Financial Management, Accounting and Auditing Skills
Shortage, a South African Reality


Authors:
Dr. D.P. van der Nest
Section Head, Department of Auditing
Tshwane University of Technology
Pretoria
South Africa

Me. E van Zyl
Executive Director
EE Research Focus
Pretoria
South Africa

Special recognition is given to the South African Institute for Chartered Accountants
(SAICA) who commissioned this research as part of research into the future demand for
accounting financial management and auditing skills in South Africa

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Financial Management, Accounting and Auditing Skills Shortage, a South
African Reality

Introduction

A range of different meanings is attached to the terms “skill” and “skills
shortages”, often leading to miscommunication and vastly differing views on the
extent and nature of skills deficiencies in the labour market. From an economic
perspective, skills can best be seen as the quality aspect of human capital
(Infometrics, 2006).

Another dimension of the use of the term “skills” that creates confusion is that it is
sometimes used to refer to the number of people who are needed to perform
certain tasks or functions in the economy and, at other times, to refer to the
attributes required of people who should perform certain tasks or functions.

Because of this focus, skills are expressed mainly in terms of occupations, the
number of positions that need to be filled, and the educational levels at which
people are required to be qualified. As the performance of financial functions
requires a very specific body of knowledge and set of competencies it is
assumed, first, that people who perform these functions need education in the
field of accounting and, second, that it is very difficult to substitute the required
formal education in this field with education in other non-accounting fields of
study or with experience or on-the-job training.

This article draws on a study completed on behalf of the South African Institute of
Chartered Accountants (SAICA). It addresses part of the research conducted to
determine the existing skills shortage in the accounting, auditing and financial
management areas in the country. It provides the basis for the additional
research conducted to enable SAICA to project future skills shortages based on
economic modelling (SAICA, 2009).

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Definition and measurement of skills shortages

For the purpose of this study the term “skills shortage” refers to a situation where
not enough people are available in the local (South African) occupational labour
market to fill the positions available. In this case the positions have been created
so that the financial functions required in the economy can be performed.

The main indicators of skills shortages that are used in this study are vacancy
rates, together with employers’ perceptions of whether there are shortages in the
labour market and whether they are experiencing recruitment and retention
problems in respect of financial occupations. The fact that employers were
experiencing excessive wage pressures came spontaneously from the interviews
and was not systematically investigated.

An International Perspective on Financial Management, Accounting, and
Auditing Skills Shortages

The experience of shortages of financial management, accounting, and auditing
skills is not unique to South Africa. Internationally, business growth has resulted
in a situation in which demand for financial and accounting recruits outpaces
supply (Corporate Financing Week, 2006). Competition for talent is a
phenomenon appearing worldwide as many companies are bringing accounting
and financial management skills back in house. In the United States, the
Sarbanes-Oxley Act has also resulted in an overall increase in the demand for
accountants (United States, 2008).

A 2007 international survey in 17 countries and covering 5 000 companies found
that 56% of these companies had difficulty finding skilled job candidates. Senior
financial positions were the toughest to fill, but a staffing need existed as well, in
financial analysis, general accountant, and financial controller positions (Gold,
2007). In this survey, Asian countries showed the largest challenges in obtaining

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financial and accounting staff. Of the Japanese respondents, 83% indicated that
they faced supply-side challenges in finding suitable staff.

New Zealand businesses experienced a 5.3% growth in the demand for
accountants from 2002 to 2005. The number of accountants calculated by the
numbers registered with the New Zealand Institute of Chartered Accountants
increased only by 1.2% during the same period (New Zealand, 2006). New
Zealand’s Department of Labour concluded that the ongoing disparity between
the levels of supply and demand had led to a “genuine skills shortage” (in the
accountancy occupation).

In the United Kingdom (UK), the Association for Chartered Certified Accountants
(ACCA) has indicated that the UK is “on the brink of a financial professional skills
crisis”. Findings from the Public Oversight Board in the UK indicate that the Big
Four accounting firms are recruiting internationally to meet their unfulfilled
demand (Marks Sattin, 2007).

In Africa, Professor Chibuike Uche from the University of Nigeria has pointed to a
shortage of accountants. According to Uche, the shortage is particularly evident
in Nigeria, Ghana, and Sierra Leone (The Accountant, 2007).

The sources cited above are only a few examples of evidence that the skills
shortage in the field of financial management, accounting, and auditing is a
worldwide phenomenon. Some references point out that the market for these
skills has become an international market and that firms attempt to recruit
internationally if they experience shortages in their local markets.

Research Question and Methodology

The question to be answered through this research is:

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“What is the current skills shortage, measured in terms of the numbers of people
required to fill vacancies within organisations in the financial management,
accounting, and auditing professions?”

This study consisted of a combination of desk top and empirical research. It
comprised a combination of qualitative and quantitative research. Various
existing data sources were used, together with surveys conducted by the
researchers. The various data sources and the methodology used in the two
surveys are described in more detail below.

Utilisation of existing data sources

The determination of vacancy levels, which was at the heart of this study,
requires a wide variety of data inputs. For this reason the study drew extensively
on national data sources from Statistics South Africa. An example of such a
survey is the Labour Force Survey (LFS) a household survey conducted twice a
year by Statistics South Africa (South Africa, 2001-2007). At the time of this
study 15 LFS datasets were available and were used to construct time-series
data on employment in specialised financial occupations.

Furthermore, the study used recent research conducted, the Survey of the
Financial and Accounting Services Sector (EE Research Focus, 2008a), which
was conducted on behalf of the Sector Education and Training Authority (SETA)
for Finance, Accounting, Management Consulting and other Financial Services
(Fasset).

Survey of financial divisions within organisations in South Africa

The second component of the study was a survey of the financial divisions of
organisations in South Africa. The persons responsible for the financial functions
in 750 organisations were interviewed with a view to:

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• Establishing total employment in the specialised financial divisions of each
organisation;
• Determining the relationship between total employment and employment in
the specialised financial divisions;
• Determining the structure of employment in the specialised financial
divisions – that is, specifically the educational levels of the staff employed;
• Identifying
current
skills
shortages in the specialised financial divisions, in
particular the extent of these shortages, whether they are related to
transformational or employment equity goals, and/or what the other
reasons for their existence are.
Random samples of organisations were drawn from various databases:
McGregor’s database of companies; the Prodder list of non-governmental
organisations; public entities listed in Schedule 2 and 3 of the Public Finance
Management Act (Act 1 of 1999) (South Africa, 1999); and the list of national and
provincial departments (Schedule 1 of the Constitution) and local governments
(South Africa, 1996).

The final sample realisation can be seen in Table 1. A total of 53 public sector
organisations participated in the study: 15 national departments; 18 provincial
departments; and 20 local governments. The responding private sector
organisations numbered 686 and were distributed across all sectors of the
economy.
Table 1 Final sample realisation
Number of
Public Sector
organisations
National Departments
15
Provincial Departments
18
Local Governments
20
Sub-total
53
Private Sector

Agriculture, Hunting, Forestry and Fishing
33

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Mining and Quarrying
19
Manufacturing 188
Electricity, Gas and Water Supply
5
Construction 54
Wholesale and Retail Trade
211
Transport, Storage and Communication
45
Financial Intermediation, Insurance, Real Estate and Business Services
41
Community, Social and Personal Services
90
Sub-total
686
Total
739

Interviews with accounting and auditing firms

An additional 50 interviews were conducted with senior partners of accounting
and auditing firms. The main objectives of these interviews were to:
• Obtain these respondents’ views on skills shortages in the financial
divisions of their client organisations;
• Develop an in-depth understanding of the factors that play a role in the
demand for and supply of specialised financial skills.
Although these interviews focused mainly on qualitative information, certain
figures were also requested; for example, current employment of professional
accountants and CAs.

Employment of financial management, accounting and auditing skills

Before skills shortages can be analysed and future demand for skills forecast, it
is necessary to establish current employment of the relevant skills in South Africa
as a baseline. For this purpose the Labour Force Survey (LFS) is used, as it
provides the most comprehensive information on employment in South Africa.

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The total employment of people in financial occupations compared to economy-
wide formal sector employment can be seen in Table 2.
Employment in
%
LFS
Year
financial occupations
of total employment
2 2001
274
855
3.6
1 2002
280
942
3.6
2 2002
273
247
3.4
1 2003
272
059
3.3
2 2003
269
430
3.2
1 2004
259
860
2.9
2 2004
244
787
2.9
1 2005
233
133
2.7
2 2005
259
288
3.0
1 2006
269
737
3.1
2 2006
289
771
3.2
Source: Calculated from LFS 1 of 2001 to LFS 1 of 2007

Throughout the whole period under review, white workers constituted more than
half of the people employed in financial occupations. If this proportion is
compared to the distribution of the total workforce in the formal sector of the
economy, it is clear that black workers and especially African workers are still
largely under-represented in the financial occupations, with white and Indian
workers over-represented.
Table 3 Racial distribution of workers in financial occupations compared to
the total workforce: 2001 to 2007
Financial occupations
Total formal sector workforce
African Coloured Indian
White
African
Coloured Indian
White
LFS Year %*
%
2 2001
21.7 11.0
12.0
55.3 55.7 13.6
5.8 24.9
1 2002
21.7 10.5
11.6
56.1 55.2 13.3
5.7 25.7
2 2002
22.6 10.0
9.7 57.7 56.5 14.0
5.1 24.4
1 2003
24.0 11.2
8.9 55.8 59.2 14.0
4.6 22.2
2 2003
26.1 11.2
9.1 53.6 58.6 14.3
5.2 21.9

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1 2004
25.7 12.7
10.0
51.5 60.1 14.3
4.5 21.1
2 2004
25.2 13.9
8.5 52.4 58.7 13.3
4.6 23.3
1 2005
22.8 14.7
7.7 54.8 59.2 13.4
4.5 22.9
2 2005
24.1 14.5
6.7 54.7 59.9 13.0
4.7 22.4
1 2006
24.2 13.4
6.9 55.5 59.5 13.4
4.6 22.5
2 2006
24.6 13.7
6.3 55.3 60.9 13.0
4.5 21.6



Source: Calculated from LFS 1 of 2001 to LFS 1 of 2007
Percentage distribution obtained from the three-period centred moving average.

Approximately 60% of the people working in financial positions are women. In
the formal sector of the economy, less than 40% of the workers are women
(Table 4).

Table 4 Gender distribution of workers in financial occupations compared
to the total workforce: 2001 to 2007
Financial occupations
Total formal sector workforce
Male
Female
Male
Female
LFS
Year
%
%
2 2001
39.5 60.5
62.2
37.8
1 2002
40.9 59.1
61.6
38.4
2 2002
40.0 60.0
62.3
37.7
1 2003
40.6 59.4
61.8
38.2
2 2003
41.3 58.7
61.5
38.5
1 2004
42.2 57.8
62.0
38.0
2 2004
42.6 57.4
63.4
36.6
1 2005
40.6 59.4
63.7
36.3
2 2005
40.6 59.4
63.3
36.7
1 2006
42.1 57.9
62.9
37.1
2 2006
44.1 55.9
62.5
37.5
2 2001
39.5 60.5
62.2
37.8

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Source: Calculated from LFS 1 of 2001 to LFS 1 of 2007
Percentage distribution obtained from the three-period centred moving average.

Educational qualifications

The LFS uses its own classification of educational qualifications. At the lower
levels, qualifications are equated to the school grades. At post-school level the
LFS has a category for people who have certificates and diplomas without matric
(Grade 12) (Level 3)and another category for certificates and diplomas with
matric (level 4 and 5). It also groups all first degrees (level 6) together and then
provides an inclusive category for postgraduate degrees and diplomas (level 7).
According to the information provided in the LFSs, the majority of people working
in financial occupations have qualifications at matric or matric plus a diploma or
certificate. Approximately 13% have first degrees and almost 15% have
qualifications at honours degree, postgraduate diplomas, or masters or doctoral
degrees (Figure 1).
100%
80%
60%
40%
20%
0%
1-'03
2-'03
1-'04
2-'04
1-'05
2-'05
1-'06
2-'06
Level 7 and above
9.7
10.2
8.8
11.9
13.3
14.8
13.4
14.8
Level 6
15.6
16.2
17.1
15.5
14.7
13.4
12.9
11.4
Levels 4 and 5
61.0
60.4
62.0
61.2
60.7
60.8
63.3
62.6
Level 3 and below
13.7
13.1
12.0
11.4
11.3
11.0
10.3
11.1

Figure 1 Highest educational qualifications of workers in financial occupations:
2001 to 2007
Source: Calculated from LFS 1 of 2001 to LFS 1 of 2007
Percentage distribution obtained from the three-period centred moving average.

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Document Outline

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