The Future of the Accounting and Legal Professions in China
By Dezan Shira & Associates
Posted: 30th January 2014 09:30
The accounting profession in China and, more generally, Asia, will undergo dramatic changes over the next decade as competition intensifies and business complexity increases, according to the Intuit 2013 Future of Accounting Report. More accounting or tax-related products and services will enter the market as banks, financial services companies, software and Internet firms, and even governmental bodies, innovate and develop new offerings.
According to the report, over the next decade, accounting firms will need to be alert not only to competition from other accountants, but also from consulting and business advisory firms. Using the new accounting or tax-related products and services, these firms will soon be able to provide accounting-related services alongside their current services, encroaching on what has traditionally been the domain of accountants.
The report further highlights that many lower value services and processes, including manual labor, will become increasingly automated or outsourced, either to other companies or even other countries. The cost of labor in China has risen significantly in recent years, and, although typically seen as a threat, this automation and outsourcing can provide new opportunities for businesses poised to take advantage of them. Accounting firms can see an influx of new business as companies look to outsource their bookkeeping and accounting functions, in part or in whole. This can provide a steady stream of revenue for accounting firms.
The Intuit reports states that in the future many accountants will find themselves in new roles, providing consulting (or similar) services rather than the traditional preparation of tax and financial statements. Accounting firms’ (along with law and consulting firms’) advisory skills will be in greater demand, as the business, legal and regulatory environment grows more complex in our increasingly globalized and regulated world. Those firms will have their work cut out for them as they strive to keep abreast of legal, regulatory and economic changes, and may find their compliance workload increased, despite the automation of some compliance processes. Some firms will respond by specializing, which in turn will necessitate greater collaboration between firms, both domestically and abroad.
At the same time, enterprising and resourceful firms can capitalize on the new opportunities that result from globalization. This may take the form of an increased number of clients, as more and more businesses find their in-house resources unable to cope with the changes; or may materialize in an increased workload from a single client, possibly across multiple jurisdictions. For example, in China health care is becoming increasingly expensive and complex, and this, combined with the generation of baby-boomers approaching retirement, may drive growth in health-care related advisory services.
In summary, the Intuit 2013 Future of Accounting Report concludes that the next decade will see:
- Greater automation of low value, or manual processes;
- Greater outsourcing of bookkeeping and finance services;
- Increased complexity in business and regulation, leading to more specialization by accounting and legal professions;
- Increased collaboration among accounting and other professional services firms as a result of that specialization;
- Increased globalization, leading to more demanding compliance workloads but also increased opportunities; and
- A shift in the role of accountants from performing routine tasks into a role providing more consulting and advisory services.
Chris further comments that it is, for example, no longer financially viable to service a simple Representative Office’s account from an expensive office in Shanghai.
“China work will be outsourced to cheaper cities, and software will replace manpower. It also means that the career life of many expat professionals will terminate earlier,” he notes. “We see 55 as the new retirement age for partners of many firms and especially if they are not technologically literate. The claim that expats “have personal contacts” with their clients thus prolonging their careers is a myth. Clients just want their services provided at the least costly and most effective manner possible and information technology will make this happen.”
“Specialization will occur, particularly in China’s own globalization efforts – for example, many firms remain unaware that China has hundreds of international tax and trade treaties in place. Knowledge of cross-border legal and tax issues will become paramount. Firms based in China that are not adapting to this and not investing in new employee talent, internal and external software systems and more global, legal, and tax awareness will eventually die. The message is quite clear.”
Chris concludes that “the development of international professional firms in China can be measured by the fact that FDI into China grew by just over five percent in 2013. If firms did not grow significantly beyond this figure then they are just treading water. Any professional firm with growth of less than five percent last year is already losing market share.”
This article was first published on China Briefing.