Small audit firms urged to merge

Saturday June 15 2013


Small audit and advisory firms in Uganda should merge to take advantage of emerging opportunities created by the growth of small and medium-sized enterprises.

These opportunities, said Capital Markets Authority chief executive Japheth Katto, arose from the cross-border expansion of SMEs that saw a rise in demand services such as investment advisory, negotiation of contracts and public relations.

“There are many small audit firms in Uganda that should consider merging so as to widen their product portfolio while minimising operational expenses,” said Mr Katto, speaking at the IFAC Small and Medium Practices Forum 2013 in Kampala.

Statistics compiled by the Institute of Certified Public Accountants of Uganda show that local audit firms had increased to 184 by the end of last year, from 176 in 2009, while staff numbers rose to 282 from 266 during the same period.

Industry watchers said that SMEs are facing new business challenges such as fundraising for fresh capital at stockmarkets, issuing corporate bonds and negotiating mergers and acquisitions.

“Regular evaluation of SME needs shows that certain services like arranging bank loans tend to generate bigger fees than average audit work,” said Fred Bawunha, managing partner at Bawunha, Badebye and Company Certified Public Accountants.

Some auditors are even forfeiting basic audit assignments for the lucrative advisory services, a sector which has in the past been dominated by large accounting and advisory companies.

The introduction of less prohibitive rules of entry into alternative investment market segments in regional stock exchanges is also expected to fuel demand for these services among SMEs.

For instance, a new trading platform introduced at the Nairobi Securities Exchange that allows small companies to list without attaining a solid profit history and the reduction in the minimum amount for raising debt capital on the Ugandan bourse — Ush500 million ($193,500) — are likely to whet the appetite for transaction advisory services.

Improved economic forecasts this year could also boost the fortunes of small audit firms and SMEs alike.

According to Gianfranco Attolini, chair of the Small and Medium Practices Committee at IFAC, about 33 per cent of accounting professionals around the world feel their economies are likely to do better this year, while 44 per cent of African accountants believe the continent’s economies are bound to surpass last year’s performance.

Big multinationals that prefer large global audit firms appear accustomed to procuring several service providers during the year but small audit firms have found themselves depending on SME clients that are less willing to contract multiple service providers.

“Tax consulting services are perhaps the most attractive products among SMEs. I have opted for gradual expansion of my services portfolio in order to tap into emerging needs like secretarial service,” said Julius Tumuhimbise, managing partner at Jim Roberts Certified Public Accountants, a small audit firm with less than a dozen employees.

He said that he prefers to retain a small but stable core team that can withstand frequent shocks from employee turnover while at the same time meeting the needs of SMEs rather than run a large advisory service.