Big Four acquisitions divine digital future for the professionby
Major reform to the audit market seems to be driving the latest acquisition spree by large accounting firms. Richard Sergeant investigates what this means for the profession.
EY’s recent acquisition of Microsoft Gold Partner Pythagoras, and Deloitte’s of ERP specialist Aptys are further indications that digital transformation is going to be a major play to fuel growth and replace lost revenue.
Buying up technology companies is nothing new for the Big Four, but the timing and the type of businesses bought are worth thinking about. Especially as they seem to be the kinds of essential help that businesses will need to cope with the very same audit reforms.
Data, governance and compliance management
In general, big companies are increasingly data-hungry to fuel operations. Add to this, the requirements around big data, compliance and governance in all its guises (not least GDPR) then it’s easy to see why the Big Four see this as a prime market.
Typically they involve large projects with huge complexity, big budgets and have essential compliance at the core. Perfect for those consulting firms that have the teams used to working in these areas, and a motivation to buy up more talent as they go.
And so to audit. The scrutiny and greater emphasis on internal controls, likely in a UK version of Sarbanes Oxley, is likely to have two consequences: first, it will drive the audit practice split, and second push many clients into the arms of the consultancy division.
Although not quite the same as the ‘bad old days’ of loss-leading audit driving the sales of consultancy services, it certainly seems familiar. But there are other regulatory factors at play.
Are EU prepared?
Let’s not forget that there was a big sigh of relief following the recent signing of the data adequacy agreement. This ensures continuity in the flow of data between the UK and EU that is essential for many service businesses – but only until 2025.
It also comes at a time when the change in EU driven requirements around the VAT arrangements for goods and services to consumers take effect with the OSS and IOSS schemes.
Between them, they throw all kinds of scenarios around customer tracking, record keeping, import and export admin, and yes bookkeeping. Arguably, there is a particular challenge to UK businesses that must operate as a so-called third country.
This complex regulatory environment makes for a heady mix, especially if there is any risk of divergence from standards in the future (where we are likely to see pressure from the US in due course).
Being the established partner to navigate these changes will see substantial fees being generated, especially if advice is backed up by technology.
Not just an impact on big business, or big accounting firms
Of course, this also has a similar impact on a large number of small businesses too. The change to the one-stop-shop arrangements hits all businesses trading regularly to consumers in the EU.
Tax authorities are increasingly engrossed with the idea and capability of digital reporting (let’s not mention MTD), especially at a time when more and more businesses are trading online. Therefore, the local firm of accountants needs to be aware of which clients are trading to which countries, and the ability to verify the data if required.
Accountants ready on compliance and tech
Accountants have helped their clients through the post-Brexit regulatory changes, working to the international VAT systems, and coordinating with the client's customs agent. And it hasn’t been easy.
These clients face similar challenges to their larger counterparts and will continue to do so into the future. Ensuring they are kept compliant and are using adequate digital systems around stock, logistics and ecommerce is already an arena some accountants outside of the big four are playing.
And for those with the capability and interest to do so, the opportunities are there for the taking.
While it’s not a call for accountants to buy up tech consultants, the more digital the world becomes (including the regulators), the more emphasis there will be on gaining proportionate capabilities on the tech side.
For once, perhaps there is a message there from the big four that is worth hanging on to.