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Everything is basically built around how specialized your work is. In other words if someone left how easy would it be to find a replacement with a similar level of experience and knowledge. There are downsides to specialization, for example if you detest your work and you stick around too long moving out of it can be really hard. Also, with tax as an example, in the event there's a major shift in tax law that makes work in the field redundant for a number of people (highly unlikely, but trying to illustrate a point) it can cause long-term damage to your hireability.
Basically audit has the lowest barrier of entry and can draw in people from all sorts of backgrounds (if you lack an accounting background they can throw you in IT audit or have you work with Internal Audit) and tax has a much higher barrier of entry.
I switched from audit to Tax , but that was after 1 year, took a little while to catch up
You need one lone ranger to do tax for the firm. And a partner to review. Typically they go through a few per day. One in a few days when more complex but client pays accordingly.
With audit you need a team for days and plenty of supervision. Easy to go over budget when lots of hands in the pot. Audits can go for days, weeks and even months.
In the end, more meat on the bone from tax engagements. Especially when the client is doing both at the same firm. tax gets their numbers from the audit. Numbers that have already been properly labeled and often recalculated. Often times giving the perception that tax has saved the day when audits go over budget.
For tax consulting, there could be anywhere from 3 to 20 people on an engagement. That’s for all engagements I have been on for 5 years.
Rising Star
You need a brain for tax.
Don’t forget the PY work papers...
Because we don’t count inventory
We understand the rules regarding the inventory the drones count.
Audit margin: 0.00001%
Tax compliance margin: 10-40%
Tax consulting margin: 40-60%
It's all Monopoly money anyway.
Tax is more specialized than audit
Clients value one and not the other.
They think they would have paid $1m without you and will pay accordingly. Speak to enough owners of the businesses and you'll see what they care about.
Rising Star
Tax laws seems to be harder to understand
In tax (ITTS) we get called in as SMPs (subject mater professionals) in audits. Audit rolls out the red carpet for us, and values our opinions. Like many things, higher value work is compensated. Most of us have advanced degrees (not just a certification) and have more external opportunities. You could just throw any college kid into the audit meat grinder right?
Same restrictions for tax consulting. The same firm auditing its own tax consulting work was the reason we have independence rules now lol.
One of my family members is a retired CPA. She said that tax used to require a master’s degree and that audit did not. Maybe that has something to do with it? Clients will also pay more for tax consulting or due diligence than I think they would pay for an audit. Audit and tax compliance are similar in that clients don’t want to pay a premium for something they HAVE to do. I would be curious to see an average salary by level in the same COL between audit and tax to see the difference.
Both of them practically require a masters in order to be eligible for the CPA. But it depends on your school
Everyone hates taxes and no one wants to go into tax. It’s boring but also extremely complex. Audit has a wider range of exit opportunities but with tax, once you’ve chosen a career in tax you’re pretty much pigeon holed in tax the rest of your life.
Margins. The reason the margins are higher, is what everyone else is saying here.
Audit doesn’t really add value. It just checks a box for the client. There’s no material difference between a good audit and a great audit.
I can see that. A good audit probably only adds value to the user/reader but not to the client, who happens to write the check.
It's because people in tax have more/higher paying exit opportunities, and the firms want to pay as little as possible, while retaining as many employees as possible. That's the intent of any large firm in setting salaries. It has nothing to do with the value you bring to the accounting firm. It's purely that the accounting firm needs tax people, and tax people can get paid more elsewhere.
On the flip side, I think it’s a lot easier to make partner or high paying industry job in audit without any graduate degrees so even though less pay to start, better ROI in the long run.
I find it so interesting too because 1. Audit is still the cash cow for most firms and 2. at least for PwC at least a majority probably around 70-80% of leadership roles are filled by an audit Partner/Director. Market through regional then national lots of audit.
Audit is not a cash cow. Tons of revenue, but almost no net income (in relative terms).
I’ve worked $2M tax consulting engagements where the entire team was an SM, two managers, and a staff. We all had 5-10 other engagements at the time. Delivered over about 4 months. I’m guessing that same $ requires an audit team of 20 exclusively focused on an SEC client for 2 months?
Auditors can’t finish their jobs without tax people - ASC 740!
I’m in audit and have done tax work for my clients. So yes, we actually can finish a job without tax people.
As a former auditor - wish I did tax
Same! Audit is seriously no value add yet the profession is filled with people who think they’re saving the world by getting stuck in busy work
Because many people are interested in saving money on tax. Usually the companies need an audited f/s because someone else requires it like investors, bank etc. If they are not required to get audited, probably lots of companies will opt out of audit service as much as possible.
People don’t want to do tax and exit opps are more limited
I disagree. I'm two years in tax and I've been approached with some good opps in FA and finance. Exit opps *in accounting are more limited, sure. Tax can open more doors in other industries if you're curious enough to look.