The Role of IFAC in the Survival & Growth of SMPs

The Role of IFAC in the Survival & Growth of SMPs Mazi NNAMDI A. OKWUADIGBO BSc, FCA Member, IFAC Small and Medium Practices Committee THE FORUM OF FIRMS OF THE INSTITUTE OF CHARTERED ACCOUNTANTS OF NIGERIA (ICAN) Lagos, Nigeria August 16, 2012

INTRODUCTION IFAC What is IFAC? Independent Boards & IFAC Committees IFAC SMP Committee What is an SMP? ICAN & SMPs SMP Committee Representation SMP Task Forces IFAC SMP Mission and Services Input to policy and regulation Regular and timely input to development of international standards Promoting the visibility and importance of SME sector and role of SMPs Provides free practical resources and tools in support of SMPs Input on IFRS for SMEs SMP Quick Poll Challenges and Opportunities for SMPs and SMEs IFAC Member Body Role (e.g., ICAN) IFAC/ICAN Expectations of Nigerian SMPs Presentation Outline

SMPs constitute the vast majority of accountancy practices worldwide Trusted and competent business advisers for their clients Provide high-quality professional services to meet a wide range of client needs Services range from the more traditional services, such as audit, accounting and tax, to value-adding business advisory services; and, SMPs are able to provide these services in a customized and personal manner SMEs have often turned to SMPs for a broad range of professional services SMEs account for the vast majority of businesses globally; moreover, many consider SMEs to hold the key to the global economy’s recovery from one of the deepest economic downturns in modern times Due to the importance of SMPs, especially in supporting SMEs, IFAC created the SMP Committee in 2006 and has consistently increased its commitment in helping to cultivate robust SMPs as they are considered key to the prosperity of SMEs INTRODUCTION

IFAC is the global organisation for the accountancy profession dedicated to serving the public interest by strengthening the profession and contributing to the development of strong international economies. IFAC is comprised of 167 members and associates in 127 countries and regions, representing approximately 2.5 million accountants in public practice, education, government services, industry and commerce. WHAT IS IFAC?

IAASB: International Auditing and Assurance Standards Board This board sets all auditing and assurance standards. It also issues the various practice statements, e.g., ISA, IAPS, etc. IAESB: International Accounting Education Standards Board This board has the responsibility of issuing and reviewing education standards called international Education Standards (IES). IESBA: International Ethics Standards Board for Accountants This board issues/reviews the code of ethics of the accountancy profession. IPSASB: International Public Sector Accounting Standards Board This board issues International Public Sector Accounting Standards, the IPSASs. INDEPENDENT BOARDS SUPPORTED BY IFAC

Professional Accountancy Organization Development Committee (formerly Developing Nations Committee) Professional Accountants in Business Committee Small and Medium Practices Committee (SMP) Transnational Auditors Committee IFAC COMMITTEES

What is an SMP? Universal Quantitative criteria inappropriate Need to recognize national and regional variations Some Qualitative Characteristics Its clients and fee revenue are mostly from SMEs It uses external sources to supplement limited in-house technical resources (e.g., audit software) Its employs a limited number of professional staff IFAC SMP COMMITTEE

Currently, about 6,500 Chartered Accountants hold the Institute’s practising licences. Interestingly, nearly 70% of this number is made up of sole practitioners as well as small- and medium-sized practices which are classified by ICAN as follows. Small Practices: 2-4 partners Medium practices: 5-9 partners Large practices: 10+ ICAN AND SMPs

Representation Represent SMPs globally Members from 18 countries and all regions Main focus—help IFAC member bodies support their SMPs SMPs can help SMEs through provision of high-quality professional services But SMPs confronted with unprecedented challenges operational, regulatory, market IFAC SMP COMMITTEE

SMP TASK FORCES Strategic Planning Task Force (SPTF) Public Policy and Regulation Task Force (PPRTF) IAASB Rapid Response Task Force (IRRTF) Ethics Task Force (ETF) Practice Management Task Force (PMTF) Implementation Guidance Task Force (IGTF) SME Business Support Task Force (SBSTF) IFAC SMP COMMITTEE

Input to Policy and Regulation Contributes to IFAC’s policy-making process and actively participates in its regulatory dialogue so as to ensure that SMP and SME issues are duly considered Aims Relevant, stable and proportionate regulation for SMEs and SMPs, e.g., recently provided input on IFAC’s response to the European Commission on Audit Policy All policy/regulatory proposals to be appraised in terms of impact on SMEs (“Think Small First”) Regulatory changes to be evidence-based IFAC SMP Committee – Mission and Services

Input to Policy and Regulation (cont’d) EC proposals of most relevance to SMPs (and SMEs) Restricting non-audit services—risk will be disproportionate for SMEs Mandatory rotation—risk of greater audit market concentration (unless mitigating measures) ISA adoption—risk of diverging approaches to proportional application to SME audits Audit oversight—risk will be disproportionate for SMEs Mandatory tendering/abolition of Big Four clauses—help improve competition and challenge perception that size means quality European “passport”—greater cross-border mobility of auditors SMP Committee – Mission and Services

Regular and timely input to development of international standards Vocal by way of comment letters, volunteer/staff dialogue, presentations and CAG participation. Note a representative from the SMP Committee attends all Consultative Advisory Group (CAG) meetings of the IAASB and IESBA IAASB—future focus on auditor reporting, alternatives to audit (reviews, compilations & agreed upon procedures) and ISA proportionality IESBA—future focus on suspected illegal acts, redrafting Code of Ethics, and projects arising from SME/SMP Working Group SMP Committee – Mission and Services

Promoting the visibility and importance of SME sector and role of SMPs IFAC SMP Quick Poll Speaking at national, regional, and global events and meetings SMP eNews, Twitter, and member body articles Annual SMP Forum SMP Committee – Mission and Services

Provides free practical resources & tools in support of SMPs www.ifac.org/about-ifac/small-and-medium-practices-committee/smp-resources-and-tools E.g., guides (ISA, quality control and practice management) and newly issued materials (companion manual) to facilitate and simplify their use E.g, Information Paper, Role of SMPs in Providing Business Support to SMEs, and articles, How to make your Practice a Big Success and How to Build Your Business Advisory Practice Recently issued Good Practice Checklist for Small Business and video series on business advisory Future focus: helping SMPs with proportionate application of ISAs and ISQC 1 (modules, case studies, etc.), supporting implementation of new standards (ISRS 4410/ISRE 2400), and facilitating practice growth in business advisory SMP Committee – Mission and Services

Input to IFRS for SMEs IFAC, with input from the SMP Committee, commented to the IASB throughout the development of the IFRS for SMEs SMP Committee will lead the drafting of IFAC’s response to the IASB’s Request for Information, the first step in the IASB’s comprehensive review of IFRS for SMEs IASB’s SME Implementation Group (SMEIG) includes an SMP Committee member and a technical advisor SMEIG will shortly start working with IASB staff to develop guidance on applying IFRS for SMEs for micro-sized entities SMP Committee – Mission and Services

Polling, initially quarterly, started in early 2011 Poll now semi-annual with country/regional/practice size analysis Objectives Provide snapshot of key challenges and trends influencing SMPs globally and providing SMPs around the world opportunity to share their insights on key developments facing them and their small business clients Help IFAC and its member bodies to gain a deeper understanding of the challenges and opportunities faced by SMPs globally IFAC SMP Quick Poll: About

Conducted in 15 languages 3,678 respondents from practitioners operating in SMP around the world For report see www.ifac.org/smp (Support SMP future polls) Respondents not necessarily statistically representative as country and regional response rates vary Some significant regional variations in findings Key findings… IFAC SMP Quick Poll: May-June 2012

Complexity and pace of change of regulations (in particular tax requirements) topped the list of challenges faced by SMPs and their small business clients Keeping up with new regulations and pressure to lower fees were the top two challenges for practitioners Small business clients face similar challenges with burden of regulation and economic uncertainty topping the list Business from new clients is the main driver of practice growth by a wide margin Largest portion of practitioners expect no change in business in 2012 versus 2011 (and 2013 versus 2012) IFAC SMP Quick Poll: May-June 2012 Findings

Biggest Challenges Faced by SMEs The top challenges faced by practitioners’ SME clients—burden of regulation, economic uncertainty, and difficulties accessing finance This is not surprising given the continuing global economic uncertainty and slowing global economy The results suggest that smarter, less onerous regulation might facilitate increased confidence and growth in the SME sector It should be noted that the poll did not seek to identify what type of regulation created the burden CHALLENGES AND OPPORTUNITIESFOR SMPs AND SMEs

Challenges for SMPs Increase in regulations and compliance requirements Keeping up with new regulations and standards—volume/pace of change (internationalization) Understanding and being prepared for the demands of a more financially literate public Maintaining independence and transparency Attracting and retaining clients Growth of business advisory, assurance services other than audit, and accounting & compilations services (ability to adapt to changing client needs) Pressure to lower fees Rising costs Succession planning Succession planning is an essential of risk management strategy It provides you with the opportunity to respond quickly to unexpected opportunities Mergers and consolidations will occur and lead to a decrease in the number of firms CHALLENGES AND OPPORTUNITIES FOR SMPs AND SMEs

Challenges for SMPs Attracting and retaining staff will be more challenging Competition from unqualified and non-accountants Keeping up with new technology (technology will play a vital role) Understanding the value-added features of software and how they can maximise profitability and delight customers Committing appropriate levels of expenditure to maintenance of systems Professional integrity and independence will continue to be under the spotlight Being seen to and being perceived to act with integrity and independence Acting within the “spirit” of the Code of Ethics for Professional Accountants when there may be conflicting requirements CHALLENGES AND OPPORTUNITIESFOR SMPs AND SMEs

Opportunities for SMPs SMPs enjoy a reputation for competency, trust, and responsiveness Strong growth opportunities for SMPs SMPs to be structured to embrace the demands associated with growth Service and product mixes will continue to evolve Embracing new areas of personal services Development of tools and resources to maximise knowledge CHALLENGES AND OPPORTUNITIESFOR SMPs AND SMEs

Awareness of Legislations affecting SMPs and make timely input ICAN’s role: Minimising the impact of new compliance programs or regulations on members Continuing to be seen as acting in the public interest while providing leadership and advocacy on behalf of members Ensuring the timely and concise communication of the impact of changes Developing tools, resources, and guidance statements Embracing the need to provide on timely basis MCPE to educate members Strengthen relationship with Small and Medium Enterprises Development Agency of Nigeria (SMEDAN) Referral network and collaboration support services Providing a broad range of services for a broad range of clients Help members establish referral or firm networks (Forum of Firms) by ensuring appropriate transparency and independence exists in networked firms IFAC MEMBER BODY ROLE (e.g., ICAN)

Knowledge update on IFRS for SMEs Enforce ethics of the profession Continuous practice monitoring Encourage mergers and/or collaboration of SMPs Ensure adequate pricing of SMPs services Dissemination to SMPs of IFAC SMP Committee’s resources and tools IFAC MEMBER BODY ROLE (e.g., ICAN)

Regular visits to IFAC and ICAN websites Respond to IFAC SMP Quick Poll Contribute to Exposure Drafts Ensure Partners and staff are regularly trained Feedback to IFAC SMP Committee through ICAN District Societies of ICAN to be involved Creating awareness of regulations affecting SMPs and SMEs IFAC/ICAN Expectations of Nigerian SMPs

Thank you www.ifac.org/smp

The Role of IFAC in the Survival & Growth of SMPs