Accountant Deficit

Accountants are in such high demand in Southern California that Haskell & White LLP has offered to pay its employees $20,000 if they refer an experienced accountant to the firm and the candidate is hired.

“That’s how competitive it is and how serious we are about finding good people,” said Rick Smetanka, an audit partner at Haskell & White, which recently hired an in-house recruiter and is paying for new hires to get master’s degrees.

Demand has been particularly acute lately for accountants who understand the complexities of the booming real estate industry.

But demand for accountants really took off after the passage of Sarbanes-Oxley legislation in 2002, which put new burdens on the accounting done by public companies. Public companies are hiring additional in-house auditors to ensure the accuracy of their financial statements following the high-profile scandals at Enron Corp., Adelphia Communications Inc. and Worldcom Inc.

With audits now taking up as much as 60 percent more time to complete, and at higher costs, accounting firms say they are being squeezed as never before. Not only do clients have more complex work for auditors but firms also have fewer experienced accountants to do the work.

The shortage appears to be most acute for mid-level auditors with four to 10 years’ experience. Accounting firms lay the blame on the boom in the late 1990s, when college graduates opted to take technology and Internet jobs. Another drain is that many large companies are hiring their own in-house accounting staffs.

Expertise rare

Scott Farb, managing principal at Gumbiner Savett Inc. in Los Angeles, said accountants who specialize in real estate are in demand because of the booming real estate market and increased complexity in structuring deals.

In the past five years, there has been a surge in the formation of real estate partnerships and joint ventures. Public companies such as Arden Realty Corp. are being bought out and taken private, while institutional investors are pouring money into real estate as an asset class. Homebuilders, pension fund advisors and private equity firms are all hiring accountants to navigate the maze of regulations.

“I get calls regularly from real estate firms asking me if I can find controllers, assistant controllers and vice presidents of finance,” said Farb. “It’s unprecedented.”

Many accountants say an expertise in real estate is increasingly rare because of a lack of on-the-job training. Some lay the blame on the fact that two local firms that churned out many of the accountants in Southern California are no longer around – Kenneth Leventhal & Co., which was bought by Ernst & Young LLP in 1995, and Leventhal & Horwath, which filed for bankruptcy in 1992.

“I would say that 90 percent of the people in real estate accounting today came from one of these firms,” said Harvey Bookstein, a co-founder of RBZ LLP, who formerly worked at Kenneth Leventhal. “Real estate is where an awful lot of people in Southern California have made their fortunes. But now there is no entity that is uniquely catering to the real estate community.”

Compounding the problem is that most accounting firms have a few key partners who specialize in real estate. As a result, many complex projects have to be handled by partners and senior managers.

Christopher Tower, West Coast regional business leader at BDO Seidman LLP, said BDO recently began hiring partners solely for the purpose of taking some of the internal workload off the backs of partners who are servicing existing clients.

“Investors and regulators are demanding greater transparency in financial reporting,” said Tower. “There has been a plethora of new and complex accounting rules which are having a significant impact to both private and public companies. All of this causes more stress for the accountants.”

Accountants lament that there are more changes to accounting rules than at any other time in history. Two regulations, in particular, are having a broad impact on the real estate industry and business combinations in general.

The regulations by the Financial Accounting Standards Board, known as FIN 46R and EITF 04-05, are putting greater burdens on accountants to interpret ambiguous rules and advise clients on how the rules might impact their businesses.

The rules were intended to eliminate the use of special purpose entities, now referred to as variable interest entities to avoid any taint from Enron. Many partnerships have such entities built-in, which means they must consolidate the entities in their financial statements.

Auditors also are being held accountable under Sarbanes-Oxley’s section 404, which requires that accountants certify management’s assessment of a company’s internal financial controls.

Help on the way?

But accounting is suddenly making a comeback. From 2000 to 2004, enrollment at accounting schools has jumped 19 percent nationwide, according to the American Institute of Certified Public Accountants. The number of students majoring in accounting fell from 4 percent in 1990 to 2 percent in 2000, according to a study by the AICPA.

To many, the increased enrollment is a sign that the accounting profession has finally come full circle.

“When people saw a partner at Arthur Andersen being hauled away in handcuffs, accounting got its 15 minutes of fame and definitely moved onto the radar screen,” said Smetanka. (He was referring to David Duncan, Enron’s lead accountant from Arthur Andersen, who was the first individual to plead guilty to charges in the Enron case.)

Many accountants say the profession has changed dramatically because of the demise of Arthur Andersen, which signed off on Enron’s accounting practices and ultimately was convicted in 2002 of obstructing justice for destroying Enronrelated documents.

Compounding the problems are the new regulations aimed at curbing the type of aggressive bookkeeping that allowed Enron to hide billions of debt in off-balance-sheet special purpose entities, which caused investors to lose confidence and the firm to file for bankruptcy protection.