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What does this year have in store for a profession steeped in tradition but as vulnerable to change as any? We look at some of the likely directions of travel.
Extraordinary transformation sweeping through societies, economies and cultures means that long-term planning for many businesses amounts to little more than a journey into the unknown. Driven primarily by rapid technology advance, changing attitudes and expectations and new wisdom that to disrupt is good, businesses and consumers inhabit a world uncertainty. The accounting profession, like most others, is not immune to change. So what is the profession expecting from 2020?
It is likely that this year will be remembered less for watershed moments or rulings, than for the relentless need to embrace change. To turn challenges and threats from disruptive technologies into opportunities for growth. To implement changes required by tougher regulation and international quality standards. To manage the talent pool and workplace skills mix through astute recruitment, development and succession planning.
Cloud accounting has been the breakthrough success story of the last few years. Moving from the desktop to the cloud has benefited clients enormously in terms of speed, accuracy, efficiency and a closer collaborative relationship with accounting providers. Governments have also assisted in accelerating uptake through online policies, such as the UK’s Making Tax Digital rollout which will continue through 2020.
Unsurprisingly, the biggest agent of change for the profession in 2020 and beyond continues to be technology, and in particular artificial intelligence (AI) and robotic process automation (RPA). These will continue to impact on data analysis, generating better predictions, deeper insights, reducing risk and cutting the cost of human error in audit and assurance. However, the rate of adoption by businesses and advisors in 2020 will depend not only on the choice and accessibility of cost-effective analytics tools and their potential return on investment, but also on the more nuanced issues of trust and human judgement, and having the capabilities to implement change effectively.
Tools such as CaseWare’s IDEA analytics product show how established desktop and cloud accounting software providers are now incorporating AI, enabling a step-change in what accountants can achieve through precision analytics and adding value for the client. Described by AICPA (the American Institute of CPAs) as the dynamic audit solutions of the future, products like IDEA enable data collection from any source – and the more data you have, the more insight you build. An RPA-based workflow engine quickly generates all the workpapers auditors need, and advanced AI-based analytics launching in 2020 will make possible additional substantive testing of datasets, with limitless inputs, resulting in a scalable and rigorous solution for client engagements. The right product choice is an important one for accountants to make but so also is when to make it. Each firm’s circumstances and motivations to change will be different, but an increasing client expectation that tools such as these will be deployed by their external auditors means uptake is more likely to be sooner than later.
Looking further ahead, the practical implementation of real-time distributed ledgers (blockchain technology) is unlikely to be widespread by the end of this year, or the next. However, infant technologies often surprise, so the profession is not taking its collective eye off the ball, and there continues to be significant investment in blockchain development by many large professional service providers and systems integrators with the financial capacity to trailblaze. Mainstream adoption is almost inevitable, but perhaps not yet.
Keeping up standards
According to Tom Seidenstein, chair of the IAASB (International Auditing and Assurance Standards Board) in his October 2019 address to the ICAEW conference in London, UK, “Setting standards at the international level is the most effective way to respond to the relentless globalisation of business.” In 2020, audit firms will begin preparations for implementing a new raft of IAASB measures aimed at improving audit quality standards still further and expected to come into force in 2021.
The revisions to existing international standards and the introduction of brand new measures come after five years of planning and consultation. In recent years the quality and efficacy of audits and auditors have been brought into question by a spate of high-profile corporate failures, including – most recently – the collapse of UK travel giant Thomas Cook. So heightened scrutiny of a company’s books in the public interest will be seen as a welcome development and the profession must engage with and be ready to deliver on the new standards.
Jerry Townsend, audit and assurance partner at UHY LLP in the US, UHY Board member and head of UHY’s global audit special interest group, believes that audit firms – and especially those operating internationally – must begin to tackle these changes now. “Working with colleagues to deliver cross-border client audits to these new and revised standards, could mean a substantial overhaul of existing quality and quality review systems for all parties, to consistently mirror the new risk-based approach,” he says. “We will also need to assure engagement quality at the front end of the process rather than afterwards, which is not traditionally the way it has been done. There are significant implications for engagement partners and every audit firm will need to evolve its governance to suit. This could easily take a year or more to implement.”
The International Ethics Standards Board for Accountants (IESBA) develops and promotes ethical standards and guidance for professional accountants. It also has been consulting on revisions for accountants to meet more stringent public expectations on role and mindset (professional scepticism), in a project aiming to complete in 2020. Together with a 2021-targeted initiative to extend the ethics code to non-assurance services, there will be plenty to occupy the profession in the year ahead on these vital public interest goals.
Taxing the digital economy
The many-faceted anti-BEPS (base erosion and profit shifting) programme from the OECD continues to gather momentum with an increasing number of countries signing up to the actions and the multilateral instrument to help ensure fair and proper distribution of multinational profits to the jurisdictions in which they are made. In the US, businesses and professional services providers are still navigating the Tax Cuts and Jobs Act (TCJA) and this will continue through 2020 as the IRS implements its tax code reform.
But tax repatriation issues for technology operators in the digital economy – where physical trading presence is not a measuring point of economic activity – have taken longer to address. Despite the digital economy being Action Plan 1 out of 15 action plans in the BEPS framework, the OECD’s detailed proposals for tackling online sales have only recently been published for consultation, to a mixed reception.
The proposals aim to force the tech giants to pay tax in the countries where they make the sales, rather than transferring to offshore or other low-tax jurisdictions, but some critics believe the measures do not go far enough; and in particular, that the exchequers of poorer or developing economies will continue to largely miss out on tax income they should have.
Some countries have bypassed BEPS altogether with digital economy discussions of their own. Andrew Snowdon, partner and head of tax, UHY Hacker Young, London, and chair of UHY’s global tax special interest group, says the UK is at an advanced stage already. “The UK government’s Digital Sales Tax will be introduced on revenues earned from April 2020,” he says. “There has been an appetite for some time now to bring the large internet companies into line, and the new tax will target search engine companies, online marketplaces and social media platforms, that derive value from UK users.”
It is clear that internet-based businesses will be working hard in 2020 with international tax specialists to understand and deal with the impacts of the proposals.
Millennials at work
Spanning the spectrum of age and experience, the millennial generation of 25-40-year-olds is fast becoming the predominant component of the workforce, and they are worlds apart from most of their baby boomer bosses. The influence of the millennials is well documented. More tech-savvy than their predecessors, less traditional, and more open to new ideas, they are more visual and would prefer to learn from YouTube than from an instruction manual – and they expect a digital workplace.
In the US, there is now a majority of millennials in work. In many countries and industries, the needs and expectations of this workforce are outpacing the provision – and with growing competition for talent across the board, it is incumbent on employers to understand this and invest accordingly. It is a very competitive world, and if accountants in 2020 cannot provide what millennials want, there will be plenty of other industries that can.
There are a number of key elements that employers must take into consideration when looking to create a workplace fit for the millennial generations and beyond. Broadly speaking, their expectations fall into four categories:
Purpose and participation
Culture and credentials
2020 will see accounting firms and professional bodies continuing to develop their people policies to more appropriately reflect the realities of change: specifically, the need for broader IT and business development skills, and a recognition that the workplace and its associated culture cannot standstill.
The accounting profession, like others, is finding opportunity in changing generations, because technology advance is forcing the issue. Embracing AI and RPA means realigning the organisation skills base and the development path of partners, managers and staff. In 2020 firms should be focused on managing the declining need for clerical, repetitive or data-heavy duties, with the growing one for systems and analytics, interpersonal skills and leadership. The accountant of the future will be a trusted advisor to the client of the future.
Professional bodies are also stepping up. In the US, a joint initiative between two heavyweight authorities promises to transform the career licence of tomorrow’s accountants. The American Institute of CPAs (AICPA) and the National Association of State Boards of Accountancy (NASBA) are developing a new framework for the CPA licence of the future. It recognises the need to train and test in technology skills, business intelligence and IT governance, as well as accounting, and will offer candidates options for specialisation, such as in audit, or cybersecurity.
Dennis Petri, partner, UHY LLP in the US, and chairman of UHY International, believes the evolving licensure requirements will be influential around the world. “The CPA profession must adapt quickly,” says Dennis. “Change like this must be rapid, transformational and substantive. Technology and analytics expertise are essential; the qualification will test an accountant’s ability to use and review systems. It is an exciting – and necessary – step forward.”
The new licence, once redesigned, will replace existing initial licensure requirements but will not require the relicensing of existing CPAs. Instead, it is a benchmark for the future generation of accountants. “There is no completion date set yet,” says Dennis, “so this is not something we should expect in 2020. But it does mark a significant preparation for the future, and will play a big part in encouraging talented young people into the profession.”