(This article was first published in issue 10 of Accountancy Futures.)
The future opportunities for small and medium-sized practices (SMPs) are fantastic, says Mark Gold FCCA, partner at UK firm Silver Levene. ‘This is simply because of their clients,’ he explains. ‘SMEs by their very nature require outside help, and it is a role the professional accountant can play completely.’
Gold is one of 17 partners at Silver Levene, an £11m turnover practice based in London. He also chairs the SMP Forum of FEE (the European Federation of Accountants), and is both a former ACCA president and a former chairman of ACCA’s SME committee.
Gold observes that time and again, accountants are seen as the most trusted advisers to businesses, both large and small. But he also makes the point that SMPs are businesses themselves. They face many of the opportunities and threats that their clients face, such as changes in technology and the regulatory environment, and need to adapt their businesses accordingly.
So what have SMPs themselves been telling us about the opportunities and challenges they face today, and will face in the future?
IFAC, the International Federation of Accountants, has just published its latest survey of small and medium-sized accountancy practices around the world. It will make interesting reading for the thousands of practitioners who relish being at the sharpest end of business.
According to the survey, attracting new clients and keeping up with regulations come at the top of the list of SMPs’ challenges, with pressure to lower fees, rising costs and differentiation also seen as key. The survey also suggests that economic uncertainty and rising costs are at the top of their clients’ list of challenges.
However, despite these issues, nearly three-quarters (72%) of SMPs say they are either maintaining or growing the previous year’s practice fee revenue. Tax and consulting are tipped to be the two biggest sources of revenue growth for the year ahead. However, a number of themes have emerged recently that have had a direct impact on SMPs, and will continue to. Rising audit thresholds around the world are affecting the business models of SMPs, as are technological innovation and the internationalisation of business.
‘Audit thresholds is the one people focus on,’ says Gold. ‘When Silver Levene sat down to talk about rising thresholds in the UK years ago, some people were concerned, while others saw it as an opportunity because they could see the shackles coming off. We wouldn’t be tied down by all the audit restrictions, so we could help clients with the advice they really needed.’ Gold has recently returned from Denmark, where he spoke with accountants in practice facing an increase in audit thresholds. ‘Some are worried, but many are rising to the opportunity,’ he says.
Of course, audit requirements vary from one jurisdiction to another, and this can have an impact on how firms in these different jurisdictions approach the development of no-audit advisory services. As Sue Almond, ACCA’s director of external affairs, explains: ‘You can contrast Canada, where the environment is very much that there isn’t a requirement for an audit, with Norway, where until recently there was the requirement for all companies to be audited. The starting point is very different, and therefore market expectations are different.’
However, she adds that there is still a need for a service that can give assurance to stakeholders such as finance providers, irrespective of whether there is a formal requirement for an audit. ‘The challenge is to put yourselves in the shoes of the client or finance provider, and demonstrate the value of the audit or its alternative,’ she says.
However, issues such as rising audit thresholds focus on the traditional skills of qualified accountants. There are wider forces at play as well that need to be considered. Top of the list is the internationalisation of business. Even the smallest of SMEs will have the opportunity to do business across borders, and as a result will be looking for advice in areas such as taxation and regulation.
‘Even if you are an SMP servicing SMEs, it is unusual not to have some form of international element,’ says Almond. ‘It might not necessarily be global, but typically there are cross-border issues.’
According to a study by the Edinburgh Group, a coalition of 14 accountancy bodies including ACCA, seven out of 10 SMPs have clients that undertake at least one type of international activity. Around half have clients undertaking import and export activity, but relatively few SMPs have clients participating in a high number of international activities. The study concludes that there is considerable potential for SMEs to expand the scope of their international activities and that those that do not currently buy or sell goods or services internationally could be encouraged to consider how looking beyond home markets could boost business performance.
But it is as likely that SMPs are reacting to their clients’ demands. This is a point highlighted in research carried out by ACCA special adviser Professor Robin Jarvis, Dr Cristina-Maria Stolan and ACCA’s head of small business Rosana Mirkovic. In the report, 2020 vision: Learning from the past, building the future, Jarvis argues that the motivation for SMPs to provide business advisory services outside their core business activity – namely internationalisation guidance to SMEs – was embedded in their desire to respond as much as possible to their clients’ requirements and business goals.
As the report says: ‘Some SMP practitioners highlighted that their practice not only provides guidance beyond traditional accounting services, but that they primarily act as business advisers; in turn, providing international advisory services represents a different feature for their practice. This sets them apart from their competitors and ultimately provides them with competitive advantage.’
However, the report adds that in giving advice, SMPs are well aware of their knowledge limitations regarding foreign markets and the services they have the capacity to provide. They advise their clients to the limits of their knowledge, and then ask their international network to complement that knowledge. They then transfer the knowledge directly to their SME clients and, ultimately, directly refer their clients to their international network contacts (other SMPs, law firms, bankers, business consultants, and other SME clients) to ensure that their clients receive the appropriate support for enhancing their international activities.
‘This places accountants in a preferred position compared to a number of other professions and advisory services in supporting SMEs’ internationalisation ventures,’ the report says.
And then there is technological innovation, much of which is allowing SMEs, and therefore SMPs, to operate across borders, and in a more efficient and productive way. Gold believes this is having a huge impact: ‘Technology has to be utilised, and SMPs have to go for it.’
Giancarlo Attolini, chairman of IFAC’s SMP committee, agrees: ‘It is clear that developments in digital technologies are going to affect the world even more radically over the next 25 years than the last 25. Technology has already made business global.’
Attolini is a founding partner of Attolini Spaggiari & Associati Studio Legale e Tributario, an accounting, tax and law firm in Reggio Emilia, Italy. He believes that SMPs are facing a choice between providing transactional and advisory services.
‘It is critical that SMPs leverage automation and repeatable processes to enable them to add real value to their clients through proactive consulting,’ he says. ‘There will also be opportunities to provide real-time collaboration and professional services to clients utilising technology. For example, SMPs may wish to use the opportunity presented by the cloud to offer enhanced client accounting services.’