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Discussion Forum on the Survey Result of Practice Management Benchmark For Small and Medium Sized CPA Firms Presentation of findings Date: 8 th November.

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Presentation on theme: "Discussion Forum on the Survey Result of Practice Management Benchmark For Small and Medium Sized CPA Firms Presentation of findings Date: 8 th November."— Presentation transcript:

1 Discussion Forum on the Survey Result of Practice Management Benchmark For Small and Medium Sized CPA Firms Presentation of findings Date: 8 th November 2005 Prepared by Market Insights Group

2 2 Agenda Introduction –Mr. Paul M.P. Chan Chairman, Small and Medium Practitioners Committee (“SMPC”) Brief Background to the Study –Mr. Albert S.C. Au Convenor of Practice Management Task Force, SMPC Highlights of Results –Mr. Albert S.C. Au Convenor of Practice Management Task Force, SMPC –Mr. Thomas Y.T. Wong Convenor of Survey Focus Group, SMPC Open Discussion

3 3 Classification of SMP firms on the survey Firms in the report were classified according to total fee income level. Forty-five percent of participating firms have been operating for 11 years or more and 55% are 10 years or younger. Most firms with less than 5 years experience fall into the S1 or S2 tier levels. SizeCategoryDefinition Proportion of sample Sample size Small S1Less than HK$1 million annual fee income26%44 S2HK$1 million to less than HK$2 million annual fee income20%34 Medium M1HK$2 million to less than HK$5 million annual fee income25%42 M2HK$5 million to less than HK$20 million annual fee income22%37 M3 HK$20 million plus annual fee income7%12

4 4 Performance management - revenue, profit and growth Sources of fee revenue and growth areas Main sources of Fee revenue (as proportion of total fees) –Auditing & Assurance Services (57%) –Company Secretarial Services (15%) –Accounting & Bookkeeping Services (11%) –Tax services (9%) Areas of fee revenue growth: 1.Auditing & Assurance Services 2.Tax Services 3.Company Secretarial Services 4.Accounting & Bookkeeping Services 5.Business Consulting

5 5 Performance management - revenue, profit and growth ’03 to ’04 changes in revenue and profit A majority of firms (66%) experienced an increase in fee revenue over 03/04: 28% increased by more than 11% compared to FY03. 8% percent of firms did not experience a change in fee revenue. 27% experienced a net decrease in fee revenue Larger firms tended to report greater increases in revenue Around two-thirds of responding firms (64%) reported an increase in net profit over this same period: Most commonly in the range of ‘1 to 5%’ (24% of all firms). A sizable minority (14%) reported increases in profit of more than 30%.

6 6 Performance management - revenue, profit and growth Changes in fee revenue and business confidence Majority of respondents indicated that they intend to increase fees in 2005. –Firms not intending to increase fees cited the competitive market as the main reason (37%), although impact on client’s continued patronage was also a factor (22%). –Firms intending not to increase fees were predominately within the S1 and S2 fee tiers. Overall, the business outlook amongst participating SMP firms in Hong Kong is positive. –42% rated the business outlook as optimistic –49% rated the business outlook as neutral –10% view the business outlook pessimistically

7 7 Performance Management - costs Performance Management – Costs Composition of costs as proportion of total cost 1.Professional salaries (excluding equity partners) (36%) 2.Administration expenses (18%) 3.Occupancy costs (16%) 4.Non-professional salaries (14%) The proportion of costs devoted to professional salaries (excluding equity partners) increased by fee revenue tier level. Both administration expenses and occupancy costs decreased as the size of firms increased.

8 8 Performance Management - costs Performance Management – receivables On average: – 44% of receivables are current –26% were 31 to 60 days –16% were 61 to 90 days –14% were over 90 days A majority of surveyed SMP firms (86%) wrote off 0-4% of bad debts as a proportion of total fee income Some respondents charge interest on receivables.

9 9 Human Resources Management Partner-Professional Staff Ratio Average partner-professional staff ratio for surveyed SMPs is 4.4 The ratio increased according to tier level. –S1 firms have a ratio of 1.0 –S2 firms have a ratio of 1.8 –M1 3.7 –M2 7.7 –M3 12.2

10 10 Human Resources Management Salaries Overall, average annual salaries within responding firms increased with level of staff experience. In 2004, the average increase in annual salary between new recruits (HK$97,000) and professional staff with one to two years experience (HK$125,000) was over 20 percent.

11 11 Human Resources Management Charge Out rates The average charge out rate increased with level of experience. The increase between each two year experience category is approximately aligned with increases in salary at those levels.

12 12 Human Resources Management Staff Training 84% of participating firms offer examination leave 54% offer a training subsidy 30% offer reimbursement of examination fees Most firms (40%) have professional staff taking between 21-40 hours of training in 2004 –Approximately one third of surveyed SMPs had staff taking less than 20 hours for the year ended 2004 –Staff at smaller firms tended to take less training hours The most effective training programs were seen to be those developed in-house (93% satisfied) –Other professional accountancy bodies (91% satisfied) –HKICPA training programs (86% satisfied) –Local university training programs (76% satisfied)

13 13 Human Resources Management Recruitment of trainees Importance of sources for new staff 1.Local universities 2.Other tertiary institutions in HK 3.Overseas tertiary institutions –Smaller firms tend to see ‘other tertiary institutions’ as most important source, while larger firms see local universities as most important source. –Sources in general fulfill expectations, and satisfaction with new trainees is similar, regardless of their source Importance of methods for recruiting new staff: 1.Newspaper advertising 2.Online advertising 3.Referral 4.Professional recruitment agency The difficulty in recruiting staff is highest for staff with 3 or more years of experience.

14 14 Human Resources Management Audit Staff The number of new staff recruited within the first six months of 2005 was higher than the number of staff leaving, indicating net job growth –Most firms had staff vacancies as at 30th June 2005. –Average of 1.1 vacancies per SMP firm in the sample - higher amongst larger firms (7.3) but the ratio of audit staff to vacancies similar across size tiers.

15 15 External relations and service development Business alliances and Mainland One-third of the participating SMPs have a business alliance: –Auditing & Assurance Services (24%) –Tax Services (21%) –Company Secretarial Services (19%) One out of five responding SMP firms has a business alliance in Mainland China. –‘Pearl River Delta’ (19%). –Beijing / Shanghai (both 8%) More than half (56%) intend to develop the Mainland China market –‘Business alliance’ (34%) –‘Accounting affiliation’ (31%) –Set up own consulting firm within Mainland China (20%)

16 16 External relations and service development Sourcing of new clients Hong Kong considered the most important location for new clients: 1.Hong Kong 2.Mainland China 3.Overseas 4.Macau By far, the two most important sources for new client referrals were existing clients and friends. 1.Existing clients 2.Friends 3.Legal firms 4.Other accounting firms 5.Financial institutions 6.Walk-in

17 17 External relations and service development New services and promotional channels One quarter of firms introduced business consulting services in 2004. –16% introduced corporate finance and advisory and/or accountancy and bookkeeping services. 15% introduced tax services –Small firms more likely to have introduced new services in 2004 than large firms (who probably already offer the services) Most important channel for promotion of services is by far, networking through professionals 1.Networking through professionals 2.Attend / deliver speeches at conferences 3.Networking through industry associations 4.Community services Nine in ten firms deploy office applications and accounting software Two-thirds have corporate email (with corporate domain name) Around one third have a LAN / and or corporate website Not suprisingly, larger firms tend to deploy more technology

18 18 Response to the survey Overall response rate was around one in seven SMP members. In terms of the response to the survey: –67% exceeds expectations –12% meets expectations –7% below expectations 86% indicated an intention to repeat the survey again next year Around a dozen suggestions for improvement –More detail –More information on clients –Breakdown of salary / charge out by service type –Too long –Better definition and scoping of what is an SMP

19 19 Disclaimer Any opinions, findings, conclusions or recommendations expressed in this report / any event organized under this Project do not reflect the views of the Government of the Hong Kong Special Administrative Region or the Vetting Committee for the Professional Services Development Assistance Scheme. 在此刊物上 / 任何的項目活動內表達的任何意見、研究成果、結論或建議,並不代表香港特別行政區政 府及專業服務發展資助計劃評審委員會的觀點。 Any opinions, findings, conclusions or recommendations expressed in this report / any event organized under this Project do not reflect the views of the Hong Kong Institute of Certified Public Accountants. 在此刊物上 / 任何的項目活動內表達的任何意見、研究成果、結論或建議,並不代表香港會計師公會的 觀點。


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