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In the second part of this series, John Jeffreys explores what has changed in accounting over his 40 years in the profession.
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40 years in the tax profession
01 November 2024
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In October 1984 I transferred into the Melbourne Tax Division of Arthur Andersen & Co, which, at the time, was one of the ‘Big 8’ accounting firms in the world. Thus began my career in the Australian tax system.
In this article (part 2 of a 2-part series), I will focus on what has changed, in my view, over these past 40 years. The previous article reflected on what has remained the same.
Power of the ATO – I believe that the ATO has become more powerful and that the power balance between the ATO and taxpayers has shifted markedly in favour of the ATO.
During the 1980s we would take into account the position of the ATO but formed our own views on what the law said and meant. We would advise clients to follow what we thought as opposed to defaulting to an ATO position.
When self-assessment was introduced, the Federal Government considered that there was an imbalance of power with the ATO. Accordingly, laws were introduced that created, among other things, the concept of the ‘reasonably arguable position’. If you had a ‘reasonably arguable position’, penalties were not applicable even if an adverse adjustment to your taxable income was made. Also, the ATO was given the power to make public rulings to which it was bound to follow.
Over the past (around) 15 years, the power balance has swung back heavily in favour of the ATO. Many of its pronouncements are now on its website and there is a much-reduced number of public taxation rulings being issued to which the ATO is bound. While the ATO website has much useful information, you must be very careful with it as the courts have made it plain that the website views of the ATO have no sway in tax cases.
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Also, the ATO has developed the ‘practical compliance guideline’ (PCG) product. I do not like this product. PCGs state what the ATO likes and does not like, with little technical support for its position. These PCGs have become quasi-law because most tax agents will simply follow whatever the ATO states in these guidelines so that their clients, and the tax agents, do not have a problem with the ATO or TPB.
No one wants a problem with the ATO. The cost of challenging the ATO in the ART (Administrative Review Tribunal) and courts is prohibitive for most taxpayers. Accordingly, the pronouncements of the ATO (often in PCGs) have meant that the ATO has become, effectively, a law maker. Taxpayer positions are often ‘zoned’ by the ATO and, to avoid a problem, taxpayers (and their tax agents) adopt positions in the low-risk zones. This often results in more, or the maximum tax, being payable.
The increasing power of the ATO has gone hand-in-glove with the decreasing effectiveness of advocacy by the professional bodies that represent accountants.
Poor view of professional bodies – It pains me to write this, but this is something that is real. 40 years ago, there was a lot of pride in being a member of a professional accounting body. Now, my almost universal experience is that accountants have a poor opinion of their professional bodies. Accountants largely feel unrepresented by their professional associations. The power of the ATO, Tax Practitioners Board and impositions recently enacted by the Federal Government has built into a ground swell of dissatisfaction with the professional bodies by their members. Accountants feel powerless to hold back the onslaught of regulatory change, much of which the accounting profession considers unnecessary.
Technology – Of course, the big change in the world of an accountant over the past 40 years has been the changes in technology. When I started in the Arthur Andersen & Co Tax Division, the only piece of technology at my desk was a landline telephone. It is now absurd to think of any professional that doesn’t have at least one device within reach at all times.
When personal computers were introduced (early 1980s) they were supposed to do away with accountant’s work. That didn’t happen! Is any accountant less busy than what they used to be? It’s laughable to even consider that.
What I have observed over the years is the promise of new technology bringing a state of nirvana to accounting firms, but it never happens. New technologies have certainly changed the way we do things, but when people make predictions about new technologies solving all our problems, this does not materialise. Why? It is because of the interaction of all the many thousands of variables in the Australian tax system and numerous flaws in the technology. How those variables will react when a new technology is introduced is never considered by those that predict the new technology will ‘solve everything’.
That is, the new systems themselves create further, unpredicted variations. Invariably these variations create a need for a human being to interact with the unpredicted outcomes of the new systems – thus creating more work for the human beings. This is why, after years of massive technological change, the accounting profession is still desperate for more people.
You might think artificial intelligence will make a difference in ways we have never seen before. Machines will do the thinking of professional people and make them largely redundant. Let me assure you that this will not happen. This is because people are viewing artificial intelligence the way people have seen new technologies over the past 40 years. In effect, there is a prediction that artificial intelligence and other technologies will be able to ‘control’ the Australian taxation system. No, it won’t!
The view that artificial intelligence can be so smart as to be able to reliably predict the best outcome in a client situation is making the same mistake that has been made with new technologies over the past 40 years. What is not considered by people who make these dramatic predictions about the impact of artificial intelligence is the creation of unpredicted outcomes that are created by the new technology itself.
I have no doubt that artificial intelligence will have a significant impact on how accountants and tax agents go about their work, just like the advent of personal computers, the internet and smart phones have had an impact. However, the enormous range of variables in the Australian tax system will ensure that human beings will be needed to look beyond what machines produce.
Client expectations – The expectations of clients have increased markedly since the 1980s. This is closely related to the advances in technology. Clients want very quick answers. Due to this the expectations of clients need to be managed carefully. When 10 clients all want their answer now, this puts a lot of pressure on a professional.
Fears of the tax profession – I deal exclusively with accountants and tax agents. Fear is one of the key factors that drives members of the tax profession. Fear of making a technical error. Fear of not knowing something they should. Fear of missing a client deadline. Fear of falling foul of the TPB and so forth. This fear did not exist to this extent 40 years ago. The tax profession is a good deal more stressful than what it used to be.
The tax profession is now one of the most regulated in the country. Breaching those regulations can mean loss of your ability to earn your income from your chosen profession. I constantly have conversations with accountants who are trying to avoid getting into trouble. They are stressed and fearful and are constantly looking for guidance as to the ‘right thing to do’ in a particular situation.
John Jeffreys provides tax training and produces tax information for tax professionals. He is a director of John Jeffreys Tax Pty Ltd.
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