ICAEW has surveyed managing partners at more than 40 mid-tier accountancy firms, to understand the factors shaping how practices are run.

The research, Evolution of mid-tier accountancy firms, offers an important insight into the perceived impact of new technologies, changing client needs, recruitment challenges and private equity (PE) investment on mid-tier firms.

Launching the report at a Chartered Accountants’ Hall event last night (22 May), ICAEW’s Chief Executive, Alan Vallance said: “This research provides a valuable snapshot of the current landscape and how it may evolve in future.

“Mid-tier accountancy firms stand at a pivotal juncture, posed to capitalise on emerging opportunities and address evolving challenges. By embracing change, fostering strong leadership and leveraging technological innovation, firms can navigate the complexities of the current economic landscape and emerge as strategic partners to their clients.”

Mid-tier split on PE…

When asked what macro trends were shaping the profession, private equity (PE) topped the rankings with 57% of respondents choosing it as one of their top three.

The results revealed that 19% of participating firms felt PE was attractive to them, this was the same 19% of firms had either already secured PE investment or intend to in the next three years. However, attitudes towards PE as part of firm structure were polarised.

While more respondents described PE as a top-three opportunity (12%), than a top-three challenge (7%), concerns were raised by some respondents over investors’ impact on autonomy, client relationships and cultural alignment.

Close to two-thirds of respondents (62%) said that PE was “not [or] not at all attractive” to their firm, with 17% of respondents stating that remaining independent was an opportunity for them.

… but unified on skills shortages

The second most significant macro trend identified by firms was a shortage of talent. When asked specifically about their top-three challenges around talent management, two-thirds (67%) agreed that recruiting qualified staff was one of the biggest issues, followed by retaining those staff (60%). Looking ahead, many firms (43%) also identified ‘future-proofing skills’ as a top talent challenge.

Firms see growth in diversifying

The research also confirms that while accountancy, audit and tax remain at the heart of service offerings, emerging areas, such as tech app advisory and ESG (environmental, social and governance) are gaining prominence. At least 10% of respondents identified ESG and tech app advisory as service lines offering the greatest opportunity for growth in the next three years.

“By diversifying their service offerings, firms can position themselves as strategic partners to their clients, providing holistic solutions that address their evolving needs and contribute to sustainable growth and long-term success,” said Kat Hearn, ICAEW’s Senior Technical Manager, Practice and the report’s author.

Offshoring and outsourcing set to continue

Half of respondent firms confirmed that they have already offshored or outsourced at least one service line, most commonly: accountancy, tax, audit and payroll. For example, close to half (49%) of firms offering audit services already offshore some or all of this work.

Those using outsourcing and offshoring have seen significant increases in the number of chargeable hours this work covers in the past three years (67% and 86%, respectively). Looking to the future, respondents are predicting the use of offshoring and outsourcing to increase and for a broader range of service lines. For example, while no firm offering ESG services currently outsources, 32% said they plan to in the next three years.

Changes to hybrid working

The research also suggests that accountancy firms are looking to readjust staff expectations for working from home following the COVID-19 pandemic. The majority of those surveyed (62%) said that client-facing staff work from home an average of three to four days per week, with one to two days in the office or at clients’ premises.

Looking ahead three years, this position is expected to be reversed, with 64% expecting client-facing staff to be onsite three to four days a week.

Find out more

An overview of the findings and the five key themes that emerged is available at icaew.com/midtierevo.

Here you can also download the full research report and watch a video with two of the participating partners sharing their different views on PE investment into the accountancy sector.