Certification experience requirements and the timing of resignation in public accounting

Abstract

This study empirically verifies that certification experience requirements do affect the timing of resignation in public accounting. Data from the personnel files of Big Eight public accounting firms are analyzed with event history analyses using maximum likelihood estimates. A log-logistic function models the resignation rates better than a variety of monotonic functions and several other nonmonotonic functions. A constant rate model with time-period effects is used because seasonal variations in employee exits restricted the usefulness of parametric models. Different levels of two attributes of experience requirements, length and breadth of focus, are contrasted. Examination of the length of the experience requirement demonstrates that a significant number of the audit employees postpone resignation until after completion of the experience requirement. Significantly more audit employees with a narrowly focused experience requirement postpone resignations than do audit employees with a broadly focused experience requirement because audit employees with a broadly focused experience requirement are able to substitute nonpublic accounting experience. Nonaudit employees have two possible sources of experience substitution for fulfilling the experience requirement: nonaudit and nonpublic accounting experience. Both of these substitutions can affect resignation rates, and interactions of the two, possible under a broadly focused experience requirement, have no clear expectations. Under a narrowly focused experience requirement nonaudit employees do not postpone resignation as much as audit employees. Public accounting labor markets can be affected by differences in certification experience requirements. Regulators and the public accounting profession must attend to institutional effects resulting from efforts to improve public accounting quality through regulatory modifications. Understanding the impacts of experience requirements on resignation patterns helps public accounting firms develop effective employment strategies. Individuals who are or will be those employees affected by experience requirements for certification should be aware of factors that influence their lives to make appropriate preparations for their futures.