Pressure to split audit and consultancy drives demand for flexible staffing
As the Big Four face splitting their audit and advisory services while already adapting to audit rotation rules, firms must find new ways to manage their talent needs.
It is a pivotal moment for the Big Four. Following years of debate about conflict of interest between their audit and advisory services, calls for further reform have been turned up a notch in the last year.
Pressure to split audit and advisory
Leading the charge, the UK’s Competition & Markets Authority (CMA) released a report in April putting forward a number of recommendations for raising the quality of the audit. This follows a string of scandals, most notably the failure of Carillion in 2018, once again highlighting the need for change.
Top amongst the CMA’s recommendations is for firms to entirely separate their audit and consulting services, to eliminate potential conflicts of interest between the two. This would go much further than previous requirements for ‘Chinese walls’, or limits to advisory revenues from audit clients, meaning separate management, accounts and remuneration, a separate CEO, financial statements and an end to profit-sharing.
If the reforms are brought into force, the UK will follow in the footsteps of many other countries, which already have similar rules in place. In South Africa, for example, accountancy firms are already banned from offering advisory services to their audit clients, and the US has had Sarbanes Oxley in place since 2002 for the same reason. Now regulatory authorities around the world are watching developments in the UK closely, considering what more they can do.
And while the CMA’s recommendations aren’t yet enshrined in law, three of the Big Four accounting firms are already making moves to evolve how they work, in recognition of changing times. KPMG announced in November that it would stop doing consultancy work for all its audit clients, while PwC and EY followed their lead a few months later.
The latest reforms are an added layer of complexity for accounting firms, on top of the mandatory audit rotation rules introduced in the last few years. Stating that clients must rotate their audit every five years, and not work with the same auditor within the subsequent five-year period, the existing requirements already bring challenges for forward-planning and talent management in big firms. The latest changes further complicate matters, as firms plan how they will continue to maximise their audit and consulting revenues when rotating clients on a five-year basis.
Greater need for flexible talent
In years gone by, accounting firms would often retain both audit and consulting contracts for many years at a time, leading to stable and predictable requirements for talent. Now, with the new rules, their roster of clients is constantly rotating, leading to much more fluid talent needs. In this environment, it doesn’t make sense to invest in a permanent team of industry specialists if a consultancy contract will only be for a short time. A much more flexible solution is needed.
Accounting firms need to change how they think about talent and shift to a focus on a more lean, agile model. Freelancing and contracting are booming around the world, giving businesses access to a pool of highly skilled individuals across a whole host of specialist areas, whenever they need them. This ‘virtual bench’ of talent reduces the need to rely on permanent staff, reducing unnecessary overheads, while enabling firms to offer the wide range of services that they always have, on-demand.
Tapping into talent platforms
The accounting industry is in a period of significant flux, with digital transformation shaking up age-old processes, and now more regulatory changes added to the mix. Fluid talent gives businesses a significant competitive advantage, and it has never been easier to tap into this flexible workforce thanks to online platforms such as Outsized.