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What arE YoU Practicing?
Pak july sep_2010
co nTecTs




Volume 43 Issue 3           JUlY-SEP 2010
                                            The mosT
                                            imporTanT issue
publications committee                      facing The
                                            profession in
chairman and chief editor
Adnan Zaman, FCA                            2009 is
                                            addressing The
members
Abdul Rashid, FCA                           needs of smes
Abdul Wahid, FCA                            and smps
Aijaz Ahmed, ACA
Altaf Noor Ali, ACA
Asad Feroze, ACA
Heena Irfan Ahmed, ACA
Jehan Zeb Amin, ACA
M. Amir Afzal Rana, ACA
M. Fahim A. Rauf, FCA
Muhammad Rehan Razzak, ACA
Mutee-ur-Rehman Mirza, FCA
Omer Mustafa Ansari, FCA
Raheel Abbas Rizvi, ACA




                                                         16
The council

president
Shaikh Saqib Masood, FCA
                                            By way of
Vice presidents
Hafiz Mohammad Yousaf, FCA                  puBlic
Zahid Iqbal Bhatti, FCA                     accounTing
                                            pracTice
members
Abdul Rahim Suriya, FCA
Adnan Zaman, FCA
Ahmad Saeed, FCA
Nazir Ahmad Chaudhri, FCA
Khalid Rahman, FCA
Mohammad Abdullah Yusuf, FCA
Nadeem Yousuf Adil, FCA
Naeem Akhtar Sheikh, FCA
Pervez Muslim, FCA
Rafaqat Ullah Babar, FCA
Rashid Rahman Mir, FCA
Salman Ali Shaikh
Shaikh Saqib Masood, FCA
Sohail Ahmad
Waqar Masood Khan                                             4   Adnan Ahmad Mufti, FCA
Yacoob Suttar, FCA
                                                                  Strategic Decisions During Recession      28
secretary                                                         M. Amir Afzal Rana, ACA
Shoaib Ahmed, ACA
                                                                  Something Beyond Financial                32
publication coordinator
Asad Shahzad
Zehra Hassan
                                                                  Corporate Governance                      37




                                                                                       The Pakistan Accountant
                                                                                                 July-Sep 2010
                                                                                                        Page 1
ediTor’s lETTER




Editor’s Letter
whaT are you pracTicing?   Evolution and transformation are perhaps the most remarkable
                           processes that create simultaneously excitement as well as
                           apprehension. In today’s rapidly changing environment stagnancy is
                           the first step towards decline, anyone who does not move with the
                           change gets left behind.

                                           Diversifying and expanding the area of expertise is the
                                           new mantra for the decade, the complete amalgamation
                                           of technology in even mundane practices has increased
                                           consumer’s awareness, with their needs changing and
                                           demanding more, smart providers who are able to
                                           anticipate and match their needs move ahead.

                                            Historically, the SMP-SME relationship is regarded as
                                            being underpinned with the need for SMEs to have
                                            statutory audit and this necessary relationship provided
                                            a foundation for subsequent advice and support. From
                           the SME relationship, the factors underpinning a strong SMP-SME
                           relationship include competency, trust and proximity.

                           However now the equation is changing, with the incessant changing
                           environment, the role of Accountants has also drastically undergone
                           transformations, no more are accountants just confined to auditing. With
                           the needs of the SMEs expanding they expect more from SMPs. SMPs
                           need to match the growing demand and in order to do so they need to
                           develop capacity and overcome the challenges lying ahead. There is a
                           changing regulatory environment; growing competition from new
                           entrants to the advice marketplace; and the capability of SMPs
                           themselves to provide specialist advice. Opportunities and challenges
                           come hand in hand; while the diversification of role of accountants
                           presents a great opportunity for the SMPs it also brings forth the
                           challenges of capacity building and threats of competitiveness.

                           I feel that SMPs need a platform where they can collaborate and learn
                           together to overcome the competitive challenges ahead. I feel the time
                           is now when we have to nurture our practice, realizing that the beauty of
                           a garden lies in the different varieties of flowers and like flowers no two
                           practices offer the exact same, they each bring a unique and distinctive
                           color to the canvas of accounting. I feel that the new way forward for
                           the SMPs particularly for building capacity lies in capitalizing on their
                           uniqueness while being open to adaption and change.

                           I feel Wayne Dyer’s “Transformation literally means going beyond your
                           form.” appropriately shows the way to strive for continuous
                           improvement, meet the increasing expectations and paves the way to
                           the road leading to a brighter future.




                           Adnan Zaman




The Pakistan Accountant
July-Sep 2010
Page 2
presidenT’s PAGE




President’s Page
whaT are you       Experts and economists unanimously hail        assurance services principally but not
                   the development of small and medium            exclusively to clients who are small and
pracTicing?        enterprises as a crucial factor in             medium entities (SMEs) and other
                   strengthening Pakistan economy.                accountants to the extent that they
                   According to the Small and Medium              support SMEs.
                   Enterprises Development Authority
                   (SMEDA), “SMEs constitute nearly 90%           The SMP committee formed as a part of
                   of all the enterprises in Pakistan; employ     ICAP’s initiative to provide a platform for
                   80% of the non-agricultural labor force;       SMPs to come together and jointly work
                   and their share in the annual GDP is           towards identifying problems and issues
                   40%, approximately.”                           faced by the SMPs. The committee
                                                                  reviews international and regional best
                                   The recent times have          practices for consideration of adoption by
                                   witnessed a gradual            the SMPs after affecting suitable changes
                                   change in the mindset with     in the context of the business
                                   the role of the Accountants    requirements and local environment as
                                   widening considerably,         well as the relevance and proportionality
                                   According to a research        of professional standards and provides
                                   conducted by the               recommendations on the extent of their
                                   International Federation of    applicability to SMPs/SMEs.
                                   Accountants (IFAC) a shift
                                   is seen in the needs and       A critical factor is effective networking. I
                                   the expectations of Small      feel the solution lies in collaborations and
                   and Medium Enterprises (SMEs) from             sharing of resources, SMPs should
                   Small and Medium (accountancy)                 collaborate while not compromising their
                   Practices (SMPs) from being focused            individuality and uniqueness. In order to
                   primarily for audits to a much wider           match to the growing needs of SMEs,
                   continuum of business advisory services.       SMPs have to specialize as well as work
                                                                  on the capacity building to be able to
                   I feel this expansion in role presents an      cater to the increasing competitive
                   opportunity for SMPs; they must evolve to      environment. I must acknowledge the role
                   match the expectations and meet the            of SMP committee which coordinates with
                   growing needs. The opportunity                 ICAP for issuance of consultation papers,
                   presented is huge but so are the               initiating debates or discussion on issues
                   challenges. Information Technology has         affecting the SMPs in bridging the gap
                   drastically changed the environment; I         between the SMPs as well as with other
                   classify Information Technology as             entities.
                   possibly the greatest tool as well as a
                   challenge for the SMPs. It is imperative       In order to strengthen the understanding
                   that its impact is analyzed and assessed.      and application of International
                   In order to match to the growing               Standards, the Institute has embarked
                   expectations SMPs need to be updated           upon an awareness program, focusing on
                   with the emerging Information Technology       the SMPs. The Institute is mindful of the
                   techniques and adoption in the conduct of      problems that might arise in
                   their professional practice.                   understanding the implementation of
                                                                  ISCQ1 and is imparting the required
                   The definition of Small and Medium             training to educate and support the
                   Practices varies from one jurisdiction to      practicing members.
                   another. There is no precise globally
                   recognized definition of Small and
                   Medium Practices, because what is
                   considered small or medium-sized in one
                   jurisdiction may be quite larger in another.
                   However, certain general parameters are
                   used to help determine what constitutes        Shaikh Saqib Masood
                   an SMP; they provide accounting and



                                                                                        The Pakistan Accountant
                                                                                                  July-Sep 2010
                                                                                                         Page 3
Join THE DISCOURSE




Join thE                                                        This issue’s topic is:


                                                                Ready to manage the
DiScoUrSE                                                       Generation Y?
                                                                The Generation Y has arrived and is here to stay. Is
                                                                your organization ready to manage the new generation?

                                                                “Children and young adults born during the 1980s and
                                                                1990s are known as Generation Y. Generation Y
                                                                professionals are in their 20s and are just entering the
                                                                workforce. With numbers estimated as high as 70
                                                                million, Generation Y is the fastest growing segment of
                                                                today’s workforce.”




                                                                commenTs


                                                                                                                      ,Z
                                                                                                             on X,Y
                                                                                                     enerati
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                                                                              corpora                     rs is ho
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                                                                           xecute                     rely su
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                                                                   capable            re.
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                                                                                        CA (R #
                                                                               S ana, A
                                                                     Ahmad , UAE                             p.ae
                                                                                                    ghgrou
                                                                      S harajah rateoffice@s
                                                                               orpo
                                                                       sana.c




No question not to welcome Generation Y. They are             I am the only one in my organization falling into this
already in mainstream. While being more educated,             generation, therefore having none to manage. I think my
intelligent and joining practical life in an advanced         high ups know better how to manage me:)-
technological era as compared to two decades back’s
generation, it is sad that a peaceful, high growth oriented   Arshad Khan, ACA (R # 6215)
atmosphere essential for opportunities could not be           Peshawar
provided to them. Good luck Generation Y.                     arshad.yousufzai@hotmail.com


Tameez-ul-Haque, FCA (R # 0973)                               ‘Generation Y has created a need for a cultural overhaul
Karachi                                                       for which most organizations, including mine, are yet not
tameezul.haque@adamjeeinsurance.com                           ready. One reason could be Generation Y being a high-
                                                              maintenance generation which requires their managers to
                                                              set clear expectations from them, offer flexibility, respect

 The Pakistan Accountant
 July-Sep 2010
 Page 4
Join THE DISCOURSE


and communicate with them in their language. However           n   Development and mentoring: Continue to invest in
this generation, can prove to be most high-performing one          personal development and training-explore expanding
if organizations are able to leverage on the information,          coaching/mentoring programs to younger workers.
creativity and technological skills which they bring to the        Provide variety and fresh challenges - consider
workplace with them’.                                              promoting cycles of experience in mentoring programs
                                                                   to younger workers.
Zeeshan Khurram, ACA (R # 6056)                                n   Brand your Organization: The Generation Y expects
Dammam, Saudi Arabia                                               more from their employer and is not afraid to ask for
zeeshan.khurram@aqpci.net                                          more!! Articulate your employer brand—communicates
                                                                   internally and externally what it means to work for your
                                                                   organization. Have clear goals, statements and be
                                                                   committed to deliver the promise.
I feel before being able to effectively manage it is
important to understand the people.                            Naveed Abdul Hameed, ACA (R # 5905)
                                                               Karachi
The main difference in Generation Y and previous               naveed.a.hameed@pk.pwc.com
generations is their confidence and ambitions. These
Generation Y qualities along with their familiarity with
information technology have resulted in Generation Y
having high expectations of the employers, seeking out         A key to managing people is realizing that every
new challenges and not being afraid of questioning             generation brings its unique set of values and
authority.                                                     expectations to workforce. Organizations need to
                                                               understand the expectations of the Generation Y and
A recent study conducted in UK showed the priorities of        meet them accordingly.
Generation Y regarding employment, being completely
different from their predecessors. Career development and      I feel that following tips can be useful to manage the
learning opportunities topping the list followed by            generation Y effectively.
compensation package, the nature of job and job security.
                                                               n   They need to be treated respectfully.
Career development is the top most priority of Generation      n   They are goals driven; they need clear goals and
Y, organizations should ensure that all the available career       objectives.
paths are understood and are clearly communicated to           n   They expect and should be awarded with challenging
prospective employees. Further, for learning aspirations of        jobs for better performance.
Generation Y to be met the organization should employ          n   Involvement in decision making enhances their morale
job rotation and formal and informal training techniques.          leading to better output.
                                                               n   Allowing a little fun at the job significantly enhances
Shah Rukh Memon, ACA (R # 5913)                                    their productivity.
Doha, Qatar
shahrukhmemon@hotmail.com                                      Muhammad Abrar, ACA (R # 6126)
                                                               Sialkot
                                                               abrarmuhammad@hotmail.com

Before Organizations get ready to manage the Generation
Y, they need to understand what they want. Studies show
that the millennials crave International experience, prefer    YES……because we have to!
development opportunities to cash bonuses, Experience,
sustainability and career planning is a major factor for       Since we are the people who stand ahead of Generation Y
them. According to Peter Sheahan, Generation Y is not          in the row of managers, we are responsible to manage not
just about demographics- it’s about mindset!                   only them but also ourselves. I feel it does not surmount to
                                                               be an uphill task for us as Generation Y has already
Some tips to manage millennials could be:                      adopted most of our thoughts, knowledge and styles, as
n Know what they want: Use market research in order to         major psychological theories suggest by now hence there
  understand what millennials want and how these               is no major chance of difficulties, clashes or hurdles
  desires might differ from older workers.                     emanating from the process of management of
n Motivation: Think creatively when rewarding                  Generation Y.
  millennials, is it time to shift focus from cash bonuses
  and company cars to other things?                            What we need to do is to keep an open mind to their
n Grow Globally: The Generations Y rates international         positive thoughts and be ready to understand their psyche
  exposure highly and is more technologically inclined,        towards development and humanity.
  border and boundaries are no limitations. Consider
  global working opportunities-how might this                  Muhammad Rehan, ACA (R # 5547)
  enthusiastic generation support your global mobility         Khanewal
  needs?                                                       mdrn@live.com

                                                                                                      The Pakistan Accountant
                                                                                                                July-Sep 2010
                                                                                                                       Page 5
coVer STORY




                          The most important issue
                           facing the profession in
                            2009 is addressing the
                             needs of SMEs and
                                    SMPs
                                                                        (Source: IFAC Global leadership Survey 2008)




                          Small and medium sized         definition for the SMPs       also act as an integral
                          enterprises and practices      had not been prescribed.      component in SME’s
                          must be considered as a        However IFAC has chosen       financing need. The SME
                          main driver for innovation,    to define SMPs as             – SMP relationship can be
                          employment as well as          “accounting practices         regarded as a necessary
                          social and local integration   whose clients are mostly      relationship. SMPs
                          around the globe. They         SMEs, external sources        perform a large number of
                          are playing a vital role in    are used to supplement        important tasks of SMEs.
                          the economic activities        limited in-house technical    Most important among
                          around the globe and can       resources, and contain a      them is the financial
Usman Akbar Manda, ACA    never be ignored in the        limited number of             reports or annual reports.
                          worldwide conferences          professional staff. What      So they always turn to
                          and agendas. SMEs are          constitutes an SME differs    SMPs to produce these
                          now crucial to most            depending on the country.”    statements. Also SME-
                          developed and developing       (IFAC 2010)                   SMP relationship is also
                          economies. For instance,                                     prominent because of the
                          in the European Union,         SMPs are uniquely meant       compliance work being
                          SMEs contribute to over        for helping the SME’s.        provided to SMEs by
                          99% of all enterprises and     They help SME’s to            SMPs in common
                          100 million jobs. This         perform in a more efficient   business world.
                          represents almost 67.1%        and effective way,
                          of private sector              assisting in compliance       In the credit crunched
                          employment. For the            with the rules and            world, SME’s are playing a
                          survival of SME’s, SMP’s       regulations and business      very important role as
                          run as a blood. A unique       support services. They        world big giants are in

The Pakistan Accountant
July-Sep 2010
Page 6
coVer STORY




doldrums and cannot             Bringing improvement and       in this credit crunched        for ensuring the quality of
employ more labor force.        strength in the work and       world economy and in           work in the SME’s and
Instead big corporations        structure of SMP’s shall       future business world. They    SMP’s sector, there is a
are in the move towards         bring the same effect in       need to develop more           dire need for the
firing and layoff. In this      SME’s. SMP’s in today’s        effective communication        improvement in financial
scenario, SME’s provide a       world offer a wide range of    networks with clients,         reporting. The framework
platform for the provision of   services to SME’s. They        coworkers, government          for reporting on financial
job facility and hence put      range from payroll             instrumentalities, legal and   statements of SME’s need
some healing effect on the      processing, forecasts and      other professionals. In        improvement so that the
injured worldwide               projections, litigation        taking initiative towards      interests of the
economy. In my opinion,         support, personal financial    advisory role, they need to    stakeholders can be
roles and work of SMP’s         planning, business             involve themselves in          protected and present
and SME’s have a direct         valuation, mergers and         strategic decision making
co-relation between them.       acquisitions, financial        including proficiency in
In financial terms, we can      management, assurance          forward thinking and
say that there is a perfect     and related services,          enhancing the ability
positive co-relation co-        reporting, strategic           to weigh alternatives.
efficient of 1 between the      planning, tax planning, a      They also need to
two arms of the economy.        few of them to be              focus on sharpening
So SMP’s should focus on        mentioned. In the recent       the analytical skills for
improving the quality of        trends of the business         analyzing the potential
work and concentrate on         world, range and quality of    opportunities and
more areas for the advisory     advice to be provided to       projects and
to SME’s. This is quite         SMEs by SMPs has been          continually striving for
evident from a survey           growing at an exponential      the devises to bring
conducted in different          rate. This is due to the       improvement in both
continents.                     information needs of           methods and
                                owner-managers of SMEs         effectiveness. This
According to a survey           who are in a need to fulfill   can be very effective
conducted in UK, Australia      their regulatory obligations   for the SMPs are this
and Canada, SME’s think         and day-to-day and             shall strengthen to
that SMP’s provide them         strategic challenges.          absorb the shocks of
the in the following ways:                                     economic downfalls.
                                Before discussing on how       At the sametime
l   practitioners most          SMEs redefine themselves       managing, motivating
    popular source of           in this credit crunched        and inspiring their own
    business advice for         world, let’s have a look on    professional
    SMEs;                       what is the main Motivation    personnel so that
l   practitioners most          and Reason for SMEs’ Use       quality and competent
    trusted source of           of Accountants or SMPs as      workforce is available
    business advice for         Business Advisers. Broadly     all the time. SMPs
    SMEs; and                   there are three main issues    also need to develop
l   practitioners most          because of which SMES          strength to
    highly rated source of      rely on SMPs as business       acknowledging and
    business advice for         advisors;                      recognizing people for
    SMEs                                                       their contributions and
                                l   Competency                 performance within
In this perspective, SMP’s      l   Trust                      their working
have to act as a very           l   Proximity and              environment without
responsible segment of the          responsiveness             considering the
economy and in helping                                         personal interests.
the medium sized                SMPs should consider           This factor is often
enterprises. They have to       them and keep them as a        lacked very much in
improve and broaden the         focal point before taking      most of the corporate
extent of their services for    any change or redefining       world and especially
their own safety and for        themselves.                    in Pakistan.
protecting the SME’s which
rely heavily on them. They      There are some very            Now referring to some
are a key business              important roles which          specific issues for the
advisors to the SME’s.          SMEs are required to play      initiatives for SMPs,

                                                                                                     The Pakistan Accountant
                                                                                                               July-Sep 2010
                                                                                                                      Page 7
coVer STORY


information in a way that is   SME’s. In addition to this,      lending activity to the             accurate and reliable
useful to the decision         audit quality control            SME’s.                              provision of information,
makers. Now SME’s need         standards also need to be                                            Internet centers for SMP’s
a lot of attention by the      implemented in the SME’s.        l   Obtaining financial             and SME’s should be
regulatory bodies for the      Again this objective can be          statements of the small         developed. Centers for
reporting standards setting    achieved if SMP’s step               clients,                        information sharing can be
bodies. In this regards,       forward and take the             l   Time taken in gathering         developed and
SMP’s can take an              initiatives. They can also           information to make the         membership
initiative to identify the     use accounting information           decision for lending            facility created in
loopholes and defects in       to achieve sound financial       l   Timeliness of the               order to get the
the current prevailing         management.                          information provided            funds for the
framework. They can take                                                                            maintenance of




all the stakeholders in this   Another important role, the      Source: Micro-Entity Financial
ambit and identify the         accountants are supposed         Reporting: Some Empirical           the center. Any
                                                                Evidence on the Perspective of
problematic area and share     to play is the assistance of     Preparers and Users (IFAC SMP       information which
them with the standard         SME’s in obtaining bank          Committee Information Paper, Oct.   is to be shared in
setting bodies. One of the     finance and other financing      2007, draft)                        the center should
problems due to ineffective    facilities. As discussed                                             be accurate. A
financial reporting is the     earlier, SME’s face              For obtaining financial             checklist for the reliable
SME’s also face problem in     problems while obtaining         statements and                      information should be
getting financing activity     loan or other financing from     consistency in the                  fulfilled by the data before it
due to this which is           the financial institutions.      presentation, this can be           can be entered in the
discussed in detail in the     lending organizations are        best overcome by using              internet center for sharing.
following paragraphs.          more inclined for lending        computerized packages.              As a more proactive
Improvements to financial      facilities towards large         Today, IT has become                approach, a dedicated
reporting can increase the     corporations, SME’s face         integral component in               search engines can be
confidence of investors and    difficulties in obtaining        financial reporting and             developed for SME’s and
users of these reports can     them. This bridge can be         consistency cannot be               SMP’s. This shall bring in
give an impetus to the         best covered with the help       brought without using the           the quality of work not only
economy which is badly         of SME’s. The main               clutches of IT and its              for SMP’s but in the work of
hurt by the blow of global     problem that is faced in this    related facilities.                 SME’s and other
economic crisis and credit     respect is the non               Computerized packages               stakeholders as well.
crunch.                        availability of information to   can be helpful in order to
                               the lender or in the required    ensure that the consistency         In the era of globalization,
Reliance on the financial      format. SMP’s can help           is achieved in the                  the sharing of knowledge
statements can be              SME’s to develop a               presentation of information.        and experience across the
improved by applying ISA’s     framework in consultation                                            world is very important for
on audits of SME’s. Till       with the lenders and SME’s       In order to counter the             the improvement in quality
now, no auditing standards     for provision of information     problem of time lag in              of work and provision of
for the small and medium       and subsequent help in           obtaining information for           good service in every nook
sized enterprises have         decision making for              the financial institutions,         and corner of the
been developed. This is a      extending financing facility     facilities need to be               continents. The
big vacuum for the SMP’s       to the SME’s by financial        developed for the sharing           improvement in the quality
to step forward and perform    institutions. According to a     of knowledge. Again to              of work by SMP’s can be
their role. SMP’s should       study conducted, financial       achieve this objective,             brought about by sharing of
endeavour to develop           institutions face the            reliance is on the IT               knowledge and experience
auditing standards for         following problems in            facilities and internet. For        on a platform. This can be

 The Pakistan Accountant
 July-Sep 2010
 Page 8
coVer STORY


a very effective quality         demand for advice. This in          some relaxation in         and at the same time be
initiative by the SME’s. It is   turn brings new challenges          some corporations for      profitable. This can be
imperative to get in touch       for SMPs. The major                 the statutory financial    done by introducing tax
with the fellow accountants      challenges are:                     audits but a rise in       incentives. Along with that
around the world. Seminars                                           compliance linked to       on the recommendations of
should be conducted for          l   consolidation within the        environment, health        SMP’s, develop national
SMP’s for achieving this.            accountancy industry:           and safety and             and international standards
The geographical scope of            Big giant firms are             employment. This           that are easy for
service can be extended              always ready and in a           reduces the market for     application and tailored
beyond the boundries of              stronger position to            the SMEs.                  according to the
the home country to other            acquire small                                              requirements of SME’s and
countries as well.                   practitioners. They         l   reluctance of some         stakeholders. SMPs also
Accounting, auditing and             often present golden            SMPs: Some                 cannot work in an effective
consulting services can be           offer to the SMPs,              customers are not able     manner and provide quality
provided through                     especially when                 to the pay the required    work until and unless
networking at far furlong            entering in the foreign         fee as desired by the      quality labor force is
distances. This shall help           market to get local             SME. So there is           available in the market. For
SME’s as well for the                representative and              market but still no        the supply of quality
growing globalization                market as well. So with         service is provided.       advisors and accountants,
needs in the upcoming                a growth merger and             Also with some SMEs,       institutes and professional
future business world.               acquisition there is a          their heterogeneity of     body too shall have to play
                                     decline in sole                 need makes SMPs            their very sensitive role.
          One fact to be             practitioners.                  reluctant to provide the   Ensuring that the
          worth mentioned                                            services.                  professional and members
          here is that SME       l   rise in the provision of                                   of their respective bodies
          market is very             services by larger          Such changes for the           remain competitive and
          dynamic. The               practitioners: large        demand of services by          more supply is entered in




                      The market conditions and regulatory environment within which SMEs
                     operates is constantly changing. With this background, it is imperative
                           for the advisors of SMEs to respond to the market demands and
                           requirements. If SMPs do not cope with the changes and devise
                      strategies for them, it can pose a serious threat to their position as key
                                         providers of advice and support to SMEs.


                                     practitioners are in a      SMPs and their clients’        the market after ensuring
            market conditions        better position to          environment have               that they are competitive
            and regulatory           capture market.             significant implications for   and able to provide good
            environment              Although their rates are    SMPs. If SMPs do not cope      quality work.
            within which             comparatively high but      with the changes and
            SMEs operates is         with the recent financial   devise strategies for them,
constantly changing. With            crises and reduction in     it can pose a serious threat
this background, it is               the clientage, large        to their position as key                     The author is
imperative for the advisors          corporations have           providers of advice and        Senior Business Consultant
of SMEs to respond to the            reduced their fees and      support to SMEs.                        in IBM Italia S.p.a
market demands and                   hence grabbing the                                          Global Business Services
requirements. Among them             market of SMEs.             Neverthless, national and                     Department.
the most important is the                                        international institutions
requirement of statutory         l   shift in the regulatory     also have to play a very
audit which is increasing            environment: As             important part to achieve
and also bringing changes            discussed earlier,          all the above aims. They
within it in almost every            regulatory environment      shall have to provide
country. But other factors           has been constantly         practical support to SMP’s
are also affecting the               changing. Now there is      to provide high quality work

                                                                                                       The Pakistan Accountant
                                                                                                                 July-Sep 2010
                                                                                                                        Page 9
Pak july sep_2010
coVer STORY




thE LaW oF thE corPoratE JUngLE –

SUrViV oF thE
      aL
FittESt                                                                                                     Saira Shamsie, ACA


As the socio economic dynamics are          human element helps in reducing              treating the other SMPs as a support
changing with shrinking boundaries,         turnover and ensures stability. In fact      group rather than a business rival.
ever changing technology,                   this is an attraction for people joining     This change in attitude can help in
uncertainty, survival is only for the       any organisation in the current              broadening resources and
fittest.                                    scenario of instability.                     harnessing opportunities. With the
                                                                                         internet age sharing intellectual data
As the world stage is set for change        The million dollar question is how do        latest professional developments and
this gives empowerment to the               SMPs with limited resources and              guidelines is possible more than ever
middle tier the Small and Medium            financial constraints manage to              before. A strong intellectual data
Practices (SMPs) and Small and              provide the enabling environment             base of case studies, guides,
Medium Entities (SMEs). The game is         needed to sharpen the softer skills of       illustrative and presentations can help
of making the right choices, to make        their staff to have the cutting edge.        in training the SMP staff to bring
efficient use of resources, be tech                                                      them at par to the big four
savvy, use net working and last but         The only answer is to build an               professional standards.
not least be open to change.                environment of trust and mutual
                                            sharing. It is essential to use net              Further, round tables and experience
To evolve and to gain market share          working and pooling of resources.                sharing sessions can be invaluable in
the importance of a proactive human         SMPs need to foster change by                    sustaining development. The Institute
resource equipped to                                                                                        of Chartered
face the challenge                                                                                          Accountants of
cannot be over                                                                                              Pakistan (ICAP) has
emphasized. The                                                                       Sidat was             been playing a key
                                                                    Ebrahim Yacoob
SMPs need to build                              ing Session with                                            role in this front by
                               Ex perience Shar
                                          ne 30, 2009
on their cash                                                                    knowledge of               arranging workshops
                               held on Ju                       perience and
generating asset -                              ed his vast ex                  He said the to
                                                                                                 p          on varied subjects and
                                Mr. Sidat shar                  his audience.
their staff by providing                       g issues with                    eir bu siness               also inviting seasoned
                                the accountin                  ere growing th
career growth,                                 MPs faced w                           logy.                  members from the
training, mentoring             challenges S           d keeping    current techno                          profession to
                                                ity an
and the spirit and               and productiv                                                              share their rich
                                                                               ider the
                                                                need to cons
environment for
                                 He emphas    ised that firms                      best the firm            experience in practice.
                                                                   who want the
tackling challenges.                             of their clients                that the need
                                                                                                 for
                                  expectations                   so recognize
Providing an enabling                              rm s must al                  rvices  is                 There is need for
                                  has to offer. Fi                lue added se
environment with
                                  client specia lization and va                                             networking among
ample training                                                                                              firms as more firms
opportunities and the              growing.                                                                  globally are becoming

                                                                                                            The Pakistan Accountant
                                                                                                                      July-Sep 2010
                                                                                                                            Page 11
coVer STORY


members of professional networks to         IFAC BOARD APPROVES                                 Small First” approach to tackling
serve the specialized needs of              RECOMMENDATIONS TO ASSIST                           complexity.
clients.                                    SMPS
                                                                                                The recommendations can be
To give the competitive edge the            The IFAC has approved a set of                      categorized into the following areas:
International Federation of                 recommendations designed to
Accountants (IFAC) has been                 expand support to member bodies in                  n   Increase the visibility, voice, and
providing full support to the SMPs by       their work to assist SMPs. The                          profile of SMPs - for example, by
developing material especially for          recommendations are intended to                         communicating and advocating
their needs. Some of the latest aids        give SMPs the additional practical                      the importance of the SME sector
are Practice Management Guide, QC           support needed to provide high-                         and the role of SMPs in
Guide, ISA Guide to name a few.             quality professional services to their                  supporting this sector;
Further, for informal interaction SMP       main clients: small- and medium-                    n   Expand the monitoring of global
Committee twitter has also been             sized entities (SMEs). IFAC considers                   regulatory reform to ensure its
launched.                                   the health of the SME sector, which                     suitability for SMEs and SMPs;
                                            accounts for the majority of private                n   Develop guidance, resources, and
                                            sector employment and gross                             tools-in collaboration with member
                                            domestic product (GDP) worldwide, to                    bodies - that help promote and
                                            be crucial to global economic                           build the capacity of SMPs to
                                            growth and financial stability, as well                 deliver high-quality accounting,
                                            as the public interest. Through these                   assurance, and business advisory
                                            recommendations, IFAC also seeks                        services; and,
                                            to enhance SMP participation in                     n   Enhance the extent and
The SMP Committee is piloting Twit-         international standard-setting and                      effectiveness of participation of
ter as a vehicle for communicating          regulatory and policy development.                      SMPs in the development of
and engaging with SMPs, member              IFAC’s independent standard-setting                     IFAC’s standards through
bodies and others. The SMP Commit-          boards and other groups will be                         increased SMP representation on
tee Twitter will keep users up-to-date      encouraged to further embed SMP                         certain independent standard-
with global developments in the             and SME considerations into their                       setting boards and other activities
SMP/SME sector. Please visit                work programs - for example, through                    where SMP contributions are
http://twitter.com/IFAC_SMP                 increased involvement of SMPs in                        essential.
                                            projects and by adopting a “Think




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 The Pakistan Accountant
 July-Sep 2010
 Page 12
coVer STORY


SMAll AND MEDIUM SIZED                      reduce the reporting burden for SMEs
ENTITIES (SMES)                             revisions to the IFRS will be limited to
                                            once every three years.
In Pakistan the SMEs make up a
major portion of the documented             In particular, the IFRS for SMEs:
                                                                                        Comparison to full IFRS:
economy representing the private
sector. It was generally felt that in the                                               It covers most of the full IFRS
                                            n   provide improved comparability          requirements, but includes
case of small and medium-sized                  for users of accounts                   relaxations for SMEs:
entities, the cost of compliance with
complete set of IAS as notified by the      n   enhance the overall confidence in       The following topics have been
Securities and Exchange                         the accounts of SMEs, and               excluded:
Commission of Pakistan (SECP) was
considerably more than the benefits         n   reduce the significant costs            n   earnings per share
accruing from the use of such                   involved of maintaining standards       n   interim financial reporting
standards. In order to address this             on a national basis.                    n   segment reporting
issue, the Institute (ICAP) developed                                                   n   special accounting for
the accounting framework that could         The IFRS for SMEs has to date been              assets held for sale
be used for the preparation of the          adopted by over 60 jurisdictions
general purpose financial statements                                                    The following options have
                                            worldwide.                                  been disallowed:
by the Small and Medium-Sized
entities.                                   The decision of which entities these        n   financial instrument
                                            standards may apply to has, however,            options, including
Although, the International                 been left to the individual jurisdictions       available‐for‐sale,
Accounting Standards Board (IASB)           discretion.                                     held‐to‐maturity and fair
was working on a project to develop                                                         value options
IFRS for Small and Medium-sized             Currently the Institute is in the           n   the revaluation model for
Entities, it was expected that it may       process of adoption of IFRS for SMEs            property, plant and
take a few years for finalizing this                                                        equipment, and for
                                            for Medium Sized entities (excluding
standard. To fill the gap during the                                                        intangible assets
                                            small size entities for which
transitory period the Institute had                                                     n   proportionate consolidation
                                            compliance to these standards is                for investments in
taken the initiative to formulate the       considered not practicable).                    jointly‐controlled entities
Standards for Accounting and
                                                                                        n   for investment property,
Financial Reporting for Small and           With the IFRS for SMEs the SMEs                 measurement is driven by
Medium-sized Entities. On the               have a tool for greater transparency            circumstances rather than
recommendation of the ICAP the              and comparability of financial                  allowing an accounting
SECP vide SRO No. 860(I)/2007               statements in the global market.                policy choice
dated August 21, 2007 had notified          Hence giving an opportunity to              n   between the cost and fair
the Accounting and Financial                expand and reach out to markets                 value models
Reporting Standards for MSEs and            beyond the geographical borders.            n   Various options for
SSEs issued by ICAP under Section                                                           government grants.
234(3) of the Companies Ordinance,
1984.                                                                                   The following areas have been
                                                                   The author is        simplified:
                                                      Manager Technical Services
IFRS FOR SMES                                                  at ICAP, Karachi.        n   Financial instruments
The IASB issued on July 9, 2009 an                                                          measurement
IFRS designed for use by SMEs,                                                          n   Goodwill amortization
which are estimated to represent                                                        n   Borrowing cost expensed
more than 95 per cent of all                                                            n   Investments in associates
                                                                                            and Jvs can be measured
companies. The standard was a
                                                                                            at cost
result of a five-year development
                                                                                        n   PPE useful life review
process with extensive consultation of
                                                                                        n   Defined benefit plans
SMEs worldwide.                                                                             measurement
                                                                                        n   Simplified tax approach
The IFRS for SMEs is a self-                                                            n   No separate held for sale
contained standard of about 230                                                             assets
pages tailored for the needs and                                                        n   Biological assets FV not
capabilities of smaller businesses.                                                         necessary
Many of the principles in full IFRSs for                                                n   Equity settled share based
recognising and measuring assets,                                                           payment measurement
liabilities, income and expenses have
been simplified, topics not relevant to
SMEs have been omitted, and the
number of required disclosures has
been significantly reduced. To further

                                                                                                The Pakistan Accountant
                                                                                                          July-Sep 2010
                                                                                                                Page 13
coVer STORY




         By Way of Public
           accounting
    Prelude:
             Practice                                          took the idea of being a fish in a tiny pound of my
                                                               own, and applied for a practicing certificate. The
    The coming year 2011 will mark the Golden Jubilee          idea flourished when a dear friend in practice
    of this august Institute. On a humble note, it will also   encouraged me to get rolling and I seized the
    mark completion of my first decade in public               moment.
    accounting practice. Here is what this journey has
    been like….....                                            Verily, the first sacrifice my new venture required
                                                               was the prospect of giving up whatever pittance I
    How it started?                                            was assured towards the end of the month, as a
                                                               salaried employee throughout my professional
    It must be a proverbial sunny day of my life when I
                                                               career.




Altaf Noor Ali, ACA


The Pakistan Accountant
July-Sep 2010
Page 14
coVer STORY


The ideal way to end up as                for a fresh qualified person to set up      I would find it difficult to have a go.
somebody notable in a public practice     an office without any seed money on
goes through audit training in a          his own and ofcourse without any            On the way there was some comic
relatively larger audit firm, and         option of external finance?                 relief as well. It was in the form of my
ultimately gaining partnership, after                                                 interaction with symbolic cool and
qualifying and serving in managerial      A related step was to set aside             colourful professional clowns, two of
capacity for some time. My case was       enough to get the practice going to         which I describe below. I believe
different. Yes, my audit training was     settle financial commitments in time,       every practitioner gets to meet them.
from one such firm, but I was             whether of paying monthly rent or           How they are responded depends on
tempted by the glamour of the             other expenses for maintaining the          the individual.
‘industry’, and eight years later the     office. It looked as if I complete the
conventional route was not there for      full cycle from being a month end           One day, a gentleman walked in my
me.                                       payee to the payer. From now                office and asked me if I would be
                                          onwards, on every first of the month        interested in doing an audit of his
With practicing certificate in my hand    instead of myself receiving a salary, I     small business. He wanted it done to
a month later, I felt privileged and      would be paying rent and the rest of        obtain visa for the U.S. As the
happy. That day a new firm bearing        the stuff.                                  discussion progressed, I came to
my name came into being.                                                              know that he was in import export
                                          Paraphernalia and financing:                business of which he had not
The Silent Vow:                                                                       maintained any books. He went on to
                                          As the firm started rolling, I              add what he wanted me to ‘show’ in
I remember holding the practicing         appreciated how important it is to          his financial statements.
certificate with reverence. When my       have some kind of financial
father (a physician) saw it, he asked     arrangement available to achieve the        The next one was a semi-qualified
when I will be taking the oath. He        expansion but who’s there to finance        accountant who walked into my office.
shared my faint disappointment when       it? This is true for a green field office   His purpose of meeting me was to
conveyed that the chartered               like my own or an established firm. I       find out if I would be interested in
accountants do not take a ceremonial      have not heard of any bank providing        ‘thapafy’ (certify without verification)
oath like physicians, though both         finance, possibly because a                 statements prepared by him for
professions hold the element of           practitioner like myself would not          applicants of consumer loans from
public interest supreme.                  have a collateral to offer. That may be     commercial banks. Easy money for
                                          one reason why the growth of most           one signature but guess not my type
My first reading was the bulky code       professional firms is so retarded. The      of work!
of ethics for the practitioners. I        fact is any start-up firms goes through
reflected on its application and          a painful period during the initial         In the times ahead, some good
silently vowed never to let my            years. Guess too much to expect our         opportunities also came by going
commercial interests come above the       Institute to have some arrangements         through press advertisements. Good
professional ones. I felt a worthy        in place to ease the process?               to see that reading newspaper
burden of trust and a collective                                                      became more interesting. It became
responsibility placed on my shoulders     Not to be deterred, my first act in         a source for searching organizations
in this new role, something I never       office was to place a small portrait of     searching for auditors. For example, I
felt all the while I was serving as an    a young and handsome Mr.                    was keen about developing audit
employee.                                 Mohammad Ali Jinnah, with brilliance        expertise in educational institutions
                                          and inspiration radiating from it, on       from schools to university, compatible
Energising the firm:                      my desk. I have been a great admirer        with my appointment in a panel of
                                          of his character and ability…wishing        monitoring consultants by the Institute
My first step towards my practice was     to emulate it in my own humble way.         for inspecting and reporting on
to secure suitable rented premises.
                                                                                      selected academic and financial
Fortunately, the search came to a         In action:                                  aspects of private education
fruitful end. I got a fine office at
                                                                                      institutions registered for tutoring
reasonable terms from an                  I remember my first audit job well. It
                                                                                      students of first four modules.
acquaintance. I wish I had the            came as an audit of an employee
financial prudence of saving enough       provident fund scheme of a non-
                                                                                      Even today, the newspapers continue
in my earlier career to have bought       banking financial institution. The next
                                                                                      to be a valuable source. However, as
the premises and save the rent.           one was something similar from a
                                          software company. These kinds of            a practitioner I found negotiating a fair
The process of setting up an office       audits became my principal expertise        audit fee to be a major hurdle in most
invariably involves higher funds than     in years ahead. The issue was that          such cases. This may be so because
one would estimate; items required to     these audits are annual events              most clients do not see an audit as a
make the office functional keep on        lasting for less than a month. What         value adding business activity, and in
adding up, so does the cost. From         should I be doing in the meanwhile?         my opinion rightly so because an
office fittings, furniture and computer                                               audit is primarily a compliance
to electric kettle all is necessary. I    I started actively looking for more         activity. Our only contribution as
had to draw upon my savings to get it     opportunities as external auditor. I        auditors to the financial statements
done but imagine what it must be like     was aware that without quality ratings      appears to be a
                                                                                                         The Pakistan Accountant
                                                                                                                   July-Sep 2010
                                                                                                                         Page 15
coVer STORY


one-page standard audit report, which     match those paid to an individual. The       last audit when you start the audit for
in principle is also correct. The         emoluments of a ceo exceed those of          the current year. Similar sob stories
behind-the-scene endless hours of         an auditor, without any exception, in        from my network and one wonders if
the auditor that goes into bringing the   all cases I studied. The board of            payment of audit fee is a priority at all
rag-tag financial statements handed       directors appear to be more generous         for the client.
over initially to bring it to the point   than the shareholders who appoint
where that to him and one-page-           auditors in the general meetings.            With time as the most precious
standard-report appears respectable                                                    irreplaceable commodity a
largely remains unacknowledged.           Graceful reputable firms, with global        professional has, there is no time to
                                          affiliations, who are in best position to    waste on following up clients to pay
The issue of audit fee and of its not     command audit fee of their liking, if        their dues. I decided to get paid in
being paid:                               they find themselves often in such a         advance. Some of my colleagues
                                          position, what would be the level of         argued with me on charging fee in
With only one in five chartered           audit fee for the rest of us? In short,      advance, even going on to suggest
accountants in public practice and        the minimum hourly rates, provided in        that it is not permitted, but failed to
they being only ones providing audit      ATR-14, apply to the listed                  show me where it says so. Instead,
service, the context is right for
booming public practices. In addition
there is ATR-14 that prescribes the
minimum hourly rate for computing
audit fee for accepting audits of
companies only. However, the way
the profession has evolved over last
fifty less one year, its caretakers
clearly failed to capitalize on its
strengths. Many questions have
remained unattended. For example,
what about the audit fee of the
entities other than companies? These
concerns affect small and medium
size and it practices most and have
only cumulated over a period of time,
resulting in unbelievably low audit
fee.

The severity of how low the audit fees
are can be gained from studying the
giants of the profession - from those
who are in the best position to
command a fair audit fee. let us do
so by comparing the emoluments of         companies only and even there it is          as a counter-attack they would ask
an external auditor and a chief           not applied in majority of cases. I am       me to show them where it is permitted
executive officer of a listed company     yet to hear any professional firm ever       to charge audit fee in advance, or
and see who’s getting a better deal.      being reprimanded on this count to           even half of it. The fact is that our
                                          convince me that the Institute while         technical literature is completely silent
Essentially we are profiling a            awarding quality ratings considers if        on the issue.
professional firm, maintaining            the audit fee is commensurate with
international affiliation and technical   the number of hours on-the-job.              Beyond audits:
human resource base, giving an            Undercutting audit fee has become a
independent opinion about the             favourite pass time in which the             Apart from audit, I did interesting due
financial statements of a listed          professional firms appear to be              diligence assignments for acquirers.
company and an individual who is the      contributing or is it an indication that     One such assignment was on behalf
highest executive officer of a listed     they are finding it increasingly difficult   of a freight forwarding company for
company. As to responsibilities, the      to reach a break-even point.                 equity injection in a trucking venture
auditor is bound by a code of conduct                                                  with another company. It turned out
and follows certain technical             Add to the issue of low level of fee the     that major recasting and reformatting
standards in giving his audit opinion.    issue of not being paid for the              of the key financial information was
On the other hand, ever heard about       services rendered in a reasonable            required and about 50% more
a code of conduct applying to the         time. Clients somehow tend to go             resources, for validating agreed-upon
ceos in general or any ceo ever           short on memory and priority about           parameters. The Hobson’s choice
being held responsible for                whether the audit fee is paid, once          was in doing a mediocre job and
professional negligence? Given this,      the audit report is signed. Infact, one      attaining the standard I had in mind
the sad fact is that the emoluments       colleague shared that his clients are        when accepting it. I concluded the
paid to the audit firm do not even        so spoilt that they pay the fee for the      assignment with a financial loss but

 The Pakistan Accountant
 July-Sep 2010
 Page 16
coVer STORY


with a professional consolation.          research for individual clients. My first   with latest technical developments in
                                          break through came from a                   accounting and auditing, specially as
At this point my clients included         discussion with a former colleague          the practitioner ages. That the
businesses where owners appointed         who virtually became a victim of            number of listed companies being
me to act as a consultant and internal    financial scam involving placing an         audited by sole practitioners has
auditors. Sometimes, I was applying       amount with an individual for a high        gone down is cited as evidence.
my knowledge to present the most          return. He was lucky to escape it and       There is a limited amount of truth in it
pressing business issues to the           made it a point never to trust              as well but you cannot ignore the
owner independently, or analyzing         individuals and was looking for some        character of auditor out of this
area sales receivables, or                assistance in setting up an                 picture. Enron was not audited by a
documenting year-end closing of the       investment account with a broker,           sole practitioner.
accounts.                                 advice on acquiring investments, and
                                          doing the keeping book-keeping.             As a practicing member, it is also
Meanwhile, extra effort in developing                                                 important to take charge of your own
good rapport with fellow professionals  We got the ball rolling by setting up         professional development. There is a
started paying off. I collaborated with an account with a stock broker of             noticeable improvement in the
                                               stellar repute. Meanwhile, we          technical literature coming out from
                                               defined his risk profile,              the international standard-setters.
 The practice of auditing has become           expected returns and                   However, the Continuing Professional
 sophisticated over last many years.           investment strategy. We                Development program of the Institute
                                               agreed upon certain                    has not shown much improvement in
   Regulators have started believing
                                               fundamentals, the foremost             terms of relevance, contents, delivery
   that most sole practitioners find it        being that we will not be              and evaluation of participants. A clear
  increasingly difficult to be updated         trading securities in short-           exception to this general trend was a
with latest technical developments in          term. We will build his                CPD program in which Mr. Ibrahim
                                               investment portfolio on a long-        Sidat, FCA was invited to share his
accounting and auditing, specially as          term basis, buying                     experiences as a practitioner. I wish
     the practitioner ages. That the           pre-determined equities at a           such “tea sessions” can be a regular
   number of listed companies being            reasonable cost with the               monthly feature to groom
                                               objective of enjoying a steady         practitioners.
    audited by sole practitioners has          return with protection of
gone down is cited as evidence. There          capital as objective.                  The web offers most fantastic of
  is a limited amount of truth in it as                                               opportunities to learn in your own
                                                   Another avenue that                time. In my case, I find myself
    well but you cannot ignore the
                                                   somehow shaped during              frequently visiting and commenting
    character of auditor out of this               these years was imparting          on the exposure drafts of the
  picture. Enron was not audited by a              training. It started with a        International Accounting Standards
            sole practitioner.                     session on ‘international          Boards (www.ifrs.org) and
                                                   auditing framework’ for junior     International Auditing and Assurance
                                                   joint directors at the State       Standards Board (www.iaasb.org).
other firm of chartered accountants       Bank of Pakistan at the National
on management consultancy                 Institute of Banking and Finance            Meanwhile, my quest for fresh
assignments, which kept my precious       (NIBAF). I found myself designing           learning took me to a post-graduated
financial analysis and reporting skills   courses for NIBAF in corporate              diploma in Islamic Banking and
crisp and relevant.                       governance, internal auditing,              Insurance, clear the exams of
                                          international accounting,                   licensed International Financial
One such assignment was to monitor        consolidation, corporate valuation etc.     Analyst, US and go for a law
and report to a banking syndicate on      This stream further developed when I        graduation. I served uninterrupted as
the cashflows of corporate entity on      did a two day work shop for internal        a humble worker in some committees
monthly basis that had defaulted on a     auditors of commercial banks as an          of the Institute and also contributed a
huge facility. The challenging part       open-enrollment course. It is hard          few articles for this magazine as well.
was to wade our way through a             work but much fun conducting an
plethora of information, validating and   activity as a facilitator than a            Conclusion:
presenting it in a manner that quickly    participant and gaining CPD hours.
informs the syndicate about the story     Since then the training has been a          looking back the past decade, being
behind the numbers. Within six            favourite activity.                         in practice gave me a new dimension
months of this assignment the debt                                                    to look at life. Most experiences
was renegotiated and the syndicate        Professional Development:                   bought me immense satisfaction as a
was able to claim most of the struck                                                  practitioner and an individual.
amount.                                   The practice of auditing has become         looking forward, I see a realistic
                                          sophisticated over last many years.         potential for the public practices all
Sometime during this exciting period,     Regulators have started believing that      over Pakistan to grow well in the
I started exploring the area of           most sole practitioners find it             coming decade.
investment book-keeping and               increasingly difficult to be updated

                                                                                                        The Pakistan Accountant
                                                                                                                  July-Sep 2010
                                                                                                                        Page 17
coVer STORY




The evoltion of smps
International Federation of Accountant’s President Robert l Bunting says




“SMPs Should Evolve to Satisfy
SMEs’ growing needs.”
Small- and medium-sized practices (SMPs) today can no           empathise with their clients’ resource constraints. This
longer rely strictly on compliance work to pay the bills. The   contrasts with very large practices where the focus is on
reason why is simple: SMEs (small- and medium-sized             large companies and SME clients may have to deal with
enterprises) – the traditional client of the SMP –              several departments.
increasingly need a broad range of competencies beyond
the core skill set of the small practice. At the same time,     Building Trust
the threshold for mandatory statutory audits has risen in       But the assumption that SMEs nearly always choose an
some countries and increases are under consideration in         SMP is not correct. A significant proportion of the clients of
many others. A fast-changing and complex regulatory             large accounting practices – the Big Four and second-tier
environment means that SMEs want their SMP to provide           practices in most countries – are SMEs. These are more
proactive business advisory services. SMEs need advice          likely to have the resources and the benefits of economies
that will help them generate business plans and financial       of scale to offer services and products to meet their
forecasts, identify and manage risk, define and implement       clients’ accounting and other specialised support needs; in
IT systems, and value the business. SMPs must evolve to         fact, they often position themselves as ‘professional
meet these growing needs or face dwindling clients and          services supermarkets’. Many SMPs actually use larger
revenues. A new study by the International Federation of        firms to provide limited speciality services to their SME
Accountants (IFAC) makes clear that smaller accountancy         clients or as a technical backstop for their own client
practices need to address their skills base, their working      service work. While compliance work will remain hugely
methods and their referral models if they are to meet the       important for SMPs – accounting services and tax are
evolving needs of the SMEs that are their lifeblood. The        core services at all levels in public practice – technical
study – The Role of Small and Medium Practices in               competency and timely delivery in compliance work build
Providing Business Support to Small- and Medium-sized           trust and usually lead to requests for non-compliance
Enterprises, written by professors Robert Blackburn and         advice and support. This is a time-proven formula driven
Robin Jarvis – points out that accountants are still SMEs’      in part by the nature of most small business owner-
most frequently used source of advice. According to a           managers, many of whom are determined to make all their
study last year by the UK’s Open University, trade              own decisions and avoid advertising any managerial
connections, the media, family and friends are all              weakness. In this kind of ‘fortress enterprise’ culture, many
important, but none ranks as highly as the accountant.          SMEs do not request advisory services until the expert
SMPs are usually highly experienced in dealing with             has already provided a specific demonstration of their
SMEs and, as small enterprises themselves, can                  competency.




 The Pakistan Accountant
 July-Sep 2010
 Page 18
coVer STORY




Becoming Knowledge Professionals                               provision of compliance services wins them ‘competence’
Business consulting services represent a crucial growth        trust.
area for SMPs. As mentioned at the start, the raising of
the statutory audit threshold has diminished a key             Responsiveness/ proximity: SMEs rate SMPs’
revenue stream for many SMPs and the market is                 responsiveness to their demands so highly that it can be
increasingly competitive. As a result, if they are to thrive   regarded as more important than a qualification or
rather than merely survive, SMPs must diversify and            competency. The geographical proximity of SMPs to their
focus on other advice requirements for SMEs (or provide        SME clients is also important. Many owner-managers
audit services to larger companies). They must develop         prefer face-to-face meetings with their advisers, and value
their skills base beyond bookkeeping, tax preparation and      ease of access.
audit. In short, they must move from being accounting
technicians to knowledge professionals. So how can             Robert l Bunting
SMPs overcome the unavoidable resource constraints in-         became
house and provide a range of services to their clients?        president of the
The most common model is to expand the technical and           International
soft skills of existing personnel. Some accountants can        Federation of
make the transition from ‘accounting expert’ to                Accountants
management adviser through experience and self                 (IFAC) in
development. Others may need training or coaching to           November 2008.
grasp the necessary flexibility and an understanding of the    He is a partner at
context and cultural environment of the SME. For               Moss Adams
example, accountants might need to hone their                  where he served
interpersonal skills or make time to discuss a client’s        as chairman and
succession planning (or other business advisory needs).        chief executive
Another common model is to focus on a specific industry        officer from 1982
sector or speciality linked, for example, to the music         to 2004. Moss
industry or environmental legislation. This model usually      Adams is a
works best in large cities or where a particular industry is   member of
highly concentrated. But there have been successful            Praxity (formerly
cases where SMPs are willing to travel further to serve        Moores Rowland
their clients. A third model, which can be a standalone        International)
strategy or one that complements the first two, involves       where Bunting
the SMP participating in a high-quality referral network.      served as
Before using one, SMP owners should analyse the                chairman from
different types of networks and carefully consider how         1998 to 2004. From 2004 to 2005, Bunting was chairman
they will monitor service quality and timelines for the        of the Board of Directors of the American Institute of
clients they refer. But referral networks offer SMPs many      Certified Public Accountants (AICPA). Go to
potential advantages: they are an effective way to satisfy     http://ifac.org/SMP for more about the SMP Committee.
the increasing breadth of demands from SME clients.
They also offer the opportunity to gain clients through        The Role of Small and Medium Practices in Providing
referrals from other network members or to win new ones        Business Support to Small and Medium-sized Enterprises
due to their more extensive service capabilities.              – by ACCA’s head of small business Professor Robin
                                                               Jarvis and Professor Robert Blackburn of Kingston
Why SMEs Use SMPs                                              University and published by IFAC –is available for
Competency: SMEs often lack the full range of                  download at http://web.ifac.org/publications/small-and-
managerial expertise. Most outsource their financial           medium-practices-committee/information-papers-3.
management to SMPs with their required technical
competencies and expertise in statutory audit and                           This article originally appeared in the ACCA's
taxation.                                                                                             Accountancy Futures.

Trust: As members of a regulated profession with codes
of conduct, accountants enjoy ‘institutional’ trust. Their




                                                                                                     The Pakistan Accountant
                                                                                                               July-Sep 2010
                                                                                                                     Page 19
Pak july sep_2010
coVer STORY




    An Interview with




   sylvie Voghel
   chair, small and
   medium practices
   committee
   international federation
   of accountants



Q                                                                                   Q
How does IFAC support Small- and           While IFAC can do little to help SMEs    How does the IFAC SMP Committee
Medium-Sized Entities (SMEs) and           directly - IFAC is not, after all, an    operate and how is it resourced?
Small and Medium Practices                 association of SMEs - IFAC
(SMPs)?                                    recognizes their importance and          The IFAC SMP Committee was
                                           provides invaluable indirect support     formed in 2004, and is now a
A thriving SME sector is a vital part of   to them. First, IFAC supports SMPs       committee of 18 members from all
job creation, social cohesion,             (primarily through their member          across the globe, with a wealth of
innovation and economic growth. In         bodies) so that they can provide         experience in the SMP and SME
many – if not most – countries around      better services to their SME clients –   sectors. We have formal working
the world, SMEs represent the vast         services that meet the SMEs’ needs       procedures, project teams, a strategic
majority of entities as well as the        and are of high quality; this in turn    and operational plan, a
                                                                                    communications plan, and a full-time
majority of private sector employment      helps SMEs prosper. And second,
                                                                                    senior technical manager. Our
and Gross Domestic Product.                IFAC supports professional
                                                                                    strategy is two-fold. Firstly, we help
According to the Organisation for          accountants in business (again
                                                                                    shape international standards –
Economic Co-operation and                  primarily through their member
                                                                                    primarily auditing and assurance,
Development (OECD), SMEs account           bodies), many of who work in SMEs.
                                                                                    ethics and accounting – by providing
for over 95% of enterprises and 60–        Much of the support that IFAC
                                                                                    input into the standard-setting
70% of employment in OECD                  provides for SMPs and SMEs comes
                                                                                    process. We do this to ensure that
countries.                                 from the work of the SMP Committee       these standards are relevant to SMPs
                                           that I chair.                            and SMEs and can be cost effectively
                                                                                    applied.

                                                                                                     The Pakistan Accountant
                                                                                                               July-Sep 2010
                                                                                                                     Page 21
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Pak july sep_2010

  • 1. J U L Y - S E P 2 0 1 0 What arE YoU Practicing?
  • 3. co nTecTs Volume 43 Issue 3 JUlY-SEP 2010 The mosT imporTanT issue publications committee facing The profession in chairman and chief editor Adnan Zaman, FCA 2009 is addressing The members Abdul Rashid, FCA needs of smes Abdul Wahid, FCA and smps Aijaz Ahmed, ACA Altaf Noor Ali, ACA Asad Feroze, ACA Heena Irfan Ahmed, ACA Jehan Zeb Amin, ACA M. Amir Afzal Rana, ACA M. Fahim A. Rauf, FCA Muhammad Rehan Razzak, ACA Mutee-ur-Rehman Mirza, FCA Omer Mustafa Ansari, FCA Raheel Abbas Rizvi, ACA 16 The council president Shaikh Saqib Masood, FCA By way of Vice presidents Hafiz Mohammad Yousaf, FCA puBlic Zahid Iqbal Bhatti, FCA accounTing pracTice members Abdul Rahim Suriya, FCA Adnan Zaman, FCA Ahmad Saeed, FCA Nazir Ahmad Chaudhri, FCA Khalid Rahman, FCA Mohammad Abdullah Yusuf, FCA Nadeem Yousuf Adil, FCA Naeem Akhtar Sheikh, FCA Pervez Muslim, FCA Rafaqat Ullah Babar, FCA Rashid Rahman Mir, FCA Salman Ali Shaikh Shaikh Saqib Masood, FCA Sohail Ahmad Waqar Masood Khan 4 Adnan Ahmad Mufti, FCA Yacoob Suttar, FCA Strategic Decisions During Recession 28 secretary M. Amir Afzal Rana, ACA Shoaib Ahmed, ACA Something Beyond Financial 32 publication coordinator Asad Shahzad Zehra Hassan Corporate Governance 37 The Pakistan Accountant July-Sep 2010 Page 1
  • 4. ediTor’s lETTER Editor’s Letter whaT are you pracTicing? Evolution and transformation are perhaps the most remarkable processes that create simultaneously excitement as well as apprehension. In today’s rapidly changing environment stagnancy is the first step towards decline, anyone who does not move with the change gets left behind. Diversifying and expanding the area of expertise is the new mantra for the decade, the complete amalgamation of technology in even mundane practices has increased consumer’s awareness, with their needs changing and demanding more, smart providers who are able to anticipate and match their needs move ahead. Historically, the SMP-SME relationship is regarded as being underpinned with the need for SMEs to have statutory audit and this necessary relationship provided a foundation for subsequent advice and support. From the SME relationship, the factors underpinning a strong SMP-SME relationship include competency, trust and proximity. However now the equation is changing, with the incessant changing environment, the role of Accountants has also drastically undergone transformations, no more are accountants just confined to auditing. With the needs of the SMEs expanding they expect more from SMPs. SMPs need to match the growing demand and in order to do so they need to develop capacity and overcome the challenges lying ahead. There is a changing regulatory environment; growing competition from new entrants to the advice marketplace; and the capability of SMPs themselves to provide specialist advice. Opportunities and challenges come hand in hand; while the diversification of role of accountants presents a great opportunity for the SMPs it also brings forth the challenges of capacity building and threats of competitiveness. I feel that SMPs need a platform where they can collaborate and learn together to overcome the competitive challenges ahead. I feel the time is now when we have to nurture our practice, realizing that the beauty of a garden lies in the different varieties of flowers and like flowers no two practices offer the exact same, they each bring a unique and distinctive color to the canvas of accounting. I feel that the new way forward for the SMPs particularly for building capacity lies in capitalizing on their uniqueness while being open to adaption and change. I feel Wayne Dyer’s “Transformation literally means going beyond your form.” appropriately shows the way to strive for continuous improvement, meet the increasing expectations and paves the way to the road leading to a brighter future. Adnan Zaman The Pakistan Accountant July-Sep 2010 Page 2
  • 5. presidenT’s PAGE President’s Page whaT are you Experts and economists unanimously hail assurance services principally but not the development of small and medium exclusively to clients who are small and pracTicing? enterprises as a crucial factor in medium entities (SMEs) and other strengthening Pakistan economy. accountants to the extent that they According to the Small and Medium support SMEs. Enterprises Development Authority (SMEDA), “SMEs constitute nearly 90% The SMP committee formed as a part of of all the enterprises in Pakistan; employ ICAP’s initiative to provide a platform for 80% of the non-agricultural labor force; SMPs to come together and jointly work and their share in the annual GDP is towards identifying problems and issues 40%, approximately.” faced by the SMPs. The committee reviews international and regional best The recent times have practices for consideration of adoption by witnessed a gradual the SMPs after affecting suitable changes change in the mindset with in the context of the business the role of the Accountants requirements and local environment as widening considerably, well as the relevance and proportionality According to a research of professional standards and provides conducted by the recommendations on the extent of their International Federation of applicability to SMPs/SMEs. Accountants (IFAC) a shift is seen in the needs and A critical factor is effective networking. I the expectations of Small feel the solution lies in collaborations and and Medium Enterprises (SMEs) from sharing of resources, SMPs should Small and Medium (accountancy) collaborate while not compromising their Practices (SMPs) from being focused individuality and uniqueness. In order to primarily for audits to a much wider match to the growing needs of SMEs, continuum of business advisory services. SMPs have to specialize as well as work on the capacity building to be able to I feel this expansion in role presents an cater to the increasing competitive opportunity for SMPs; they must evolve to environment. I must acknowledge the role match the expectations and meet the of SMP committee which coordinates with growing needs. The opportunity ICAP for issuance of consultation papers, presented is huge but so are the initiating debates or discussion on issues challenges. Information Technology has affecting the SMPs in bridging the gap drastically changed the environment; I between the SMPs as well as with other classify Information Technology as entities. possibly the greatest tool as well as a challenge for the SMPs. It is imperative In order to strengthen the understanding that its impact is analyzed and assessed. and application of International In order to match to the growing Standards, the Institute has embarked expectations SMPs need to be updated upon an awareness program, focusing on with the emerging Information Technology the SMPs. The Institute is mindful of the techniques and adoption in the conduct of problems that might arise in their professional practice. understanding the implementation of ISCQ1 and is imparting the required The definition of Small and Medium training to educate and support the Practices varies from one jurisdiction to practicing members. another. There is no precise globally recognized definition of Small and Medium Practices, because what is considered small or medium-sized in one jurisdiction may be quite larger in another. However, certain general parameters are used to help determine what constitutes Shaikh Saqib Masood an SMP; they provide accounting and The Pakistan Accountant July-Sep 2010 Page 3
  • 6. Join THE DISCOURSE Join thE This issue’s topic is: Ready to manage the DiScoUrSE Generation Y? The Generation Y has arrived and is here to stay. Is your organization ready to manage the new generation? “Children and young adults born during the 1980s and 1990s are known as Generation Y. Generation Y professionals are in their 20s and are just entering the workforce. With numbers estimated as high as 70 million, Generation Y is the fastest growing segment of today’s workforce.” commenTs ,Z on X,Y enerati te world G w well corpora rs is ho I fee l in the ha t matte , ount, w e, learn really c observ do es not able to e inted is . Anyon n appo xecute the perso and re-e , rectify rvive in plan, e xecute rely su g tha t will su of doin capable re. te cultu corpora 3180) CA (R # S ana, A Ahmad , UAE p.ae ghgrou S harajah rateoffice@s orpo sana.c No question not to welcome Generation Y. They are I am the only one in my organization falling into this already in mainstream. While being more educated, generation, therefore having none to manage. I think my intelligent and joining practical life in an advanced high ups know better how to manage me:)- technological era as compared to two decades back’s generation, it is sad that a peaceful, high growth oriented Arshad Khan, ACA (R # 6215) atmosphere essential for opportunities could not be Peshawar provided to them. Good luck Generation Y. arshad.yousufzai@hotmail.com Tameez-ul-Haque, FCA (R # 0973) ‘Generation Y has created a need for a cultural overhaul Karachi for which most organizations, including mine, are yet not tameezul.haque@adamjeeinsurance.com ready. One reason could be Generation Y being a high- maintenance generation which requires their managers to set clear expectations from them, offer flexibility, respect The Pakistan Accountant July-Sep 2010 Page 4
  • 7. Join THE DISCOURSE and communicate with them in their language. However n Development and mentoring: Continue to invest in this generation, can prove to be most high-performing one personal development and training-explore expanding if organizations are able to leverage on the information, coaching/mentoring programs to younger workers. creativity and technological skills which they bring to the Provide variety and fresh challenges - consider workplace with them’. promoting cycles of experience in mentoring programs to younger workers. Zeeshan Khurram, ACA (R # 6056) n Brand your Organization: The Generation Y expects Dammam, Saudi Arabia more from their employer and is not afraid to ask for zeeshan.khurram@aqpci.net more!! Articulate your employer brand—communicates internally and externally what it means to work for your organization. Have clear goals, statements and be committed to deliver the promise. I feel before being able to effectively manage it is important to understand the people. Naveed Abdul Hameed, ACA (R # 5905) Karachi The main difference in Generation Y and previous naveed.a.hameed@pk.pwc.com generations is their confidence and ambitions. These Generation Y qualities along with their familiarity with information technology have resulted in Generation Y having high expectations of the employers, seeking out A key to managing people is realizing that every new challenges and not being afraid of questioning generation brings its unique set of values and authority. expectations to workforce. Organizations need to understand the expectations of the Generation Y and A recent study conducted in UK showed the priorities of meet them accordingly. Generation Y regarding employment, being completely different from their predecessors. Career development and I feel that following tips can be useful to manage the learning opportunities topping the list followed by generation Y effectively. compensation package, the nature of job and job security. n They need to be treated respectfully. Career development is the top most priority of Generation n They are goals driven; they need clear goals and Y, organizations should ensure that all the available career objectives. paths are understood and are clearly communicated to n They expect and should be awarded with challenging prospective employees. Further, for learning aspirations of jobs for better performance. Generation Y to be met the organization should employ n Involvement in decision making enhances their morale job rotation and formal and informal training techniques. leading to better output. n Allowing a little fun at the job significantly enhances Shah Rukh Memon, ACA (R # 5913) their productivity. Doha, Qatar shahrukhmemon@hotmail.com Muhammad Abrar, ACA (R # 6126) Sialkot abrarmuhammad@hotmail.com Before Organizations get ready to manage the Generation Y, they need to understand what they want. Studies show that the millennials crave International experience, prefer YES……because we have to! development opportunities to cash bonuses, Experience, sustainability and career planning is a major factor for Since we are the people who stand ahead of Generation Y them. According to Peter Sheahan, Generation Y is not in the row of managers, we are responsible to manage not just about demographics- it’s about mindset! only them but also ourselves. I feel it does not surmount to be an uphill task for us as Generation Y has already Some tips to manage millennials could be: adopted most of our thoughts, knowledge and styles, as n Know what they want: Use market research in order to major psychological theories suggest by now hence there understand what millennials want and how these is no major chance of difficulties, clashes or hurdles desires might differ from older workers. emanating from the process of management of n Motivation: Think creatively when rewarding Generation Y. millennials, is it time to shift focus from cash bonuses and company cars to other things? What we need to do is to keep an open mind to their n Grow Globally: The Generations Y rates international positive thoughts and be ready to understand their psyche exposure highly and is more technologically inclined, towards development and humanity. border and boundaries are no limitations. Consider global working opportunities-how might this Muhammad Rehan, ACA (R # 5547) enthusiastic generation support your global mobility Khanewal needs? mdrn@live.com The Pakistan Accountant July-Sep 2010 Page 5
  • 8. coVer STORY The most important issue facing the profession in 2009 is addressing the needs of SMEs and SMPs (Source: IFAC Global leadership Survey 2008) Small and medium sized definition for the SMPs also act as an integral enterprises and practices had not been prescribed. component in SME’s must be considered as a However IFAC has chosen financing need. The SME main driver for innovation, to define SMPs as – SMP relationship can be employment as well as “accounting practices regarded as a necessary social and local integration whose clients are mostly relationship. SMPs around the globe. They SMEs, external sources perform a large number of are playing a vital role in are used to supplement important tasks of SMEs. the economic activities limited in-house technical Most important among around the globe and can resources, and contain a them is the financial Usman Akbar Manda, ACA never be ignored in the limited number of reports or annual reports. worldwide conferences professional staff. What So they always turn to and agendas. SMEs are constitutes an SME differs SMPs to produce these now crucial to most depending on the country.” statements. Also SME- developed and developing (IFAC 2010) SMP relationship is also economies. For instance, prominent because of the in the European Union, SMPs are uniquely meant compliance work being SMEs contribute to over for helping the SME’s. provided to SMEs by 99% of all enterprises and They help SME’s to SMPs in common 100 million jobs. This perform in a more efficient business world. represents almost 67.1% and effective way, of private sector assisting in compliance In the credit crunched employment. For the with the rules and world, SME’s are playing a survival of SME’s, SMP’s regulations and business very important role as run as a blood. A unique support services. They world big giants are in The Pakistan Accountant July-Sep 2010 Page 6
  • 9. coVer STORY doldrums and cannot Bringing improvement and in this credit crunched for ensuring the quality of employ more labor force. strength in the work and world economy and in work in the SME’s and Instead big corporations structure of SMP’s shall future business world. They SMP’s sector, there is a are in the move towards bring the same effect in need to develop more dire need for the firing and layoff. In this SME’s. SMP’s in today’s effective communication improvement in financial scenario, SME’s provide a world offer a wide range of networks with clients, reporting. The framework platform for the provision of services to SME’s. They coworkers, government for reporting on financial job facility and hence put range from payroll instrumentalities, legal and statements of SME’s need some healing effect on the processing, forecasts and other professionals. In improvement so that the injured worldwide projections, litigation taking initiative towards interests of the economy. In my opinion, support, personal financial advisory role, they need to stakeholders can be roles and work of SMP’s planning, business involve themselves in protected and present and SME’s have a direct valuation, mergers and strategic decision making co-relation between them. acquisitions, financial including proficiency in In financial terms, we can management, assurance forward thinking and say that there is a perfect and related services, enhancing the ability positive co-relation co- reporting, strategic to weigh alternatives. efficient of 1 between the planning, tax planning, a They also need to two arms of the economy. few of them to be focus on sharpening So SMP’s should focus on mentioned. In the recent the analytical skills for improving the quality of trends of the business analyzing the potential work and concentrate on world, range and quality of opportunities and more areas for the advisory advice to be provided to projects and to SME’s. This is quite SMEs by SMPs has been continually striving for evident from a survey growing at an exponential the devises to bring conducted in different rate. This is due to the improvement in both continents. information needs of methods and owner-managers of SMEs effectiveness. This According to a survey who are in a need to fulfill can be very effective conducted in UK, Australia their regulatory obligations for the SMPs are this and Canada, SME’s think and day-to-day and shall strengthen to that SMP’s provide them strategic challenges. absorb the shocks of the in the following ways: economic downfalls. Before discussing on how At the sametime l practitioners most SMEs redefine themselves managing, motivating popular source of in this credit crunched and inspiring their own business advice for world, let’s have a look on professional SMEs; what is the main Motivation personnel so that l practitioners most and Reason for SMEs’ Use quality and competent trusted source of of Accountants or SMPs as workforce is available business advice for Business Advisers. Broadly all the time. SMPs SMEs; and there are three main issues also need to develop l practitioners most because of which SMES strength to highly rated source of rely on SMPs as business acknowledging and business advice for advisors; recognizing people for SMEs their contributions and l Competency performance within In this perspective, SMP’s l Trust their working have to act as a very l Proximity and environment without responsible segment of the responsiveness considering the economy and in helping personal interests. the medium sized SMPs should consider This factor is often enterprises. They have to them and keep them as a lacked very much in improve and broaden the focal point before taking most of the corporate extent of their services for any change or redefining world and especially their own safety and for themselves. in Pakistan. protecting the SME’s which rely heavily on them. They There are some very Now referring to some are a key business important roles which specific issues for the advisors to the SME’s. SMEs are required to play initiatives for SMPs, The Pakistan Accountant July-Sep 2010 Page 7
  • 10. coVer STORY information in a way that is SME’s. In addition to this, lending activity to the accurate and reliable useful to the decision audit quality control SME’s. provision of information, makers. Now SME’s need standards also need to be Internet centers for SMP’s a lot of attention by the implemented in the SME’s. l Obtaining financial and SME’s should be regulatory bodies for the Again this objective can be statements of the small developed. Centers for reporting standards setting achieved if SMP’s step clients, information sharing can be bodies. In this regards, forward and take the l Time taken in gathering developed and SMP’s can take an initiatives. They can also information to make the membership initiative to identify the use accounting information decision for lending facility created in loopholes and defects in to achieve sound financial l Timeliness of the order to get the the current prevailing management. information provided funds for the framework. They can take maintenance of all the stakeholders in this Another important role, the Source: Micro-Entity Financial ambit and identify the accountants are supposed Reporting: Some Empirical the center. Any Evidence on the Perspective of problematic area and share to play is the assistance of Preparers and Users (IFAC SMP information which them with the standard SME’s in obtaining bank Committee Information Paper, Oct. is to be shared in setting bodies. One of the finance and other financing 2007, draft) the center should problems due to ineffective facilities. As discussed be accurate. A financial reporting is the earlier, SME’s face For obtaining financial checklist for the reliable SME’s also face problem in problems while obtaining statements and information should be getting financing activity loan or other financing from consistency in the fulfilled by the data before it due to this which is the financial institutions. presentation, this can be can be entered in the discussed in detail in the lending organizations are best overcome by using internet center for sharing. following paragraphs. more inclined for lending computerized packages. As a more proactive Improvements to financial facilities towards large Today, IT has become approach, a dedicated reporting can increase the corporations, SME’s face integral component in search engines can be confidence of investors and difficulties in obtaining financial reporting and developed for SME’s and users of these reports can them. This bridge can be consistency cannot be SMP’s. This shall bring in give an impetus to the best covered with the help brought without using the the quality of work not only economy which is badly of SME’s. The main clutches of IT and its for SMP’s but in the work of hurt by the blow of global problem that is faced in this related facilities. SME’s and other economic crisis and credit respect is the non Computerized packages stakeholders as well. crunch. availability of information to can be helpful in order to the lender or in the required ensure that the consistency In the era of globalization, Reliance on the financial format. SMP’s can help is achieved in the the sharing of knowledge statements can be SME’s to develop a presentation of information. and experience across the improved by applying ISA’s framework in consultation world is very important for on audits of SME’s. Till with the lenders and SME’s In order to counter the the improvement in quality now, no auditing standards for provision of information problem of time lag in of work and provision of for the small and medium and subsequent help in obtaining information for good service in every nook sized enterprises have decision making for the financial institutions, and corner of the been developed. This is a extending financing facility facilities need to be continents. The big vacuum for the SMP’s to the SME’s by financial developed for the sharing improvement in the quality to step forward and perform institutions. According to a of knowledge. Again to of work by SMP’s can be their role. SMP’s should study conducted, financial achieve this objective, brought about by sharing of endeavour to develop institutions face the reliance is on the IT knowledge and experience auditing standards for following problems in facilities and internet. For on a platform. This can be The Pakistan Accountant July-Sep 2010 Page 8
  • 11. coVer STORY a very effective quality demand for advice. This in some relaxation in and at the same time be initiative by the SME’s. It is turn brings new challenges some corporations for profitable. This can be imperative to get in touch for SMPs. The major the statutory financial done by introducing tax with the fellow accountants challenges are: audits but a rise in incentives. Along with that around the world. Seminars compliance linked to on the recommendations of should be conducted for l consolidation within the environment, health SMP’s, develop national SMP’s for achieving this. accountancy industry: and safety and and international standards The geographical scope of Big giant firms are employment. This that are easy for service can be extended always ready and in a reduces the market for application and tailored beyond the boundries of stronger position to the SMEs. according to the the home country to other acquire small requirements of SME’s and countries as well. practitioners. They l reluctance of some stakeholders. SMPs also Accounting, auditing and often present golden SMPs: Some cannot work in an effective consulting services can be offer to the SMPs, customers are not able manner and provide quality provided through especially when to the pay the required work until and unless networking at far furlong entering in the foreign fee as desired by the quality labor force is distances. This shall help market to get local SME. So there is available in the market. For SME’s as well for the representative and market but still no the supply of quality growing globalization market as well. So with service is provided. advisors and accountants, needs in the upcoming a growth merger and Also with some SMEs, institutes and professional future business world. acquisition there is a their heterogeneity of body too shall have to play decline in sole need makes SMPs their very sensitive role. One fact to be practitioners. reluctant to provide the Ensuring that the worth mentioned services. professional and members here is that SME l rise in the provision of of their respective bodies market is very services by larger Such changes for the remain competitive and dynamic. The practitioners: large demand of services by more supply is entered in The market conditions and regulatory environment within which SMEs operates is constantly changing. With this background, it is imperative for the advisors of SMEs to respond to the market demands and requirements. If SMPs do not cope with the changes and devise strategies for them, it can pose a serious threat to their position as key providers of advice and support to SMEs. practitioners are in a SMPs and their clients’ the market after ensuring market conditions better position to environment have that they are competitive and regulatory capture market. significant implications for and able to provide good environment Although their rates are SMPs. If SMPs do not cope quality work. within which comparatively high but with the changes and SMEs operates is with the recent financial devise strategies for them, constantly changing. With crises and reduction in it can pose a serious threat this background, it is the clientage, large to their position as key The author is imperative for the advisors corporations have providers of advice and Senior Business Consultant of SMEs to respond to the reduced their fees and support to SMEs. in IBM Italia S.p.a market demands and hence grabbing the Global Business Services requirements. Among them market of SMEs. Neverthless, national and Department. the most important is the international institutions requirement of statutory l shift in the regulatory also have to play a very audit which is increasing environment: As important part to achieve and also bringing changes discussed earlier, all the above aims. They within it in almost every regulatory environment shall have to provide country. But other factors has been constantly practical support to SMP’s are also affecting the changing. Now there is to provide high quality work The Pakistan Accountant July-Sep 2010 Page 9
  • 13. coVer STORY thE LaW oF thE corPoratE JUngLE – SUrViV oF thE aL FittESt Saira Shamsie, ACA As the socio economic dynamics are human element helps in reducing treating the other SMPs as a support changing with shrinking boundaries, turnover and ensures stability. In fact group rather than a business rival. ever changing technology, this is an attraction for people joining This change in attitude can help in uncertainty, survival is only for the any organisation in the current broadening resources and fittest. scenario of instability. harnessing opportunities. With the internet age sharing intellectual data As the world stage is set for change The million dollar question is how do latest professional developments and this gives empowerment to the SMPs with limited resources and guidelines is possible more than ever middle tier the Small and Medium financial constraints manage to before. A strong intellectual data Practices (SMPs) and Small and provide the enabling environment base of case studies, guides, Medium Entities (SMEs). The game is needed to sharpen the softer skills of illustrative and presentations can help of making the right choices, to make their staff to have the cutting edge. in training the SMP staff to bring efficient use of resources, be tech them at par to the big four savvy, use net working and last but The only answer is to build an professional standards. not least be open to change. environment of trust and mutual sharing. It is essential to use net Further, round tables and experience To evolve and to gain market share working and pooling of resources. sharing sessions can be invaluable in the importance of a proactive human SMPs need to foster change by sustaining development. The Institute resource equipped to of Chartered face the challenge Accountants of cannot be over Pakistan (ICAP) has emphasized. The Sidat was been playing a key Ebrahim Yacoob SMPs need to build ing Session with role in this front by Ex perience Shar ne 30, 2009 on their cash knowledge of arranging workshops held on Ju perience and generating asset - ed his vast ex He said the to p on varied subjects and Mr. Sidat shar his audience. their staff by providing g issues with eir bu siness also inviting seasoned the accountin ere growing th career growth, MPs faced w logy. members from the training, mentoring challenges S d keeping current techno profession to ity an and the spirit and and productiv share their rich ider the need to cons environment for He emphas ised that firms best the firm experience in practice. who want the tackling challenges. of their clients that the need for expectations so recognize Providing an enabling rm s must al rvices is There is need for has to offer. Fi lue added se environment with client specia lization and va networking among ample training firms as more firms opportunities and the growing. globally are becoming The Pakistan Accountant July-Sep 2010 Page 11
  • 14. coVer STORY members of professional networks to IFAC BOARD APPROVES Small First” approach to tackling serve the specialized needs of RECOMMENDATIONS TO ASSIST complexity. clients. SMPS The recommendations can be To give the competitive edge the The IFAC has approved a set of categorized into the following areas: International Federation of recommendations designed to Accountants (IFAC) has been expand support to member bodies in n Increase the visibility, voice, and providing full support to the SMPs by their work to assist SMPs. The profile of SMPs - for example, by developing material especially for recommendations are intended to communicating and advocating their needs. Some of the latest aids give SMPs the additional practical the importance of the SME sector are Practice Management Guide, QC support needed to provide high- and the role of SMPs in Guide, ISA Guide to name a few. quality professional services to their supporting this sector; Further, for informal interaction SMP main clients: small- and medium- n Expand the monitoring of global Committee twitter has also been sized entities (SMEs). IFAC considers regulatory reform to ensure its launched. the health of the SME sector, which suitability for SMEs and SMPs; accounts for the majority of private n Develop guidance, resources, and sector employment and gross tools-in collaboration with member domestic product (GDP) worldwide, to bodies - that help promote and be crucial to global economic build the capacity of SMPs to growth and financial stability, as well deliver high-quality accounting, as the public interest. Through these assurance, and business advisory recommendations, IFAC also seeks services; and, to enhance SMP participation in n Enhance the extent and The SMP Committee is piloting Twit- international standard-setting and effectiveness of participation of ter as a vehicle for communicating regulatory and policy development. SMPs in the development of and engaging with SMPs, member IFAC’s independent standard-setting IFAC’s standards through bodies and others. The SMP Commit- boards and other groups will be increased SMP representation on tee Twitter will keep users up-to-date encouraged to further embed SMP certain independent standard- with global developments in the and SME considerations into their setting boards and other activities SMP/SME sector. Please visit work programs - for example, through where SMP contributions are http://twitter.com/IFAC_SMP increased involvement of SMPs in essential. projects and by adopting a “Think Quarterly Magazine of The Institute of Chartered Accountants of Pakistan Advertisment Rates Positions Per Issue Four Issues Rupees Rupees Back Cover 30,000 116,000 Inside Front Cover 20,000 76,000 Inside Back Cover 20,000 76,000 Inside Pages 10,000 38,000 Subscription Rates Single Copy Annual CA Students (After Completion of Training Periods) Rs. 40 Rs. 150 Others Rs. 60 Rs. 200 The Pakistan Accountant July-Sep 2010 Page 12
  • 15. coVer STORY SMAll AND MEDIUM SIZED reduce the reporting burden for SMEs ENTITIES (SMES) revisions to the IFRS will be limited to once every three years. In Pakistan the SMEs make up a major portion of the documented In particular, the IFRS for SMEs: Comparison to full IFRS: economy representing the private sector. It was generally felt that in the It covers most of the full IFRS n provide improved comparability requirements, but includes case of small and medium-sized for users of accounts relaxations for SMEs: entities, the cost of compliance with complete set of IAS as notified by the n enhance the overall confidence in The following topics have been Securities and Exchange the accounts of SMEs, and excluded: Commission of Pakistan (SECP) was considerably more than the benefits n reduce the significant costs n earnings per share accruing from the use of such involved of maintaining standards n interim financial reporting standards. In order to address this on a national basis. n segment reporting issue, the Institute (ICAP) developed n special accounting for the accounting framework that could The IFRS for SMEs has to date been assets held for sale be used for the preparation of the adopted by over 60 jurisdictions general purpose financial statements The following options have worldwide. been disallowed: by the Small and Medium-Sized entities. The decision of which entities these n financial instrument standards may apply to has, however, options, including Although, the International been left to the individual jurisdictions available‐for‐sale, Accounting Standards Board (IASB) discretion. held‐to‐maturity and fair was working on a project to develop value options IFRS for Small and Medium-sized Currently the Institute is in the n the revaluation model for Entities, it was expected that it may process of adoption of IFRS for SMEs property, plant and take a few years for finalizing this equipment, and for for Medium Sized entities (excluding standard. To fill the gap during the intangible assets small size entities for which transitory period the Institute had n proportionate consolidation compliance to these standards is for investments in taken the initiative to formulate the considered not practicable). jointly‐controlled entities Standards for Accounting and n for investment property, Financial Reporting for Small and With the IFRS for SMEs the SMEs measurement is driven by Medium-sized Entities. On the have a tool for greater transparency circumstances rather than recommendation of the ICAP the and comparability of financial allowing an accounting SECP vide SRO No. 860(I)/2007 statements in the global market. policy choice dated August 21, 2007 had notified Hence giving an opportunity to n between the cost and fair the Accounting and Financial expand and reach out to markets value models Reporting Standards for MSEs and beyond the geographical borders. n Various options for SSEs issued by ICAP under Section government grants. 234(3) of the Companies Ordinance, 1984. The following areas have been The author is simplified: Manager Technical Services IFRS FOR SMES at ICAP, Karachi. n Financial instruments The IASB issued on July 9, 2009 an measurement IFRS designed for use by SMEs, n Goodwill amortization which are estimated to represent n Borrowing cost expensed more than 95 per cent of all n Investments in associates and Jvs can be measured companies. The standard was a at cost result of a five-year development n PPE useful life review process with extensive consultation of n Defined benefit plans SMEs worldwide. measurement n Simplified tax approach The IFRS for SMEs is a self- n No separate held for sale contained standard of about 230 assets pages tailored for the needs and n Biological assets FV not capabilities of smaller businesses. necessary Many of the principles in full IFRSs for n Equity settled share based recognising and measuring assets, payment measurement liabilities, income and expenses have been simplified, topics not relevant to SMEs have been omitted, and the number of required disclosures has been significantly reduced. To further The Pakistan Accountant July-Sep 2010 Page 13
  • 16. coVer STORY By Way of Public accounting Prelude: Practice took the idea of being a fish in a tiny pound of my own, and applied for a practicing certificate. The The coming year 2011 will mark the Golden Jubilee idea flourished when a dear friend in practice of this august Institute. On a humble note, it will also encouraged me to get rolling and I seized the mark completion of my first decade in public moment. accounting practice. Here is what this journey has been like…..... Verily, the first sacrifice my new venture required was the prospect of giving up whatever pittance I How it started? was assured towards the end of the month, as a salaried employee throughout my professional It must be a proverbial sunny day of my life when I career. Altaf Noor Ali, ACA The Pakistan Accountant July-Sep 2010 Page 14
  • 17. coVer STORY The ideal way to end up as for a fresh qualified person to set up I would find it difficult to have a go. somebody notable in a public practice an office without any seed money on goes through audit training in a his own and ofcourse without any On the way there was some comic relatively larger audit firm, and option of external finance? relief as well. It was in the form of my ultimately gaining partnership, after interaction with symbolic cool and qualifying and serving in managerial A related step was to set aside colourful professional clowns, two of capacity for some time. My case was enough to get the practice going to which I describe below. I believe different. Yes, my audit training was settle financial commitments in time, every practitioner gets to meet them. from one such firm, but I was whether of paying monthly rent or How they are responded depends on tempted by the glamour of the other expenses for maintaining the the individual. ‘industry’, and eight years later the office. It looked as if I complete the conventional route was not there for full cycle from being a month end One day, a gentleman walked in my me. payee to the payer. From now office and asked me if I would be onwards, on every first of the month interested in doing an audit of his With practicing certificate in my hand instead of myself receiving a salary, I small business. He wanted it done to a month later, I felt privileged and would be paying rent and the rest of obtain visa for the U.S. As the happy. That day a new firm bearing the stuff. discussion progressed, I came to my name came into being. know that he was in import export Paraphernalia and financing: business of which he had not The Silent Vow: maintained any books. He went on to As the firm started rolling, I add what he wanted me to ‘show’ in I remember holding the practicing appreciated how important it is to his financial statements. certificate with reverence. When my have some kind of financial father (a physician) saw it, he asked arrangement available to achieve the The next one was a semi-qualified when I will be taking the oath. He expansion but who’s there to finance accountant who walked into my office. shared my faint disappointment when it? This is true for a green field office His purpose of meeting me was to conveyed that the chartered like my own or an established firm. I find out if I would be interested in accountants do not take a ceremonial have not heard of any bank providing ‘thapafy’ (certify without verification) oath like physicians, though both finance, possibly because a statements prepared by him for professions hold the element of practitioner like myself would not applicants of consumer loans from public interest supreme. have a collateral to offer. That may be commercial banks. Easy money for one reason why the growth of most one signature but guess not my type My first reading was the bulky code professional firms is so retarded. The of work! of ethics for the practitioners. I fact is any start-up firms goes through reflected on its application and a painful period during the initial In the times ahead, some good silently vowed never to let my years. Guess too much to expect our opportunities also came by going commercial interests come above the Institute to have some arrangements through press advertisements. Good professional ones. I felt a worthy in place to ease the process? to see that reading newspaper burden of trust and a collective became more interesting. It became responsibility placed on my shoulders Not to be deterred, my first act in a source for searching organizations in this new role, something I never office was to place a small portrait of searching for auditors. For example, I felt all the while I was serving as an a young and handsome Mr. was keen about developing audit employee. Mohammad Ali Jinnah, with brilliance expertise in educational institutions and inspiration radiating from it, on from schools to university, compatible Energising the firm: my desk. I have been a great admirer with my appointment in a panel of of his character and ability…wishing monitoring consultants by the Institute My first step towards my practice was to emulate it in my own humble way. for inspecting and reporting on to secure suitable rented premises. selected academic and financial Fortunately, the search came to a In action: aspects of private education fruitful end. I got a fine office at institutions registered for tutoring reasonable terms from an I remember my first audit job well. It students of first four modules. acquaintance. I wish I had the came as an audit of an employee financial prudence of saving enough provident fund scheme of a non- Even today, the newspapers continue in my earlier career to have bought banking financial institution. The next to be a valuable source. However, as the premises and save the rent. one was something similar from a software company. These kinds of a practitioner I found negotiating a fair The process of setting up an office audits became my principal expertise audit fee to be a major hurdle in most invariably involves higher funds than in years ahead. The issue was that such cases. This may be so because one would estimate; items required to these audits are annual events most clients do not see an audit as a make the office functional keep on lasting for less than a month. What value adding business activity, and in adding up, so does the cost. From should I be doing in the meanwhile? my opinion rightly so because an office fittings, furniture and computer audit is primarily a compliance to electric kettle all is necessary. I I started actively looking for more activity. Our only contribution as had to draw upon my savings to get it opportunities as external auditor. I auditors to the financial statements done but imagine what it must be like was aware that without quality ratings appears to be a The Pakistan Accountant July-Sep 2010 Page 15
  • 18. coVer STORY one-page standard audit report, which match those paid to an individual. The last audit when you start the audit for in principle is also correct. The emoluments of a ceo exceed those of the current year. Similar sob stories behind-the-scene endless hours of an auditor, without any exception, in from my network and one wonders if the auditor that goes into bringing the all cases I studied. The board of payment of audit fee is a priority at all rag-tag financial statements handed directors appear to be more generous for the client. over initially to bring it to the point than the shareholders who appoint where that to him and one-page- auditors in the general meetings. With time as the most precious standard-report appears respectable irreplaceable commodity a largely remains unacknowledged. Graceful reputable firms, with global professional has, there is no time to affiliations, who are in best position to waste on following up clients to pay The issue of audit fee and of its not command audit fee of their liking, if their dues. I decided to get paid in being paid: they find themselves often in such a advance. Some of my colleagues position, what would be the level of argued with me on charging fee in With only one in five chartered audit fee for the rest of us? In short, advance, even going on to suggest accountants in public practice and the minimum hourly rates, provided in that it is not permitted, but failed to they being only ones providing audit ATR-14, apply to the listed show me where it says so. Instead, service, the context is right for booming public practices. In addition there is ATR-14 that prescribes the minimum hourly rate for computing audit fee for accepting audits of companies only. However, the way the profession has evolved over last fifty less one year, its caretakers clearly failed to capitalize on its strengths. Many questions have remained unattended. For example, what about the audit fee of the entities other than companies? These concerns affect small and medium size and it practices most and have only cumulated over a period of time, resulting in unbelievably low audit fee. The severity of how low the audit fees are can be gained from studying the giants of the profession - from those who are in the best position to command a fair audit fee. let us do so by comparing the emoluments of companies only and even there it is as a counter-attack they would ask an external auditor and a chief not applied in majority of cases. I am me to show them where it is permitted executive officer of a listed company yet to hear any professional firm ever to charge audit fee in advance, or and see who’s getting a better deal. being reprimanded on this count to even half of it. The fact is that our convince me that the Institute while technical literature is completely silent Essentially we are profiling a awarding quality ratings considers if on the issue. professional firm, maintaining the audit fee is commensurate with international affiliation and technical the number of hours on-the-job. Beyond audits: human resource base, giving an Undercutting audit fee has become a independent opinion about the favourite pass time in which the Apart from audit, I did interesting due financial statements of a listed professional firms appear to be diligence assignments for acquirers. company and an individual who is the contributing or is it an indication that One such assignment was on behalf highest executive officer of a listed they are finding it increasingly difficult of a freight forwarding company for company. As to responsibilities, the to reach a break-even point. equity injection in a trucking venture auditor is bound by a code of conduct with another company. It turned out and follows certain technical Add to the issue of low level of fee the that major recasting and reformatting standards in giving his audit opinion. issue of not being paid for the of the key financial information was On the other hand, ever heard about services rendered in a reasonable required and about 50% more a code of conduct applying to the time. Clients somehow tend to go resources, for validating agreed-upon ceos in general or any ceo ever short on memory and priority about parameters. The Hobson’s choice being held responsible for whether the audit fee is paid, once was in doing a mediocre job and professional negligence? Given this, the audit report is signed. Infact, one attaining the standard I had in mind the sad fact is that the emoluments colleague shared that his clients are when accepting it. I concluded the paid to the audit firm do not even so spoilt that they pay the fee for the assignment with a financial loss but The Pakistan Accountant July-Sep 2010 Page 16
  • 19. coVer STORY with a professional consolation. research for individual clients. My first with latest technical developments in break through came from a accounting and auditing, specially as At this point my clients included discussion with a former colleague the practitioner ages. That the businesses where owners appointed who virtually became a victim of number of listed companies being me to act as a consultant and internal financial scam involving placing an audited by sole practitioners has auditors. Sometimes, I was applying amount with an individual for a high gone down is cited as evidence. my knowledge to present the most return. He was lucky to escape it and There is a limited amount of truth in it pressing business issues to the made it a point never to trust as well but you cannot ignore the owner independently, or analyzing individuals and was looking for some character of auditor out of this area sales receivables, or assistance in setting up an picture. Enron was not audited by a documenting year-end closing of the investment account with a broker, sole practitioner. accounts. advice on acquiring investments, and doing the keeping book-keeping. As a practicing member, it is also Meanwhile, extra effort in developing important to take charge of your own good rapport with fellow professionals We got the ball rolling by setting up professional development. There is a started paying off. I collaborated with an account with a stock broker of noticeable improvement in the stellar repute. Meanwhile, we technical literature coming out from defined his risk profile, the international standard-setters. The practice of auditing has become expected returns and However, the Continuing Professional sophisticated over last many years. investment strategy. We Development program of the Institute agreed upon certain has not shown much improvement in Regulators have started believing fundamentals, the foremost terms of relevance, contents, delivery that most sole practitioners find it being that we will not be and evaluation of participants. A clear increasingly difficult to be updated trading securities in short- exception to this general trend was a with latest technical developments in term. We will build his CPD program in which Mr. Ibrahim investment portfolio on a long- Sidat, FCA was invited to share his accounting and auditing, specially as term basis, buying experiences as a practitioner. I wish the practitioner ages. That the pre-determined equities at a such “tea sessions” can be a regular number of listed companies being reasonable cost with the monthly feature to groom objective of enjoying a steady practitioners. audited by sole practitioners has return with protection of gone down is cited as evidence. There capital as objective. The web offers most fantastic of is a limited amount of truth in it as opportunities to learn in your own Another avenue that time. In my case, I find myself well but you cannot ignore the somehow shaped during frequently visiting and commenting character of auditor out of this these years was imparting on the exposure drafts of the picture. Enron was not audited by a training. It started with a International Accounting Standards sole practitioner. session on ‘international Boards (www.ifrs.org) and auditing framework’ for junior International Auditing and Assurance joint directors at the State Standards Board (www.iaasb.org). other firm of chartered accountants Bank of Pakistan at the National on management consultancy Institute of Banking and Finance Meanwhile, my quest for fresh assignments, which kept my precious (NIBAF). I found myself designing learning took me to a post-graduated financial analysis and reporting skills courses for NIBAF in corporate diploma in Islamic Banking and crisp and relevant. governance, internal auditing, Insurance, clear the exams of international accounting, licensed International Financial One such assignment was to monitor consolidation, corporate valuation etc. Analyst, US and go for a law and report to a banking syndicate on This stream further developed when I graduation. I served uninterrupted as the cashflows of corporate entity on did a two day work shop for internal a humble worker in some committees monthly basis that had defaulted on a auditors of commercial banks as an of the Institute and also contributed a huge facility. The challenging part open-enrollment course. It is hard few articles for this magazine as well. was to wade our way through a work but much fun conducting an plethora of information, validating and activity as a facilitator than a Conclusion: presenting it in a manner that quickly participant and gaining CPD hours. informs the syndicate about the story Since then the training has been a looking back the past decade, being behind the numbers. Within six favourite activity. in practice gave me a new dimension months of this assignment the debt to look at life. Most experiences was renegotiated and the syndicate Professional Development: bought me immense satisfaction as a was able to claim most of the struck practitioner and an individual. amount. The practice of auditing has become looking forward, I see a realistic sophisticated over last many years. potential for the public practices all Sometime during this exciting period, Regulators have started believing that over Pakistan to grow well in the I started exploring the area of most sole practitioners find it coming decade. investment book-keeping and increasingly difficult to be updated The Pakistan Accountant July-Sep 2010 Page 17
  • 20. coVer STORY The evoltion of smps International Federation of Accountant’s President Robert l Bunting says “SMPs Should Evolve to Satisfy SMEs’ growing needs.” Small- and medium-sized practices (SMPs) today can no empathise with their clients’ resource constraints. This longer rely strictly on compliance work to pay the bills. The contrasts with very large practices where the focus is on reason why is simple: SMEs (small- and medium-sized large companies and SME clients may have to deal with enterprises) – the traditional client of the SMP – several departments. increasingly need a broad range of competencies beyond the core skill set of the small practice. At the same time, Building Trust the threshold for mandatory statutory audits has risen in But the assumption that SMEs nearly always choose an some countries and increases are under consideration in SMP is not correct. A significant proportion of the clients of many others. A fast-changing and complex regulatory large accounting practices – the Big Four and second-tier environment means that SMEs want their SMP to provide practices in most countries – are SMEs. These are more proactive business advisory services. SMEs need advice likely to have the resources and the benefits of economies that will help them generate business plans and financial of scale to offer services and products to meet their forecasts, identify and manage risk, define and implement clients’ accounting and other specialised support needs; in IT systems, and value the business. SMPs must evolve to fact, they often position themselves as ‘professional meet these growing needs or face dwindling clients and services supermarkets’. Many SMPs actually use larger revenues. A new study by the International Federation of firms to provide limited speciality services to their SME Accountants (IFAC) makes clear that smaller accountancy clients or as a technical backstop for their own client practices need to address their skills base, their working service work. While compliance work will remain hugely methods and their referral models if they are to meet the important for SMPs – accounting services and tax are evolving needs of the SMEs that are their lifeblood. The core services at all levels in public practice – technical study – The Role of Small and Medium Practices in competency and timely delivery in compliance work build Providing Business Support to Small- and Medium-sized trust and usually lead to requests for non-compliance Enterprises, written by professors Robert Blackburn and advice and support. This is a time-proven formula driven Robin Jarvis – points out that accountants are still SMEs’ in part by the nature of most small business owner- most frequently used source of advice. According to a managers, many of whom are determined to make all their study last year by the UK’s Open University, trade own decisions and avoid advertising any managerial connections, the media, family and friends are all weakness. In this kind of ‘fortress enterprise’ culture, many important, but none ranks as highly as the accountant. SMEs do not request advisory services until the expert SMPs are usually highly experienced in dealing with has already provided a specific demonstration of their SMEs and, as small enterprises themselves, can competency. The Pakistan Accountant July-Sep 2010 Page 18
  • 21. coVer STORY Becoming Knowledge Professionals provision of compliance services wins them ‘competence’ Business consulting services represent a crucial growth trust. area for SMPs. As mentioned at the start, the raising of the statutory audit threshold has diminished a key Responsiveness/ proximity: SMEs rate SMPs’ revenue stream for many SMPs and the market is responsiveness to their demands so highly that it can be increasingly competitive. As a result, if they are to thrive regarded as more important than a qualification or rather than merely survive, SMPs must diversify and competency. The geographical proximity of SMPs to their focus on other advice requirements for SMEs (or provide SME clients is also important. Many owner-managers audit services to larger companies). They must develop prefer face-to-face meetings with their advisers, and value their skills base beyond bookkeeping, tax preparation and ease of access. audit. In short, they must move from being accounting technicians to knowledge professionals. So how can Robert l Bunting SMPs overcome the unavoidable resource constraints in- became house and provide a range of services to their clients? president of the The most common model is to expand the technical and International soft skills of existing personnel. Some accountants can Federation of make the transition from ‘accounting expert’ to Accountants management adviser through experience and self (IFAC) in development. Others may need training or coaching to November 2008. grasp the necessary flexibility and an understanding of the He is a partner at context and cultural environment of the SME. For Moss Adams example, accountants might need to hone their where he served interpersonal skills or make time to discuss a client’s as chairman and succession planning (or other business advisory needs). chief executive Another common model is to focus on a specific industry officer from 1982 sector or speciality linked, for example, to the music to 2004. Moss industry or environmental legislation. This model usually Adams is a works best in large cities or where a particular industry is member of highly concentrated. But there have been successful Praxity (formerly cases where SMPs are willing to travel further to serve Moores Rowland their clients. A third model, which can be a standalone International) strategy or one that complements the first two, involves where Bunting the SMP participating in a high-quality referral network. served as Before using one, SMP owners should analyse the chairman from different types of networks and carefully consider how 1998 to 2004. From 2004 to 2005, Bunting was chairman they will monitor service quality and timelines for the of the Board of Directors of the American Institute of clients they refer. But referral networks offer SMPs many Certified Public Accountants (AICPA). Go to potential advantages: they are an effective way to satisfy http://ifac.org/SMP for more about the SMP Committee. the increasing breadth of demands from SME clients. They also offer the opportunity to gain clients through The Role of Small and Medium Practices in Providing referrals from other network members or to win new ones Business Support to Small and Medium-sized Enterprises due to their more extensive service capabilities. – by ACCA’s head of small business Professor Robin Jarvis and Professor Robert Blackburn of Kingston Why SMEs Use SMPs University and published by IFAC –is available for Competency: SMEs often lack the full range of download at http://web.ifac.org/publications/small-and- managerial expertise. Most outsource their financial medium-practices-committee/information-papers-3. management to SMPs with their required technical competencies and expertise in statutory audit and This article originally appeared in the ACCA's taxation. Accountancy Futures. Trust: As members of a regulated profession with codes of conduct, accountants enjoy ‘institutional’ trust. Their The Pakistan Accountant July-Sep 2010 Page 19
  • 23. coVer STORY An Interview with sylvie Voghel chair, small and medium practices committee international federation of accountants Q Q How does IFAC support Small- and While IFAC can do little to help SMEs How does the IFAC SMP Committee Medium-Sized Entities (SMEs) and directly - IFAC is not, after all, an operate and how is it resourced? Small and Medium Practices association of SMEs - IFAC (SMPs)? recognizes their importance and The IFAC SMP Committee was provides invaluable indirect support formed in 2004, and is now a A thriving SME sector is a vital part of to them. First, IFAC supports SMPs committee of 18 members from all job creation, social cohesion, (primarily through their member across the globe, with a wealth of innovation and economic growth. In bodies) so that they can provide experience in the SMP and SME many – if not most – countries around better services to their SME clients – sectors. We have formal working the world, SMEs represent the vast services that meet the SMEs’ needs procedures, project teams, a strategic majority of entities as well as the and are of high quality; this in turn and operational plan, a communications plan, and a full-time majority of private sector employment helps SMEs prosper. And second, senior technical manager. Our and Gross Domestic Product. IFAC supports professional strategy is two-fold. Firstly, we help According to the Organisation for accountants in business (again shape international standards – Economic Co-operation and primarily through their member primarily auditing and assurance, Development (OECD), SMEs account bodies), many of who work in SMEs. ethics and accounting – by providing for over 95% of enterprises and 60– Much of the support that IFAC input into the standard-setting 70% of employment in OECD provides for SMPs and SMEs comes process. We do this to ensure that countries. from the work of the SMP Committee these standards are relevant to SMPs that I chair. and SMEs and can be cost effectively applied. The Pakistan Accountant July-Sep 2010 Page 21