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April 30, 2008

Succession challenges set to change Australian industry

Succession challenges set to change Australian industry

In ten years the Australian accounting profession will look nothing like it does today, according to Greg Hayes, senior partner of Morison International member firm Hayes Knight. “We are certainly seeing a structural change occur in the accounting profession in Australia,” Hayes said, speaking to IAB as part of the Australia survey (see “IAB Country Survey: A super year”). “I predict the number of accounting firms will drop by about 20 percent over the next five years. It’s primarily driven by succession and convergence.”

Hayes said the average age of a principal in public practice is currently 54.“A lot, particularly at the smaller end, are looking to opt out,” he said.

He added that medium-sized firms are looking to acquire these smaller firms: “You’ve got the medium-sized firms, our size and larger, who are acquirers. You’ve also got a movement in the public company market where we have about two or three listed companies in Australia who provide accounting services. The likelihood is that number is going to grow to about six to ten over the next five years and the only way those companies can carve out a position is by acquisition.

“The most attractive firms in this country at the present time for those companies are firms with revenues of A$2 million [$1.8 million] to A$5 million. A public company in this country probably needs to have about A$200 million to A$250 million in fees to be able to justify its existence in the public environment. What that means is those firms need to acquire 50 to 100 of those firms. There are not enough of those firms around to satisfy the market that is going to be there, so we are going to see a very different market-place in the next five to ten years.”

Michael Bannon, a tax consulting partner at Nexia Duesburys, said succession planning has been affected by a change in the work ethic. “Some [young people] don’t want to work as hard as their partners and are concerned if they become a partner they will have to work as hard and that doesn’t fit in well with their family work/life balance,” he said.

Jim Smith, an MSI Ragg Weir partner and the Asia-Pacific representative for MSI Legal & Accounting Network, said his firm has been successful in grooming younger people to take the responsibility of partners. “That success on our part is not necessarily mirrored throughout the profession,” he said.

In terms of possible solutions, he suggested: “Obviously, there are alternative models [to the traditional partnership structure]. The consolidators are out there… this time I think their model is more successful than it has been in the past. The consolidator model will be an easy option for a lot of those people [looking towards retirement]. I think that if generation Y has different aspirations, there could be some difficulties with the professional model – the partnership model that’s existed in the past. I’ve yet to see a comprehensive alternative articulated in detail, however.”

One firm that has already embarked on a different model is Moore Stephens Queensland, which has a corporate model with a chief executive, and executive and non-executive board members. The firm’s managing director, Ken Pickard, spoke to IAB in June and predicted the partnership model will cause difficulties in the future.

He said the corporate model provides the potential for all staff to invest in the firm.

“So right down to the lowest junior, if they feel as if they want to invest in their future and their firm, then there’ll be an opportunity,” he said.

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