The death of compliance for accountants

For many years, we have been told by various commentators that cloud accounting will see the death of compliance and as an accountant we should be moving away from compliance and expanding our advisory work.

We have been told that clients do not value compliance anyway and because of technology, compliance will disappear and we will all lose our businesses/jobs.

Is that really true?

Let’s look at the facts:

  1. Those who have been making these comments have never run an accounting business and are not really in a position to know.
  1. When you scratch the surface a little deeper, generally you will find there is a vested interest. For example, they are trying to sell you something like an alternative product such as software or coaching services. Therefore, the scaremongering is generally an attempt to frighten you into buying their products.

The classic sales job.

(a) Identify a problem (in this case, manufacture one).

(b) Create the fear or need factor.

(c) Provide a solution (in this case, their product).

Now, let me say upfront that I have no problem with them trying to promote their products as they are running a business and need to make sales.

However, I have a problem with their methods of trying to scare accountants with misinformation and not facts.

  1. Let me declare I started my accounting business Chan & Naylor from home in the mid-eighties and it has grown to 14 locations around Australia with around 150 staff.

I have been through all the different business cycles and experienced all the different changes our industry has endured over a 34-year career.

  1. Let’s debunk some myths created by these commentators.

(i) Cloud accounting will see the death of compliance

Cloud accounting is evolution and not revolution. The revolution already occurred when we went from manual accounting to desktop computer accounting 25 years ago.

When I first graduated from university in 1981, a typical client job that took 40 hours to complete manually from source documents to a spreadsheet to P&L and balance sheet and tax return is now taking five hours due to desktop software such as MYOB, HandiSoft and APS.

Despite the fact that the time taken has decreased due to better technology, our margins have remained the same.

Cloud accounting may save us another hour or so but it won’t reduce it down to nothing.

(ii) Clients do not value tax compliance

No one likes to pay to have their car serviced nor is it illegal not to service your car but people still do.

However, it is illegal not to lodge a tax return and pay your taxes. We are in a great business where the ATO drives business to our door. They are our free sales team so to speak.

No one likes to pay more tax than they have to and as long as our country has taxes, there will be tax changes and their complexity will mean clients will need accountants to explain the changes and inevitably to ask for help in complying with their legal obligations.

The consequences of not complying with their tax obligations have significant penalties and could be detrimental to the continuation of their businesses or investments.

(iii) Compliance is dying

(a)    As long as our population is growing and we have a healthy immigration policy, (north of 250,000 net immigration per annum), we will have work for tax compliance accountants.

(b) Over the last 34 years, I have seen the complexity of the tax laws increase significantly and the workload increase tenfold.

(b) A large percentage of the population is getting older (three million Baby Boomers) and there are complicated tax laws around succession planning, estate planning and superannuation.

As long as we have those three factors in our country, the tax compliance pie is growing and not dying as claimed.

  1. However, while we are on fertile ground, I believe running a small tax business in the traditional way is becoming more difficult. Over the next 10 years, I believe the smaller tax firms (below $600,000 in fees) will find it more difficult to compete with the larger firms because clients are becoming more sophisticated and educated due to the availability of information through technology such as Google. Clients expect a lot more from their accountants and unless you get bigger (size brings critical mass which brings resources to better meet the higher expectations from clients), it’s no longer possible to meet your clients’ demands simply by working hard which has been the hallmark of the sole trader accountant.

Unless they get larger, the smaller firms will struggle to stay relevant and turn a decent profit, not because they are not clever or hardworking, but simply because clients’ service expectations and the standards are being lifted every year. Only through size and scale can we hope to meet these changes to our industry.

I predict the larger firms will continue to get larger and the smaller firms will be bought out. This will escalate over the next five to 10 years as around 50 per cent of tax accountants are over 50 years of age and will transition into retirement.

Some will have their hand forced as clients demand more or begin to leave them for larger firms that can meet their changing and growing needs.

  1. Finally, even though I believe our tax compliance industry is fertile, healthy and growing, I still encourage you to embrace and adopt innovation and technology. Do not become complacent, and do aim to stay ahead of the game.

Remember, it’s not the size of the fee charged to the client you need to be concerned about, but maintaining the margins.

If you can maintain your margins but deliver a lower fee to the client and maintain staff salaries levels, then it’s a win-win for everyone.

Technology can achieve this.

The threat is not technology such as cloud accounting but how we run our businesses and how we deliver those services to the growing expectations of our clients around faster turnaround times, lower costs and a ‘one-stop shop’ offering.

Industries, such as cars, electronics, air travel and mobile phones, that have been able to deliver lower prices over the decades have thrived.

Those that continue to increase their prices will slowly decline.

Innovation and technology can deliver lower prices to your clients but maintain your margins.

Industries that do not – for example, example Kodak, Blackberry, Nokia and taxis – can see themselves disappear virtually overnight.

Ed Chan, founder and non-executive chairman of Chan & Naylor Accountants

One thought on “The death of compliance for accountants

  • December 29, 2016 at 9:44 am

    Thanks Ed for putting in writing what many of us think. A dose of common sense, backed up with observations of facts rather than BS.

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