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Demographic trends and changing work patterns have set the profession on the road towards an inexorable collision between supply and demand. What can accountants caught up in the skills crisis do to come out unscathed?

There’s nothing more frustrating than watching a situation unfold where you can see the underlying causes, but you can’t do anything to prevent it.

That’s the feeling I get from watching accounting’s increasingly acute skills shortage. As we near the end of 2022, it feels like we’ve careered down the mountain road, the brakes aren’t working properly and we’ve crashed through the wooden roadblock marked “Danger steep drop ahead”.

The warning light started flashing as far back as 2018–19, when we could see staff retention and recruitment climbing up the list of concerns for entrants to our annual Accounting Excellence Awards. Progressive practitioners were clearly beginning to see that the lack of available talent was cramping their ambitions for growth.

Thanks to Covid, this storyline went a little out of focus during 2020–21, but when things settled down this year, we found that as with technology adoption and flexible working, the pandemic greatly accelerated the underlying trend. Making Tax Digital (MTD) and its more sophisticated cousin Digital Transformation might have been the focus of public conversations within the profession, but recruitment, retention and the lack of skilled people to tackle all these new challenges has become a persistent and ominous throb in the profession’s background soundtrack.

While regulatory shocks like MTD and the ever-changing nature of accounting services have intensified the squeeze in 2022, the current talent crisis goes back more than a decade to the profession’s response to the global financial crisis, when firms large and small reined in their training budgets. And the signs are that the downward cycle is starting to repeat itself this year. While the skills gap we’re seeing is entirely predictable, the extent of its impact is adding to my sense of delayed and slightly helpless shock.

Escape routes

The sound of people raising alarms echoed around the AccountingWEB Live Expo hall last week, along with indications of how accountants were adapting to the post-pandemic skills crunch. In his talk about how private equity investors were putting money into accountancy firms, Sam Edwards from PwC’s Strategy& consultancy commented that talent and skills featured in every conversation he and his colleagues were having.

“Accountants operate in a very constrained talent market,” said Edwards. “Everyone talks about how difficult it is to keep the talent you have. If you could just turn the talent taps on, there’s so much work out there you could be doing.”

For years and years, the software industry has been telling accountants that automating mundane tasks will increase their capacity and free their people up to do more valuable work. As Edwards put it, “Using technology will create more capacity in your team for you to take on more core work or cross-sell some of those interesting advisory services.”

The flow of traffic to stands of expense and data capture, accounts payable, payment apps, practice management and CRM suppliers showed that a lot more accountants are responding to those calls.

Other avenues are opening up, including a bigger role for bookkeepers and a surge in outsourcing. The roll call of providers at Coventry included Affinity Outsourcing, befree Global, Diamond Outsourcing and GI Outsourcing, not to mention IRIS, which runs a managed services division. Circulating among the crowd were well-known outsourcing faces Alex Falcon Huerta (Smart Offshore) and Vipul Sheth (AdvanceTrack).

“Outsourcing is not the dirty word it was,” said Jim Scott, managing director for accountancy at IRIS, during the future-gazing power hour with leading tech players at the event. “It’s a realistic option to make your business more efficient.”

Limits to the tech solution

During an Expo roundtable discussion, Can technology solve the skills shortage? Bobby Lane from Factotum warned of the danger that technology wasn’t so much the solution as a cause of the problem because of the way it was changing the kinds of skills and people needed. 

“We used to recruit people who could process accounts,” said Lane. “Now with technology, people assume that if the data goes in there, it passes across to the right destination in the accounts. How do you find people who can translate these numbers and advise businesses?” 

FreshPay founder Nicola Hageman agreed: “Automated tools like Dext Precision can help, but you still need the skill to be able to review figures and tell if they are correct. That’s the skill we’re losing.

“At FreshPay, we hear so many horror stories about people running payroll who aren’t up to date with the regulations. And sometimes software houses don’t help with sales pitches about how easy it all is, without mentioning what a disaster it could be if you get it wrong.”

Uh-oh! Things are getting scary…

At times like this I’m aware of the risk of sounding like one of those irritating locals by the side of the road muttering, “You need to watch out for that steep ravine…” Hundreds of articles have been published on AccountingWEB and other outlets about recruitment, motivation and retention.

But when the car is hurtling off the cliff, there’s not a lot of helpful information you can give to the people trapped inside. With January looming, accounting practitioners in particular are heading for a very bumpy ride.

Maybe you’ve seen the resource shortages coming and successfully implemented remedies, whether through automation, outsourcing or internal training and development. But if those routes haven’t steered you out of trouble, the only thing I can think to say is: don’t panic. Maybe slow down a little and put as much effort and time as you can into looking after your team. It also helps to know where you want to go so you can plan your route to bypass those resource barriers. You know where to find us if you want any more help or advice.

Writes John Stokdyk in AccountingWeb

UK audit reform is inadvertently creating opportunities for challenger firms to pick up clients from the Big Four, according to James Hadfield, head of Menzies audit service.

Changes are being introduced to better allow mid-tier firms to compete for Public Interest Entities (PIE) audits, and Hadfield believes these are already having another indirect impact.

“As the largest audit firms have rationalised their client portfolios in the face of change, there has been a cascade effect of audit work coming down through the marketplace,” he says.

“This has led to significant growth opportunities for medium-sized firms.”

The accounting veteran adds that a wider lack of staff is causing some to “close their doors to new business,” thus narrowing clients’ options and raising audit fees.

More broadly, Hadfield says reforms have also led to an “increase in the tenacity of the FRC”, but Alistair Main, head of assurance at Duncan & Toplis, argues they’ve not done enough to level the playing field.

“There have been some changes to the audit regime, although not as drastic as many would say are necessary to promote both quality and competition,” Main explains.

“If the recent changes achieve their aim, that’ll be a huge benefit to the market. However, the risk and reward balance has to be correct for it to be successful.”

Taking advantage of PIE reform 

Under proposed legislative changes, the definition of a PIE is set to be expanded to include a wider pool of companies. These are likely to see all private, AIM-listed, and third-sector businesses with more than 750 employees and a £750 million turnover, included.

The expansion is being introduced as part of a wider package or reforms to overhaul the UK’s audit and corporate governance framework, instigated by the department for Business Energy and Industrial Strategy (BEIS).

The overhaul has been in the pipeline since March 2021, when BEIS published its 200-page consultation paper – Restoring Trust In Audit and Corporate Governance.

According to Hadfield, the reforms could, “in theory”, create competition.

However, he adds that making the leap into the PIE audit market is “hugely challenging” logistically, and the idea of taking on new risk has meant “the response so far has been lukewarm”.

Duncan & Toplis’ Main says the reforms could well bring mid-tier firms into the PIE space, but he believes those considering entering the market will need to consider staffing before doing so.

“Although the managed shared audit regime is hoped to increase audit market competition, only auditors of PIEs will be able to act as the joint auditor,” he says.

“This will significantly limit the number of companies that can enter this market. To take advantage of this situation, an auditor will need to invest heavily in the skills and experience required to audit PIEs.”

In order to take full advantage of the opportunities presented by PIE reform, Main adds that firms will need to ensure they work closely with the FRC.

This, he says, will enable practices to better understand the added resources they’ll need to enter the PIE market, and any support that can be provided to help them achieve this.

“If the regulator gets the balance right between risk and reward, then mid-tier firms may have an opportunity in the managed shared audit space.

“[But] practices would need to be engaging with the FRC, either directly, via member groups or at a network level.”

Resourcing driving opportunities?  

In Search’s 2021 Skill Shortage Report last year, 38% of those surveyed in the finance and accounting industries admitted they were struggling to fill top vacancies.

Similarly, Hadfield says Menzies has “certainly felt the impact” of work cascading down from the Big Four, but he believes audit reform will only tighten the race for accounting talent.

“While the last few years have been extremely hard work for our auditors, they have also created great opportunities for career advancement and exposure to exciting new clients and sectors,” he says.

“We have worked hard to create a unique people culture. Decent performance on employee retention and recruitment is supporting our growth in fees.”

Main also sees the hostile macroeconomic climate as a significant opportunity for those practices seeking to take business from better-established rivals.

With top-ten accounting firms having to “focus on higher fee work” due to tight resources, larger companies are “becoming better suited” to the services his firm can offer, he argues.

Likewise, when it comes to practically taking advantage of opportunities and connecting with clients, Main says Duncan & Toplis’ membership of wider networks has been beneficial.

“Owner-managed businesses have naturally needed to find a new home – either through their own choice or from direct recommendation – and they are therefore coming to us and other auditors of similar size.

“The growth of our internal market through our membership of the international accounting network, Kreston Global, is further contributing to this movement.”

Article From Accouintancy Age

A new ‘coexistence’ of financial audit and ESG advisory teams could emerge due to the nature of sustainability assurance services

PwC has predicted that ESG assets will account for more than 50% of mutual fund assets by 2025 – representing compound annual growth of 28.8% from 2019 onwards.

But questions remain as to how this will affect the formation of professional services firms, with some industry participants arguing that silos and structures may begin to change shape.

“There’s an interesting question around how the financial audit and business advisory worlds coexist inside audit firms when it comes to delivering ESG services,” says Dr Jeremy Osborn, global head of ESG at AICPA.

Osborn draws on his experience working in EY UK’s sustainability services team, explaining that ESG assurance typically straddles both sides of the organisation. This may present a valuable opportunity for greater cohesion between the two, he says.

“I think those with the accountancy background whose primary role it might have been to provide financial audit or provide sustainability report assurance are also very well placed to provide advice to their clients around things such as adaptation to climate change.

“Getting the insights that comes from supporting the report assurance or the financial audit process provides a very good basis for them offering that broader advisory service to clients,” adds Osborn.

New IFAC, AICPA and CIMA research supports Osborn’s view. In a study of 1,400 global companies, 70% that engaged a professional accounting firm to perform their ESG assurance chose the firm that audits their financial statements.

This presents firms with an opportunity to distribute capabilities and break down information silos in order to more effectively serve clients, Osborn argues.

While some firms may find the mounting demand for ESG solutions to be an abrupt challenge, it will eventually present the opportunity to restructure accordingly, says Mary Tressel, ESG lead across Moore Global’s professional services network.

“It’s a bit of a challenge for firms to get their arms around in the beginning, but we’ll see that it’s an opportunity to break down silos, because you need to go across the entire organisation to gather the information required.”

Tressel tells of such initiatives taking place in the Moore Global network, explaining that the firm made it a priority to “really develop a structure” around the new service line.

She argues that many firms will be forced to do the same and “go back to basics”, making the suggestion that processes and team structures should be segmented per client.

“I think it’ll be on a client-by-client basis – there are opportunities for firms in both realms, and so I think the key for firms getting into this area is evaluating their client base and where they think the need is going to be strongest.”

A market ‘differentiator’

Similarly, Rakesh Shaunak, managing partner and group chairman at MHA Macintyre Hudson, argues that firms will be “forced” to rethink their most basic practices due to the weight of opportunity that the growing ESG demand poses.

This is reflected in the IFAC, AICPA and CIMA study. The number of global companies obtaining independent assurance on their ESG information increased from 51% to 58% in 2020, with almost a third of those surveyed (61%) stating that such engagements were being performed by audit firms.

“As our clients have begun to talk about these things more and more, we’ve become acutely conscious that it was something we needed to be involved in, and something that will act as a differentiator,” says Shaunak.

Shaunak went on to highlight talent as an “integral” tenet of this, explaining that the firm has leveraged its international network to create a global ESG team and offset any potential recruitment challenges.

However, he also suggests that this “works both ways”, arguing that an increased focus on sustainability matters acts as an effective recruitment tool for the firm.

“It comes back to us being seen as a differentiator. We’ve found that newer recruits are becoming more and more ESG conscious, so it’s definitely a big draw as far as recruitment is concerned.”

Tressel describes a similar experience in the Moore Global network, explaining that new recruits are increasingly ESG-aware regardless of their specialism.

“Whatever their professional interest is within the firm, they still have that focus, so this is definitely a recruiting tool.”

A survey conducted by PwC in 2021 supports this trend, which found that 86% of employees prefer to support or work for companies that care about the same issues as them.

But for AICPA’s Osborn, a crucial component of firms’ groundwork for responding to ESG demand is “amplification”.

With many firms likely to be in a position of privilege when it comes to forthcoming regulatory changes, a priority must be to help clients further their understanding of what needs reporting and how the information can be gathered.

“They’re in a very privileged position in terms of the relationship they have with their clients to help them understand what these changes are,” Osborn says.

“So part of their role is amplification through their client network and helping them understand what the changes are, and how that will impact on what’s reported, assured and audited.”

Regulatory picture remains unclear

However, the groundwork of audit firms in reacting to the ESG boom still depends heavily on how the regulatory picture develops, according to Osborn.

The “most important and urgent” aspect of this surrounds the work of the International Sustainability Standards Board (ISSB), he says.

Formed during COP26 in November 2021, the ISSB has consolidated the Climate Disclosure Standards Board and the Value Reporting Foundation to form a new global standards setter for sustainability reporting.

Its draft standards are expected to be published before the end of 2022. National regulators, such as the UK’s Financial Reporting Council (FRC), must then decide how soon they wish to adopt the new standards.

“That in turn will determine how the market shapes in response,” Osborn adds.

But while the universal adoption of the ISSB’s standards would be “ideal”, the reality is that audit firms must be prepared for all eventualities, says Tressel.

“For now it’s about being agile,” she says. “Firms have got to be prepared for whatever happens in their own jurisdictions. And then as soon as those regulations are finalised, they’ve got to get a team together that is studied up and prepared on it.”

Tressel also warns firms that many smaller businesses will be affected by the new requirements due to Scope 3 emissions disclosures.

Scope 3, which is included in the ISSB’s exposure drafts, covers all indirect emissions that occur in a company’s supply and value chain. This includes all purchased goods, services and distribution.

“It may be the listed companies that are exposed in terms of disclosure requirements, but it’s going to be pushed down because they’re being asked to report on their supply chain.”

Tressel says that she has observed this as a growing concern among her own client base, and urges firms to be prepared to offer the relevant advice to many smaller organisations as a result.

“We are seeing that in our own client base where the smaller and mid-sized companies are coming to us in a panic because their biggest customers are making these demands.”

Writes Sam Alberti in Accountancy Age(Edited)