Small and medium practices (SMPs) face a growing list of challenges. They have to keep pace with ever-changing regulations and standards, while also finding ways to diversify their income. Meanwhile, they have to continue serving their existing clients and respond to the evolving business environment – all without the level of resources larger firms enjoy. The Hong Kong Institute of CPAs has a Small and Medium Practices Committee (SMPC) to help members in this sector address these challenges.
Committee member Elizabeth Law, Managing Director, Law & Partners CPA Ltd., says: “Our main focus is to help fellow small practitioners. We look into whatever areas they need our help with, from technical areas, to networking in Mainland China and other parts of the world.” She points out that SMPs make up more than 95 percent of firms registered with the Institute, and these firms have very different needs compared with the Big Four, as they do not have the resources or specialist partners to provide their own expertise on the many different areas they need to look at.
Speakers: (From left) Gary Poon, Partner, Poon & Co. and member of the Small and Medium Practices Committee (SMPC); Larry Cheng, Managing Director, Wise Diligent CPA Co. Ltd. and Chairman of the SMPC; Alan Chan, Sole Proprietor, Alan Chan & Co. and Deputy Chairman of the SMPC; Edmund Wong, Practising Director, Patrick Wong CPA Ltd. and Deputy Chairman of the SMPC; Elizabeth Law, Managing Director, Law & Partners CPA Ltd. and member of the SMPC.
Gary Poon, Partner, Poon & Co., a member of the SMPC and a former Deputy Chairman, adds that while the Institute has a statutory duty to regulate its members’ professional conduct and standards, it is important that it strikes a balance between its regulatory duties and offering members support and services. Committee Chairman Larry Cheng, Managing Director, Wise Diligent CPA Co. Ltd., and a Council member of the Institute, agrees: “The Institute actually requires very high standards from SMPs, so it is important that it has a committee to help SMPs uphold those standards.”
“The Institute actually requires very high standards from SMPs, so it is important that it has a committee to help SMPs uphold those standards.”
Larry Cheng, Managing Director, Wise Diligent CPA Co. Ltd.
Listening and responding
To help gauge the needs of its members, the SMPC carries out regular polls, surveys and information gathering exercises. It also hosts regular events and has five discussion groups, each made up over 130 members, to solicit feedback and input from SMPs. Issues identified through these channels are then flagged up to the relevant committee or working group within the Institute. “In recent years, the top issues that have been flagged up are keeping up with professional standards and regulations, talent management, new technology and diversification,” Poon says.
The discussion groups also serve as a forum to communicate high standards. Cheng explains: “Every group has leaders, and they are usually very experienced SMP owners. Through the groups they demonstrate high standards and share their behaviour or attitude with the younger members in the group.” Poon agrees: “Seasoned members share their training and experience to highlight core values to members and how they can be achieved at a high level.” Alan Chan, Sole Proprietor, Alan Chan & Co., Deputy Chairman of the SMPC, and a Council member of the Institute, adds that the discussion groups also serve as an important platform in which experienced practitioners can help newer ones. “They always have lots of questions about IT, new legislation, and new accounting standards.”
For Edmund Wong, Practising Director, Patrick Wong CPA Ltd., and Deputy Chairman of the SMPC, the discussion groups can help by having experienced practitioners answer questions informally. “Because the Institute is a regulatory body, if they answer technical queries, they may have to do so in their regulatory role,” he says, noting that these practitioners often have knowledge and experience about technical issues.
The SMPC does more than organize discussion groups. Wong explains that several years ago, the SMPC highlighted the fact that SMPs were struggling to recruit talent. Its observation led to the Institute’s online job listing portal HKICPA Source being launched, while the Career Forum also invited the committee to set up a booth at its event to encourage talent to apply to SMPs.
The SMPC’s flagship event is the SMP Symposium, which is held every November. Cheng says: “During the full-day event, we update our members on technical aspects, such as new standards relating to financial reporting or tax filing, and introduce practice management and audit software. Last year, we also asked CPA firms who have already used IT to enhance their audit to share their experience.” The event last year, held virtually due to COVID-19, attracted over 700 participants.
The SMPC also works to help strengthen the core values of SMPs, such as competency, integrity, professionalism and objectivity. Poon says: “We carry out many training events on these core values, especially on ethical and auditing standards where these core values are most applicable.”
The committee works closely with the Institute to ensure its projects, activities and the continuing professional development programmes it offers are relevant to SMPs. Cheng explains: “Every year, the committee has a work plan focusing on the different areas we want to target. We also suggest areas [to the Institute] on which to hold seminars or issue circulars.”
Alan Chan, Sole Proprietor, Alan Chan & Co.
Contributing to the development of the profession
The committee has representatives on the Institute’s three standard setting committees, the Auditing and Assurance Standards Committee, Ethics Committee, and Financial Reporting Standards Committee, to enable it to pass on current information in these areas to SMP members. The SMPs on these committees can also flag up to the Institute any issues SMPs are encountering says Cheng.
Chan thinks it is particularly useful to have members of the SMPC sitting on task forces, advisory panels and working groups covering specialist areas of the industry, such as the Insurance Regulatory Advisory Panel, as it is difficult for SMPs to keep pace with changes in some of these areas. The committee also supports the Institute’s representative on the International Federation of Accountants’ (IFAC) Small and Medium Practices Advisory Group. Poon says: “The SMPC’s working groups and the Institute’s management carry out appropriate research and put together timely input and feedback so that our representative can play a vital role in making our views and opinions heard at the international level. In recent years, IFAC has taken up several of our suggestions including on the need for standalone standards for the audits of less complex entities.”
Cheng adds that reforms currently being considered by the International Auditing and Assurance Standards Board on the audits of less complex entities are likely to have a big impact on SMPs. “We have a representative at IFAC who reports back to us quite frequently, so we get to know the most up-to-date information,” he says.
Edmund Wong, Practising Director, Patrick Wong CPA Ltd.
Handling the technical challenges of SMPs
Unsurprisingly, a significant part of the SMPC’s work is helping SMPs respond to technical requirements and new standards. “The ever-changing standards are the biggest challenge to SMPs. We have to face new tax requirements, new anti-money laundering requirements, new ethics standards, accounting and auditing standards, and they all come at the same time. We have to understand everything and explain it to our clients,” Law says. Cheng points out that in 2025, the Inland Revenue Department (IRD) will launch its electronic filing system to replace paper forms. “For the new system, we need to prepare data in eXtensible Business Reporting Language (XBRL) format and upload it to the IRD system. This change may be a challenge for some practitioners because we don’t have that experience. Many don’t know how to do tagging or what XBRL is. It is a new idea to SMPs.” Chan agrees, pointing out that SMPs will have to file digital tax returns on behalf of their clients. “Electronic filing is a big issue for SMPs,” he says. To help with the transition, the Institute has a representative on the IRD panel about tax filings to provide feedback.
To help SMPs with technical changes, the SMPC has a Working Group on Technical Issues, chaired by Poon, to provide input, feedback and advice on technical publications and new standards. It also submits views on exposure drafts, consultations, requests for information, and post-implementation reviews both before and after professional standards and regulations are issued. Poon gives the examples of professional standards drafted or promulgated by the Institute, the Companies Ordinance, and the Anti-Money Laundering and Counter-Terrorist Financing Ordinance (AMLO) as recent areas it has provided comments. Furthermore, it assists in developing practice tools for the implementation of professional standards and regulations. Wong says: “The code of ethics, accounting standards and auditing standards are the same for the Big Four and SMPs. But SMPs lack resources and they do not have technical partners.” As a result, Chan says the discussion groups are particularly helpful to SMPs in obtaining the information they need about technical changes.
Last year, the SMPC also launched a new initiative called Members-Help-Members, to offer non-authoritative guidance for SMPs on technical issues. SMPs can submit questions about issues they face through an online platform. Dedicated members from the Working Group on Technical Issues, mainly technical or managing partners, may answer questions that are frequently asked and of common interest and share their knowledge and experience during an online sharing event, one event was held last year, which was well appreciated by attendees, and next is scheduled for June this year.
SMPs are also represented on various government liaison groups to voice the concerns of SMPs about technical issues. Recent changes announced regarding access to the Companies Registry database may create problems for SMPs, who may need to do company searches during audits to verify related party transactions. Chan points out that auditors are also required to do due diligence under the AMLO, but this could become more difficult due to the restrictions. The Institute is gathering information and comments from different sectors to assess the impact on the profession.
Elizabeth Law, Managing Director, Law & Partners CPA Ltd.
Business development
Alongside responding to technical challenges, the committee also helps SMPs with business development and digitalization. “Digitalization is one of the key trends for SMPs. We are facing a lot of data and we need to do audits in a smarter and more efficient way,” Wong says. He adds that the committee uses the SMP Symposium to promote the use of different auditing software and data analytics software, while it is also looking into how the Institute can make the Audit Practice Manual compatible with the audit software from third party providers.
The SMPC has also set up a Working Group on Practice Management to promote the use of better practice management tools among SMPs and to help them digitalize. “We are trying to make auditing more interesting to young people to attract them to join the industry,” Cheng says.
The committee is also helping SMPs address some of the challenges created by digitalization, such as the fact that audit clients who have gone digital no longer have audit evidence such as paper invoices and delivery notes. Cheng says: “How you can do an audit when you don’t have physical documents is something we have put on our SMP Symposium agenda this year. We will be holding training talks for members, so they can keep up with the market and still meet audit standards.”
“Digitalization is one of the key trends for SMPs. We are facing a lot of data and we need to do audits in a smarter and more efficient way.”
Gary Poon, Partner, Poon & Co.
Tapping into opportunities
Poon points out that while Hong Kong’s statutory audit requirement gives SMPs a steady business stream, diversification of service lines continues to be a growing trend around the world. Setting up additional service lines, such as valuations, internal control, environmental, social and governance (ESG) reporting, company secretarial work and IT consultancy is a great opportunity for SMPs. “These are high growth areas that firms should explore to make their business more profitable,” he says. Cheng agrees, noting that SMPs should not be reluctant to take up new lines of service, as they currently have a big opportunity to help their clients go digital. “With COVID-19, a lot of small and medium enterprises have realized the importance of doing things digitally. If they migrate their trading and inventory management systems online, their accounting systems will need to be moved online and integrated as well. This kind of consulting and implementation work is one of the greatest opportunities for SMPs,” he says.
The Institute offers a range of training programmes, including in forensic accounting, business valuation and ESG, to help members move into these areas. Wong points out that SMPs can also tap into the Institute’s From CPA to CPA Plus programme to help them offer more diversified services. “Our clients treat us as business advisors because of our insights and experience from audit work and our professional knowledge. The most important thing for us is to keep learning and changing our mindset, and as well as audit, offer non-assurance services,” he says.
Chan points out that the growing number of companies being set up in Hong Kong, particularly those coming from the Mainland China, creates opportunities for SMPs. He adds that this is likely to increase once COVID-19 travel restrictions are lifted. Meanwhile, to help SMPs access opportunities outside of Hong Kong, the committee has set up a Working Group on Co-operations with Mainland SMPs. “It is a good relationship, and it helps SMPs expand their client base and have more cross-referrals,” Law explains. Cheng agrees: “I joined the Greater Bay Area (GBA) visit and got to know practitioners in Shenzhen, and they refer clients to me who want to set up business in Hong Kong or have companies in Hong Kong that need to be audited. It was very successful.” The Guangdong-Hong Kong-Macau CPA Practices Alliance helps to forge similar links. Chan urges SMPs to also look beyond the GBA to other cities in Mainland China, and with this in mind, the committee has set up a number of alliances, such as with the Beijing Institute of CPAs and similar groups in other Mainland cities. “The customer drive is very strong. There are more and more enquiries. But if you want to do business in the GBA or elsewhere in the Mainland you need to know a lot and update yourself every day,” Chan says.
Wong points out that many Mainland firms want to use Hong Kong as a platform to expand their business internationally, while Cheng adds that the new private equity fund regime in Hong Kong is likely to lead to an increase in private equity firms from Mainland China setting up a base in the city. At the same time, COVID-19-related travel restrictions have meant that Hong Kong SMPs have needed help performing physical inspections in Mainland China such as stock taking, and the committee has been able to put them in touch with Mainland firms that could help. Conversely, many international companies see Hong Kong as being a gateway into Mainland China or Southeast Asia and are setting up a base here. “It is a great opportunity for SMPs in Hong Kong, and the committee can help them to get ready for this new boom in the Asian region,” Law says.
Last year, the Small and Medium Practices Committee launched a new initiative called Members-Help-Members, to offer non-authoritative guidance for small and medium practices (SMPs) on technical issues. SMPs can submit questions about issues they face through an online platform. A sharing session is scheduled for June this year.
