2022: recovery or relapse?

In 2022, global tax changes, audit reforms and an increasing focus on environmental, social and governance (ESG) reporting are set to dominate the accountancy sector’s agenda as the world’s economies battle inflation, rising interest rates, struggling supply chains and soaring energy costs amid the continuing fight against Covid-19 variants.

And to cap it all, just as the accountancy profession needs more people than ever before, evidence is growing of talent wars and increasingly large pay packages as staff turn their backs on their current employers; the so-called Great Resignation in some markets is forcing organisations to re-evaluate and redesign how they recruit and retain their people.

All in all, 2022 is set to be one of the most challenging years, but also one that will offer many opportunities for those prepared to adapt to a new working world.

Big picture

The spread of the Omicron variant of Covid-19 has thrown a hefty spanner into global economic recovery hopes. This, allied with rising energy costs and the spectre of inflation, is likely to put a brake on economic growth.

As late as November 2021, thinktank Oxford Economics was predicting that diminishing economic disruption and uncertainty, stemming from the pandemic and ensuing supply-side bottlenecks, would bode well for recovery globally in 2022. It expected GDP growth across emerging markets and advanced economies to be remarkably similar to 2021, while advanced economies looked set to perform relatively better.

However, the latest reading of Oxford Economics’ Global Business Sentiment Index indicates that the Omicron variant has added to pessimism, with businesses expecting world GDP to remain materially below the level anticipated prior to the pandemic.

The unevenness of any recovery is also reflected in the OECD’s economic outlook report, published in December 2021. While output in most OECD countries has now surpassed its late-2019 level and is converging on its pre-pandemic path, it reports that lower-income economies, particularly those where vaccination rates are low, are at risk of being left behind.

As Laurence Boone, OECD chief economist, says: ‘Striking imbalances have emerged. First, there are marked differences in the recovery across countries, reflecting national health conditions, the policy mix and sector composition. Second, acute labour shortages are appearing in some sectors, even though employment and hours worked have yet to fully recover. Third, a persistent gulf between supply and demand for some goods, together with higher food and energy costs, has led to higher and more enduring price increases than expected.’

In short, the global economic picture in 2022 is likely to be ‘mixed’ at best.

Audit reform

This year will see the implementation of International Standards on Quality Management (ISQMs), created by the International Auditing and Assurance Standards Board (IAASB) (see AB’s interview with IAASB chair Tom Seidenstein). The 15 December deadline will keep audit firms busy this year; this is particularly true for the global accountancy networks, which will be working to ensure that a consistent approach is adopted around the world.

As Big Four firm EY reports in its latest Global Audit Quality Report, ‘While the effective date of the standard is December 2022, the EY organisation has already taken many steps to improve its system of quality management (SQM). The EY organisation’s approach is to implement an SQM that is consistently applied across the entire network of member firms. This is especially important in a global economy where many audits involve other EY member firms.’

In the UK, the audit profession is still patiently awaiting the conclusion of the government’s review of the market. The results will have a global impact, as London remains one of the most significant capital markets in the world. It is hoped by all those involved that 2022 will see a clear set of rules that govern the market, and indeed the purpose and scope of audit.

Shared audits remain on the agenda, though there is speculation that proposals similar to Sarbanes-Oxley legislation, forcing company directors to take greater personal responsibility for the validity of company accounts, could be quietly dropped.

Recruitment concern

Recruitment and retention will figure large across the profession in 2022. According to recruitment consultancy Robert Half, 56% of CFOs globally think it will be more challenging to find skilled candidates in 2022 than before. Retention is front of mind for CFOs, with 93% ‘somewhat to very’ concerned about their ability to keep top talent in their ranks.

In the UK, demand for finance professionals has accelerated rapidly in the wake of Brexit and the pandemic, reducing the talent pool and establishing a ‘cutthroat market’, Robert Half says in its latest salary survey. In the US, the consultancy says that addressing digital transformation and skills gaps is driving hiring in finance and accounting in 2022.

Filling in the tax cracks

Some 137 countries have now signed up to the OECD’s landmark agreement on global corporate tax rates, implementing a minimum 15% corporate tax rate and measures to redistribute excess tax from ‘super-profits’ (read the AB article).

The OECD has already released draft guidance for how national governments can put in place the necessary legislation. Draft guidance on the first pillar of the agreement (redistribution of taxing rights) is expected early in 2022.

With 2023 inked in as the year of enactment, 2022 is set to be busy for global tax authorities and advisers alike.

Sustainability

At the same time, 2022 will see further developments in assurance work covering ESG issues. Last year’s creation of the International Sustainability Standards Board (ISSB), part of the IFRS Foundation, will pave the way for a more consistent approach to corporate sustainability disclosures. The IFRS Foundation will complete consolidation of the Climate Disclosure Standards Board and the Value Reporting Foundation, which houses the Integrated Reporting Framework and the SASB Standards, by June 2022.

In the meantime, the foundation has appointed Emmanuel Faber – former chair and CEO of Danone – to head up the new board. Faber’s first task will be to organise the ISSB’s first public consultation, which will seek feedback on a proposed general disclosure requirements standard and a climate disclosure standard, expected to be published during the first quarter of 2022.