End-of-Year Predictions: AI, ESG, and What’s Next for Accountancy

Helen Knight and Jenny Faulkner take a look back at some of Mercia Group's predictions for 2025. Covering technology, ESG and mega marshmallows...

For more information on this topic and more, please visit www.mercia-group.com for further details.

Transcript

End of year predictions

Helen Knight: Hello everyone, and welcome to another edition of the Mercia podcast. I'm Helen Knight, head of tax at Mercia, and I'm joined by Jenny Faulkner today, head of audit accounting and Compliance. 

Jenny Faulkner : Thanks, Helen. Why does my title sound so much longer than yours? I think you had to then just to be able to get it out.

Helen Knight: Thanks. No I did also have that moment of panic where I couldn't entirely remember what it was, so hopefully I'm title you correctly. 

Jenny Faulkner : I think I always abbreviate it to head of a and therefore it rolls off the tongue. Very easier. 

Helen Knight: But this is our first podcast together, isn't it, Jenny? So, amazingly, and what we are talking about today is last year at the backend of 2024 a lot of us at Mercia made some predictions about what we thought we were going to see in 2025.

So Jenny and I are going to take a look at some of those predictions. See what came true. What perhaps didn't, and maybe we'll have a throw a couple of predictions in there as well for 2026. 

Jenny Faulkner : Absolutely. I always think it's really interesting when we look back at what last year's predictions were.

And broadly speaking, I think the people who predict do tend to focus on what they do as a role at Merc. So, we had, you know, head of marketing views. We had the product director views. We have the senior manager for file reviews, Ruth, and they all seem to sort of focus on their areas, but the one thing that I really spotted, and it doesn't surprise me at all was that the.

There was generally two key areas from the predictions last year. So lots of other stuff, but definitely two key topics that were coming up time and time again in relation to those predictions. And they were AI and technology and sort of sustainability. As well, environmental, social, and governance, ESG as it's also often referred to.

So I think if we start with those two areas and delve into them a little bit. AI and technology, I mean, what can we say? It's. Basically at every single conference you attend within the accountancy profession or any other profession, you know, it has been the hot topic, but not only 2025, but also the year before as well, 2024, and I don't think it's gonna slow down anytime soon.

So I suppose prediction number one for 2026 is. A continuing evolvement of the use of AI and technology. And for me, I think this is just a real interesting one because I've done a few webinars over, you know, on this particular topic. I did one with CaseWare earlier this year. I'm just writing one at the moment around AI and ethics.

Actually. I think back to maybe 18, 24 months ago, and it felt like I knew nothing about AI and how to use it and you know, what sort of efficiencies I was gonna get. And actually, just from my own personal experience, my knowledge has just gone from absolute felt bad minimum too. I won't say top of the level, but, or top of the tree, but it's certainly increased exponentially.

And I know from talking to our clients that they're feeling the exact same thing as well. So loads and loads of our clients are having really exciting conversations. About not just improving efficiencies, but also improving quality as well. And everyone who's ever spoken to me knows that I love order, you know, I'm an external audit, geek lover, whatever you want to call me.

I don't mind. I've got, you know, no shame in that whatsoever. But one of the things that I just love about technology is. Really how much it has been able to improve quality. And for me, that's a really fantastic thing to see when I go out and file review for Merc. So I go out looking at audit reviews and I'm seeing this technology being used, whether that is.

You know, some piece of software being used to help with the testing by perhaps reading invoices and pulling that into working papers, or perhaps it's, I've been having conversations with some of our larger clients over the last couple of weeks around AI tools and disclosure checklists. Now.

You know, if we're talking to pretty much any accountant, I think if you could list out one of the most boring jobs that you have to do on an accounts prep assignment, an audit assignment, it would be doing a disclosure checklist, so. Anything that technology can do to help improve that? I think it's just going to improve accountants' mindset because they don't have to do those really boring, mundane jobs and they're gonna get some real efficiencies.

And also some quality improvements as well. I'm always slightly frustrated when I'm I'm doing a file review and I don't see the, you know, disclosure checklist being used or being used well. So, anything that helps support that is great. 

Helen Knight: I think absolutely, I think technology is growing exponentially and particularly as you say, how it can improve both the quality of the output and also.

I think for a lot of people save time. Say from tax advisor's perspective, saving time on sort of the go, the going through long lists of capital asset additions or looking at expenses and being able to spend more time on the real. Value adds. I think like you as well, Jen. I've been using it a lot personally, a bit in content creation, using it to help give me a starting point when I'm recording these podcasts as to what to talk about.

Absolutely. And also it's a bit for research. Yeah, 

Jenny Faulkner : absolutely. I always feel like I'm cheating when I'm using our Jenna AI tool. So we, we use copilot internally. And yeah, it just gives you not an unfair advantage. It is giving everyone the same advantage and hopefully other people are using it.

And certainly in the main, the majority of clients that I'm talking to is really getting on board this. I think I was surprised a little, a couple of weeks ago I was at a, a smaller firm and sometimes we wrongly assume that. Partners who have potentially been in the business for a long time aren't necessarily leading on these areas, but I've seen the most interesting dynamic conversation between the juniors and the partners around technology.

And it was really interesting just to see the dynamic. Because instead of, what I had always assumed was happening in, in practice was the juniors were sort of, you know. Giving their advice to the partners, to more senior people in the business and showcasing, actually it was coming from both directions.

So it was really lovely to see this sort of intergenerational you know, spread of knowledge. And it was just really fantastic that they were taking the time to put this at the forefront because it is, it's an absolute game changer. Not just from an efficiency, but also from that quality perspective.

Yeah. 

Helen Knight: And I think it's something that all firms are going to have to embrace. It's not going anywhere, is it? I mean, there's still one or two issues. It presents certainly from a tax technical standpoint, it certainly doesn't give. Always give the right answers. Is the Cuban in the loop is a very critical part.

I have to say. I do use it as a bit of a jumping off point to find out which bits of the legislation or the guidance I want to look at, but it definitely need. A check. I think I've had times where in my experience it's pulled up kind of manuals, which are out HMRC manuals, which are out of date, or it gives someone's opinion from some dark corner of the internet, which is entirely inaccurate and I think there's ethical ch challenges to it as well, aren't there, Jenny?

A a. 

Jenny Faulkner : Absolutely. And I will just plug the AI and ethics bite-size course that will be released early next year that I'm currently working on. So I won't give too much away at that point, but yes, absolutely. If you want to learn a little bit more around AI and ethics, then we will have some material out there early 2026.

Helen Knight: Talking about ethics brings this on quite nicely to our next big topic that a lot of people made pre predictions on, which was ESG or environmental, social and governance. So bit of movement in terms of kind of sustainability reporting and what businesses are having to do isn't their journey over the last year.

Jenny Faulkner : Yes and no. I would say when we were talking about technology, everyone who predicted technology was gonna be big in 2025 w was right From a sustainability perspective. There was lots of predictions around this becoming a growing service line for accountancy practice, more involvement. Potentially from an advisory perspective, but then also from a compliance perspective.

So from a assurance reporting perspective, what I would say is perhaps the growth that we anticipated was a little bit slower. So absolutely there was growth there and things have evolved, but perhaps not quite at the rate that we anticipated when we looked back 12 months ago. It isn't an area that is staying still, it is a growth area.

So if people aren't talking about this, then it absolutely should be. But we did see certain and part of this was led really from Europe to be pur purposely obvious. I can't speak all of a sudden. Perfectly obvious is what I'm trying to say. What we saw in Europe was really just a pullback as to how quickly they were moving on their su sustainability areas.

And often when we see something like that it does impact the UK as well. Now things have evolved, have moved in the UK from an audit and a, an accounts and assurance perspective. In fact, only quite recently in the last few weeks, we have seen the FRC have now finalized and published. That is a 5,000 version.

So is a 5,000 is the assurance reporting standard. That was published by the IASB E earlier this year for Global. The global use, but we know in the UK if we want to use anything, then it needs to be published by the FRC as well. So we have had that, we've had a consultation this year and it has now been finalized, but it's still a little bit into the future because we're looking really towards December 27 year REMS onwards.

So from a UK perspective that's not quite coming into play as yet. What we really need to see is absolute clarity on what we're expecting in relation to the actual reporting requirements, though because we've got the assurance work, which we kind of know where we are now on EK. But we haven't quite got the same knowledge exactly as to how those reporting requirements are stemming.

So we know they're gonna be based around S one S two, which are the international versions, but again, it is just a little bit of timing delay. Yeah. 

Helen Knight: I think we can roll it forward to our predictions for 2020. 

Jenny Faulkner : Absolutely. That's alright. I was going and what I would say is we are having more and more firms, and this isn't just the sort of bigger mid tier firms, this is going down to the smaller firms as well.

We are seeing firms just perhaps rethink what they're. Basically their firm structure is what service lines do they have? And we know we've got change. We've got changes in company size, which might be impacting how many audits are required. 'cause we know company size is linked to audit requirements, broadly speaking.

And what we're seeing is firms just going, okay, if we're gonna lose out on work here. How can we supplement it? How can we grow? It's not even just about supplementing, it's about growing as well. And so sustainability advisory work is becoming an area that people want to look into. So. If that's something that firms are interested in, I'm gonna do another plug because I feel that's what we should be doing as well, Helen.

We are gonna be releasing a sustainability sort of toolkit, it's called the Navigator in early 2026. So that's great news if people are wanting to get into that area. If firms are perhaps more just focused on doing sustainability assurance type work, then it's a 5,000 product will be coming out later on next year as well.

We do have an international version of that, but the sort of UK version of it will be worked on next year 'cause of the timelines not needed quite as quickly. So. Absolutely lots going on. It likely to impact larger businesses more than smaller ones. Perhaps that's your initial thought, but think again because I always just take a quite personal thing here.

My husband works in construction. He works for a relatively small business. But the amount of sustainability stuff he does, I find quite interesting, quite astronomical because the business that he works for is part of the supply chain. We, you know, for those bigger, bigger construction companies, and they need to ensure that the supply chain is just as clued up to sustainability issues as they are internally as well.

So, it will be impacting all within the economy, but to various degrees, obviously. Yeah, I 

Helen Knight: absolutely agree with your point that it isn't just relevant to these larger businesses anymore. Certainly from a tax. Side, we've had kind of the environmental incentives and disincentives and, but historically a lot of the kind of compulsory reporting around kind of the social and governance piece has just been those larger firms.

But it's absolutely true what you say, that there are going to be reporting requirements for those businesses, which are part of the supply chain. Of companies that do have to report. So it's really important to think a bit wider than just kind of as strict size limits. And I think as well, like a lot of businesses are choosing to make voluntary disclosures as well.

tax contribution is becoming a much more popular way of reporting how a business. Making a social contribution to their local community. And that is really stakeholder led, isn't it? So their customers, their shareholders are really kind of demanding this extra level of reporting, whether or not it's mandated.

Jenny Faulkner : Yeah. And not just, I suppose the traditional stakeholders, but certainly, when I'm recruiting at Mercia, I'm finding more and more people are coming to us and asking us what, you know, what do we do now as part of A PLC? Mercia being part of Wilmington we do a lot and it's quite easy to give that information, but it.

I wouldn't say it's surprised me, but I've definitely seen an uptick in the number of questions that we get in relation to sustainability and how it impacts a business, our own business. So that's an important consideration as well. 'cause I'm sure I'm not the only person who's being asked that question from a recruitment perspective.

So not even, you know, when they become employees, a key stakeholder, but actually before that, you know, they really want to understand what's being done and whether it's the type of organization, type of business that they want to be involved in, that they want to work with, work for. They're really important area 

Helen Knight: there.

So that's kind of our two kind of biggest areas with have what about any other projections in the a NA space? What else did we think was happening in 2025? I think 

Jenny Faulkner : we've mentioned one already. One was, I suppose, sort of linked to you know, the fact that we were gonna see changes in relation to company size.

So they really sort of come into fruition more into 2026. We've also seen changes in auditing standards, which became more prevalent in 2025. So ISIS 600, which is basically group audits, was the big one that we've been talking about. The big one that we've been seeing from certainly a file review perspective and then.

Just thinking back to my own prediction as well, I sort of went back and said, okay, technology's gonna have a focus. Sustainability is gonna have a focus, changes to company size is gonna have a focus. But actually when you bring everything all together, there's a lot going on in the profession. Around.

How firms are structured, whether they are p backed. There's so much acquisition going on within the profession that I was really thinking. We'd see some quite big changes going on. We've had the accountancy. Top 50 released this week, which is always quite an interesting read to see the movers and shakers of the profession and how how businesses have grown.

And what you can see quite clearly in that league table is there are some businesses, irrespective of whether the PE but or not, but there are some real acquisition rate accountancy practices, which have substantially grown. Over the last 12 months. So you know, how firms are structured is a key area.

I don't think that's gonna change. I think that's gonna continue into 2026. So now a bit of a prediction there. One of the other things that I suppose didn't crop up from the 2025 predictions, but I've been thinking about going into next year whether it might have a bit more prominence. I think we have talked about it.

I certainly have talked to firms about it, is what I suppose called outsourcing. So sort of linked to that, how does your firm work? How is it structured? Firms utilizing. Accountants, perhaps not in the uk, perhaps outside of the UK using different jurisdictions. And whether that's the accounts prep, perhaps more of the routine jobs or whether that even the audit work as well was then quite a mixed approaches to how outsourcing arrangements can work.

So I think that all sort of. Still continue, but I think you, what you will see there is the interaction with technology as well. So, certainly a lot of firms looking into that and how it impacts. I think as we move into 2026, there is absolutely no denying that changes to financial reporting standards is gonna have, you know, a big place within the accountancy profession.

We know over the course of this year on our accountancy updates, the firms are really starting to work through what's. The two big changes that we're gonna see in relation to FRS 1 0 2 as we head into 2026. So changes to revenue and changes to leases. We're getting some real techie questions start to come in on our courses.

We are just as a reminder very open to having these questions asked on our technical query helpline. So if you have got a very client specific query that perhaps what wouldn't be suitable to cover on a course, then absolutely bring the data to us, ask us the question and we'll be able to support with that.

I think it'd be interesting to see and maybe this is just. Me thinking back to the technology front, but I do wonder just how much firms are going to embrace the use of technology with these changes to financial reporting standards. So revenue. Perhaps it might be a business with some some quite detailed revenue contracts.

Certainly any leases are gonna be held in a leasing agreement. It'd be interesting to see how much technology has to play in helping. Read, decipher analyze data that is sort of held within those contractual agreements. So I'm quite excited to see that come out into play and quite excited to see some audit file reviews when I'm out far reviewing and how that gets impacted.

Helen Knight: Yeah, just to pick up on, on a point you made about client queries and what we are seeing client queries on something our clients seem to have been particularly interested in on a tax side is making tax digital. It is literally everywhere at the moment HRC are running their own advertising campaigns on it.

And one of the predictions that we did have from one of the tax team was whether it might get deferred again from April 26. And I think probably that was a bit more of a vague hope than a real prediction and certainly making tax digital. It is coming in from April, 2026. It's first going to be mandated for.

Individuals with sole traders, self-employment income or property income in excess of 50,000, and then it's going to be rolled out gradually over the next few years to more individuals. And it really is an area where clients are having to get to grips with what the rules are, who's going to be impacted by it, and.

They're going to often potentially have to look at new software providers. They're going to have to work with their clients in a very different way. It's no longer going to be clients providing a big box of receipts kind of on the 30th of January anymore. There is going to be this requirement to have an oversight of what.

Clients are their clients are doing much earlier in the year, so it. As Jenny has been doing, taking the opportunity to plug a little bit, we have got a number of courses around Making Touch Digital. Also various publications to help explain those changes to your clients as well.

Answering some of those key questions about who's in, what needs to be filed and what happens. At the year end as well. So unfortunately for our predictor of that one, that is something which is coming in in 2026. So, that was I guess a prediction which didn't come true. We haven't had a deferral there.

Something which we have seen, which was well predicted by our fat specialist James, he said. That he was going to expect more cases on the fat food rules because these are notoriously complex, and he was absolutely spot on with that. I mean, Jen, do you remember as a Jeff Cake?

Cake? I was 

Jenny Faulkner : just about to say I read Dame's comment last year and I thought, I just love if there is I, you know, I do not. Ever purport to be a VAT specialist in any way. But I did used to present the intro to VAT course quite a few years ago, and what used to get everyone interested was the Jaffa cake and the Pringle there.

So I probably used to spend a disproportionate amount of time on that course just talking about the food items. And perhaps that is just linked to my love of food. But there's been some interesting ones over the last 12 months, haven't there? Yeah, 

Helen Knight: absolutely. We've extended our range of feed stuff that we can talk about on these intro to VAT courses, and particularly I do find the students like it when you bring them some samples.

Oh, what you, it's not bribery of course 

Jenny Faulkner : in relation to any feedback, but No testing the items absolutely. Should be a core part of all Intro to VT courses, I believe. 

Helen Knight: Yeah. So what we've seen this year, and it really kind of demonstrates, certainly from my perspective, some of the. Insanity behind the VA food rules.

First of all, we had a case from Innovative Bites, the mega marshmallow case as to whether they were confectionary, which you think, or as the taxpayer was arguing, whether they are a food source because they are designed. To be roasted. So HRCs c's definition of confectionery is sweet and prepared.

Food normally eaten with the fingers, and there was a lot of back and forth. First tier tribunal, epi Tribunal looked at various sort of multifactorial approaches about these giant marshmallows, how they were marketed for roasting. They were kept in the barbecue aisle rather than with the sweets. And so they all, they had found with the taxpayer, but actually the court of appeal this year has said no, you haven't actually decided whether or not they meet this definition of sweet and prepared food, normally eating with the fingers.

So until that's decided, it's very much a, is that metal or not? And that is. The wording of the legislation, so that one's actually gone back to the first tier tribunal for. Reconsideration. So it's a watch this space. 

Jenny Faulkner : No finalization on the mega marshmallow as you. No. 

Helen Knight: What there has been finalization on is Nutella biscuits, which actually I have never seen.

But I'm going to have to go and search the supermarket for these. But apparently these are a biscuit cup with a Nutella filling, a chocolate light ring and a biscuit disc top. Now the rule here is essentially biscuits kits is zero rated unless they are partly or wholly covered with chocolate or a similar product, in which case they are standard rated.

So the question here was, are these biscuits covered with chocolate? And the first tier tribunal actually found for the taxpayer that the outer surface of the finished products in this case was entirely biscuit. The chocolate was all inside internal component, not a covering. So they, these, in this case, the taxpayer won their biscuits, therefore zero rated.

And I think what this illustrates is there's just some really fine margins in these vac cases. So another hot prediction for 2026 is I think we're going to continue to see more of these fat food related cases. They're always interesting ones to talk about, right? But until we see some actual changes in the legislation on VAT and food, I think there are going to be more cases on this.

Jenny Faulkner : And it sounds like perhaps food manufacturers are going to be making more cup like biscuits with chocolate rather than chocolate on the top, just so they can Yes.

Helen Knight: That's the key on the inside, not the inside. 

Jenny Faulkner : Sounds delicious either way. So, I like you Helen. I'm a big sort of Nutella fans, so certainly my kids are so I might have to go and try these out.

And it sounds like we're now plugging Nutella biscuits as well as Mercia content. 

Helen Knight: Yes. Other biscuits are available. Absolutely. Not covered and not,

Jenny Faulkner : so we've had some really interesting things come out of that. Let's perhaps just round it all off because. One of the other areas that cropped up a couple of times in relation to the 2025 predictions was just around learning and how it's consumed and really a focus, I suppose, on.

Giving learners delegates more flexibility, more options with how they consume their learning. So we had introduction of festival of CPD at the backend of 2024. So quite a, oh, I suppose a consolidated learning. Experience there, but you can come towards the end of the CPD year and absolutely get your fix of all your CPD requirements.

I suppose on the other end of the spectrum, then we've seen a real increase in the desire for bite-sized learning. And certainly when I'm out talking to clients as well, I'm hearing about more firms using that sort of either lunch and learn approach or sort of breakfast seminar approach. Sort of trying to squeeze a bit of CPD in around the edges of a working day.

And just a bit of a reminder that, you know, Mercia is training very flexible in the context of we have. All day conferences. We have, you know, two, three hour update courses. We have bite-sized courses for 20, 30 minutes. We have courses which undertake, you know, a one hour. So that sort of whole range of different timings.

We've also got whole ranges of, you know, how you consume it as well. So whether that be. Live courses, recorded courses. We are still doing face-to-face courses at some venues. We've then got all of our eLearn topics as well. There is training out there for pretty much every single training you need you could ever imagine.

So do think of Mercia as you enter into 2026. Our library is ever expanding not just in the tax and audit accounts, but within this slightly more peripheral area such as technology as well. And we have fantastic courses really helping everyone from the junior right through to partner RI level to support their career as well.

So not just technical areas, but. Professional skill areas as well. So presentation skills, networking, delegation, teamwork, leading all of these areas we've got content on. We've got a fantastic skills trainer who works on those particular areas. 

Helen Knight: Absolutely. So I think that, that was a brilliant summary of all of our learning options.

Jen and I've been particularly heavily involved in kind of building out our bite-size program. I think that's an area where we're going to see continued grace in 2026. So remember back when I was in practice, the constant pressure on your chargeable hours. So having that bite-sized learning available I think is really valuable.

And as you say, something we've both been involved in has been thinking about our technology courses and what people need to know in terms of that. So bringing our podcast to a close, let's think ahead to 2026. So, Jen what is your key prediction for 2026? Oh, 

Jenny Faulkner : it just sounds a little bit boring, but it is.

It's just more technology. More technology, greater efficiencies, firms really just taking a sit back and saying okay. We've got these, you know, efficiency gains, we've got this quality gains. What impact does that have elsewhere on, on the firm though? So, are we gonna be doing more work? How are we gonna grow?

Which service lines are we looking into? And a real key focus on client retention as well and just making sure that clients are getting. The level of service that they expect to receive from the accountants. So really positive messages, I would say going into 2026. Lots of change, but exciting change.

Helen Knight: Absolutely. I think from a tax side, what I think we might see some more is a bit more support perhaps for SMEs. They've obviously seen some increased costs from the 2024 and 2025 budget. Employers national insurance going up, increases in the national minimum wage, national living wage. I want to, whether perhaps we might see a bit more of support for them in the face of these increased costs.

So that's my specific tax. Prediction for next year on a wider basis. I think as we've just talked about, what I'm really excited about from our perspective is seeing how learning develops and what we can do differently and in order to help people learn and how courses and learning are consumed as well.

So there's our predictions for 2026. We hope you've enjoyed this roundup of predictions and whether or not they came to fruition or not. And so, from me, it's a goodbye. Jen. I'll let you sign off and from me as.