Inflation has led to a situation where more companies than ever need audit services, but auditors are not welcoming the increase in volume – even as unemployment rises overall, they are facing a workforce shortage.
In years past, the annual numbers have hovered around 8000 to 8500, but this year demand for audits has been up by 1000. “Audit firms are not prepared to meet that demand,” said the president of the Auditors’ Association Märt-Martin Arengu in the Äripäev radio broadcast “Kasvukursil”.
“In my decades-long career, I have not had to say ‘no’ to as many audit queries as I had to this past year,” said Grant Thornton Baltic’s managing partner and sworn auditor Mati Nõmmiste. “If you develop an urgent need for more staff, it is simply not to be had on the market – we can get people who are fresh graduates and have little experience and they need to be trained and the process can take 3-4 years. If you have one builder, they can’t build two houses at the same time.”
Photo: Kerli Nõmm.
In the Äripäev studio were Mati Nõmmiste (left), Imbri Jürgen and Märt-Martin Arengu.
The rise in the number of orders came above all from rising inflation, said Arengu. A number of companies found their net worth increase, putting them past the threshold where audit was required.
Arengu said it pointed even more starkly to the problem that audit service fees in Estonia are among the lowest in Europe. “These prevent creation of buffers and keeping people on retainer for the case that someone asks for service,” he said.
The size of the audit firms’ market in the financial year ended in June was 70 million euros in Estonia, and audit services made up 40 million of that. But the number of sworn auditors serving that market remains a stable 350.
“At the same time, the number of audit firms has consistently dropped,” said Arengu. “There are half as many companies, and a deficit has arisen.”
Nõmmiste said the growth in new auditors has also slowed. “In the closing decades of the last century, there were even some years where 100 certified auditors came into our ranks, now it is 10 and if half of the boom-era ones leave the profession and 10 new ones come in, the problem will only deepen.”
In addition, expectations of auditors have risen. “The new regulations are voluminous, the volume of standards has grown. People are getting older and are not interested in work in such a volume.”
At the same time, larger audit firms are contributing to adoption of AI in the global perspective. “Budgets are large and there will undoubtedly be some sort of benefit from it and it will impact both the big networks and Estonian offices,” says Arengu.
But he also referred to the problem that this will increase inequality on the audit services market as not all will have the capacity to invest in the same extent into adoption of AI.
Nõmmiste emphasizes that today’s auditors and accountants don’t have to worry about job loss.
“I remember well back in the mid-1980s when I was the chief accountant of a large corporation, everyone was worried that computers would do all the work – I haven’t seen that accountants have become irrelevant.“ Nõmmiste says only the nature of the work will change and AI helps people be more productive and do higher-quality work.
“A certain type of work will disappear, but even if the routine and uninteresting work goes away, dispensing post-analysis recommendations and the ability to create generalizations will remain necessary. The field of law and the economy are not solvable to the point where mathematical models could be used to plan events in advance.”
Arengu envisions a short-term solution to ease the workforce drought as the joint assistant service being developed in the Auditors’ Association – the standardized and rote parts of the auditing process can be outsourced to accounting firms. “We are currently piloting this project, and it is a way of reducing the workload.”
Arengu also says better use could be made of existing resources. He notes that of the 350 existing sworn auditors, only 200 are providing audit services. “We have 150 sworn auditors who do not do so, and we have now called on them to return to their roots, proposed that they could found a practice or work with an existing firm.”
As the most radical step, the Auditors' Association and the Chamber of Commerce and Industry have tabled a proposal to change the thresholds for auditor services.
“With the major increase in prices, we saw that it was time to make corrections to the thresholds. Hiking the thresholds would mean many of the companies that recently became subject to audit requirements solely due to inflation would once again be exempted. “The feedback from the Ministry of Finance was that this step will likely be possible in 2024. So the auditing workload could be reduced for as many as 2000 companies.”
Auditors are also thinking about raising their prices. The salaries of specialists can be made more competitive so that the start-up and IT sector, baking and telecoms do not pull auditors away from the auditing companies. “The problem of drift to other sectors would definitely be reduced,” said Nõmmiste.
On top of everything else, companies on the auditor services market have to compete with legal services – the legal profession needs workforce who have a similar set of qualifications and are expected to orient in the world of new regulations, technologies and standards related to ESG.
Legal services are a broader field. “There are more attorneys than auditors, the Bar Association has 1145 members, and 800 are active,” said Estonian Bar Association chairman Imbi Jürgen.
“I don’t project that the number will decrease, nor is a large increase foreseen,” she said.
Jürgen’s comments suggested that the workforce situation in the legal profession is much better than what is facing auditors. “I am very pleased to see the number of new lawyers entering the profession. We have seen a constant low-key increase in our members.”
Jürgen also noted that a number of banks and start-ups compete for specialists against the audit and legal services. “The financial sector also draws a number of people away; they are under a very large regulatory burden, so outreach takes an effort, in order to draw young people to the sector.”
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