A survey by ACCA (Association of Chartered Certified Accountants), commissioned by ACRA (Accounting and Corporate Regulatory Authority) has brought to light the current state of play in the Small or Medium Practice (SMP) sector in Singapore, examining the key challenges SMPs face as well as the opportunities that lie ahead for them. The survey elucidates the reality that, in order to remain relevant and to prosper in an increasingly regulated and ever evolving environment, SMPs cannot remain unchanged.
The findings in this new report, titled Small and Medium Sized Public Accounting Practices in Singapore – Bridging the Current to the Future, confirmed the understanding that many SMPs are still deriving significant portion of their revenue from statutory audit work. Of the respondents who are anticipating significant expansion in operations in the near future, a good 79% appear to be expecting the expansion to be fuelled by statutory audit work as well.
With the potential increase in the audit exemption threshold as proposed by the Steering Committee to Review the Companies Act, SMPs need to start considering alternatives to enhance business. These include:
- Targeting the provision of statutory audits to larger entities. SMPs will have to ensure they provide high quality audits and communicate to their clients the value of high quality audits. To achieve that, SMPs need to ensure that they have sufficient resources and enhance their capacity to better address the needs of their clients. This will entail attraction and retention of sufficient competent staff, which incidentally constitutes the main constraint to growth highlighted by respondents to the survey.
- Looking to branch into niche service offerings such as risk management, information technology (IT), consulting and wealth management. This will require an evaluation of current competencies and resources, and determination of concrete action plans to restructure the practice and acquire or build up the necessary skills and expertise.
The key findings in this year’s survey report are as follows:
- A substantial portion of the respondents still derive their revenue mainly from statutory audit work (40% vis-à-vis the next contributor, taxation, which trails at 12%). On the back of the considerable macro-economic recovery in Singapore, 46% of the respondents saw a 5% or more increase in revenue attributed directly to statutory audits over the previous year.
- Two in five of the respondents anticipate significant expansion in operations in the next 3 years, with the majority (79%) expecting the expansion to be achieved through their statutory audit services. Most of the respondents attributed the optimism to continued improvement in the economy and strong rising demand for their existing services. In terms of the mode of expansion, most favour organic growth (66%), with the least considering growth via merger with another firm to be a viable option (3%), citing difficulty in finding a compatible partner as the main obstacle (79%), followed by the fear of loss of discretion and freedom to make decisions (54%).
- With an increase in the audit exemption threshold currently being considered, 40% of the respondents responded that they will compensate the expected decline in revenue from statutory audits with other works like compilation engagements, taxation and other accounting services.
- Inability to attract a sufficient number of competent staff is still cited as the main constraint to growth of SMPs in Singapore (74%)
- While most SMPs recognise that providing services outside Singapore provides an avenue for future growth for their practices (76%) and helps diversify risks (57%), a great majority of SMPs (72%) source 5% or less of their revenue from clients located outside Singapore currently. Unfamiliarity with foreign regulations (74%), as well as cultural (42%) and language differences (36%) are the most commonly identified impediments to overseas expansion of business.
Chiew Chun Wee, ACCA Head of Policy, Asia Pacific said: 'There are great opportunities awaiting SMPs that are willing to step out of their comfort zones, and it is clear that those that act the fastest will secure first-mover advantage, attract talent, and not be left behind in the new reality.'
Ms Juthika Ramanathan, Chief Executive of ACRA added: 'It is not unexpected that majority of the SMPs still see statutory audits as the main revenue driver. However for their clients to see the continued need for audit, it is imperative for public accountants to show how audit brings value and to help their clients, understand the value of audit is intimately tied to its quality and that to achieve this, they have to enhance their capacity and invest sufficient resources to meet the new demands from the clients.'