Accounting staff turnover may lead to future financial reporting problems

Investors and regulators may find accounting staff turnover a useful early indicator of potential financial reporting problems, according to new research. The study, conducted by the University at Buffalo School of Management, reveals that losing experienced accounting staff and gaining inexperienced ones can degrade the quality of financial reporting.

With fewer qualified accountants in the profession, companies face increased pressure on their accounting processes. The research, published in the Journal of Accounting and Public Policy, analyzed data from over 1,600 firms between 2008 and 2021, tracking workforce turnover patterns and financial reporting issues. The findings show that accounting employee turnover predicts subsequent financial reporting problems such as misstated financials, late filings, and delayed earnings announcements.

This connection is particularly strong for companies with complex accounting operations and in labor markets where qualified accountants are scarce. Higher turnover in accounting departments is also associated with higher audit fees and less accurate management forecasts. The study suggests that publicly available employment data, such as LinkedIn, could help investors and regulators identify potential reporting issues before they become widely known.