This year has so far proven to be a difficult one for stock markets. Many indices are lower, some with double digit losses. The main culprit is economic uncertainty, triggered primarily by increasing concern over an economic slowdown in China, the world’s second largest economy. Economic commentators and pundits are now looking hard at any evidence that can inform whether this slowdown is merely a blip or something more substantial. The global accountancy profession has some evidence of its own, including the IFAC Global SMP Survey (full report and summary). The survey elicited 6,725 responses from accountants working in small- and medium-sized accountancy practices (SMPs) in 169 countries who provide professional services to more than 800,000 small- and medium-sized entity (SME) clients. This makes it one of the world’s largest surveys of accountants.
There are compelling reasons to think that this survey is a reasonable barometer of the health of the global economy. This is a profession that, according to Nexus 2: The Accountancy Profession—A Global Value Add, contributes USD $575 billion to the global economy and that can demonstrate a positive correlation between the share of accountants in total employment, and both GDP per capita and the UN Human Capital Index, which measures quality of life indicators. Some 45% of the estimated 2.8 million professional accountants represented through IFAC’s members work in public practice, according to Nexus 1: The Accountancy Profession, Behind the Numbers. Furthermore, many if not most of these accountants in public practice work in SMPs.
What Did We Learn about SMEs?
The survey offers some interesting intelligence about SMEs, commonly seen as the global engine for growth. This intelligence is useful to governments, regulators, policy makers, and SMPs keen to understand how they can best assist this sector. When asked about the challenges facing their SME clients, 75% or more of respondents rated seven of the eight challenges as a moderate or greater challenge. The top challenges facing SME clients included economic uncertainty, rising costs, competition, and difficulties accessing finance.
The survey also explored the extent to which globalization is impacting the smallest of businesses by asking about the international activities of SME clients. The survey found that about three-quarters of respondents’ SME clients were engaged in some kind of international activity, most commonly import or export activities. In general, more international activity was reported in the Middle East compared to other regions. As globalization continues to spread, even among SMEs, it will become increasingly important for SMPs to attend to the international business needs of their clients.
Respondents were also canvassed on the direction of profits of their SME clients over the past year. The largest percentage of SMPs, 41%, said that clients’ profits had decreased. An increase in profits was reported by 31% and no change in profits by 22%. Decreases in the profits of their clients were considerably more prevalent for respondents in the Middle East and Asia, which corroborates concerns emanating from Asia about an economic slowdown and volatile stock market.
What Are the Foremost Challenges Facing SMPs?
SMPs continue to face many challenges and, consistent with the 2014 survey results, a majority of respondents viewed each of the 12 challenges presented as a moderate, high, or very high challenge. The most pressing challenges facing SMPs included attracting new clients, keeping up with new standards and regulations, and differentiating from the competition. The need to attract new clients suggests SMPs ought to consider more intensive marketing and promotion, and expanding their service offerings.
Respondents rated eight environmental factors to indicate the extent to which they believed each might impact them over the next five years. The regulatory environment, competition, and technology developments were viewed as the most impactful. Technology developments stands out. It’s both a challenge and an opportunity.
Some, perhaps most notably Daniel and Richard Susskind, authors of The Future of the Professions and a recent Gateway feature article, argue technology poses a serious threat to the professions, accountancy included, as it threatens to automate many traditional tasks undertaken by professional accountants. Some, ourselves included, see this as an opportunity to redefine the role of the accountant and in so doing improve the value of the services we deliver to our clients: data analytics, for example, enables us to offer well-informed advice to our clients.
How Well Did SMPs Perform in 2015?
Respondents were asked how their revenues changed in 2015 compared to 2014. The largest percentages of respondents indicated revenues stayed the same or increased moderately, for each of four service lines (Audit and Assurance; Advisory and Consulting Services; Tax; and Accounting, Compilation and Other Non-assurance and Related Services).
How Well Do SMPs Expect to Perform in 2016?
Reflective of a generally optimistic outlook, more than one-third of respondents forecasted that fees would increase in 2016, with advisory and consulting services increasing the most, followed by accounting, compilation, and other non-assurance and related services; tax; and audit and assurance services. However, optimism is not at the same level as a year ago as growth projections across service lines have dropped since the survey conducted at year-end 2014.
Most respondents provided some form of consulting service, and the larger practices were more likely than sole practitioners to provide these services; the types of business advisory services they offered most frequently in 2015 were tax planning and corporate advisory, including advice on mergers and acquisitions, valuations, and legal issues. The IFAC SMP Committee has long recognized the growth potential of this service line and actively encouraged the global SMP constituency to seriously consider stepping up their business advisory activities. The Knowledge Gateway has many of the resources needed to help SMPs offer advisory services.
Are SMPs Members of a Network, Association, or Alliance?
According to respondents, the top three benefits of membership in a network, association, or alliance are: attracting new clients, broadening client service offerings, and branding and marketing. These benefits address many of the main challenges they are facing. Membership can also expand SMPs’ capabilities to serve clients operating internationally.
However, only slightly more than one quarter of SMPs reported that they currently belong to a network (11%), association (10%), or alliance (7%); this is more common among larger SMPs, with 65% of respondents from practices with 21 or more partners and staff indicating they belonged to a network, association, or alliance. An additional 24% of SMPs indicated they were considering joining one. Slightly less than half of respondents in both 2015 and 2014 indicated that their SMP had no interest in joining a network, association, or alliance. The regions with the largest number of respondents considering membership were: Africa, the Middle East, Asia, and Central and South America and the Caribbean.
Again, for those SMPs considering membership, we encourage them to go to the Gateway for resources to help them make the decision and, if so, how to make the selection and transition.
Overall, the survey results indicate that 2015 was a positive year for SMPs with revenues primarily staying the same or increasing moderately. Despite some concerns around the profits of their clients, especially in Asia and the Middle East, SMPs are also optimistic for the year ahead with a high number predicting increases in revenue. However, it is clear that many challenges remain and practitioners need to ensure that they maintain their relevance by equipping themselves to help their clients cope with the current environment of rapid change and innovation. IFAC and its member organizations, with strategic insights and advice from the IFAC SMP Committee, will continue supporting the critical SMP sector in providing the services that will ensure their SME clients survive and thrive.
A version of this article original appeared in Edition 12 of ACCA’s flagship research and insights journal Accountancy Futures; www.accaglobal.com/futuresjournal; publication date March 2016.