Auditing's Minority Retention Problem

The auditing profession's reputation as an attractive career isn't borne out by retention numbers for minority and female accountants, says the co-chairman of a government advisory committee on the profession's future.

Diversity within audit firms is limited to the lower levels, says Donald Nicolaisen. Nicolaisen, a former SEC chief accountant, and former SEC Chairman Arthur Levitt served as co-chairs of the U.S. Treasury Department's Advisory Committee on the Auditing Profession. The panel issued its final report on Sept. 26.

Audit firms hire many women and minorities at entry level, but few of them stay, Nicolaisen told an auditing conference at Baruch College last week. There are few women in management, and even fewer minorities, he noted. The committee's 219-page report states:

In 2007, 1.0 percent of the partners in the six largest accounting firms were African American, 1.6 percent were Hispanic/Latino, 3.4 percent were Asian, and less than 1.0 percent were Native Hawaiian/Pacific Islander or American Indian/Alaska Native, aggregating less than 7 percent of the total partners.

Minorities made up 21 percent of all 2007 accounting graduates, and 31.3 percent of new hires at the six largest accounting firms. (Most of the latter, 21.3 percent, were Asian.) Yet almost none stick around long enough to obtain CPA licenses: In 2007, just 7 percent of CPAs were minorities, about the same representation as among partners. The advisory committee report observes:

… this under-representation of minorities in the profession is unacceptable from both a societal and business perspective. As the demographics of the global economy continue to expand ethnic diversity, it is imperative that the profession also reflect these changes. The auditing profession’s historic role in performing audits in an increasingly diverse global setting and in establishing investor trust cannot be maintained unless the profession itself is viewed as open and representative.

Its recommendations for addressing the problem include:

- Recruit minorities into the auditing profession from other disciplines and careers.

- Create focused minority retention programs, such as mentoring.

- Work with community colleges to recruit more minorities into the auditing profession.

- Cooperate with historically black colleges and universities by offering cross-sabbaticals for faculty to work in audit firms, and internships for students.

- Institute programs to encourage minorities to pursue doctoral degrees in accounting, such as the KPMG Foundation's successful PhD Project.