Accounting isn't what it used to be. Auditing, the bread and butter of accounting, is a diminishing source of revenue for the profession, while other more specialist areas such as technology and tax and advisory services are on the ascendancy. That's good news for accounting firms like Crowe Horwath, the world's eighth largest accountancy network, which specializes in technology, tax and consulting services.
One obvious area in which accounting firms can compensate for loss of revenue from auditing is technology services. With this in mind, top executives from Crowe Horwath International were in Israel earlier this month for meetings with their local associate firm Crowe Horwath (Israel) Ovadia Pick Kriheli and to checkout some of the technology solutions that the country's high-tech firms have to offer the accounting sector in such subjects as big data, cloud storage, machine learning, artificial intelligence and especially cyber security
Crowe Horwath International Chief Executive Officer J. Kevin McGrath said, "In 2008, auditing provided 53% of revenue for the top ten global accounting networks while in 2016, it provided just 39% of revenue. The amount of revenue was also smaller in absolute terms. Crowe Horwath actually had 5% growth in auditing revenue over that period although continuing to gain a larger share of a shrinking market is not sustainable."
"The solution is to grow non-audit services. These are more high value and that's where the market is migrating. Our group is strong on international tax consulting. The fairness and equity rules have been rewritten to avoid sheltering tax and that has created a need for advisors to help companies navigate the new situation."
"Then there is technology and advising on tech usage as well as trends in technology and how to deliver services. Our clients need help on which technologies to use, especially small and medium sized businesses and the need for cyber security."
McGrath does not see Crowe Horwath as competing with the big four accounting companies but rather complementing them with its specialist services such as tax and technology consultancy.
Crowe Horwath International's Regional Director Europe, Middle East & Africa Bernard Delomenie (EMEA) said, "We are looking into how we can tap the value of the brains of Israeli high-tech. It is a second Silicon Valley. We are having a lot of discussions about investing in cyber security and other skills of Israel."
It was Israel's high-tech boom back in 2009 that in effect brought the Israeli accountancy firm of Ovadia Pick Kriheli, into the Crowe Horwath network. It was a marriage waiting to be arranged. Established in 1982, the fast-expanding accounting firm of Ovadia Pick Kriheli was looking to join an international network.
"Unlike the economies of Western Europe and North America which had been hit by the sub-prime crisis, the Israeli economy was still growing fast," recalls Arieh Ovadia, Managing Partner & CEO of Crowe Horwath (Israel). Our clients were doing a lot of business overseas taking advantage of global opportunities and we needed to be part of a major global network in order to help them. I did some research and found that Crowe Horwath did not have an Israeli member company."
Delomenie recalls that the timing was excellent. "Before 2009, Israel had not been one of our priority markets. But these things are driven by demand and more and more of our companies were doing business in Israel, especially in the high-tech sector, and so we were increasing our activities here. We needed to form a partnership here so it was a natural marriage."
Crowe Horwath comprises more than 184 independent accounting and advisory services firms with 640 offices and nearly 35,000 professionals and staff in more than 100 countries around the world.
The view from Crowe Horwath's offices on the 20th floor of a high-rise in the Ramat Gan Diamond Exchange neighborhood reflects the economic boom that Israeli is undergoing. Office towers are under construction all around in Ramat Gan and across the Ayalon basin in Tel Aviv.
The boom is fueled by high-tech and inevitably conversation returns to the subject, not only in terms of Israel's economy but also the implications for accounting.
McGrath says, "I'm bullish on the market in Israel. There is such a vast supply of knowledge workers here and outstanding firms that are taking their companies public in the US."
He adds, "I've been chief executive for five years and it is remarkable how things and the mindset have changed during that time. As an accountant, I'd rather speak about transformation than disruption. Disruption is for the technology companies."
"There is a culture of innovation and we have set up a special interest group for innovation and technology to help firms meet these challenges. We have 180 members. We want to leverage the best practices in artificial intelligence, machine learning, big data and cyber security. The percentage revenue we receive from technological consulting is one of the highest."
McGrath also sees the technological possibilities changing current auditing models. "The market needs to know more and technology now allows real-time reporting. The model must change with the times."
He cites South Africa as a pioneer in integrated reporting which has expanded the traditional role of auditors and their standard report. McGrath suggests that cyber security has become such an important subject that it may be a good idea for companies to have to report to the market what cyber security measures they have in place so that shareholders and investors can better judge how vulnerable companies are and their degree of capability to withstand hacking.
Delomenie says, "Cyber security is especially hard for small and medium size businesses who are always looking for us to help them with technology. It is a huge market with so much being offered that they don't know what to do. The larger companies are not immune either and there is much that we can do to help them."
The more technological nature of accounting in the 21st century can also help the industry meet another of its major challenges - attracting the best talent and retaining them.
McGrath observes, "Fashions change. For 40 years the desire for accounting as a profession has ebbed and flowed. Interestingly, after the corporate scandals of the early 2000’s and the global financial crisis occurring later, young people again desired to entire the profession, this time looking to do good for society. When you do attract talent it is also difficult to retain it. A bright young accountant who has worked well for five years with a large accounting firm is a very attractive hire for corporations."
A more casual dress code and options for working from home are other ways in which the profession can adapt.
McGrath continues, "Israeli firms I understand are very attractive for young people. I think high-tech consulting is one area that makes the profession more attractive for young people. If you want to attract young people you also need to let them move around the world and provide global training. We at Crowe Horwath have a young leadership academy for accountants from all around the world, which gives them a global perspective."
French-born Delomenie, who spent 15 years in Africa before moving to London 17 years ago, stresses the international nature of Crowe Horwath. "We are very strong in China and the huge Chinese investment in Africa has created a revival of interest for us there over the past seven years. China has replaced the UK and France as the main investor throughout Africa and is helping develop natural resources and agriculture from Ethiopia and Zimbabwe to Madagascar and Djibouti, which is now a Chinese base. China is number one in Africa in developing solar energy."
Despite the geopolitical tensions in the Middle East, Delomenie pays tribute to Crowe Horwath (Israel) for having good relations with the accounting firms throughout the region, even countries that do not have diplomatic relations with Israel.
Ovadia stresses that his Israeli clients are looking to make their global mark. "This is a process that has been accelerating in the past few years with more and more business being done with the Chinese and in Asia and in Central and Eastern Europe as well as our traditional markets in Western Europe and North America. Here in Israel we have a good environment to offer overseas companies with infrastructure, technologies and government incentives."
Published by Globes [online], Israel business news - www.globes-online.com - on August 22, 2017
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