Ongoing global inflation continues to impact Australians, Australian businesses and Australian accounting firms servicing business clients. In the December quarter of 2022, the inflation rate had climbed up to 7.8 % – the highest inflation rate since 1990 in Australia.
To give an idea of the likelihood of more serious business conditions occurring, it’s important to understand the ongoing underlying impacts of de-globalisation, along with restructuring of trading routes. Instability exists in the systems, which can be seen from increased unrest in many countries, as well as increasing numbers of travel warnings to previously safe countries. It is more difficult to do business in these challenging times, which means increased costs of units of production.
In early 2023, the Australian inflation rate appeared to be improving, but businesses still have to cope with inflationary pressures arising not only from domestic and international influences, but also worldwide economic instability. This article will explain to you how inflation affects your accounting firm and what to consider.
Table of Contents
5 major problems that Australia is fighting for in inflationary times
Global and regional security. In recent years, the world has witnessed a downturn in the global economy. Covid19, geopolitical tension and inflation are the main causes of the slowdown. When inflation and the lingering effect of the pandemic have started to ease, the global economy continues to face uncertainty.
Countries such as China, the United States, Europe, Japan and even Australia lift spending at home and abroad to protect their borders and interests. These practices are raising issues with global and regional security.
Climate change. Many countries are impacted by climate change, and many more environmental impacts will continue to affect businesses. Many Australian businesses have experienced the impacts of climate events such as heatwaves and bushfires.
In response to climate change, investors, including large superannuation funds are putting pressure on businesses to keep a tight rein on greenhouse gas emissions.
Preparing for and fighting the next pandemic. There will be minor and major ongoing situations and the possibility of government intervention in normal society operations.
The rapid growth of digitalisation. The rise of digital technologies has reshaped the business landscape across industries. Although digital technologies such as Robotic Process Automation (RPA) and Artificial Intelligence (AI) help businesses increase work efficiency and productivity, they can’t replace humans for managing or processing unstructured data in accounting work. Some tasks also require a certain level of experience and expertise that is out of the robot’s capabilities.
Still, the adoption of these innovative technologies leads to a higher unemployment rate due to job losses in certain positions. Correspondingly, the government is in need to improve the social safety net to ease the unemployed financially.
Income and wealth inequality. The higher cost of living caused by inflation and the instability through income and wealth inequality is affecting Australian businesses. When fiscal policies that favour labour and minorities are made, compliance procedures on tax and accounting may change.
All these major problems are inherently inflationary, addressed by Dr Doom – New York University professor and economist. These represent a big shift that governments, communities and businesses are ill-prepared for.
Challenges for Australian accounting firms
Deglobalisation. The geopolitical tensions and prolonged covid lockdown have caused trading fragmentation across countries. Accordingly, businesses are losing the benefits derived from some international trading policies.
China’s recent removal of lockdown restrictions has caused a boom in the supply of Australian products and services to the Chinese market. In such a situation, there will be a sharp increase in tax and accounting work incurred by rising international transactions.
Indeed, the workload already went up during Australia’s post-pandemic. However, the accountant shortage continues to hit Australia over the next decade, which would bring difficulties for Australian accounting firms in hiring practices.
Geostrategic competition. Big countries are raising their competition through national and regional security. During the post-pandemic, Australian businesses are searching for capital to grow, and this requires tax reforms from the government.
Digital revolution. Businesses are accelerating automation with digital technologies such as RPA and AI, and accounting firms are no exception. Recently, Chat GPT (Chat Generative Pre-trained Transformer) – an AI chatbot has been tested in accounting with positive results. The technology is able to analyse large amounts of financial data and communicate with clients in real-time.
The adoption of RPA/AI technologies helps reduce repetitive and time-consuming accounting work but it’s expensive to adopt advanced technologies, especially for SMEs. To some extent, technological solutions optimize the accounting process, but manpower is still needed for a certain level of work.
Decarbonisation. Australian investors, including superannuation funds, are investing their money towards climate-friendly options. It’s advised for businesses to consider trading off short-term goals for business sustainability in the long term.
Australia uses carbon credits to manage carbon dioxide and greenhouse gas emissions. Particularly, several accounting firms are raising awareness of carbon accounting solutions for their end clients.
Key takeaways for your accounting firm’s success
Inflation has disrupted the global economy, and Australian accounting firms continue to face challenges in daily ongoing operations and of the above-mentioned points. It’s likely Robotic Process Automation and AI will have a direct impact on how accountants complete their jobs in the future.
For Australian accounting firm clients, the shifts in deglobalisation and supply chains will create sourcing issues, with climate change creating difficult operating conditions. Legislations are unexpected and keep changing in response to economic, social and political situations. Your business needs to keep up with law changes to ensure compliance.
More and more firms, especially accounting SMEs have opened opportunities to outsourcing services. The talent shortage is no longer a pain point to your accounting business with outsourcing solutions. You can either outsource ad-hoc services or full-time accountants.
If you’re facing issues with resourcing your firm with experienced accountants, or just want to re-tool and re-skill into new areas, then drop us a line to chat.