When employees repeatedly leave and are replaced in a company’s accounting department, the disruption may appear in its financial reporting later. A study of 1,601 US public companies found that higher accounting-team turnover was associated with more control weaknesses, misstatements and late filings.
The findings do not mean that an accountant’s departure causes a reporting failure. They do suggest that investors, auditors and company boards may learn something useful by looking beyond the chief financial officer and paying attention to the stability of the wider team that prepares the numbers.
Michael Dambra and Joshua Khavis of the University at Buffalo and Zhiru Lin of DePauw University examined accounting-employee movements from 2008 to 2021. Their peer-reviewed study was published in the Journal of Accounting and Public Policy. A University at Buffalo research record provides the abstract and publication details.
Why replacement churn matters
The researchers separated employee movements into three categories: net departures, net hiring and what they call churning.
Churning is the replacement of departing employees without a corresponding change in the size of the department. If four accountants leave and four others take their places, the headcount is unchanged, but the team has still lost experience and must integrate new staff.
A stable headcount can hide a substantial amount of movement. The average company in the sample had an annual accounting-department churn rate of 24.1%. Net departures averaged nearly 14% of the team, while net hiring averaged about 16%.
The employment data came from Revelio Labs, which turns information from hundreds of millions of public professional profiles and resumes, including LinkedIn profiles, into structured datasets. The researchers compared those employee movements with several measures of reporting quality.
Higher churn was associated with a greater likelihood that a company would disclose a material weakness in its internal controls, misstate its annual financial statements or file its annual report late. It was also linked with larger abnormal accruals, slower earnings announcements, higher audit fees and less accurate management forecasts.
A material weakness is not the same as a proven accounting error. The US Securities and Exchange Commission defines it as a control deficiency, or combination of deficiencies, that creates a reasonable possibility that a material misstatement will not be prevented or detected promptly.
The risk is operational, not just numerical
Financial reporting depends on knowledge that is difficult to see on an organisation chart. Employees learn how transactions move through internal systems, which estimates require special judgement, where data problems usually arise and how the company’s controls work in practice.
Replacing people can weaken that accumulated knowledge even when every vacancy is filled. Existing staff may have to train newcomers while also meeting reporting deadlines. New hires may be technically capable but unfamiliar with the company’s systems, business model or unusual accounting issues.
The study found that the association was stronger at companies with more complex accounting and in labour markets where accountants were harder to recruit and retain. It was driven mainly by employees likely to participate directly in compiling financial reports, rather than by auditors working more indirectly with the process.
New hiring was not automatically reassuring, either. The researchers found some evidence that rapid net hiring preceded reporting delays and later disclosures of internal-control weaknesses. Expanding a department can improve its capacity, but a wave of inexperienced arrivals may initially dilute firm-specific knowledge.
This is a useful addition to the wider debate about the gap between the skills employers need and the workers available. A vacancy can be filled on paper while the organisation still faces a shortage of relevant experience.
A warning sign, not a verdict
The researchers used company and year fixed effects, prior control problems and other checks intended to reduce the chance that unrelated differences between firms explained the results. They also compared movements in accounting departments with broader employee flows.
Even so, the study is observational. The authors explicitly warn against treating the associations as proof of cause. A difficult acquisition, a weak internal system or poor management could both drive employees away and damage reporting quality. Turnover might therefore be part of the problem, a symptom of it, or both.
The workforce data also has limits. Public professional profiles can be incomplete, out of date or more common among some types of workers than others. An investor would not normally find the study’s churn measure ready-made in a company filing.
For boards and audit committees, however, the practical message is straightforward. Headcount alone is not enough. They should ask how many experienced accounting employees have left, how long vacancies remain open, whether replacements understand the company’s systems and whether the remaining team has enough time to maintain controls while training new colleagues.
For investors, accounting-team movement should be treated as one signal among many, not as evidence that a company’s accounts are wrong. Its value lies in timing. The study found that instability preceded the later revelation of reporting problems, making an otherwise quiet staffing pattern potentially relevant before the problem appears in the financial statements.
