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Accounting industry weathers the storm

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The highly publicized accounting scandals at several large American corporations at the beginning of the new millennium also had reverberations in Canada. In 2002, the accounting services industry posted its first year of negative growth in recent history, with operating revenue down 4% to $7.9 billion.

Prior to that year, accounting services had experienced steady growth, with revenue increasing each year from 1998 to 2001. Consulting services suffered the most, with revenue dropping by more than half from 2001 to 2002.

The effects of the accounting scandals, however, were temporary. In 2003, growth returned to previous levels as the accounting industry increased its operating revenue by 6.4% to $8.4 billion. The rejuvenation can be partly attributed to new, tighter accounting standards that were adopted to revive investor confidence after the scandals, and to prevent similar incidents from occurring at corporations based in Canada.

Although the operating revenues of accounting services firms increased in 2003, their operating expenses also rose. As a result, their overall profit margins were down slightly, from 29.3% in 2002 to 28.7% in 2003. The rise in operating expenses was fuelled mainly by a 6% increase in wages and salaries.

Wages and salaries are the single biggest expense for accounting firms, and they make up just over half of the operating expenses for the industry. In 2003, employment in accounting services rose to nearly 69,000, the highest level in 10 years.