As big data and artificial intelligence (AI) trends make scrutiny of large businesses more complex, efforts need to be made to prevent further concentration of market share in the accountancy industry to the Big Four firms, the chairman of trade body Chartered Accountants Worldwide has said.

In an interview with Zawya on the sidelines of an event held in Dubai last week, Michael Izza, who is CEO of the Institute of Chartered Accountants of England and Wales (ICAEW) and chairman of Chartered Accountants Worldwide, said: "What we don't want is effectively the whole of the business ecosystem to be controlled by the Big Four firms".

"The concentration at the top end of the market is unhealthy and we would, as a profession, prefer it (to be) a little more spread out. And, you know, I think the Big Four are there as well. Because it's making them the focus of so much attention and a lot of it is frankly not very positive press at the moment."

The Big Four accountancy firms (Deloitte, EY, KPMG and PwC) audit 99 of the FTSE 100 firms in the United Kingdom, and 97 percent of the FTSE 350 companies. Their combined dominance has led to the UK's Competition and Markets Authority publishing a report in April this year recommending legislation to address both the vulnerability of the industry to the collapse of one of the four firms, and the "current inadequate choice and competition" in the audit market.

Concerns have also been expressed about the fact that the Big Four often earn handsome consultancy fees from the same companies that they audit. In its response to the Competition and Market Authority's consultation on the issue, the UK Shareholders' Association said the "current system of allowing audit firms to offer consultancy services creates many actual and potential conflicts of interest".

The Investment Association said that while it wasn't in favour of audit-only firms, it stressed the importance of independence in audits and suggested that a limited ban on accountants providing non-audit services to audit clients within the FTSE 350 could be introduced.

This isn’t the first time that there have been calls for the Big Four’s dominance to be curtailed – especially in the United Kingdom. However, Izza says the difference now “is that there is a lot more consensus that this is the right thing to do”.

The growing complexity of data handled by companies - especially larger ones - means further concentration in the sector is a real concern, especially given that the accountancy sector is positioning itself to be the independent arbiter of the validity and completeness of company data.

Speaking during an earlier panel debate on technology and the accounting industry titled, The Future of Trust, Izza said that in the UK, the ICAEW has been working since the end of last year on a programme covering the top 20 accountancy firms with a view to creating a single data platform, or a 'data lake', where both structured and unstructured data relating to company financial statements, contracts, emails and other related documents could be stored.

"The reason why the ICAEW is involved in this is because, to put it bluntly, we want to make sure that this doesn't become the preserve of the Big Four," he told the event, which contained representatives from chartered accountancy chapters in Bangladesh and South Africa. Chartered Accountants Worldwide represents 12 national chartered accountancy bodies on four continents, according to its website.

‘Skin in the game’

"We want to make sure that others, who don't have the same sort of resources to invest, have still got skin in the game and are able to draw on this down the line," he said.

Developing a shared platform such as this will be seen as an important leveler, given the increasing complexity of some firms' operations. Izza said that one FTSE 100 company is currently running 9,500 different IT systems within different parts of its business around the world.

"You may say they should have consolidated, but they haven't," he told the event.

The ability to keep abreast with increasingly complex technology is not only a challenge for the industry’s firms, but also its participants. Although Izza is keen to stress that the accountancy profession does much more than help firms meet regulatory requirements with regards to audit and tax, he acknowledges that there are some within the industry – especially independent tax practitioners – whose roles are in danger of being replaced.

“I know people in the UK who have got good businesses but what they do is hundreds of tax returns, and all they're doing is putting numbers in boxes,” he told Zawya. “A machine can do that, and if that's the only value that you can add, I think you've got a limited horizon in terms of being able to do that.”

In Britain, he said the ICAEW has developed a programme known as Finance in a Digital World, which is aimed at giving accountants of all ages a better understanding of technologies such as blockchain, robotic process automation, data analytics and other technological developments so that they understand not only the concepts, but also their practical applications and the likely impact on the industry. He said the aim is to establish a general understanding of these subjects, as opposed to technical proficiency.

“What this is not going to do is make people experts in this area, but what it should do is allow these people to have an intelligent conversation rather than being blown away” by some of the technical jargon, he said.

“Because what we don't want to do is we don't want these people to be forced out of their workplace because of their knowledge of technology. “

Izza believes this is a relevant concern for accountants in 2019, as opposed to some far-off date in the future. He relays a conversation he had with the chairman of a FTSE 100 company last year who said that his company had 1,800 people within its finance department, but was working on a plan to reduce this to 100 through automating routine compliance work.

“My desire, my interest is that as lots of organisations make that change, we want chartered accountants to be driving it. We don't want them being driven.”

Speaking during the same panel debate, Bryan Stirewalt, the chief executive of Dubai’s Financial Services Authority, said that people working across the financial services sector were “fighting to keep the four-letter word ‘robo’ from out of the front of our job titles”.

“So far, I haven't heard 'robo-regulator or 'robo-auditor'. I have heard 'robo-lawyer',” he said. “I think there will be a human element, but the human element will change. If your job can be reduced to a process map, you probably won't have a job.”

Yet automation relies on a general trust in, and acceptance of, the data that underpins the automation and artificial intelligence processes.

The human touch

Sabbir Ahmed, a member of the Institute of Chartered Accountants Bangladesh’s council, argued that retaining a human element was an important factor in ensuring that any models developed are trusted.

“One of the core elements in our DNA as an auditor is professional scepticism. When we are using AI and AI has thrown us a result, how are we challenging that?” he asked. “Are we competent enough to challenge the outcome that the AI model has provided?”

He said that as AI models are being used to predict future trends from historic ones, those using them should be aware that they are “built in the past experience”,  and as a result are often based on past data which will contain biases.

These biases can then be amplified if newer AI models are built on earlier models.

Izza told Zawya that a United Nations report looked at the types of organisations who could be trusted to properly analyse and interpret the masses of data that organisations are likely to produce and to verify algorithms, and concluded that the accountancy profession was most suited to the role.

“But I don't think we should be complacent. Others could do it,” he said. “But the thing that we have that hopefully will continue to stand us in good stead is our ethical principles.  And if you get it wrong, you are accountable.”

For regulators, Stirewalt told the panel debate that technology offered opportunities as well as challenges, envisioning a situation in the not-too distant future where a regulator has real-time oversight of a bank’s trading data, for instance.

“Now a regulator can theoretically have access to that and be watching systems more carefully, more closely and adopting tools that would allow earlier warnings that don't have to wait until 45 days after the quarter ends when the auditor has to sign off on something,” he said.

“You'll be looking at a number of business intelligence opportunities that exist as a result of technology. You can't think of today's job, and what technology does to that. You must think of tomorrow's job and where technology meets that.”

(Reporting by Michael Fahy; Editing by Mily Chakrabarty)

(michael.fahy@refinitiv.com)

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