“We used to joke that auditors were drowning in documents,” Panos Kakoullis, Deloitte Global Audit & Assurance Business Leader recently said. “Thanks to new tools and resources, auditors are able to work smarter and more effectively – with each other and with clients.”
The emergence of new audit technology has had an enormous impact on the profession. Machine-learning based tools have the ability to rapidly analyse hundreds of documents and identify key areas of interest in a fraction of the time it took a decade ago. Reviews that would have required days to complete can now happen in near real time. This means that compliance-driven outputs are increasingly under cost pressures whilst auditors seek to add value through new analytical and communication skills.
The growth of new technology along with changes in auditing standards and registration requirements are all having a significant impact on how auditors provide their services. Smaller firms in particular are faced with the challenge to remain profitable and competitive. As a result, we’re seeing the number of auditors decline with the latest ASIC report (1st October 2018) confirming 4,132 registered company auditors.
In this dynamic environment, it is critical that practitioners are evaluating their future strategy for sustainability and growth. It’s not surprising that many sole practitioner firms are considering a merge or sale as the best option for growth and sustainability.
What do you need to be thinking about now? How is this going to impact on your firm?
Key considerations for proactive auditors
1. Plan your strategy for sustainable success
If you’re not using audit technology to reduce the time needed for data capture, processing and review, then you will struggle to retain revenue and profit with existing clients. It’s likely that over time, you’ll lose clients as they seek other providers who can provide the same service at a lower cost and faster turnaround. Furthermore, you may be less competitive in engaging new clients.
Questions to consider include:
- What do you intend to do to keep ahead of auditing standards and registration requirements? If you’re trying to leverage your time through additional capacity, are you confident that you can continue to attract appropriate support staff to your firm?
- Are you looking to specialise within this sector to create a stronger brand and clearer positioning within the market? Take a look at what other firms are doing within the industry to create a differentiated service and compete more on value versus price.
2. Maximise the value of your firm into the future
Even if your exit strategy is 5 or 10 years away, you need to start thinking now about how you will create value in yourself and in your firm. It may take time and effort to get your firm to a position where you can maximise its value.
Some key questions to consider include:
- What does the brand look like? Is it your personal brand or the brand of the audit firm? Start looking at ways to strengthen the brand independent of you.
- Are you aware of how audit firms are being valued and where the demand is coming from? It is important to identify where potential buyers see value and consider how this will change in the future. You can then use this information to identify where you can add value to your firm.
- What can you do to maintain or increase the internal return on investment for audit work? Options may include increasing use of technology, developing more refined systems and processes and training staff to deliver services beyond compliance.
3. Consider the benefits of merge or acquisition
For many auditors in public practice, the best way forward is a partial or full sale to an internal partner with the skills and capabilities for the future, or to an external practice with stronger systems and processes. This is a decision that some practitioners are making 10 or 15 years out from retirement, on the basis that ongoing involvement as a sole practitioner will result in more stress and less profit.
Some of the questions you should consider include:
- Who do you know in your professional network that you are confident working with in relation to the transition of clients and workflow? Consider the cultural change that will be required to ensure a successful transition.
- Are your audits easily transferable to a new firm? Identify the actions that you should take now to ensure that the transition takes place with minimum discomfort to clients.
- What is involved in the transaction process and how long is the expected time period? It’s important to understand the expectations of potential buyers.
Are you thinking about succession?
Are you looking to continue working for the foreseeable future or do you plan to retire within the next 3-5 years? If the decision you’re considering relates to succession, then ask yourself ‘What do I want to get out of this process?’
It’s important to have a clear understanding of your requirements before you start talking with potential equity partners or buyers. If you’re looking to sell, it makes sense to approach firms that see a strong benefit in acquisition strategies for growth. It’s likely that these will be other, larger, audit firms.
Steven Watson | Managing Director| National Audits| https://www.audits.com.au