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Lack of Skilled Accountants Leading to ICFR Material Weaknesses

S.J. Steinhardt
Published Date:
Jul 11, 2023

GettyImages-forensic accounting

The shortage of qualified accountants has begun to affect financial statements made by some U.S.-listed companies, The Wall Street Journal reported.

Three medium- to large-sized companies – car parts provider Advance Auto Parts, electric air taxi firm Joby Aviation and German biotech company Evotec – have recently disclosed material weaknesses in their internal control over financial reporting (ICFR), partly attributable to a lack of accounting staff.

Smaller companies in need of accounting staff often decide not to fill the jobs because they either can’t afford to or can’t justify the cost-benefit trade-off, while their bigger counterparts might be unable to find the right people, Andrew Imdieke, an assistant professor of accounting at the University of Notre Dame, told The Journal.

“This is an economic shock where larger companies are not able to fill these roles as opposed to choosing not to fill these roles,” he said. “It’s definitely a cause for concern.” 

Advance Auto Parts identified a material weakness in its ICFR due to turnover in key accounting positions during the fiscal quarter ended April 22. The company said it was unable to attract and retain enough qualified people to fulfill internal-control responsibilities. 

It is working to address the shortcoming, in part by retaining outside help with the requisite accounting knowledge and experience, it said in its June 6 10-Q filing, according to The Journal.

Public companies with more than $100 million in annual revenue, such as Advance Auto, must retain an outside auditor to verify their internal controls.

In a May 5 quarterly filing, Santa Cruz, Calif.-based Joby Aviation said it was continuing to fix the control deficiencies that led to its material weakness, which was related to the lack of sufficient accounting personnel the knowledge required to address the complex issues.

As these and other companies confront the ongoing shortage of accountants, they may assign less-experienced personnel to critical tasks, which could lead to more ICFR shortcomings and fraud—not just in financial reporting but against the companies themselves, Ben Foster, a professor of accounting at the University of Louisville, told The Journal.

John C. Coffee, Jr. professor and director of the Center on Corporate Governance at Columbia Law School, said that companies need to offer accountants more lucrative pay packages.

“Higher salaries are coming for in-house accountants whether management likes it or not,” he said.

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