2016 is set to focus on growth, technology advancements, change in landscape and investment in the workforce – despite some concerns over the ‘health’ of the global economy, as we look into the top 5 trends that will be shaping the Accountancy and Legal sector in the next 12 months.

 

Key Trends: Accountancy 

Technology

The world of technology is constantly adapting, and 2016 will see innovation at the forefront of the accounting industry, with many looking to adapt to these changes as the year goes on.
 

The advancements in technology are now transforming the accounting profession and with the move to online cloud and mobile platforms, firms are now beginning to invest heavily to bring these advances to their people and clients.
 

The shift will enable the software to do much more of the ‘heavy-lifting’ which will in turn allow accountants to collaborate and work with clients in real time, moving beyond the commodity of the tax return. This integration will also fundamentally change how clients are consulted, as it enables accounting professionals to become true advisors, focussing on higher level activities therefore increasing success amongst their clients.
 

As we move further into 2016, we are likely to see the emergence of a new generation of accountants that can bring other skills and business knowledge to help clients beyond the numbers, whilst expanding their service offerings to take on a more pro-active advisory role. 

 

Change in landscape: Audit Rotation

The concept of transparency and rotation has been a long standing debate in relation to the audit market, and recent audit reforms have been introduced to promote this.
In many economies, having audited financial statements is mandatory and over-time a working relationship is established which can transcend decades. However, the recent EU reforms have illustrated the importance of the need for audit rotation with the legislation taking place May this year.

Like with any new change, it of course comes with its own set of pros and cons, and the audit rotation reforms will be no different as we look into 2016. On the one hand the reform could be a great benefit when looking at it as a candidate’s perspective as the change in landscape may provide more opportunities and the chance to work on new clients.
Additionally, rotation aimed at promoting further transparency and accountability in the local market shows positive signs of a move that ensures that audit remains a relevant and valued activity to investors, regulators and other stakeholders.

However it appears the audit reforms may cause more headache than actual benefit to many in 2016. Firstly, the concept of having auditors provide information for investors is a fundamental change in the auditor’s role, and the adoption of this could lead to confusion as well as increased litigation exposure.

Furthermore, audit rotation could potentially discourage small to medium sized practitioners from providing audit services. This could then potentially undermine the auditor’s relationship with the audit committee if the auditor supplies additional or contradictory information. There is also a potential risk of inconsistent application, allowing for significant added costs and delays in filing reports.

What will be shaping the future for Audit in 2016?

• A need for all regulators and key impacted stakeholders to align in advance of the introduction of the long form audit reports in 2016 to ensure the market is fully prepared.

• Auditors should act as business partners to help corporate entities in growing their business and identifying possible areas of growth.

• Innovation is a must in auditing techniques and standards to make the audit more productive, practical and trusted.
 

It’s clear to see that the role of audit is evolving, with the enhanced requirements we are seeing in the audit landscape. Audit as a whole is looking likely to become much more forward thinking and broader with an opportunity to embrace technological developments to deliver audit in an efficient and cost effective way. 

 

Rising to the challenge: M&A in 2016 

2015 saw an age of strategic transformation and the highest level of deals globally, indicating continued growth as we look into 2016. The continued growth and confidence of the economy has allowed for more opportunities, with less focus on corporate recovery and much more on M&A.
 

The UK played an important role in global deal making in 2015, both with the quality and expertise of it’s banking and advisory professionals and a deal value standing at £2.8 trillion – 18% higher than 2007.
 

The pipeline of deals in 2016 looks to continue with this, and according to EY this year will see a 42% of all UK executives aggressively focussing on growth with plans to acquire assets in the next 12 months, driven by a need to accelerate earnings.

 

We will also see businesses looking to review the geographical balance of their portfolios and consider how their M&A strategies should be adjusted to reflect a change in global economy in order to meet their growth and value aspirations. 

 

Hiring Landscape:

2016 insights will very much rely on the economic climate as the UK shifts away from recovery into areas of growth. Recruitment in this sector will play a dominant role into how it will evolve this coming year.
 

The growing economy is now creating a sense of confidence amongst the business community and this year around 50% of firms will look to increase their headcount with many feeling positive for the year ahead.

 

 

However alongside increased job creation and economy growth, comes the shortage of skilled professionals to fill these roles. This is all down to the issue of reduced training and development programmes during the recession, resulting in a limited number of candidates with the skill sets in demand. 

This now means there are an increasing amount of firms competing to win the best talent and 2016 will be no different. Key measures that will be addressed will be increased salaries (averaging at 2.5% increase) and around two thirds of firms will look to adopt greater career development opportunities. 

 

In addition to this, firms are also considering relaxing the need for trainees and others to have a degree in order to open-up the talent bank.

 

 

Key Trends: Legal

Technology:

2016 looks to be an exciting year for technology in the legal sector, as they will experience a continued growth in seeking to improve the ways they do business.
According to PwC’s Law Firm Survey 2015, 95% of law firms plan to invest in IT to improve efficiency. What’s more, the top 10 firms that were interviewed feel they are now ‘winning against competition’ due to their investment in technology. 

 

The three dominant trends that are set to make a real impact in the legal industry in 2016 are cloud adoption, communication and the emergence of alternative business models.
 

In particular, the adoption of cloud technology allows firms to share stored information with clients online and due to the ever increasing pressure of law firms to operate securely and safely with their data and client communication, this type of software is hugely popular when wanting to keep communications secure and confidential.
 

The legal industry has been traditionally slow to adapt to emerging technologies, however with the progress and benefits being made, the further adoption of technology cannot be ignored any longer.

 

The Future of Artificial Intelligence: 

The notion of artificial intelligence is becoming an increasingly key topic of debate amongst the legal industry and is set to continue into 2016. Where some see opportunity, others are cautious of its impact on the future of law.
 

What we are actually witnessing with Al is complex, involving parallel developments, where law firms are adopting existing technologies and innovating under pressure from clients and market competition. The concept of Al involves similar developments where law firms are adopting existing technologies and innovating under pressure from clients and market competition.
 

Although the use of Al could in the long run could potentially end in redundancies in some sectors, it may also assist lawyers to expand their services and supply them more cheaply creating new and different ways of employment for legal professionals.
 

For 2016 it seems, Al’s role is to take automation to the next step, based on machine learning and big data analytics. How quickly the rise of Al will develop is unknown, but what we do know is that it’s growing adoption by law firms will serve to accelerate its evolution, to the point where every law firm will incorporate some form of intelligent technology. 

 

Alternative Business Structures: 

Hand in hand with technology, we see the continued rise of Alternative Business Structures (ABS) and businesses seeking better ways to offer excellence to their clients.
 

ABS which is an entity that while providing regulated reserved activities, allows non-lawyers to own or invest in law firms for the first time which in turn is opening up what has been a closed profession.
 

Today, around 5% of legal services are no longer provided by traditional law firms and amongst the 10,500 law firms, there are more than 500 ABS licensed by the 3 principal authorities which are the SRA, the CLC and the ICAEW. 

 

Perhaps the biggest threat to traditional law firms comes from the number of accountancy firms now licensed as an ABS by the ICAEW, which last autumn hit 100 and looks to grow as we progress into this year.
Some of the key players that have lead the march are three of the Big 4 firms, EY, KPMG and PwC.
 

PwC was the first of the Big 4 to gain the ABS status, establishing a separate legal entity within the firm – PwC Legal LLP. Last year saw the firm’s law practice push up revenue by 15% with a turnover of £41m for the financial year ending in June 2015. Growth has accelerated the firm after it was granted the license and looks to continue this growth going into 2016.

KPMG on the other hand has taken a very different tactic with their multi-disciplinary approach that has no intention to develop a stand – alone practice. The firm now plans to triple its current number of lawyers to 150 in the next 3 years, with plans to expand to areas such as employment and commercial law.
 

EY who were awarded their licence in December 2014, adopted a similar approach to KPMG with their client service driven initiative. Since then, the firm have already built a UK legal services team consisting of 30 lawyers, with plans to grow this by 100% over the next 12 months and beyond.

 

Investing in ABS: A Knights Case Study

ABS’s can also introduce the possibility of external investment into law firms, and is one of several triggers transforming the legal services market today.  An example of how this structure has been effective is with the UK’s first private equity backed commercial law firm Knights, which has seen investment by Hamilton Bradshaw’s James Caan.
 

In 2014, the firm’s revenue grew by 31% with the rise attributed to their first full year as an ABS. With the intention to grow the firm further, growth was even more impressive in 2014/2015 as revenue hit £16.5m with a 33.4% increase.
 

Since becoming an ABS, the firm have continued to work towards their ambitious growth strategy, with their additional offices in Staffordshire, Cheshire, Gloucestershire and Derbyshire and their recent acquisition of Darbys Solicitors LLP - one of the biggest transactions within the regional legal scene in the last 12 months. The acquisition has also meant that they are now placed in the Top 100 UK law firms by revenue.

David Beech, Managing Partner of Knights has made it clear that the firm will maintain their growth strategy when he stated, “we’ll be looking to continue our acquisition programme throughout 2016 and beyond to pursue our passion to be a leading regional professional services business.”
 

A significant part of the firm’s strategy is to provide integrated solutions to clients with legal services being part of a wider offering. As mentioned previously the rise of ABS has led many accountancy firms to join in on the action, however in this case Knights have decided to look towards accountancy groups and tax specialists as part of their structure. In addition to this, they have also been building a management consultancy arm which is said to focus on helping clients to become investor ready. 

 

Hiring Landscape: 

Hiring in the legal field is gathering momentum as law firms and corporate legal departments strategically build their legal teams to manage workloads and plan for future growth.
 

A recurring theme is taking place in the form a skills shortage, of which both the Accountancy and Legal markets are suffering, with 64% of lawyers stating how challenging it is to find skilled legal professionals. This has meant that competition has intensified to pick up candidates with backgrounds in the hottest practice areas such as litigation, real estate and corporate law. 

This year will also see lawyers relying on a more modern skill set which includes leadership, technology and social networking – all of which are alternatives to the traditional workplace style. In addition to this, the first major wave of leadership transitions in both legal departments and law firms to the next generation of leaders will begin to impact the legal services industry.

 

Key Trends affecting Professional Services Firms across the Board: 

Business Development: 

2016 will see a greater shift to a more advisory led route to market, meaning that a focus on developing the necessary skills and behaviours of people at all levels will continue. This will help to build strong, trusting client relationships that will create a strong internal network across teams, locations and different service lines.
 

In addition to this, the line between business development offline and business development online will begin to gradually disappear as people are understanding the use of internet when building relationships and word of mouth reputation is just as important as knowing how to network.

 

Engagement & Culture: 

Frequent topic of conversation has been centred on employee engagement and the interconnection with a firm’s culture. Today, around 87% of companies consider culture and engagement top priorities and this focus is unlikely to change given that engaged, committed employees are the ‘core of so many vital components of workplace success.’

 

The rise of Millennials in the workplace culture: 

Millennials will begin to dominate the workplace culture, as values continue to shift to those prioritised by this generation. Structured growth within organisations will see the movement of skilled young professionals into more leadership roles. 

 

Overall, 2016 looks to be a positive one for the professional sector. This will mainly be driven by the continued growth, the rise in technological advancement and the weight of millennials driving the workforce.
 

We look forward to seeing what successes and challenges the New Year will bring in the professional service sector. 

For more information on how these trends may affect you,
 

Please call: 07496 494112
 

Visit our website: www.adlestropconsulting.com
 

Email: jade.soer@adlestropconsulting.com
 

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