The widening shortage of accountants has begun showing up in financial statements.

U.S.-listed companies such as car-parts provider Advance Auto Parts, electric-air-taxi firm Joby Aviation and German biotech company Evotec in recent months have disclosed efforts to address material weaknesses due at least in part to a lack of accounting staff. These names are larger than the typically smaller companies that historically might have had trouble attracting accounting expertise.

Companies must disclose a material weakness in their internal control over financial reporting, or ICFR, if there is a reasonable possibility that a material misstatement could occur and couldn't be prevented or detected by them on a timely basis. Such flaws are one of the key predictors of restatements, both major and minor, and generally lead companies to address the problems and improve their controls.

The disclosures come as fewer people are pursuing degrees in accounting and entering the field, resulting in more positions open and for longer periods of time. What's more, academics say, the shortage will likely be compounded as more accountants retire without a robust pipeline of replacements.

Smaller companies in need of accounting staff often decide not to fill the jobs because they either can't afford to or can't justify the cost-benefit trade-off, while their bigger counterparts might be unable to find the right people, said Andrew Imdieke, an assistant professor of accounting at the University of Notre Dame.

"This is an economic shock where larger companies are not able to fill these roles as opposed to choosing not to fill these roles," he said. "It's definitely a cause for concern."

One of the most explicit examples of the fallout came from Advance Auto Parts, which said it had identified a material weakness in its ICFR due to turnover in key accounting positions during the fiscal quarter ended April 22. The company said it wasn't able to attract and retain enough qualified people to fulfill internal-control responsibilities.

So much so, that the Raleigh, N.C.-based company said on June 2 it wouldn't be able to file its 10-Q quarterly report on schedule because it needed more time to assess the control deficiency and its remediation. It filed the 10-Q four days later.

Advance Auto Parts is working to address the shortcoming, in part by tapping temporary outside help with the requisite accounting knowledge and experience, it said in its June 6 filing. The company didn't respond to a request for comment.

Big and midsize firms like Advance Auto have a higher regulatory bar to clear than smaller companies do: In 2020, the Securities and Exchange Commission exempted public companies with less than $100 million in annual revenue from retaining an outside auditor to verify their internal controls.

Companies with longstanding ICFR gaps rarely face SEC charges for that recurrence alone, but they can risk higher borrowing rates, a falling stock price and an investor exodus if they don't make fixes. In 2019, the SEC settled charges with four public companies, including health-food company Lifeway Foods, for failing to maintain ICFR for seven to 10 consecutive years.

Another company that has struggled with an accountant shortage is Joby Aviation, a maker of electric vertical takeoff and landing aircraft, or eVTOLs. In a May 5 quarterly filing, the company said it was continuing to fix the control deficiencies that led to its material weakness. The remaining aspect of the material weakness, as of Dec. 31, 2022, related to the lack of sufficient accounting personnel with deep technical knowledge to identify and resolve complex accounting issues in a timely manner, the Santa Cruz, Calif.-based company said. Joby Aviation declined to comment.

Nearly 600 U.S.-listed companies of a total 7,359 reported material weaknesses related to personnel, typically in accounting or information technology, this year through June, down 5.2% from the prior-year period, but up 40.6% from the 2019 period, according to a review of filings by research firm Bedrock AI.

Of these companies, 21% were based outside the U.S., a jurisdiction whose reporting requirements can be knotty for companies with complex operations and corporate structures.

The number of foreign U.S.-listed companies reporting personnel-related material weaknesses this year through June grew 5% to 125, compared with the prior-year period, Bedrock said. That is nearly triple that of the 2019 period. The 125 companies included 16 with at least a $1 billion market capitalization, up from 15 in the prior-year period and six in the 2019 period.

Evotec, in a May 12 filing, said it had developed a plan to address the lack of adequate accounting and supervisory personnel, adding that it had filled key positions late last year and would continue to recruit people this year. In a statement this week, the company said it hasn't had significant trouble doing so.

Full Truck Alliance, a Chinese provider of an Uber-like service for the trucking industry , in an April filing said it remediated a material weakness during the previous year. The company and its auditor, Deloitte Touche Tohmatsu Certified Public Accountants, had identified the problema lack of sufficient skilled financial reporting and accounting personnelin connection with audits of 2020 and 2021 financials.

In a statement, Full Truck Alliance said it immediately began a search for suitable accounting personnel after identifying the problem, not long after its June 2021 listing on the New York Stock Exchange. "The company always put internal control as one of its first priorities and fully understands its responsibility to investors as a listed company," the company said.

Ecarx Holdings, a Chinese mobility tech provider, said a similar weakness was found in its 2020 and 2021 audits. The company did, however, hire knowledgeable personnel in the run-up to its Nasdaq listing last December, a spokesman said.

"Our accounting personnel have historically been experts on the relevant reporting regime [in China], and our level of knowledge of U.S. GAAP and SEC reporting requirements only became relevant at the time we decided to pursue a Nasdaq listing," a spokesman said, referring to generally accepted accounting principles.

Facing a shortage of accountants, companies might assign less-experienced personnel to critical tasks, which could lead to more ICFR shortcomings and fraudnot just in financial reporting but against the companies themselves, said Ben Foster, a professor of accounting at the University of Louisville.

"You need highly skilled people to be able to know that what we're doing here is still going to be secure and someone can't come in and manipulate that part of the operation," he said.

One solution for companies is to offer accountants more lucrative pay packages, said John Coffee, a professor at Columbia Law School. Accounting has been long viewed by people in the profession as underpaid and undervalued, compared with positions in tech and banking.

"Higher salaries are coming for in-house accountants whether management likes it or not," he said.

a summary of the article that applies what you have learned about internal controls and ethics in your summary.

1. Describe the event(s) in the article.
2. Does the event described in the article address an ethical concern? If so, what is it?
3. Was the appropriate course of action chosen? Justify your response.
4. Were internal controls appropriately implemented? If not, what internal controls should have been implemented?