By Chandeepa Wettasinghe
Mirror Business sat down for a brief interview on small and medium enterprise (SME) accounting with ACCA President Datuk Alexandra Chin, who is the fourth woman to become the leader of the London-based apex global body for professional accountants. Hailing from the Malaysian state of Sabah in the island of Borneo, Chin started her own SME accountancy firm in 2006.
SMEs find it difficult to go to banks for loans. Why is that?
SMEs are in different sizes. The small ones will go for microfinancing because access to finance is a bit challenging. But some of them are able to take big loans. As accountants, this is where we come in. We prepare the papers. The bankers and other stakeholders want a whole wealth of information.
One of my core offerings to SMEs is advisory, besides the assurance and taxation side. So for me, our training has put us in a very good position to help them to apply for all these loans.
Should SMEs have institutions catering exclusively for them?
Yes, we have that in Malaysia. I think that is one way that you can get them really preferential rates and easy access to funds. And you need somebody to guarantee. So we have another government body coming in as a guarantor. Without the financing part, it is very difficult to grow.
What are some of the other challenges faced by SMEs?
SMEs are business oriented. Only thing is they’re smaller in size. They have the same challenges faced by the big organisations - changing economies, business landscapes and the technology. There are a lot of other things too, like the regulations.
SMEs may think that it’s too expensive to hire a professional accountant. Will it be worth the cost to engage a professional accountant?
At ACCA, our students are trained under nine pillars of competence to be a complete finance professional. So, I think it has to do with competence rather than just the fees.
There are two sides to professional accountancy services. One is the compliance side where you file the tax returns. The other is the advisory side, about the bank facilities and how to grow. Even nowadays there are SMEs who think they want to expand to international activities. But, compliance is mandatory. I don’t know about Sri Lanka, but in Malaysia it is so.
In Sri Lanka, most SMEs don’t follow that.
You need to be audited. I was speaking to one of your chartered accountants. The accounts need to be audited.
Yes, but they are audited by registered auditors, who are different from chartered accountants. The auditors say that they will charge a bit extra to evade taxes, but the taxes are lower than their charge. So do you think SMEs need to come under the same company law?
I think this is a challenge in many countries. The business people are not aware. They don’t know the difference between competent accountants who can help them and provide more than just compiling of accounts, compared to somebody who is an unlicensed accountant. Awareness has to come in.
Basically, for any business, I would still say, that it pays to go to a professional accountant. We’re trained. We have the competence. You may get away with what you’re doing, but eventually, the law will catch up with you.
So, compliance is mandatory. You need to do tax returns; you need to do company returns. You need to be audited.
In other countries, has the government brought in the initiative to include SMEs in legislations, or have the accounting professionals raised the issues to the government?
In Malaysia, the government gives a lot of support to SMEs because they realize SMEs are the backbone of the economy. So, the government comes up with a lot of incentives to help SMEs. But of course, for the practitioner, the national body for accountants gives us training if there are new accounting standards coming in. The government will give some subsidies to train the accountants, so that they can help their clients.
As far as the law is concerned, the income tax law, the company law, there is no difference. This is where the government, with their own initiatives comes in and subsidizes training for the accountants.
If SMEs don’t go for a professional accountant, what challenges will they face in the future?
From my experience, we have encountered some who have not been using qualified accountants, and they end up having trouble with the tax authorities and the banks. The banks say, ‘You don’t have any documents’ or ‘With these documents, you can’t get a loan. History shows that you aren’t even capable of servicing the loans’. So, that is the downside of it. If you come to a professional accountant and sign your accounts, the banks will at least say ‘Oh, this is properly audited and signed by a professional’. It adds value to your accounts, and in the long run, the SMEs will realize the value.
We’ve seen in many of our clients, when they reach a certain scale, they feel like they need a professional accountant, without whom they can’t expand.
If clients come to the accountants, then slowly, they will get woven into the regulations.
Some SMEs, especially in the rural areas, don’t know that accountancy institutes such as these exist. So how can they go about getting your services? Is ACCA doing something to reach out to them?
I can cite an example from Zambia, where they started an accountancy clinic which brings SMEs and ACCA members together. Our ACCA members work as volunteers to work on company profiles, business plans and other simple requirements. That has been quite successful. ACCA is a global brand, so even though we started in Zambia, we will slowly pick up in the other areas.
ACCA has a lot of research in areas relating to the challenges of SMEs. The accountants who are catering to SMEs are called SMPs—Small and Medium Practitioners. So ACCA has done a lot of research and brought in fresh thinking to identify the potential challengers to help our members who are SMPs.
What challenges do chartered accountants encounter when dealing with SMEs?
We like to use the phrase ‘Trusted Business Advisor’ to describe ourselves. So, today with globalization, we always have to be in the forefront. We need to know what’s happening to be able to advise our clients and tell what they need to know. They rely on us to advise them. Today with all these globalized regulations coming in, we need to be flexible enough and adapt ourselves to help our clients.
Do accountants feel like it is less lucrative giving their services to SMEs compared to large corporations?
I wouldn’t think of it in that way personally because my clients are SMEs. But I also think we are trained to be able to help this group of SMEs, and mind you, some of them are not small. Some of them are really not small. In some countries there are no audit exemptions. If you are a private entity, you have to be audited. But as for accounting standards, we have a different set of accounting standards. The IFRS is for the big boys, and another set for SMEs, which is simpler and easier. So when you compare the time cost and the risks, it’s similar.