SMPs Adapting to the Economic Turbulence and Laying Foundations for Sustainable Growth

1. Presented by : Albert Au, Hong Kong Institute of CPAs Venue: IFAC SMP Forum, Beijing Date: 28 October 2009 SMPs Adapting to the Economic Turbulenceand Laying Foundations for Sustainable Growth

2. Summary • Impact of the economic crisis • On the Hong Kong economy • On SMPs in Hong Kong • SMPs: adapting to the economic crisis and laying the foundations for sustainable growth • HKICPA’s response to the economic crisis

3. Impact of the Economic Crisison the Hong Kong economy • Started about 3 months’ later than in the USA/Europe • Less impact in Hong Kong, but still very significant • Benefit of the economic stimulus measures of the mainland • Some positive signs of recovery: • Rising residential property market and prices • Hang Seng index positive: - 30 September 2009: 20,955 - 27 October 2008: 11,016 - 30 September 2008: 18,016

4. Impact of the Economic Crisison the Hong Kong economy • But the real economy is not recovering • Exports fell 13.9% from August 2008 to August 2009 • Seasonally adjusted unemployment rate in Hong Kong • June – August 2008 3.2% • June – August 2009 5.4% • The worst has not yet been seen

5. Impact of the Economic Crisison Hong Kong SMPs A delayed impact on SMPs which will last for another year at least • Reduction in clients’ business activity • Pressure on fees • Decreased staff turnover • General uncertainty

6. SMPs Adapting to the Economic Turbulence How should SMPs adapt? • By getting closer to clients • Deliver greater value to clients • Raised awareness of professional issues • Sound practice management • Essential to maintain professional integrity • Sound practice management

7. SMPs Adapting to the Economic Turbulence Deliver greater value to clients • Develop and offer • new, value added services • specialist services • Better service delivery

8. SMPs Adapting to the Economic Turbulence Raised awareness of professional issues • Know your clients and your clients’ businesses better • Responding to the heightened risk of fraud in clients’ businesses • Appropriate assessment of clients’ businesses as going concerns • Maintaining professional standards in the face of downward fee pressure

9. SMPs Adapting to the Economic Turbulence Sound practice management • A well defined business strategy • Controlling costs • Ensuring sufficient liquidity • Improving efficiency • Speed of work, billing, payment by clients • Actively managing the risks

10. Laying the Foundations for Sustainable Growth Sustainable SMP growth • Adapting to the challenges will also lay the foundations for sustainable growth • Leadership in charting the way forward

11. HKICPA’s response to the economic crisis Primary focus: providing professional technical support • Events and correspondence focusing on key topics of heightened relevance in the crisis • Challenges in auditing fair value estimates • The auditor’s responsibilities to consider fraud • Going concern / liquidity risk considerations • Accountants’ reports on solicitors’ accounts • E-correspondence to all members explaining the reasons and rationale for the amendments to IAS 39 and HKFRS7.

12. HKICPA’s response to the economic crisis Primary focus: providing professional technical support • Financial reporting and auditing alerts • SMP/SME resource centre on HKICPA website • Promotion of new areas of work for members (eg HKID Capital Investment Entrant Scheme) • Investment initiatives to enhance technical training and support

13. Thank you Albert Au Member, IFAC SMP Committee