Download - Hong Kong Institute of Certified Public Accountants

SMPs and SMEs
ost small-
and medium-sized
enterprises
in Hong
Kong have a simple, if unchallenging, relationship
with their accounting firm. Each
year an accountant – usually a sole proprietor
or a partner in a small firm – files the
company’s audited financial statements and
tax returns.
Occasionally, a more ambitious company
seeks a loan from a third party, which
might involve the accountant presenting
the company’s audited accounts to the prospective
lender. Few SMEs demand much
more from their accountant; few small accounting
firms are able to provide much
more, anyway.
In most cases, it appears that small- and
medium-sized practitioners have been content
to continue with the business they have –
afterall, all incorporated companies in Hong
Kong have to be audited regardless of size.
“SMPs in Hong Kong continue to rely
heavily on audit and tax services as their
main engines of growth,” says Albert Au,
chairman and chief executive officer of BDO
Hong Kong and a past president of the Hong
Kong Institute of CPAs.
However, SMPs are facing a changing
world, especially since the global financial
crisis unfolded. Accounting firms increasingly
have to compete with cheaper alternative
service providers that can undertake bookkeeping,
tax and other non-audit functions
not statutorily required to be performed by
16 December 2012
CPAs. Such companies can charge up to 30
percent less than a CPA firm for a typical corporate
tax filing, accountants estimate.
Au, who is also a member of the Institute’s
SMP leadership panel, says small firms
will have to change their business model if
they are to flourish. “SMPs need to adjust
and find life after audit,” he urges.
However, SMPs say diversification isn’t
as simple as it sounds. “We all try to diversify
into non-audit work,” says Erik Cheng,
an Institute member who heads Erik Cheng
& Company CPA, an SMP in Wanchai. “However,
this is very difficult.”
The Institute’s definition of an SMP covers
a wide range of firms, from sole proprietorships
to medium-sized firms. As of 31
October, 1,054 firms (85.5 percent of the
Institute’s 1,233 member firms) are sole proprietorships.
A further 163 (13.2 percent)
have four or fewer CPAs as partners.
Size does matter, say CPAs, arguing that
diversification means adding to a firm’s headcount.
“We are not able to diversify into nonaudit
assignments owing to the lack of a supporting
workforce,” says Institute member
David Ng of K. H. Ng & Co CPA in Mongkok.
Business challenges
SMPs rely on business from Hong Kong’s
SMEs, a client base still feeling the effects of
the global economic downturn.
“SMEs have had to brace themselves for
a challenging 2012 in the wake of the euro
crisis and the U.S. economic recession,” says
Albert P. K. Lau, vice chairman of the Hong
Kong Small and Medium Enterprises Gen-
eral Association, the city’s small business
chamber of commerce.
The Hong Kong government defines a
SME as any manufacturing business employing
fewer than 100 people in Hong
Kong, or any non-manufacturing business
employing fewer than 50 people. That definition
fits about 98 percent of all Hong Kong
businesses, which together account for the
employment of 60 percent of the city’s workforce,
the association says.
While the 2012-13 government budget
alleviated some financial burdens on SMEs
through profits tax rebates and a waiver of
business registration fees, lobbyists, such as
the association, argue that most small businesses
in Hong Kong are under pressure.
The cost of professional services is a concern
for SMEs, according to Cliff Chan, chief