Racing ahead · Vision 2020 . and questions about the future direction of the profession. Also this month we had yet another accounting scandal, with Tesco’s accounts . under scrutiny

www.InternationalAccountingBulletin.comNovember 2014 Issue 543

Nigeria’s economic boom bolsters profession

● SFO launches investigation into accounting practices at Tesco ● WCOA: Talk the talk, walk the walk

● South Africa survey ● Australia survey

Racing ahead

IAB 543.indd 1 21/11/2014 11:59:56

Give your students a business perspective of the world of accounting. Give your students access to content they can trust. Give your students the edge. Subscribe to The Accountant

www.vrl-financial-news.com

A subscription to The Accountant is the ideal accompaniment to an accountancy course of study. Including exclusive features and interviews with major figures in the accountancy sector, The Accountant will help your students to understand the real-world implications of the theory they are learning, and help improve their employability in a competitive jobs market. A weekly newswire gives you regular updates of all the big stories, while IP access means students can view our content anywhere with access to the student portal.

Subscribe to The Accountant for: • IPaccesstoourcontent.Soyourstudentscanaccessour

content campus-wide with one login

• Contentyoucantrust.Wehave125yearsofexperiencedelivering accountancy news.

• Trulyglobalanalysis.Wecoverarangeofstoriesfromaroundthe world, so your students get a wide perspective of the sector.

SIGN UP FOR THE FREE NEWSWIREGet free weekly updates and free content. Sign up here:

http://www.vrl-financial-news.com/system-pages/headernav/free-news.aspx

DON’T mISS OUT. Subscribe to The Accountant today. Contact our subscriptions team on +44(0)20 7563 5688 or email us at [email protected] to find out more.

www.theaccountant-online.com/newslet-ter-subscription

+44 (0) 203 096 2603 [email protected]

IAB 543.indd 2 21/11/2014 11:59:57

November 2014 y 1www.InternationalAccountingBulletin.com

Editorial Advisory BoardKevin McGrath, Crowe Horwath International CEOKevin Arnold, Nexia International CEOGeoff Barnes, Baker Tilly International president and CEOGraeme Gordon, Praxity executive directorStephen Jacobs, INPACT International presidentJon Lisby, Kreston International executive directorJames Mendelssohn, MSI Global Alliance, chairmanChristian Mouillon, EY global vice-chair, assuranceEd Nusbaum, Grant Thornton International CEOMichael Reiss von Filski, Geneva Group International CEOLiza Robbins, Morison International CEOMartin van Roekel, BDO International CEOJean Stephens, RSM International CEORobert Tautges, HLB International CEO

For many of our readers November has been marked by the World Congress of Accountants held in Rome. Our reporter Vincent Huck and The Accountant editor Carlos Martin Tornero attended the ses-sions, networking and meeting many of the professions’ elite from around the world. The theme of the congress was Vision 2020 and questions about the future direction of the profession.

Also this month we had yet another accounting scandal, with Tesco’s accounts under scrutiny in the UK. We also saw yet more investment by the Big Four in analyt-ics business – including KPMG forming a so-called strategic alliance with F1’s McLaren Applied Technologies, as well as chaos with the implementation of the EU audit reform document, as member states start interpreting the rules. One could argue that it really is about time to commit to the future direction of the profession, and of audit, at this juncture when more than just backward-looking assurance on finances is needed.

The Rome congress was also marked by the International Federation of Accoun-tant’s appointment of its first-ever female chair, Olivia Kirtley. I not going to start banging on about diversity in the profession or the lack of it again, but let me just hail this move as great step forward and wish Olivia all the very best in her new role.

You can read a summery of the WCOA on page 4 and 5 and read the December issue of IAB for more behind-the-scenes content.

As you flick and scroll thorough this month’s edition you might detect a bit of an emerging market theme, as Vincent writes about the 1,000-strong Nigerian delegation at the WCOA. We also feature our first-ever survey and ranking of Nigeria (page 9-12), we speak to a funder of a Middle Eastern network with an appetite to go global (page 5), and I visit UC&CS in Mexico City as it marks its 20th birthday (page 8). And let me take a few moments to speak about our invitation to present our World Survey find-ings and meet this Latin American network/association.

It came from its leader Mauricio Mobarak and it was hard to say no. As much as we try at the IAB to present a global view by speaking to people from around the world, nothing can beat going somewhere in person and getting a feel for the market first-hand. UC&CS comprises small member firms across Latin America, mainly led by former Big Four partners and employees, who have decided to set out on their own. While UC&CS still has a way to go before it can be seen as a competitor to some of the global mid-tier networks, it got me thinking about the emerging trend of non-Anglo Saxon networks, which seem very strongly to have a place in the market. Networks and associations like Chinese Reanda, ShineWing, Spanish Auren and Antea, Latin American SMS LatinoAmerica, UC&CS, Santa Fe, Russian FinExpertiza, Nigerian Stransact etc. All of them clearly show there’s a need for them in the market, and the future seems bright for many of these organisations as businesses turn to emerging markets for growth. I’m not trying to say that these businesses pose too much competition for any of the top 10 networks and some of the largest associa-tions, but I do believe they add to the com-petition for member firms lower down the market, especially in emerging economies and for firms that are led by people prefer-ring a more local touch.

The advantage these organisations have is knowledge of the local market and cultural know-how, but as many are built by former Big Four staff the technical skill and high quality are often embedded in the business, which to many local SMEs might sound appealing. And I wouldn’t be surprised if some of these organisations start to con-nect and sign working agreements as they expand and try to hold onto clients looking to expand. It’s an area of the market far removed from large advisory investments, but nevertheless an important part that’s likely to shape the mid-tier landscape of the future.

Ana [email protected]

All roads lead to Rome

EDITOR’S LETTERInternational Accounting Bulletin

NEWS 02-05

CONTENTS

■ SFO investigation into accounting practices at Tesco.

■ PCAOB inspection critical of KPMG US audits.

■ International tax agreement.

■ World Conress of Accountants.

FEATURES 06-08

COUNTRY SURVEYS 09-24

06-07 Ana Gyorkos speaks to EY’s global head of assurance Felice Persico as the firm announces its ‘above Big Four average’ growth in assurance of 4.5%.

08 Ana Gyorkos attends the 20th anniversary annula conference of global network UC&CS in Mexico City.

09-12: NIGERIA

Vincent Huck reports on the strong eco-nomic growth and numerous opportunities in Nigeria, but highlights corruption and political instabilities.

13-18: SOUTH AFRICA

The country’s professional services industry is straining to keep up with the pace of change in a dynamic continent. Isabella Grotto reports.

19-24: AUSTRALIA

Legislative delays, a sluggish economy and increasingly price-sensitive clients are mak-ing life difficult for Australia’s accounting profession. Paul Golden reports.

Give your students a business perspective of the world of accounting. Give your students access to content they can trust. Give your students the edge. Subscribe to The Accountant

www.vrl-financial-news.com

A subscription to The Accountant is the ideal accompaniment to an accountancy course of study. Including exclusive features and interviews with major figures in the accountancy sector, The Accountant will help your students to understand the real-world implications of the theory they are learning, and help improve their employability in a competitive jobs market. A weekly newswire gives you regular updates of all the big stories, while IP access means students can view our content anywhere with access to the student portal.

Subscribe to The Accountant for: • IPaccesstoourcontent.Soyourstudentscanaccessour

content campus-wide with one login

• Contentyoucantrust.Wehave125yearsofexperiencedelivering accountancy news.

• Trulyglobalanalysis.Wecoverarangeofstoriesfromaroundthe world, so your students get a wide perspective of the sector.

SIGN UP FOR THE FREE NEWSWIREGet free weekly updates and free content. Sign up here:

http://www.vrl-financial-news.com/system-pages/headernav/free-news.aspx

DON’T mISS OUT. Subscribe to The Accountant today. Contact our subscriptions team on +44(0)20 7563 5688 or email us at [email protected] to find out more.

IAB 543.indd 1 21/11/2014 11:59:59

2 y November 2014 www.InternationalAccountingBulletin.com

NEWS International Accounting BulletinROUND-UP

UK

SFO launches investigation into accounting practices at TescoThe Serious Fraud Office (SFO) has launched a criminal investigation into accounting practices at Tesco, in the latest blow to the UK grocer following the September announcement of a profit overstatement.

The SFO launched its investigation a week after Deloitte, appointed by Tesco to look into its accounts, published its findings and a week after the resignation of Tesco chairman Richard Broadbent.

Deloitte’s review found the error to be higher than initially forecast at £263m ($412.7m), with overstatements totalling £118m in the first half of the year, £70m in the previous financial period and £75m prior to 2013/2014.

As a result of the SFO’s investigation, the Financial Conduct Authority has discontinued its own inquiry.

Tesco is audited by PwC UK.

US

PCAOB inspection critical of KPMG US auditsThe US’s Public Company Accounting Oversight Board (PCAOB) has condemned the quality of audits carried out by KPMG US in an inspection report published in October.

The review was carried out at 25 out of KPMG’s 82 locations across the country, as well as its national office

in New York.The audit oversight body reported

major failings in half of the KPMG audits it surveyed. In particular, the PCAOB questioned whether the firm had obtained enough evidence to approve the financial statements as fair for 23 out of the 50 cases considered.

Another audit area on which the report cast doubt was the information used by KPMG to confirm the existence of effective internal controls over financial reporting within the audited companies.

The report explained: “In other words, in these audits, the auditor issued an opinion without satisfying its fundamental obligation to obtain reasonable assurance about whether the financial statements were free of material misstatement and/or the issuer maintained effective ICFR.”

The PCAOB pointed out that the findings did not allow for conclusions to be drawn on the quality of the original financial statements issued by the companies themselves, but added that KPMG’s audit deficiencies were cause for concern.

The report continued: “Whether or not associated with a disclosed financial reporting misstatement, an auditor’s failure to obtain the reasonable assurance that the auditor is required to obtain is a serious matter. It is a failure to accomplish the essential purpose of the audit, and it means that, based on the audit work performed, the

audit opinion should not have been issued.”

Another area of judgement called into question by the PCAOB was in KPMG’s acceptance as reasonable of significant assumptions made by certain firms.

KPMG chairman and chief executive officer John Veihmeyer and audit vice-chair James Liddy released a statement in response, saying: “We remain committed to full cooperation with the PCAOB, appreciate the professionalism and commitment of the PCAOB staff and value the important role the PCAOB plays in improving audit quality.

“We have taken remedial actions with respect to our professionals’ evaluation of contrary evidence,” they said, and added: “We will take the further actions necessary to address this quality control criticism and will continue to enhance our system of audit quality control.”

GLOBAL

KPMG and McLaren Group partner on audit technologyKPMG has formed a strategy alliance with McLaren Group to integrate the technology provider’s predictive analytics into its audit and advisory services.The decade-long agreement establishes KPMG as the ‘pioneer’ innovation partner of the Woking-based technology company and will see the business leverage McLaren Applied Technologies’ capabilities for big data predictive analytics to develop a new range of advisory services.

NEWS ROUND-UP

MOVERS & SHAKERS

EY has become the latest Big Four

member to overhaul its strategy

consulting practice, including

hiring a strategy leader from

competitor Deloitte.

Following 11 consulting

acquisitions this year, including a

merger with the Parthenon Group

completed in September, the firm

has appointed Jacques Mulder to

the post of global advisory industry

and market strategy leader.

Mulder previously held the

positions of US chief strategy

officer for life sciences and health

care and corporate strategy leader overseeing expansion in Africa, Asia, Europe and Latin America at Deloitte.

The Accounting Standards Committee of Germany (ASCG) has appointed Andreas Barckow as president of its administrative board, effective on 1 March 2015. Barckow is currently head of Deloitte’s IFRS centre of excellence in Frankfurt and a member of Deloitte’s global IFRS leadership team. Barckow will step down from

his current positions in order to assume his position as ASCG president, the standard-setter said in an announcement.

Tony Johnson has been appointed as the EY Oceania chief executive and regional managing partner effective on 1 January 2015. An EY partner for over 16 years, Johnson led EY’s Oceania assurance practice between 2009 and 2012 and has also been an active member of a number of Australian, Asia-Pacific and global executive leadership committees within the firm.

LinkedIn Group World Accounting Intelligence

Twitter WAI_News

Facebook page World Accounting Intelligence

Scan our QR code for quick smartphone access to IAB

Join our online community

IAB ONLINE – NOVEMBERTop 5 articlesSFO launches investigation into accounting practices at Tesco

PCAOB inspection critical of KPMG US audits

Accounting firms in political crossfire in Russia

International tax agreement welcomed but worries over implementation linger

WCOA Rome: The Olympics of accountancy

Most retweeted articleWCOA Rome: The Olympics of accountancy

Read in 164 countriesUK 23%

US 12%

Mexico 5%

India 5%

Singapore 4%

Rest of the world 48%

Hong Kong 3%

IAB 543.indd 2 21/11/2014 12:00:04


NEWSInternational Accounting Bulletin ANALYSIS

TAX

International tax agreement gets cautious welcomeThe signing of a multilateral competent authority agreement enabling automatic tax exchange by 51 jurisdictions worldwide has been heralded by observers as a step towards international tax transparency.

Signed at the end of October, the agree-ment is the first-ever of its kind and detailed both the nature and timing of the informa-tion exchanges. With 39 attendees, the sign-ing ceremony constituted the largest-ever gathering of ministers aimed at joint action on tax evasion, according to the Organisa-tion for Economic Co-operation and Devel-opment (OECD).

The agreement is based on Article 6 of the Convention on Mutual Administrative Assis-tance in Tax Matters, drafted jointly by the Council of Europe and the OECD in 1988 and described by the Convention as “the most comprehensive multilateral instrument available for all forms of tax cooperation to tackle tax evasion and avoidance, a top pri-ority for all countries”.

The Convention was last amended in 2010 to reflect the G20’s April 2009 Lon-don resolution both to open it to all coun-tries, including developing ones, and align it with existing international standards on the exchange of information on request.

The signing of the multilateral competent authority agreement, allowing early adop-

ters to begin sharing data by September 2017, was welcomed by observers across the industry.

The International Chamber of Commerce (ICC) said it welcomed the agreement and described the development as “an important milestone for the international tax reform agenda”.

ICC Commission chairman and global head of tax at engineering giant Siemens, Christian Kaeser, said: “The fact that 51 countries are able to agree on and conclude to these principles proves that internation-al alignment in tax-related matters is not impossible.“From the perspective of the business

community, international consistency is an important prerequisite to avoid double taxa-tion – a phenomenon still widely unresolved and a major obstacle to cross-border busi-ness,” he added.

KPMG UK financial services tax partner Tom Aston praised the development as a

“groundbreaking agreement” and “another step towards global transparency in tax affairs”.

However, he warned, short time frames would leave countries facing significant implementation struggles. “Now that the multilateral competent authority agreement has been signed, there will be a race against

the clock for both governments and finan-cial institutions to meet the ambitious time-lines,” he explained.

For governments, this is likely to mean enacting legislation and regulation, while for financial institutions the primary challenge lies in “working hard to get customer due-diligence procedures in place by 1 January 2016”, added Aston.

Others expressed similar caution. Having campaigned for automatic tax information exchange “for years”, the Tax Justice Net-work (TJN) praised the development, but cautioned that the absence of notable signa-tories, including the US, meant there was still a lot of work to be done.

The TJN said in a blog post: “It [the US] says that it’s got its own system – the For-eign Account Tax Compliance Act – which it claims is equivalent. But this is a big problem, notwithstanding the problems with having two different systems out there up and run-ning. The US is keen to get other countries to provide it with information, but not quite so keen on sharing information (though it does share some),” it added, “tax haven USA is alive and well”. It also mentioned Bahrain, the Cook Islands, Nauru, Panama, and Vanuatu among a number of jurisdic-tions that have yet to outline a time frame for signing up to the agreement. <

KPMG has acquired German cybersecurity business P3, a risk management, security assessment and network protection service provider for financial services companies.

The acquisition has grown KPMG’s cybersecurity practice to four partners and 100 staff members and follows KPMG’s purchase of Qubera Solutions, an identity and access management consultancy, in the UK, US and India.

Nexia International has expanded its global presence by adding five member firms to its network from across the US, Australia, Canada, Paraguay and Vietnam. The firms are: Pilot Partners, John J Geib Professional Corp, PCG Auditores Consultores, Friedman CPA Group, and Nexia STT Vietnam.

Association DFK International has expanded its presence in the Netherlands through the addition of

Alfa Accountants and Advisors.Established in 1942, the addition

marks the first international association membership agreement for Alfa. With 28 offices and 800 employees across the Netherlands and annual fee income of $85m, the firm is among the largest individual members of DFK International.

Baker Tilly International has added Huang Yan Teo & Co in Malaysia to its network.

Bringing the network’s presence in the region to a total of nine offices, the addition saw the rebranding of the added firm to Baker Tilly HYT.

Baker Tilly HYT was established in 1976 and offers a range of services, specialising in small and medium-sized businesses. The addition follows the September merger between Baker Tilly Malaysia and Chang & Associates, a local firm subsequently rebranded as Baker Tilly CKF.

BDO US has added firm SS&G, as well

as its subsidiary SS&G Parkland to its network.SS&G operates out of offices in Cleveland, Akron, Columbus, Cincinnati and Chicago, which are all set to be maintained following the finalisation of the acquisition, which will also see 375 staff members, including 36 partners, join BDO US.Scheduled for completion by January

2015, the acquisition will also see several of SS&G’s partners assume leadership roles in the network. The firm’s chief executive officer Robert Littman is set to join BDO US’s board of directors, as well as being appointed managing partner for Ohio.

Antea has added Moroccan firm Uniexpert and Hungarian firm Gyimesi & Partner to its association.Based in Tanger, Uniexpert has three partners and 12 staff. The firm provides audit and tax, and legal services.

Uniexpert is Antea’s third member firm in the North Africa

region and the association said it had identified this region as a priority in terms of coverage.

Gyimesi & Partner is based in Budapest and has 14 staff providing audit and tax services.

KPMG US has revamped its strategy offering in the US, setting up KPMG Strategy division, which will help the firm “address growing demand in the marketplace for integrated, end-to-end solutions”. The new business division is a product of a reshuffle within KPMG’s strategy partners, combined with the addition of externally recruited strategy professionals and consultants. The team includes experts in fields ranging from energy, health care and life sciences, to technology and financial services. Another area of focus for the group will be risk consulting, as it seeks to serve clients in industries heavily affected by regulation, in particular financial services and health care.

FirmMovements

IAB 543.indd 3 21/11/2014 12:00:04


ANAYSIS International Accounting BulletinWORLD CONGRESS OF ACCOUNTANTS

Talk the talk, walk the walkIAB reporter Vincent Huck looks back at the highlights of the World Congress of Accountants 2014 in Rome and asks whether words will be followed with actions

The World Congress of Accountants (WCOA) has come a long way since its first event in St. Louis, US, in 1904. At that time, 81 delegates met on the

bank of the Mississippi River. A hundred and ten years later, under the Roman sun, around 4,000 delegates from 140 countries gather at the 19th WCOA.

This incredible growth in participation has sustained congress after congress for over a century. The WCOA is organised every four years and each time set in a different city, which reveals the increasing importance and scope of an accountancy profession that has fully embraced the globalising nature of the economy.

As IFAC outgoing president Warren Allen and his successor Olivia Kirtley put it in their welcome address: “This gathering serves as an ideal demonstration of the global nature and interconnectedness of our profession.”

Financial crisis However the role of accountants in the global economy is not without challenges. The recent financial crisis has shaken the economic foundations of states which lack efficient public finance management sys-tems. And in the public as well as the private sector, accountants and auditors have come under a lot of scrutiny from the public over their role in the financial crisis.

While most states as well as private com-panies are still recovering from the crisis, the profession is gaining momentum in rebuild-ing its public image and outlining a stronger narrative as to what its role is or might be.

No surprise then that the WCOA 2014 theme, each congress having its own, was Vision 2020: learning from the past, build-ing the future. And is there any better place than Rome to reflect on the past to build the future?

The opportunity to draw on analogies with popular epigrams about ancient Rome was too great to let it slip, therefore the sentence “Rome wasn’t built in a day” was heard more than once during the four-day congress, especially when questions were

raised on the challenges ahead. Allen himself said at the opening ceremo-

ny speech. “Some of you may be familiar with the expression ‘All roads lead to Rome’. Today, I say ‘All roads lead from Rome’,” he said in reference to this congress being the starting point to tackle the challenges ahead for the profession.

And to that effect Kirtley and Allen invit-ed participants to use the congress to reflect on three key areas: “First, be active in your communities and nations to help address the financial issues that continue to have an impact on our global economy.

Secondly, get involved in capacity build-ing, including recruiting, retention, and professional development. Finally, increase awareness of public reliance on us and the need to focus on the highest ethical stand-ards in everything we do.”

To help them in their reflections, congress organisers offered participants a packed pro-gramme with three plenary sessions on the challenges for the private sector, the public sector and the growing trend of integrated reporting, as well as 31 parallel sessions.

Parallel sessions tackled legislative issues from national to international level, the auditor’s independence, accountability in public finances, fiscal planning and the inter-nationalisation of SMEs.

The Nigerian mysteryWhile organisers said 140 countries were represented at the congress, Nigeria came with the largest delegation, around 1,000 accountants (more than one in four delegates at the congress was Nigerian).

The second largest delegation came from the host country, Italy, with over 500 del-egates. A number of countries were repre-sented by more than 100 professionals such as Brazil, China, Japan, Ghana, Malaysia, Mongolia, the UK and the US.

Nigeria’s numbers, announced during the opening ceremony, were received with mixed feelings. During the networking breaks, sip-ping on their coffee or wine, some delegates could be heard voicing acerbic criticism

along the lines of: “They get their trip and congress participation fees paid by the World Bank, you’ll see if they show up in the ses-sions or if they go and visit Rome.”

Nigerian delegates did show up in the sessions, so much that on the second day for the session on Fighting corruption and fraud: the role for professional accountants the room was full.

Organisers had to refuse access to some of the delegates which led to a “gentle con-frontation” between Nigerian delegates who wanted to attend the debate and volunteers blocking the way.

Subsequently the organisers even tried to hold a re-run of the session for those who had missed it, but it proved impossible.

Nigeria’s commitmentHowever, aside for some less favourable

corridor whispers many praised Nigeria’s active participation. Some suggested that they managed to bring so many delegates by saving in a common pot through their institute in the four years building up to the congress. Talking to International Accounting Bulletin and sister publication The Accountant, Kirt-ley said she wasn’t concerned about the tac-tics used to bring delegates to the congress, but said Nigeria had made a commitment a few years ago to participate actively in the global debate and to improve their profes-sion.

It was commendable, she said, to see they had follow up this commitment by regu-larly bringing the largest delegation to the WCOA.

Nigerian delegates were rather coy in front of IAB and TA questions, even when it came to IAB’s inaugural Nigeria country survey questions.

But one delegate said Nigerian delegates’ expenses were paid by the respective Nigeri-an state governments. “Of course the richer the state the more delegates it can send,” he added.

He agreed that indeed Nigerian account-ants were willing to come in order to link up

IAB 543.indd 4 21/11/2014 12:00:04


ANALYSISInternational Accounting Bulletin UC&CS GLOBAL CONWFEWORLD CONGRESS OF ACCOUNTANTS

with the global profession and bring back international best practices to Nigeria, but he added that there was also a level of per-sonal gain. “Attending the WCOA gives us an extra hedge back home for promotion and career advancement,” he said.

Developing countries and the profession If Nigeria’s heavy presence at the congress generated all sorts of gossip, another Afri-can country stole the limelight on the very last day. Indeed during the closing ceremony former chairman of the Institute of Certified Public Accountants of Kenya Ndungu Gath-inji was presented with the IFAC Robert Sempier award.

In a passionate speech using his own personal experience to outline the growing importance of Africa and developing nations at the global accountancy table, Gathinji said the best of Africa is yet to come and meaningfully noted: “We’re still waiting for the first president of IFAC from Africa”.

Throughout the congress a lot of emphasis was put on capacity building and Kirtley in an interview with IAB and TA said that with her mandate as president of IFAC she will continue to make it a priority.

Coincidentally, the latest IFAC’s council meeting, held in the days before the WCOA, saw a shift of power with a majority of its members now coming from Asia-Pacific.

If IFAC was the UN, its board would cer-tainly be the Security Council, and it is now controlled by 35% of members from Asia-Pacific, 30% of members from Europe, 26% of members from the Americas and 9% of members from Africa.

There was also an shift in IFAC’s new board gender balance, with 39% female membership, compared to 31% last year. The federation also appointed the first two women in the position of president: Kirtley, and deputy president, Rachel Grimes.

The congress ended with no clear road map of what the Vision 2020 should be, but

rather with a common agreement among participants that the profession had sur-vived the turbulent last few years better than governments or businesses did. And that now, more than ever, it was fully equipped, knowledgeable and skilled to serve its public interest responsibility.

Moreover it became clear as the debate came to a close that accountants want to play an increasingly important role in the management of public finances; therefore in the coming years for anyone following the profession and its professionals, public sector accounting will be a theme to watch out for.

WCOA 2018WCOA 2014 ended with Sydney, Australia, being announced as the next host city for 2018, but long before that the profession as a whole, as well as the national bodies and accounting and auditing practices will have to show that in Rome they were not only talking the talk but also walking the walk<

Building an ‘elitist’ network Oussama Tabbara founded UTC in Beirut, Lebanon, in the early 1960s before joining Nexia International. The international net-work and the Lebanese member firm had a fall out a few decades later and parted ways in 2011. Now Tabbara decided to launch his own global network, UTC Internation-al. He met IAB at the WCOA in Rome and told Vincent Huck of his plans to build an “unusual” network.

International Accounting Bulletin: Tell us about the genesis of UTC International? Oussama Tabbara: UTC was established in 1962 in Beirut and as of 2013 we launched UTC International as a global network. Since then we have grown in a number of countries around the world. We only take on board firms whose leaders are also heads of the local bodies or institutes. This is unique; no other network in the world can claim this feature. So, for example, in Algeria our member firm managing partner is also the secretary general of the institute of Algeria; the managing partner of our Tunisian member firm is the vice-president of the Tunisian institute, and this applies to all our member firms.

IAB: Do you comply with the IFAC defini-tion of a network? How integrated are your member firms?

Tabbara: We follow the IFAC definition of a network and all our member firms trade under the UTC brand. We have a very strong one firm per country policy and do not accept double or shared membership.

IAB: What is your strategy for recruiting member firms?Tabbara: Unlike other networks, prospec-tive member firms do not make the first contact. We look at a particular country where we want to add a member and iden-tify which firm we believe would be the best candidate. We then make the first contact. However, in some instances we do get pro-spective members contacting us. For exam-ple, we recently added a member firm in Mongolia. They approached us and applied for membership, and after making sure that they met our membership criteria we grant-ed them access to the network.

IAB: Apart for their leaders or managing partners also being heads of local bodies what are the criteria to join your network? Tabbara: The criteria we look for in our prospective members are: credibility – are they well known in the country where they operate? Also the size and the quality of their work. After the first year of member-ship all our member firms have to undergo a quality control.

IAB: In how many countries are you present at the moment? Tabbara: We are present in every coun-try in the Middle East, and in most of these countries we were the first auditors to be licensed. Currently globally we are present in 40 countries, but we want to reach 100 members by the end of 2015.

IAB: Which regions or country are you targeting? Tabbara: We’re not focusing on specific regions or countries as we want a truly global coverage and therefore we’re look-ing at adding members from all around the world. However one of our objectives is to have a wider presence in Africa then the Big Four and we are already in discussion with many prospective members in Africa. IAB: And in terms of fee and staff have you set any objectives? Tabbara: The first year of membership is offered to new participants, meaning they don’t pay membership fees, but after the first year they will contribute a percentage of their revenues. We are emphasising the quality of work and services we offer rather than the turnover. And at the end of the day if you offer quality, turnover will follow.

IAB 543.indd 5 21/11/2014 12:00:05


FEATURE International Accounting BulletinAUDIT REGULATION

A year into his role as global assurance leader at EY, Felice Persico has led the network’s largest service line to a 4.5% increase in fee income to $11.2bn in the year to 30 June 2014 and also oversaw a $400m investment

into audit technology. He speaks to International Accounting Bulletin about performance, the need to innovate and his views on the evolution of the auditor’s report and EU audit reform implementation.

Ana Gyorkos, Editor: What were the main highlights in assur-ance in the past financial year?

Felice Persico: It is the second year we have exceeded 4% growth in assurance and the second year in a row we are a growth leader among the Big Four in assurance.

We welcome the 4.5% especially as the observation is that there’s not much growth in the audit market in general. It is a business that remains challenging. The growth is a combination of new clients and a decrease of fee pressure in markets like the US and UK.

Gyorkos: The network has also invested $400m into audit tech-nology. Could you please tell us what this investment entails?

Persico: The investment is part of our aim to trans-f o r m t h e a u d i t b y o f f e r i n g d e e p e r b u s i n e s s insight and analysis through bet ter data capture. The investment is in our people, technology, processes and prac-tices and includes an entirely new tool called EY Canvas, the deployment of which began in October. This is a global project – we are really leveraging the global integration and we have one strategy with one implementation team.

During the development stage we engaged with regulators, clients and academics which made the project very holistic. I believe it is very innovative and provides much more transparen-cy and quality in an audit. It also addresses one of the regulators’ concerns over group audits as it gives a lot more transparency to the audit of the components of a company.

Another important part of the audit investment programme is investment in data analytics tools. Analytics will have a sig-nificant impact in the audit process from assessing the risks to testing controls.

It is not only the $400m, as we are looking to continue invest-ing as we work on our main goal – achieving sustainable audit quality – which is an integral part of our assurance strategy.

We are prioritising this because audit inspection reports in some markets have not been satisfactory for the profession. The

Innovation is the name of the gameThe financial performance of international networks so far this year shows that growth in assurance is hard to come by, especially in light of more lucrative advisory fees. Ana Gyorkos speaks to EY’s global head of assurance Felice Persico as the firm announces its ‘above Big Four average’ growth in assurance of 4.5%

IAB 543.indd 6 21/11/2014 12:00:05


FEATUREInternational Accounting Bulletin AUDIT REGULATION

results of these reviews are very volatile as firms might do well one year and not so well the next. And this has really reflected on our thinking and how we build a business model that brings sustain-able audit quality, will improve confidence in the audit process, and enhance our role in the financial markets and to the investing public.

Gyorkos: Do you think audit inspections by regulators such as the PCAOB and the FRC have become tougher in recent years?

Persico: I think there is higher scrutiny by the regulator, but we welcome a proper and tough review. We have to continue facing scrutiny, but the challenge is how to anticipate it and part of that is improving the dialogue with the regulator. At the end of the day public interest is at the centre and anticipating where the regulator sets the expectation would also enable the profession to be more prepared. There’s no benefit for the public interest if we don’t work together with the regulators.

Gyorkos: Another important challenge the profession is facing in Europe is around the EU audit reform implementation. We already have several different member firms interpreting it differently, such as those in Spain compared to the Netherlands. What are your thoughts on the implementation?

Persico: We would encourage constancy across member states. The EU regulation is here and it is not the time to debate whether it is right or wrong, but it is time to execute and bring implementation excellence. Rotation brings lot of volatility and complexity to the process and we must make sure we continue focusing on quality. There is a huge cost associated with rotation, not only for audit firms, but also for preparers. We also need to make sure we prop-erly look at the opportunities that are arising and we need to find ways of generating return in the change. In this respect the change in rotation should not be seen by companies as an opportunity to reduce the fees.

Aside from mandatory rotation, I believe that EU audit reform is unfortunately missing the implementation of an EU passport for auditors. This passport would give firms like ours mobility. The EU passport unfortunately didn’t make it into the final document, because I think they felt that it really is up to member firms to allow auditors from other EU countries to sign off on their company results.

Gyorkos: One of the current debates on both sides of the pond arises from the need to enhance the auditor’s report in order to provide more assurance and forward-looking information. Where would like this debate to go?

Persico: A more comprehensive audit report provides an independ-ent assessment of companies’ risks in the market and that is high-ly valuable. In my view it also establishes a different relationship between a company and an auditor, which enables better execution and dealing with risk by a company, as it does not wish the auditor to keep reporting on the same risks. In the end it would improve the response to risk by preparers.

Gyorkos: Has change been fast in enough in this respect?

Persico: No. We should have more rapid change and also change in the relevance of the profession. Relevance goes in two directions: relevance of financial information and relevance in closing the gap in what capital markets expect in terms of fraud, cybercrime, forward looking information etc. We need to deliver high-quality financial information based on international standards, but the sec-ond element is the insight the auditor would return to the client. It’s more about how do we pass the information/insight we have captured during an audit back to the client and help improve capital markets. And this is why we talk about transformation and analyt-ics and how we become more relevant.

Gyorkos: Where do you see the future of assurance in EY position-ing, especially as appetite for advisory acquisitions surges among the Big Four?

Persico: Assurance is the largest service line for EY and it will con-tinue to be the largest in 2020. We are investing significant resourc-es in sustainable audit quality and we are innovating, integrating audit with fraud services and extended assurance services, as well as sustainability reporting. Assurance for us becomes an integrator of services around assurance and financial reporting. Innovation is key and because assurance is our core business we need to be suc-cessful and a market leader, as what you do at the core is vital for other parts of the business.

Gyorkos: You mentioned fraud services in relation to audit. Could you please tell me a bit more about that?

Persico: This is to help close the expectation gap. Despite the fact that auditing standards do not require you to detect fraud, when it does occur there’s an expectation that the auditor should have captured that. We really think it’s important that we integrate fraud into the audit and that we do that very specifically by sector. We have worked out a programme which looks at different patterns and searches for fraud specific to those sectors.

Gyorkos: The European Commission had a consultation on the benefits of IFRS in the EU open until the end of October. What are your thoughts on the effectiveness of the international standard and has it done what it set out to do?

Persico: Absolutely. It has improved financial information signifi-cantly. Is it perfect? I believe there is always room for improvement, but I think it has been very positive.

Gyorkos: This month you have participated in the World Congress of Accountants in Rome. What were the most important highlights for you?

Persico: For me the highlight was the number of people represent-ing the audit profession all contributing to the dialogue and debate. It is something EY was at the forefront of, with many of my col-leagues speaking at the Congress and showing our commitment to the industry by being part of the discussions. <

IAB 543.indd 7 21/11/2014 12:00:05

COUNTRY SURVEY

www.InternationalAccountingBulletin.com

FEATURE International Accounting BulletinUC&CS GLOBAL CONFERENCE

Most readers of International Accounting Bulletin may have noticed UC&CS Global and UC&CS America appear in the

International Accounting Bulletin ranking. However, little has been written about this mainly Latin American association looking to become a network with an international footprint within a few years.

UC&CS Global is led out of Mexico by Mauricio Mobarak, who after 17 years at PwC Mexico as an auditor and later consulting leader decided to join UC&CS Global. As the organisation’s president he has set his sights to being part of the Forum of Firms (FoF) and steering the members towards technical, quality, brand and cul-tural integration.

He says that UC&CS Global, which includes UC&CS America, currently has members in 18 countries across Latin Amer-ica, 14 members in the Caribbean and five members in Europe. Mobarak adds that it also operates through correspondent mem-bers in the US, Russia, Australia, India, Tur-key, China, Spain, Italy and France.

At this stage he estimates 50% of the member firms operate as a network, as they comply with technical systems and share the vision of becoming FoF recognised. Those firms operate under the network name UC&CS America.

“Our plan is to become a member of the Forum and we are in the evaluation pro-cess with the Forum management team,” Mobarak says. He adds the first stopgap might be becoming an affiliate member. Currently the FoF joins 26 networks from across the world.

The emergence of regional networks is not a new trend, but as growth from emerging markets becomes vital many global networks have been consulting with their regional peers for local knowledge and insight. When asked about the value

proposition of UC&CS Global, Rubén Papa, member of the board of directors and vice-president of the South Cone in Latin America, says: “We think there’s space for us in the market, because of the person-alised service we offer and because at the heart of our business is our strong technical background and the high-quality tools we provide to our members.

“Our partner’s conference always offers a lot of technical training and we have sev-eral technical subcommittees on internal controls, audit, tax, government auditing etc. And that training and quality are at the heart of our value proposition. “

When recruiting new member firms Mobarak says: “We make it clear to our potential members that it’s not all about referrals, but we need them to share our vision and culture and they need to be ready to train and be developed.

“We have been in discussions with some firms which will only join if we give them referrals, but we don’t want them to join. We look for people who share our views on quality.”

Several partners running member firms of UC&CS are former Big Four or large mid-tier partners who left to start their own practice and Mobarak believes this is why the quality and technical proficiency of ser-vices offered is so high, and also accounts for the association’s entrepreneurial spirit.

Caribbean regional leader and manag-ing partner of Dominican Republic firm MH PTV Franklyn Herasme says that after finishing his training with KPMG he felt he was not ready to wait for over a decade to reach partner and decided to start his own practice.

For Marcelo Conti partner of the latest UC&CS America addition, Brazilian firm CCA Continuity it was a very personal pro-ject to start his own firm. Conti also adds that the decision to join UC&CS America

came about after thorough deliberation. “Before joining UC&CS we were talking to some other networks, but we felt that UC&CS’s stage of development reflected our stage of development and we thought we were aligned organisationally and could grow together,” Conti said.

In the next five years Mobarak says the organisation’s focus will be firmly on the BRIC and MINT countries, but with global coverage in mind.

“We find it easier to work with firms in the developing world than with some firms in Western Europe – and it’s easier work-ing with firms in Asia as they face the same challenges as we face in Latin America. We are also in close connection with some East-ern European firms.”

Speaking of the challenges facing UC&CS members, Mobarak and his members open-ly discuss concerns over corruption and social inequality.

“Without a doubt the number one exter-nal factor affecting our business is corrup-tion,” Mobarak says. “From Rio Bravo, which runs on the border between the US and Mexico, to Patagonia, it’s the same thing and the same problems.

“And the people and many business are the ones that ultimately pay the price of cor-ruption,” he adds. Nevertheless, there is a silver lining as countries in the region are becoming aware of the problem and many laws and regulations are coming into effect across most sectors which are mandating increased transparency by businesses and governments.

“We can chose to be resolved to some challenges, such as corruption and money laundering, but we can also see an oppor-tunity as compliance demands increase and we can help our clients get to grips with rules and compliance demands in relation to data protection, anti-money laundering and anti-corruption,” Herasme adds. <

A Latin American perspectiveIn September UC&CS Global held its 20th anniversary annual conference which focused on future strategy of this mainly Latin American organisation and its ambition to become a global network with a strong emerging markets focus. Ana Gyorkos attended the conference in Mexico City

8 y November 2014

IAB 543.indd 8 21/11/2014 12:00:08

COUNTRY SURVEYInternational Accounting Bulletin


NIGERIA

Profession hopes to heal scars of the pastWhile firms try to keep up with the strong economic growth and numerous opportunities in Nigeria, accountants express alarm at the corruption and political instabilities that have blighted the country for decades, Vincent Huck reports

■ NIGERIA

At a glanceREVENUE

Most revenue: PwC , NGN10,944.2mLeast revenue: MGI, NGN17.5mHighest growth: Morison Int., 60%Lowest growth: HLB Int., -8%

STAFF

Largest workforce: KPMG, 800Smallest workforce: Mazars,8Most partners: KPMG, 29Most offices: PrimeGlobal, 9

ECONOMIC INDICATORS

National GDP: NGN13,526.1bnNational GDP growth: 7.2%GDP per capita (PPP): $2,883.4Inflation (CPI): 10.7%Current Account Balance: 5.5%Unemployment rate: 5.6%Population: 173.9m

IAB SURVERY INDICATORS

Revenue per employee: NGN9,669,547.9Staff density: 1 accountant per 53,115 ppl

Notes: Totals apply to IAB surveyed data only, this includes firms that belong to global networks and associations

Source: International Accounting Bulletin, IMF

International Accounting Bulletin

On the first day of the recent World Congress of Accountants (WCOA 2014) in Rome, an event held every four years, Nigeria was plunged

into mourning as 47 people, most of them students, were killed in a bombing at a sec-ondary school in the state of Yobe in North-ern Nigeria.

In support of their Nigerian colleagues, the WCOA 2014 delegates observed a min-ute’s silence during the opening ceremony on 10 November.

The attack hasn’t been claimed, but was attributed to Boko Haram which is not unfamiliar with this type of action and especially in the state of Yobe. Boko Haram is an Islamic group which has been active in Northern Nigeria since 2002 and since 2009 has resorted to violent acts, among which is the infamous kidnapping of 276 schoolgirls in April 2014 from the village of Chibok.

Chibok made the headlines again recent-ly as a few days after the 10th November bombing Boko Haram seized the town, which was subsequently recaptured by the Nigerian army. While these tensions between Northern and Southern Nigeria and Muslims and Christians are a sign of the times, they are rooted in the colonial history of Nigeria.

Dividing the cakeIn 1885 the colonial powers divided Africa among themselves at the Berlin conference and Great Britain was handed the area that would later become Nigeria. “Like a piece of chocolate cake at a birthday party” author Chinua Achebe would later describe in There Was a Country.

The area Great Britain took over was one of the most populous regions on the Afri-can continent, with over 250 ethnic groups and distinct languages, with a clear cultural divide between north and south.

“If the Berlin Conference sealed its fate, then the amalgamation of the southern and northern protectorates inextricably com-plicated Nigeria’s destiny,” Achebe wrote.

“Animists, Muslims, and Christians alike were held together by a delicate, some say artificial, lattice.”

One of the postcolonial challenges has been the high levels of corruption and fraud which has plagued the country for decades, and to which Nigeria is internationally associated with nowadays. Nigeria ranks 144 out 177 in the Transparency Interna-tional latest Perception Corruption Index.

Stransact chairman Eben Joels says it is a burden to be a Nigerian in an international business environment as people always have suspicions towards Nigerians. Joels, a for-mer partner at KPMG and PwC, launched his indigenous firm, Stransact, six years ago.

He claims his move was motivated by the fact that he didn’t get what he wanted from Big Four firms, nor would he have got it from smaller firms.

“In Nigeria, companies are only too will-ing to pay for a stamp of the brand of the Big Four,” he explains. “It’s not impossible that some firms are willing to stamp the books as long as they get their fee.”

But launching an indigenous Nigerian firm on the basis of integrity is not an easy task, Joels says. “Auditors are sharing fees with their clients and nobody is talking about it; it’s an unacceptable practice.”

He says that to survive in this environ-ment while maintaining its integrity his firm had two solutions: shut down or look glob-ally. Therefore, earlier this year, Stransact was launched as an international network aiming to be present in the US, the UK and English-speaking West Africa by the end of 2015. Asked why Stransact didn’t join an existing international network, Joels replies that he looked into it: “The mere fact of being of Nigerian origin is an hindrance to joining other networks. We tried, but because we’re Nigerian the conditions were very stringent, asking for a form of due dili-gence different from other countries.”

As a consequence Joels decided to build Stransact as a global network. “We realised that with today’s technology you can still be

global with a small capital.” Joels explains that Nigeria’s corruption

issues will not be solved any time soon, therefore Stransact is working on a 25 to 30-year plan, building an international brand rather than surviving in the local market. Change ultimately, he says, will only come when governments proactively fight corruption.

“I f you understand the Niger ian dynamics you know that reporting corrup-tion doesn’t get you anywhere because it only makes you an outcast,” he says.

This echoed the intervention of a Nige-rian delegate at the WCOA 2014 during a

IAB 543.indd 9 21/11/2014 12:00:10

COUNTRY SURVEY International Accounting Bulletin


NIGERIA

■ NIGERIA

ASSOCIATIONS – FEE DATA

Rank Fee income

(NGNm)Growth

rate

Fee split (%)

Year-endAudit &

AccountingTax

servicesManagement

consultingCorporate

finance

Corporate recovery/

Insolvency Litigation

support Other

1 Morison International* 367.7 60% 33 67 - - - - - Dec-13

2 PrimeGlobal* 284.7 15% 48 23 15 13 - - 1 May-14

3 Praxity* 170.4 - - - - - - - - Aug-14

4 BKR International* 158.6 8% 62 24 13 - 1 - - Dec-13

5 Integra International* 143.0 - 60 30 10 - - - - Jun-14

6 MSI Global Alliance* 99.4 0% 75 15 - - - - 10 Dec-13

7 GMN International* 84.0 - 15 50 25 5 5 - - Sep-13

8 Abacus Worldwide* 37.7 - 59 7 25 5 - - 4 Jan-13

9 MGI* 17.5 16% - - - - - - - Jun-14

10 DFK International* 14.9 7% 40 45 - 3 7 - 4 Dec-13

Total revenue/growth 1,377.9 25%

Notes: *Disclaimer = Only data from the named member firm or the exclusive member firms within a network/association is included. Data relating to correspondent and non-exclusive member firms is not included.

Source: International Accounting Bulletin

■ NIGERIA

NETWORKS – FEE DATA

Rank NameFee income

(NGNm)Growth

rate

Fee split (%)

Year-endAudit &

AccountingTax

servicesManagement

consultingCorporate

finance

Corporate recovery/


support Other

1 PwC* 10,944.2 - 61 14 - - - - 25 Jun-14

2 Deloitte* 5,354.9 1% 81 11 - - - - 8 May-12

3 EY * 5,014.8 39% 55 17 - - - - 28 Jun-14

4 KPMG* (e) 4,806.3 29% - - - - - - - Sep-13

5 PKF International* 765.3 12% 77 12 - 5 - - 6 Jun-14

6 BDO* 697.2 21% 67 13 10 2 - - 8 Sep-13

7 Grant Thornton International* 529.9 32% 50 29 20 - - - 1 Dec-13

8 RSM International* 521.1 4% 84 7 9 - - - - Sep-14

9 Crowe Horwath International* 394.9 17% 82 18 - - - - - Dec-13

10 Nexia International* 339.3 8% 74 11 15 - - - - Jun-14

11 Baker Tilly International* 266.8 12% 86 14 - - - - - Sep-13

12 Mazars* 170.4 - - - - - - - - Aug-14

13 HLB International* 163.5 –8% 60 20 15 - - - 5 Dec-13

14 UHY International* 92.7 –1% 65 8 24 - - - 2 Jun-13

15 Kreston International* 78.7 - 40 50 - - - - 10 Oct-13

16 Moore Stephens International (1) 48.7 - 23 4 - 1 - - 72 Dec-13


Notes: (e) IAB estimates. Made on the basis that Nigeria reprents 5% of overall Africa revenues. *Disclaimer = Only data from the named member firm or the exclusive member firms within a network/association is included. Data relating to correspondent and non-exclusive member firms is not included. (1) Moore Stephens International data relates to an exclusive correspondent member firm. “Other” relates to non-statutory audit in the public sector work.


session entitled Fighting corruption and fraud: the role for professional accountants.

While it was suggested that accountants have an important role to play in exposing corruption and malpractices, delegates said that in Nigeria, like in other parts of the world, accountants who stick their necks

out to fight corruption can expect to have it chopped, figuratively or not, as they have no protection from political authorities.

However all other firm leaders inter-viewed for this survey, didn’t corrobo-rate Joels’ claim that corruption exists in the audit process. Far from denying that

corruption is a reality in Nigeria, they say accounting firms lead by example.

Adebola Sobanjo & Co, BKR Interna-tional member firm, managing partner Adebola Olubanjo says: “The government is taking steps to reduce the corruption and the Institute of Chartered Accountants

IAB 543.indd 10 21/11/2014 12:00:11



NIGERIA

■ NIGERIA

NETWORKS – STAFF DATA

Rank Name

Total staff Growth rate

Partners Professional staff Administrative staff Offices

2013 2012 2013 2012 2013 2012 2013 2012 2013 2012

1 KPMG* 800 - - 29 - - - - - 2 2

2 PwC* 700 - - 22 - - - - - 4 4

3 Deloitte*(e) 500 - - - - - - - - 3 3

4 EY* 410 - - 21 - - - - - 3 3

5 PKF International* 182 179 2% 8 7 120 122 54 50 6 6

6 Baker Tilly International* 135 127 6% 8 8 85 83 42 36 4 4

7 RSM International* 122 101 21% 7 8 99 81 16 12 3 3

8 Nexia International* 108 101 7% 8 8 62 58 38 35 7 7

9 Grant Thornton International* 95 84 13% 6 6 15 11 74 67 3 3

10 BDO* 93 82 13% 8 8 64 56 21 18 4 4

11 Crowe Horwath International* 72 71 1% 8 8 54 53 10 10 1 1

12 HLB International* 61 61 0% 3 3 30 30 28 28 3 3

13 UHY International* 54 59 –8% 7 5 33 42 14 12 11 6

14 Kreston International* 24 - - 4 - 17 - 3 - 3 -

15 Moore Stephens International* 19 - - 2 - 13 - 4 - 1 -

16 Mazars* 8 - - - - - - - - - -

Totals 3,383 865 6% 141 61 592 536 304 268 58 49

Notes: (e) IAB estimates. *Disclaimer = Only data from the named member firm or the exclusive member firms within a network/association is included. Data relating to correspondent and non-exclusive member firms is not included.


■ NIGERIA

ASSOCIATIONS – STAFF DATA

Rank Name



2013 2012 2013 2012 2013 2012 2013 2012 2013 2012

1 PrimeGlobal* 117 106 10% 8 9 68 61 41 36 9 8

2 DFK International* 62 102 -39% 7 6 39 64 16 37 5 4

3 Morison International* 60 65 –8% 3 2 48 54 9 9 2 2

4 BKR International* 49 47 4% 2 2 30 25 17 20 3 3

5 MSI Global Alliance* 28 28 0% 4 4 19 19 5 5 1 1

6 Integra International* 22 - - 2 - 15 - 5 - 1 -

7 MGI* 18 19 –5% 3 3 15 16 - - 1 1

8 Abacus Worldwide* 15 - - 2 - 4 - 9 - 3 -

9 GMN International* 12 - - 4 - 3 - 5 - 1 -

10 Praxity* 8 - - - - - - - - - -

Totals 391 367 7% 35 26 241 239 107 107 26 19

Notes: *Disclaimer = Only data from the named member firm or the exclusive member firms within a network/association is included. Data relating to correspondent and non-exclusive member firms is not included. Source: International Accounting Bulletin

of Nigeria is also taking steps to see that professionals join hands with the institute to reduce corruption.”

In an effort to counter the stigma of cor-ruption, interviewed firm leaders are keen to point to Nigeria’s current economic achievements. Indeed the country recent-ly overtook South Africa as the largest

economy in Africa. According to the World Bank, Nigeria was the 23rd largest econ-omy in the world in 2013 with a GDP of $521.8bn.

Business Intellectual Reserves manag-ing partner Badajide Ibironke says: “It is a peculiar economic environment. Sometimes you think things are not working well and

they turn out to your advantage, and some-times you think things are working and it might turn out to be the opposite.”

This is International Accounting Bulle-tin’s first Nigeria survey and it counts 26 participants – 16 networks and 10 asso-ciations – with a combined revenue of NGN31,658.1m.

IAB 543.indd 11 21/11/2014 12:00:12


COUNTRY SURVEY International Accounting BulletinNIGERIA

■ NIGERIA

FIRM MOVEMENTS

NETWORK/ASSOCIATION FIRM ADDITIONS, MERGERS & ACQUISITIONS

Abacus Worldwide Added: Sanmi Adebayo & Co (Abuja)

GMN International Added: AO Partners (Lagos)

Integra International Added: TAC Professional Services (Lagos)

Kreston International Added: Kreston OUC (Lagos)

UHY International Added: UHY Benson (Abuja)

Surveyed networks in Nigeria saw their revenue increase by an average of 19%, up to NGN30,188.6m ($174.5m). Surveyed associations saw their revenues increase by an average 25% in fiscal year 2013.

Nexia Agbo Abel & Co managing part-ner Abel Onyeke attributes this growth to the general growth in the economy. “Over the past 10 years, Nigeria has experienced an average annual GDP growth of 7.1%, a rate that is above the rate of growth for the Sub-Saharan African region,” he says.

At the same time as the economy grew, so did clients’ needs for quality services, Onyeke continues. “This has created a ser-vice gap, as the Big Four which traditionally dominated the market are now unable to meet the increasing opportunity available. So there’s a vacuum for mid-tier firms to exploit.”

He says this is true across service lines from audit to advisory through tax. In the audit service lines surveyed firm leaders agree that the Big Four are still dominat-ing the markets especially when it comes to large clients and listed companies.

Ibironke at Business Intellectual Reserves estimates that the Big Four firms audit more than 90% of the listed companies. Even so he believes audit remains very attractive for mid-tier firms after the country adopted IFRS, which has produced a lot of oppor-tunities.

However some challenges remain; like in most part of the world auditors struggle to see their fees increase and the tightening competition in the Nigerian market gener-ates ever-increasing fee pressure in audit.

Ibironke also points to IFRS compliance as a challenge, especially when it comes to SMEs. Listed companies in Nigeria have been IFRS-compliant since 2013, SMEs have to comply by the end of 2014. The Financial Reporting Council of Nigeria (FRCN) is expected to publish in Decem-ber a review on the state of adoption in the country.

“There’s no clear definition on which companies should use IFRS and which should use IFRS for SMEs,” Ibironke says. While the FRCN provided a definition of SME, he says that some companies in the course of their conversion have grown to a size that puts them out of the scope.

“If I’m a SME in 2013 and have to comply with IFRS for SMEs by 2014, but by that date I’m no longer a SME, which types of

accounts should I prepare?” Ibironke asks. “There are a few grey areas, but they are being addressed and we are waiting for the FRCN’s guidance.”

BDO Nigeria managing partner Sanni Dosunmu agrees that audit is very attrac-tive as it is well regulated. He explains that in an effort to increase audit quality Nigeria introduced rotation for both the audit firm and the audit partner.

Rotation was first introduced in 2006 under the Code of Corporate Governance for Banks issued by the Central Bank of Nigeria, requiring Nigerian banks to rotate their audit firm after a maximum period of 10 years. The outgoing firm cannot thereaf-ter be reappointed by the bank for another period of 10 years.

This measure was followed in May 2014, by the Nigerian Security and Exchange Commission, which reviewed its code of corporate governance for public companies and introduced similar but slightly differ-ent rules.

Under the Nigerian SEC’s code, public companies have to rotate their audit partner as well as the audit firm. The code doesn’t provide a maximum tenure for the audit partner appointment as it reads that com-panies should require external audit firms to rotate audit partners “from time to time”.

However the Nigerian SEC code says that audit firms should be appointed for no longer than 10 years continuously and can’t be reappointed before seven years after their disengagement. The code also prohib-its auditors to render non-audit services to their audit clients. These challenges in audit have pushed the Big Four to look for addi-tional revenues outside their traditional cli-ent base, BKR’s Olubanjo comments: “The Big Four are extending their tentacles. When they are supposed to content them-selves with listed companies, they are now reaching for the smaller firms.”

This has increased the level of competi-

tion in the market and only firms with an international affiliation have a chance to compete effectively, he continues.

BDO Nigeria managing director of man-agement consulting Joshua Olagbaju adds that the Big Four are also looking at diversi-fying their services and the general trend in the market is now to move towards advisory and consultancy services. But for Ibironke there’s no general move away from audit, even though tax and advisory services pre-sent tremendous opportunities.

“Tax is fantastic in Nigeria, especially transfer pricing which brings a lot of work,” he says. “There’s a general drive by govern-ments to generate revenues, so the tax sys-tem has evolved and it’s very hard for an entity to comply with the tax laws so tax consultants find a lot of opportunities in Nigeria.”

However Dosunmu at BDO Nigeria says some challenge remains. As the tax struc-ture is being built, the enforcement is not as strong as it should be, and many still escape the tax net.

“The Federal Ministry of Finance report-ed that more than 75% of SMEs account for about 66% of the GDP contributions and have continued to evade tax,” agrees Onyeke at Nexia Agbo Abel & Co.

Talking about future opportunities, sur-veyed firm leaders respond with a sense of limitlessness as the Nigerian economy shows no sign of slowing down and foreign investments keep pouring in the country.

Moreover, if the government follow up its commitment to fight corruption with action, and as the Nigerian tax schemes gain in maturity, today’s opportunities might be very small compared to the ones of tomorrow. But the first test of endurance will come in February 2015, when Nigeri-ans go to the polls in a general election, as like in many African countries, sustainabil-ity in economic growth is entirely dependent on political stability. <

IAB 543.indd 12 21/11/2014 12:00:16

COUNTRY SURVEYInternational Accounting Bulletin SOUTH AFRICA



Hurdles and competition at every turnAs South Africa’s economy continues to struggle, the country’s professional services industry is straining to keep up with the pace of change in a dynamic continent. If the battleground is set by competition for talent and fee pressure, strategy and a keen eye on the burgeoning potential of neighbouring markets are the weapons, Isabella Grotto reports

■ SOUTH KOREA

At a glanceREVENUE

Most revenue: PwC, ZAR4,378mLeast revenue: PrimeGlobal, ZAR25.1mHighest growth: HLB International, 207%Lowest growth: PrimeGlobal, –64%

STAFF

Largest workforce: PwC, 5,090Smallest workforce: PrimeGlobal, 73Most partners: PwC, 274Most offices: PwC, 23

ECONOMIC INDICATORS

National GDP: ZAR3,383.16bnNational GDP growth: 1%GDP per capita (PPP): ZAR120,661Inflation (CPI): 5.9%Current account balance: –5.8%Unemployment rate: 25.4%Population: 52.98 million


Revenue per employee: ZAR748,015Staff density: 1 accountant per 2,229 ppl

Notes: Totals apply to IAB surveyed data only. This includes firms that belong to global networks and associations


This year has been a hard one for South Africa. Miners’ strikes at the begin-ning of the year contributed to the economy contracting by 0.6% in the

first quarter of 2014 and the country only narrowly avoided a recession when the fol-lowing quarter saw GDP climb 0.6%.

Unemployment remains high and key sec-tors of mining and manufacturing both fell over the second quarter, by 9.4% and 2.1% respectively. With mining activities tradition-ally earning a large chunk of the country’s foreign exchange, concerns for the economy remain heightened.

Satisfactory performanceDespite the economy’s woes, Deloitte South Africa chief operating officer Allen Swiegers says: “We are very satisfied with our perfor-mance of 12% revenue growth in a very dif-ficult market.”

He adds: “The main contributors were our risk advisory and consulting businesses. Risk advisory grew by 30% as a result of strong growth in data analytics, forensics, and cybersecurity.”

PwC South Africa chief executive officer Suresh Kana is similarly pleased with this year’s results: “We had a fairly good year on the revenue line,” he says; taking into account the market conditions in the country “I think we’ve done pretty well.”

A contributing factor to PwC’s posi-

tive performance over the past 12 months, explains Kana, has been increased mar-ket penetration. “I think the one thing is that we have won a lot of new work,” he explains.“All our lines of business in a gen-eral sense have done very well.”

However, not all were left satisfied by their 2014 performance. An increase in annual revenues of 6% was slightly disappoint-ing for KPMG South Africa chief executive officer Moses Kgosana , who says they were expecting growth of about 12%. “Partly the economy was a factor, but on the other hand there were a lot of areas in which we won work, but we couldn’t deliver because the clients withdrew their contracts, due to the economic conditions.”

Although a tough year for the economy has left the firm seeing fewer opportunities than the firm would like, EY South Africa chief operating officer Val Davies says: “Actually we are pretty positive about our performance.”

Sluggish performanceThe firm’s fee income grew 1% on 2013 and Davies points both to a paucity of large assignments within the public sector and continued economic strife in Europe echo-ing within South Africa as among the factors contributing to a sluggish performance.

Conversely, growth markets, such as Nigeria, Ghana and Kenya, have provided a

SOUTH AFRICA

IAB 543.indd 13 21/11/2014 12:00:20

COUNTRY SURVEY International Accounting BulletinSOUTH AFRICA


greater wealth of opportunities. As a conse-quence, explains Davies: “We have adopted the approach that we are looking at our busi-ness through a portfolio of companies, as opposed to one individual country in South Africa. So therefore we’ve been able to bal-ance off the difficult environment in South Africa with opportunities across Africa.”

Within the mid-tier, Morison International grew 5% this year, thanks to a persistent “as and when” basis for work within the mar-ket, according to member firm SizweNtsa-lubaGobodo chief executive officer Victor Sekese.

Meanwhile Grant Thornton International secured a 24% increase this year, described by national chairman Deepak Nagar as “impressive”, due to mergers with PKF Inter-national firms in the past couple of years.

Audit under pressureDespite missed targets across some of its service lines, as far as KPMG is concerned “audit performed according to plan” with 5% growth this year, according to Kgosana. This is partly due to the fact the service line is easier to forecast accurately, he explains.

The level of growth would appear some-what consistent throughout the top tier. Deloitte’s Swiegers says the firm’s perfor-

mance in the past fiscal year at 5% was “slightly less than inflation”. Sluggishness he attributes to a market in which “increased time spent on quality is not recovered because of fee pressures.”

In particular, while the recent introduction of mandatory firm rotation in Europe poses opportunities for the industry, it also poses a challenge. “Unfortunately,” says Swiegers, “the mandatory firm rotation leads to under-cutting of audit fees.”

Firms competing for the tender can tend to undercut the original fee, he explains, in an attempt to make themselves as attractive as possible to the client.

“So what we see with the rotation is more pressure on the reduction of fees.”

In this environment, explains Swiegers, “the role of the independent non-executive director of the board will become even more critical if boards want to ensure that all the risks have been properly assessed and addressed.”

In the context of negotiations between the auditors and a management keen to push for a lower price, he explains, independent non- executive directors will become increasingly responsible for highlighting the true mon-etary value of quality audits.

“It is for that director to say, ‘no, I want

the auditors here for longer, and more senior people on the assignment, and I’ll pay for it’,” explains Swiegers. “We have increased regulation, increased compliance and a reduction in audit fees; that just doesn’t make sense. Something has got to give in the process.”

PwC’s Kana agrees: “I think fee pres-sure is one of our biggest challenges at the moment.” Despite the firm winning the audits of two major listed companies over the last year, he says: “What we see is our cli-ents under pressure and so we become under pressure. Fees are linked to this and there’s tremendous pressure on fees too.”

Price war With the economy projected to continue to experience subdued growth, adds SizweNt-salubaGobodo’s Sekese: “We see a lot of cli-ents going to market looking for competitive pricing, thus causing a price war.”

“At the bottom line, it means our mar-gins are squished,” KPMG’s Kgosana con-curs. “We take home less and less every year, because of fee pressure, but not at the expense of quality.”

EY’s Davies is more optimistic: “While there’s been fee pressure,” she says, “I think there’s a recognition that constantly look-

■ SOUTH AFRICA


Rank NameFee income

(ZARm)Growth

rate

Fee split (%)

Year-endAudit &

AccountingTax

servicesManagement

consultingCorporate

finance

Corporate Recovery/ Insolvency

Litigation Support Other

1 PwC* 4,378.0 9% 49 11 40 — — — — Jun-14

2 Deloitte* (1) 4,126.8 12% 37 8 36 3 — — 16 May-14

3 KPMG* 3,112.8 6% 41 12 44 3 — — — Aug-14

4 EY* (2) 2,223.6 1% 40 12 44 4 — — — Jun-14

5 Grant Thornton International* 595.3 24% 64 9 16 3 — 1 7 Sep-14

6 BDO* 442.1 16% 54 12 11 5 — — 18 Sep-14

7 Mazars* 423.4 13% — — — — — — — Aug-14

8 Moore Stephens International* 257.3 27% 62 11 11 4 — 1 11 Feb-14

9 Nexia International* 240.7 12% 63 11.5 9.5 1 — 1 14 Jun-14

10 PKF International* 145.7 –17% 73 9 2 1 1 10 4 Jun-14

11 RSM International* 128.5 9% 70 13 5 — — — 12 Jun-14

12 Baker Tilly International* 108.1 3% 78 8 4 1 — — 9 Feb-14

13 Kreston International* 91.0 15% 100 — — — — — — Oct-13

14 Crowe Horwath International* 86.6 –4% 62 14 7 — — 9 8 Feb-14

15 HLB International (3) 81.7 207% 70 15 5 1 1 1 7 Mar-14


Notes: (1) Deloitte’s 2013 fee income has been amended from ZAR3,434m following a revenue re-statement; (2) EY’s 2013 fee income has been amended from ZAR2,270.6m as the figure disclosed in 2013 included fees generated from subcontractors; (3) Fee income figure for HLB includes ZAR52m revenue from Certified Master Auditors, a non-exclusive member, also part of LEA Global. *Disclaimer = Only data from the named member firm or the exclusive member firms within a network/association is included. Data relating to correspondent and non-exclusive member firms is not included. Source: International Accounting Bulletin

IAB 543.indd 14 21/11/2014 12:00:20



■ SOUTH AFRICA


Rank Fee income

(ZARm)Growth

rate

Fee split (%)

Year-endAudit &

AccountingTax

servicesManagement

consultingCorporate

finance

Corporate recovery/


support Other

1 Morison International* 545.0 5% 92 3 — — — 5 — Dec-14

2 Praxity* 431.0 15% — — — — — — — Aug-14

3 MSI Global Alliance* 61.1 16% 68 10 3 — — — 19 Dec-13

4 IAPA* 60.6 0% 53 18 10 — — — 19 N/A

5 LEA Global (1) 50.0 6% 70 17 2 1 2 — 8 Mar-13

6 MGI* 49.6 –5% — — — — — — — Jun-14

7 BKR* 42.9 –18% 68 16 8 — — 1 7 Feb-14

8 GMN International* 38.6 5% 62 19 9 — — — 10 Sep-13

9 Integra International* 30.6 –12% 50 25 15 10 — — — Jun-14

10 PrimeGlobal* 25.1 –64% 73 18 3 3 — — 3 May-14


Notes: (1) Fee income figure for LEA Global includes ZAR 52m revenue from Certified Master Auditors, a non-exclusive member also part of HLB. *Disclaimer = Only data from the named member firm or the exclusive member firms within a network/association is included. Data relating to correspondent and non-exclusive member firms is not included. Source: International Accounting Bulletin

ing at the audit fee will ultimately have an impact on the quality of the audit; you run that risk.

She explains: “We’ve actually seen quite a balanced approach by audit committees in terms of obviously wanting value from the audit, but not necessarily at all costs.” The shift brought about by this attitude is becoming evident as early as during the ten-dering process itself.

“What we’re seeing now, in the audit ten-ders we’ve been involved in, is that the win-ners are not necessarily the ones that put a cheaper fee quote in,” Davies adds. “In fact, companies are asking for almost technical proposals from the audit firms and making a selection based on the quality of the tech-nical submission, and only then going into fee negotiations once they’ve made their firm selection.”

Tax opportunitiesA shifting international tax landscape has created both complexity and opportunity in the field. With the increasing focus on tax morality, base tax erosion and transfer pric-ings, says PwC’s Kana, people are prepar-ing to encounter greater compliance issues and a more challenging attitude by revenue authorities.

“I think as regulation becomes more com-plex, the regulator and regulating authorities become more aggressive in their approach, it

creates a platform for us to provide services and support our clients,” he says.

According to Swiegers, Deloitte has been able to grow its tax service line by embedding technology and tax analytics in traditional service provisions, from tax compliance, to tax health checks and exposure quantifica-tion. “We continue to grow at a steady pace in the indirect tax space,” he adds.

As far as international tax is concerned, according to Swiegers: “Opportunities continue to present themselves in the cross- border tax space as global multinational companies seek expansion opportunities in Africa and more specifically South Africa.

“As revenue authorities in Africa collabo-rate more effectively we find simultaneous multi-jurisdictional audits becoming more common,” he explains. “As regulation becomes more borderless, our challenge is to help our clients comply with complex leg-islation and regulation cost-effectively.”

“Our tax service line grew by 9% this year,” says KPMG’s Kgosana, 3% less than planned. “For us, the main reason has been loss of key talent in our mining tax expertise, where competition has been aggressive.

He admits, however, that there is huge opportunity in the tax market, with transfer pricing a highly active area. “The other great opportunity we see in tax is around litiga-tion, dispute resolution,” he adds.The picture in advisory remains a mixed one.

SizweNtsalubaGobodo’s Sekese says he finds that: “Clients are still under pressure, so they hesitate to engage consultants. What we’ve seen is that they try to do as much as pos-sible themselves and call in consultants to augment their capacity.”

At the same time, he adds: “Clients chal-lenges are becoming more complex, and they are therefore expecting more integrated solu-tions.”

However, despite the struggles in the ser-vice line there are advisory areas that con-tinue to show progress, he adds, with IT consultancy and strategy remaining areas of promise.

CybercrimeTechnology is recognised as an enduring point of strength for advisory. PwC’s Kana says: “I think cybercrime, protection of data, those kinds of things are becoming big issues,” he explains. “We expect a lot of growth in that market.”

“Cybercrime is very, very significant in our market,” concurs Swiegers at Deloitte. “As we move north into the rest of Africa, more cloud-based solutions are deployed and cybercrime is at the top of everybody’s mind.

“Statistics worldwide and all the research show that cybercrime is on the increase,” he explains, “and clients are very aware of that and very proactive in trying to get us to put in all the controls.”

IAB 543.indd 15 21/11/2014 12:00:21



Within its advisory space, Kgosana explains KPMG suffered from several cases in which clients repeatedly postponed the start of the work, before telling the firm they would not be able to carry on with the contract. “This was particularly so in our forensic and investigation capacity space, where there was not much work, and in our consulting space, where we also found there was a lot of work that was frozen and we were unable to do,” he explains. “Overall, advisory grew 7%, when our plan was to grow it by 20%.”

As far as the transactions market goes, conversely, “it’s been a mixed bag,” accord-ing to Kgosana. Despite the struggling econ-omy, he says, “we’ve been involved in six or seven transactions around the private equity area.

“If I look at M&A from a sector point of view there is activity around financial ser-vices, mainly in insurance, and one or two transactions in banking.”

“The start of the year saw a pretty slow start in the transactions advisory space,” confirms EY’s Davies. “However in the April to June quarter we saw quite a significant uptick in the number of transactions, cer-tainly in the number of transactions coming from our member firm network in terms of

referred work, and that trend has continued into the current (2014/15) financial year.”

In terms of the expansion of their own businesses, meanwhile, competition for niche expertise and capabilities remains strong among South Africa’s firms.

Grant Thornton International’s recent mergers with PKF Cape Town this year and PKF George in 2013 enabled the firm to out-perform many of its competitors in a tough market. “When you have mergers of this sig-nificance in a firm it actually leads to other compound growth,” explains Nagar, “sim-ply because the market sees the change in the firm and the growth in the firm as well.”

Swiegers says Deloitte is “continuously looking at and acquiring small, niche busi-nesses”, where specialist skills are the deter-mining factor. “At the moment we’re in the process of looking at a small business that will complement our digital service offering. The 15-person business has an absolute, deep-rooted specialist skill in the digital space.”

Deloitte is not the only firm on the lookout for potential acquisitions. KPMG’s Kgosana says: “We have actually been looking, espe-cially around our advisory space, at new ser-vice lines to grow from a strategy side, from the technology space, even the procurement

space.Alongside business expansion, the battle

for specialist resources is also being fought on headcount; in describing South Afri-ca’s staffing situation, many refer to what Kgosana describes as a “war for talent”.

As well as increasing the network’s rev-enue in South Africa, Grant Thornton Inter-national’s Nagar explains the recent round of acquisitions have increased the firm’s attractiveness as an employer.

At an advanced-hire level, he adds, having the skills to remain competitive within a mul-tiplicity of sectors can lead to real competi-tive advantage. “We have 25 different service offerings currently, which is a large spread for a mid-tier firm,” he explains. “They are headed up by specialists, and once you have invested specialists in a service line, we have found that investment leads to growth in the future.”

KPMG may have seen its staff levels largely unchanged, but with competition for top talent fierce in a difficult economy “you can end up losing the one you need most”, explains Kgosana. “There will always be need, in highly technical areas, to find the right people to fill up those new areas of ser-vice lines.”

As part of KPMG’s drive to secure new

■ SOUTH AFRICA


Rank Name



2014 2013 2014 2013 2014 2013 2014 2013 2014 2013

1 PwC* 5,090 4,876 4% 274 283 4,068 3,816 748 777 23 22

2 Deloitte* (1) 4,664 4,193 11% 264 253 3,806 3,419 594 521 9 9

3 KPMG* 3,301 3,312 0% 238 253 2,504 2,492 559 567 12 11

4 EY* 2,444 2,524 –3% 144 158 1,891 1,885 409 481 10 10

5 Grant Thornton International* 1,028 912 13% 90 97 762 606 176 209 10 10

6 Mazars* 892 746 20% — 67 — 515 — 164 — 9

7 BDO* 665 628 6% 55 48 474 437 136 143 5 4

8 Moore Stephens International* 639 562 14% 52 42 477 452 110 68 18 14


10 PKF International* 348 516 –33% 33 37 258 362 57 117 4 4

11 Kreston International* 277 309 –10% 31 27 198 214 48 68 5 5


13 Baker Tilly International* 268 264 2% 18 18 202 196 48 50 3 3

14 HLB International 177 62 185% 17 5 117 45 43 12 7 1

15 Crowe Horwath International* 169 168 1% 21 24 114 102 34 42 3 2

Totals 20,789 19,826 5% 1,308 1,379 15,503 15,078 3,086 3,369 125 120

Notes: (1) Deloitte’s staff figures for 2013 have been amended. *Disclaimer = Only data from the named member firm or the exclusive member firms within a network/association is included. Data relating to correspondent and non-exclusive member firms is not included. Source: International Accounting Bulletin

IAB 543.indd 16 21/11/2014 12:00:21



■ SOUTH AFRICA

ASSOCIATIONS - STAFF DATA

Rank Name



2014 2013 2014 2013 2014 2013 2014 2013 2014 2013

1 Praxity* 1,035 746 39% — 67 — 515 — 164 — 9

2 Morison International* 981 907 8% 46 51 810 738 125 118 11 12


4 IAPA* 125 125 0% 12 12 29 29 84 84 4 3

5 GMN International* 119 121 –2% 13 14 77 84 29 23 9 9

6 BKR International* 116 153 –24% 8 11 80 114 28 28 2 3

7 LEA Global 114 — — 12 — 71 — 31 — 6 —

8 Integra International* 106 128 –17% 5 8 67 82 34 38 2 5

9 MGI* 105 143 –27% 12 15 79 12 14 116 2 2

10 PrimeGlobal* 73 200 –64% 9 17 52 136 12 47 2 3

Totals 2,975 2,657 12% 132 206 1,400 1,793 408 658 42 49



talent, he says: “We’ve registered with our institute of chartered accountants, so that we can start developing a training programme in our advisory space, whereby we can also take students from university and they grow within our service lines.

“We’re looking to grow our own timber, because it’s tough out there to get experi-enced hires,” adds Kgosana. Despite a plan to increase staffing numbers moderately, in line with market growth, he says: “My pre-diction is that the next 12 months will still be tough, if you look at the economy predic-tions. However there are lots of opportuni-ties elsewhere in Africa for us to make sure we help our clients as they expand on the continent.”

Sekese says there’s a difficult staff market in the mid-tier. Although SizweNtsalubaGo-bodo plans to maintain an intake of around “150 or so” in the coming year, he explains, a “critical skills shortage still exists”.

His observation is compounded by Deloitte’s Swiegers. “To be brutally hon-est with you, the root of the shortage is our high-school education system,” he explains. “We don’t produce enough high school grad-uates in maths and science.”

As a consequence, he says: “If you go to universities, there’s a shortage of chartered accountants, actuaries and engineers in the country and all of those need maths at high school level. Our output of high school grad-uates with good maths is completely insuf-ficient to serve the market.”

Kana’s outlook is slightly more positive. “We are the largest firm in South Africa,” says, “so people do migrate to our brand.” The real challenge for PwC, he says, lies instead in talent retention, particularly among black professionals at a senior level. “We do get the cream of the crop on an annual basis,” he explains. “I think the chal-lenge comes once you’ve developed them, because when they join our firm we develop them using a global curriculum and they become very marketable and that’s where the retention issue keeps coming up.” As for PwC’s personnel strategy for the coming months, Kana says: “I think we will go up between 3% and 5% in terms of increased headcount.”

RegulationAlongside the war for talent, an added chal-lenge facing the South African professional services industry is regulatory change, both domestically and internationally.

According to Deloitte’s Swiegers, a sig-nificant problem with current regulatory changes in the international tax environment is the lack of alignment. “What we find is there’s no alignment through all the regula-tion between Europe, the UK and US,” he explains.

As a consequence, he says: “There are dif-ferent rotation policies and different rota-tion rules that apply to different countries, so we have to work with US regulation, UK regulation, European regulation and our

own South African regulation, depending on where the client is.”

While Europe has introduced firm rota-tion, for example, the US and South Africa have partner rotation. As such, explains Swiegers, the firm obeys four sets of regula-tors: “We are inspected by the PCAOB, to comply with US regulation; we get inspected by our own regulator for South African reg-ulation; and the IFRC controls the European regulation. And one needs an alignment of these [bodies].” Looking to the future, he says he hopes for “more alignment and more consistency”.

Closer to home, EY’s Davies points to recent legislative changes within South Afri-ca, which also have an impact on the coun-try’s profession.

Commonly known as ‘Section 90’, Sec-tion 90(2) (b) of the Companies Act 2008 impedes auditors engaged in performing a statutory audit from providing certain non-audit services to the same client. The measure came into effect on 1 January 2014 and is widely recognised as bearing serious implications for South African firms, as the measure renders them ultimately responsible for determining their independence in terms of the Companies Act, prior to accepting an appointment.

“We had Section 90 of the Companies Act being introduced, which was quite restric-tive around auditors not being able to get involved in any fashion with the compilation of financial statements,” explains Davies.

IAB 543.indd 17 21/11/2014 12:00:21



■ SOUTH AFRICA

Top firms: fee data

Rank Fee income (ZARm) Last year’s fee income (ZARm) Growth rate

1 PwC 4,378.0 4,013.0 9%

2 Deloitte 4,126.8 3,683.0 12%

3 KPMG 3,112.8 2,942.4 6%

4 EY 2,223.6 2,205.9 1%

5 Grant Thornton 595.3 481.4 24%

6 SizweNtsalubaGobodo (1) 545.0 520.0 5%

7 BDO South Africa 442.1 380.6 16%

8 Mazars 423.4 376.0 13%

9 SABT&T Incorporated (2) 176.5 153.6 15%

10 RSM Betty & Dickson 128.5 117.9 9%

11 PKF Durban 82.1 77.4 6%

12 Horwath Leveton Boner 64.4 62.3 3%

13 Baker Tilly Greenwoods 57.8 55.5 4%

14 Certified Master Auditors (3) 50.0 47.0 6%

15 Moore Stephens BKV 40.4 39.2 3%

16 Baker Tilly Morrison Murray 25.4 23.9 6%

17 Baker Tilly SVG 24.9 25.2 -1%

18 CAP Chartered Accountants (4) 21.5 20.4 5%

19 PIERIAN (5) 14.3 9.9 44%

20 Boake (6) 2.4 2.4 0%

Notes: (1) SizweNtsalubaGobodo is a member of Morison International; (2) SAB&T Incorporated is a member of Nexia International; (3) Certified Master Auditors (South Africa) Inc is a non-exclusive member of LEA Global and HLB International; (4) CAP Chartered Accountants is a member of MSI Global Alliance; (5) PIERIAN is a member of PrimeGlobal; (6) Boake is a member of BKR. Source: International Accounting Bulletin

“There has been a significant lack of clar-ity around that particular interpretation of Section 90. We had a bit more clarity com-ing through in the coming year, but certainly we’re of the view that there needs to be more clarity given.

In fact there needs to be much more align-ment with global best practice, which is not as restrictive as having a five-year cooling-off period before you can actually sign off the external audit.”

Looking back on regulation in 2014, Davies concludes: “I think Section 90 has had a significant impact.”

Indeed, Grant Thornton’s Nagar identifies regulation as the central issue set to trans-form the profession next year. Audit firm rotation legislation approved in Europe and India is set to have a significant impact. He adds: “Over a period of time you’re prob-ably going to see it focusing too in other jurisdictions as well.

“It is a highly regulated industry,” he explains, “and it’s becoming increasingly regulated across the world. The issue with that amount of regulation is attracting and retaining your best talent,” he adds, “this has become a continual challenge.”

A look at 2015As the South African economy continues to show little sign of significant recovery for 2015, optimism is subdued.

Sekese says his expectations include “more consolidation of accounting firms although not to the same extent as previous years”.

He also predicts a continuation in the number of new, niche firms appearing in the market, while sustainability consulting and

audit are likely to “gradually grow as a prac-tice area”.

“I think the biggest challenge we see is the economy,” responds KPMG’s Kgosana. It’s likely to continue to have “a lot of impact” on advisory service lines, he says. “In the pri-vate sector, we expect tough challenges with the projected GDP growth affecting most of our clients”.

As such: “We expect our growth to be at

the same level,” he explains. “My predic-tion is that the next 12 months will be just as tough as where we’ve come from. I don’t expect massive growth, neither top line or bottom line.”

As the industry takes stock of a difficult year and prepares once more to weather many of the same challenges in 2015, South Africa’s professional services firms face both hurdles and competition at every turn. <

■ SOUTH AFRICA

FIRM MOVEMENTS


BDO Merger: CAP Chartered Accountants (Tyger Valley)

CPA Associates Lost: Lucro Auditing (Fourways)

Grant Thornton International Merger: PKF (Cape Town)

HLB International Added (non-exclusive member firm): Certified Master Auditors (Johannesburg, Pretoria, Cape Town)

Integra International Lost: Russel James & Co (Johannesburg)

MSI Global Alliance Added: Newtons Chartered Accountants (Bloemfontein)

Moore Stephens International Merger: Moore Stephens MO (George)

PKF International Added: VGA Chartered Accountants Incorporated, rebranded as PKF VG-A (Johannesburg and Knysna); Lost: PKF (Cape Town)

PrimeGlobal Lost one firm

PwC Acquired: Argil Business Growth Partners (Durban, KwaZulu-Natal); Risk Diversion Digital (Pretoria, Gauteng)

IAB 543.indd 18 21/11/2014 12:00:23


COUNTRY SURVEYInternational Accounting Bulletin AUSTRALIA

Change continues to be the order of the day for Australian accountancy firms. While the level of consolida-tion experienced during 2012 and

2013 has slowed somewhat, mergers and acquisitions continue to change the face of the profession.

This trend has had an impact at all levels of the industry. For example, Giam Swieg-ers, chief executive of Deloitte Australia says his firm has moved from fourth place to second among the Big Four this year on the back of eight transactions and expects a similar level of activity in 2015.

Bring forward plansThe rate of M&A activity is causing firms to bring forward their plans as they are concerned about missing out on the better opportunities, says Greg Hayes, managing partner of Morison International member firm Hayes Knight Australia.

“The general trend is for firms to bulk up, although there will continue to be clear segmentation,” he says. “The size of the Big Four relative to the mid-tier means that this gap is almost impossible to breach – although there’s no need to do this any-way. Too many mid-tier firms aspire to be another Big Four member, whereas they should have competitive advantage in their own space.”

There’s also some upward pressure on

pricing with good-quality firms command-ing better than dollar-for-dollar in main-tainable fees, he continues.

“This activity is masking a larger problem for the profession – the inability to achieve sustainable organic growth,” Hayes says. “Sooner or later M&A opportunities will recede and firms will need to address the organic growth problem.”

M&AThe number of mergers and acquisitions has returned to normal levels this year, although there has been continued move-ment of firms either into membership of or between international networks. That is the view of Neil Wickenden, partner at HLB Mann Judd Sydney, who attributes this trend to networks seeking to expand their reach in the larger regional centres as well as the major cities.

“At this point it does not appear that there is a definite trend towards a smaller num-ber of larger firms emerging in Australia,” says Wickenden. “Larger firms have found growth in recent years to be challenging.

“However, perhaps counter-intuitively, this has not always led to rationalisation. It is probably the case that firms are focus-ing more on their cost structures, seeking to maintain profit margins rather than grow-ing revenue.”

Larger firms are better placed to take

Evolution down underLegislative delays following last year’s inconclusive general election, a sluggish economy and increasingly price-sensitive clients are making life difficult for Australia’s accounting profession. Paul Golden reports

■ AUSTRALIA

At a glanceREVENUE

Most revenue: PwC, A$1,573mLeast revenue: INPACT, A$1.2mHighest growth: PKF Int., 442%Lowest growth: INPACT, –35%

STAFF

Largest workforce: PwC, 5,500Smallest workforce: INPACT, 11Most partners: Deloitte, 528Most offices: Crowe Horwath Int., 77

ECONOMIC INDICATORS

National GDP: A$1,550.4bnNational GDP growth: 3%GDP per capita (PPP): $44,074Inflation (CPI): 2.5%Current Account Balance: –5.5%Unemployment rate: 5.3%Population: 23.1 million


Revenue per employee: A$211,104Staff density: 1 accountant per 690 ppl

Notes: Totals apply to IAB surveyed data only. This includes firms that belong to global networks and associations


IAB 543.indd 19 21/11/2014 12:00:27



AUSTRALIA

advantage of ‘digital disruption’ and this puts pressure on smaller rivals to con-form, says David Tomasi, chairman of the UHY Haines Norton Group, referring to the partnership between PwC and Google announced in late October, which will see 14,000 of PwC’s employees move to Google software for internal and external use.

“We have seen some of the Big Four firms acquire non-accounting businesses to broaden their consulting offerings and smaller practices are looking to merge, but this has more to do with meeting the needs of owners seeking an exit strategy,” suggests Ian Stone, managing partner Nexia Court & Co and chairman of Nexia Australia and New Zealand.

“I still perceive a strong mid-tier group and would imagine the number of smaller firms will fall over the next decade as the baby boomers seek to retire,” Stone adds.

AcquisitionsAt the end of January, PwC acquired MGI Melbourne, adding to its succession plan-ning, self-managed super funds, wealth and advisory services for high net worth indi-viduals and family and private businesses.

The addition of accounting and business advisory alliance Lawler to its network ear-lier this year more than doubled PKF’s pres-ence in Australia.

According to Norman Draper, partner at PKF Lawler Melbourne, the Big Four have been attempting to position themselves in the privately owned business and high wealth arenas and convince the market that it is a new service. He says: “In previous for-ays they have failed to emulate the relation-ship-based approach which is the essence of the mid-tier firms.”

Draper refers to rumours that Moore Ste-phens’s Melbourne practice may partner with Chinese accounting firm ShineWing to support his view that further consolida-tion is likely.

“In addition, the former BDO partners are now reaching the third year of their arrangements with Grant Thornton, which is said to be a milestone for KPI evaluation, Draper says.”

While opinion is divided on the benefits of consolidation for firms and clients, there is greater consensus on the challenges facing the industry in relation to tax legislation, economic uncertainty and clients expecting the cost of professional services to fall on

the back of greater use of technology.Some of the firms interviewed by Inter-

national Accounting Bulletin last year sug-gested that the new government might deliv-er enhanced regulatory certainty around taxation. However, the view expressed by Deloitte’s Swiegers that such certainty is yet to be delivered is widely shared.

“The government has committed itself to a white paper process on tax reform, with a discussion paper on the topic due for release by the end of the year,” explains Peter van Dongen, managing partner assur-ance at PwC Australia. “So we will need to see what emerges from that process before we can determine the impact on economic confidence.”

Offshore servicesDon Rankin, managing partner at Baker Tilly Pitcher Partners acknowledges that many firms are pushing services offshore, but says demand for quality advisory ser-vices remains high. “There’s a level of com-petition in this space, but our experience is that clients choose quality when seeking commercial advice,” says Rankin.

Outsourcing internal services to offshore locations is likely to become more common-place over the next 12 months according to Helen Argiris, chairman of BDO Australia, who says there’s been a spike in demand for advisory services such as forensic and risk advisory, as well as specialist tax advice “That is keeping those experienced in trans-fer pricing quite busy, says Argiris. “Initial public offer and merger and acquisition activity has also risen recently, as has ser-vices to government agencies.”

However, audit pricing pressures remain a challenge. Argiris continues: “Greater emphasis on advisory services has proven to be a key focus for many firms, as is the pressure on compliance services to small and medium businesses as a result of cloud-based accounting solutions.”

OutsourcingThere’s an increase in outsourcing activity, but no clear evidence of sustainable models that can be delivered on a systemic basis, adds Hayes at Hayes Knight Australia. “This is still an emerging market that increasingly is competing with technology solutions for creating efficiency.”

He says efforts to reform taxation leg-islation are being stymied by negotiations

with minority parties which have caused trade-offs in the legislative programme, while firms are also being frustrated in their efforts to raise fees.

“Fee rates have been relatively flat over the last 12 months with upward movement generally limited to inflation,” says Hayes. “There’s some push-back in the market on fees and firms are looking to manage this to ensure that they don’t lose clients on fee issues.”

Hayes says demand for taxation advice, corporate finance and succession planning remains strong. “The majority of mid-tier firms are active in these areas although there are differences in how they resource them. Smaller firms will typically not be adequately resourced to deliver these ser-vices in a significant way, which opens up considerable referral opportunities.”

The traditional mid-tier offering of com-pliance with value-added services to private-ly owned small and medium-sized enter-prises is changing rapidly and there’s now a real risk to those firms that do not embrace the change, says PKF Lawler Melbourne’s Draper. “This has led to value-added services, industry specialisations and, of course, outsourcing of processing functions.”

Skills shortageThe prospect of a skills shortage in the audit ranks if the industry fails to remain chal-lenging and innovative is genuine, Draper continues.

“The response by the profession to this challenge is to allay the perception of the ‘tick and bash’ approach and promote and train graduates in the required skills for data mining, data analytics, etc. The other risk is that these skills are also being out-sourced.”

New technologies may challenge the out-sourcing trend, adds PwC’s van Dongen, a view shared by HLB Mann Judd Sydney’s Wickenden.

“Anecdotally, Australian firms are increasingly outsourcing or near sourcing services as part of their focus on managing the cost of delivering client services,” says Wickenden.

“Apart from India, traditionally the coun-try of choice, Australian firms tend to be outsourcing to counties which are in a clos-er time zone – such as the Philippines and Vietnam. But there appears also to be an

IAB 543.indd 20 21/11/2014 12:00:27



AUSTRALIA

■ AUSTRALIA


Rank Fee income

(AS$m)Growth

rate

Fee split (%)

Year-endAudit &

AccountingTax

servicesManagement

consultingCorporate

finance

Corporate recovery/


support Other

1 Praxity* 69.4 9% 74 7 1 3 3 — 12 N/A

2 DFK International* 61.3 34% 53 34 11 1 — — 1 Jun-13

3 PrimeGlobal* 44.8 –5% 45 36 7 — — 2 10 May-14

4 Morison International* 40.3 14% 57 14 15 14 — — — Jun-14

5 IAPA* 39.9 18% 40 28 7 — — — 25 Jun-14

6 MSI Global Alliance* 35.8 114% 58 24 14 — — — 4 Dec-13

7 Alliott Group* 34.1 29% 47 41 3 1 1 1 6 Dec-13

8 GMN International* 33.0 34% 42 41 12 2 — 1.5 1.5 Sep-13

9 BKR International* 29.8 2% 52 41 3 1 2 1 — Jun-14

10 MGI* 21.8 –29% — — — — — — — Jun-14

11 Integra International* 19.1 11% 50 25 10 15 — — — Jun-14

12 KS International* 14.5 –12% 67 17.5 7.5 — — — 8 Dec-13

13 INPACT Asia Pacific* 1.2 –35% 70 28 2 — — — — Dec-13

Total revenue/growth 445.0 14%



■ AUSTRALIA


Rank NameFee income

(AS$m)Growth

rate

Fee split (%)

Year—endAudit &

AccountingTax

servicesManagement

consultingCorporate

finance

Corporate recovery/


support Other

1 PwC* (1) 1,573.0 7% 22 — — — — — 78 Jun-14

2 Deloitte* (2) 1,162.0 6% 19 — — — — — 81 May-14

3 EY * 1,133.0 1% 42 29 — — — — 29 Jun-14

4 KPMG* 1,120.0 1% 35 18 — — — — 47 Jun-14

5 Crowe Horwath International* 327.4 –5% 64 6 — 2 — — 28 Jun-14

6 BDO* 236.3 4% 28 44 8 9 9 2 — Jun-14

7 Grant Thornton International* 225.7 1% 29 37 5 8 15 1 5 Jun-14

8 Baker Tilly International* 170.5 5% 34 31 11 3 12 — 9 Jun-14

9 RSM International* 149.9 7% 54 12 16 3 10 — 5 Jun-14

10 Moore Stephens International* 119.8 –2% 68 16 1 3 2 — 10 Jun-14

11 HLB International* 97.1 7% 71 9 1 2 6 1 10 Jun-14

12 Nexia International* 90.0 3% 49 35 4 1 3 4 4 Jun-14

13 Kreston International* 89.7 3% 27 31 7 1 25 — 9 Oct-13

14 PKF International* 83.0 442% 20 20 32 5 15 1 7 Jun-14

15 UHY* (3) 35.9 –5% 69 20 8 — — 3 — Jun-14

16 ECOVIS International* 5.0 9% 5 65 30 — — — — Jun-14

17 Reanda International* 3.5 8% 30 43 5 — — — 22 Jun-14


Notes: *Disclaimer = Only data from the named member firm or the exclusive member firms within a network/association is included. Data relating to correspondent and non-exclusive member firms is not included. (1) According to transparency report PwC revenues “other” includes A$189m for non-audit services provided to audit clients and A$1,030m for non-audit services provided to non-audit client. (2) According to transparency report Deloitte revenues “other” includes A$91m for non-audit services provided to audit clients and A$858m for non-audit services provided to non-audit client (3) UHY is represented by the association UHY Haines Norton in Australia.


IAB 543.indd 21 21/11/2014 12:00:28



AUSTRALIA

■ AUSTRALIA

ASSOCIATIONS – STAFF DATA

Rank Name



2014 2013 2014 2013 2014 2013 2014 2013 2014 2013

1 Praxity* 443 447 –1% 57 54 303 322 83 71 6 5

2 DFK International* 351 289 21% 48 39 236 186 67 64 17 16

3 PrimeGlobal* 316 336 –6% 46 47 202 210 68 79 12 12

4 IAPA* 255 215 19% 33 30 121 98 101 87 9 9


6 BKR International* 243 237 3% 23 23 199 191 21 23 10 10

7 GMN International* 229 183 25% 26 24 159 125 44 34 9 9

8 Alliott Group* 225 202 11% 34 22 67 138 124 42 11 4

9 Morison International* 212 191 11% 30 28 147 136 35 27 6 6

10 Integra International* 135 129 5% 14 19 93 84 28 26 4 4

11 MGI* 107 139 –23% 25 33 — — — — 9 10

12 KS International* 90 97 –7% 17 17 57 60 16 20 3 3

13 INPACT Asia Pacific* 11 17 –35% 2 5 6 10 3 2 1 2

Totals 2,869 2,574 11% 382 364 1,747 1,586 658 518 103 95



■ AUSTRALIA


Rank Name



2014 2013 2014 2013 2014 2013 2014 2013 2014 2013

1 PwC* (1) 5,500 5,447 1% 500 428 — — — — 8 10

2 Deloitte* 5,437 5,037 8% 528 496 4575 4236 334 305 17 16

3 KPMG* 5,000 5,103 –2% 380 400 — — — 6 6

4 EY* 4,900 4,900 0% — 412 — — — — 6 6

5 Crowe Horwath International* 2,052 2,101 –2% 210 232 1,202 1,201 640 668 77 80

6 BDO* 1,359 1,302 4% 159 157 933 957 267 188 10 11

7 Grant Thornton International* 1,169 1,361 –14% 137 139 821 990 211 232 6 6

8 Baker Tilly International* 1,036 936 11% 89 82 760 687 187 167 6 5


10 Moore Stephens International* 682 714 –4% 84 92 485 501 113 121 13 14

11 PKF International* 620 84 638% 65 19 460 48 95 17 4 4

12 HLB International* 595 573 4% 86 83 389 369 120 121 12 12

13 Kreston International* 535 611 –12% 80 89 342 403 113 119 17 26


15 UHY* 256 279 –8% 31 35 189 205 36 39 8 8

16 Reanda International* 41 25 64% 11 8 19 8 11 9 4 2

17 ECOVIS International* 28 25 12% 3 3 21 19 4 3 1 1

Totals 30,606 29,836 3% 2,526 2,836 11,184 10,559 2,376 2,231 231 243

Notes: *Disclaimer = Only data from the named member firm or the exclusive member firms within a network/association is included. Data relating to correspondent and non-exclusive member firms is not included. (1) PwC staff data are estimates provided by the network.


IAB 543.indd 22 21/11/2014 12:00:29



AUSTRALIA

■ AUSTRALIA

FIRM MOVEMENTS


Baker Tilly International Added: Farrow Wyatt (Hunter region, New South Wales)

BDO Merger: BDO in Brisbane merged with KPMG in the Sunshine Coast (Queensland)

Deloitte Alliances: Worley Parsons (Guavis)

Mergers & Acquisitions: Digicon (Brisbane, Queensland); NXG SAP Solution (Sydney, New South Wales; Melbourne, Victoria and Brisbane, Queensland); Quattro Innovation Group (Sydney, New South Wales); The Brief Group (Western Sydney, New South Wales); Moore Stephens (Western Sydney, New South Wales); Analytics Group (Canberra, ACT)

DFK International Added: DFK Crosbie (Newcastle)

GMN International Merger: Pickup Golding merged with Barringtons (Perth, Western Australia)

Grant Thornton International Merger: Grant Thornton Australia Limited merged with KPMG in Cairns, Far North Queensland

HLB International Lost: FinPlan (Melbourne, Victoria)

INPACT Asia Pacific Lost: Cheng & Co. Pty Ltd (Perth, Western Australia)

MGI Lost: MGI Melbourne (Victoria)

Moore Stephens International Lost: Moore Stephens (Parramatta)

Morison International M&A: Bamfield & Co (Sydney, New South Wales); RJ Webb & Co (Brisbane, Queensland)

MSI Global Alliance Added: Cutcher & Neale (Newcastle, New South Wales), McKinley Plowman & Associates (Perth, Western Australia)

Lost: Marsdens (Perth, Western Australia)

PKF International Added: PKF Lawler Partners

Reanda International Establishment of Reanda Victoria Pty Ltd early June 2014

increased emphasis on technological solu-tions to cost management.”

Wickenden agrees that the efforts of the federal government to promote greater cer-tainty in taxation have failed to boost eco-nomic confidence.

He says: “For example, in December 2013 the government reviewed a backlog of 92 announced taxation measures yet to be implemented and determined which would be abandoned and which would be implemented. However, the existing tax law and its administration remain extremely complex with no prospect of simplification in sight, representing a real burden on businesses.”

Wickenden also refers to client expec-tations that firms should be able to drive down their costs through the use of digital technology, as has happened in other areas of the economy.

“There is less demand for business recov-ery services, but this is almost certainly cyclical. There is considerable competition for all services and it is apparent that the Big Four firms are competing more in the SME client market.”

Skills shortageWickenden is more upbeat on the issue of whether the accounting industry in Aus-tralia is heading for a skills shortage in

audit services as younger professionals are attracted to more ‘exciting’ areas.

He says: “There are certainly a greater variety of (and possibly more exciting) areas for commerce and economics degree gradu-ates. However, these areas of the financial services sector face their own challenges in terms of business growth and the cost of employment. Consequently – and given the relatively large number of graduates who enter the workforce each year – I do not expect any severe skills shortage for the Australian accounting profession.”

Audit skills crisisUHY Haines Norton Group’s Tomasi also rejects any suggestion that the new gov-ernment has managed to deliver enhanced regulatory certainty around taxation and warns of a future skills crisis in audit.

“This is something I have been warning our institute and the corporate regulator (ASIC) about whenever I get an opportu-nity,” Tomasi says. “As the current crop of auditors retire, it will place even more pressure on resources already stretched too thinly – not a great recipe for ensuring we avoid corporate disasters.”

On the upside, he says there’s still demand for the full range of accounting services. “In particular, audit continues to be com-petitive, while the big firms and special-

ised cloud-based service providers have put cloud services front and centre. So much so that cloud is being used as a way to attract clients and then offering them everything else they need.

The Big Four have been especially active in this area, as has Xero (a New Zealand-based software company that develops cloud-based accounting software for small and medium-sized businesses).”

Sourcing talentNexia’s Stone is reluctant to describe out-sourcing as commonplace, but does accept that firms are seeking to source larger talent pools at lower cost.

“I would say that Philippines and Malay-sia are locations where there’s a stronger interest due to closer time zone compatibil-ity, but India is still probably more preva-lent,” Stone says.

“Firms using such locations are utilising services to assist with work which has bet-ter streamlined processes and is repetitive in nature, such as superannuation funds, establishing files and basic accounting/tax work.

“Larger firms which have offices in such locations use teams of staff to assist with their work, but in most cases this has been ongoing for a number of years. It’s now the mid-tier and smaller firms which are

IAB 543.indd 23 21/11/2014 12:00:29



AUSTRALIA

Editor: Ana GyorkosTel: +44 (0)20 7406 6707Email: [email protected]

Deputy Editor/Editor of The Accountant: Carlos Martin TorneroTel: +44 (0)20 7406 6706Email: [email protected]

Reporter: Isabella GrottoTel: +44 (0)20 7406 6704Email: [email protected]

Reporter: Vincent HuckTel: +44 (0)20 7406 6709Email: [email protected]

Group Publisher: Ameet Phadnis Tel: +44 (0)207 406 6561 Email: [email protected]

Contributor: Paul Golden

Chief Subeditor: Nick MidgleySubeditor: Kev Walsh

Subscription Enquiries: Sharon HowleyTel: +44 (0)20 7406 6615Email: [email protected]

Director of Events: Ray GiddingsTel: +44 (0) 203 096 2585Email: [email protected]

Sales Executive: Alex AubreyTel: +44 (0) 203 096 2603Email: [email protected]

Customer Services:Tel: +44 (0)20 3096 2636 or +44 (0)20 3096 2622 Email: [email protected]

For more information on Timetric, visit our website at vrl.timetric.comFor more information on accessing International Accounting Bulletin content online, including a five-year archive, please telephone +44 (0)20 406 6579 or email [email protected]

London Office5th Floor, Farringdon Place, 20 Farringdon Road, London, EC1M 3AP

Asia Office20 Maxwell Road#04-02J, Maxwell HouseSingapore 069113Tel: +65 6383 4688Fax: +65 6383 5433Email: [email protected]

Financial News Publishing Ltd, 2014Registered in the UK No 6931627ISSN 0265-0223 Unauthorised photocopying is illegal. The contents of this publication, either in whole or part, may not be reproduced, stored in a data retrieval system or transmitted by any form or means, electronic, mechanical, photocopying, recording or otherwise, without the prior permission of the publishers.

WealthInsight provides detailed data and insightful analysis on the world’s High Net Worth Individuals (HNWIs) and wealth sector. With decades of experience providing business information, WealthInsight helps organisations make informed decisions and win new business.

AAt WealthInsight’s core is our proprietary HNWI Database of the world’s wealthiest individuals. Around this database we have built a number of valuable research based products and services that make WealthInsight much more than just a rich contact list.

We work with and provide solutions for: Wealth Managers Private Banks Family Offices Technology Providers Professional Services – Consultants, Accountants, Lawyers, Real Estate Professionals Fund Managers, Asset Managers, Venture Capitalists Non-profits and Educational Institutions

For more information contact us at [email protected]: +44 (0)207 406 6553

Connect to Wealth Through Intelligence

About WealthInsight

seeking to use such services as they battle staff shortages and rising wage costs to be competi-tive.”

ConfidenceStone says business confidence has yet to improve following last year’s general election and that with the economy feeling the effects of a declining natural resources industry the best that can be said is that business confi-dence is showing no signs of either a signifi-cant improvement or decline.

“Assurance services seem to be most com-petitive area of our profession, he says. “Cli-ents see this service as a commodity product and do not match risk with professional fees.

“We’ve seen no significant change in fees over the past 12 months apart from inflation changes of about 3%, which is a reflection of a slowing economy and rising unemployment rate.”

But Stone is relatively unconcerned about a

shortage of qualified auditors, despite admit-ting that a number of his firm’s experienced audit staff have moved into the corporate world. “There’s still a significant number of accounting graduates exiting our universi-ties, so while I see a couple of years of possi-ble shortages of experienced staff, firms have increased their graduate intake to meet their medium and long-term needs,” he says.

Structural shiftThe drive for value by clients and the rela-tive commoditisation of traditional account-ing and advisory services is likely to create a structural shift in the Australian accounting industry, concludes Chris Price, chief execu-tive Crowe Horwath Australasia.

“The market has a habit of reforming around the needs and nature of clients and we anticipate a continued evolution, especial-ly around embracing technology within the accounting process,” Price concludes. <

Integrated reporting on the rise

Integrated reports prepared in accordance

with the framework issued by International

Integrated Reporting Council (IIRC) and

sustainability reports prepared in accord-

ance with the guidelines issued by the Global

Reporting Initiative (GRI) are not manda-

torily required by Australian companies

and are therefore still relatively uncommon,

explains Nexia national accounting and

assurance director Martin Olde.

“The vast majority of Australian compa-

nies still need to be convinced that the ben-

efits associated with producing an integrated

report outweigh the additional costs. Never-

theless, a number of Australian listed com-

panies have taken part in trialling integrated

reporting.”

Many Australian ASX 100 listed compa-

nies have voluntarily prepared sustainability

reports during 2014, he continues. “Sustain-

ability reporting is on the rise for multina-

tional companies, with more than half of

the ASX 50 now preparing sustainability

reports. Many resource companies use such

reports as a means to communicate their

message on how they manage environmental

matters. However, the uptake by listed small

cap entities is extremely low and is almost

non-existent by unlisted companies.”

Giam Swiegers and David Tomasi both

refer to increased interest in sustainabil-

ity reporting across Australia, although the

later accepts that it has yet to enter the main-

stream.

Slimmed downSome organisations are moving to a

‘slimmed-down’ account of sustainability

performance as part of their annual report-

ing and supplementing this with information

that may be of interest to a broader stake-

holder group on their website, says Peter van

Dongen.

“Others have retained the more traditional

approach, preparing a sustainability report

in both hardcopy and online, in addition to

their annual report. In each case, organisa-

tions are tailoring sustainability reporting to

their key stakeholder needs and this is emerg-

ing as a best practice approach.”

He adds that just four Australian com-

panies participated in the recent IIRC pilot

programme. “The focus in Australia is more

around how we produce better reports with-

in the frameworks that we have.” <

IAB 543.indd 24 21/11/2014 12:00:37

WealthInsight provides detailed data and insightful analysis on the world’s High Net Worth Individuals (HNWIs) and wealth sector. With decades of experience providing business information, WealthInsight helps organisations make informed decisions and win new business.

AAt WealthInsight’s core is our proprietary HNWI Database of the world’s wealthiest individuals. Around this database we have built a number of valuable research based products and services that make WealthInsight much more than just a rich contact list.

We work with and provide solutions for: Wealth Managers Private Banks Family Offices Technology Providers Professional Services – Consultants, Accountants, Lawyers, Real Estate Professionals Fund Managers, Asset Managers, Venture Capitalists Non-profits and Educational Institutions

For more information contact us at [email protected]: +44 (0)207 406 6553

Connect to Wealth Through Intelligence

About WealthInsight

IAB 543.indd 25 21/11/2014 12:00:38

titititi•titititititititititititititititititititititititititititititi

•titi •tititi••ti••ti•titi•ti•ti••ti••tititititi••titi•titititititi•titi•tititititi•titi•ti•titititi•tititititititititi•ti•titi

•titi •tititititi•ti•ti•tititititititi•titititititi•tititititititi•ti•titi•titi•ti•ti••titititi•titititititititi••titititititititititititititititititititititititi•titi•tititititi••ti

•titi •ti•tititi•tititititi•tititi••ti•tititititi•ti•ti•titititititititi•titititititi•titi•titi•tititifititi•titititi•ti•ti•tifititi•ti•titititi

•titi •titi•titi•titititititititititititi•titi•tititititititititititititititi••tititi••ti•tititi•tititititititititititi•tititititititi•tititititi•ti••ti•tititi•

Fti•ti•ti•titititi•ti••tititititi•titititititi•tititititititititititititititi•titititititititititititititititi•tititititititititi•tititititi•ti•titititititi

titititititititititi•tititititititi•tititi•tititi•titititititi•ti•tititi•titititi•ti••tifititititititititititititititi•

tititi•ti••ti••tititi••titititi•tititititititititi•tititititititititi•tititititititi•tititititititititifftititititititi•tititititititititititi•titititititi••titititititititititititititititititititi•tititititi•titititi•titititititititi•tititi•titititi•titi•tititititifititititititititititititititititititititititititititititi•tititi•tititi••tititititi•titititititititititititititititititi•tititititititifi••ti•titi•titititi

Tel: +44(0)20 3096 2636 ; Email: [email protected]

IAB 541v2.indd 26 19/09/2014 10:19:50

Tel: +44 (0)20 3096 2636; Email: [email protected]

Tel: +44 (0)20 7406 6553 Email: [email protected]

pobcamend.indd 1 21/11/2014 15:19

Documents

Racing ahead · Vision 2020 . and questions about the future direction of the profession. Also this month we had yet another accounting scandal, with Tesco’s accounts . under scrutiny