Top firms still performing in turbulent times
At a glance, it could be suggested that 2017 was a year like any other for the UK’s biggest accountancy firms. Revenues climbed, staff numbers swelled, and all while the top 10 firms remained in situ - but there was far more going on behind the scenes.
In reality, the firms are working furiously to effectively future-proof themselves. Brexit, global political and economic uncertainty, digital disruption and their impact on what services will be required and by whom, as well as finding and training the right people to deliver them, affects all. They are all having to strategise, invest and manage change.
Technology taking over
The last few years have seen the biggest practices build more digitally focused offerings, and the last year has seen that accelerated. The Big Four dominate the global 'digital transformation' market, with Source Global Research revealing earlier this year that they hold 21% of this $23bn (£17.4bn) sector.
Catherine Burnet CA, KPMG Senior Partner in Scotland, said: “As revealed in our 2017 Global CEO Survey, we’re seeing a change in mindset from the business community, which is embracing new technology and modernisation as a means for growth and disruption. Our management consulting arm remains busy advising clients on how best to plan and implement technology within their organisations.”
The growing threat to cybersecurity has increased the demand for our technology risk assurance expertise.
Robert Ross CA, RSM’s Regional Managing Partner in Scotland, agreed that his firm’s technology and management consulting practice has seen “significant growth” as clients transition to cloud-based ERP systems. “In addition, the growing threat to cybersecurity has increased the demand for our technology risk assurance expertise,” he said.
This has impacted on business models, with the firms considering how technology changes what they can deliver. Moreover, in the ultra-competitive market for new talent, practices have broadened their approach to recruitment.
Finding new talent
PwC has said it is looking to hire 1,200 graduates and 140 apprentices in the next year. RSM hired 288 trainees, of which 50 were school leavers. David Gwilliam CA, Chief Operating Officer at RSM, said at the time: “Our future growth ambitions rely on attracting and developing new talent across all areas of our business.”
In Scotland, Catherine at KPMG flags up new country heads of audit and management consulting as significant. Like PwC and RSM, she highlighted her firm’s 40% increase in UK apprentice hires in the year to 181, of which two- thirds are based in regional offices.
Our future growth ambitions rely on attracting and developing new talent across all areas of our business.
Enticing the right people nowadays requires that firms are not only attractive in terms of benefits, but in the way they act and behave. This includes transparency and this year PwC became one of the first organisations to reveal black, Asian and minority ethnic (BAME) pay and bonus gaps.
“Our priority is to do all we can to retain our junior BAME talent and improve rates of progression to senior management levels,” said Kevin Ellis, Chairman and Senior Partner at PwC.
Reflecting on reputation
For all the talk of automation and AI revolutionising the way audit is undertaken, old stories were rehashed, such as the Financial Reporting Council (FRC) suggesting a slight improvement in overall audit quality among the top firms, while concurrently dishing out its biggest ever fines: £5.1m and £5m, both to PwC over its' work at RSM Tenon and Connaught respectively.
Several new investigations were opened, including Grant Thornton/Sports Direct and PwC/BT. Eyebrows were raised, though, at the end of the investigation into KPMG’s work at HBOS with no further action. Unsurprisingly, this has drawn the attention of the Treasury Select Committee, which wants to understand the FRC’s reasoning.
Grant Thornton’s charismatic CEO received an 88% staff endorsement rating on recruitment site Glassdoor.
Despite a second financial year of stuttering revenues and falling profits, Grant Thornton’s charismatic CEO, Sacha Romanovitch, can appear to do no wrong. She received an 88% staff endorsement rating on recruitment site Glassdoor and was selected to co-chair the Inclusive Economy Partnership Initiative.
The firm has had a quiet year as far as headlines were concerned. It faced some friction in its role as auditor of Sports Direct from the shareholder community, while Insolvency Partner David Ingram was recently detained in the United Arab Emirates as a result of a complaint made there by a defendant in UK criminal proceedings.
Brexit might seem like the elephant in the room, but add that to the rapid pace of change of digitalisation, hiring, training and retention strategy, plus 'new cold wars', cyber crime, MiFID II and the General Data Protection Regulation (GDPR), and the effect is more akin to a herd trampling through the boardroom.
Indicators are, however, that helping clients plan and manage risk has been a boon for practices. That doesn’t mean it’s “easy money”, particularly when these issues affect the practices themselves.
“It is too early to predict the outcome of these discussions and what sort of negotiated settlement may emerge,” Grant Hotson, Group Finance Director at Smith & Williamson, commented on Brexit. “However, some time ago we established a group to consider likely scenarios and how we can prepare. In the event that changes are required, we are in a position to implement these with little or no impact on the continuity or level of service we provide to our clients.”
The fallout of the Brexit result continues as many of our clients seek to understand exactly what it will mean for them come April 2019.
Catherine said KPMG knows its 800 EU nationals “are deeply concerned” about Brexit, and the firm is in regular dialogue with them. Client-side has seen “an uptick” in business due to Brexit, she added. “Recent weeks have been particularly busy and we expect this trend to continue as UK/EU negotiations enter critical stages.”
As for the ongoing economic uncertainty, the views of many are best expressed by Johnston Carmichael CEO Sandy Manson CA: “Our clients are now, more than ever, looking for trusted advisers to help them navigate through the ever-changing economic and political landscape. The fallout of the Brexit result continues as many of our clients seek to understand exactly what it will mean for them come April 2019.”
Mergers in 2017
Campbell Dallas and Springfords were acquired by Baldwins Accountants, part of CogitalGroup. The Campbell Dallas and Springfords trading names are to be retained in an acquisition that increases Baldwins’ tally of offices to 53 across the UK.
Last year, Baldwins joined CogitalGroup, the international business advisory services business launched in August 2016 by accounting services investor HgCapital and former Deloitte Global Chairman and UK Chief Executive John Connolly.
Those to whom The CA spoke expect to see more consolidation in the sector, driven by the failure of smaller firms to offer complementary services to a larger and more diverse client base.
A version of this article previously appeared in the November 2017 issue of The CA magazine. Read it now.