there’s the opportunity to work your way up to the controller or CFO positions – so an auditor can potentially go into senior management. In short, there’re more career options for someone who starts as an auditor, as compared to someone who starts in tax.
The Money You Can Earn
The other question was about exit strategies from public accounting. Before we talk about leaving, let’s talk about staying in. It’s just like any job. If you like what you’re doing, why leave? And there’s an extra inducement in the audit and tax profession, which is the amount of income that the partners earn. According to the Economic Policy Institute, it takes an income of about $400,000 to be in the top 1% in the United States in terms of income. In the Big Four audit firms, you can go from being a poor college graduate at age 21 to being in the top 1% as a partner at age 35. So if you can, stay in. It’s pretty hard to make that kind of money anywhere else in the accounting profession.
The Departure Rate
That being said, a lot of people leave the Big Four every year. Figure on your odds of being counseled out at about 15 to 20 percent, every year. So the exit strategy may be taken care of for you, whether you want to or not. But if you have the choice, the real target is to reach the manager position. If you leave an audit firm at a level below that, you’re probably going to move into a lower-paying staff job in the private sector. But as a manager, you may qualify right away to move into a controller position – which pays quite a bit more money.
It doesn’t make a great deal of sense to wait longer to make it to the senior manager position and then quit, since it doesn’t bring any additional benefit. Instead, I’d say get to the manager position, work there for a couple of years, and then move on.