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BRIEFING
[ 22 March 2019 ]

Accountancy and audit

The numbers add up in this, our 19th briefing. The UK is a global leader in providing professional probity in financial affairs.

The Big Four, five, six...

  • Two (and a quarter) of ‘the Big Four’ global accountancy businesses hail from the UK. (Deloitte, EY and the 'P' of KPMG.)
  • Three have their global HQs in London
  • 4 of the 10 largest in the world are headquartered in Britain.
  • The biggest in the world, Deloitte, has annual revenues of almost £30bn.

More accountants than anywhere else....

At the last count, there were about 280,000 accountants in the UK. That’s more than the rest of the EU combined. It’s more than half the number in the US. The number balloons to nearly 600,000 when including those involved in book-keeping and audit. That's good news, according to this study that says a large accountancy profession is linked to high living standards. Per capita, we are a country of bean counters. This is an old but interesting article on why that may be so.

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“My god, it’s dull, dull, dull. I want to be a lion tamer.”

...and more accountancy bodies

The UK has six major accountancy bodies (ACCA, CAI, CIMA, CIPFA, ICAEW, ICAS). Combined, these UK bodies have over half a million members across the world. About a third of these are women, a proportion that is growing fast.

Gold standard

The UK is home to most of the world's major accountancy qualifications. This really matters, because almost anybody can say they are an accountant. The letters after the name come in many forms, because most of the UK's different accounting bodies (see above) have their own qualification. The ICAEW Chartered Accountant qualification, the ACA, is widely seen as the international gold standard and passport to any financial function in the world. To qualify, you need to pass 15 modules and have 450 days practical experience. By comparison you can be CPA qualified in the US within 18 months.

ICAEW - global heavyweight

As well as being a member body, the ICAEW (which features in the World Class Britain list) has adopted a regulatory role to ensure the highest ethical and professional standards. The organisation has had a royal charter since 1880 and has 147,000 members across 150 countries. It also has an international outreach programme to support less developed accountancy ecosystems. For instance, it has an agreement with its Chinese equivalent (the CICPA) and remains the only international institute whose members gain any exemption from CICPA’s exams.

Nice little earner

UK accounting services net exports were £3.2bn in 2017

Source: Oxford Economics

Re-imaging financial reporting

The problem with the modern balance sheet is that it’s a bit dismissive of intangibles, making it increasingly at odds with the modern economy. As part of the Embankment Project for Inclusive Capitalism, Ernst & Young has come up with a Long Term Value Framework to help companies formally account for some of their hidden value.

"We're fairly incorruptible"

Financial scandals in the UK are relatively rare. Of the 60 biggest global accounting scandals between 1980 and 2010, only three were in the UK.

Listed audit - top heavy

One relatively small, but hugely high profile, part of the accountancy profession, that of auditing listed companies, is currently under serious scrutiny, following three recent scandals, Carillion (which was a management rather than audit failure), BHS and Patisserie Valerie. This has reignited perennial concerns about the unbalanced nature of listed audit in the UK (the Big 4 has a 98% market share of FTSE 350 audit). Few believe this situation is sustainable, but since transposition of the EU's Audit Directive in 2016, their dominance has only increased.

"We need a new audit regulator with a clear and precise sense of purpose and I am pleased that the government shares that vision.”

Sir John Kingham, whose review of the UK's audit profession has had radical consequences...

Auditing the auditors

As a result of the above concerns, last week the government announced much tougher regulation for the UK audit industry, by replacing the Financial Reporting Council with a new watchdog called the Audit, Reporting and Governance Authority, which has an acronym that sounds like tooth ache (Arga), and has been given Judge Dredd like powers to directly regulate audit firms.

But could it be that regulation itself is partly to blame. In this critical Times article, an ICAEW spokesman notes that the regulator spends as much time with auditors and the auditors do with the company, raising barriers to entry for other providers.

The unsung hero of British business

Accountants don't get much of an outing in British popular culture, but they are the life blood of British business (52% of them work inside companies, not in practice). The most famous qualified accountants in the UK, Mick Jagger and Eddie Izzard, are famous for something else. On the other hand, an accountancy profession known for being dull and dependable, and then codifying those qualities and exporting them internationally, is surely something to be celebrated. So you can keep your Champagne Charlies, let's hear it for the humble non-lion taming British bean counter.

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