Private equity could soon own a third of top 30 US accounting firms

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US-based firms Aprio, PKF O’Connor Davies, Carr, Riggs and Ingram, and Armanino are all planning to sell stake

Ten of the 30 largest accountancy groups in the US could soon be owned by private equity groups, the Financial Times has revealed

Atlanta-based accountancy firm Aprio was allegedly planning to sell a stake to Charlesbank Capital private equity firm, while PKF O’Connor Davies and Carr, Riggs and Ingram are engaging in further sales processes. Californian firm Armanino is also mulling on the sale to a private capital provider. 

The surge in deals within the industry has led to one-third of the top 30 firms either securing or being on the verge of securing private equity investment. 

But regulators have expressed concerns about audit quality and “tone” being affected by private equity ownership. 

The news comes after Grant Thornton’s US arm and Baker Tilly both recently agreed to sell a majority stake to two private equity firms, New Mountain Capital and Hellman and Friedman respectively. 

Alan Whitman, former chief executive of Baker Tilly, said to the FT: “Partners are waking up to the fact that there is a leverage to be had by tapping into the capital markets. The capital needs of the firms have increased exponentially in recent years, in terms of people costs and investments in offshoring and technology.” 

Source Accountancy Today

Perfect storm’ for hundreds of thousands of firms revealed as demand spirals and talent supplies plummet

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Almost half (45%) of firms are being “severely” or “significantly” affected by skills shortages and a total of 74% of respondents said that compared with three years ago, the shortages have got significantly worse.

A new global accountancy report has laid bare the “existential” skills crisis facing the industry – uncovering an “ever-widening chasm” between increasing demand and the shortening supply of talent.  

According to the new Accounting Talent Index, a new global research study conducted and written by outsourcing specialists Advancetrack, almost half – 45% – of firms are being “severely” or “significantly” affected by skills shortages.  

With the report surveying firms across continents, the figure is estimated to scale to hundreds of thousands of firms. However, even with the global economy showing green shoots of recovery, it appears there’s little good news on the horizon for accountants competing for talent.  

A total of 74% of respondents said that compared with three years ago, the shortages have got significantly worse. 

The report said reasons for this ranged from more competition for talent from commerce firms to fewer people attending and graduating from university, as well as the effects of the Covid pandemic and an ageing workforce.  

“Our Accounting Talent Index shows how the acute lack of accountants has emerged as a critical bottleneck, and its impact has been nothing short of severe, impacting businesses, institutions and economies on a global scale,” said Vipul Sheth, MD of Advancetrack.

“It’s made clear in no uncertain terms how everyone, from multinational corporations to SMEs right through to the hundreds of thousands of accounting firms around the world servicing them, are struggling under the weight of these significant challenges. It’s a perfect storm.

Sheth noted that without skilled practitioners and a “robust” sector to oversee financial transactions, tackle regulatory complexities, and ensure compliance, “the stability of modern commerce is genuinely at risk.” 

The Index reveals 61% of respondents thought the Covid-19 pandemic had made an “appreciable difference” to accessing industry talent.

It said smaller firms are especially bearing the brunt – largely unable to compete against the salaries and prestige offered by mid-tier  accountancy firms and the ‘Big Four’, with the latter also struggling to compete against other industries.  

The majority feel the Covid-19 pandemic has “accelerated trends” that were well underway before the first lockdown in early 2020, the report found. 

Other straining effects firms are seeing on a day-to-day basis from the crisis include needing to pay out higher salaries, challenges in recruiting and retaining staff, limiting the services they offer and being forced to not take on new clients.  

Vipul added: “Given these challenges, it’s crucial we engage with governments, industry leaders, and influential stakeholders to reinforce the critical role that accountants play in maintaining the integrity and accountability of financial systems.  

“While the solutions are not exhaustive, or all yet identified, significant strides can be made by investing in the development of accounting talent, rethinking recruitment approaches, and promoting the essential role of accountants in supporting economic stability.” 

Smithink Advisory partnered with Advancetrack for the report, with the findings unveiled to delegates at Advancetrack’s gbX Conference in London. 

Accountancy Age  Reports May 23rd 2024

ICAEW explores evolution of mid-tier firms in new report

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The report examines the impact of five themes: firm structure and operational model; leadership and culture; talent; technology; financial performance and service lines

The ICAEW has published a report that explores the evolution of mid-tier accountancy firms following a survey of managing partners at 42 firms.

The report examines the impact of five themes: firm structure and operational model; leadership and culture; talent; technology; financial performance and service lines.

Seven in 10 firms surveyed were structured as limited liability partnerships, and 90% were part of an alliance, association or network. Global reach (84%) and client referrals (71%) were the main benefits of an affiliation, the firms said.

Some 64% of firms said they had acquired another firm in the past, while 17% had been part of a merger. Half of firms (55%) added they are likely to make acquisitions in the next three years, while 21% said their firm would like to merge with another in the same timeframe. 

Regarding private equity, 57% of respondents ranked it as a top three macro trend impacting the profession, while 12% of firms said they had secured private equity investment, and another 12% said they would like to secure investment in the next three years. However, 64% said PE was “not [or] not at all attractive” to their firm, while 17% said they saw remaining independent as an opportunity.

Other findings included:

  • 52% of respondents cited talent shortages when asked about the macro trends driving change in the profession, with recruitment and retention and future-proofing among concerns
  • Investment in technology infrastructure and cloud-based products is set to decline in the next three years, and in its place is a shift towards AI and in-house solutions
  • Of the top three skills required for the next generation of practice leaders, respondents highlighted commercial acumen (52%), adaptability (38%), inclusive leadership (36%), emotional intelligence (33%)
  • 93% of firms saw growth in fees in their last financial year, with the main drivers of growth including new clients (95%), increasing charge out rates (82%) and existing clients spending more (64%)
  • Though firms said their biggest growth would be in the existing core services of tax and audit, a number of emergent service lines are also set to grow, including business advisory, corporate finance, ESG and tech app advisory

Alan Vallance, ICAEW CEO, said: “These findings paint an important picture of mid-tier practices as firms evolve to face the challenges of the future. Mid-tier firms play a vital role in supporting and advising SMEs across the country, which is why we wanted to understand the opportunities and challenges they currently face.

“We’re grateful to all those managing partners who gave their time to share their views. Their comments will provide valuable insight for ICAEW as to how we shape our support for firms and members facing such challenges, now and in the future.”

He added: “We hope that the findings will help these firms as they innovate and take strategic decisions to navigate the current economic climate, support their clients and contribute to the continued success of the profession.”

Heather Sandlin writes in Accountancy Today

Britain’s audit watchdog a ‘sheriff of half a county’ beholden to accountants

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A delay in creating a tougher British auditing regulator means the current watchdog is “sheriff of only half a county”, beholden to the goodwill of accountants for funding and data, lawmakers were told.

After the collapse of builder Carillion, retailer BHS and cafe chain Patisserie Valerie, three government-backed reviews proposed in 2018 and 2019 sweeping changes to auditing and corporate governance, including a new Audit, Reporting and Governance Authority (ARGA).

ARGA would replace the Financial Reporting Council (FRC), armed with more powers to deal with powerful accounting firms, such as EY, PwC, Deloitte and KPMG, the “Big Four” that dominate auditing of listed companies. However, several years later the government has yet to introduce legislation to set up the new watchdog.

FRC Chief Executive Richard Moriarty told parliament’s business committee that the watchdog has come a long way in implementing many of the recommendations from the reviews, but “serious gaps” remaine that needed filling with legislation.

For example, company directors are not held to the same standard of accountability as accountants as the FRC can only punish directors who are qualified accountants.

The regulator is also “beholden” to accounting firms for information used in investigations, whereas other regulators can demand data, Moriarty said.

The watchdog has no competition powers and also has to “beg in a voluntary way” for about 40% of its income.

“At the moment I’m sheriff for only half the county,” Moriarity said, adding that he was asking for powers other regulators already had.

Business minister Kevin Hollinrake said significant progress has been made by the FRC using existing powers to improve audit quality under new leadership.

“Legislation is a last resort, rather than a first resort, I would say. We are not in a crisis situation,” Hollinrake said.

“We want to make sure we don’t put undue burdens on businesses.”

INADEQUATE FOUNDATIONS

The government unexpectedly pulled draft rules from parliament in October that would have applied some of the lessons from Carillion and BHS.

It also gave the FRC a new remit to consider Britain’s competitiveness, and the watchdog later ditched proposals to toughen corporate governance rules for listed companies after heavy lobbying by the London Stock Exchange.

John Kingman, who chaired one of the three government-backed reviews, told lawmakers that without ARGA there was a risk of falling back on improvements made at FRC.

“The house has been impressively rebuilt… but it’s still on inadequate foundations,” he said.

“The peril of that is they are up against large vested interests, and they have to operate through suasion and not by power,” Kingman said.

The FRC announced in March it was freezing staff expansion plans due to the legislative delay in transforming it into ARGA.

As its establishment moves “further over the horizon”, the audit reform to bring vibrant competition is slowing down, Scott Knight, Head of Audit and Assurance at accountants BDO told lawmakers.

It means change will “take decades”, said David Herbinet, Head of Audit and Assurance at accountants Mazars.

Huw Jone Reuters

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