Accountancy Age spoke with Farlinger, who talked us through the biggest challenges facing BDO and the accounting industry, how to embrace the digital revolution, and BDO’s growth aspirations
It has been a good year for BDO. The top 10 firm in the UK has gone from strength to strength – in the year-end 2016 it had 8% growth in revenues, reaching $7.6 billion global combined fee income, and has successfully focussed on growing its global network, which now comprises of 68,000 employees in 1,400 offices across 158 countries.
The firm gives no impression of slowing down, and looks to continue its growth aspirations with new global CEO Keith Farlinger at the helm.
Farlinger was unanimously appointed global CEO in June of this year by the network’s Global Board, and is due to take up the post in November. Well-known and respected in the BDO network, Farlinger was formerly CEO of BDO Canada for six years and was been member of the Global Board for several years.
Accountancy Age spoke with Farlinger, who talked us through the biggest challenges facing BDO and the accounting industry, how to embrace the digital revolution, and BDO’s growth aspirations.
Embracing the digital revolution
The digital revolution has transformed the modern world – from the way we live to the way we communicate and the way we work. The accountancy industry is no exception, with technological change transforming the sector in recent years through the pervasiveness of cloud accounting, the government’s Making Tax Digital initiative, and the advancement of artificial intelligence and machine learning.
The BDO Global Risk Landscape report 2017 surveyed clients on their biggest perceived risks and, unsurprisingly, “disruptive technologies” ranked highest, according to 19% of respondents. Emerging technological disruptors included “the internet of things (IoT), autonomous vehicles, mobile internet, cloud computing and 3D printing”.
While the digital revolution brings with it risks and disruptions, Farlinger views it as an opportunity, and believes that all forward-thinking firms and clients should do the same.
Urging firms to anticipate and embrace technologies that can automate clerical tasks, he says that freeing up the accountant would enable them “to step up and empower clients with high-level advisory services that can accelerate the digital transformation of their businesses.” With technology transforming the role of the accountant, allowing them to move into a more advisory and strategic role, “BDO’s core base of mid-market clients are taking advantage of these now and BDO is able to assist them by improving internal efficiency and the quality of audit and advisory engagements”, Farlinger explained.
To make the most of the digital revolution, Farlinger says BDO’s strategy is “investing smartly”. One of the ways BDO is doing this is through a partnership with Microsoft that launched last year. The partnership covers three key areas: creating an online collaboration space to allow digital relationships to thrive, hosted by Microsoft Azure; strengthening BDO’s audit toolkit with a bespoke Audit Process Tool (APT) and integrating BDO’s data analytics tool, BDO Advantage; finally, strengthening its cloud accounting capabilities by utilising the Microsoft NAV tool.
Regulatory changes on the horizon
New legislation and regulations coming into force in the next year pose some challenges, as they require businesses to adapt and ensure compliance. However, Farlinger says these are challenges “that BDO is well equipped to manage”.
As a consequence of the ubiquity of technology, cyber threats were ranked the next biggest client concern on the BDO Global Risk Survey, according to 18% of respondents. These concerns follow a series of high profile cyber-attacks, including the WannaCry ransomware attack that struck the NHS earlier this year. In 2016 the average cost of a data breach rose to US$4 million, according to Farlinger. The risks are high, and “Lloyd’s estimates that a state-led attack on the US power grid could cost the economy as much as US$1 trillion”, he adds.
To address the challenges and concerns concomitant with the digital age, the government is implementing new data protection laws, including the General Data Protection Regulation (GDPR), which comes into UK law on 25 May 2018. While this may mitigate some concerns surrounding cyber threats, it also places increased compliance burdens on businesses dealing with data, which includes notifying stakeholders in the instance of a data breach, and facing steeper fines and penalties for failing to protect sensitive information. Farlinger says: “This requires manpower and systems, two resources we at BDO are able to deliver on short notice, having acquired in 2016 two specialised cyber security firms, in Israel and in the Netherlands.”
Mandatory audit firm rotation is another regulatory change that is applicable in an increasing number of countries. Farlinger said this “offers challenges but also growth opportunities for the BDO network – as does the growing demand for tax and advisory services”. Farlinger anticipates that BDO’s range of innovative service offerings will also provide growth opportunities in other services.
Other challenges on the horizon are the changes that Brexit will inevitably bring. The challenges are primarily rooted in uncertainty – as Farlinger says, “clients don’t know how these will eventually play out as the process unfolds”, and therefore they are unable to prepare properly.
BDO isn’t lacking in preparation however. “The politics of Brexit remain fascinating and fatiguing in equal measure, both in the UK and in Brussels, to the effect that we have set up a BDO Brexit task force”, Farlinger says. This will enable the firm to best “navigate clients through the business impact of political change.”
Maintaining the rate of growth
When queried on BDO’s most significant achievements in the past year and upcoming goals, Farlinger’s answer is the same: growth.
BDO has continued to expand its global footprint in 2016, with 30 mergers worldwide. This includes recent expansions in central America, 13% growth in China, a new firm in Korea and a strengthened firm in Japan.
Another key area of growth for BDO is India, where in the year ending March 2017 the firm secured over 40 lateral hire partners. “Uniquely in India, every partner is a shareholder in the business,” Farlinger says. “Four years ago, BDO in India was not in the country’s top 30 audit firms: by 2020, we predict it will be in the top five.”
Looking ahead, Farlinger hopes to continue this rate of growth with a combination of organic growth, mergers and acquisitions, increasing BDO’s presence in different countries. In terms of services, he has a view to grow BDO’s advisory and tax practices. “We foresee opportunities in specific advisory services, e.g. corporate finance and transaction advisory services, and cybersecurity advisory services.”
The importance of company culture
Engaging and retaining talent is a universal issue, but BDO finds its unique enterprise culture continuing to attract new talent. Farlinger described how BDO’s environment “fosters a people-first culture that places a high priority on work-life flexibility, as well as professional development”. This is achieved through their “smaller client services teams” and “excellent partner-to-staff ratio”. He adds: “we also offer access to internal and external training, a strong mentorship programme and a competitive benefits package.”
It seems then that BDO is currently on a path to success. With the firm recording strong growth in recent years and a culture that continues to attract talent, this new global CEO has plenty of opportunities to capitalise on its progress. With Brexit presenting an obstacle to many firms and businesses in the UK over the coming years, it looks as though Farlinger and BDO are ready to tackle the challenge head on, leveraging technology to deliver the best for the firm and its clients.