Accountancy in 2022: ‘A year of resilience’

Accountancy in 2022: 'A year of resilience'

John Edwards, chief executive of the IFA, offers his 'surprisingly upbeat view' of the UK accountancy industry in 2022

Accountancy in 2022: ‘A year of resilience’

When we quizzed him on his predictions for the year ahead, John Edwards, chief executive of the Institute of Financial Accountants (IFA) was clear on his expectations. He predicted a year when sustainability would penetrate daily business, where digitalisation would drive technological adoption, where AI, cryptocurrency and blockchain would take centre stage, and one in which market turbulence would begin to settle. Catching up with him almost a year later, Edwards is keen to share his reflections.

Speaking to Edwards about a year spent representing SME accountants and firms, he has a surprisingly upbeat view. “The Russia-Ukraine conflict brought an influx of financial sanctions that put a strain on accountants with additional screening and reporting responsibilities, but I’ve seen everyone take this in their stride. It has been uplifting to see the response from our sector, providing trusted advice to navigate this challenging situation. Despite the upheaval, it has also been a year that has continued largely on trend, with sustainability and technology at the fore. What is clear is that many of these trends will endure into 2023 and beyond, at the same time as new trends that will shape our industry emerge.

“I would define 2022 as a year of innovation, resilience, and change, as the sector embraced new challenges and kept an eye to the future.”

An unexpected regulatory landscape

The industry was braced for significant regulatory change in 2022, and while the rollout of some legislation continued, some has, as expected, been delayed. Making Tax Digital has carried through with businesses getting to grips with tax digitalisation. The Plastic Packaging Tax also came into force, impacting manufacturers and importers in particular. Progress in other areas has slowed as attention and resources were diverted to the immediate pressures of the cost of living crisis and inflation.

Edwards says: “It wasn’t the year we all expected, but that was probably a welcome relief for many. While I anticipate a potentially higher rate of regulatory change as the government seeks to catch up in 2023 professional bodies such as the IFA have been lobbying to see a reduction or change in existing legislation so that it is replaced, rather than increased, and accountants are not overburdened. The recent announcement from HMRC to postpone the digitisation of Income Tax Self-Assessment until 2026 provides the opportunity and time for accountants to continue to get their clients up to speed and to ensure their solutions and processes are in place.”

Innovation-led solutions

Edwards also argues that “staff and skills shortages and rising wage expectations have undoubtedly proved a challenge for businesses, but the response I have seen has been one of innovation. Not only have technological solutions filled some of the shortfall, but accountants have specifically sought relevant alternatives. We have seen first-hand the adoption of outsourcing models, seeking additional qualified resource from overseas. Training and upskilling have also come to the fore.”

This builds on Edwards’ prediction of the adoption of technology, as AI and process automation have taken a leap forward. Multi-factor authentication has become the norm for security applications, and cloud accounting has become an expectation of most clients. With a futuristic slant, cryptocurrency was thrust into the spotlight as a potential investment opportunity for businesses, seeing accountants focus on ensuring they do not fall foul of national regulations. It is increasingly likely that accountants will need to consider how they can incorporate cryptocurrency services as part of their day-to-day offering, upskilling to understand and utilise AI and blockchain technologies to protect client assets.

Fraud amid financial pressures

The reduction in government-funded pandemic support has been a key factor in this year’s business landscape. What should have been a return to business as usual has been beset by fresh challenges and cost increases. Sadly, it has also driven insolvencies, which have returned to their highest quarterly levels since 2009. What’s more, one in 10 businesses are self-described as “moderate-to-severe” risk of insolvency in the coming months. This again places accountants at the epicentre, offering agile advisory services that provide much-needed advice.

Aligned with increased insolvency is the potential for fraud, Edwards explains. “Lenders and insolvency practitioners are focused on recouping funds provided under the Bounce Back Loan Scheme (BBLS), while HMRC is concentrating on businesses that fraudulently accessed furlough support during the pandemic. As a professional body, the IFA is receiving requests for support from accountants, tax advisers, and practices that are seeing signs of this fraud for the first time.”

With a laser focus on furlough fraud, several businesses have already faced investigation and prosecution as HMRC seeks to recoup taxpayer monies. This is likely to continue into 2023 and beyond. Meanwhile, under the Bounce Back Loan Scheme, common examples of system abuse include misuse of the funds that were legitimately obtained through BBLS, and fraudulent loan applications from businesses that were not eligible. It is estimated that of the £47bn paid out through BBLS, £4.9bn (11%) is expected to be fraudulent. For many accountants, particularly those with clients that keep them at arms-length for much of the year, these loans are only now being revealed in end of year accounts.

Aside from the business support schemes, financial loss through fraud remains high, with UK Finance estimating that £4m is lost to fraud daily in the UK. Employees remain significant culprits, with an estimated £190m of fraud through theft annually, while green fraud – suppliers providing an “eco” service that isn’t green – is topping out at £3.5bn per year according to FTI Consulting.

In summary

Despite obvious challenges, 2022 has offered much to celebrate. I have seen first-hand a year of resilience, and I am once again impressed but not completely surprised at the ability of our sector to respond to such challenges,” Edwards concludes.

“It has also been a year of returning to face-to-face business and having met many of our members, I am once again impressed by the levels of determination and innovation being displayed across the country. It bodes well for 2023.”

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