Paul Eagland 8 Jan 2019 01:42pm

What to expect in 2019 - Paul Eagland

“New year, new me” - love or loathe the phrase, it’s certainly relevant to the audit market as we enter 2019, with so much change expected

Making predictions is a risky business at the best of times but with regulatory, political and economic uncertainty dominating the market, it seems particularly hazardous this year.

That said, I will go with the New Year spirit and make my predictions.

Audit reform

Audit will continue to be heavily scrutinised in the media with four reviews taking place. As the year progresses I think the outcomes of these reviews will begin to synchronise and combine so that a full and rounded picture of the new audit market emerges. Audit plays a vital role in ensuring trust and confidence in business. It oils the wheels of capital markets and the wider economy.

Of the 80 current FTSE 350 businesses that have changed auditor over the last two years only one has moved away from the Big Four. This year, we will see these companies and their audit committees try to get ahead of the reforms and be more open to considering auditors outside of them.

As the various reviews of audit and regulatory reform conclude, I believe that these will lead on to a wider debate regarding how capitalism should function in a modern global economy, in particular how the interests of various stakeholders in 'public interest entities' (ranging from investors, management, employees, pension trustees, customers through to the government, regulators, auditors and other professional advisers to those entities) should be balanced.

For example should a public interest entity be able to simply pay a dividend by reference to its accounting reserves when it is clear that the pension fund responsible for the pensions of its employees is in deficit?

Brexit and investment

Brexit will inevitably cast its long shadow over the economy and the next few months will be fascinating from a political point of view. With so much political debate on the subject, it is likely that businesses will continue to voice concern on what the agreed Brexit deal will mean for them in the long-run.

BDO’s client heartland has always been what we call the UK economic engine: the mid-sized entrepreneurially spirited businesses that power our economy. These businesses (typically AIM listed, privately-owned mid-market or private equity backed) will continue to invest despite the uncertainty. Investment and being fleet of foot is in their DNA.

While Brexit will undoubtedly throw up challenges, I predict these businesses having the commercial savvy to go from strength to strength and see change as an opportunity.

We are also likely to see further investment in regions outside of London and the South East. The Northern Powerhouse and Midlands Engine are becoming entities in their own right.

We have recently seen HSBC and Channel 4 make the decision to relocate its headquarters to Birmingham and Leeds respectively, and with projects such as HS2 and the Northern Powerhouse Rail in the pipeline, the Government are likely to continue to support investment in these areas and we may see more large firms make similar moves.

The impact of technology on skills

We often associate the so-called ‘skills gap’ with sectors such as manufacturing, construction and more recently, technology. But auditors and the accountancy profession as a whole are likely to experience skills challenges as technology continues to disrupt the way we live and work.

However, with technology playing an ever-increasing role in our day to day lives we need to ensure that the next generation of accountants and advisers are equipped with not only the traditional skills but also the ability to adapt and change with new technology, and think more innovatively than ever before.

Universities, colleges and schools must continue to work closely with business, and adapt to their needs, to play their role in developing the workforce of tomorrow.

Paul Eagland, BDO’s managing partner