The benefits of tax certainty in uncertain times

The Second Commissioner, Kirsten Fish, has delivered a speech on “The benefits of tax certainty in uncertain times”. The speech looks at the benefits of tax certainty “through 3 lenses”: managing the certainty/cost trade-off; achieving certainty in disputes; and gaining certainty through transparency and building trust. 

Second Commissioner Kirsten Fish delivers a speech toAustralian Financial Review CFO Live 2024

Tax Office tells CFOs to question their lawyers and accountants

Businesses should learn from the PwC tax scandal by testing the tax advice of accountants and lawyers to avoid being shamed in public about trying to game the system, Australian Taxation Office second commissioner Kirsten Fish warns.

Ms Fish will encourage corporates to engage early and transparently with the Tax Office on transactions, including takeovers, new investments and financing arrangements, when she speaks at The Australian Financial Review CFO Live in Sydney on Tuesday.

 

The big winners as scandal forces big four into retreat

Edmund Tadros Professional services editor

Updated Nov 19, 2024 

Mid-sized accounting firms are the biggest beneficiaries of a surge that grew revenue in their segment of the industry to a record $3.5 billion in 2023-24 – at the expense of the big four firms that are out of favour with governments around the country.

The best year on record for the nation’s mid-sized accounting firms came on the back of an emphasis on core accounting and tax advice services.

Leaders at well-performing Top 100 firms: Steve Meyn of PKF, Tony Schiffmann of BDO and Annabelle Clare of Walshs. AFR

The 16 firms that generated between $100 million and $540 million in annual revenue grew by a collective 26 per cent, or almost $740 million, to an unprecedented $3.5 billion in 2023-24.

At the same time, collective revenue across the big four firms – Deloitte, EY, KPMG and PwC – hit a two-year low, down by $1.2 billion, or 11 per cent, to $9.8 billion in FY24, according to The Australian Financial Review Top 100 Accounting Firms list for 2024.

The decline in revenue at the big four was due mainly to lower demand for advisory services from public sector clients and large corporate clients. The fall in revenue comes after more than a decade of sustained growth by these firms, leaving aside the temporary COVID-19 shock.

Deloitte topped the Top 100 list for the first time on record this year, while PwC dropped to third place due to the ongoing fallout of its tax leaks scandal. It is the first time PwC has not topped the Top 100 since the list was established in 1999. The difficult year for the big four led to the firm slashing partner numbers by 10 per cent, to almost 3100, and Australian staff numbers by 12 per cent, to almost 38,000.

In contrast, the mid-sized firms have benefited as clients move away from the high-fee big four firms, and the more ambitious of this group have busily hired departing big four partners to build up their own advisory offerings, especially around public sector consultancy. Total partner numbers at the mid-sized firms are up by 4 per cent, to almost 1700, and staff numbers are up 7 per cent, to almost 15,000.

BDO, PKF and RSM all continued stellar multi-year runs of double-digit growth. BDO grew revenue by 14 per cent to $540 million, cementing its place as the fifth-largest firm in the country, while revenue was up 16.5 per cent at PKF and 12 per cent at RSM. All figures are based on revenue excluding expenses that are charged back to clients.

The performance of firms that generated less than $100 million in annual fees was mixed. It ranged from the fast-growing Fortuna Advisory Group (up a massive 102 per cent) through to Bell Partners, Revive Financial and LDB Group which all recorded steady or a slight decline in revenue. Only seven firms, including the big four, recorded a fall in annual review.

This year’s Top 100 list showed that firms that reported using artificial intelligence in their operations grew an average of 50 per cent faster than firms that did not report using the technology.

In addition, two-thirds of this year’s Top 100 reported that they are offshoring work, a move pioneered by the big four firms as way to cut costs and deliver work faster. Top 100 firms say they have moved up to 30 per cent of their operations into developing countries such as India and the Philippines.

Double-digit growth at BDO, PKF, RSM

BDO chief executive partner Tony Schiffmann said the firm’s strong performance – the firm grew revenue by 14 per cent to $540 million – was due to sustained demand from medium-sized clients in sectors including property, resources and agriculture.

“The firm’s existing client base remains particularly robust ... additionally, BDO made significant investments and gained market share in the corporate and public sector markets, partly due to the disruption surrounding the big four firms,” Mr Schiffmann said.

In August, the firm became the latest professional services firm to expand into Canberra by poaching two former big four partners to open up an office in the capital. The aim was simple: make a play for Commonwealth advisory work on offer now the public servants are more reluctant to bring in the big four firms.

PKF growth was fuelled by a further push into consulting work, as well as a strategic acquisition, chairman Steve Meyn said.

The firm had “introduced and embedded several new advisory service lines” including advice around ESG [environmental, social, and governance], integrity and risk, wealth transition and digital,” Mr Meyn said. “We also acquired a new mature practice located in Darwin ... We now have a physical presence in every state and territory of Australia.”

Revenue at PKF, ranked 10 on this year’s list, increased by 16.5 per cent to $185 million.

RSM chief executive partner, Jamie O’Rourke, said the firm had also expanded into “non-traditional services lines, including ESG and management consulting” this year and was now taking advantage of artificial intelligence tools to cut operating costs.

”The use of data analytics has been instrumental in our performance,” Mr O’Rourke said. “RSM is in the midst of a massive digital transformation and what we learn from our data analytics has guided our business and strategy decisions to direct RSM’s plans for growth ... we [also] recently launched our 2030 strategy which will see RSM continue to grow at 11 per cent annum.” RSM, seventh on the list, increased revenue by 12 per cent to $372 million.

Other stand-out performers in the mid-sized group include Hall Chadwick (annual revenue up 34 per cent), Kelly+Partners Accountants (up 25 per cent) and Count (up 23 per cent). An aggressive acquisition strategy has meant the listed Kelly+Partners has doubled revenue from $49 million in 2021 to the current $108 million.

Rising stars in this year’s list – made up of the fastest-growing firms formed after 2010 – included InCorp Advisory, which was rebranded from 2022 merger of CharterNet and Rothsay Chartered Accountants. The combined firm posted compound revenue growth between FY21 and FY24 of 51 per cent to $24 million.

Carbon Group posted compound growth between the years of 37 per cent to $45 million and Walker Hill was up a compound 24 per cent to $9 million.

Hoffman Kelly had the highest proportion of female partners (57 per cent, or four of its seven partners), followed by Paris Financial (56 per cent, five of its nine partners) and Synergy Group (46 per cent, 13 of its 28 partners).

The fastest-growing state-based firms included WA-based Fortuna Advisory Group (annual revenue growth of 102 per cent), ACT-based BellchambersBarrett (48 per cent growth), NSW-based Thomas Hopper & Partners (16 per cent growth), Queensland-based Walshs (27 per cent growth) and Victorian-based Alexander Spencer (36 per cent growth.)

Baumgartners had the highest number of pro bono hours per partner of the Top 100, at 194 hours per partner.

Growth through acquisition

Acquiring smaller firms is a common growth strategy at Top 100 firms.

Fortuna Advisory Group, 54 on the list, carried out nine acquisitions and mergers during the year, to more than double revenue to $18 million.

”With over 140 staff members including administrative team and 13 offices spanning right from Karratha in the north to Albany in the south, our footprint [now] covers the entire coastline of Western Australia,” founder and group CEO Dinesh Aggarwal said.

Carbon Group’s growth – revenue was up 61 per cent to $46 million – was driven by a spree of acquiring five smaller firms in a three-month period, said co-founder Nathan Hood. The firm ranked at 29 in this year’s list.

”Through these acquisitions we launched four new offices and had 62 new Carbonites join us,” Mr Hood said.

Vistra, which came in at 47 on the list, merged with Tricor during the 2024 financial year, creating a firm that grew by 16 per cent to $22 million in revenue.

“After years of consolidation and change [the] 2025 financial year will see us focus on growing and expanding our client base and solutions,” managing director Melanie Leydin said.

The firm has made its mark by providing outsourced professionals to clients, allowing them to hire chief financial officers and company secretaries on a “fractional basis”.

Split growth strategy

Other firms, such as ASV Wadeson, had a split strategy. Growth at the firm was “about 50 per cent organic [via existing operations] and 50 per cent via acquisitions,” said co-founder and director Jose Alguera Lara. Revenue at the firm, which offers one-stop shop financial planning, accounting and tax services, was up 21 per cent to $43 million. It ranked 31 on this year’s Top 100.

The robust 27 per cent growth at Walshs, ranked 61 on the list with $17 million in revenue, is down to a multipronged strategy involving ambitious targets, increased marketing activity and a focus on staff retention, said general manager Annabelle Clare.

The aim is to become “Queensland’s leading fully integrated accounting and financial services firm,” she said.

Targets and initiatives include promoting and tracking client referrals, “revenue targets tied to each division [and] service”, a “strategic marketing plan”, tracking the “turnaround times of compliance work” and a suite of “initiatives to drive staff retention, career pathway advancement, and staff development.”