Opportunities for Accountants in servicing the needs of SMEsNik Mohd Hasyudeen YusoffPresidentMalaysian Institute of Accountants

Agenda•The Motivation•Research Background•Profile of Respondents•Key Findings and Observation•Moving Forward Thoughts

The Motivation•Understand the needs of SMEs in areas where

accountants could provide solutions•Provide market information to accountants in public

practice and those working for the SMEs, institutions of higher learning, developmental agencies as well as financial institutions

• Input into MIA’s strategy in developing the SMP and PAIB in support of nation building

•Development of education and training programmes as well as guidance and tools to accountants

The Motivation•Why SME sector?▫97% of enterprises in

manufacturing sector and 99% of enterprises in the services sector are SMEs

▫Being targeted as the high potential growth sector in the Third Industrial Master Plan

Profile of accounting firms

Research Background•This presentation is based on the research initiated

by MIA, conducted by Universiti Malaya and funded by MAREF

•Key areas for discovery:▫Services that will assist SMEs in defining and building

competitive advantage▫Types of services presently purchased from

accountants and areas that are presently underserved▫Factors that influence the SMEs in purchasing business

and management services from external accountants

Research Background• Research objectives:▫ To understand the needs of SMEs for business support services ▫ To identify support services that will assist SMEs in defining and

building competitive advantage ▫ To broadly assess the extent of demand for such services ▫ To identify the types of services and the extent that SMEs currently buy

from external accountants ▫ To gauge the level of satisfaction among SMEs regarding the current

types and scope of services provided by public accountants ▫ To identify the opportunities that could be tapped by public

accountants based on the gap analysis of demand for services and the current level of services provided by public accountants

Research BackgroundType of services Detailed definition

Accounting Bookkeeping, Financial statement compliance, Budgeting/Forecasting, Product/Services costing, Customer profitability analysis, Financial planning

Taxation Compliance, Planning, Dispute resolution, Incentives application

Assurance Financial audit, Internal audit, Internal control review, Financial due diligence

Corporate services Company secretarial services, Mergers & Acquisitions

Corporate finance Fund raising, Financial management services

Business consulting Strategy & planning, Performance management, IT consulting, Business restructuring, Insolvency & receivership, Human resource consulting

Profile of Respondents•We received 145 usable responses from 1,200

questionnaires (8.3%) [Collection of data is ongoing]• Definition of SME used in the research: ▫Manufacturing:

Less than 150 full time employees and turnover less that RM 25 million (USD 7 million)

37,886 establishments: Textiles and apparel (23.2%), Food and beverages (15.0%), Metal and metal products (12.4%), Paper, printing and publishing (9.2%), Furniture (6%)

▫ Distributive trade: Less than 50 full time employees and turnover less than RM 5

million (USD 1.4 million) 284,171 establishments: Wholesale (46.2%), Retail (28.8%),

Motor vehicles (19.6%), Restaurants (5.3%)

Profile of Respondents

Profile of Respondents

Key Findings and Observation

Around 14% of SMEs which maintain their own accounts out-sourced the preparation of financial statements

Key Findings and Observation• SME mostly procure

compliance related services from external service providers

• Strategic services such as market research, consulting and corporate finance are also procured by SMEs

Business services procured by the SMEs

Key Findings and Observation

Where SMEs procure the out-sourced business services?

Key Findings and ObservationReasons cited by SMEs in procuring the out-sourced business services

Key Findings and ObservationReasons cited by SMEs in procuring the out-sourced business services

Key Findings and ObservationHow SMEs select the out-sourced business services providers?

Key Findings and ObservationHow SMEs select the out-sourced business services providers?

Key Findings and Observation• Demand for additional

bookkeeping and financial statement compliance services is rather soft

• Significant demand for value-add services especially financial planning and customer profitability analysis

• SMEs willing to out-source budgeting and costing functions

Current and future purchase plan – Accountingservices

Key Findings and Observation• SMEs have been out-

sourcing tax compliance services although not many intend to purchase further in the future

• Tax planning has the highest room for further purchase

• There is demand for tax dispute resolution and application for tax incentive services

Current and future purchase plan – Taxationservices

Key Findings and Observation• Assurance services is the

most purchased services although further purchase plan is not there

• Demand for internal auditing, internal control review and financial due diligence is rather strong indicating the desire of SMEs to have assurance on their business

Current and future purchase plan – Assurance services

Key Findings and Observation• Company secretarial

services is the most purchased services although further purchase plan is not there

• Demand for services relating to merger and acquisition is rather strong indicating the desire of SMEs to further grow their businesses

Current and future purchase plan – Corporate services

Key Findings and Observation• SMEs have been

procuring external services for fund raising and financial management services

• Demand for services relating to business restructuring is rather strong indicating the need of SMEs to align capital structure with business activities

Current and future purchase plan – Corporate Finance services

Key Findings and Observation• SMEs have been procuring

business consulting services especially relating to human resource and internal control

• Demand for services relating to strategy, risk management and performance management is rather strong

• Significant jump in demand for insolvency & receivership services is observed

Current and future purchase plan – Business Consulting services

Key Findings and Observation

• The trend is quite consistent with findings on why SMEs select their service providers

• Trustworthiness is not the highest criteria

• SMEs are not loyal to existing providers as indicated to the lack of appreciation on established relationship

Key Findings and Observation

Key Findings and Observation

• The SMEs are somehow concern about the security of their business information although trustworthiness is not the highest criteria in selecting service providers

• Need to understand more behind the “lack of trust” when confidentiality is one of professional values to be upheld by accountants

Moving Forward Thoughts• As in any business, SMEs face different challenges in

different aspects depending on the general economic climate, industry sector and stage of growth

• Entrepreneurs are interested in ensuring the sustainability of their businesses, hence would be seeking assistance from experts in areas where they believe their businesses could be further strengthened

• SMEs want assurance on their business, not just assurance on their financial statements

Moving Forward Thoughts• Accountants serving the SMEs should not limit their

scope of services to the traditional compliance services but also venture into areas which further enhance the competitiveness of the business of SMEs as indicated by the future purchase plan of the SME

• The relative strength of accountants in accounting, taxation, assurance and corporate services should be capitalised to offer other services in business advisory areas which are also needed by the SMEs

•While technical knowledge appears to be the key driver to attract SMEs, they are also cost sensitive while also demand more understanding about their business and certain service levels from the accountants

Moving Forward Thoughts•While accountants are required to uphold professional

values including the duty of confidentiality, SMEs do not see trustworthiness as the main aspects in making their purchase decision and are even concern about information security when dealing with accountants

• Investment in staff professional development and service quality would enhance the attractiveness of a firm in servicing the SMEs

• Further strengthening of relation between accountants and SMEs appears to be desired to ensure more sustainable business relationship, subject to the continuing affordability of services offered to the SMEs

Thank you