2022 in review: turbulence and resilience abound

When I sat down in December 2021 to pen my predictions for 2022, writes John Edwards, Chief Executive and Group Executive International of the Institute of Financial Accountants (IFA), my focus was on the major trends that would affect the sector. I included digitalisation, the drive for sustainability, AI, cryptocurrency, and blockchain, with the expectation that technological growth would be positive and that market turbulence would begin to settle. Few predicted, however, that by the end of February we’d see Russia invading Ukraine in what has gone on to be a defining event of 2022. This led to a swathe of financial sanctions against Russia, giving accountants additional screening and reporting responsibilities if they knew or suspected that a breach of the financial sanctions had occurred.

I had hoped that accountants would get some respite in 2022, being able to recover post pandemic and then turn their attention to the future and the opportunities that we have as a sector. Instead, we have faced another year beset by new challenges, including soaring energy costs, global inflation, instability in government and widespread industrial action, just as pandemic-fuelled business support was ending. Now, insolvencies have reached their highest quarterly level since the financial crash of 2009, with 1 in 10 businesses describing themselves as at moderate-to-severe risk of insolvency in the coming months. Once again, accountants have found themselves thrust to the frontline of support, offering trusted and much-needed advice for struggling businesses.

However, there has been much to celebrate despite the obvious turbulence. I have for many years been astounded by the resilience and drive of accountants and tax advisers to deliver better business and I am pleased to say that my opinion has only strengthened throughout this year. What’s more, meeting many of our members face to face for the first time in several years, I have been impressed by the levels of determination and innovation being displayed by accountants across the country.

Innovation amidst staffing challenges
At the beginning of 2022 I predicted a major leap in the adoption of technological solutions to streamline and deliver efficiency gains in practice. This has undoubtedly happened, further fuelled by staff and skills shortages and rising wage expectations. What’s been interesting has been the innovative response by accountants to these challenges. We have seen accountants fostering international connections to draw on the resource of qualified professionals operating overseas and a renewed focus on training and upskilling at significant levels. They say necessity is the mother of invention and I am proud of the way I have seen accountants innovate and pivot in the face of yet more upheaval.

A mixed year for regulatory change
It was expected that 2022 would see acceleration in the development and rollout of
legislative change though in reality it has been a mixed year. Planned change has carried through in areas including Making Tax Digital and the Plastic Packaging Tax for example, while progress in other areas has been slow. Significant pressures from the cost-of-living crisis and inflation have seen many 2022 planned projects planned being delayed until 2023 to allow Government resource to focus on much-needed economic management. The recent announcement from HMRC for example, to postpone the digitisation of Income Tax Self- Assessment until 2026 provides the opportunity and time for accountants to continue to get their clients up to speed and to ensure their solutions and processes are in place. Despite this, consultations abounded and the IFA responded robustly to several consultations issued by the Government and others. These included roundtables, written representations, and one-to-one meetings in areas such as income tax self-assessment, tax collection, raising standards in tax advice, anti-money laundering oversight (and how it is funded), and the proposed Audit, Reporting and Governance Authority (ARGA).

A focus on fraud
Speaking to many accountants, concerns over potential client fraud is also at the forefront of my mind. As lenders and insolvency practitioners seek to recover funds provided under the Bounce Back Loan Scheme (BBLS), and HMRC investigates businesses for fraudulent access of furlough support, it is emerging that many businesses have undertaken activities without the knowledge of their accountants. Sometimes, these loans have been revealed to the business’s accountant only at the point of preparing the annual accounts. Common examples of abuse include fraudulent loan claims and the misuse of funds legitimately acquired through BBLS. 11% of the £47billion paid out in bounce bank loans is expected to be related to fraud, equating to £4.9billion. Several businesses have already faced investigation and prosecution, and it’s likely that this will continue into 2023 and beyond as HMRC seeks to recoup taxpayers’ money.

In addition to these emerging fraud concerns, financial loss through fraud remains high, with £4million lost to fraud daily in the UK, according to UK Finance. Green fraud has been cited at £3.5billion per annum according to FTI Consulting, while employee fraud costs businesses around £190million each year through theft. Tight financial controls remain the obvious solution to help alleviate some of this risk, but all accountants in practice must also understand the importance of their role in reporting suspicious activity that may involve the proceeds of crime.

The future of accounting is now
2022 saw cryptocurrency go from the preserve of the tech-savvy to a potentially lucrative return on investment for businesses. It has seen accountants grapple for the first time with understanding crypto accounting and ensuring that opportunistic investment does not fall foul of national regulations. Amid news of the collapse of FTX – an exchange platform for cryptocurrency – it is possible that businesses’ demand for cryptocurrency will slow, at least for the first six months of 2023, but it seems inevitable that it will rebound. Accountants will need to consider how they can incorporate cryptocurrency services as part of their day-to- day offering, upskilling to understand and utilise AI and blockchain technologies to protect client assets.