What leaders think
The accountancy profession is under fire as rarely seen before. When you consider that 50% of FTSE 100 CEOs have a finance background it’s easy to see how the health of the profession impacts the health of UK business.
Times have moved on and so has the world of the Accountant.
In the 1970s and 1980s 20% of graduates went into finance as a career but today this has declined dramatically despite salaries for post qualified accountants still being amongst the highest of all graduates. The Big 4 are finding attracting enough high calibre entrants to the profession a major problem and have done for a number of years. This becomes immediately apparent when you look at the composition of some of the audit teams, which while very talented, often now include fewer “Brits” and many more Antipodeans who (in the majority) are of course only here temporarily.
The profession is moving inextricably towards a more rules based approach.
Furthermore some CFOs have very publicly been held, at least partly, responsible for the likes of Carillion, BHS and Patisserie Valerie. At the same time the accounting firms are accused of conflicts of interest and blamed for not identifying potential corporate failures. Indeed the Financial Reporting Council is pushing for bigger fines and this year alone all the Big 4 have received or are facing, multi million pound fines and for the first time a Big 4 Partner has received a personal fine of over £300,000. At the latest in our series of CFO lunches we asked our guests
- Why is the accountancy profession no longer such an attractive career option and what can be done to change this? And
- How do you feel the role of the profession has changed in terms of the standard, relevance and value of service it provides?
Phil Moses, the CFO of Liquid Telecom, started the conversation by pointing out that the profession is moving inextricably towards a more rules based approach and becoming less judgement focused which in turn means it is just not as interesting a profession as it was before.
The Report and Accounts are the Profession’s ‘shop window’.
Fines and regulation have inevitably encouraged this rules-based approach. If people stick to the rules, they then can’t be caught out if their accounts are misleading because they can prove they stuck to the rules. Phil believes this will end up with accounts being automated and you will then not need so many accountants.
This trend of reducing judgement and added value has inevitably made it a less rewarding career. After all, it is not massively satisfying if you are just there to police the rules. Phil commented the whole “true and fair view” seems to have taken a back seat but suggests that it would be better if finance professionals were forced to say “I personally believe…”. The CFO of a well-known restaurant group, uses PWC as their auditors and can see that they are trapped in the vicious circle of having their fees squeezed and therefore, having to “flog” their auditors very hard, often working them until 9pm or 10pm most of the year. Even then they do not get involved in the commercial side of the business but are confined to just tick boxing the balance sheet and spending a lot of time on the Annual Report.
The Annual Report and Accounts are the profession’s “shop window” points out Ian Bull, formally CFO of Parkdean Resorts, however the complexity of IFRS gives the “back end” of the Accounts a look of being an impenetrable mass of information which is incomprehensible to anyone other than those who are technically well qualified. This shop window has become less attractive to graduates as it moves away from “I can understand that and would like to be part of it” to “Oh, I don’t understand that anymore, it looks too complicated, I’ll do rocket science instead of accountancy!” The good part is it is pushing accountants to ensure that the front end really describes the strategy, direction and business performance really well.
The whole “true and fair view” seems to have taken a back seat.
Another reason why accountancy is less attractive to graduate entrants is that all they see is the initial low value add accounting work that’s involved, says David Gerrard the CFO of Veolia UK. They don’t see the more strategic and commercial role you play later in your career as a CFO. He points out that if they simply want to be an accountant they may as well qualify as an Actuary and just work on numbers and technical stuff.
Laurence Woodhouse, VP at Sabre, commented that accountancy provides an important foundation to business and can be a route out of finance into other interesting career paths. He believes however, that this is not readily identified by today’s graduates and that the profession should more actively market this as a benefit. David Doyle, CFO at Global Switch, agreed and recounted that he went into accountancy in order to learn about business, however today the millennials do not look at accountancy as the preferred profession, being more interested in Technology, Cyber etc.
Millennials have an unrealistic understanding of what a degree will give them.
David then made the interesting observation that an increasing trend is for people to retrain in mid-career and so maybe the profession should look at encouraging computer science graduates to retrain in finance mid-career. Ian Bull agreed with David but developed the point further by saying that business information (BI) and data analytics should belong to finance as they are natural bed-fellows for finance skills. It is also a natural recruiting ground for millennials where they can see information and business side-by-side before becoming accountants. He sees these business information, data analytics and accountancy as natural adjacencies that provide powerful insights into the business and are intrinsic to how a business operates. He said he would certainly be confident of hiring into finance if he could offer time in data science first before going on to qualify as an accountant through such as CIMA.
BI, data analytics and accountancy are natural bed-fellows.
Wilma Allan, the CFO of City Airport, pointed out that the profession was not confined to Chartered Accountants and that she had chosen the CIMA route as she wanted to be involved in the business and commercial aspects from an early stage. David Doyle picked up on this point saying he has not experienced any problems in attracting students to study for CIMA and that they liked the idea of going through the organisation gaining different experiences within finance.
There was general agreement when Wilma said she believes that part of the problem lies with the millennials who have an unrealistic understanding of what a degree will give them.
We don’t trust our youngsters to do the things that we took for granted.
The discussion then moved on to some of the changes in the Profession, some of which have also impacted its attraction to the next generation. Phil Dennis, the CFO at Bizspace, drew attention to the change in the role of the CFO over the last 10-20 years whereby it has become significantly more strategic and you are expected to make a much wider contribution to the future of your business. However, at the same time the profession, through its focus on IFRS and other rules and regulations gives the perception that it is going in the opposite direction as has already been pointed out.
Toby Woolrych, CFO of Renewi, reminisced about his training in the then Big 8 where in your second year you would run a pension audit and in your third year would be given a small business audit to run. By the time you were a Junior Manager you were really comfortable with having regular interaction with the CFO. He compares that with his experience today as the client CFO where he rarely sees anyone. Audit Directors tend not to interact extensively with the CFO and all major conversations are held with the Partner.. He finished off by saying that as a profession we don’t trust our youngsters to do the things that we took for granted.
Partners used to spend time in the business and with the CFO in order to properly understand it.
Jason Clark, the CFO at Bristol Airport, agreed with Toby saying that when he was in the profession, Partners used to spend time in the business and with the CFO in order to properly understand it. They would then essentially also act as an advisor to the CFO. However, now he doesn’t see his Audit Partner for more than an hour. He believes that if they had taken time to understand their client’s businesses they would have spotted many of the problems at BHS, Carillion and others.
People need to take more ownership for their actions.
Jason went on to suggest that business is partly to blame as they continue to screw down the audit fees which results in the profession not being able to afford to add much value, which in turn leads to business not wanting to pay as much for the audit, thus becoming a vicious circle. Jo Baker the CFO of the RAC agreed but points out this is a false economy, because as audit fees are screwed down to the bear minimum, you now get what you pay for. She has found that one consequence of this is that as a Board of Directors, they have gone out for assurance from other third parties. While these may be on a much narrower scope to cover, for example new regulations, she points out that they are spending more money on assurance on things that they would previously have got from the auditors. You end up paying more as you’ve got the risk of fines and personal liability. She asked if we were all looking at this the wrong way round?
The closing comments were on the fines that are increasingly being awarded not just to organisations but individuals too. There was limited sympathy in the room for those being fined, with Mark Gardiner, Group Finance Director at Penguin Random House, saying there has not been enough personal liability and that people need to take more ownership for their actions. David Doyle reminded us that it is very hard to find a partner at an audit firm who is earning less than their client.
To conclude, a rich and vibrant debate took place which centred around how the commercial and regulatory pressures on the accounting profession are having a negative impact on new talent joining the profession as well as the value added service that clients receive from their Auditors. This led to the discussion having a big focus on how the role of the CFO has changed to become significantly more business focused and strategic in nature. The challenge for the profession is to ensure that in a more rules based environment the next generation of CFOs have the breadth of experience and training to continue this trend.