In auditing, and in many companies, the professional staff are judged based on billable hours - how much time they spend working on projects that can be directly billed to the customer.

In January, I wrote a post about what it’s like to be an auditor during the time of year where the inevitable inventory counts occur.

This post deals with another important aspect of an auditor’s daily life - billing your time. Typically, public accounting firms place a huge emphasis on meeting a certain “target” number of billable hours. Another important statistic that comes along with these hours is realization.

Realization is the percent of hours “billed” to a job that are actually billed to the client. For example, if I spend 6 hours working on a tax return, and the partner spends another 3, let’s say that works out to $1,800 worth of our time, given our rate per hour. However, it’s fairly typical that we tell the client upfront that their fee will be a flat rate.

In this situation, if the flat fee charged to the client is only $1,200, myself and the partner would have a realization of 67% on this job ($1200 charged/$1800 worked.)

At our firm, we typically expect a realization around 80%, so the above project would have a negative impact on my statistics.

Eating Time

Because of these statistics, many professionals feel pressured to “eat time,” i.e. report working fewer hours than they actually did.

Simply billing 4 hours when I actually worked 6 is a terrible way to remedy this issue - although my realization would now go up to the required 80%, my billable hours would then not reflect the amount of time I actually worked. In addition, when budgeting for the job the following year, when looking back at how long it took us, the partner will see that it only took me 4 hours, and then only budget 4 hours into the fee.

My billable hour philosophy

My philosophy is that the most “correct” thing to do is report exactly how many hours you worked on billable work, no more or less. This is typically what firms will tell you is what they want you to do - but you may face pressure from individual bosses to eat your time, which would make them look like better managers on paper.

Don’t do it. Even if your realization is poor, I think it is better to show that you sat and worked for the amount of time you really worked for. I also believe that you have more control, especially as a first year, over your billable hours than you have over your realization. Because, due to the nature of auditing, sometimes we just can’t charge as much as we work. Those jobs will always have a low realization, and there’s not much a first-year can do about that.

Does anyone else work for a firm that evaluates you based on billable hours? Do you think this is a reasonable metric to evaluate professionals?