OK, the new decade won’t actually start until 1 January 2021. But if we put aside the mathematical objections, the New Year gives us an opportunity to look back at the predictions made for accountancy and business in the 2020s.
Let’s start with some of the most trenchant predictions made over the past few years:
- “The next decade will see society transition to a cloud-enabled world of anytime, anywhere, global work,” predicted Intuit in a 2013 study on the Future of Accountancy, repeating similar claims in an earlier Intuit 2020 Report, published in 2011.
- Other sources went further. In 2018, CPA Australia and the McKinsey consultancy predicted that, by 2020 (or soon after), labour-intensive tasks such as tax preparation, payroll, audits and banking will be fully automated.
- EY, too, saw the machines taking over and predicted a fall in graduate recruitment into accountancy by as much as 50% by 2020 due to the impact of artificial intelligence (AI). ICAS published a report in 2016 along similar lines called “The End of Accountancy as We Know It”, but only faint traces of it can now be found out on the net.
- Accountants will be affected by intergovernmental tax action to limit base erosion and profit-shifting, predicted IFAC researcher Dr Muhammad Azizul Islam in a 2017 article on the future of the profession.
All of these claims offer confirmation, if it were needed, of the saying Microsoft founder Bill Gates made his own that, “We always overestimate the change that will occur in the next two years and underestimate the change that will occur in the next 10.”
Easy potshots
It’s easy and enjoyable to take potshots at mystics who fall short in their predictions. But one of the secrets of good forecasting is to use new data to adjust your projections. This article sets out to explore where the underlying assumptions may have gone awry so accountants can be better prepared for the reality they are likely to face in 2020.
Digging deeper into the past to look for clues to the future, the ICAEW published a study in 1996 entitled The Shape of Things to Come. It predicted: “Technology, competition and deregulation will force severe changes on practice members who, in the face of a mature audit market, persist in offering merely the routine traditional aspects of an accountant’s work.”
It’s hardly the most radical of predictions, but 23 years later few could argue with the premise, even if the legacy of self assessment and ongoing tax changes have sustained the profession’s compliance-first mindset as it migrates into the digital sphere.
The availability of “real-time information on company performance”, meanwhile, would lead clients to question the value of annual audited information and further reduce what they are willing to pay, the ICAEW committee concluded.
Audit work has indeed declined, due in part to technology-fuelled deregulation. Probably more significant, however, are procedural shortcomings, misplaced expectations and repeated failures of auditors to spot trouble or raise alarms over a series of high profile business failures, most spectacularly in 2007-8 as leading investment banks collapsed under the weight of their sub-prime mortgage instruments.
The economic backdrop
Accountancy is driven by business activity. If we are going to reset our radar for accountancy’s new decade, we’ll have to start by looking more closely at the factors affecting the wider economy.
The global financial crisis provided a backdrop both for professional reforms and the economic recession that shaped the 2010s. There was a recovery in 2011-12, prompting predictions from Intuit’s 2020 report and Xero’s Gary Turner that technology would lower barriers to entry and stimulate a big surge in business startups. In 2018, for example, Turner predicted the number of UK companies would double to 10m+ over the next 20 years.
The short-term portents are doubtful for this entrepreneurial boom. The UK company register increased by 4.1% year-on-year to 31 March 2019 and has been doing so in a linear fashion since 2012, “albeit at a slower growth rate in recent years,” Companies House reported.
Across the Atlantic, formations fell by 2.6% since last year.
The Intuit 2020 study also noted that 80% of large corporations were planning to increase the flexibility of their workforces. As the economy recovered, traditional employment would no longer be the norm as “contingent” workers would take on more of the work previously carried out by full-timers.
This was written not long after Uber was founded and before the boom in smartphone delivery apps accelerated what we now know as the gig economy. With zero-hour contracts now commonplace in the UK, the government and tax authorities still haven’t resolved the grey areas of employment status, nor the 20-year old arguments that the 1999 IR35 Budget press release was supposed to address. There are no prizes on offer for predicting that we’ll hear a lot about these issues in 2020.
The advisory shift
Back in the world of accountancy practice, multiple sources cited by accountancy blogger Elena Meskhi expected 90% of small businesses to embrace cloud accounting by 2020. This, in turn, would encourage more offshore accounting and take practitioners towards their ultimate destination of becoming “trusted advisors”.
Cloud computing definitely planted the seeds for that change, but it hasn’t taken off as quickly as the experts predicted. MTD accelerated cloud usage among practitioner entrants to the Accounting Excellence Awards from 42% in 2015 to more than 80% in 2017-18. Cloud-using practitioners also showed up in large numbers in our 2019 survey sample of 2,500 accounting software users. But business users lagged behind, reducing the overall cloud accounting average to 69%.
Putting aside the pace of that change, the prevailing consensus is that business advisory will still become the dominant model for accountants in the next decade.
Thomson Reuters tax product manager and 2017 Software Pioneer of the Year Mark Purdue commented, “With new systems taking the heavy lifting out of processing, firms should now be able to concentrate their resources on expanding their roles as trusted advisors.”
Purdue clearly underestimated the way Making Tax Digital would distract practitioners from more strategic advisory efforts. Nevertheless, he argued, “The introduction of real-time [tax] data is going to be helpful for planning purposes… and an opportunity to change how everyone works.”
In 2015 Paul Shrimpling weighed into the debate. “Business advisory has lots of upsides and the tech-threat is real,” he wrote. “However, business advisory is worthless in a lot of firms because the partners and managers advise but don’t charge for the privilege and yes, business advisory is hard to scale.”
The tech-threat is one thing, but change-resistant humans can derail the smoothest adoption curve. Accountants who have been concentrating on compliance deadlines for the past year or two and want to resuscitate their advisory efforts in the new decade may find the bar a little higher and suitable clients harder to find.
Technology impacts
If there is a growing obsession with knowing what the future holds, there is an obvious culprit – the rampaging changes brought about by successive, overlapping technology advances from ecommerce and big data through mobile computing, social media and artificial intelligence.
By 2020, “Technology will be woven into the profession’s fabric,” Intuit predicted in 2013. Cloud connected smartphones and tablets will pave the way for real-time client support. “Accounting firms will use these tools to ‘appify’ their practices and provide clients with an ‘accountant in their pocket’ accessible anytime, anywhere,” the Intuit team wrote.
Intuit’s investments in AI and new human-computer interfaces have been driven by the expectation that tech-oriented millennials will interact with accountants through online, digital means. The Alexa Professional adviser hasn’t arrived, yet, but the demand for faster responses and self-service enquiry tools is evident among the entrants to our Accounting Excellence Awards and on AccountingWEB’s Any Answers page.
Accountants can’t beat the internet revolution, so they need to join it and find ways to combat the threat of do-it-yourself advice from Google, blogger Elena Meskhi predicted in 2018. “Accountants will also have to use social media more and more, both to enrich their presence and as a way of connecting with their clients and remaining relevant in the modern era.”
Demographics and people issues
Such millennial challenges take us into less predictable demographic waters. Back in 1996, the ICAEW was already warning about an “over-abundance of accountants” at home and abroad, making it harder for chartered accountants to find lucrative employment. With automation looming, EY and Intuit bought into that doom scenario too. Yet the profession has so far defied the predicted robo-apocalypse.
Numbers of UK qualified accountants have grown at a compound annual growth rate of 2.2% over the past five years to 366,544 at the end of 2018, the FRC reported in its 2019 key facts and trends report.
But what about the intake? UK trainee numbers peaked at in 2010 at 172,241 and dropped to its lowest ebb four years later. The growth rate since then has been anaemic, with the FRC reporting 164,210 students in the UK and Ireland in 2018 – up 0.2% on last year. There are signs that the profession may be reaching a plateau, but anyone looking to recruit accountants in 2020 will view the “overabundance” claim as an alarmist headline-grabber.
In spite of predicting 50% cuts in graduate recruitment, EY took on 2,600 new recruits this year – more than double the number in 2017-18.
What’s holding the future back?
Some of the big picture predictions laid out at the start of this article are taking shape as we head into 2020, but true to form they’re not happening as quickly as expected. That’s probably because forecasters tend to extrapolate their trends in straight lines, which diminishes the effects of the human and economic setting in which the trends are taking place.
On the economic front, we may have dodged the classic boom-bust cycle over the past decade, but growth has been stagnant. Continuing uncertainties around Brexit are stalling UK business investment decisions as we head into 2020.
Election slogans will not resolve those ambiguities for another year at least, when the full trading and economic impacts of leaving the EU will become more apparent. In such a defensive setting, businesses are less interested in dreaming up new strategies and probably more open to hearing about ways to manage costs and credit control.
Advisers, meanwhile, are preoccupied the latest wave of compliance changes or buried under the annual cycle of self assessment returns as we approach the New Year.
In the three years since the 2016 Brexit vote, this maintenance mode has cramped accountancy’s development. Yet slow economic growth and narrowed horizons aren’t the only counterweights holding back professional trends for 2020.
Women were one of the growth drivers identified by Intuit in 2013, with 1bn joining the global workforce in the decade to 2020. At the time of the report, they were starting new businesses at twice the rate of men, which prompted the researchers to predict that the gender pay gap would approach parity by 2020. Not quite - in the UK the figure was 22.0% in 2009 and fell to 17.3% in 2019, the Office for National Statistics reports.
Within the UK accounting profession, meanwhile, the percentage of female members rose steadily from 34% in 2010 to 37% in 2018 – again, hardly the game-changing leap forward we were led to expect. Like economic growth, the indicators are moving towards equality, but very slowly.
Alongside gender equality, the Intuit 2020 study talked of a “participatory economy” fuelled by social and technological changes that would “shift power from institutions to people, eliminating constraints on social and economic organisation”. The US was going to relearn the power of community, and invest in the places they live to make them better, the report predicted.
The reality couldn’t be more different in 2020. Such touchy-feely optimism is typical of Silicon Valley, but many trend radars failed to pick up the impacts of the monopolies coalescing around the West Coast “FAANG” platforms – Facebook, Amazon, Apple, Netflix and Google. There’s still room for digital startups, but any of them that get too successful soon get absorbed into the mothership. For some entrepreneurs, that’s the foundation of their business model.
In our little world, Intuit and Xero now see themselves as similar platforms for business, supporting third-party marketplaces – but also acquiring up some of the more successful apps to build out their cloud accounting infrastructures.
Nor did the pundits predict the disorienting, distracting effects of the always-on digital culture. So many changes are happening that many professionals are struggling to keep up with them all. The volume of messages and stimuli they need to track has exploded, making it harder to focus on what matters or to detect the meaningful signals amid all the noise.
While his 2018 claims on business formation are looking a little over-optimistic, Xero’s Gary Turner recently tempered his outlook by highlighting VUCA - volatility, uncertainty, complexity and ambiguity – as prominent factors affecting businesses in 2020. In the face of these diffuse challenges, “Responsiveness, real-time performance management and situational awareness will be the defining management disciplines,” Turner said.
Staying connected with what’s happening on all these different fronts, but remaining focused and effective is easier said than done. As a result organisational impacts are lagging behind the technological possibilities.
A couple of points raised by our accounting soothsayers over the years are relevant to this conundrum:
- ICAEW 1996: “Accountants will suffer if they prove unable to adapt and play a leading role in change management and forming corporate strategy.”
- Islam (IFAC 2017): “The regulatory concern for different social and environmental issues, along with the associated measurement and reporting complexities of these issues, has allowed accounting professionals to open their minds to the possibility that accounting has the capacity to change. The important implication is that all professional accountants will be expected to look beyond the numbers.”
In the year ahead, forward-looking accountants need to step out of the raging torrent on a regular basis to see where changes are happening and make the decisions needed to accommodate them.
Our review of the 2020 predictions confirms once again that people are the biggest barrier to change. But people behave differently when huge, uncontrollable changes happen to them compared to taking the initiative to adjust to them.
The professionals who are going to thrive in the emerging world of automated accountancy in the next decade will have to work together effectively in more collaborative, networked environments where everyone understands and supports what is trying to be achieved.
Look out for more articles on change management and technology skills in the New Year to help you cope with and implement change within your organisation.