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RR71 - Smaller Practices in Profile
ACCA Research Report No. 71
THE RESPONDENTS
This report presents the results of survey of ACCA members in smaller practices. Comparisons are made between the profiles of white and ethnic minority owned practices; the opportunity was also taken to elicit members’ views on the proposals to raise the audit exemption threshold. In total, 1,586 usable questionnaire responses were received from a postal survey, a response rate of just over 40%. Qualitative interviews with 20 ethnic minority members in independent practice were also undertaken.
Respondents were drawn from throughout the UK, although a substantial proportion of respondents were drawn from London (28%) and the South East (21.9%). Nearly 80% of respondents identified their ethnic background as being ‘White–UK’ or ‘White–Other’. Of the respondents who identified themselves as being of ethnic minority background, the largest proportion (12.5% of the total sample) was made up of different Asian groups. Only 38 respondents (2.4%) identified their ethnic background as ‘Chinese’ or ‘Chinese–UK’ and only 34 (2.2%) as either ‘Black–African’ or ‘Black–UK’.
Most responses (87.9%) were from men. Of the 167 female respondents that identified their ethnic background, only 11 came from ethnic minority groups.
Respondents from ethnic minorities were more than twice as likely to have a Bachelors or a Masters degree than other respondents.
THEIR BUSINESSES
The majority of businesses had a turnover below £500,000. For a quarter of respondents, business turnover was substantially lower than this figure, lying below £50,000. Over the past three years, business turnover has increased year on year. The turnover of businesses owned by ethnic minority respondents was significantly lower than for white minority owned businesses. Despite a slight narrowing between the two groups over the past three years, the turnover of ethnic minority respondents remains significantly lower than that of white minority respondents.
v The majority of respondents’ firms employed fewer than four full-time people in each employment category. The mean number of partners within each practice was 2.12, while on average there were 1.29 qualified accountants and 2.27 part-qualified accountants for each respondent firm. Ethnic minority accountants were more likely to operate smaller scale practices, with fewer partners, qualified accountants, part-qualified accountants, finance assistance and clerical and secretarial staff.
A large majority of respondents wanted their businesses to grow either moderately (59.5%) or substantially (17.2%). The most preferred mechanisms to bring about growth were increasing profitability, turnover, and efficiency through greater IT use. Ethnic minority respondents were, however, less likely to state that they wanted their businesses to grow substantially, and more likely to have an objective of moderate growth. The qualitative interviews revealed that most respondents did not have any concrete plans for growth, preferring instead to maintain the business as it is. In virtually all cases, respondents had trouble coping with existing demand.
Most respondents served predominantly micro-sized and small firms (fewer than nine employees). Over 40% of respondents stated that their clients mainly had a turnover of less than £100,000, and just under 40% stated that their clients mainly had a turnover of between £100,000 and £250,000. Most respondents served business clients in a range of different business sectors. Ethnic minority respondents were more likely to serve businesses in the services; retail, wholesale and repair; and pubs, hotels and restaurants sectors.
For more than 80% of respondents, ethnic minority clients constituted fewer than 25% of their business clients. For a small number of respondents (4.2%), ethnic minority business clients constituted between 75% and 100% of all clients. For 72.4% of respondents, ethnic minority business clients contribute less than 10% of fee income. Only 5% of respondents stated that ethnic minority business clients constituted between 50%–75% of fee income, and 4.4% stated that ethnic minority business clients accounted for more than 75% of fee income. Ethnic minority respondents were far more likely to have a large proportion of ethnic minority business clients and to derive a higher proportion of their fee income from these clients. The case studies with ethnic minority accountants highlighted the vital importance of co-ethnic ties to the growth and development of practices.
‘Preparing accounts’ was a major contributor to fee income, on average contributing nearly half of all fee income. Personal taxation and auditing were the next highest contributors to fee income, although these activities represented on average only 14.1% and 12.7% of fee income respectively. There was little evidence that accountants were dependent upon auditing for a large proportion of fee income. Only 0.9% of respondents stated that they gained between 50%–75% of fee income from auditing, and even fewer (0.3%) stated that they gained between 76%–100% of fee income from auditing. Ethnic minority respondents reported lower contributions to fee income from two items: personal taxation and business advice. The case studies revealed, however, that it was common practice for ethnic minority accountants to provide business advice as part of their overall package of services to clients.
THE IMPACT OF A RAISED AUDIT EXEMPTION THRESHOLD
Nearly all respondents (97.4%) were aware of proposals to introduce a raised audit exemption threshold and an Independent Professional Review for small company audit. Nearly half the respondents (48%) agreed with these proposals, 33% disagreed and 15.7% were unsure. Respondents estimated that, on average, 63.7% of clients would become exempt from audit. The mean proportion of fee income represented by future exempt clients was estimated to be 20.6%. On average, 13.2% of future exempt clients were expected to continue with the full audit, and 71.1% with other services. Just over 6% of respondents estimated that fee income would increase as a result, but by a very modest amount (0.65% on average). In contrast, just over 50% of respondents estimated that fee income would decrease, but also by a modest amount (4.84% on average).
Ethnic minority respondents anticipated a higher proportion of future exempt clients, a higher proportion of fee income, a lower proportion of clients who would continue with a full audit, and a lower proportion of clients who would continue to use their other services. Despite these results, it is notable that there were no statistically significant differences by ethnic background with regard to anticipated changes in fee income, either increases or decreases. In addition to an anticipated reduction in fee income from auditing, respondents also anticipated a slight reduction in fee income derived from corporate taxation, VAT returns, personal taxation, business advice and other services. In contrast, respondents anticipated a slight increase in the contribution to fee income from three services: preparing accounts, representing clients and management consultancy. Most respondents believed that their clients would benefit from a raised audit exemption through a reduction in bureaucracy and reduced costs. Some believed that the effect would be to reduce the financial credibility of some small to medium-sized enterprises (SMEs). Few believed that a raised audit exemption threshold would hinder the quality of business advice to SMEs.
The strongest short-term and long-term effect on practices was expected to be a reduction in training opportunities. This was a strong theme in the interviews with ethnic minority accountants.
Many believed that a raised audit exemption would lead to few changes in their practice. Very few believed that a raised audit exemption would have severe financial implications or lead to practice closure. Ethnic minority respondents were less likely to agree that a raised audit exemption threshold would benefit their clients through either reduced bureaucracy or reduced costs. Ethnic minority respondents were more likely to agree that a raised audit exemption threshold would both reduce client numbers and reduce job quality and satisfaction.
MARKETING ACTIVITIES AND PERFORMANCE
Nearly all respondents used informal methods of identifying and attracting customers, including word of mouth from existing customers and referrals from family and friends. Relationship marketing approaches were not only the most used, they were believed to be the most useful activities in identifying and attracting customers. Many marketing activities undertaken by respondents emphasised the importance of retaining existing clients, rather than attracting new business.
Despite differences in the client base of ethnic minority and white respondents, overall there were strong similarities in the relative contribution of marketing activities in identifying and attracting new customers. Ethnic minority respondents were more likely to give a higher rating to three items: joint advertising with customers or suppliers; personal contact with top management; and referrals from family and friends. In contrast, white minority respondents gave a significantly higher rating to the importance of word of mouth from existing customers.
All respondents believed that they had invested considerably in new technologies within the previous three years. Investment in website development and e-business achieved much lower mean scores, indicating that few respondents had fully developed Internet-related strategies. White minority respondents were more likely to state that they had invested considerably in new technologies and in website development and e-business in the previous three years.
Although both ethnic minority and white minority respondents stated that sales and profits had increased in the previous three years, white minority respondents were significantly more likely to state that their sales and profits had increased considerably. Among all respondents there was a strong level of confidence in the future. White respondents were, however, more likely to express greater confidence in their firm’s future ability to cope successfully with changes. The qualitative interviews with ethnic minority accountants indicated that the growth in numbers of unregulated accountants was a threat to their future prospects.
Ram and Carter, 2001
Executive summary
THE RESPONDENTS
This report presents the results of survey of ACCA members in smaller practices. Comparisons are made between the profiles of white and ethnic minority owned practices; the opportunity was also taken to elicit members’ views on the proposals to raise the audit exemption threshold. In total, 1,586 usable questionnaire responses were received from a postal survey, a response rate of just over 40%. Qualitative interviews with 20 ethnic minority members in independent practice were also undertaken.
Respondents were drawn from throughout the UK, although a substantial proportion of respondents were drawn from London (28%) and the South East (21.9%). Nearly 80% of respondents identified their ethnic background as being ‘White–UK’ or ‘White–Other’. Of the respondents who identified themselves as being of ethnic minority background, the largest proportion (12.5% of the total sample) was made up of different Asian groups. Only 38 respondents (2.4%) identified their ethnic background as ‘Chinese’ or ‘Chinese–UK’ and only 34 (2.2%) as either ‘Black–African’ or ‘Black–UK’.
Most responses (87.9%) were from men. Of the 167 female respondents that identified their ethnic background, only 11 came from ethnic minority groups.
Respondents from ethnic minorities were more than twice as likely to have a Bachelors or a Masters degree than other respondents.
THEIR BUSINESSES
The majority of businesses had a turnover below £500,000. For a quarter of respondents, business turnover was substantially lower than this figure, lying below £50,000. Over the past three years, business turnover has increased year on year. The turnover of businesses owned by ethnic minority respondents was significantly lower than for white minority owned businesses. Despite a slight narrowing between the two groups over the past three years, the turnover of ethnic minority respondents remains significantly lower than that of white minority respondents.
v The majority of respondents’ firms employed fewer than four full-time people in each employment category. The mean number of partners within each practice was 2.12, while on average there were 1.29 qualified accountants and 2.27 part-qualified accountants for each respondent firm. Ethnic minority accountants were more likely to operate smaller scale practices, with fewer partners, qualified accountants, part-qualified accountants, finance assistance and clerical and secretarial staff.
A large majority of respondents wanted their businesses to grow either moderately (59.5%) or substantially (17.2%). The most preferred mechanisms to bring about growth were increasing profitability, turnover, and efficiency through greater IT use. Ethnic minority respondents were, however, less likely to state that they wanted their businesses to grow substantially, and more likely to have an objective of moderate growth. The qualitative interviews revealed that most respondents did not have any concrete plans for growth, preferring instead to maintain the business as it is. In virtually all cases, respondents had trouble coping with existing demand.
Most respondents served predominantly micro-sized and small firms (fewer than nine employees). Over 40% of respondents stated that their clients mainly had a turnover of less than £100,000, and just under 40% stated that their clients mainly had a turnover of between £100,000 and £250,000. Most respondents served business clients in a range of different business sectors. Ethnic minority respondents were more likely to serve businesses in the services; retail, wholesale and repair; and pubs, hotels and restaurants sectors.
For more than 80% of respondents, ethnic minority clients constituted fewer than 25% of their business clients. For a small number of respondents (4.2%), ethnic minority business clients constituted between 75% and 100% of all clients. For 72.4% of respondents, ethnic minority business clients contribute less than 10% of fee income. Only 5% of respondents stated that ethnic minority business clients constituted between 50%–75% of fee income, and 4.4% stated that ethnic minority business clients accounted for more than 75% of fee income. Ethnic minority respondents were far more likely to have a large proportion of ethnic minority business clients and to derive a higher proportion of their fee income from these clients. The case studies with ethnic minority accountants highlighted the vital importance of co-ethnic ties to the growth and development of practices.
‘Preparing accounts’ was a major contributor to fee income, on average contributing nearly half of all fee income. Personal taxation and auditing were the next highest contributors to fee income, although these activities represented on average only 14.1% and 12.7% of fee income respectively. There was little evidence that accountants were dependent upon auditing for a large proportion of fee income. Only 0.9% of respondents stated that they gained between 50%–75% of fee income from auditing, and even fewer (0.3%) stated that they gained between 76%–100% of fee income from auditing. Ethnic minority respondents reported lower contributions to fee income from two items: personal taxation and business advice. The case studies revealed, however, that it was common practice for ethnic minority accountants to provide business advice as part of their overall package of services to clients.
THE IMPACT OF A RAISED AUDIT EXEMPTION THRESHOLD
Nearly all respondents (97.4%) were aware of proposals to introduce a raised audit exemption threshold and an Independent Professional Review for small company audit. Nearly half the respondents (48%) agreed with these proposals, 33% disagreed and 15.7% were unsure. Respondents estimated that, on average, 63.7% of clients would become exempt from audit. The mean proportion of fee income represented by future exempt clients was estimated to be 20.6%. On average, 13.2% of future exempt clients were expected to continue with the full audit, and 71.1% with other services. Just over 6% of respondents estimated that fee income would increase as a result, but by a very modest amount (0.65% on average). In contrast, just over 50% of respondents estimated that fee income would decrease, but also by a modest amount (4.84% on average).
Ethnic minority respondents anticipated a higher proportion of future exempt clients, a higher proportion of fee income, a lower proportion of clients who would continue with a full audit, and a lower proportion of clients who would continue to use their other services. Despite these results, it is notable that there were no statistically significant differences by ethnic background with regard to anticipated changes in fee income, either increases or decreases. In addition to an anticipated reduction in fee income from auditing, respondents also anticipated a slight reduction in fee income derived from corporate taxation, VAT returns, personal taxation, business advice and other services. In contrast, respondents anticipated a slight increase in the contribution to fee income from three services: preparing accounts, representing clients and management consultancy. Most respondents believed that their clients would benefit from a raised audit exemption through a reduction in bureaucracy and reduced costs. Some believed that the effect would be to reduce the financial credibility of some small to medium-sized enterprises (SMEs). Few believed that a raised audit exemption threshold would hinder the quality of business advice to SMEs.
The strongest short-term and long-term effect on practices was expected to be a reduction in training opportunities. This was a strong theme in the interviews with ethnic minority accountants.
Many believed that a raised audit exemption would lead to few changes in their practice. Very few believed that a raised audit exemption would have severe financial implications or lead to practice closure. Ethnic minority respondents were less likely to agree that a raised audit exemption threshold would benefit their clients through either reduced bureaucracy or reduced costs. Ethnic minority respondents were more likely to agree that a raised audit exemption threshold would both reduce client numbers and reduce job quality and satisfaction.
MARKETING ACTIVITIES AND PERFORMANCE
Nearly all respondents used informal methods of identifying and attracting customers, including word of mouth from existing customers and referrals from family and friends. Relationship marketing approaches were not only the most used, they were believed to be the most useful activities in identifying and attracting customers. Many marketing activities undertaken by respondents emphasised the importance of retaining existing clients, rather than attracting new business.
Despite differences in the client base of ethnic minority and white respondents, overall there were strong similarities in the relative contribution of marketing activities in identifying and attracting new customers. Ethnic minority respondents were more likely to give a higher rating to three items: joint advertising with customers or suppliers; personal contact with top management; and referrals from family and friends. In contrast, white minority respondents gave a significantly higher rating to the importance of word of mouth from existing customers.
All respondents believed that they had invested considerably in new technologies within the previous three years. Investment in website development and e-business achieved much lower mean scores, indicating that few respondents had fully developed Internet-related strategies. White minority respondents were more likely to state that they had invested considerably in new technologies and in website development and e-business in the previous three years.
Although both ethnic minority and white minority respondents stated that sales and profits had increased in the previous three years, white minority respondents were significantly more likely to state that their sales and profits had increased considerably. Among all respondents there was a strong level of confidence in the future. White respondents were, however, more likely to express greater confidence in their firm’s future ability to cope successfully with changes. The qualitative interviews with ethnic minority accountants indicated that the growth in numbers of unregulated accountants was a threat to their future prospects.