Accounting and law THE ODD COUPLE

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1 Accounting and law THE ODD COUPLE Accountants and lawyers are getting together on multidisciplinary projects and in multidisciplinary firms. George W. Russell reports on how they re getting along Illustrations by Tree Tree Tes 26 June 2012

2 Are accountants and lawyers a marriage made in heaven or hell? It s a metaphorical union that will raise a smile from those in both professions, but one that may soon be put to the test in England and Wales, where legislative changes mean the two professions might start practising together in multidisciplinary firms. Before the Legal Services Act 2007 came into effect in October 2011, lawyers there could only practise law as sole traders (solicitors or barristers), partners in firms, or an employee providing legal services to an employer. Now, they are able to practise in socalled alternative business structures, which can add non-law services such as accounting to their practice and have non-lawyers in professional, management or ownership roles. It opens up the possibility of British professional service super firms. The change has led PricewaterhouseCoopers in the United Kingdom to explore fully meshing PwC Legal with its accounting unit. On the other side of the coin, Irwin Mitchell, a London law firm, announced in January that it had hired Glyn Barker, a former PwC vice chairman, as its new chairman, signalling a push into accounting services. A survey released in February by London accounting firm Smith & Williamson showed the trend is speeding up. The firm surveyed 126 of the top 250 law firms in England and Wales and found that one third were interested in merging with a non-law practice in the next two years. We could see a number June

3 Accounting and law of mergers with their equivalents from the surveying or accounting fields, says Giles Murphy, a professional practice partner at Smith & Williamson. Super firms Multidisciplinary firms are not new. In Germany, multidisciplinary firms have provided law and accounting services since the 1940s. Most provinces in Canada have allowed multidisciplinary practices progressively since the late 1990s, although they remain under the control of lawyers. South African lawyers and accountants voted in favour of allowing multidisciplinary practices a decade ago, and several professional firms, such as Germany s Rödl & Partner, have had Johannesburg offices since More jurisdictions are yielding to the trend. The legislative changes occurring in England and Wales are being echoed across the sea in Ireland, where the similar Legal Services Regulation Bill is expected to pass a parliamentary vote this year. And in Australia, where multidisciplinary practices have been permitted since the Legal Profession Act 2004 was passed, accounting firms are bolstering their legal capabilities at the expense of law firms. It has clearly become a growth area for the Big Four, says Michael Bersten, head of the tax risk practice at PwC in Sydney. Last year, KPMG in Sydney introduced its Australian tax dispute service, hiring a well-known barrister, Jeremy Geale, to lead it. This year it appointed Matthew Stutsel, a partner from the Freehills law firm, to a senior tax role, while Ernst & Young hired Sue Williamson, a partner with law firm Clayton Utz, to head its tax team in Melbourne. The changes have already had startling results: accounting firms, not law practices, represented a number of companies, including Australian airline Qantas and Italian eyewear maker Luxottica, in recent court victo- 28 June 2012

4 But it s the safest way ries against the Australian Tax Office. Over the next few years, I believe we will see the Big Four accounting firms much more prominently involved in the legal marketplace, says Richard Susskind, professor of law at the University of Strathclyde in Scotland and author of The End of Lawyers? published by Oxford University Press. Susskind says lawyers have stood by idly while accountants have taken the initiative and ramped up their services to clients. I stand by the view that, if law firms do not modernize, then accounting firms will capitalize on the market opportunities, he says. Clients are looking for better, cheaper, more imaginative legal service providers. As a result, Hong Kong lawyers remain cautious about multidisciplinary practices, but have noted that the city s law firms may be getting left behind by accounting firms. The question now is whether Hong Kong is going to sit back and relax while multidisciplinary practices are all the rage elsewhere, former Hong Kong Law Society President Huen Wong wrote recently. Accountants [have] been actively stretching beyond their traditional scope of accounting and auditing services to cover a diversified range of consultancy work including tax, mergers and acquisitions, business recovery, capital markets, risk controls, visa solutions and human resources. Despite the legislative handicap, Hong Hong Kong Kong lawyers and accountants already work In Hong Kong, the rise of multidisciplinary together in myriad ways and say it s a benefipractices has been hampered by a legal re- cial relationship. CPA firms and law firms striction. Hong Kong legislation prohibits have been working closely with and cross solicitors from sharing profits with those not referring clients to each other, says Franqualified in law. ces Chan, a Hong Kong Institute of CPAs June

5 Accounting and law member and a director of KCS, which provides corporate secretarial services. It is a good thing to consider things from both legal and accounting perspectives before giving advice to clients. PwC Legal, the most prominent Big Four law services arm globally, doesn t operate in Hong Kong. Our firm does not provide legal services either through its own members or in conjunction with an external law firm, says a PwC spokesman, although its website offers solutions to a range of legal matters such as employment and immigration law and corporate secretarial services in Hong Kong and China. Accounting-law tie-ups don t have a happy history in Hong Kong. Kwok & Yih was the last law firm to join Andersen Legal in 2001, months before its demise along with the rest of Arthur Andersen s empire. I m personally in favour of multidisciplinary firms, says Kwok & Yih cofounder Larry Kwok, now China managing partner of King & Wood Mallesons, a large law firm. Heaven or hell? Some in the field have pondered whether someday we might see a full global merger between a Big Four accounting firm and an international law firm. There are a number of challenges to that happening and one of them is conflicts of interest, says Jeremy Black, a partner in Deloitte s professional practices group in London. I think you would get into a position where you were precluded from acting for quite a large number of large companies because either you were doing legal work for them or doing audit work, he adds. That would make life difficult. Accountants and lawyers don t necessarily get along under one roof, experts say. Historically, integration of accounting and law haven t always been successful, largely because of the fact that the professions have a different cultural and behavioural heritage, says David McCleery, a member of the Institute of Chartered Accountants in Australia and executive director of MCP Group in Melbourne, a multidisciplinary firm. I find that ethical calls in accounting can be more subjective, he explains. The law in many respects is very clear on a number of processes and policies surrounding proper conduct. McCleery adds the cultural divide can be bridged, however. I do believe that they can exist in harmony, he concludes. Indeed, there are some good skill transfers that can arise from working closely together, says McCleery, in fields such as tax. Lawyers are often concerned with the protection of assets as a priority while accountants may focus on tax effectiveness, he says. Corporate restructuring and insolvency are other areas for cross fertilization. CPAs are often the first port of call in respect of matters such as restructuring but might need input from lawyers with regard to legal issues, notes Yeeling Wan, a solicitor with Stephenson Harwood and an Institute member. Compliance can benefit from both law and accounting expertise, says Institute member Jenny Fung, executive director of global compliance at Goldman Sachs, who is both an accountant and lawyer. Accounting and law cross over in the corporate secretarial field too, says Chan at KCS, which was formed from the merger of the corporate services units of Grant Thornton and KPMG. Meanwhile, legal accounting accountants applying their corporate financing and business assurance skills to a law firm itself is emerging as a specialized field. A qualified accountant can share in a law firm the understanding of the financial structure, financial management and financial controls required in the firm, says Des Murray, finance director of the Dublin law firm Mason Hayes & Curran and a member of Chartered Accountants Ireland. 30 June 2012

6 Those who advocate for multidisciplinary practices say client service is the end goal and overrides any differences between lawyers and accountants viewpoints. Dual identity Many Institute members hold both accounting and law qualifications, including Fung and Wan. Wan also holds the Institute s specialist qualification in insolvency. I think both qualifications equipped me with more well-rounded knowledge and skills, which add value to my personal and career development, Fung says. The accounting qualification enables me to interpret financial implications while the law qualification enables me to understand the underlying legal principles and interpretation, she says. Institute member Bo Tse, vice president of finance at IC Intracom Trading in Shanghai, says his double qualification gave him business sense and analytical thinking. I can give a legal consideration to all related aspects of the manufacturing and exportimport businesses. Those who advocate for multidisciplinary practices say client service is the end goal and overrides any differences between lawyers and accountants viewpoints. Identification of potential issues is of real value to a client, says McCleery. And on many issues the client does not see the line between lawyer, accountant or general adviser. They just want the right advice. January June