Accountancy: a year in review
The past 12 months have seen no slowdown in consolidation in the accountancy sector, with more mergers, acquisitions and expanding networks changing the line-up of firms in 2019.
In February, BDO merged with Moore Stephens, a deal which has helped to put BDO in fifth place in the UK accounting league table by revenue, with reported revenue of £578m overtaking that of its competitor, Grant Thornton.
Simon Gallagher, Managing Partner with Moore Stephens, said at the time: “Clients are asking us to deliver an ever-increasing range and depth of solutions, provided globally. Combining with BDO makes providing that much easier.”
The deal brought the London, Birmingham, Reading, Bristol and Watford offices of the Moore Stephens UK network into the BDO fold. Moore Stephens International, the network of which Moore Stephens LLP was a part, continues and this year rebranded as Moore Global. Last month it was announced that Chairman Richard Moore is to step down in favour of Andy Armanino.
Meanwhile, in May this year London-based top 20 firm Kingston Smith joined Moore Global, rebranding as Moore Kingston Smith and ensuring that Moore did not lose its presence in London.
Together, Scott-Moncrieff and Campbell Dallas will be able to provide our clients access to a wider range of additional services and to more efficient ways of working
Scott-Moncrieff, the Scottish arm of the Moore Stephens network, was not part of the BDO deal, but in May the firm – one of Scotland’s longest-established independents – joined Campbell Dallas as part of the UK-wide Baldwins Group, which is itself part of CogitalGroup. Scott-Moncrieff retains its name but the two firms, plus Springfords in Scotland, are part of a UK-wide business now.
Stewart MacDonald CA, Managing Partner at Scott-Moncrieff, said: “Joining Campbell Dallas and the CogitalGroup presents an exciting opportunity for our clients and our people. CogitalGroup leads the industry in using technology to deliver cutting edge services to clients, with the ability to adapt quickly to changing client needs. Together, Scott-Moncrieff and Campbell Dallas will be able to provide our clients access to a wider range of additional services and to more efficient ways of working.”
By combining, the two businesses could handle their investment in compliance, and technology, more efficiently, taking advantage of economies of scale.
Smith & Williamson, the professional and financial services group, also announced that it was in talks regarding a merger, but not with another accountancy practice. The UK top 10 firm (by revenue), plans to join forces with Tilney Group, a wealth management business.
The new company is set to trade as Tilney Smith & Williamson and is expected to have £45bn of assets under management.
Industry commentators suggest that a key driver for the Smith & Williamson move is the rising cost of compliance in financial services. By combining, the two businesses could handle their investment in compliance, and technology, more efficiently, taking advantage of economies of scale. It is arguable that the same logic also applies to the accountancy mergers that are currently changing the shape of the middle tier of the profession.
In Scotland, meanwhile, it was announced last month that Hall Morrice Corporate Finance Ltd has joined forces with the UK advisory firm Dow Schofield Watts. Hall Morrice Corporate Finance was founded in 2017 by Tom Faichnie CA, a former Deloitte director and RSM partner, and Melanie Clark CA, who was recently named as one of the ICAS 100 Top Young CAs.
The partnership will give the Aberdeen team access to Dow Schofield Watts’ national and international network of corporate finance specialists and the capacity to handle a wider range of deals. They will remain in their existing premises and retain their close relationship with the Hall Morrice accountancy firm while operating under the Dow Schofield Watts brand.
And in Glasgow, four Henderson Loggie partners – Douglas Woodhouse, Susan Wood CA, Stephen McKelvie and Kenneth McEwen CA – bucked the consolidation trend by buying out their business, which will trade as Cornerstone Accountants. Henderson Loggie Chairman Alan David described it as a “smooth transition”.
Tough at the top?
While the Big Four – PwC, EY, Deloitte and KPMG – have seen revenue growth this year, it has also been a challenging time for them. One issue has been the fallout from a series of corporate collapses and other problems in recent years, and this has meant financial as well as reputational damage.
In 2018/19 the Financial Reporting Council levied a record level of penalties – £32m compared with £13.1m for the previous period. The FRC also reported that only 73% FTSE 350 audits met the FRC’s acceptable standard in 2017/18, a percentage that falls short of the target set.
Against a challenging political and economic backdrop which continues to be dominated by Brexit our performance reflects our commitment to delivering for and supporting our clients and making continual investment in our people and our business
Like the Big Four firms, Grant Thornton – now under Dave Dunckley as Chief Executive following the departure of Sacha Romanovitch – has also suffered its share of scrutiny over corporate problems, and GT’s audit of Patisserie Valerie is still under inspection by the FRC. Unlike the Big Four, the firm reported a fall in revenue in 2019, by 1.8% to £491m. This was partly due to the loss of audit clients and partly to some long-term contracts coming to an end. Grant Thornton announced last month that it is to say goodbye to 12 partners, and this followed a round of job cuts earlier this year affecting support staff.
In Scotland, PwC appointed a new Regional Leader, Claire Reid, and announced UK-wide revenue, for the year ended 30 June 2019, up by 12% to £4.23bn, as well as increasing the size of the firm’s Scottish operation.
Claire said, announcing the figures: “Reaching a headcount of 1,000 in Scotland marks a real milestone for PwC, and with so many new graduates joining a number of experienced hires, we are in a strong position going into our 2020 financial year.
We remain strong in audit, tax deals and advisory, but we’re continuing to develop some specialist areas
“There continues to be a high demand for our core services across Scotland, in particular for technology-related solutions. Against a challenging political and economic backdrop which continues to be dominated by Brexit our performance reflects our commitment to delivering for and supporting our clients and making continual investment in our people and our business.
“It is particularly pleasing to see revenue growth in areas where we see potential for expansion, such as in private business and international markets.”
KPMG has not yet announced its numbers for 2018/19. The firm’s Senior Partner for Scotland, Catherine Burnet CA – who is also Deputy President, ICAS – says: “The priorities for us are threefold. We, absolutely, are focused on the core business which is delivering for our clients across all of our capabilities. So we remain strong in audit, tax deals and advisory, but we’re continuing to develop some specialist areas. We’ve considerably developed and grown our R&D team, for example, in tax. We have a significant FS [financial services] and IGH [Infrastructure, Government and Healthcare] focus in Scotland given the strength of those markets here.
“The second aspect is around being a significant employer as well. We are currently at more than 1,100 across the three offices [in Scotland], including our Tax Centre of Excellence and our Managed Services Centre, both in Glasgow.
“The third aspect is what we can do as an organisation to support the broader Scottish business community and economy. That’s why we have supported the CBI/KPMG Productivity Index and worked with Scottish Financial Enterprise on areas such as improving financial wellbeing in teenagers. For me it is really important that we don’t just want to focus on our work – that is important – but actually that there’s a broader value to what we’re doing.”
The Scottish Productivity Index, launched in September, tracks the impact and effectiveness of productivity enhancing measures, using 15 indicators, with a view to understanding “what works” in addressing the weak levels of productivity growth that have dogged the Scottish economy for decades.
More new faces
There were more changes at the top for accountancy firms in Scotland over the past year. At Martin Aitken & Co, Adrienne Airlie CA stood down as Chief Executive in December 2018. She had previously been Senior Partner of the partnership and became Chief Executive when the firm converted to a limited company in 2013. She has continued to lead the financial services arm and remains a director in the audit and accountancy business, focusing on the charity sector, but is due to retire in early 2020.
Her successor is Ewen Dyer CA, who had good news to report earlier this year, with a 17% increase in turnover to £6m. The firm attributes its strong performance to the investments made in key service areas, lateral hires and the increasing application of cloud technologies.
At Johnston Carmichael, Scotland’s largest independent firm, Sandy Manson CA – immediate Past President of ICAS – stepped down in August after 12 years in post. During his tenure, the firm expanded throughout Scotland, growing annual revenues from £18m to £49m. Johnston Carmichael recently announced that it is opening its first office outside Scotland, in London. Earlier this year, it opened its first office in Dundee.
Manson’s successor, Andrew Walker CA, joined the firm in 2003 and became Managing Partner of the Aberdeen office in 2007. Having also been a member of the firm’s board for 11 years, he has played an important leadership role at Johnston Carmichael, and has 23 years’ experience as a highly regarded corporate financier.
A majority found 2019 to be a more favourable trading environment than 2018, although only one in four said 2019 has been better for most clients
Andrew says: “2019 has been a further year of positive change and progress and we remain very encouraged about the prospects and the opportunities for our people and our firm. Our profession too continues to change at pace bringing more opportunities to embrace advisory work.
“Our tax practice has also experienced robust growth and we have made further investment in people and specialist services to help clients navigate the challenges and opportunities that come from fast growth and global expansion.”
The Brexit ‘imponderable’
Andrew adds that he expects to see technology and globalisation continue to transform business in 2020. The “imponderable” is of course Brexit, both the timing and impact of which are still uncertain. Andrew says: “We have seen very little evidence of activity slowing down as a result of the fast-approaching Brexit deadline. Areas where we are seeing increased activity as a direct result of Brexit include VAT and Customs duty, and Global Mobility and Employer Services advice. We also anticipate higher demand for advice around change management and project implementation [after the Brexit date].”
One in four said hiring had been tougher and no one said it had become easier
Our straw poll of firms in the Scottish Top 30 – by number of fee earners suggests that a majority (around six in 10) found 2019 to be a more favourable trading environment than 2018, although only one in four said 2019 has been better for most clients.
Most said this year has been about the same as far as the challenge of finding and hiring the right people is concerned. One in four said hiring had been tougher and no one said it had become easier.
In terms of certainty in the business environment, around 40% said 2019 has been more uncertain and half said there is less uncertainty.
Audit and assurance, tax, consulting and business advisory are the service lines which appear to have done better than in 2018, although across the board the only area which, on balance, was felt to be tougher this year was insolvency and corporate recovery.
The search for talent
Alex Tait CA, RSM’s Regional Managing Partner for Scotland and Northern Ireland, highlights the “war for talent” as a key factor. He says: “Recruiting and retaining talent continues to be a challenge for the accountancy profession; and this only increases due to the changing face of delivery. Whether it’s the increased use of AI [artificial intelligence] or future changes to how firms deliver audits, the skill set of future talent is changing.
Businesses are looking to maximise opportunities in new markets, and international investment is targeting Scotland and the UK as a viable market
“Broadening the talent pool will be key to transforming how we shape our teams. This long-term approach is why we have doubled our trainee intake here in Scotland, combining both graduates following a more traditional route, but also school leavers looking to progress a career in an advisory role.”
Alex adds that the changing landscape in audit also represents both an opportunity and a challenge for all firms, while globalisation is becoming ever more prominent.
He says: “Businesses are looking to maximise opportunities in new markets, and international investment is targeting Scotland and the UK as a viable market. In a post-Brexit world this approach will be more acute, and we are already seeing an uplift in activity where clients are drawing on our international expertise and vast network of firms across the globe to help support global aspirations.”
Graeme Allan, Managing Partner with Anderson Anderson & Brown says: “The Big Four seem to have their sights set on reducing the number of smaller audits that they undertake and as a result there are more opportunities. Greater regulation will likely mean that firms with a small number of audits will not continue with those, and the result could be that there’s not capacity in the remaining firms to cope.”
He expects to see more consolidation in the accountancy sector as we head into 2010. As he puts it: “The move to advisory services and away from compliance has inevitably meant more firms making the decision to join ‘the consolidation movement’ within the profession and it seems likely that will continue for the time being. Technology will play an increasing role in service provision and this change is happening now. The speed of change will accelerate into the early 2020s.”
