This article was first published in the February 2016 Malaysia edition of Accounting and Business magazine.

Against the backdrop of a constantly changing business environment, small and medium-sized practices (SMPs) are facing growing pressure from technology, competition and deregulation. They must consider how their practices can evolve in the long term so that they continue to add value to their predominantly small and medium-sized enterprise (SME) clients. 

Rising audit thresholds in certain parts of the world, the increased prevalence of automation, and deregulation in particular have significantly impacted on the demand for traditional services. We will need to evolve our practice from one that focuses predominantly on compliance work such as statutory audit services and assistance in annual tax filings of individuals and companies to one that proactively solicits advisory and consultancy work. Previously, we were generally reactive as clients would automatically engage our compliance services due to statutory filing deadlines. However, for advisory and consultancy work, we have had to be proactive and convince clients that engaging our advisory services will be beneficial to them. 

To better understand how SMPs are adapting to this new reality, ACCA, in partnership with six other accountancy bodies, including the Institute of Singapore Chartered Accountants (ISCA), embarked on an international survey of SMP business models and how these are changing. 

A first in what ACCA hopes will become an established and recognised study into the development of the profession, the survey, The Global SMP business model: understanding a changing profession, provides a detailed map of the sector’s service offering, its growth prospects and the source and value of its diverse skills across different countries.

According to the survey, assurance, tax and compliance services were cited as the ‘cash cows’ for SMPs, generating the largest share of income.  The environment is similar for Singapore as well. The inaugural #AEcensus2015 survey of accounting entities, conducted by the Singapore Accountancy Commission (SAC), revealed that 64% to 71% of revenue generated by firms other than the Big Four was generated from assurance services. 

Similarly, a survey entitled Small and Medium Sized Public Accounting Practices in Singapore – Bridging the Current to the Future, conducted by ACCA and commissioned by the Accounting and Corporate Regulatory Authority (ACRA) in 2011, reported that a substantial portion of the respondents still derived their revenue mainly from statutory audit work that stands at 40% vis-à-vis the next contributor, taxation, which trails at 12%. 

Transferable skillsets

So how are practices exposed to the pressures of technology, competition and deregulation responding?

While SMPs remain highly focused on assurance, tax and compliance at the global level and in Singapore, these core skillsets are highly adaptable and transferable, with a number of routes existing for SMPs to explore higher value-added offerings and expand their services. In particular, there is increased interest from SMPs across markets to help clients design and monitor internal controls as global supply chains demand accountability and transparency. Among these routes is likely to be a progression from tax and compliance to financial management and business planning, and subsequently on to a ‘strategy-and-growth’ proposition. 

Another possible skills transfer route runs from assurance to risk management, change management and the design of internal controls through to developing and implementing strategy. 

This trend of SMPs exploring alternatives is likely to continue, with the recent ACCA Global SMP Business Model Survey showing that over 70% of SMPs are planning to introduce a new service over the next two years. 

Deregulation challenge

The survey also shows that SMPs become resilient as they innovate in response to deregulation. This is a global trend that the Singapore authorities are certainly following and adopting. SMPs must realise that their traditional revenue streams from compliance work will diminish. I believe that SMPs that adapt their core compliance skills acquired in assurance and taxation and offer related value-added financial advisory services to their SME clients will be resilient to the deregulation trend and can even take advantage of first-mover benefits. Apart from becoming more proactive, SMPs have to learn to highlight, proudly and loudly, the benefits of their services to their clients.

In countries where the impact of deregulation has been greatest, such as reduced reporting requirements and rising audit thresholds, practices have responded to this by radically expanding their service offering and exploring partnerships with other organisations.

Like their global counterparts, 40% of SMP respondents in ACCA’s 2011 survey said that they will compensate the expected decline in revenue from statutory audits with other works such as compilation engagements, taxation and other accounting services.

Though deregulation may be more prevalent in Europe, it is happening around the world. It is testing the cross-subsidies between growth-orientated services and the more traditional, core offering of assurance and compliance, which have by and large benefited clients by aligning advisers’ incentives with their own.

Practices have responded by diversifying their services. However, in order for this to be sustainable, they need to be very strategic about their investment in new services, with a strong emphasis on generating client growth, referrals and repeat business.

Similarly, in Singapore, the SAC’s 2015 census survey noted that while 67% of accounting entities are anticipating a growth in revenue from audit in the next 12 months, 80% are expecting to bring in more revenue through growth in non-audit services.

Apart from sector and industry-wide trends and challenges, each market will also be confronted by their own individual challenges. For example, the accountancy sector in Singapore and our neighbour Malaysia faces an acute shortage of skills. 

Regulators, national and global professional bodies and local SMPs each have a role to play in ensuring that SMPs have access to the necessary resources, insights and talent in order for them to constantly innovate and diversify their service offerings. 

Paul Tan FCCA is managing director of CA Trust PAC