The Future of the Profession: Small and Medium Sized Firms

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For a slow start, the Accounting industry is playing quick catchup when it comes to technology and change. Mark Lloydbottom asks the all-important question: What next?

I believe that the profession is set for twice as much change in the next five years as it has seen in the last ten years.

It is easy to write these words. Yet it is my deep conviction that we are already seeing those changes unfold. So what does tomorrow look like? My answer is that it almost certainly looks very different from today.

For over a century,Accountancy Institutes have led the profession so that accountants today enjoy a reputation that is second to none. Yes, there have been challenges along the way – there is no doubt. But the fact is – we should all be grateful for the work done by the staff in our Institutes and those members who volunteer to serve on Institute committees.

It’s time to catch up and move on

The 21st century has already seen the combined impact of a number of key changes and we’ve all witnessed the effect –  a rapidly changing landscape for accountants. The rollback of statutory audits in many countries has reduced the automatic right to perform an audit. The impact of the global financial crisis forced people to focus on reducing costs. Technology continues to advance – seemingly daily!

Think about this – our core services have remained unchanged for centuries! Accounts are pretty much presented in the same format using the double entry technology codified by Luca Pacioli over 500 years ago, tax returns have been required since the first Taxes Act over 200 years ago, while the first audits were signed off in Scotland just over 100 years ago. While I find that many South African firms are seeing little reduction in compliance work, the reality is that firm owners are being challenged with work quality and charging higher fees.

For decades we have hardly been impacted by change, other than that brought about by regulations, some introduced as a consequence of the apparent misdemeanours of certain global firms. Take Enron and Arthur Anderson as an example and I will say no more.

I was in charge of the audit of the Clarks shoes retail company when the directors took the decision in the 1970s to import shoes from Poland. Today, Clarks doesn’t manufacture shoes in the UK at all.

Technology and the Internet are at the forefront of globalisation. Tomorrow’s clients, if not today’s, are accustomed to communicating through Social Media and doing business online has become second nature. As e-filing becomes compulsory and cloud technologies allow global accessibility, questions such as, “what services will accountants offer?” and “where will future service providers be based?” should be asked.

Change

Here is my point: Other industries had to change as a result of technology, globalisation and the pressure to reduce costs – it’s time that the accounting industry joins the evolution. Changes in this industry have thus far been relatively minimal. It is in my opinion, no longer going to be Institutes that lead change, but rather technology companies, empowered by the Internet and Social Media. And who knows how rapidly changing technology will impact our tomorrow? What will be commonly used in 2020 that isn’t available today? What changes in behaviour will they drive?

Where will your future competitors be based? Most likely not just ‘down the road.’

Chartered Accountants, Chartered Certified Accountants and CPAs are found on every continent. They can already access customers in any country, anywhere and at anytime. Services will increasingly be available via the cloud while personal service will be conducted via mobile and VOIP contact. We now have to deal with processes, systems, technologies, threats and challenges that were unthinkable even a decade ago.

Having read thus far are you thinking that I am describing a doomsday scenario? Well, I am not. But there is no question that it is a challenging one. As in many other industries, I predict the number of people directly employed by accountants to reduce and the likelihood of greater fluidity in where accountants are located. The trading base (if one still exists) of the service provider may not even be in the country where the customer is based. I also see that the customer continues to have the empowerment and capability to do more work for themselves.

In short, an accounting world with NO boundaries.

All this technology is accompanied not just by threats but also opportunities. However, I prefer to use the word ‘oppothreat,’ i.e. on the flip side of an opportunity there is a threat and conversely there is an opportunity that is accompanied by a threat.

To me one of the threats posed by all of these technologies is the issue of security. Recent years have seen the annoyance of computer hackers, which range from troublesome amateurs to state and commercially sponsored thieves of corporate secrets and intellectual property.

We all have issues with security

Does this sound like the domain of big business? Absolutely not! These threats face us all. Let me demonstrate this by sharing a story from one of my clients who is one of three partners.

“We act for a client where the accountant had authorisation to make online payments up to the value of £120,000 in any one month. This facility was used to pay wages to staff directly into their bank accounts and for payment to creditors.

The managing director (MD) was accustomed to sending the accountant payment instructions  via email. Basically, a list of creditors who have to be paid. His emails were brief, “I need x-y-z to be paid and here are the banking details.”

Here is the sequence of events as it happened starting on the Monday: The accountant received an email from the MD instructing him to pay supplier X £5,000 and was given the relevant bank details, which the accountant duly paid.

Tuesday: the accountant received a further email from the MD to pay supplier X £15,000, again providing bank details.

Wednesday: the accountant got a third email from the MD to pay supplier X £45,000 and, as before, provided bank details.

On Friday the bank informed the MD that the salary transfer could not be take place as there were insufficient funds in the company bank account.

The MD then contacted the accountant to ask why the company bank account was empty.The accountant replied: “It is as a result of the £65,000 you asked me to pay to supplier X this week.” The MD responded: “I never made any such requests.” The accountant replied: “But you sent me emails with instructions to make payments.” The MD didn’t know anything about the transactions.

My client continued…. It turns out that there was no firewall on the MD’s computer. His computer had been hacked and the hackers had read his emails and had discovered the pattern of payment instructions from the MD to the accountant. They then sent fictitious emails from the MD’s computer to the accountant with payment instructions for the amounts stated above.

On the accountant’s role in this – he assumed the MD required these payments to be made and did not phone to check the payment details.

Because of the time it takes for international bank payments to go through the banking system, the last payment of £45,000 was stopped before being paid, but as the first two payments had been processed and been correctly authorised by the accountant, there is £20,000 in a hacker’s bank account somewhere in the Far East and the company’s bank will not make a refund as the payments were properly authorised.”

True story.

You will no doubt have your own perspective on this, but in a profession where staff costs are approaching and in far too many cases exceeding 50% revenue, technology costs are increasing and clients are becoming more cost-conscious. There is no question in my mind that in a profession that is very different from when it was passed to us, we hold the baton. And it will be even more different when one day we hand it to our successors.

My question is; what will that look like?