Reforms to alleviate the burden of Sarbanes-Oxley compliance and the slowing economy may finally be taking a bite out of the Big 4 firms, which reportedly are laying off waves of workers now that demand for their services has diminished.

Deloitte has confirmed market rumors that it is dismissing some 800 professionals and staff throughout the United States, primarily from its audit and risk consulting services. Deloitte representative Deb Harrington says the firm is adjusting staffing to meet client needs.

In a prepared statement, Harrington said the firm is reducing costs “to better reflect business and client needs … Like our competitors, we are affected by a number of economic events, including the overall slowdown in the U.S. and global economies.”

Harrington went on to say that while Deloitte is cutting 800 in audit and risk services, it’s also hiring in other areas, although she would not elaborate. “I can’t be specific about where there is more demand at this point,” she said.

PricewaterhouseCoopers was rumored earlier this year to be letting go anywhere from 100 to 1,000 staff in its advisory services, but the firm has declined to comment on that. KPMG and Ernst & Young also declined to discuss whether they are adjusting staffing levels.

McDonald

Paul McDonald, executive director at recruiting firm Robert Half Management Resources, says he’s familiar with the annual springtime ritual where the Big 4 thin out their staffing based on performance reviews. That hasn’t been as much an issue in the past five years with Sarbanes-Oxley creating a huge demand for accounting talent, but this year may be different, he says.

“Within the Big 4, it’s been hire, hire, hire,” McDonald says. “Now that Sarbanes-Oxley is less of a project and more of a process within organizations—they’ve digested it and integrated it—services for that may be down. There’s less spend going on for non-necessary services.”

“Now that Sarbanes-Oxley is less of a project and more of a process within organizations … services for that may be down. There’s less spend going on for non-necessary services.”

— Paul McDonald,

Executive Director,

Robert Half Management Resources

Blame—or thank, depending on your point of view—the arrival of new, relaxed SOX compliance rules last year. When companies first grappled with SOX in 2004, the Public Company Accounting Oversight Board ushered in Auditing Standard No. 2, a highly prescriptive approach to auditing internal control over financial reporting. That drove a frenzy of new testing of internal controls, both by management and by auditors.

While AS2 was a bonanza for auditing firms, Corporate America bristled at the cost and demanded relief. The PCAOB and the Securities and Exchange Commission relented, and last year scrapped AS2 in favor of Auditing Standard No. 5—a more judgment-oriented standard that lets companies do much more assessment of internal control themselves, which auditors then rely on. The result: less work for the audit firms.

At the same time, demand for other work that typically requires an auditing firm’s help also dropped because of the bad economy. Plans for projects such as enterprise risk management have either been reduced, shelved or taken in-house, leaving even less business for auditors to chase.

That slackening demand finally showed up in the revenue numbers for audit firms this year. According to a Compliance Week analysis of audit fees for S&P 500 companies with revenues of more than $1 billion, the median increase from 2006 to 2007 was only 3.2 percent—the lowest annual increase in years, and far below the punishing double-digit increases seen through most of this decade.

Fear Not, Young Auditors

McDonald stresses that business for the Big 4 remains brisk, and industry demand for younger accountants (those just coming out of college or with several years’ experience) is still strong. “The prognosis for students, short-term and long-term, is very good,” he says. As professionals retire, “there are not enough people coming off campus or projected to come off campus with accounting degrees to fill those spots.”

HELP WANTED?

The following excerpts were taken from Robert Half’s 4th-Quarter Financial Hiring Forecast.

Accounting and Financial Hiring—By Region

The East South Central (Alabama, Kentucky, Mississippi, Tennessee) and New England (Connecticut, Maine, Massachusetts, New Hampshire, Rhode Island, Vermont) states should see the greatest gains in hiring during the fourth quarter. A net 7 percent of CFOs in each region anticipate adding full-time accounting and finance professionals.

“Growth in the manufacturing sector in the East South Central states is among the trends driving the need for additional financial staff, particularly midlevel accounting professionals,” said Robert Half CEO Max Messmer. “In the New England region, financial analysts are needed to help firms identify further operating efficiencies.”

Accounting and Financial Hiring—By Industry

Among industries, executives in wholesale are most optimistic about hiring. Thirteen percent of CFOs anticipate adding accounting and finance employees in the fourth quarter, while 1 percent foresee a reduction in personnel, a net 12 percent increase.

The manufacturing sector also is forecast to see hiring gains exceeding the national average, with a net 11 percent of executives expecting to expand their staff levels during the final three months of the year. In both the transportation and finance, insurance and real estate industries, a net 8 percent of CFOs plan to add personnel in the quarter.

Source

Robert Half Financial Forecast (Sept. 3, 2008).

McDonald says the greatest demand for accounting and finance talent these days seems to come from overseas companies with U.S.-based operations, which are beginning to prepare for use of international accounting rules inside the United States. The SEC has signaled its intention to shift U.S. capital markets away from U.S. accounting rules toward International Financial Reporting Standards beginning as early as 2010. The early adopters are expected to be companies with overseas operations already reporting under IFRS.

U.S. companies with headquarters in Canada, Europe, and Asia are most active in looking for accounting talent, especially people with knowledge of IFRS, McDonald said. “The U.S. companies are talking to us a lot about it, but the hiring activity has not picked up,” he says. “We’re hearing a lot from our clients that as the SEC gets closer to making it the law and it appears to be imminent, that [hiring] is going to happen.”

Dubiel

Glenn Dubiel, vice president at recruiting firm the Mergis Group, says white-collar unemployment nationally is “teetering at 2 percent,” well below unemployment for the workforce as a whole. “Everybody is pretty gloom and doom, but it’s still pretty good for accounting and finance professionals,” he says. “Recruiters throughout the United States are still fighting hard to find candidates for corporations. It’s still very, very difficult to find good people. The job requisitions still outpace the qualified candidates we have.”

Dubiel says any workforce reductions that are happening tend to strike special projects not deemed essential while the economy sputters and budgets are tight. “Corporations are scaling back on projects, so contractors are not as busy as they used to be,” he says.

Data seems to support the notion that accounting and finance pros are still in demand. A recent report by job placement firm Jobfox said accounting and finance staff ranked fourth and fifth on a list of the most recession-proof jobs.

A separate report by the Platt Consulting Group, which provides consulting services to accounting firms, says the top 100 accounting firms have seen steady, sizable increases in revenues the past four years, but recent evidence suggests things are slowing down. The maturity of SOX compliance, a downturn in the economy, and rising prices for fuel, energy and health care are taking their toll even on accounting firms, according to Platt. “Consultants are predicting that the golden age of accounting is coming to an end,” the report says.

A Robert Half survey of 1,400 CFOs found that 10 percent plan to increase staff in the fourth quarter of 2008 and five percent plan reductions, which the firm characterized as an improvement over third-quarter figures. McDonald says the survey indicates CFOs are most looking for mid-level talent, or professionals with three to seven years experience, to help root out operational inefficiencies, look for opportunities to improve business processes and evaluate potential merger, acquisition, or divestiture opportunities.

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