The shape of things to come

The shape of things to come

A blunt report on the future of chartered accountancy makes bleakreading. With the steady encroachment of deregulation and technology, theprofession will have to act fast - or face life in the cold. Andrew Pringreports.

Future Shock or The War of the Worlds would have been better titles.

The one chosen, Added-value professionals: Chartered Accountants in 2005, does no justice to an alarming report a group of ICAEW seers will deliver to its members this week.

No less than an urgent wake-up call to an often slumbering profession, the 56-page, look-to-the-future is, in the words of ICA chief executive Andrew Colquhoun, ‘a challenge to complacency’. Certainly its message makes uncomfortable reading for any chartered accountant, be it in practice or business, who thinks his place in the sun has a lifetime-guarantee.

A blunt introduction sets the tone: ‘In a fast changing environment it may be that the profession has not been sufficiently adaptable and flexible in taking on the skills and ideas that are so important to success, allowing others to move ahead. If so, we must now respond. The market-place will deal severely with those that are ill-prepared for change.’

Technology, competition and deregulation are driving the change. These forces will be particularly severe on practice members over 45 who, in the face of a mature audit market, persist in offering merely the routine traditional aspects of an accountant’s work.

The report warns, for example, that ‘much of the help that accountants currently give to small and medium-sized enterprises will be within the capabilities of the next generation of software without the need for advice from accountants’.

Similarly, real-time information on company performance will lead clients to question the value of annual audited information and further reduce what they are willing to pay. Business members too will suffer if they prove equally unable to adapt and play a leading role in change management and forming corporate strategy.

An over-abundance of accountants, both at home and abroad, is intensifying the pressures of this increasingly competitive world. The report suggests ICA membership will grow from 109,000 to 141,000 by 2005, with the proportion of members over 45 increasing from 44% to 53%. This will leave 60,000 to 70,000 members looking for employment outside practice – between 10,000 and 20,000 more chartered accountants than are currently employed in business.

As they search for a billet, they will encounter fierce competition from CIMA and ACCA members, as well as MBA graduates. These market forces may drive down their earnings potential, discouraging the brightest students from entering the profession and making it harder for accountancy to retain its status, reputation and profile.

Not all the predictions are bleak, however, for change also brings growth.

The report’s authors paint a rich picture of the future for ambitious accountants both in practice and business who come to terms with the environment.

Indeed, having a chartered accountant qualification will put ICA members in a good position to take advantage of the fresh opportunities, if it’s supplemented by additional skill sets and experiences.

‘Income and employment opportunities in traditional auditing will fall,’ says the report. ‘But there will be a growth in internal audit and new types of multi-disciplinary audits. There will also be scope to reposition audits to meet the changing needs of users. Tax compliance work will become less profitable, but specialists in tax planning and corporate finance will be in great demand. Changes to the public sector will open up many new opportunities. Information technology – an area in which accountants are losing ground to other specialists – offers opportunities in expert systems, information management, system security and providing new forms of assurance.’

Social pressures for greater accountability may also assist accountants.

The authors note that businesses and governments will come under ‘increasing pressure to become accountable as the new “audit society” demands external performance reviews and greater transparency’.

The implications for core disciplines followed by chartered accountants are considered in some depth, and future success factors are identified, as follows:

Auditing

‘The standard audit required under UK company law is a mature product,’ observe the authors, and it will become even riper as audit exemption thresholds are raised towards EU limits. Furthermore, there are fresh threats, such as remote auditing from low-cost economies or technology-based companies producing quick, reliable financial information drawn from proprietary databases that meet market needs without an audit certificate.

The marketing response requires a diversification that focuses on the wider range of financial issues that concern stakeholders and the public.

This might entail assessing companies’ identification of risks and control systems, a more active role in fraud detection, environmental information, and developing new assurance reports on pensions to meet the needs of an ageing population.

It will also be vital to maintain a strong reputation for integrity, competence and relevance, and promote these as unique selling propositions.

Financial reporting

The reporting role of accountants will continue to be challenged and changed by internationalisation, new information needs, deregulation and technology. This latter force has already replaced or de-skilled some of the labour needed to produce financial statements, and the process will go even further. So will the trend to export routine transaction processing to low-cost regions. SwissAir, for example, uses Bombay labour for much of its management and financial accounting.

The requisite response is, amongst other things, to ‘champion the convergence between management and financial reporting and non-financial performance measures, to increase the value of information to users’. Understanding the changing needs of new and existing users, plus well-honed analytical skills, will be also required.

Tax compliance

Services in this area have limited scope for expansion. Increasingly, technology will ensure that only a relatively small number of trained tax supervisory staff will be required. However, tax advice and planning will become a growth area – including advice on cross-border tax issues and developing new tax-efficient products for the financial services sector, for example. Competition from outside the profession will need to be countered by chartered accountant tax specialists becoming more accountable for bottom-line results, integrating tax planning into long-term strategic planning, and managing the outsourcing of direct and indirect tax compliance work.

Corporate finance

This, say the authors, will continue to be a major growth area for accountants in both business and practice. Corporate restructuring under competitive pressures, in particular, ‘will create many opportunities to advise on mergers and acquisitions, share issues and listings, and management buy-in/buy-out work.’ And this is one area where technology will not supercede individual expertise. There will, however, be stiff competition from lawyers and MBA graduates.

Business

In the corporate sector generally, the success of chartered accountants in finding lucrative employment may not continue, says the report. General pressures to reduce overheads will affect the number of reporting lines in all functions, including that of finance. Outsourcing and technology will also reduce the number of accountants required in business.

A further key issue is ‘the growing divergence of the strategic and control functions within business’. Historically, chartered accountants have enjoyed fast-track careers by straddling the two areas – but that fast-track is not an inalienable right and will only continue if accountants can adapt to the new demands.

‘To claim their place as senior business managers, accountants must take a leading role in change management, make a major contribution to corporate strategy, and be highly efficient in their supervisory and monitoring roles. For this, some will need additional skills, for example, MBAs.’

The report does not claim to be definitive, but is certainly thought-provoking. A two-pronged exercise, the working party is now inviting responses to its deliberations and will use these to develop ‘a set of detailed and practical proposals for supporting members as they rise to the challenges of the 21st century’.

David Stewart, working party chairman, concludes: ‘If there is an underlying theme to our work so far it is that of adding value. We as members must add more value for our clients and employers. And our professional body must add more value for us as members.’

Responses are sought by 28 February 1997. They should be sent to Desmond Wright, ICAEW, PO Box 433, Moorgate Place, London, EC2P 2BJ

WORKING PARTY

David Stewart (chairman), partner, Coopers and Lybrand

Andrew Colquhoun, secretary and chief executive, ICAEW

Peter Kemp, former second permanent secretary, Cabinet Office

Peter Moizer, professor of accounting, Leeds University

Richard Pearson, partner, Pannell Kerr Forster

Glen Peters, partner, Price Waterhouse

Colin Short, chairman, United Biscuits

Mark Spofforth, partner, Spofforths

Secretariat: Anthony Carey, Jane Holt, Desmond Wright

Editorial adviser: Steve Pipe, PRacticePR.

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