SMPs Adapting to the Economic Turbulence and Laying Foundations for Sustainable Growth Presented by : Albert Au, Hong Kong Institute of CPAs Venue: IFAC SMP Forum, Beijing Date: 28 October 2009

2 Summary  Impact of the economic crisis  On the Hong Kong economy  On SMPs in Hong Kong  SMPs: adapting to the economic crisis and laying the foundations for sustainable growth  HKICPA’s response to the economic crisis

3 Impact of the Economic Crisis on the Hong Kong economy  Started about 3 months’ later than in the USA/Europe  Less impact in Hong Kong, but still very significant  Benefit of the economic stimulus measures of the mainland  Some positive signs of recovery:  Rising residential property market and prices  Hang Seng index positive: - 30 September 2009: 20, October 2008: 11, September 2008: 18,016

4 Impact of the Economic Crisis on the Hong Kong economy  But the real economy is not recovering  Exports fell 13.9% from August 2008 to August 2009  Seasonally adjusted unemployment rate in Hong Kong  June – August %  June – August %  The worst has not yet been seen

5 Impact of the Economic Crisis on Hong Kong SMPs A delayed impact on SMPs which will last for another year at least  Reduction in clients’ business activity  Pressure on fees  Decreased staff turnover  General uncertainty

6 SMPs Adapting to the Economic Turbulence How should SMPs adapt?  By getting closer to clients  Deliver greater value to clients  Raised awareness of professional issues  Sound practice management  Essential to maintain professional integrity  Sound practice management

7 SMPs Adapting to the Economic Turbulence Deliver greater value to clients  Develop and offer  new, value added services  specialist services  Better service delivery

8 SMPs Adapting to the Economic Turbulence Raised awareness of professional issues  Know your clients and your clients’ businesses better  Responding to the heightened risk of fraud in clients’ businesses  Appropriate assessment of clients’ businesses as going concerns  Maintaining professional standards in the face of downward fee pressure

9 SMPs Adapting to the Economic Turbulence Sound practice management  A well defined business strategy  Controlling costs  Ensuring sufficient liquidity  Improving efficiency  Speed of work, billing, payment by clients  Actively managing the risks

10 Laying the Foundations for Sustainable Growth Sustainable SMP growth  Adapting to the challenges will also lay the foundations for sustainable growth  Leadership in charting the way forward

11 HKICPA’s response to the economic crisis Primary focus: providing professional technical support  Events and correspondence focusing on key topics of heightened relevance in the crisis  Challenges in auditing fair value estimates  The auditor’s responsibilities to consider fraud  Going concern / liquidity risk considerations  Accountants’ reports on solicitors’ accounts  E-correspondence to all members explaining the reasons and rationale for the amendments to IAS 39 and HKFRS7.

12 HKICPA’s response to the economic crisis Primary focus: providing professional technical support  Financial reporting and auditing alerts  SMP/SME resource centre on HKICPA website  Promotion of new areas of work for members (eg HKID Capital Investment Entrant Scheme)  Investment initiatives to enhance technical training and support

13 Thank you Albert Au Member, IFAC SMP Committee