The changing face of accountancy – and my predictions for the future
James Dow co-founded challenger brand Dow Schofield Watts in 2002 – the same year that the collapse of accounting giant Arthur Andersen shook the profession to its core. Here he talks about the changes in the sector over the last two decades and his views on the future.
What have been the biggest disruptors over the past 20 years?
There are five in particular that stand out:
- Technology has been the great leveller – it has enabled many small professional firms to compete with larger firms because it has made it easier to access data and connect with people.
- The growth of international advisory capability in regional centres – particularly the emergence of Manchester as a financial centre.
- The continued expansion of private equity – especially in the North-West.
- The financial crisis – resulted in a re-engineering of the debt market, decimating many lenders and creating a plethora of more nimble debt funds and alternative lenders.
- The pandemic – created an environment which forced a rethink of the traditional ways of doing business and a swifter embrace of technology benefits. Again, it was an environment that favoured smaller firms and proved the resilience of our business model. There has also been a long legacy as it has prompted professionals to rethink the way they want to work which will mean increasing numbers are seeking greater flexibility and autonomy, which will make alternative business structures, such as DSWs, more attractive in the long term.
What other changes have you seen in professional services?
Following the collapse of Arthur Andersen, we saw the domination of the Big Four. Now almost inevitably it is unravelling as balancing an independent audit and providing other services proves increasingly difficult to achieve from a regulatory perspective.
The ‘break-away’ firm has always driven change and the emergence of new competitors but within accounting, the breakaways are increasing in scale as the regulators press on with reform.
In the legal sector, the main driver of change was the Legal Services Act in 2007 which was designed to liberalise the legal market by permitting alternative business structures – and they duly emerged with more than 1,000. They all offer alternatives to the traditional partnership model. These ‘fee-sharing’ or ‘consultancy’ models are an attractive proposition for professionals looking for greater flexibility and autonomy.
The other aspect is the increasing globalisation of legal firms to service their clients and the presence of large US firms in London taking on the Magic Circle.
What’s next for the accountancy sector?
The landscape is definitely changing at its fastest-ever pace. I have three predictions for the future:
- A new appreciation of the value of audit – the Big Four are restructuring to meet regulatory challenges, and firms are reawakening to the value of a quality audit product with significant additional investment being made in the service by audit firms. Audit fees will, and should rise as a consequence, and we will hopefully see the demise of audits being undersold and under-serviced to secure other fee opportunities.
- Industry consolidation – for firms looking after smaller clients there are a number of consolidators. They will continue to buy and build, focusing on the significant opportunity for substantial cost savings that technology and AI will bring to accounts, audits and tax computations.
- Differentiate or die – Firms without a unique skill set or capability, significant scale or some other genuine point of differentiation will inevitably vanish. But new opportunities will emerge for professionals with high expertise or abilities to apply knowledge creatively.
If you missed James’ first piece, find it here on our website.