2019: trials and tribulations for accountants in the year ahead
Whether it be Brexit, developments in technology or the CMA audit probe there is a lot of change and upheaval coming our way in 2019. Amy Austin, reporter at Accountancy Daily, talks to industry experts including partners at BDO, Mazars, Crowe and Price Bailey
31 Dec 2018
Jonathan Amponsah, managing partner, The Tax Guys
The key thing I see coming our way next is a lot more HMRC powers and more aggressiveness from the tax authority when it comes to collecting tax. I also expect there to be an increase in the amount of tax investigations and enquiries.
In regard to tax avoidance schemes, especially Employee Benefit Trusts (EBT) and the loan charge, the Lords economic affairs committee has just published a recommendation saying that when it comes to the 2019 loan charge rules HMRC must look at the full picture first before using aggressive powers.
I am concerned about Making Tax Digital from the taxpayers’ point of view but not from an accountant’s perspective. Making Tax Digital will create opportunities for tax advisers as a lot of clients do not want to deal with HMRC directly, so individuals will go to accountants and advisers seeking help.
Having to report every quarter will be more labour intensive for accountants but at the same time they will be forced to engage with their clients on a more regular basis rather than once a year. I am looking forward to Making Tax Digital as it will allow accountants to be closer to their clients and take on a more advisory role rather than simply being data entry clerks.
Nowadays trainee accountants must be able to talk to their clients, be technologically aware and have technical accounting and tax skills. With the introduction Making Tax Digital it is impossible to be a good accountant if you do not embrace technology. Accountants who are still using spreadsheets and are not moving with technological advancements are going to be left behind.
Dawn Register, partner, BDO
The Common Reporting Standard where over 100 countries send bank data to HMRC was launched in September so in 2019 we are expecting HMRC to start using this information and start using their sophisticated IT system to process and analyse the various data links. There is there to be several enquiries off the back of this international bank data and I also believe that HMRC will make it publicly known what companies and individuals it is investigating.
Although it was a relatively quiet Budget this year, people should feel more well off in 2019 with the increase in the personal allowance. Next year we could also see private sector businesses reviewing their contractors and various contracts in preparation for the IR35 extension to the private sector in 2020.
Making Tax Digital for VAT will be effective around the same time as Brexit in April 2019 so businesses will be seeing lots of major changes in the tax world and the way they operate generally. If you are a business that operates in goods or services Making Tax Digital is a big change. HMRC are running a pilot at the moment so in 2019 we should see the results of this pilot and have a greater understanding of how Making Tax Digital works in practice and whether or not there will be any further delays to rollout.
I am looking forward to seeing Making Tax Digital in practice as there has been so much talk about it for years so to see it working will be great. I am very pro the personal tax account and people being able to access their personal tax record online. To have all this information at your fingertips through online is a positive move forward and every year HMRC enhances this functionality even more to make it easier for individuals to use.
David Lyford-Smith, technical manager, IT, ICAEW
The priority is the continuing development of technologies such as automation, artificial intelligence and data analytics. As these technologies and accompanying programmes get cheaper and self-sufficient the market is gradually opening to the mid-tier and smaller firms as well as the Big Four.
From a technology point of view Making Tax Digital is not trying to do anything that is new, but it is about applying the use of existing technologies to a much larger group of individuals. In April, Making Tax Digital is going to become mandatory for some of the smaller businesses which may not have automation or computer systems already in place. This means that individuals and business then depend on software developers to provide the software and APIs for them to be able to work. This will especially be true when Making Tax Digital is extended to a wider number of businesses and taxes.
On cryptocurrency and Bitcoin, there is some guidance on accounting for cryptos but it is all based on best practice and making judgments based on current rules but there is no specific guidance from any of the standard setters and having spoken to them I do not think will we see any in the foreseeable future. We still get enquiries from accountants regarding cryptocurrency but it is still relatively low volume.
As these technologies progress there will be fewer people doing what accountants today are doing but this does not necessarily mean that there will be fewer accountants however the role of the accountant will change. We will see more individuals doing client communications and advisory work rather than repetitive data tasks. I am not convinced that we will see a contraction in the profession but there will be a shift in what an accountant’s role is.
Mark Kennedy, managing partner, Mazars Dublin
The Irish perspective on Brexit is that we would have rather the UK stayed in the European Union, and we still do not know whether there will be a second referendum which could make this outcome possible, but no matter what, a hard Brexit or no deal will be very bad for everyone. What I hope for in 2019 is that we land in a position where the deal is something like the current proposal from Theresa May or something close to it, and that Ireland can continue to trade openly with the UK.
From a financial service point of view Ireland is not a competitor of the UK. Despite there being lots of talk about financial services and businesses moving their base from London to Ireland, the truth is that Ireland and Dublin are simply not big enough. Ideally what we want to be is a good friend and ally to London and continue to work, as we have for many years, on common business products.
The transition period is important because there are a lot of areas where the deal does not address the specifics other than in a hard Brexit situation. For example, there is uncertainty as to whether Irish auditors will be able to sign off audit reports in the UK or whether UK auditors will be able to sign off reports in Ireland, which is an important detail for groups of companies who operate cross-border. I would love to see the transitional period nailed down and for companies and institutions to work out in a stable way what we can do going forward.
Mergers & Acquisitions
Keith Underwood, managing partner, UnderwoodKato
BDO confirming that it is in advanced discussions to merge with Moore Stephens shows that the firm is keen to take on the specialist transportation and shipping expertise which is resident within Moore Stephens. However, the merger is still in discussion and we will not see completion until the end of March 2019 so a lot of things could go wrong in this time.
I do not see this merger as a challenge to the Big Four because Moore Stephens does not hold any FTSE 350 audits. This merger is so that BDO can build its skill sets. It is a little surprising though because Moore Stephens took over Chantrey Vellacott three years ago and that brought them a range of more general clients, a London office and several offices outside of London, something I did not think BDO would be interested in.
The Big Four tend to merge with smaller firms to try to broaden their base for their corporate clients by taking on extra skillsets. These can be in areas such as data analytics, specialist businesses and some areas of law.
Getting these services onboard via mergers and acquisitions allows the Big Four to get scale quickly. If they took a team out of another business’ office, for example 10 to 20 people, it is unlikely that these individuals’ clients will follow, and it may take several years to get the clients to the new business. Whereas with an acquisition the clients transfer to the new business immediately.
The broadening of skillset through acquisitions will mean that in 2019 we will see the number of consultancy type businesses growing. I think there will be further consolidation in the mid-tier market and there might be another one or two firms considering merging with the top ten firms.
Stephen Griggs, managing partner audit & risk advisory, Deloitte
This is a critical moment for the profession in the UK and internationally. The CMA provisional findings, the Kingman review and the announcement of the Brydon Review offer a unique opportunity to develop an audit market and structure that meets the needs of 21st Century Stakeholders. However, any changes must improve audit quality and maintain UK competitiveness as we prepare to leave the EU.
The audit debate should not be considered in a vacuum. The UK professional services sector is the envy of the world and a crown jewel in the UK economy. The debate playing out here in the UK is being watched closely around the world and how we respond to it will set the pace for change. It’s critical that whatever the remedies chosen, they do not damage our international competitiveness. As we approach Brexit, maintaining the UK’s attractiveness as a capital market and position in the global economy is crucial. Getting the audit debate right is key to both.
Next year I am looking forward to the continued growth and uptake of new technologies to further improve audit quality. Cognitive technologies and analytic capabilities are changing the level of data that companies and audit firms, like ourselves, have at our fingertips. It has the potential to transform audit, not just the size of the data set but also further increasing quality, insight, and as a result, trust.
We recently changed our audit graduate programme to reflect the growing need for auditors with skillsets outside of traditional audit work, so how that plays out in the year ahead will be exciting to watch. Our graduate programme was extended to three years from two, and with less data-entry required as audit automates, graduates will be able to use and develop more of their data interpretation skills and focus on higher risk areas, controls and providing business insights for our clients. Trainees today will get to grips with a range of analytics and modelling techniques, as well as training in cognitive software. As more procedural work is being automated by technology we are, in turn, freeing up more time to focus on complex problem solving.
Matthew Stallabrass, partner, corporate audit, Crowe
We are going to get big audit reform on the back of the Competition and Markets Authority (CMA) review. The CMA looked at the audit market five years ago and made some changes but their recently issued update paper is much more radical and, importantly, there seems to be the political will to implement it. The most radical change is the possible introduction of mandatory joint audit for FTSE 350 companies, opening up that audit market to mid-tier firms. The CMA is clearly aware of not making cliff edge changes which could cause problems in the market and impact audit quality, so I expect the changes to be phased in over several years to avoid disruption and give firms time to plan.
The review of the audit market could bring some challenges to the profession as well as some real opportunities and hopefully a chance to highlight the value of audit. Some of the noise in the market at the moment is hostile and it gives a negative impression. It is not fair and there are not enough voices out there promoting the value of auditors. I hope that in 2019 this will change.
Mark Kennedy, managing partner, Mazars Ireland
What is happening in the UK audit market is of interest to Ireland, but our market is also quite different. We are aligned with the UK audit profession because we share accounting standards and chartered accountants in Ireland are paired with the ICEAEW and the Scottish Institute [ICAS].
The audit debate in Ireland is similar although we have not had the same level of audit crisis eg, Carilion. However, the big debate in Ireland is regarding choice. At Mazars we were very much pro the EU audit reform [ARD], but like the UK change has been slow. There has been a high level of audit rotation but because we have a small listed market it has not been as visible. Where you see this level of rotation more clearly is on the regulatory entities, for example a lot of banks and insurance companies that are not listed in Ireland but are regulated here have had to rotate their auditors and that is where you see greater choice.
We are starting to see one or two smaller firms winning more work with regulated entities and that is the beginning of the cycle the audit reform was planning for. However, many are still concerned about the lack of choice in the market and the institutions need to do more to encourage choice as it is already relatively competitive due to it being such a small market.
In the UK it would be lovely to see more choice, but I am not in favour of breaking up the Big Four as it would make the situation worse for clients. The idea of caps and encouraging regulated firms to work with other smaller firms to grow skillsets would be helpful. Smaller firms have strong skills in many areas but not the depth or strength in numbers to compete with the Big Four.
Helena Wilkinson, partner and head of charities and not for profit, Price Bailey
Ideally, I would like to rip up the Charity SORP and start again. Currently there is an overemphasis on disclosure and most things are duplicated in the charity’s annual return. There could be a much simpler set of accounts produced for example, similar accounts to that of a company with an element of some analysis reporting. However, the main focus must be on the trustees’ report and holding the trustees to account.
Currently, too many charities are focused on hand to mouth instead of having a business plan. The Charity SORP needs a fundamental rewrite to ensure there is greater focus on governance and business structure rather than focusing solely on income and remuneration.
I do not know how charity volunteers deal with all the charity regulation as there is so much regulatory change all the time. The Charity Commission is of the view that if trustees have not read its guidance or followed it then they have not carried out their duties as a trustee. Trustees then put more focus on keeping up to date with rules and regulations rather than performing well as a charity, which is what they should be focusing on. In a charity if something goes wrong the Commission expects every trustee to have had policies and procedures in place to avoid any issues.
I worry that the Commission has a high-handed attitude towards charity governance that is beyond the realm of many businesses across the country. In order to increase diversity across charities’ boards there will undoubtedly need to be people who have careers or families joining to increase diversity across age, gender and ethnicity but the amount of regulation and governance are putting these sorts of people off. There needs to be a balance between compliance and knowledge.
I am looking forward to receiving the outcome of the governance review into the SORP committee and the SORP setting process especially as it has gone quiet on that front. I am hoping that there will be a good outcome as the charity sector is really screaming out for a standard which works.
Matthew Stallabrass, partner, corporate audit, Crowe
Overall, my view of IFRS 15 is that for some businesses it will bring about quite significant changes in how they are recognising revenue which is a very sensitive number. What IFRS 15 does is provide greater clarity around the recognition of revenue and it is a standard which is pretty much aligned with US GAAP as well so provides greater international comparability and the additional disclosure requirements really give investors a lot more insight into what is one of the key numbers in financial reports.
My overall view of IFRS 15 is positive but some businesses will find the change challenging because it will change revenue numbers and they are going to have to spend some time carefully explaining that to their investors and other stakeholders. Over time when IFRS 15 has settled down I think people will realise the benefits of it.
For 2019 I do not think that Brexit is going to have a direct impact on accounting standards as the latest standards on revenue recognition and leasing have already been approved and will simply be adopted.
IFRS 17 depends on what will happen around the withdrawal agreement and if it gets through Parliament or whether we have a hard Brexit. It will ultimately depend on whether it will end up being covered by the EU endorsement process through EFRAG or whether it will end up with the FRC or the relevant UK body responsible for endorsing it. We have to wait to see how the political turmoil plays out, so we can understand it better.
For December 2018 year ends onwards, the two new big standards coming in - IFRS 15 on revenue and IFRS 9 on financial instruments - could have a huge impact on reporting. Looking ahead for December 2019 year ends onwards there is then IFRS 16 on leases which will again have a huge impact. Hopefully, certainly with IFRS 15 and IFRS 9, businesses have planned and assessed the impact of those standards and are ready to implement it in these year ends.