Host
Philippa Lamb
Guests
- Peter van Veen, Director, Corporate Governance and Stewardship, ICAEW
- Sarah Ghaffari, Director, Communities, Business and Practice, ICAEW
Producer
Natalie Chisholm
Transcript
Philippa Lamb:
Hello and welcome to Accountancy Insights. I’m Philippa Lamb. This is your monthly round-up of accountancy news. First today I’ll be discussing the findings of the Post Office Horizon Inquiry’s first report with Peter van Veen, ICAEW Director of Corporate Governance and Stewardship. What are the vital lessons for other companies around culture, values and the risks around legacy systems? After that, mid-tier accountancy firms. We’ll have the ICAEW latest research. How are they driving growth? Where are the biggest challenges down the road? Sarah Ghaffari, Director of Communities, Business and Practice, will be dissecting the findings for us. First though, Peter, good to have you back on the podcast.
Peter van Veen: Thank you for having me.
PL: This as I said, it’s the first report from the Horizon Inquiry. It doesn’t dig into the Post Office, per se, does it? I think it’s more about outcomes, the personal damage, redress.
PVV: Indeed. So that the first report, really in a great amount of detail, outlines the human cost of the scandal and also, to a large part, what has happened or hasn’t happened in relation to redress. So it focuses very much on the human element and on the subpostmasters, which, of course, is right, as victims, that they should be prioritised and that that should be the focus. But as a result, we haven’t had much insight as to what actually went wrong at the Post Office itself, and what one can learn from that, both at a board level and at a management level.
PL: I think we already know, don’t we, that at its hull, all the lessons of business are going to be about risk, aren’t they? They’re going to be about identifying, understanding, dealing with risk.
PVV: What we already know, of course, through the inquiry and through the press and a big, I think, shout out to Computer Weekly, who’s been following and exposing this from as long ago as 2009, we do know a lot about the mechanics and what actually went wrong with Horizon and what has transpired. What we don’t know is why certain decisions were or were not taken, and maybe the inquiry will never quite get to the bottom of that, and we can make some critical questions in terms of what the leadership and the board did or didn’t do as well.
PL: Well, yeah, exactly. Should we start with governance failings? Because I think specifically cultural failures might not be a bad place to begin.
PVV: One of the big questions that is, in my mind at least, is there were no shortage of whistleblowers in relation to the scandal. There were subpostmasters reporting significant concerns all the way back to the early 2000s in terms of Horizon. And those concerns were raised directly with the Post Office and with Fujitsu ICL at the time, and they were ignored, or in many cases, fobbed off, in a way that made it clear that they were more concerned about the organisation than what might be transpiring with the subpostmasters. And there were also certainly a sense that there were some internal whistleblowers, certainly within Fujitsu as well, there were some whistleblowers saying there were some concerns with how things were operating, and again, those were also ignored. And that points to a culture, or a cultural challenge, really, that speaking up was not encouraged, and if there were speaker reports, then they were not listened to. And no, there was no real culture of let’s uncover issues, let’s resolve them, let’s do things the right way, or let’s pick up these issues and tackle them in a constructive and comprehensive manner. There was no sense of any of that.
PL: As far as we can tell, it was perhaps more about the Post Office as an organisation, trying to shift blame away from itself and towards Horizon.
PVV: Yeah, and I think that indicates a fundamental cultural aspect or cultural problem, that you are led effectively by a legal mindset of defending and denying the organisation, or defending the organisation, I should say, and denying that there is an issue, and that seems to be the theme here all the way through, that no matter what the evidence, the Post Office has gone into denial mode and in defending its position, and defending quite aggressively through the courts, its position. And it’s an interesting challenge, because as a former chief hazard compliance officer, my job was to uncover and fix, and you can see with companies that have a culture of ethics and compliance, that their instinct is exactly that on uncovering issues and fixing them, rather than the legal deny and defend reaction. So that is a fundamental kind of instinct that seems to be pervasive here.
PL: Thinking about broad lessons for business here, that raises that huge subject of how companies should manage contractors and supply chains, generally, in terms of the company values and how they flow down that chain, and how they’re actually embedded in organisations outside your own.
PVV: What we’re seeing more and more is that companies outsource critical parts of their business, and in this case, the Post Office was outsourcing that critical part of its business, the running of Post Office, to third parties, to the subpostmasters. And other companies might do that as part of their supply chain. You see this in car manufacturing, that a lot of the R&D has been outsourced, or that the distribution has been outsourced. And the question here is, at what stage does your responsibility as a business end? And I think when it comes to delivering a key service to the public, your responsibility does not end before the Post Office operations itself. The operation of the actual Post Office is part of your responsibility, and not just on a fiduciary level, in terms of pursuing shortfalls in the money, but you have a responsibility to the individuals themselves as well.
PL: Because we’ve seen this in a lot of industries before, haven’t we? Notably, I’m thinking of retail. I mean, a lot of retailers have really been burned about less-than-desirable HR and people management practices further down their supply chains, particularly abroad. They’ve really paid the price for it in terms of consumer disgust when it came to light. We’ve seen it with supermarkets, haven’t we, with farmers, the way they’ve dealt with farmers, and the reputational risks. And the risks are obvious, aren’t they, but it’s interesting that this did not apparently play into Post Office thinking.
PVV: No. And I think part of the challenge you see with the types of companies you’ve mentioned is twofold. One is they are brands that consumers recognise, and those brands can be damaged, and we see this in sports attire, and we know from case studies from the 90s, for example, with very poor practices in their supply chain, in paying people less than a living wage. And those cases really damage those brands for a considerable amount of time. And we see similar things with with some supermarkets that, certainly in the past, there were accusations that they were squeezing farmers to a point of putting them out of business for that margin. And this all comes back to the consumer has a choice. They can go and shop somewhere else. They can buy a different brand. They can go to different supermarkets. With the Post Office, the consumer does not have that choice.
PL: I guess it’s about amplification as well, isn’t it? Because consumers have to know it’s happening, don’t they? And obviously, press coverage was widespread around the things around the sports retailers and the rest that we’re all familiar with, and the supermarkets and the farmers. I think it’s probably easy, is it, for companies like the Post Office to imagine their suppliers are largely voiceless because they’re not recognisable to the consumer.
PVV: Yeah, there is that. And also, once you start talking about quite complex legal cases and auditing and fraud-related topics, you struggle to connect with the public. It’s a really difficult one to explain and get pithy headlines on. Unless of course, if you’ve got child labour in a wonderful dress that you’re buying to go out on a night out, that is an immediate connection with you, and the value you now place in that dress or in that brand has substantially diminished, if not become nil.
PL: And dictates your future behaviour, doesn’t it, as a consumer? So it wasn’t really until the personal stories of the subpostmasters started to emerge in the press that popular interest really grasped what was going on and what it meant to them.
PVV: That’s right. And it is those human stories that really connect with the public and and we also saw, of course, that the ITV drama really then encapsulated and made that into a watchable, pithy explanation for the public. And then people got it. They got exactly why this was a big deal, because the story was being told in a very clear and engaging manner. And that story had been already out there for a couple of decades, almost, you know, 15 odd years. But of course, no one has the time to try and piece together a story like that themselves, and so, really, again, one has to commend the broadcasters for picking this up and really taking the time to tell the story properly.
PL: I mean, I think before we get into the background around that actually, just looping back, you mentioned speak-up processes, it’s probably worth just asking you how you think they should look on the ground in an organisation.
PVV: So in this case, the subpostmasters should really have had access to all of the speaking up, whistleblowing tools and systems as they would be available to Post Office employees. Now, even in the case why they might have had access to that, the key part is, are they being utilised in a way that one would expect those systems to be utilised. And there’s a couple of key aspects to it that make it really clear whether it’s a good system or not. One is, is it clearly signposted? Have you got posters in your staff canteen? Is it right on the intranet or on the website? Is it absolutely made clear that this is available and what it’s for and so forth? The second part is, does this go to a relatively independent individual or team in the organisation that can oversee and triage and make sure that these concerns are properly investigated and escalated where necessarily? And thirdly, what’s really important is that the board has oversight of all of the speak-up reports. And by oversight, I mean they have a complete view and are able to see the patterns. They might not see the individual cases necessarily because of data protection. But they can see the trend. They can see the detail of the cases. For example, the audit and risk committee would typically have a view of that and be able to ascertain whether there is a systemic issue here that needs dealing with, or whether these are just isolated incidences. And I am not convinced, and we’ll have to wait for part two of the report, but I’m not convinced that that happened at the Post Office.
PL: It’s difficult, isn’t it? As you say, communicating these processes, making people aware of them, it’s really important. But there’s the authenticity piece, isn’t there? I think, you know, a lot of organisations, there’s a scepticism about them. They’re seen as performative, these calls for staff to speak up. What really happens? Well anyway, will it damage my career? You know, how anonymous really is it? It’s hard, isn’t it, to build trust around that?
PVV: Well, it is, and that trust can be broken very quickly. So if you think that call is going to HR, if you think that call is going to the legal team, and you know that their interests are not you but the management and defending and denying, you’re not going to use that system. And we also saw a well documented case with Jes Staley, the CEO of Barclays, trying to uncover a whistleblower, and whatever his rationale was, and he was fined for that by the FCA by the way, whatever his rationale might have been for that, it sends a signal to the organisation that it is not confidential and it’s not safe to report something, because the CEO might try and work out who it is and take action. And once people have that perception, that’s pretty fatal for a speak-up system.
PL: Returning back to the Post Office response, it does seem that the board, and indeed, the comms team were slow to respond when this story first emerged, because, as you said, it started brewing decades before it really came to light in in the full glare of the public eye, and it emerged in a trade magazine, a very authoritative trade magazine, and no one on the board seemed to take any notice of that, and even when it got into Private Eye, not a lot happened, did it?
PVV: That is a mystery to me. I mean, the IoD, Institute of Directors, commented in their piece on this that their conclusion was that the board lacked curiosity. And maybe that’s true, or maybe that’s a generous interpretation. Maybe they knew exactly what was going on and made a made a decision not to take action. We wrote on some lessons for boards as a result of this, and I think really it is about one: making sure there is the right culture and environment on the board to challenge and to ask questions, because not all boards encourage that, or certainly not all chairs encourage that, and then asking the right questions. You know, what is happening? If you’re reading things in the press, you should be asking and challenging. What is this? What’s going on? What are you doing about it? You know, are you on top of the right risks? Have you got a map of all the relevant risks? And clearly, Horizon was a significant risk. And the question is, was that on the risk register for the boards to look at and discuss or not?
PL: It does slightly make you wonder whether boards are a bit over-obsessed with national broadsheet and broadcast media. So is it on the front page of the FT? Is it on the TV? Without fully understanding the power of media like the trade press, which speaks to expert audiences, obviously, and things like Private Eye, which talk to Westminster as an audience. And of course, we might have expected a response from Westminster.
PVV: And of course, the Post Office, being a public owned enterprise, you would think the connection to Westminster interests and the interests of the board of the Post Office would be fairly well aligned. And clearly that wasn’t picked up.
PL: Do we know when questions were first asked? Because obviously, government was a stakeholder there.
PVV: MPs started asking questions some time ago, and we’re talking, I think, about 10-odd years ago already, and it was a couple of MPs who, and I don’t have their names to hand, who really persisted with this.
PL: But we don’t have outcomes yet.
PVV: We don’t have outcomes yet. No, no. And I think there’s a couple of lessons from this, though. One is trade press can be extremely long term in their taking on of cases, and be very, very persistent in working on those stories, unlike daily news. And the same goes for MPs. If an MP feels that that is something that is affecting their constituents – and that is how it got to the attention of a couple of the MPs – and it was a cross-party, by the way, picked up by, I think, both a Labour and a Conservative MP, if I recall correctly. So these things will carry on. And so the questions for me and the one you posed, of course, is, why didn’t the company act sooner? Why did the board not act sooner and challenge the CEO and the leadership on their approach to the situation?
PL: And Westminster, of course. I mean Post Office, by no means, the only public interest body that they’re stakeholders in. Does it raise any anxiety for you about what other questions they might not be asking of other organisations?
PVV: I think there are a number of questions that no doubt the UK government investments, who oversee all the state enterprises, would have asked. There are quite a few. And some of them are household names. Others are not. Royal Mint, National Rail. I mean, there’s a number of things that they look after, and they all sit, they have directors who all sit on these state enterprises. And the question is, are they looking beyond the numbers? Are they challenging also the culture? Are they creating and also encouraging other directors to really challenge and ask the right questions and to make sure they have the right information to make decisions?
PL: And it is a fascinating subject and a big one, but time is pressing, and I want to ask you about legacy systems, certainly, because Horizon, I think, was pretty much the definition of a legacy system, wasn’t it? And I know you’ve written about it, do you want to just give us a potted history of Horizon?
PVV: I think what a lot of your listeners may not be aware of, or perhaps by now they are, is that Horizon didn’t start off as Horizon. It started off as ICL Pathway. And ICL was the forerunner of what’s now called Fujitsu UK. It was an independent company. Fujitsu made an investment in that. Pathway was developed in the 1990s – we’re talking a good 30 years ago – to basically computerise benefit payments through the Post Office for the Benefits Agency. And there were lots of issues with this original Pathway system, three years late, hundreds of millions of pounds over budget, and the Benefits Agency at this critical decision moment said that they’d lost confidence in the system because they felt the results were not consistent and accurate enough to process payments through the Post Office.
PL: So even at the outset, it was perceived as flawed.
PVV: It was flawed, yes. And this is all gleaned from parliamentary reports, by the way, in the public domain. So this is not privileged information. This is, this is all public information. So there was a couple of issues that came out of this. One is that ICL, which was due to be listed, could no longer be listed because it had a financial catastrophe facing it, so Fujitsu built it out, and effectively it became Fujitsu UK. The government had invested hundreds of millions of pounds in a system that wasn’t working. And so the solution was to with Royal Mail at that stage, because the Post Office was not independent, was to create a long-term contract and to repurpose ICL Pathway as the Horizon system for processing general payments through the through the Post Office. And of course, when the Post Office spun off from Royal Mail, or was spun off from Royal Mail, then all of that came with it, the long-term contracts being tied into Fujitsu, and this system, which was had a somewhat chequered history.
PL: Patchwork springs to mind, doesn’t it? I would imagine it shouldn’t have been a surprise to anyone that there might have been problems.
PVV: No, and this is the big surprise, because you would think that the board members would have been aware or expecting that there were issues. And once reports started arising that there were issues with Horizon, that should have instantly put red flags on everywhere, saying, okay, have we, have we got a legacy issue here, or is this something else? And how are we sure? And how do we get certainty on that? Because Fujitsu is not motivated to tell you all the issues with their system. In fact, Fujitsu maintained, until not very long ago, that there was no way for it to access the subpostmasters’ accounts and to manipulate them. And of course, what transpired through the inquiry is that, not only did they do that, but it was known to the Post Office that that was a possibility, or at least to some of the Post Offices, that was a possibility.
PL: But we don’t yet know what questions if any of the Post Office board asked about this when it first happened?
PVV: Well, that’s right, it’s very hard to believe that it did not come up in board meetings, because, you know, about 10 years ago, there was sufficient groundswell and sufficient noise, and, of course, questions at Parliament and it being covered by a number of publications, that if it wasn’t on the board agenda, then you really have to ask yourself what the board were doing.
PL: Thinking more broadly, again, just to conclude, legacy systems, of course, they are everywhere, aren’t they? I mean, we’ve had very tough economic times for a long time now, there must be plenty of make do and mend across organisations of all sorts.
PVV: It’s a hidden issue. It’s a significant issue. For example, in 2021, and I’ve struggled to find more up-to-date numbers on this, but 2021, the government’s IT budget was about £4.7bn, and about half of that was allocated to keeping legacy systems running. And they projected at the time that that could increase by as much to £22bn over the following five years to maintain these obsolete systems running. And that’s just the government. But of course, you know, there are lots of legacy systems in financial services and other places, and there are a couple of issues with this. One is not just a question of cost, but also capability, because these systems were often developed in the 90s or earlier. They were developed at a time that programming was very different. I certainly know when I worked at Anderson Consulting that we would have teams of 250-300 people coding billing systems at one time, and that doesn’t happen anymore. The coding languages are different. Now it’s object-oriented, or even other types of – I’m sure AI is being used now to write code – but it’s much smaller teams, and so maintaining modern systems requires less effort.
PL: But people know how to fix them?
PVV: Well, that’s the problem as well, because no one’s training anymore on how to maintain these all the systems, because no one’s programming in that way anymore. And so there are, there are people who are still maintaining these systems, who learned their trade in the 90s or 80s, but they’re also a dying breed because they’re retiring. And what we saw, for example, in the Netherlands, one of the Dutch insurers had to coax programmers back out of retirement, as it could no longer find them in the open market, and it went so far as to say that there was a risk that the core payment systems in the country could effectively collapse if this shortage of programmers wasn’t addressed structurally. So these are real big issues.
And if you’ve got your entire, if you’ve got legacy pension books on old systems, if you know, are the board cognisant of these issues, and there is a finite lifespan for these legacy systems, because at some stage you will no longer find the programmers, you will no longer find the hardware to maintain this. And is there a route – has your chief technology officer mapped out how you’re going to transition onto a more modern system, and what, what, what the costs are before you fall off the cliff edge, and what the risks are in maintaining and keep these systems running? And how do you deal with issues that these systems throw up? Because they will throw them up, and they’ll throw them up and they’ll require manual patching all the time.
PL: Do we know, just to close, when the next Post Office Horizon Inquiry will report?
PVV: No, I think the expectation is it won’t be until next year now, but we are waiting on the edge of our seat to see what the second part brings, because I think this is where we will get some answers to some of these questions as to who knew what, when and why they did or didn’t do some of the things that we’ve been talking about.
PL: Absolutely come back and tell us about it.
PVV: I look forward to that.
PL: You’ve given us a lot to think about, Peter, thank you very much indeed.
PVV: You’re welcome.
PL: Sarah Ghaffari has joined us. Hello, Sarah. You’re Director of Communities, Business and Practice. I know you’ve been working on this mid-tier research. What was the plan? What were you hoping to find out?
SG: So we hear from our members regularly the challenges, the opportunities, what’s happening at the coal face, but what we felt we didn’t really understand and get under the skin of was what was happening for our mid-tier firms. So ICAEW has about 11,000 firms. We have the Big Four. We have thousands of smaller firms and sole practitioners, but then there’s this cluster of 100 or so firms that sit between the Big Four and these much smaller firms, and they’re a really important part of the sector. They support SMEs up and down the country, PLCs. Really important that we get under the skin of them, and we hear and we read in the press things like private equity, the talent challenges within the profession, ESG, technology. So we wanted some data and some evidence to really tell us what was happening for these members so that we can shape and refine our support to make sure that we’re enabling them to support their clients in turn.
PL: Before we get into the nitty gritty, what really struck me was just how different your findings were this year from last year.
SG: I know it moves so quickly, it’s fascinating.
PL: Tell us what’s different.
SG: So with our first piece of research last year, the kind of headline was really about the talent challenges, and we hear a lot about the attractiveness of the profession, particularly audit, not being as appealing as it once was. So, many of our firms start as audit firms, and they’ve grown and they’ve become multidisciplinary firms over the years, offering so many different services. But really what struck us last year was the challenges in terms of recruiting and retaining qualified staff and keeping them once they trained, keeping them within the profession, because they were seeing that, you know, I could go and work outside of practice, less hours, more remuneration, maybe more attractive work-life balance?
PL: Yeah. We talked about this on the podcast, actually, yeah. But now?
SG: That’s really softened this year, actually. So talent wasn’t one of the top challenges, but when we talked about talent, the issue that came up time and time again was actually around upskilling and access to skills, so certain skills – because, as I say, things have moved on so quickly. We’re moving away audit still a very important sector and workstream for us, but things like, how do we use data within our work to support our clients? Do we offer ESG services? Things like cryptocurrency, blockchain, all of these new, emerging things that are happening? We need to make sure that our firms have got people with the right skills to be able to address the accounting, tax treatment, reporting challenges of those things.
PL: So what was the number one challenge they came up with?
SG: The number one challenge outside of when we put talent to one side, was actually private equity, and the impact that private equity is having on the profession. That was seen as the biggest macro trend.
PL: Interesting, because I think is it one in four firms have already taken private equity funding?
SG: Absolutely. So from those firms that we surveyed, one in four have already taken private equity. Traditionally, our firms would look for contributions from partners, so that equity finance is very much an internal source of funding. But now we’re seeing more and more of this openness to external sources of funding, private equity being the most prevalent at the moment, and we said in the next three years, how many firms are likely to take private equity funding for the first time, or maybe a second or third round, and that was a further 25%. And when we asked that question last year, it was only 12% looking to take private equity in the future. So it really is growing.
PL: That is so interesting, because I think looking at the numbers, nearly half of them who had completed an acquisition that was just in the last year alone.
SG: Yes, exactly.
PL: It’s really moving fast.
SG: It’s a really dynamic market, and there are mergers as well, but it seems that every day you open the press or go online, there’s another acquisition. And that’s important, because for us as a profession, the market’s going to look completely different in five years’ time. As I said, we have 11,000 member firms at the moment, but fast forward five years, we might have fewer firms, much larger in scale, and that will mean our support needs to adapt to serve those firms as well.
PL: So for most of them, the reason they’re doing it’s about growth, client acquisition?
SG: Absolutely. So private equity, it’s really an enabler for growth. So looking at making those acquisitions so that they can access the skills that they need go into new geographical areas, new service lines, new offerings. So it really is about that growth ambition that they’ve got.
PL: The other big issue was succession planning, wasn’t it, as a reason for doing it? Difficulties with succession planning. What are they specifically?
SG: The profession is very much that sort of triangle, pyramid, if you like. So you come in at entry level, and you work your way up through the firm, possibly to partner. But what we’ve seen coming through the research these days is that Gen Z and newly qualifieds don’t particularly value that career progression in the same way that we might have seen historically. So they’re looking for a different work-life balance. They don’t necessarily want to progress to partner. Some of that might be because of regulatory challenges and pressures that they would face at that level. Some just find that it’s not the career path they want to go down. So that funding, then, isn’t necessarily there, because there isn’t that pool of candidates to go through to partner and contribute. So they’re having to look externally.
PL: But looking ahead, that’s a real issue for the profession, isn’t it? Because if you don’t have a cohort that wants to progress to senior roles, that doesn’t want to take on those really significant responsibilities, that’s a problem.
SG: It’s going to change the dynamics, and it will be interesting to see how the firms adapt to this. But I think that’s really important, that the firms are very adaptable. They are used to dealing with these challenges. But it will, it will shape the profession in terms of, if you think about a firm that now lists and you have a conversation with a firm, ICAEW as a professional body, if we say to our firm, how’s business, how’s it going, you’ve got client sensitivity, what do you do with that knowledge? So for us to build relationships with our firms, the dynamics are now going to change, because that’s market-sensitive information, so it just opens a whole host of questions.
PL: Do you feel that the increased scrutiny on partners is part of the reason that this younger cohort, are thinking, I don’t want that.
SG: That’s definitely what we hear anecdotally. It didn’t come through specifically in the research, because the research was aimed at managing partners. But when we talk to younger members, they say, why would I want that pressure? Why would I want that hanging over my head, the possibility of being named in the press and taking that personal accountability? It’s just not something that many people would say is attractive. ESG also came through in the report: 36% of the firms that we surveyed currently offer ESG services, and largely that’s advisory work, but nearly half of our firms said that they are likely to offer ESG services in the next three years. So that’s quite interesting as well. So you can see where your peers are going with their service lines, which ones are set to grow, which ones are remaining static as well, and where other firms see the value. Although, interestingly, since we did the research, that’s actually softened slightly as well now, because client demand has dropped off a little bit, there have been certain changes to regulations coming through from the EU, which means now ESG maybe won’t move forward as quickly as quickly as we had anticipated.
PL: Really? I this a bit of a trickle down from Trump and the policies in the US now and the fading appetite?
SG: Yeah, quite possibly. We have had some new policy in the UK just released, which is being consulted on at the moment, so that might again ramp up the appetite a little bit, because, of course, where there’s regulation, there is a need, but until that is set in stone, it’s more of that kind of watching brief. If there’s demand, some firms are saying, we will try. Others are saying, not until it’s mandated.
PL: So that’s one to watch next year.
SG: Yeah, absolutely.
PL: AI is obviously the big topic everywhere we know the Big Four are leaning into it. They have the resources, they have the commitment to do it. What about the mid-tier?
SG: So the mid-tier definitely has appetite for AI, but I think rather sensibly, what the research shows us as well is that they are getting their house in order first. So things like cyber are really important. So we’ve seen the recent case with Marks & Spencer, for example, so I think the firms are saying, actually, we need to make sure we have clean data. We can use that data to do value add work for our clients. Our data is safe and secure. AI, absolutely is there, and there is intrigue. I don’t think we’re quite ready to take the steps yet. It’s a kind of wait and see. Which service line should we do first? Could be tax, could be some audit compliance work. What will be the impact on those different levels of staff? So normally you would have more junior staff, and we’ve seen, again, in the news, the Big Four changing their student intake numbers to make more of AI. So it’d be interesting to see, then how that filters up through the firm, because you’ll need somebody to review that work, that the AI that the Tech has done, but those people will need those base skills themselves. So it’s really important, even if you are using technology, you’ve got to understand what the technology is doing and be able to interrogate it.
PL: But the mid-tier are positive about the reality that AI is going to be a big part of their business. They’re just not actually putting it into practice yet?
SG: Absolutely. So we’re seeing it being tested in smaller pockets in certain areas. Audit’s a really common example, where AI will be used, but also, outside of the client-facing work. I mean, for things like job specs and marketing. think many organisations are dabbling in that regard…
PL: But it feels lower risk?
SG: Exactly.
PL: Yeah. I mean, risk aversion must play into it. It’s a big step, isn’t it? Are they perhaps looking for a playbook, more of a playbook, an industry-wide playbook on how to do it?
SG: I think so. I think learning from the Big Four is something that the mid-tier would like to benefit from. Obviously, there are sensitivities around that and what information is willing to be shared, but yeah, some sort of playbook, which says this is how we approached it. It’s a real nice sense of a community within the mid-tier. The firms lean into each other and learn from each other, and that’s the beauty of ICAEW as well. We bring the firms together to convene so that they can share those stories and kind of approach it together.
PL: It’s hard to see the margin from the Big Four’s point of view of sharing their own forays into AI, but you do wonder, if there won’t be consultants coming out of the Big Four, I think we’ll see a market for teaching them a tier. SG: Absolutely. I think there’s a big opportunity there. PL: Tell me what the plan is for taking these findings forward. I think obviously, as you said, ICAEW will bring this knowledge into your own strategy.
SG: Not only is this research really helpful for the mid-tier, but for smaller firms as well, because those are the ones that are going to be acquired by these larger firms taking private equity. So they’ll be really interested to see how much private equity is there out there, and is my firm going to be impacted by that? And what does that mean? So it’s really interesting for small firms, it’s great for us as an organisation, because it means we can really hone in and tailor that support that we’re offering, but just maintaining our relevance as well, because we want to be that professional membership organisation and the firms get value from and that we can lead and affect change, we can feed their views into our policy work that we’re doing, and have a real impact.
PL: And I’m guessing that the firms themselves, they’re going to use it as a tool, aren’t they, because now they know what the rest of their segment is up to and what they’re thinking, so presumably they can benchmark against it, so they can say, Well, we think we’re here on the technology curve. Actually, everyone else is up here, so we need to do X, Y and Z, and how are we going to get there?
PL: Just finally, Sarah, where can people find the research?
SG: So the research is on our website, icaew.com.
PL: Okay, we’ll put a link in the show notes. Thanks very much, Sarah.
SG: Thank you.
PL: That is it for today, and the podcast will be back soon with a special episode meeting the government’s newly appointed Small Business Commissioner Emma Jones. ICAEW Chief Policy and Communications Officer, Iain Wright will be interviewing Emma to hear her thoughts on supporting the UK’s five and a half million small businesses. And finally, remember you have actually been doing CPD by simply listening to this podcast. So remember to log your lessons on the ICAEW website. Subscribing is, of course, the way to make sure you never miss an episode, and you can do that on any podcast app. Thanks for listening.