SMEs And The Accountant – Challenges And Opportunities

One of the most fundamental activities of any business entity, financial reporting, is often the one fraught with the most challenges. This is specially true when we consider SMEs and microenterprises. The role financial experts and auditors play in ironing out the wrinkles, managing and ‘fixing’ the discrepancies is crucial. An individual educated and trained to understand the niceties of financial reporting and regulations can make the difference in assessing and analyzing the areas within an organization that require improvements. ACCA organized an Accountancy Futures Symposium on November 25, 2010 at the Marriott Hotel in Karachi. The event consisted of several panel discussions about the challenges that accountants and organizations face in today’s turbulent financial environment.

SMEs and Family Businesses

One of the major challenges that auditors and accountants face is a trust deficit between them and the entrepreneur. Entrepreneurs tend to question the loyalty of external accountants and question whether they can be relied upon with such sensitive information. This gives rise to a growing disparity between the organization’s and the accountant’s strategic paths, and hence, to conflicts. These certified accountants are trained to use standardized forecasting and reporting tools and methodologies. They have a much better understanding of the financials side of businesses in general and specialize in extracting useful information from a hodgepodge of numbers; information that is vital for an organization’s success or even survival.

Mr. Monis Rehman, CEO of Naseeb Networks, pointed out, “This trend is gradually changing. Accounts jobs are very sophisticated now. We receive over a hundred accounts related job advertisements everyday, and on an average, 30 of them are from SMEs. SMEs are beginning to realize the importance of having proper financial reporting and auditing protocols, a proper system in place.” SMEs typically have very limited resources when compared to larger organizations. They need to ensure a constant supply of working capital and this is where the accountant comes in.

Mr. Moin M. Fudda, Country Director of the Centre for International Private Enterprise (CIPE), specified, “80 percent of the SMEs registered with the Securities and Exchange Commission of Pakistan are family businesses. Most family businesses hire their own relatives to fulfill certain roles but this trend is gradually changing. SMEs are beginning to understand that an accountant’s competency can give them a cost advantage.” This advantage can be translated into investments by venture capitalists, international expansion opportunities and a number of partnerships within the local and national markets.

Competitive Advantages and Long Term Gains

At the end of the day, the numbers make all the difference. A non-qualified “accountant” can’t generate the same quality of reports as someone who has been trained to do so, using modern, industry standards and tools, who has a better understanding of the regulations and policies prevalent in the current financial environment. When a micro or small enterprise needs to grow, it needs capital, and when you go to a venture capitalist, you need to have the proper information and the right answers to their questions. The only way you can answer those questions correctly is if you follow international standards and know how to extract that piece of information from your financial records. Having the right person generate standardized and accurate reports is crucial and this is they shine.

Mr. Abrar Hasan, CEO of National Foods Limited, stated, “A clear vision and a proper code of ethics are the most fundamental tools a business can have. Most SMEs simply overlook them and this results in a number of discrepancies and issues.” Other reasons for this trust disparity are double bookkeeping and tax evasion. An audience member pointed out one possible solution to this problem as proper documentation on the accountant’s part. They need to understand the importance of following a proper code of ethics and the legal ramifications of deviance. In the simplest terms, a proper code of ethics improves the organization’s transparency and long term performance. Mr. Abrar added, “Tax evasion is an easy way for an SME to save some money, they will naturally be attracted to it. Tax holidays are vital to curb this. Corporate governance, as well as governance within the government are also necessary to address this issue.”

Changing Roles Of The Accountant

Another aspect of being a part of an SME is the roles an accountant plays in the development and growth of that organization. If the accountant knows the enterprise well enough, it will reflect in the accuracy of their reports because they will consider business dynamics as well as the influencing market forces. SMEs too need to play their part and need to understand the importance of adopting international accounting standards and best practices. Most SMEs often assign multiple roles to their financial heads such as managing the human resources of the organization as well.

Gender bias is perhaps one of the most crucial elements that every organization must consider. To this point, Mr. Monis clarified that only 19 percent of the job advertisements they receive at Rozee.pk are for female candidates. The others specify that they are looking for male candidates, either covertly or openly. Ms. Ayla Majod, vice chairman of ACCA Pakistan’s Members Network Panel commented, “This is where organizations, human resource and professional bodies, and Generation Y in general need to voice their opinions. They need to challenge this system and bring about change.”

Finding the Balance

Looking at these challenges, it is imperative for auditors and accountants to stay up to date with international best practices and policies when it comes to financial reporting and forecasting. They need to stay in tune with the standard tools used globally and need to have a clear understanding of the regulatory system of their market. The SME-accountant relationship ensures mutual growth and benefit if both learn to trust each other, and align their values so that they gain a competitive edge in theirs and the international market. After all, today’s SMEs and accountants are tomorrow’s conglomerates and CFOs!