Public Accounting Career Paths: Choosing Between Tax and Audit
Note: This article gives a bunch of context to help you choose your public accounting career path, if you need a summary, there is a TLDR at the bottom!
If you are a student looking to go into public accounting as your first job, you need to know the answer to the question "Audit or Tax?" and today I'm going to share some information to help you make your decision. But first, you need to understand why this question is asked to students who haven't even completed their required accounting courses.
Why is Everyone Asking This Question?
For college graduates who want to join a public accounting firm, a large majority of the career opportunities will focus on providing audit or tax services to clients. While some skills will transfer between the two service lines, most skills learned on the job for either service line will best transfer to a similar engagement within that same service line. Tax accountants get better at doing taxes through experience, and auditors get better at auditing through experience. Because of this dynamic, most accounting firms set up their workforce to specialize in either audit or tax and split the personnel into groups. To properly service their clients, firms need to plan their workforce in terms of the number of tax and audit specialists they need to hire. This workforce planning results in the search for a certain number of full time auditors, full time tax accountants, audit interns, and tax interns. Every firm will be different in terms of what they're looking for, but here's an example:
10 audit hires
5 busy season audit interns
8 tax hires
5 busy season tax interns
To fit in one of these positions, applicants will need to commit to selecting their service line during the application process because telling the recruiter that you are okay with either one doesn't give them much confidence that you will accept a job offer.
What Do Tax Accountants and Auditors Do?
Now that you know why you need to make this choice during the application process, you should know how that choice will impact your future career. Understanding what each of these roles do is the first step to committing to one of them in your interview process, so let’s find out what they do! Tax accountants and auditors do fundamentally different things with their work, but both utilize their CPA license to have a stable and secure career path. Let's go over the differences between tax and audit:
Tax Accountants support the end goal of filing a client's tax return (tax preparation) and legally saving as much money as possible in the process (tax planning). Due to the nature of their work, tax accountants can specialize and become experts in certain types of taxes to help their clients. These specializations can include:
Taxes for high net worth individuals
State and local taxes
International taxes
Estate, gift, and trust taxes
Taxes for a specialized industry
The opportunities available for specializing will heavily depend on the firm you choose and the clients that firm serves.
Financial Statement Auditors support the end goal of issuing a set of audited financial statements that can be used by management, banks, investors, and boards of directors. In the process of completing an audit, auditors gain a fundamental understanding of how the business works to ensure that the financial statements are presented in accordance with a specific accounting framework (most often GAAP or IFRS). Because these accounting frameworks are always changing and cover a variety of topics, auditors typically specialize based on client size and industry. Here are a few examples of industries auditors can specialize in:
Technology companies
Non-profits
Construction contractors
Real estate
Oil and gas
Consumer products
Financial institutions
Just like tax, the opportunities available for specializing will heavily depend on the firm you choose and the clients that firm serves.
What Are The Main Differences to Look Out For?
After learning about what each service line does at a high level, some people know what they want to do immediately. Others want to know the difference in the day-to-day operations and shorter-term objectives between the two options. For those that are still stuck when making the initial decision between tax or audit, highlighting these differences is usually clears things up:
Work Style
Work Location and Client Interaction
Exit opportunities
Before I jump into these, it is very important to note that every firm will have characteristics that will directly influence these three criteria. There are firms that will have completely remote auditors working in smaller teams while another firm could have a group of tax accountants working on site at a client. It is important that you do your own research to find out what firm and service line combination is the right choice for you.
With that out of the way, here's how text and audit usually differ from one another:
Work Style
While both service lines will have an engagement team with a manager to review the work and a partner to ultimately sign off on the work, the level of engagement and teamwork required to complete a job differs between tax and audit.
In general, tax accountants work in smaller engagement teams and are more independent of their coworkers. On the other hand, auditors work in relatively larger engagement teams and depend more on their co-workers to get the job done timely. If you prefer working independently, tax may be the better option for you. But if you prefer contributing to a larger team, audit might be the way to go.
Work Location and Client Interaction
In general (before the pandemic and labor shortages), auditors traveled often to work at client sites, while tax accountants worked from the office. In addition to this, auditors spend more time directly interacting with the client (either in person or over the phone), while tax accountants operate on more indirect communications (emails and managers passing along information).
If you like interacting with clients and talking to people as a part of your job, then audit might be a good choice for you. But if you prefer to spend your time working through things without much client interaction, tax might be better.
Exit Opportunities
In general, the exit opportunities for auditors are more diverse than the exit opportunities for tax accountants. As they gain experience, auditors become well-versed in GAAP, financial statements, and generally understand how their clients run their businesses. As a result of this experience, auditors can take on a number of roles once they leave public accounting, such as GL accounting, financial reporting, and financial planning and analysis. Most companies have these roles in house, regardless of how big the company is. Tax accountants are more specialized and therefore have more specialized exit opportunities. Tax accounting is not GAAP, so there are fewer companies hiring tax accountants because only the largest companies are structured in a way that allows for full-time tax personnel in house. For the same reason, it is easier to start your own business as a solo practitioner with tax experience compared to audit experience.
What Should I Do with This Information?
If you’re reading this article in the first place, you may still be undecided about which service line you want to start your career in, and that’s okay. After reading everything above, you should have a better understanding of the fundamental differences between Audit and Tax and hopefully have the context and the knowledge to make the decision for yourself. Remember that you will likely need to answer this question multiple times during the course of your interviewing process, so understanding your reasons will help you provide a genuine answer and move that much closer to your first job in public accounting!
TLDR:
For aspiring public accountants, here's how to choose between tax or audit:
Take the time to understand the different goals of each service line.
Ask yourself: Do you prefer working more independently or with a team of people?
Do you like working independently? Tax
Do you like working in teams? Audit
Ask yourself: Do you like traveling and real-time client interaction?
Do you prefer staying at home sending emails? Tax
Do you prefer traveling to client sites and having real-time interaction? Audit
Ask yourself: What you would like to do after you leave public accounting?
Want to start your own business as a CPA? Tax makes that easier
Want to work in the accounting department of a company? Audit probably has more opportunities
Review your answers to the above questions and see if the firm that you're applying for aligns with these assumptions.
For example: In 2022 and beyond it's entirely possible to find a fully remote audit position, and if that was your main reason for choosing tax over audit then maybe you should reconsider. Other aspects of a firm or client base can turn an initially appealing position into something you don’t want to do and vice versa.