GL_I_SMPSurvey_21

This article was first published in the May 2016 international edition of Accounting and Business magazine.

Last year, the International Federation of Accountants (IFAC) commissioned independent economics and business research consultancy Centre for Economics and Business Research (Cebr) to conduct an analysis of its membership data and to provide a snapshot of the importance of the accountancy profession to the global economy and to society. Using this data, Nexus 2: The Accountancy Profession – A Global Value Add estimates that the global profession contributes US$575bn annually to the global economy and reveals a strong, 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. 

The first Cebr report, Nexus 1: The Accountancy Profession, Behind the Numbers, revealed that almost half of the professional accountants represented through IFAC’s members work in public practice. Furthermore, of these accountants in public practice, the majority worldwide work in small and medium-sized practices (SMPs). The magnitude of the profession’s contribution to the wider economy and vast number of accountants in small and medium-sized public practices means there is great value in hearing what the thousands of SMPs have to say about their challenges and opportunities, and those of their small and medium-sized entity (SMEs) clients, in response to the 2015 IFAC Global SMP Survey. 

About the survey

Conducted annually, the IFAC Global SMP Survey is intended to take a snapshot of the key issues, and track important trends and developments facing SMPs and their SME clients. Leading researchers at the University of Dayton in the US now work closely with IFAC on the development of the survey as well as the analysis of survey results and reporting. The survey helps IFAC and its member organisations, such as ACCA, gain a better understanding of the specific challenges and opportunities facing SMPs and SMEs globally, and as a result better serve this constituency. 

The 2015 survey, which was conducted from October to November 2015, elicited 6,725 respondents from 169 countries, providing professional services to more than 800,000 SME clients. This makes it one of the world’s largest surveys of accountants. The largest numbers of respondents were from Europe (41%), Asia (26%) and Africa (15%). With the exceptions of the US and Russia, there were more than 70 responses each from the 10 countries ranked the highest globally by gross domestic product. A majority of respondents were either sole practitioners (39%) or from practices with two to five partners and staff (32%). 

What we learnt

The survey offered some interesting intelligence about SMEs that might help SMPs better understand how best to serve these clients. When asked about the challenges facing their SME clients, 75% or more of respondents rated seven of the eight challenges as ‘moderate or greater’. The top challenges facing SME clients included economic uncertainty (rated by 61% as a ‘high’ or ‘very high’), rising costs (58%), competition (54%) and difficulties accessing finance (51%). 

The survey also explored the extent to which globalisation is impacting the smallest of businesses by asking about the international activities of SME clients. Consistent with the Edinburgh Group report Growing the Global Economy through SMEs, the IFAC survey found that about three-quarters of respondents’ SME clients were engaged in some kind of international activity, most commonly import or export. SME involvement in other types of international activities, such as dealing in foreign currencies, owning international assets and having foreign owners or investors, was substantially more limited. 

In general, more international activity was reported in the Middle East compared to other regions. As globalisation 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 (46%) and Asia (46%), which corroborates concerns emanating from Asia about an economic slowdown and volatile stock market. 

Biggest challenges

SMPs continue to face many challenges. Consistent with the 2014 survey results, a majority of respondents viewed each of the 12 challenges presented as  moderate, high, or very high. The most pressing challenges facing SMPs included attracting new clients (47% rated this as high or very high), keeping up with new standards and regulations (44%) and differentiating themselves from the competition (43%). 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 have an impact on their business over the next five years. The regulatory environment, competition and technology developments were viewed as the most impactful factors, at 52%, 46% and 43% respectively. 

Technology developments stand out for me. These are both a challenge and an opportunity. Some, perhaps most notably Daniel Susskind, author of The Future of the Professions, argue that technology threatens to render the professions obsolete, accountancy included. Others, and that includes me, see it as an opportunity to improve the value of the services to our clients: data analytics, for example, enables us to offer well-informed advice to our clients. 

How well did SMPs perform?

Respondents were asked how their revenues changed in 2015 compared to 2014. For the four service areas (audit and assurance; advisory and consulting services; tax; and accounting, compilation and other non-assurance and related services), the largest percentages of respondents indicated revenues stayed the same (33% to 38%) or increased moderately (23% to 27%). These findings mirror those of the International Accounting Bulletin’s World Survey 2016, which looks at the revenues of networks and associations.

Reflective of an optimistic outlook, more than one-third of respondents forecasted that fees would increase in 2016: advisory and consulting services (44%); accounting, compilation and other non-assurance and related services (41%); tax (39%); and audit assurance services (35%). In comparison, for each service area, between 31% and 35% projected revenues would stay the same. What this tells us is that advisory and consulting services are expected to be the fastest-growing revenue source for SMPs in 2016. 

Most respondents (84%) provided some form of consulting service and the larger practices were more likely than sole practitioners to provide these services. The IFAC SMP Committee has long recognised the growth potential of this service line and has actively encouraged the global SMP constituency to seriously consider stepping up its business advisory activities. The types of business advisory services they offered most frequently in 2015 were tax planning at 52% and corporate advisory, including advice on mergers and acquisitions, valuations and legal issues, at 45%. The IFAC Global Knowledge Gateway has many of the resources needed to help SMPs offer advisory services.

Networks, associations and alliances

According to respondents, the top three benefits of membership of 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. What’s more, membership of these organisations can also expand SMPs’ ability to serve clients operating internationally. 

Only 28% of SMPs (11%) reported that they currently belong to a network, association (10%) or alliance (7%). An additional 24% indicated that they were considering joining one. Slightly less than half of respondents in both 2015 and 2014 (48% and 49%, respectively) 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 (35%), the Middle East (32%), Asia (30%), and Central and South America and the Caribbean (29%). The larger the SMP, the more likely  the practice was to belong to a network, association or alliance – 65% of respondents from practices with 21 or more partners and staff indicated they belonged to one. 

Again, for those SMPs considering membership, I encourage them to go to the IFAC Global Knowledge Gateway for resources to help them make the decision and, if they do decide to join, to make the selection and transition. 

Survive and thrive

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, 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 organisations, 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. 

Giancarlo Attolini is chair of the International Federation of Accountants’ SMP Committee

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IFAC SMP survey (Feb 2016)

Challenges facing SMPs  
Attracting new clients 47%
Keeping up with regulations 44%
Differentiating from competition 43%

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Challenges facing SME clients  
Economic uncertainty 61%
Rising costs 58%
Competition 54%
Accessing finance 51%