Difference Between Audit and Tax Accounting

What is the difference between audit and tax accounting in the big four accounting firms.

 

audit vs tax

Audit Vs Tax Accounting

 

Tax vs audit is a popular question from many big 4 candidates.

In school you typically choose accounting as a major without choosing a designation of which field you will go into. This changes after a few years as you get closer to graduation and as you start interviewing for internships at the big 4. You have to choose which line of service you want to go in. Most people choose between audit or tax.

Audit is obviously the most popular line of service as it is the bread and butter of the big 4 accounting firms, but many people do actually spend some time deciding between the two.

Why people choose audit at the big 4

First let’s go over some reasons why people choose each line of service.

Let’s cover audit first. People choose audit for many reasons. Some people choose audit because they think it will allow them to be the most successful. They think there are more opportunities in audit. They think they can be a cfo or ceo one day because of what audit has to offer. The common conception is that in audit you learn about the whole financial statements, so you learn everything there is to know about a company’s operations. This is true to some degree, but there are many problems with this as I’ll cover later.

Why people choose tax accounting at the big 4

Now let’s cover the reasons why people choose tax

People also choose tax for many reasons. Some people choose tax because they think they will travel less than audit and won’t have to be at the client. Other people choose tax because they enjoyed tax class in school. Other reasons that people choose tax is because tax people make more money than audit professionals out of school.

Now let’s go over some misconceptions about each line of service.

Misconceptions about audit at the big 4

Many people think that they can automatically turn an audit career into instant success as an audit partner or become a CFO. What people have to realize is that audit is a common choice in the big 4 career so many people choose it. Therefore, you have more competition. In order to differentiate yourself in audit, you have to stay in a position or accounting firm for longer than you would in tax.

Misconceptions about tax accounting at the big 4

One common misconception about tax is that you will have to travel less and that you will have to interact with clients less. Depending on where you work and your client you might have to travel more than an auditor and you might have to interact with the client on a daily basis. Don’t choose tax just because you think you will have to be less social and travel less. Another misconception is that tax doesn’t offer as many opportunities as audit. Again there are less people in tax which means less competition for jobs. There are also many more specialties in tax, so if you become super specialized you can have amazing opportunities in the tax field.

Based on all of this information what is my recommendation for which line of service to go into. You should pay attention to all of your classes in school and see which field that you like more. For tax, I would say that you should be more into research and writing memos as you will be conducting a lot of research in tax. Don’t think that you will only be doing planning in tax though. You will have to provide support for the tax provision of the financial statements which means that you will still be doing some auditing as a tax professional. Another thing that I would say about tax is that you have to like the law. If you like law and the legal profession you will like tax. This is a reason that many lawyers are tax professionals in the big 4 as well. The most successful tax professionals are also lawyers. If you don’t like law, legal research and writing memos then don’t go into tax. Another thing that I would recommend for anyone thinking about tax is look into the specialities of tax like state and local taxes, international tax, mergers and acquisitions or federal tax. Learn a little about each and see which one you’d like to specialize in.

If you want to go into audit you have to realize that it will be a long road to that role as an audit partner and CFO. You will first have to get good at filling out templates and checklists. You will also have to get very familiar with audit database software. You won’t be learning as much right out of the gate, but if you stick with it for a number of years then yes you do have a chance at that CFO or controller gig that you’ve been thinking of.

Tax Vs Audit Salary

Another factor is that auditors don’t make as much as tax people as tax people are seen as specialists. The money does even out over the years though depending on performance. You can obviously earn more money as an auditor if you end up as a CFO or an audit partner on a large client. It is also typically the audit partners that end up becoming the CEOs of the big 4 accounting firms.

In order to analyze which profession earns more in the big 4 we will be utilizing payscale and glassdoor for salary information.

If you go on payscale and look at what the average wage for an auditor is it is at $53k. If you go on payscale and look at the average salary for a tax accountant it is $55k. Based on this information you can see that tax accountants earn more than auditors.

Hop on over to glassdoor.com and you will see that the average salary for an auditor is $60k. if you look on glassdoor for the average salary of a tax accountant you will see that it is about $66k.

This information is very good for a person looking to figure out which profession to enter if they are basing their decision on salary.

However, which is correct?

I think both sites are valuable as they show that tax accountants do make more than auditors which is very true in my experience. I have almost 10 years of experience in the big 4 as well so I have seen a lot of people’s salaries in the big 4, and I have known many auditors that are underpaid.

The problem with the information on glassdoor and payscale though is that they are different, so which is more accurate?

In my experience, I would consider glassdoor more accurate for big 4 accountants. I think that the average starting big 4 accountant starts out right around $60k which is what is reported on glassdoor.com.

In my experience tax accountants do make about 10% more than their peers in audit.

Why is this? Is this just because tax is cooler and better? No it is because of how the big 4 earn their revenue. Right now audit is struggling. Just check out some of the latest revenue releases from pwc, deloitte and EY, and you will see that their audit practices all have been struggling while tax has been growing at a steady rate.

PwC 2017 Revenue Report

Deloitte 2017 Revenue Report

EY 2017 Revenue Report

This has occurred because audit firms are seeing a huge fee pressure on their audits. This is because companies see their auditors every single year and they perform the same work, so why shouldn’t they perform it better every year for less fee.

What this means is that the big 4 earn less revenue and therefore pass that lower revenue onto their staff accountants as a lower salary. However, tax keeps growing because there is increased tax regulation across the world. What this means is that there is an increase in tax compliance and an increase in the need for tax accountants. This translates into a higher demand and higher salaries for tax accountants.

In order to make the most money in the big 4 in either practice you need to go into a practice that is in high demand.

In conclusion tax accountants make more money than auditors on average and in my experience they earn about 10% more. Additionally, the need for tax accountants will only go up if tax reform gets passed. If earning a larger salary is important to you then maybe looking into a high demand career in tax in the big 4 is the right way to go.

So which line of service is better, tax or audit. I can’t give you a direct answer. You need to figure out which is the best for you based on your interests and your goals.

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2017-11-13T01:30:52+00:00October 19th, 2017|Categories: Big 4 Career Tips|0 Comments

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