2019 was a year of change for the finance market. From the Bryndon and Kingman reviews raising issues around audit quality, to recommendations to separate audit and non-audit services of accounting firms, to the introduction of the PCAOB and Making Tax Digital, the past year has undoubtedly shaped the finance, audit and accounting sectors. 2020 will prove to be no different, with changes in regulation and technology promising to reshape the market as we move forward into the next decade.
The Bryndon report was undoubtedly one of the biggest things to happen within the audit and accountancy sector in 2019. Sir Donald Bryndon’s year-long review into the British audit industry recommended a breakaway from the accounting profession and the formation of a separate industry with its own governing principles, and also gave recommendations on how to increase confidence in the audit sector and ways to prevent unnecessary corporate collapses.
Simon Dingemans, the new chairman of the Financial Reporting Committee (FRC), also called on the government to enforce the separation of audit and consulting at the Big 4 accounting firms, stating that breaking up Deloitte, EY, KPMG and PwC was a ‘critical’ measure to improve the quality of their audits. However, these recommendations have been resisted by the Big 4 as well as mid-tier firms across the industry who believe this break-up would challenge firms’ resilience.
Additionally, John Kingman’s independent review of the FRC recommended that the governing body should be replaced with an independent statutory regulator called the Audit, Reporting and Governance Authority (ARGA). Business Secretary Greg Clark has responded that the government will take forward the recommendations from the Kingman Review and replace the FRC with the ARGA, a body which will “build on our status as a great place to do business and form an essential part of the government’s continued efforts to grow trust and public confidence in business and the regulations that govern them.”
Specifically, both the Bryndon and Kingman review raised issues around audit quality, the current role of the FRC and the position of the Public Company Accounting Oversight Board (PCAOB) - the new quality oversight body to check audit quality. Both Kingman and Bryndon also used their reports to call on ARGA, the audit governing body that is set to replace the FRC, to set new qualifications for the sector.
The various reviews and reports focusing on the accounting and audit industries undertaken in the past year, have collectively recommended so many changes that could reshape the profession going forward.
2019 also saw the introduction of Making Tax Digital (MTD). As of Monday 1st April 2019, we became fully cemented into the digital era. VAT-registered businesses with a taxable turnover above the VAT threshold of £85,000 are now required to use the MTD service to keep records digitally and use competitive software to submit their VAT returns for VAT periods that started on or after 1st April 2019.
Looking forward into 2020:
As mentioned above, the implementation of the PCAOB as the new quality oversight body will reshape the audit sector. UK audit firms who play a substantial role in the audit of US issuers, brokers and dealers can now grant access to their audit working papers if requested by the US authorities, and the PCAOB will establish auditing and related professional practice standards for registered public accounting firms to follow in the preparation and issuance of audit reports. Firms registered with the PCAOB will range from sole proprietorships to large firms with extensive global networks, and the governing body will use its investigative authority to address serious audit deficiencies and impose sanctions and penalties.
The implementation of IR35 will inevitably affect contractors in the coming year. As well as this, the new rules of IR35 in the private sector will apply from 6 April 2020 to medium and large businesses. Although the legislation will not come into play until April of this year, audit and accountancy businesses need to start considering the potential impact of IR35 and ensure they are managing their PAYE compliance effectively.
Last year saw a multitude of uncertainty surrounding Brexit. Going forward into 2020, due to the outcome of the election we can predict more stability around the subject on the basis that Brexit will be going ahead, and we are likely to see investors starting to invest at a higher rate. There was inevitably a hold on stock investments into the UK for a period, but now people are looking at how to best spread their money and in turn, are utilising accountants to provide advice on the best route to invest. Companies are also likely to see Brexit as an opportunity and we predict that there will be plenty of activity in the market fuelled by private equity money, particularly in the region of mid-market entrepreneurial businesses.
As touched upon in the 2019 recap, Making Tax Digital is undoubtedly another area to watch in 2020. MTD for income tax went off the agenda due to the hung parliament but it is a key part of HMRC;s strategy to digitise which means that it will be a key focus going forward this year.
Moving away from matters of regulation, technology and automation will continue to cause issues for those in the accounting and audit sectors. Going forward into 2020 we will inevitably see even more investments in technology and AI, which means more automating processes. These new technologies are revolutionizing finance and accounting work, which means that it will become even more important for finance professionals to ensure that their soft skills and technical skills are up to scratch.