Accounting firms continue to expand their legal and advisory services, as well as make technological advancements in both their operations, and client products and service offerings. For example, the Big 4 are active in advising on the digitization of healthcare, enhancing remote and data-driven care.
The quantification of risk in these expanding areas is more uncertain than for more traditional services such as the audit of financial statements. The following sections highlight key trends in legal and advisory services. The impact of disruptive technologies is also discussed.
Leveraging their global reach, the Big 4 continue to grow their legal services businesses. Employing different strategies than traditional law firms - which focus more on high profile legal work, such as litigation - the Big 4 are integrating technology and consulting with law. According to a recent report, the firms are using artificial intelligence (AI) and machine learning to automate more routine legal tasks. The Big 4, which are among the top five best-known alternative legal services providers, are disrupting the legal market and increasing their footprint in the industry. In the U.K., one firm has announced plans to double the size of its legal practice. The firms also continue to form partnerships globally, notably in Europe, Asia and the Middle East, to expand their presence.
In the U.S., the Big 4, which have historically been prevented by bar ethics rules from owning law practices, are growing their legal presence by offering law-related business services. Three of the Big 4 have also formed alliances with U.S. law firms. The Big 4 are not able to directly compete with large U.S. law firms, however, legal industry deregulation efforts in Arizona, Utah and California may change this. Lawmakers in other states, including New York, Florida and Illinois, are also formally reviewing the possibility of regulatory changes with respect to law firm ownership. The American Bar Association has also indicated it is in favor of regulatory innovation that would make legal services more accessible. With a burgeoning legal services market and the increasing complexity of the business environment, some industry experts see the Big 4’s expanded legal services offerings as creating opportunities and responding to new trends in the industry, rather than threatening the traditional work of law firms.
Demand for advisory services is increasing following a pandemic-related slowdown. Areas driving demand include digital transformation and technology, sustainability, business resilience, strategic operations, supply chain management, and mergers and acquisitions. Growing regulatory complexity, including increased regulatory scrutiny around data privacy, has also fueled demand. Firms are employing acquisition strategies to strengthen their technology expertise and offer clients more advanced solutions. At the same time, regulators are moving forward with stricter measures for the separation of advisory and audit, with some firms considering or having already carried out operational splits in their businesses.
Risk managers have identified the rapid pace of digitalization as well as the failure to innovate and meet customer needs as top risks. Artificial intelligence (AI), data analytics, machine learning, blockchain and remote audit techniques have all been identified as “game-changing” technologies in audit. Leveraging such technologies not only serves to improve audit quality and efficiency, but also in finding innovative ways to serve clients and meet their evolving needs. The use of cloud technology has shaped how accountants work, facilitating, for instance, remote working. Yet, as technology gives rise to new efficiencies, it may also generate risk around privacy, security, and the reliability of certain applications.
With the massive amounts of data being generated – estimated at 74 zettabytes in 2021, compared to 1.8 zettabytes in 2011 – demand for accountants in overseeing, managing and ensuring reliability of data is growing. Identified as being well positioned to fill the skills gap in data analytics, accountants are being called on to develop skills in understanding and manipulating data and firms are investing in supporting technologies, such as big data analytics, AI, cloud computing and digital business models and platforms. Firms are positioning themselves to help companies navigate the complexity around requirements over big data, as well as working with standard-setting organizations to develop data governance structures.
The Big 4 have been investing significantly in technology-focused initiatives, as well as pursuing acquisitions of technology companies to quickly expand their capabilities and service offerings. Firms have also been investing in training to increase employees’ digital skills. Strategic acquisitions have strengthened firms’ presence in the digital market and have added digital consultants and technology experts to their talent pools. One firm has opened a technology-focused innovation center where teams work with clients to develop technology solutions for their businesses.
While providing a competitive edge, investments in technology will also be crucial for firms to improve audit quality, an issue concerning the industry following numerous recent high-profile matters. Auditors face the need to re-assess the way they conduct their audits to improve quality, reduce costs and increase efficiency. Emerging audit reforms, such as the more than 200 proposed reforms to audit and corporate governance in the U.K. (that could cost companies an estimated £430 million a year), will place increased demands on firms.
The profession views technology as a method for improving the auditing process – generating better quality data to enhance the decision-making process and producing intelligent tools to ensure successful audits. Experts also view AI as being increasingly able to serve an important role in detecting or reducing fraud. Certain technologies will enable audits to be conducted in real time, rather than at period end, which will allow auditors to flag issues as they arise and provide the opportunity to address issues earlier in the process. In recognizing the impact on audit quality, some firms have announced significant investments in technology. Firms that do not innovate may be at risk of falling behind the competition.
The Professional Services Practice at Aon values your feedback. If you would like to discuss any of the issues raised in this article, please contact Audrey Jenner, Daniel Hacikyaner or Rona E Davis.