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Accountants Optimistic Despite Challenges
2016 was a roller coaster of a year. Brexit, the US presidential elections, increasing nationalistic sentiments globally, and a continuing drop in trust in institutions, governments, media and communication in general and even non-governmental organizations appears to be the current in-trend. Despite external volatility and unpredictability, the IFAC Global Small and Medium Practices (SMP) Survey demonstrates some consistency and predictions for the future.
Given that more than 71% of the 5,060 respondents from 164 countries are either sole proprietors or practitioners in small firms (2-5 partners and staff), the results are representative of the practice landscape in many countries (see the full report and summary for more details). In addition, more than three quarters of the respondents are a partner, owner, sole-proprietor, or director, thus highly knowledgeable on the inside workings and reality of a public practice.
Major Challenges Facing SMPs
The survey asked respondents the extent to which their small- and medium-sized practices (SMPs) are facing 11 specific challenges. Unsurprisingly, each of these challenges were rated moderate, high, or very high—the same as in 2015 and 2014.
Consistent with 2015, attracting new clients was the number one challenge—rated high or very high by over 46% of respondents. It was among the top two challenges for Europe, Africa, Asia, and the Middle East.
Keeping up with new regulations and standards and experiencing pressure to lower fees are both tied at number two with 41% rating them as high or very high challenges. The Central and South America/Caribbean, North America, Europe, and Australasia/Oceania regions all had keeping up with new regulations and standards in their top two challenges.
Personnel and staffing issues continue to be a perennial challenge, although for 2016 it was on a moderate scale. 45% of respondents stated that finding qualified staff at all levels is a high or very high challenge; 41% said retaining qualified staff at all levels is a high or very high challenge, and 35% said providing technical training is a high or very high challenge.
For the first time, the 2016 Survey asked respondents to rate the challenge presented by seven specific technology issues.
The top four issues are investing in and staying current with software (38%); achieving a digital, paperless environment (37%); determining what technology is best for the practice (36%); and managing privacy and security risks (36%). For SMPs in Africa, these four challenges were rated higher when compared to other regions, with investing in software and going paperless at the very top of their challenges.
Environmental Factors Impacting SMPs over the Next Five Years
The survey also asked respondents for their thoughts on the practice landscape they operate in. Respondents were asked the degree to which they believe eight specific external factors may impact their practice over the next five years. The three major factors keeping SMPs awake at night are: changes in the regulatory environment (56% said as high or very high impact); technological development (52%); and competition from other practices or professions (48%).
The pace of both regulatory and technological change does not seem to be slowing down. With countries like India, Malaysia and Brazil introducing new tax and corporate laws and the US considering about imposing new import taxes, small- and medium-sized entities, and by default their SMP advisors, will have to navigate new legislative and/or regulatory changes. To remain trusted advisors, professional accountants must first be able to understand all the legislative and regulatory changes prior to advising their clients.
SMPs in 2016
The survey asked how revenue had changed in 2016 compared to 2015. A slight majority (52%) reported an overall increase in practice fees, 31% indicated a decline, and 17% reported that revenue remained the same. Out of the 52% that reported an increase, about 40% reported an increase of at least 10%. 62% of respondents from the largest practice group (21 or more partners and staff) indicated that their firm experienced an overall increase in total fees revenue during 2016 compared to only 47% of sole practitioners. These revenue increases are even more of a significant achievement considering the backdrop of uncertainty in the global arena.
Expectation for 2017
Reflecting an optimistic outlook, 45% of the respondents anticipate revenue to increase for advisory and consulting services (up from 44% in 2015); 44% for accounting, compilation, and other non-assurance/related services (41% in 2015); and 38% for audit and assurance services (35% in 2015). Only tax services, which includes tax compliance and planning, is forecasted to decrease slightly (from 44% in 2015 to 42%). With the exception of tax services, projected changes for 2017 fee revenues are slightly more up-beat when compared to the prior years’ anticipation.
For all four of the service in the survey, respondents representing the largest practice group (21 or more partners and staff) are more optimistic regarding fee increases in 2017 than those in smaller practices.
Challenges Facing SME Clients
An important component of the survey are the questions posed about challenges faced by small business—that is, SMPs’ client. Consistent with the 2015 Survey, a majority of the respondents view economic uncertainty as the top most challenges confronting SMEs (61%), followed by rising costs (59%) and competition (53%). The strongest economic concerns are in the Central and South America/Caribbean and Africa regions, followed by Europe. This may not be surprising given that the Central and South America/ Caribbean zone has faced severed political and economic uncertainties and the Eurozone has struggled with economic growth for the last two years.
Business Advisory and Consulting Services
Advisory and consulting services continue to be a hot area for SMPs—only 17% of respondents do not provide any business advisory and consulting services (16% in 2015).
The most frequently provided services this year included corporate advisory (48%, up from 45% in 2015) and management accounting (46%, up from 41%). The next most frequently provided services included human resources and employment regulatory services (30%, up from 29%) and business development (29%, up from 27%). Impressively, all these services registered an increase between 2015 and 2016.
While our results are broadly representative of the global outlook for SMPs, caution is necessary before generalizing the results to specific countries, regions, or SMPs of all sizes.
However, the survey results indicate a fairly positive year for SMPs overall in 2016 given revenues increased. But, despite this, SMP and SME challenges are ever present. Going forward, practitioners will need to ensure that they maintain relevance by equipping themselves properly, while simultaneously helping their clients cope with an uncertain economic environment and rapid technological advances. SMPs need to consider how they can best leverage technology to reduce costs and offer value-added services to meet clients’ changing demands and expectations.
IFAC and its member organizations, with strategic insights and advice from the IFAC SMP Committee, will continue to support the critical SMP sector, which provides the services that ensure small businesses survive and thrive around the world. But it is SMPs that will have to take the first step and ask the question, “Are we ready to embrace all these changes?” We believe the choice has never been clearer.
Read the 2016 IFAC Global SMP Survey for additional details on SMPs’ views and outlook.
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