A new compliance blueprint reinvents the way practitioners will interact with the ATO.
Technology is driving a wave of change through the accountancy profession, and nowhere is that more true than for accountants working in compliance in public practice. Real-time bank feeds and financial information, cloud-based accounting platforms and improvements in the analytical capabilities of accounting software mean that many of the tasks that were done manually or on paper are being automated.
The Australian Taxation Office (ATO) is aiming to eliminate paper forms and to make it easier to do online tax returns for individuals, and easier for practitioners to send client information.
The expectations of both business and personal clients have also changed – they’re more financially literate and want a service that goes beyond the quarterly business activity statement lodgement or the annual personal tax return.
All this means that in the future there will be less – in fact much less – of the traditional compliance work that has formed the bread and butter for many sole practitioners and small to medium firms.
“It’s important to flag that the need for traditional bookkeeping services and simple tax compliance services will disappear,” says Peter Docherty, former general manager of public practice at CPA Australia.
“Software decision-making technology will be able to do more of the reviewing process.”
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This could be seen as a worrying development for practices that rely on compliance work for their bread and butter. But Docherty says the message from CPA Australia to accountants in public practice is to be alert, not alarmed.
“The practice management software also facilitates the ability to interact with the ATO on behalf of clients.” Nicola Black, ATO
The changes present an opportunity for firms to move away from doing the “grunt” work into advisory services, such as business advisory and wealth management.
The ATO is changing the way it interacts with taxpayers and practitioners in personal and business tax. For personal income tax, the ATO is pushing ahead with its myTax product as it phases out the old eTax lodgement system over the next few years.
The myTax product is easier to use – a simple tax return can be completed in about five minutes compared with half an hour in the eTax system. Another advantage is that it can be used on a phone or tablet, not just on a PC like eTax.
“The idea is to make the tax return preparation as simple as possible,” says Graham Whyte FCPA, the ATO assistant deputy commissioner responsible for myTax, which provides individuals with a streamlined, substantially pre-filled income tax return that they can add to, adjust and submit online.
The ATO will increase the number of available labels in 2014-15 to accommodate taxpayers with medium complexity, for example those with more complex investments in income, superannuation and foreign pensions.
By 2016, the ATO will have retired eTax, and myTax will present a personalised return for the taxpayer to review and complete as required. The ATO says this will include some basic questions and use of available pre-fill data “that will enable the client to easily understand what sections they require for their circumstances”.
About 1 million people used myTax in 2013-14, the first year it was available, and a survey revealed that 83 per cent of users said it was “better” or “much better” than the previous product.
The ATO says 72 per cent of individuals currently use a tax agent, but Whyte doesn’t have a view on how that might change as technology makes the do-it-yourself tax return faster and easier. Nor does the ATO have estimates for the future use of myTax.
In terms of business tax, the ATO is transitioning its tax practitioner services to the standard business reporting platform. It will eventually replace the electronic lodgement services (ELS), which will be retired in 2016.
In standard business reporting (or SBR), accountants can lodge documents and supply information to the ATO directly from their accounting and practice management software.
“It provides a much more interactive and real-time service for tax practitioners,” says Nicola Black, a senior director managing the transition for tax practitioners to SBR at the ATO.
“The practice management software also facilitates the ability to interact with the ATO on behalf of the clients – to update their information, lodge their business activity statements, lodge their income tax returns, and adjust their bank details. As they move to a standard business reporting platform it will happen in real time.”
The ATO has been working on the change with accounting software developers and is making the changes available in three stages. The third stage will incorporate binding rulings and future year income tax returns, and will be finalised by May or June this year so software developers can incorporate it into their products.
SBR should mean a lot less re-keying of data. Combine this with the fact that many businesses are also using accounting software that provides data direct to their accountants, and it looks like there will be much less of the standard compliance work in the future.
A lot of accounting clients don’t place a high value on compliance work, and as it becomes more automated they will value it even less. So the onus is on accountants to articulate to their clients the value that they provide, be it through tax or business advisory or wealth management services, says Peter Docherty.
“It’s all about accountants being aware of what’s happening in the changing marketplace, identifying the need to keep up to date, and actually planning for your practice. It’s so you’re spending more time working on your practice and what the practice offer is, rather than working inside the practice itself,” he says.
“Partners and practitioners have staff to do the work. They need to actually work on what their practice offer is, and what their clients want and will need in the future. They should examine how technology will impact on how the clients actually share data. They will need to identify those great opportunities there are for accountants to actually use that data as a value-added service with their clients,” Docherty adds.
An income tax return can be a good starting point for a conversation with a client about wealth management. A business’s monthly or quarterly accounts provide a set of numbers from which practitioners can draw many insights.
This means looking at the client’s data and analysing it, comparing it to benchmarks and seeing how they can value-add for their clients, says Docherty, who believes communication skills and knowing the client and their vision and aspirations are the most important things that accountants need for this new approach.
“They need to be able to clearly articulate that they are partnering with the client on a shared vision,” he says.
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Most accountants have the same core technical skills, but what separates a great and successful accountant from an ordinary one is usually their communication skills and how they actually engage with their clients.
In fact, more than 65 per cent of clients who leave their accountant do so not because the accountant isn’t doing a good job, but because they don’t feel as if they’re valued.
Ray Cummings CPA of Greenoak Advisory says firms need to focus on their specialist skills. “The hard part and the important part is to decide what you’re good at,” he says. “Rather than making a quantum leap, practices should leverage off what they already know.”
After a career as a tax partner at Pitcher Partners, Cummings has built a successful practice based on tax advisory but not compliance.
He says accounting clients are all trying to reduce their compliance costs by doing things online rather than paying their accountant to do it.
Cummings adds that accountancy firm leaders should tap into their networks of experts to transform their firms into advice practices and outsource those parts in which they have no expertise, be it tax or financial planning.
Case study: The writing on the wall
Jason Cunningham FCPA realised his practice had to change when they did a client survey.
Many clients were happy with the service they were getting from The Practice, as Cunningham’s Melbourne firm is called. But in a surprise to Cunningham, many were not.
Those clients said the firm wasn’t communicating with them, and that they wanted to spend more time on proactive advice and less time on getting their tax prepared.
“We realised that even though we were preaching one thing we were actually behaving like a lot of other accounting firms – most accountants only communicate with their clients when they send them a bill,” Cunningham says.
Cunningham and The Practice partner, Robert Hadded, had seen the writing on the wall for compliance work and had thought they were ahead of the curve in wealth and business advisory, but the survey made them realise they hadn’t done a good job of communicating that broader service offering to their clients or their staff.
“The way we were communicating and the way we were looking at our business was through our eyes,” Cunningham says.
“About three years ago we made the transition, so that rather than looking at our business through our own eyes we looked at our business through our customers’ eyes,” he adds.
It involved changing the staff’s focus from a silo mentality, where they tended to think only about their own roles. Instead, staff were encouraged to think about the overall wants and needs of the customer, and work with each other.
“Some of our guys were really good at compliance, some were really good at business advisory, but we weren’t talking to each other,” Cunningham says. He brought in a business coach to help drive the change and teach those soft skills of client communication. Staff are finding the work and their broader roles more interesting and challenging.
The firm is also taking advantage of the live data that cloud-based accounting systems provide to give the latest financial information to clients who once only had the previous year’s financial reports to draw on.
“We’re getting an outstanding response. We’re helping clients to double, triple the size of their business. Clients are paying us two, three, four times as much as they used to and they’re happy to because we’re adding value.”
The Practice is growing very strongly. It has 45 staff and turns over $8 million a year.
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