Digital Disruption in Compliance Practices
Unfortunately for compliance based practices, the technology and digital disruption affecting many industries is starting to impact on the compliance accounting practice. Compliance fees in some practices are starting to fall year in year out, and for other practices basically stay stagnant. In either situation, both of these outcomes will reduce practice principals profits over time. The stagnating or falling compliance fees are the result of myTax, cloud based accounting software and computerised accounting software.
Over 36% of all individual tax returns are now lodged with the ATO through myTax for free. These numbers are expanding rapidly as the ATO focuses on making their online myTax platform easier, simpler and more capable. In April 2016 for example, myTax was expanded to allow sole traders the ability to lodge their tax returns with the ATO themselves for free.
Cloud Based Accounting Software
Currently 25% of Australian businesses use cloud based accounting software and this is expected to increase to New Zealand’s 40% penetration rate over the next couple of years. With cloud accounting the time taken to prepare financial statements by the accountant can be reduced by up to 75%. The New Zealand experience has shown that these efficiency gains have not been kept by the accounting practice, but transferred to the clients in lower compliance fees. For example, in New Zealand in the last twelve years the average annual profit of an accounting practice principal has only gone up $12,000 i.e. $1,000 per year.
Computerised Accounting Programmes
As these are becoming easier and simpler to use more and more small-business clients are now preparing draft financial statements by themselves (so performing work that was traditionally done by the compliance based accounting practice).