This article was first published in the May 2019 Ireland edition of Accounting and Business magazine.

Since the mid-1980s, software and hardware have been an ancillary cost of running an accounting practice. Hardware costs were high; software licence costs were lower. But the overall combined expenditure was a lowly 2% or 4% of annual fees.

The level of IT costs for 2020 and beyond is likely to be close to 5%-8% of total fees. These increases include additional analytical and security skillsets, and other features that many practices are going to have to provide as part of their client service. Software licensing and IT analytical and security costs are becoming significant rather than ancillary, but as a resource they do have potential revenue opportunities.

Specialist software exhibitions showcase the latest technology that can revolutionise practices, improve profitability, enhance the client experience and enable most of the goals that have been strived for but never quite attained. Digitalisation has taken a leap forward in the last couple of years, with initiatives such as HMRC’s Making Tax Digital providing a jolt to some of the more conservative or reluctant practitioners.

The adoption of IT should be extremely straightforward and is no problem for clearly focused new businesses setting up in the accounting sector. What is not accommodated so easily is the change that existing practices, particularly the more traditional ones, have to go through to adopt new workflows and change staffing and client experiences through innovative training and marketing.

‘One-size-fits-all’ systems are perhaps appropriate for new startups, but traditional practices have taken on various systems over the years to provide continuity of service for the client. The general practice has provided workarounds with duplicate data handling, running multiple systems and building ‘linking’ programs to upload data to their standard accounting and reporting packages. There are, of course, variations dictated by client fee size. General practices, by their very nature, will have a range of clients including sole traders and SMEs, limited companies and owner-managed businesses, some of which may well have their own accounts department, and the practice may be involved in, for example, advisory services, quarterly accounting and end-of-year accounting.

This variety in the client base, which has provided resilience in the past, now proves difficult when traditional practitioners try to standardise their practices to accommodate the multiplicity of services offered.

If you are starting a new accountancy practice, then of course the adoption of one platform is relatively simple. Your marketing is geared to a particular client-type or size, and add-on advisory services are focused on one industry, rather than on a broad range. To an extent, the accountant can dictate the data input and reporting, and can choose clients according to whether or not they accept the standardised service. Clients who wish to use alternative platforms or deliver their data through unsupported media can be turned away.

Some traditional practices are struggling with this transition, seeing the adoption of IT and new software as:

  • a significant investment of time and money
  • a change to systems, involving staff retraining, for which not all are sufficiently flexible
  • a change in the client-facing staff as the business becomes more digitalised, setting new touchpoints between the client and the practice to resolve client issues efficiently.

Opportunity knocks

Others are seeing an opportunity. If digitalisation brings accurate, complete, timely and accessible client information, this is the catalyst for further embedding the client and offering real-time advisory services. The management and analysis of data will be a whole new feature of the accounting practice over the next 10-15 years.

Of course, IT software costs are just the tip of the iceberg. The new skills required to deliver these changed services will need to be recruited, trained and nurtured.

If you embrace technology and digitalisation, you will need to have:

  • access to analysts
  • the ability to interpret client data and use it in the advisory services being offered to clients
  • a comprehensive process-control system run by administrative staff who are client-facing.

Small, analytical consultancies are being eyed up by accounting practices. The management of client data on behalf of clients is also being considered, not least to help in the audit process or advisory work. Practices are seeing a new range of opportunities by delivering a differentiated service compared to practices that may not have invested so heavily in IT programs, analysis and applications.

Scale of change

With the rise in IT expenditure, practitioners need to assess the scale of change needed to generate improved profitability. Without the right scale, profitability is likely to be reduced and impact the required investment in new talent.

The response of traditional practices to digitalisation tends to be one of ‘acceptance’ and a need ‘to make it work’. But the real benefit is in grasping the opportunity to strategically plan the transition of a traditional practice in order to transform the business model. It is only then that the real benefits can be realised, workflows standardised and cost-savings achieved.

Just as audit thresholds moulded and segmented accounting practices, IT will further polarise the services offered by accountants. The larger firms with their own resources and higher investment in analytics will be at a distinct advantage when it comes to customising their services and differentiating themselves. Smaller firms will have to buy in analytical services from third parties and licence predominantly off-the-shelf software solutions from the larger applications providers.

Keith Underwood is managing director of Foulger Underwood.