2023 Update: 6 Key Drivers for Australian Accounting Firms

Over the past few years, demand for accounting services has kept increasing. In the meanwhile, the Australian accounting industry has been facing critical skills shortages and the ability to catch up with market trends.

The industry is now highly labour-intensive that requires a large number of accountants. Many are seeking offshore accounting workforce to overcome or at least mitigate the situation. Not only that, firms are also raising issues with information security, regulatory changes, leveraging technologies, and more.

Let’s explore top 6 drivers of your Australian accounting firms to find out the current situation facing your accounting business and figure out the right strategies you need.

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Overview of Australian accounting industry (with key statistics)

The accounting industry has significantly changed in recent years. To help you better visualize the current situation, we collected some key statistics that reflect the changes in Australian accounting industry:

Growth rate of accounting services businesses (2018-2023) *Source: IBIS	2.2%
Annual wage growth rate (by 3/2023) *Source: ABS	3.7%
An additional number of accountants required annually (by 2026) *Source: ABS forecast	10,000 accountants

The number of Australian accounting businesses keeps increasing. Over the past 5 years, the average growth rate of accounting services businesses is 2.2% regardless of the effects of covid pandemic and inflation.

Still, as a result of the tight workforce market and high inflation, accounting employers have to pay extra money to retain current staff and attract more talent. If you’re a small or medium player with limited resources, you are undoubtedly under high pressure in competing against larger players in talent war.

Top 6 factors driving your Australian accounting firm

Here are 6 key drivers that shape your Australian accounting firm over the past few years, at present and in years ahead:

1. Data security

In today’s rapidly evolving digital landscape, safeguarding data has become paramount for businesses. Besides digital transformation, remote work and the relative anonymity of cryptocurrency payments have become mainstream which increased 13% more cyber-attack on Australian businesses.

Data security is particularly a concern for accounting firms, especially when engaging with third parties like outsourcing agents.

As the nature of work, your accounting firm holds your clients’ confidential information such as TFN, bank account number and other personal information for tax compliance and advisory services. Thus, the security of your client information and your firm’s internal data places one of the top priorities.

Firms with well-developed data security systems are more likely to get reliability and credibility from clients.

When your firm gets into a data breach or cyber-attack, the confidential data of your clients and your firm is at risk. Below are the common threats facing your firm and client businesses:

Financial loss or damage
Reputational damage
Loss of credibility with your clients
Client litigation

Larger accounting firms usually have well-developed data security system, but smaller firms may have shortcomings.

Building a solid data security system requires significant expertise and the cooperation of every single staff in your company. It’s important to consider data security a core business priority, not just a marketing strategy. Here are some best practices advised by Odyssey to level up your security system:

Establishing security protocols for your staff, partners and clients
Educating your staff on cyber security threats and policies from the onboarding process
Updating latest Australian security tips and policies on your system
Creating strong passwords for all accounts and devices to avoid being guessed
Encrypting all data and documents with strong passwords
Setting up multi-factor authentication
Upgrading your email system by deploying at least 3 email addresses
Using a Virtual Private Network (VPN)
Backing up your data

Learn more: Australian accountants living in a digital age: 3 key cyber skills

2. Staffing practices – high wage growth and continual skills shortage

Most Australian accounting firms are fighting against hiring issues, including continual skills shortages and relative wage rise caused by the high inflation rate and tight labour market.

The number of accounting jobs will increase by 9.2% in 2026 compared to 2021. However, the number of local accountants will be unlikely to meet the growing in-demand accounting market.

For over a decade, Australian accounting firms have been grappling with accountant shortages. This is also one of the reasons why some small accounting firms had to close down their businesses.

The accounting labour situation got worse when the covid pandemic and inflation hit Australia. Prices keep going up, workers need more money to pay for their living.

Large firms have huge resources and are willing to pay a significant amount of money to retain and enchant the best accounting talent with attractive wages and plenty of benefits. Small to medium firms that have more limited resources have to pay the same or even higher than big competitors to obtain qualified accountants.

As managing a small or medium-sized accounting firm, you may have immense pressure on the talent hiring and retaining process. Below are common issues facing your Australian accounting firm in staffing practices:

Shortage of local accountants
Staff’s job mobility to other employers with better wages and benefits
Staff turnover due to “burnout” or change of new industry
Acquisition of skilled and experienced accounting talent
Continuation of adequate resources for staffing practices

In association with the accounting skills shortage, you may have to deal with rising overhead costs, inability to ensure your client’s work quality and growth limits.

In response to the staffing challenges, aside from boosting immigrant skilled workers, many small to medium Australian accounting firms choose to outsource accounting resources overseas.

3. Offshore outsourcing

According to AFR, accounting firms are paying 25-50% less per employee than Australia by outsourcing offshore.

When skills shortage remains to be a critical issue in Australia, accounting firms are seeking offshore outsourcing opportunities to access a larger pool of qualified talent. Asian countries such as Vietnam, Philippines, India, Hong Kong, Thailand are common choices of outsourcing destinations.

One of the reasons for outsourcing accounting work to these countries is that they have enormous labour potential: young, skilled, energetic and abundant. Additionally, countries with cheaper currencies provide your firm with a labour cost advantage.

Non-client-facing positions are typically outsourced. Below are 4 key benefits of outsourcing accounting overseas:

Filling up time-consuming and repetitive accounting tasks
Saving time focusing on core business tasks
Improving cost efficiency, in particular, cut down overhead costs for payroll and other hiring practices
Maintaining resources to retain local staff, hire high-value positions and scale up the business

Engaging outsourcing providers overseas is deemed to offer plenty of benefits, but it also involves some potential pitfalls:

Risk of data security and privacy
Communication barriers due to time and cultural differences
Difficulties in selecting a trusted provider

If you are considering outsourcing accounting work offshore, start with 3 steps:

Step 1: Sort out accounting tasks in need to outsource
Step 2: Decide outsourcing model that works best for your business: ad hoc, fixed resources or fixed job
Step 3: Research and select a trusted outsourcing partner

Finding a reliable outsourcing service provider is one of the most difficult tasks during the outsourcing process. A trusted partner should possess:

A well-developed data security and privacy system to protect your firm’s data
A highly-skilled and experienced team to take on your accounting work
An efficient and agile communication system
Capacity and capabilities of digital technologies to keep your accounting firm stay on the cutting edge

We have some tips to select a trusted outsourcing partner for you to count on:

Tip #1: Consider referrals from someone you know, if possible
Tip #2: Research client testimonials because clients are the strongest proof of a trusted outsourcing partner
Tip #3: Don’t be afraid to take consulting from your selected list of outsourcing service providers. It’s free and gives you great help in making the decision. You’ll learn more about their expertise, attitude and communication chain.

4. Technology Adoption – surge of cloud-based software, AI chat, automation tools

In the ever-evolving landscape of business, technology has become an integral part of every industry. The accounting field has witnessed a significant transformation, as technology continues to evolve and play an indispensable role.

Technology helps your accounting firm streamline workflow, ensure accuracy and improve work performance efficiency. Below are some examples of accounting work that advanced technologies can do:

Real-time reporting, auditing with big scale and complexity of transactions
Data analysis and giving insights
Automation of accounting tasks (for example, data entry, payroll, record-keeping, bank reconciliations, and invoice processing)
Customer services (for example, AI chatbot)
Workflow management

Accounting firms have been enthusiastically embracing cloud-based accounting software, automation tools, and most recently Chat GPT – AI Chat:

Cloud-based accounting software. Cloud-based accounting platforms such as QuickBooks Online, Xero, and Zoho Books have gained immense popularity.

These platforms offer features like real-time data synchronization, automated backups, and multi-user access, allowing accounting professionals to access financial information anytime, anywhere.

Chat GPT – AI Chat. Artificial Intelligence (AI) tools like Chat GPT have revolutionized client communication and support within accounting firms.

These AI-powered chatbots can answer frequently asked questions, assist in tax calculations, and offer personalized financial advice. They improve customer service, reduce response times, and free up human resources for more complex tasks.

Learn more: AI and ChatGPT in Accounting Practice: The Capabilities and Ethical Implications

Automation tools. Robotic Process Automation (RPA) and workflow automation tools streamline repetitive tasks such as invoice processing, expense management, and payroll calculations. These tools reduce manual intervention, eliminate errors, and increase operational efficiency.

Adopting accounting technologies is essential but involves some challenges, especially for small firms, such as:

Data security concerns: With the increasing reliance on cloud-based solutions, data security becomes a primary concern.
Cost and Return on Investment (ROI): Investing in technology tools and infrastructure can be a significant expense for accounting firms such as cost of implementation, maintenance, learning, training and adapting.
Limitations in more complex roles: In some accounting roles, such as analyzing, reviewing, planning, visualizing data require significant expertise and experience that only humans can perform well.
Integration with legacy system: Some small to medium accounting firms may be using legacy systems but the advanced technologies may limit the integration between the systems.

Technology can boost productivity by cutting down certain manual and mundane accounting tasks. But in positions that require brain, manpower is irreplaceable.

5. Service flexibility

Service flexibility in accounting is the ability of your accounting firm to adapt and tailor the services to meet the client’s specific needs. It involves offering a range of customizable accounting solutions to accommodate different unique requirements and business situations.

Accounting customers ask for not just bookkeeping, audit, tax return or compliance review. They may ask for 2, both or even more. With the rising demand for accounting services, your client needs also grow and get more complex. Small businesses are under big challenges to meet the client needs.

To mitigate the situation, partnering with an outsourcing agent is likely a profitable situation. The outsourcing agent can cooperate with your accounting firm to provide your clients with the best solutions.

An outsourcing specialist usually has flexible service types that you can use to meet your clients’ needs. Below are some examples:

A specific accounting task (for example, you can choose either tax returns, SMSF, compliance review or data migration…)
Providing ad-hoc accounting services that you can outsource whatever and whenever you need
Providing fixed resources (a team or individuals) to work for your firm on a specific project in a certain period, and in either full-time or part-time

6. Regulatory changes

As an accounting service provider, you need to stay up-to-date with the latest accounting standards, tax regulations, and financial reporting requirements. You should also demonstrate flexibility in adapting to changes in regulations and adjusting the services accordingly.

Keeping up with the changes helps your firm ensure compliance, maintain the quality of financial reporting, and provide accurate and reliable services to your clients. However, laws keep changing, especially in this industry. The regulatory changes are putting more demands on compliance work.

If you are seeking accounting outsourcing advice, then drop Odyssey a line to chat. And don’t hesitate to consult us for any of your concerns.

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