2.1 Medium-sized Practices (SMP) may be defined differently based

2.1       Definition
of Small and Medium-Sized Practices

and Medium-sized Practices (SMP) may be defined differently based on their
jurisdiction.  However, as defined by The
International Federation of Accountants (IFAC) SMP Committee (source: An Overview of the SMP Committee –
Its Role, Responsibilities, and Services, June 2011), SMPs are practices
the exhibit the following characteristics:

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its clients consist mostly Small and
Medium-sized Entities (SMEs);

it utilizes external sources to enhance limited
in-house technical resources; and

employs a limited number of professional staff.

services are not only limited to SMEs but may also include public sector
organizations like small government agencies and not-for-profit organizations.

provide value to their clients by offering broad range of professional services
to comply with regulatory requirements and enhance their business
performance.  The services offered
include traditional accountancy-based services, including audit, other
assurance, accounting, and tax, to several forms of value-adding business
advisory services, such as advice on strategic planning, financing, financial
management, and risk management.  One way
to enhance SMPs’ capabilities to serve the diverse needs of their clients is by
maintaining connections with trusted professional from other disciplines,
including, lawyers, IT specialist and bankers, who also serve small business.


2.2       Importance
of Small and Medium-Sized Practices

provide support to the health and prosperity of the SME sector, a sector that
in many countries around the world comprise for a significant part of private
sector employment and Gross Domestic Product (GDP).  SMEs refer to SMPs to provide a wide range of
professional services (as discussed in Section 2.1), especially when they lack
appropriate in-house expertise.  Also, a
strong SMP community can contribute to enhanced options and competition in the
market for professional services.

2.3       The
International Accounting Industry

a.         Services.  The primary services of accounting firms
include audit & assurance, risk & financial advisory, and
taxation.  These include: the audit or
verification of financial transactions and accounting records; the preparation,
signing, or certification for clients of reports of audit, balance sheet, and
other financial, accounting and related schedules; the design, installation,
review and revision of accounting systems and controls; the review/ preparation
of income tax returns when related to accounting procedures; and representation
of clients before government agencies on tax and other matters related to
accounting or the rendering of professional assistance in matters relation to
accounting procedures and the recording and presentation of financial facts or

b.         Key
Statistics and Performance.  Revenue of the “Big
Four” accounting firms which consist of Deloitte, PricewaterhouseCoopers (PwC),
Ernst & Young (EY) and Klynveld Peat Marwick Goerdeler (KPMG) have
increased from US$113.7Bn in 2013 to US$134.89Bn in 2017 or by 18.94% in the
past five (5) years or an annual average increase of 4.44%.I.      Audit
& Assurance.  In
2017, this service line accounted to US$52.09Bn or 38.79% of the total revenue
of the Big Four accounting firms.  This
service line were led by PwC (30.66%) and Deloitte (27.07%) which accounted for
US$30.07Bn revenue worldwide or 57.73%.

II.     Risk
& Financial Advisory.  This
service line contributed US$45.36Bn or 33.78% of the total revenues in 2017.  As with audit & assurance, the top two
(2) players are Deloitte (31.75%) and PwC (27.01%) which earned US$26.65Bn or

III.    Taxation.  The service line earned
US$30.87Bn or 22.99% of the total revenues in 2017.  This area were dominated by PwC (30.64%) and
EY (26.50%) which totaled US$17.64Bn or 57.14%.

IV.   Others.  This service line include
other services offered which are not classified in the above categories, such
as due diligence work, agreed-upon procedures and assisting investors in making
business sound business acquisitions.  In
2017, this service line contributed US$5.97Bn or 4.45%.c.         Market
Players/ Industry Concentration.  In
2017, the Big Four accounting firms audited 457 clients of the Fortune 500
companies or 91.40%.  It was led by EY
which accounted 137 (27.40%) clients which included Amazon, Soutwest Airlines
and Harley Davidson.  It was followed by
PwC at second place obtaining 123 (24.60%) clients including Paypal, Tesla
Motors and Discorvery Communication. At third place is Deloitte with 101
(20.20%) clients including Starbucks, Lowe’s and Best Buy.  KPMG came at fourth with 96 (19.20%) clients
which included Foot Locker, Alaska Airline and Dollar Tree.  The remaining 43 (8.60%) clients were audited
by the other accounting firms.The
international presence of the Big Four accounting firms (each present in more
than 150 countries and about 700 offices worldwide) through tie-up/ partnership
with leading local industry accounting firms have contributed to their success
and dominance in the market.  In 2016,
the revenue earned from Americas (North, Central and South America) amounted to
US$58.63Bn (45.90%), from Europe, Middle East and Africa (EMEA) amounted to US$49.71
Bn (38.91%) and from Asia Pacific amounted to US$19.40Bn (15.19%).In
terms of manpower as of 2017, Deloitte has the most number of professionals
worldwide employing around 263,900 employees, followed by EY with 247,570, PwC with 236,235
employees and lastly by KPMG with 197,263 employees.  Deloitte having generated the most revenue in
2017 (US$38.8 Bn) also has the most number of employees and KPMG having the
least manpower among the four also has the least revenue (US$26.4 Bn).  However, PwC which placed second in terms of
revenue (US$37.68 Bn) has the second least number of manpower among the four.  This may be a result of efficiency in their
utilization of manpower as they were able to generate more revenue per employee
among the top accounting firms.d.         International
Outlook of the Global Accounting Industry. 
The future seems bright for the accounting profession based
on a publication by the US Bureau of Labor Statistics issued in October 2017 as
the demand accountants and auditors are expected to increase by an average of 10%
from 2016 to 2026 which is above the average rate of 7% for other professions.  Further, a report issued by the World Bank in
January 2018 (Global Economic Prospects: Broad-Based Upturn, but for How
Long?), the forecasted real Gross Domestic Product (GDP) growth of the
international economy is expected to increase by an average of 3.00% from 2018
to 2020 with South Asia (SA) and East Asia and Pacific (EAP) expected to
increase the most at 7.10% and 6.10%, respectively.Improved
economics, globalization and increased complexity of business transactions
would further increase the demand for the accounting profession as there would
be a need to acquire consulting and advisory companies to complement
traditional services to provide integrated solutions services to their clients.Evolving
international and local accounting standards would also strengthen the demand
for financial audit services to provide assurance on the reasonableness and
reliability of the financial condition and performance of companies which may
be used by the management and its investors in making sound business decisions.2.3       The
Local Accounting Industry (Macro Environment) – PEST Analysisa.         Political
and Legal.   With the assumption of President Rodrigo
Duterte to office in June 2016, the Philippines experienced increased GDP
growth which earned it as the world’s 10th fastest growing economy
in 2017 according to the Global Economic Prospect report published by the World
Bank.  The plan of administration to
increase annual infrastructures spending, institute a progressive tax reform
and more effective tax collection and increase the ease of doing business in
the country could further enhance the global competitiveness and economic
growth of the Philippines in the years to come. 
the government has been criticized heavily both by internal and local groups for
its deadly drug campaign, disregard to human rights and taking vengeance on
media companies which have been critical of its administration, the president
still obtained a “very good” satisfaction rate of 58% based on the Social
Weather Satisfaction (SWS) survey conducted in the fourth quarter of 2017.The
accountancy profession is regulated by various laws and regulations which
provide a moderate barrier to entry.  The
key laws and regulations include:i.             
Act No. 9298: An Act Regulating The Practice Of Accountancy In The Philippines,
Repealing For The Purpose Presidential Decree No. 692, Otherwise Known As The
Revised Accountancy Law, Appropriating Funds Therefor And For Other Purposes
(May 13, 2004).  The
Republic Act 9298 (RA 9298) also known as the “Philippine Accountancy Act of
2004)” acts as the regulating law for Certified Public Accountants (CPAs) in
the country.  The act covers the
following items:·        
The scope of the accountancy profession which
are classified into three (3) categories: public practice of accountancy,
practice in commerce and industry and practice in academe/education;·        
The creation of the Professional Regulatory
Board of Accountancy (BOA), the regulatory body for CPAs;·        
The admittance and licensure of qualified
applicants for the CPA profession;·        
The guiding rules and regulations in the
practice of the accountancy profession which covers prohibitions,
accreditations, limitations and the continuing professional education (CPE);
The Penal and Final provisions.
of Accountancy (BoA) Resolution No. 2016-05: Prescribing Additional
Requirements for the Initial Application for and Renewal of Registration or
Accreditation of Individual Certified Accountant, Firms and Partnerships of
Certified Public Accountants Engaged in the Practice of Accountancy (Amending
“Annex B” of RA 9298, Otherwise Known as the Philippine Accountancy Act of
2014) (January 28, 2016).  Due to
the volume of applicants for the registration or accreditation for public
practice of accountancy, the Board prescribed additional requirements for the
initial application for and renewal of registration or accreditation of
individual CPA, firms and partnerships of CPAs, this include:·        
Conduct of visitation of the principal office
where the CPA, firm of partnership of CPAs is employed or practicing;·        
Completion of the Quality Accreditation
Presentation of the Certificate of Membership
in Good Standing (COMGS) issued by the current Accredited Integrated
Professional Organization (AIPO) of accountants; and·        
Presentation of Professional Tax Receipt (PTR)
of the CPAs, in lieu of the business or mayors permit that was previously

Resolution No. 2015-263: Adoption of the IFAC 2013 Code of Ethics for
Professional Accountants as “The Code of Ethics for Professional Accountants in
the Philippines”, and Prescribing Amendments Therefor.  In December 18, 2015, the Board approved the
Revised Code of Ethics for CPAs in the Philippines.  It contains the necessary principles with
which CPAs are expected to perform – objectivity, confidentiality, professional
competence and due care, integrity and professional behavior.  In carrying out his work, a CPA may face scenarios
which may not be consistent with these principles.  Since it’s impossible to anticipate all situations,
the Code provided a framework, which would guide the CPA in taking actions or
making decisions consistent with the basic principles.