Contributors from Australia were asked three questions: What were the highlights/trends in your market last year? (i.e. important mergers, regulatory changes, economic situation etc.); What are the opportunities and challenges for accounting firms in the market?; What are the expectations for the future short/medium/long term?
By Bruce Saward, managing partner, Saward Dawson Chartered Accountants (Russell Bedford) and Asia-Pacific regional director of Russell Bedford International
The key issues – for advisers as much as their clients – remain technology and regulation. As in most mature economies, the Australian government is waking up to the opportunities inherent in digitising compliance. We expect to see this increasing in 2018 and beyond: Australia’s adoption of the Simple Business Activity Statement and its simpler reporting for small businesses from July this year was welcome. The introduction of Single Touch Payroll Reporting over the coming year represents a real step forward in real time reporting with the opportunity for reduced compliance costs. We see more and more compliance reporting going on line. Smaller SMEs do face challenges in optimising these opportunities while managing the learning curve and minimising costs.
In common with many of our peers in the mid-tier, we are harnessing technology to offer added-value specialist advisory services. We are finding that smarter technology and cloud computing is helping us remain competitive as we utilise data capture to automate basic tasks. This enables us to focus on analysis and advice that deliver much greater client value.
Delivery of advice, in addition to core compliance services, is an opportunity to deepen client relationships whilst delivering what clients both want and need. We still find that the accountant is highly regarded as a trusted advisor and our insight is important to our clients. The opportunities in the advice area extend into all divisions. There are still strong opportunities for accountants in the business coaching and strategic advice area. Areas of opportunity include leadership strategy, business structuring, business and information systems, adapting to changing business models and disruption and succession. In terms of opportunities for our own firm, we are seeing increasing value in delivering, more holistically, across all service lines.
Technology, again (and specifically in terms of cloud computing and networked resources – an area Australia has been at the forefront in adopting) is making life easier for both advisers and clients as we see increasing – and smoother – collaboration in client-advisor data flows, as well as cross-border collaboration between advisors supporting multinational clients.
Increasingly we are seeing Australian businesses extend their reach as ‘micro multinationals’. Again, this is engendering a change in the way we deliver our services. The days of advising SMEs, entrepreneurs and start-ups on a solely domestic basis are well and truly over as distance selling and ever-lower marketing, transportation and market-entry costs make international markets accessible to even the smallest businesses. Most of these will be encountering the realities of international VAT and tax compliance for the first time. Delivering advice to people who do not have a technical grounding in VAT or cross-border business transactions means our advice, content and services have to be instantly comprehensible to people with far more urgent priorities on their minds.
In terms of challenges – the current economic environment has seen increasing price awareness among clients, and we continue to encounter pressure for ‘fixed fee’ arrangements. Our marketing strategy in response to this has been an unrelenting focus on quality, deepening client relationships (something that is largely missing from off-shore processing models) and delivery of integrated cross-functional services.
In the areas of wealth management and superannuation, this sector is dominated by a strong focus on compliance with the regulator’s requirements but this makes delivery of the services and advice that is required more difficult and expensive.
Current price pressures notwithstanding, our core businesses – audit and tax advisory services – remain strong. The adoption of CbC reporting this year, the extension of the Small Business Entity tax rules to businesses with less than $10m turnover, and continued change in accounting standards, create opportunities in strategic consulting for both tax and audit service lines. However, while we recognise the opportunities in response to the changing global regulatory environment here, we see revenue growth increasingly being generated from advisory services that are constantly responding to the changing environment and the needs of clients and delivering these as part of increasingly integrated service packages.
By Brendan Britten, managing partner, Pitcher Partners Melbourne (Baker Tilly International)
As Australia continues to transition from a resources based economy, our services sector is set to capitalise. With the majority of Australian workers engaged in this sector, and generating the largest component of national wealth, it is imperative that the services industry receives the right level of government and business support to maintain our global competitiveness.
Over the last 12 months, the government has focused on improving our productivity so that the Australian economy maintains it resilience, stability and strength as well as provides a platform for growth. As a nation of service providers, we face many challenges, but they also represent our greatest opportunities.
Digital disruption and technological change, along with globalisation are just a few. However, Australia has a reputation for embracing new technologies and the government has been reported for its commitment to innovation, which will be pivotal to our ongoing success as a nation.
Globalisation has also focused attention on offshore investors and multinationals.
Australia will continue to prove lucrative for offshore investors, even in light of recent government announcements in relation to increased regulations and taxes, for overseas investors, particularly in the property sector.
With relatively low debt levels and its GDP growing at a stable rate of approximately 3% per annum, Australia attracts investors by its inherent economic maturity, rule of law, robust equity markets and wealth of quality resource assets.
Significant investment of $75bn towards key infrastructure projects over the next 10 years for rail, road and airport investments, will contribute to the nation’s efforts to drive jobs and growth.
However, the potentially negative impact of planned changes around foreign investment and limits on deductions available to domestic property investors remains to be seen.
Accessing international markets also represents a key challenge, and opportunity, for many Australian businesses, particularly in the middle market, where growth has the greatest potential.
The real opportunity for Australia lies with being flexible enough to pivot towards new demand for services and technology coming out of Asia.
At a more micro level, Australian accounting firms similarly will need to be better placed to meet the following challenges so they can turn them into opportunities to be capitalised upon, both as an industry and for our clients’ benefit:
- Digital disruption/technology
- Flexible workplaces
- Staff and skills
- Diversification of service offering
- Partnering with clients
Clients will seek deeper advisory services as technology develops. Clients already look for real-time insights into what is going on in their business and will become more future focused in their requirements from us.
As advisors, keeping ahead of emerging technologies is paramount to ensure clients are better prepared.
The biggest issue facing the accounting profession, and our middle market clients, is disruption and the ability to innovate.
Disruptions, such as automation, outsourcing, innovation, new technology and globalisation, are happening at all levels. The way we operate today is not the same as it was 20 years ago. So, the challenge is to determine how we can operate in this new fast-paced change-driven environment. This is especially so given our tax rules were written a long time ago and are not necessarily reflective or accommodative of the way we work today. They are in desperate need of reform and it will be our responsibility to advocate reform progress for our middle market clients so that we can better advise and prepare them.
Flexible workplaces will increasingly be a requirement of how the services sector does business. Globalisation means the world operates 24 hours a day, and as a service industry, we will need to ensure we and our clients also operate 24 hours a day. Mobile offices will be more the norm, enabling staff work more from clients’ offices and making them more visible to clients, reinforcing their importance to us and demonstrating our commitment to them.
Diversification of service offering
Accounting firms, to deepen their expertise and knowledge to advise, guide and partner with clients, will need to diversify their service offering to bring a holistic service for the client’s benefit. They will need to continue to focus on business development activities, and promote service areas, beyond the traditional accounting, business advisory and assurance services to provide value to clients, particularly focused on information and data, and the effective use of technology in assisting forward focused decision making.
Partnering with clients
With today’s acceleration of technology, accountants increasingly are called upon to perform more of an advisory role and so need to demonstrate a greater understanding of the client’s industry and specific circumstances to bring a holistic approach to their business. For example:
Governance and best practice risk management – the responsibilities of companies, their directors, employees and managers grow every day and ensuring they comply with their regulatory requirements is an increasing burden on all facets of a business, creating a risk of damaging the very entrepreneurial fabric that generates wealth.
Collaborative business models – modern businesses are built by bringing together and partnering to deliver value, translating into increased demand for outsourced offerings as well as the opportunity to connect clients in meaningful ways.
Succession – of growing concern for Australia is the lack of focus on baby boomers’ exit strategies ensuring maximum returns. Our global survey has shown that 70% of all baby boomer business owners do not have a succession plan in place.
There is a high level of regulation today, particularly pertaining to cross border transactions. Being able to operate in a globalised economy and to be effective in that environment is a significant challenge for the accounting and tax professional. To continue to assist and represent clients in the international arena, the accounting professional’s advisory skills come to the fore. They need to have the ability to facilitate business opportunities across geographical boundaries and understand the cultural and linguistic nuances and imperatives of doing business in target markets.
Innovation within the accounting industry also represents a significant challenge. Today’s environment is not conducive to innovation as it involves high regulation and risks that need to be managed. The challenge for us is to operate within this new world in a seamless manner, while still complying with laws and regulations
In order to best service clients, accountants need to demonstrate, in theory and in practice, an entrepreneurial mindset. The Pitcher Partners International Institute of Entrepreneurship, run in conjunction with Swinburne University, is dedicated to enabling our staff and clients to think more innovatively in a commercially pragmatic manner.
Staff and skills
Attracting and retaining quality staff, and ensuring they have the requisite skills to perform at the highest level will continue to challenge the accounting profession. The challenges of the industry, are the same challenges a firm faces with ensuring staff have rewarding and challenging careers, as well as work places that are conducive to their own personal aspirations. Work/life balance through flexible work hours and quality work environments, coupled with a commitment to their ongoing education, development and training is a key area firms should focus on. If firms can demonstrate to staff that they are committed to helping them achieve in all aspects of their lives, they are a long way to attracting and retaining quality staff, which in turn, aids in attracting and retaining quality clients.
Looking to the future
The world around us is constantly changing. How we work is being disrupted by technology and the forces of a global economy, but equally, presenting new opportunities to assist business and engagement in all aspects of our lives. Energy, vitality and a personal and professional growth attitude is critical to meeting the challenges of our business environment.
By Paul Hilton CEO Power Tynan (BKR International)
The major challenge facing our profession is in relation to Digital Disruption and AI in particular. We need to understand that our traditional accounting model is broken. We will have 20 Billion computers being connected by 2020 the need for accounting work will disappear. We need to move to advisory very quickly.
This entails learning new skills as “traditional Accountants” do not have the profile to engage in a meaningful way with clients, we need new skills. Fortunately we come from a Trusted position with clients so the transformation will be easy once the skill set is improved.
With AI taking our traditional “training” ground for less experienced accountants will need to develop fast track training to ensure we don’t have a skills gap in the medium to long term. This is particularly important for succession in professional firms as well as advice for clients.
The opportunities for training and fast tracking employees are immense along with new service offerings and this could be in non-traditional accounting fields via collaboration.
By John Wilcox from Hill Rogers (Morison KSi)
2016/2017 saw a continuation of the consolidation within our industry and a record number of partnership appointments which highlight two things: 1) the accounting industry is thriving, and 2) the war on talent is unrelenting. We’re seeing full employment in our industry and firms are locking-in talented staff and executives to retain competitive advantage and shore up client relationships.
We also saw the continuing trend of accounting firms diversifying their businesses away from total reliance on compliance services and into consulting channels, particularly the Big 4 with a number of business acquisitions. Thus, it is now harder than ever to define what an accounting firm is. Most of this change is of course being forced by the disruptive impact of technology and was triggered with the introduction of the GST in 2000. The subsequent improvement in accounting software such as QuickBooks, MYOB and Xero has allowed for greater transparency and efficiency in the compliance process so that this felt like the year when our industry finally came to terms with the need to move beyond compliance into advisory services.
Regulatory changes in 2016 were enormously disruptive. Licensing registration requirements for accountants in relation to advice on superannuation funds has driven huge change in the industry. Recent changes in the super rules as well as the additional work required to comply with issuing statements of advice, are placing huge strain on advisors. ASIC seems finally to have recognised the implications of this policy change with an extension to the deadline for distributing Statements of Advice. However, the challenge for accounting firms has been established – how to deploy effective administrative processes to support responsive and high-value advice.
In terms of challenges, I’ve already mentioned the competition for talented staff and senior executives but this also extends to the graduate pool. Young grads want more commercial roles or more interesting consulting assignments. The cost and availability of office space in Sydney and Melbourne is also an issue.
In terms of opportunities, the range of advisory services will allow us to help our clients far more than ever before. High level tax advisory and value added advisory services with innovative remuneration models for staff and executives are the focus for every progressive minded practice.
I also believe those firms who belong to international networks will thrive from the opportunities brought by overseas investment and an increasingly expansive global market. Many Australian businesses also have one eye on Britain and the impact Brexit could have on trade beyond Europe, particularly into Asia.
Technological innovation continues to have the greatest impact on short, medium and long term planning. Where this technological change next plays out is difficult to predict. There are revolutionary models in play right now that have the potential to disrupt the entire financial services sector, but the incumbent infrastructure will be resistant to change although progressive firms will be scrambling to find leverage behind closed doors. Block chain is one such innovation. For example, it could threaten traditional Audit services, based on its inherent ability to verify and authenticate.
Despite the high level of disruption from technology, the short term outlook is very positive for accounting firms who embrace the need to offer higher value advisory services.
This transformation imperative could result in different types of executives entering accounting firms to manage cultural change as well as different business objectives and service offerings. Accounting firms will need technology literate staff and leadership to help plot the pathways and deliver their diversified proposition so a strategic approach to training and recruitment will be required.
Accounting could become totally automated with the introduction of the New Payments Platform www.nppa.com.au developed collaboratively by authorised deposit-taking institutions. The new platform will not only be fast but it will also be versatile. With longer payment descriptions and the ability to accept attachments, accounting software will both accelerate the automation of the compliance aspect of accounting and improve its accuracy.
In the next few months/years, we believe Australia’s current obsession with property will definitely slow, particularly in the unit space. When the inevitable correction occurs, we don’t believe it will be to the same level as previous property corrections because banks have been tightening their lending requirements, partly in response to the Government’s tightening of bank capital requirements, and interest rates are at very low levels. Most of our clients are uncertain how long the current positive trading conditions will last. They still remember the GFC as I’m sure generations before us were ‘clouded’ by the great depression. Clients continue to be unsettled by geo-political concerns (Trump, Middle East, Korea, terrorism).
CIMIC Group, the world’s largest contract miner has charted the Australian construction industry’s prospects and has projected the following infrastructure expenditures in the coming years: peaking at $17B in 2020 (up from a peak of $10.5B in 2013). The 2018 – 2023 projection in total is $80B spend. That has to signal a promising future not just for the directly related industries but for the tertiary services sector also, providing of course there is no political disruption.
By Helen Argiris, chairman, BDO Australia
"In the new world, it's not the big fish that eat the small fish, it's the fast fish that eat the slow fish." I heard this quote from Jack Welch a few weeks ago, and for me it really sums up the digital transformation and the changes it's brought. I believe we're seeing the fourth industrial revolution – technology has changed the world completely, the pace has picked up and we've got to find a way to maintain our edge in this new environment.
This constant push for change has centred around three main trends – cloud, data and intelligence. These are now converging and with them, risk management is transforming too. Cybersecurity is more important than ever, and large accountancy firms are finding ways to deliver this new type of risk management, as well as their traditional offerings.
Although people are now recognising the digital transformation, much of its potential remains untapped. For example, although businesses are beginning to collect data, the challenge of knowing what they're looking for once they've produced the analysis is one that many businesses are yet to overcome successfully. This presents a clear opportunity for firms like BDO.
2016 was also a year of global uncertainty. Events such as Brexit, Trump and the war with Islamic State have enhanced concerns with cybersecurity even more, and changes announced to the 457 visa as well as new immigration stances from around the world will have a huge impact on the way we staff our offices.
Financial reporting is undergoing huge transformations – within Australia, we're poised to go through the biggest upheaval since we adopted International Financial Reporting Standards in 2005. The introduction of three new standards is something that all organisations in every sector are going to have to adapt to, and BDO will be there at every step of the way to help them through the changes.
Tax in particular is subject to growing scrutiny, both within Australia and around the globe. The introduction from 1 July of the Diverted Profits Tax (known as the ‘Google tax’) presents a significant challenge that affects over 1,600 significant global enterprises currently operating in Australia.
There's an opportunity for BDO to guide firms through these changes, but we're also facing increased competition. For example, SME accounting technology platforms are pushing more and more to get closer to their clients. They're trying to act as a substitute for many of the services that organisations like BDO has to offer. Therefore, making sure we remain relevant is imperative.
Almost anything is possible now. It's going to be exciting to see what we can come up with for our clients – we have to help them maintain their edge, while also keeping ours.
The challenges that accountancy firms face are largely centred around the recent trends detailed above. Increased regulation, new competitors, client expectations of reduced costs, the changing workforce and new client expectations are all things that firms like BDO have to find ways of overcoming.
The fourth industrial revolution has broken down every single barrier we could think of – it's disrupted the whole business model. BDO now operates on the basis that we will adopt the right technologies early. We have to ensure we're putting appropriate business strategies in place to control the fast pace of change, and adapt our focus to ensure we maximise on our opportunities. This isn't just something that BDO has to do – every business needs to proactively create plans to account for such fast-paced transformation.
Uncertainty caused by geopolitical conditions is going to be the norm for the next few years. Convergence of technology will increase, and this will herald reduced barriers to entry within markets, something that we can help our clients to take full advantage of.
All this change is hugely exciting, but presents an equally huge challenge. We've got to find a way to deliver today but also secure the future tomorrow. The only way to get results is to make sure we're active in what we're doing, we've got the ability and the focus in these specialised areas, and that we’re building the foundations for the future now.