SMP_Practice_Mgmt_Guide_ Guide To Practice Management

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Guide to Practice
Management for Smalland Medium-Sized
Practices

Small and Medium Practices Committee
International Federation of Accountants
545 Fifth Avenue, 14th Floor
New York, New York 10017 USA

This Good Practice Guidance was prepared by the Small and Medium Practices Committee of the International
Federation of Accountants (IFAC). The committee represents the interests of professional accountants operating
in small- and medium-sized practices and other professional accountants who provide services to small- and
medium-sized entities.
This publication may be downloaded free-of-charge from the IFAC website: http://www.ifac.org. The approved
text is published in the English language.
The mission of IFAC is to serve the public interest, strengthen the worldwide accountancy profession and
contribute to the development of strong international economies by establishing and promoting adherence to
high-quality professional standards, furthering the international convergence of such standards and speaking
out on public interest issues where the profession’s expertise is most relevant.
For further information, please email paulthompson@ifac.org.

Copyright© June 2010 by the International Federation of Accountants (IFAC). All rights reserved. Permission is
granted to make copies of this work provided that such copies are for use in academic classrooms or for personal
use and are not sold or disseminated and provided that each copy bears the following credit line: “Copyright ©
June 2010 by the International Federation of Accountants. All rights reserved. Used with permission.” Otherwise,
written permission from IFAC is required to reproduce, store or transmit this document, except as permitted by
law. Contact permissions@ifac.org.

ISBN: 978-1-60815-067-0

Contents
Preface
Request for Comments
Introduction
Module 1: Planning for your firm
Module 2: Practice models and networks
Module 3: Building and growing your firm
Module 4: People power: Developing a people strategy
Module 5: Technology and e-business
Module 6: Client relationship management
Module 7: Risk management
Module 8: Succession planning
Glossary of terms

Preface
This Guide to Practice Management for Small and Medium sized Practices (the Guide) was commissioned by the
IFAC Small and Medium Practices (SMP) Committee to provide guidance to small- and medium-sized practices
(SMPs) on how to better manage their practice and ultimately operate in a safe, profitable, and professional
manner.
IFAC is grateful to its member bodies Consiglio Nazionale dei Dottori Commercialisti e degli Esperti Contabili
and Certified General Accountants’ Association of Canada for providing some of the funding for the Guide’s
development.
While developed by CPA Australia, the Guide is the full responsibility of the IFAC SMP Committee. IFAC staff and
a global advisory panel, with members drawn from a broad cross-section of IFAC member bodies, have assisted
in reviewing drafts of the Guide.
The Guide provides SMPs with knowledge of practice management principles and best practice guidance on
a whole range of practice management topics including strategic planning, managing staff, client relationship
management, and succession planning. As such the Guide will help SMPs operate with greater proficiency and
professionalism and in a so doing help them cope in an increasingly complex and competitive environment.
Member bodies and practices either use the Guide as is, or tailor individual modules to suit their own needs
and jurisdictions. It has been designed to provide a basis from which member bodies and others can develop
“derivative products” such as training materials, journal or website articles, customized checklists, and forms and
practice management programs.

Sylvie Voghel Chair, IFAC SMP Committee
June 2010

Request for Comments
This is the first version of the Guide. We consider the Guide to be of high quality and useful in its present form,
but like any first edition, it can be improved. Hence, we are committed to updating the Guide on a regular basis
to ensure it reflects current best practice and is as functional as possible.
The next update is scheduled for late 2011. We welcome comments from IFAC member bodies, practitioners,
and others. These comments will be used to assess the Guide’s usefulness and to improve it prior to publishing
the second edition. In particular, we welcome views on the following questions.
1. How do you use the Guide? For example, do you use it as a basis for training and/or as a practical reference
guide, or in some other way?
2. Do you believe that the Guide has appropriately included all of the relevant aspects of practice
management? If not, which elements would you suggest be added to or deleted from the Guide?
3. Do you consider the Guide’s contents to be sufficiently tailored to the key practice management issues faced
by small- and medium-sized practices?
4. Do you find the Guide easy to navigate? If not, can you suggest how navigation can be improved?
5. What other references, further readings, and resources do you suggest be included? Please be as specific as
possible.
6. In what other ways do you think the Guide can be made more useful?
7. Are you aware of any derivative products, such as training materials, forms, checklists, and programs, that
have been, or are being, or might be developed based on the Guide? If so, please provide details.
Please submit your comments to:
Paul Thompson, Senior Technical Manager at:
Email: paulthompson@ifac.org
Fax:

+1 212-286-9570

Mail:

Small and Medium Practices Committee
International Federation of Accountants
545 Fifth Avenue, 14th Floor New York
New York 10017, USA

iii

Introduction
Purpose
The Guide aims to assist firms to practice in a safe, profitable and professional manner. The Guide seeks to do
this by providing practical guidance across a whole range of practice management topics.
The Guide is intended to improve the management and operational efficiency of SMPs so as to ultimately
make them more sustainable and successful. As such, the Guide is intended to: address the opportunities and
challenges faced by SMPs; improve the competitiveness, profitability, and sustainability of practices; enhance
the expertise, competence, and efficiency of those managing practices; provide practical assistance to those
engaged in managing practices so as to provide an environment conducive to the provision of high quality
services; showcase global best practices and latest practice management techniques.
Intended Users
As the title suggests this Guide is primarily directed at professional accountants working for or as SMPs. While
its primary user is likely to be those managing the practice and senior professional staff, certain parts will be
useful to more junior staff and as an introduction to the practices for new staff. It is also considered suitable
as a reference guide meant for everyday use. In addition, SMPs may find the Guide helpful when it comes to
providing general business advice to SMEs, likewise professional accountants working in SMEs may find it useful.
Finally, students, educators, training providers, researchers, and international development agencies may find
the Guide useful.
Topics Covered
While the Guide covers a diverse range of topics, both strategic and operational, the depth and nature of
coverage varies according to the topic. Where there is a high degree of homogeneity of practice and custom
across jurisdictions a topic is covered in depth. But for topics which are especially jurisdiction sensitive for
example, practice structure, employment law, etc – coverage is more generic and principle based.
A brief outline of each module follows, with a detailed index which includes hyperlinks found in the contents section.
Module 1 Planning for your firm
The essential ingredient for success is for every firm to know its own strategy—the path that the
partners and employees wish to travel.
There is not necessarily a single right or wrong direction for a public accounting firm. Successful firms
can be highly specialized or general, focusing on transaction or compliance services or high-end
advisory services. Successful firms can comprise a small or large number of employees and partners.
Module 1 examines the business and strategic planning processes and the more detailed policies that
govern the development and implementation of the strategic plan within your firm.
Module 2 Practice models and networks
If an accounting firm is built on a solid foundation of good decision-making, ethical and efficient
processes, and a balanced team of committed leaders, it can be confident about its long-term future.
Module 2 looks at the structural considerations inherent in owning or running an accounting firm,
and the various models available. It includes examination of profit sharing and decision-making
within a firm and the use of networks to add value and grow profitability.

Module 3 Building and growing your firm
Module 3 expands on the themes covered in Modules 1 and 2 by exploring in more depth the issues
of developing a growth strategy, coping with increased regulation and competition, marketing and
developing a firm culture.
Module 4 People power: Developing a people strategy
The degree to which your firm can provide good service and be successful is determined by the
calibre of your staff and your leadership.
Module 4 examines key elements that will play a pivotal role in achieving your firm’s objectives—people.
This module explores your role as a leader as well as the staffing issues that have to be addressed as your
firm grows, including your firm’s ability to attract, retain, motivate, and train their employees.
Module 5 Technology and e-business
In a climate of ongoing change, increased regulation and the emergence of global reporting systems,
it is even more critical for firms to adopt best practice in respect to their technologies.
Module 5 examines the increasing role technology plays in the success of an accounting firm.
Effective selection, implementation and management of technologies, as well as training employees
to use these tools, are fundamental to the success of any firm.
Module 6 Client relationship management
Strong and effective client relationships are the backbone of a successful accounting firm. The
relationships accountants have with their clients is fundamental to the value of the accountancy
firm. Increased competition demands that firms maintain and enhance client relationships. Increased
regulation places more importance than ever on knowing your clients.
Module 6 examines the development and ongoing maintenance of client relationships, and strategies
to improve and cement your client relations including networks, referrals and other alliances.
Module 7 Risk management
The concept of risk is familiar to practitioners. However, the issues of risk and risk management have
increased in importance as the number and size of legal claims have increased over the years.
Module 7 explores risk management and the specific impact it has on practice life. It provides a
framework for identifying, evaluating, and acting on risks within a firm. It discusses ethical issues and
safeguards which can be used to deal with ethical threats, the role of quality control systems, and
additional risk mitigation such as insurance.
Module 8 Succession planning
As professional accountants age, their thoughts inevitably turn to the value of their assets within a
firm, and their exit strategies from their firm and ultimately from the accountancy profession.
Module 8 examines the importance of a succession plan that allows for the orderly exit of the practitioners,
and the strategies that can be implemented to become succession ready. It includes discussion on
valuation and pricing, and options for consolidations, mergers and internal and external buyouts.
Modular Format
Each module has been designed to be as stand-alone as possible so that each may be used on its own. This
means that there are some instances where material covered elsewhere is summarized. There are, however,

cross-references to those modules where the topic in question is covered more fully. The modular format also
makes it suitable for use both in printed or electronic form.
Each module has been organized in the following format:
Title
Contents
This sets out the table of contents for the module
Introduction and Guidance
The introduction provides an overview of the module. The overview is followed by practical guidance
on how to implement the practices.
Case studies, Checklists, and Further Readings
Each module has been constructed on the assumption that the reader has core knowledge of practice
management principles the content is designed to illustrate how to apply the theoretical concepts, implement
change and monitor progress. To assist this process, each module includes case studies and checklists. Each
module ends with “further readings and other resources” to allow practitioners to further examine topic areas of
interest in more depth.
Cross-reference to Other IFAC Publications
The Guide is designed to complement existing IFAC publications, such as the Code of Ethics for Professional
Accountants (the IESBA Code) and Guide to Quality Control for Small- and Medium-Sized Practices, and where
appropriate the text includes cross-references to these publications.

Use by IFAC Member Bodies
As an association of member bodies IFAC’s primary target audience is its member bodies and this Guide is
intended to help these member bodies help their SMPs. The Guide is likely to be particularly useful to member
bodies in those countries where the profession is emerging and/or neither IFAC member bodies nor commercial
providers have published similar guides. The Guide may also be used by member bodies to enhance or
supplement their own material.
The Guide is supplied free of charge to IFAC member bodies for them to distribute as is, or adapted, modified,
and translated to suit their national jurisdictions and language. Please contact permissions@ifac.org for
permission to reproduce, adapt or translate this publication. Once permission is granted a Word document will
then be supplied. The document includes the various checklists and forms in a format suitable for customization
to suit specific needs.
To facilitate translation, the Guide uses IFAC terminology, as per the Glossary in the IFAC 2010 Handbook of
International Quality Control, Auditing, Review, Other Assurance, and Related Services Pronouncements (IFAC
Handbook) and/or IFAC Annual Report 2009, to the maximum extent possible. Where this terminology was not
available, the author has made every attempt to use terms that can be easily translated. All relevant terms are
contained within the “Glossary of terms” at the back of the Guide. The Guide is written in clear and concise language
so that it may be readily understood and translated into other languages commonly used by IFAC member bodies.
The Guide is structured and written in a way that lends itself to easy adaptation to the local/national
requirements, culture, and business practices of the many countries in which IFAC member bodies operate.
For example, topics that are jurisdiction-sensitive are drafted in a generic fashion so that the text can be easily
extended and adapted to best suit local circumstances.

vii

Module 1:

Planning for your firm

Contents
1.1 Introduction

1.2 To specialize or to generalize? Your services strategy

1.2.1 Specializing

1.2.2 Generalizing

1.3 The need for business planning

1.3.1 The strategic planning process

1.3.2 Steps in the process

Figure 1.1 The eight strategic planning steps

1.4 Planning for effective relations with clients and employees

1.4.1 The challenges of generational diversity

1.4.2 Clients’ perceptions

1.4.3 The “devaluing” of information by the internet

1.4.4 The challenges of greater client mobility

1.5 Developing plans for your firm’s various functions

1.5.1 Service delivery plan

1.5.2 Risk management and mitigation plan

1.5.3 Human resources plan

1.5.4 Marketing and selling plan

1.5.5 Technology plan

1.5.6 Administration plan

1.5.7 Finance plan or budget

1.5.8 Assessing when plans need to change

1.6 Building a risk management mindset into your firm

1.6.1 Ten steps to successful risk management

1.6.2 Minimizing exposure to loss of key personnel

1.6.3 Minimizing potential problems in service delivery

1.7 Implementing a practice manual and systems

1.8 Using benchmarks to drive performance and improvement

1.8.1 External benchmarks

1.8.2 Internal benchmarks

1.8.3 Other industry benchmarks

1.9 The business of running your firm

1.9.1 The key stages in running an effective firm

Figure 1.2 The “virtuous circle” of an efficient accounting firm

1.10 Monitoring external forces

MODULE 1: PLANNING FOR YOUR FIRM

1.10.1 Environmental sustainability

1.10.2 International accounting standards

1.10.3 Rising levels of regulation and professional knowledge

1.10.4 Mobility of talent

1.10.5 Technology

1.10.6 Anti-money-laundering

1.11 Business continuity: the short-term and long-term imperative

1.11.1 Interruption to business

1.11.2 Continuity of business: the second generation

1.12 Conclusion

1.13 References, further reading, and IFAC resources

Appendices

Appendix 1.1 A realistic self-assessment checklist

Appendix 1.2 Matters to be included in the planning process checklist

Appendix 1.3 Marketing program template

Appendix 1.4 Indicative content and sample of an office manual

Appendix 1.5 Case studies

Appendix 1.6 Strategic Planning Diagram

1.1

Introduction

There is not necessarily a single direction or a wrong direction for a public accounting firm. Firms can be highly
specialized, or general. They can focus on transactional or compliance services, or on high-end advisory work.
They can comprise large numbers of employees and few partners, or they can have a high proportion of
partners with few employees.
The essential ingredient for success is for every firm to know its own strategy—the path that principals and
employees wish to travel—so that the firm meets the needs of its owners. The direction comes from your
strategic plan, which describes the way you and your partners want to see the firm develop. Good management
will keep the firm commercially viable and professionally competent. Only in this way can your business satisfy
your needs and the needs of your employees, clients and stakeholders.
This module describes business and strategic planning processes, and the more detailed policies that govern
the implementation of these plans.
1.2

To specialize or to generalize? Your competitive strategy

A successful accounting firm—indeed, any successful business—is one which delivers a service its customers
want, at a price customers consider to be “good value.” The nature of the service will differ, even among
accounting firms; “value” as perceived by your clients will depend on the benefits that you deliver, the feeling of
confidence and dependability that your people engender, and of course the cost to your client.
It has been argued by marketing specialists that firms can choose from three possible positions in presenting
their services; on occasion, a combination of two is possible. This is an important concept to understand early
in the life of an accounting firm; equally it is an approach that you can bring to the attention of your clients
during consulting assignments for them. The publication titled “How You Can Market Your Business to Success”
provides background on the concept of market positioning. Other textbooks on marketing will also deal with
this concept.
The three possible “market strategies” are:
z Overall cost leadership
z Differentiation
z Focus.
Overall cost leadership
The “Overall cost leadership” strategy is based on delivering your services with a low cost-base, which in turn
enables you to sell your service at a lower price yet still be profitable. A strong focus on cost reduction is
required. This can be achieved for example whenever you buy the goods and services which are consumed as
you deliver your accounting services; it can be achieved by eliminating loss-making services/products or clients;
or it comes about from adopting a “no frills” approach to all your procedures and actions.
The benefit of “low cost” is that you can undercut the prices which competitors charge, and in doing so gain
market share from them. “Low prices” is the easy part to achieve; it is the “low cost” within your own firm which
represents the tough and ongoing challenge.
Differentiation
A “Differentiation” strategy demands that you take a different path in delivering your service from that
which most or many of your competitors will adopt. Success with this strategy requires that you know your
competitors extremely well—this can be difficult in a typical “market” for accounting services which is typified

MODULE 1: PLANNING FOR YOUR FIRM

by many competitors whose strategies might not be easily visible from the outside. “Differentiation” is easier to
adopt if you have few competitors, and if their own position is clearly marketed to the target demographic.
To illustrate with an accounting example, there may be some merit in “bringing your service to your client” by
(for example) sending your people directly to the client’s premises to gather data, process some information
and interact with their key personnel. If yours is the only firm taking this approach, then “differentiation” is at
work. Once other firms start to copy your approach and send their staff to their clients’ premises, your marketing
advantage is gone.
A “differentiation strategy” must be continually reinforced through promotion, and through continual focus on
your differentiating factor. All the other actions and procedures within your firm should continually contribute
to or reinforce the differentiating factor.
Focus
The third possible market strategy revolves around “focus.” For example, your firm might focus on one industry
or a very small number of industries. By doing this, your people can legitimately claim expertise in dealing
with (for example) professional practices, or doctors, or the mining industry or the arts community. Your
people would come to learn the specific needs and activities of a few sectors and be able to ensure that all
clients benefit from that knowledge—either by not needing a “learning curve” or extensive research, or by
understanding industry-specific taxation or legal issues faced. If your strategy is based on “focus”, word-ofmouth referrals or highly targeted promotional strategies become especially powerful; at the same time client
confidentiality becomes paramount in order to prevent inadvertently revealing information.
If “focus” is your key marketing strategy, the market segment must be able to afford your services otherwise you
risk targeting the firm’s efforts into low-yielding work (which your competitors would gladly see you do!).
As you approach the topic of “strategic planning,” review the current market(s) for accounting services and the actions
of the firms already in that market. By doing this, you will come to identify any gap in the way that your competitors
are supporting their clients, and start to define which of the three key strategies is the best one to follow.
More detail is given below to help you identify the best approach for your own firm. As you read through the
remainder of this section, bear in mind that not all the matters raised are relevant in each country. Examine
the list of services to see which ones your team is qualified to deliver, those likely to be required by your target
clients, and any restrictions imposed by your professional association. The Code of Ethics for Professional
Accountants (the IESBA Code) issued by the International Ethics Standards Board of Accountants (IESBA) can
guide your decisions about services you offer, and the clients for whom you choose to act.
If you are joining an existing firm, many of the decisions will already have been made. If so, use this material
to identify gaps in your current service offering. Then you and your partners can bridge those gaps with new
services, new clients or new approaches to delivering existing services.
As you consider and develop your services strategy, remember that technology can enable great flexibility in the
way services are delivered. See Module 5 for details about information technology in your firm.
Mobile technology—especially telephones and internet-based wireless communications—enables a “virtual office”
to be operated. This in turn allows accounting personnel to move seamlessly between the office, a client’s premises,
and even the accountant’s home, all the while being connected or at least accessible to accounting applications.
When using these technologies, firms must adopt best-practice data security standards. If your applications
enable clients to access their information as it is being processed, you will not want clients changing that
data, or even worse, accidentally accessing another client’s data. Other technical challenges revolve around
data synchronization (feeding information to and from the mobile device to the central, master data location),
back-ups to minimize the risk of loss of data, and the creation of secure barriers to prevent identity theft or

malware. Those applications are increasingly being software-controlled to remove the “human factor” from
the control process. Using a specialist IT consultant is a good idea, since they (and not you) will remain totally
current in their knowledge about ever-changing risks and potential applications. The consultant can act as highlevel adviser to the partnership as a whole or to the management team; the firm then ensures it has internal
employees capable of implementing the recommendations and managing the system day to day.
Do not underestimate the risk that the loss of the physical equipment poses: theft of a laptop or PDA or a
memory stick may be as big a risk to the firm’s computer security as any hacker. For that reason, all aspects of
technology security must be addressed in assessing the implications of IT use in delivering your services.
Like any aspect of the firm’s operations, a plan and a budget must be prepared for its technology. The IT Plan
should also have a disaster-recovery system that is tested regularly.
A small number of firms have a specialist niche position for their service offering: they deliver only a narrow
range of services. This is a good strategy where a principal or partners have some unique expertise (for example,
in a particular tax) or a unique analytical skill. However, most firms provide a range of accounting services, such
as processing transactions, lodging tax and corporate forms, giving broad-based business advice, and possibly
some audit/assurance work.
Increasingly, the bulk of these general firms are coming under pressure from clients to cover the full range of
commercial issues. So if your current or proposed firm is positioned as a broad-based service, be prepared to
respond to client demand by progressively increasing your range of services in future years.
1.2.1

Specializing

When you choose to specialize in accounting services, you are consciously focusing on a narrow range of
services and turning your back on the other accounting services. Your revenue comes from a small part of the
services that can be provided by your competitors.
To make this strategy work financially:
z You must have highly skilled team members. They might have intellectual knowledge (for example, a deep
and detailed knowledge of a specific type of tax or financial planning or knowledge about a process (such as a
quick, accurate and reliable process for handling income tax returns).
z You must promote your service within a sufficiently large market to generate enough clients. This does not
mean that your office must be located in a big city, but you must promote your service to a large number of
potential clients. In this way, the firm can generate enough revenue to support its costs and deliver profit to
the firm owners.
z You must select a suitable pricing policy. The approach here can vary, depending on the particular niche
you are servicing. To illustrate, if your service is based on an unusual knowledge base if there is a high risk
in delivering the advice or if there is a high payoff for your clients from using your advice, then a premium
pricing approach is likely to be the right one. The high price compensates you for scarcity, risk or rewards
for your skills. If, on the other hand, your niche is providing fast turnaround, and accurate personal income
tax returns, then a low price approach may be the most suitable strategy. In this case, the efficiency of your
service enables you to charge a lower fee, which in turn allows you to boost the volume of activity and earn
sufficient profit from each unit.
1.2.2

Generalizing

In this situation, your firm offers a broad range of accounting services (not necessarily all the available services,
but a reasonable spread) to clients in your marketplace. Once again, skill and knowledge are important, but a
key challenge is to keep up to date with changes across all the areas of service.

MODULE 1: PLANNING FOR YOUR FIRM

One tactic is to appoint a number of internal specialists, each of whom keeps current in an aspect of your
service. In this way, a firm can promote, say, an expert on direct tax such as personal income tax or corporation
taxes, an expert in financial planning or wealth management services, an expert in business management issues,
and so on. Each person can back up the other personnel in the firm and create more points of contact with each
client. This approach works very well in medium-sized and larger firms, but in smaller firms there are not enough
people to support the load. Very small firms can find it very difficult to keep fully up to date with the many
changes to legislation, making the general firm approach harder to implement.
The general firm model requires considerable amounts of study and professional development; practitioners may
need to subscribe to many publications or technical resources to access the full range of detailed information.
It is impossible, in a marketing sense, to be both “specialist” and “generalist.”
Also be aware that trying to simultaneously to be “low-cost” and “differentiated” and “focused”, as these three
approaches can contradict. For example, a “focused” strategy might require substantial investment in learning
about a particular industry segment; some of this can be learned from your interactions with clients, but some
knowledge will need to be generated from (for example) research, training and other “investments.” These are
contradictory to the notion of being “low cost” at the same time.
Making your firm “client-centric”
Making your firm and your marketing “client-centric” is the fundamental mindset to adopt. When deciding on the
best possible approach for your own firm, put yourself in the position of a client, and ask yourself questions such as:
z What will be the primary focus of the firm? This may be tax and compliance work, be a business advisory
services, or perhaps a particular specialty, such as insolvency.
z What services will your target market want or need? This shouldn’t be limited to a review of what you currently
know or what you currently do. For example, you might be professionally capable of offering audit services, but
that might be an area that you particularly dislike and have avoided at every opportunity. Simply because you
don’t like it is no reason to deny your market that service, but there are several ways of providing it.
z How many of those services can you provide at present, with the current personnel?
z Will you deliver services in clients’ premises? How much of your service can best be delivered directly at the
client’s premises, and how much is best delivered at your office? If, for example, your firm is heavily involved
in transaction processing, or regular monthly management activities for a client, or other business advisory
work then it makes sense for your team to spend time at the client’s premises. This ensures ready access to key
people and documents, minimizing delays for you and client alike. If, however, your service demands a lot of
research or complex calculations, your own office will give better access to the necessary resources.
z What is the most suitable location for your office? The choice of location is in itself a statement about your
firm and your client base for example.
} If you target high-net-worth individuals, then your premises will need to make that type of client feel at
home by virtue of its location and fit-out (the standard of fit-out also impacts employee morale);
} If your client base largely comprises small business clients, contractors, and small service providers,
you might be best served by an office located close to those clients, such as a business park or a nearby
suburban area. The fit-out should be of good quality without being ostentatious.
} The location and standard of fit-out will impact your cost structure, which in turn will flow into your fee
structure, so they should suit the type of client you predominantly attract. Having said that, your firm should
also be seen as a special place to visit, which can be achieved through the type of reception that you provide,
the care that your team takes of each client (such as offering refreshments while they are waiting), and so on.

z How will you bridge any gaps in the range of services over the next twelve months as well as in the longer
term? For example, will you refer clients to a recommended list of other firms? Will you leave clients to find
their own provider of that service? Or will you employ or train employees or partners to provide that service
in your own firm? If you can refer the client to a trusted, competent firm that specializes in that service, the
client’s trust in you is reinforced. Then, in the future, when you recommend another specialist or when you
tell the client that the equivalent service is now available in-house, the client should be predisposed to accept
your recommendation.
Offering new services
Each new or additional service offered by your firm will demand a certain minimum commitment to it for example:
z A senior person who will gain and maintain the required skills.
z An in-house training system that allows employees working in that area (whether on a full-time or a part-time
basis) to also access relevant technical knowledge and understanding.
z Some level of technical resource such as subscriptions or access to a specialist provider outside your firm (see
the earlier material dealing with the various types of networks that can support a firm or a practitioner).
z Possibly some specialized piece of computer software to assist you in the service delivery and detailed
calculations. The use of relevant computer systems can speed up the process; can ensure that a particular
process is followed, or prompt you to ask the critical questions along the way; and can increase your
confidence in the ultimate outcome.
z Regular reminders sent to all other employees concerning new services. This could include, for example,
telling the firm’s receptionist a few key facts about the service, so that he or she is aware of it and knows how
to direct clients asking about such a service; and telling other professional personnel about the service, so
that they can identify and refer any on-selling possibilities that they might come across in the course of their
other work.
Adding a new service requires an investment of time and other outlays that will not be fully productive in the
short term.
“Developing a niche [service] means resolving a lot of issues such as what and how to invest in employees, how to
service clients and what risks to take to make money tomorrow vs. making money today.”
Hayes 2006

The partners must commit wholeheartedly to each new service. They should determine performance targets
(such as fee levels to be achieved within particular timeframes) to ensure that the investment delivers the
expected payoff for the entire firm. As a practical guideline, any new service added by a firm should be
able to deliver around double the wages cost of people involved in it, by the eighth quarter after its initial
commencement (that is, in Quarter 8, fee income should be around twice that quarter’s salary cost for partners’
and other employees’ time devoted to it). This is by no means a stunning or a rapid return, but it would give
comfort that the service is establishing itself and being accepted by clients. Clearly, a faster increase in revenue
would be desirable.
After identifying your range of services, consider how you will tell clients and potential clients about it. It is
possible to do this in several low-cost ways; for example, you can print the service list on the inside cover or
some other prominent position on your accounts covers, or inside a bound set of accounts; use anonymous
case studies to demonstrate the practical benefit from each service; use newsletters or other media as an
attachment to your engagement letters on any information checklists given to clients at the commencement of
MODULE 1: PLANNING FOR YOUR FIRM

your work with them each year, brought up in the course of discussions with clients as you conclude each piece
of work, and so on. These are low-cost yet direct methods for communicating your full range of services. Good
promotion does not need to be expensive just clear and focused on the benefits that you can deliver.
Your list of services might contain some of these (check whether there are any professional guidelines from your
professional association which might prevent you from providing some services):
z Accounts processing and reporting: For statutory or management purposes, lodgment of essential
information to comply with corporations law or similar requirements;
z Audit: statutory/external audit, internal audit or management review;
z Business advisory: Business management and profit improvement, budgeting, cash flow monitoring
and management, business appraisal and valuation, corporate restructuring and/or company rescue,
documentation of procedures, risk management, merger or negotiations to buy or sell a business, reviews or
work leading to listing a client firm on the stock exchange, succession planning, strategic planning;
z Insolvency and reconstruction: Liquidations, receivership, bankruptcy, restructure, sale or closure of businesses;
z Financial planning: Creating savings or investment plans, reviewing investment performance, retirement
planning, advice on pension and related entitlements, use of pension plan funds, advice on retirement issues
and timing of retirement from employment, ongoing operation and reporting for pension plan funds or other
investment entities, portfolio management, sourcing finance for a client or assisting in the preparation of
applications for finance;
z Taxation: Income taxes, a range of business taxes (VAT or similar), land taxes, inheritance taxes, wealth taxes,
representing your client during a taxation audit, tax planning and choice of structures;
z Other services: These emerging services are centered on business coaching and mentoring; business planning
and external chairmanship; forensic accounting or appointment as expert witness in cases of financial loss;
human resources consulting: job descriptions, pay structures, design of incentive schemes, advice concerning
termination of employment; mediation and/or arbitration; technology consulting: choice of (especially)
accounting packages used by clients; implementation of IT systems within client firms, implementing
e-commerce applications or principles within the client firm (and your own!).
Ensuring the firm has adequate resources
Having identified the type of firm you are going to have and its range of services, you can put in place all of the
resources necessary to deliver those services professionally and efficiently:
z The type and number of employees;
z The skill levels of those employees;
z Ongoing professional development and training required;
z Information resources, manuals, publications, subscriptions;
z Software programs;
z Skill support networks that should be developed;
z Infrastructure requirements; and
z Importantly, the amount of capital you will require to achieve your goals.
These resources will need to be included in your overall budget for the firm, so be conscious of the financial
impact of adding each new service. A key principle is to deliver all of your firm’s core services with resources
available within the firm. This lets you keep good control over client management and satisfaction as well as

quality of work. It also maximizes your return on investments in firm infrastructure and other resources. Then, if
a client requires a service that you consider as “non-core,” you have the option of using a specialist provider from
outside your firm, either by subcontracting that provider or by referring your client on to that specialist provider.
“Ask questions. Get them to talk. Listen for what is said as well as what is not. Our best resources have been good
communication and our clients’ trust. Do a good job, and growth will take care of itself.”
Hayes 2006

“Make intelligent clear-cut decisions about which services they wish to offer to a clearly-defined client base and then set
out to make them ‘easy to buy’.”
Monks 2007

1.3

The need for business planning

A business plan is one of the ingredients that make a business successful. Too many professionals see their
firms as something other than a business, perhaps as an extension of their professional development or calling.
Often the business can become no more than a job and instead of creating freedom for the partners they end
up losing their lives to the business. Where they neglect the business issues of their firm, it shows quickly. The
results can include:
z Problems with work–lifestyle;
z Low profitability and/or poor liquidity;
z Poor efficiency;
z Lack of risk management;
z The absence of necessary quality control;
z High employee turnover;
z Loss of clients; or
z Loss of professional reputation.
A sound plan will identify the critical issues for the business and identify the indicators that will demonstrate its
success. It will also highlight if the firm is straying from its intended path, so you can redirect it once again.
There is a second benefit derived from a business plan. The fact that you are a good accountant does not
automatically mean that you are good at running an accounting business. Running a business requires its own
set of skills and disciplines that are quite separate from the skills of the profession itself.
Once your firm is operating, much of your time each day will be spent delivering accounting services. You will
most likely be under time pressures, at least some of the time. So a key challenge throughout your professional
life will be to balance your professional work and the management needs of your business. A business plan is
the road map that shows whether you are on course.
Think strategically
The key elements of strategic planning normally include:
z Developing a competitive strategy;
z A brief statement of the mission, vision and values that underpin the firm’s reason for existence and its broad
aims (in other words, the firm’s culture);

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z A statement that outlines the technical services the firm will deliver to achieve its mission and vision (its
products and markets);
z Human relations—the people and skills required;
z A series of more detailed business plans, which govern the way that each unit or function of the firm will
contribute to the overall strategic plan (its operations and delivery);
z Budgets, which support the components mentioned above; and
z Policies and procedures that guide the actions of individuals in achieving budgets and in acting consistently
with the organization’s values (its management and control).
The plan should set the overall tone of the firm, and confirm that your business has the resources to achieve your
financial goals. Planning is an ongoing process that moves through a cycle of activities this applies to the creation of
the strategic plan itself or the budgets that are created later. The plan that you devise today will need to be refined
and adjusted in response to changing circumstances.
Remember that the vision and mission that form the foundation of your strategic plan should stay reasonably
stable over many years. The “values” of a firm are the cultural or behavioral philosophies that set the tone for the
firm’s behavior and that of its personnel. The “vision” is an aspirational statement of what the firm should look
like. The “mission” outlines the broad strategic goal of the firm and gives a strong and concise statement about
the way that the vision is to be achieved.
There are many texts that look at these fundamental components of the planning process; refer to those if you
wish to gain greater understanding than this module can cover. Consider using the Strategic Planning Diagram
shown in Appendix 1.6 to explain the links between the levels of the strategy and the plan. Your strategic plan
is built on essential aspects of who you are and what you are trying to achieve. These are embedded in the
mission, the vision and the values of the firm. The same applies to your personal goals, which you might express
along the following lines:
“I want to own a substantial business that dominates its market area due to a reputation for providing proactive, practical accounting services,” or
“I want to be able to afford to retire by my fiftieth birthday.”
As you can see, not all personal goals will have an accounting focus.
1.3.1

The strategic planning process

Your strategic plan is based on the assumption that you really do want to be in business; and that your range of
services is suitable for your client base. Your strategic plan should demonstrate that the firm can provide the income
needed to support your family, and give you the work–life balance that you desire. Otherwise, your plan will not be
achievable. The key principles at the base of your plan should not change much over a ten-year timeframe.
You will see many commercial and professional changes over that same ten-year period. So your strategic plan
must incorporate some shorter-term action plans for each part of your firm. Some plans (such as the budget)
might look twelve months ahead; others (such as your staffing or marketing plan) might look ahead two to three
years. Each unit would normally develop its own plan, which in turn would show how that unit contributes to
the overall strategic plan.
While Figure 1.1 suggests a sequential process, some steps may occur simultaneously. Decisions made later
in the process might cause earlier work to be re-adjusted. Changes in professional or commercial activity
may lead to revisions of budgets and some of the lower-level plans. Occasionally, you might need to change
a fundamental strategy: for example, you might decide that a new service line is needed, or that partnership
might be a better way to achieve other aspects of your mission than remaining a sole practitioner. This is why

your plan is called a “living document,” which evolves to guide your future decisions. Having a documented plan
puts a discipline behind every decision you make: that is, “Will this decision take us in the direction we want to go?”
Approach your plan in a structured way. Too many small business operators do not have a clear plan. The simple
discipline of writing down a goal can often make it easier to achieve. It also makes it a more prominent focus for
your energy and action.
1.3.2

Steps in the process

Figure 1.1 The eight strategic business planning steps
Step 1: Formulate your own personal and business
strategic plans
Step 2: Decide on the business operating structure
Step 3: Outline your mission, vision and values
Step 4: Define your strategic objectives
Step 5: Define strategies for achieving those objectives
Step 6: Determine some systems, policies, and actions
needed to implement your strategic plan and
determine CSFs and KPIs to measure
Step 7: Implementation
Step 8: Monitor and adjust plan as required

As you read through the eight-step process described here, keep developing and recording your own strategic plan.
Your strategic plan provides a framework that helps you evaluate any new ideas or opportunities. Ask “Does this
idea or opportunity complement the firm’s mission statement and objectives?” A good idea that does not fit
the mission and objectives of your firm could still be pursued by some or all the partners, but outside the firm.
For example, a client might come to your firm looking for funding to get a new product ready for commercial
production. You might be asked to help source funding from banks or private investors. Should you decide to
contribute directly to that venture, do it outside the firm, and trade on normal commercial terms with the venture
once it is established. This discipline makes it easier to run both ventures and to know how each is performing.
Step 1: Formulate your own strategic plan
Are you going through this process on your own, or will you involve other people? A sole practitioner with no
family can base their strategic plan on their own preferences, beliefs and desires. However, a sole practitioner who
is in a relationship, and/or has children will more than likely set personal goals in conjunction with their partner.

MODULE 1: PLANNING FOR YOUR FIRM

Where there are several business partners with different views about important challenges facing the firm, the
planning process must create a single direction that reconciles and coordinates these attitudes.
If a firm has a second or third office location, then each one might have its own partner in charge and possibly
its own culture, in which case the process becomes more complicated.
Generally, small numbers of people in the establishment phase of a new firm are likely to share common views
and backgrounds; agreement about firm direction should be relatively easy to achieve. In this situation, a
structured, do-it-yourself approach should deliver a good result. Where there are more partners, a wider range
of ages, and perhaps several offices in different locations, there might be merit in using a skilled facilitator or
consultant. The consultant can guide the partners through the planning process, and achieve wide-ranging
support for the eventual plan so that it can be acceptable to all.
Planning exercise: Are you ready?
Write down your responses to the following questions:
z What do you want?
z What are your personal goals?
z What do you want to achieve in ten and twenty years’ time?
z What do you want to achieve in your personal life and in your professional life?
The checklist at Appendix 1.will help you to evaluate your personality and objectives. Case study 1.1 illustrates
this process—see Appendix 1.5 .
Your answers are important in shaping your own strategic plan. This in turn shapes your approach to
professional life. For example, if you believe that you are a business builder and want to do things on a large
scale, will you be happy owning a firm that runs with yourself as principal, plus an assistant and a receptionist/
secretary? Your plan should have a strong growth focus, possibly involving mergers, purchases of fees,
geographic spread of clients and cross-selling services to your client base.
You might use work and income to fund other activities outside the work environment. Your firm should focus
on training, delegation and ways of operating during the times you are away pursuing these activities.
Use this exercise to summarize the things that you want to achieve in life. Your goals might fall into the following
categories:
z Personal: A lifelong partnership, children, strong group of friends, etc.
z Professional: How important is work in your life? What career choices have you made so far, and what new
choices or directions might you pursue? How will you maintain and/or upgrade your qualifications? What
experience do you need?
Know and understand your personal objectives. If your firm stops you from achieving your personal goals,
you will start to experience personal dissatisfaction with your work. You may resent the time or effort that you
contribute. You might feel more stress and feel less able to cope in your work life. Your work goals and personal
goals must complement each other.
The aim of this exercise is to show how your firm will support your personal, professional, and financial objectives.
Ensure that, as the plan emerges through the rest of this module (and the rest of your career), it keeps contributing
towards your goals. For example, if you have a significant deficiency in some aspect of your professional skills,
you can seek training in that area. This could be through a formal course of study, or perhaps some on-the-job
experience in your current employment. Perhaps you need to find a suitably skilled colleague as either a partner or
an employee. In most cases, a weakness in a professional skill can be compensated for in one of many ways.

If you remain confident in your abilities, keep working on your plans to grow and develop. If you have revealed
some major weaknesses, the next step is to identify a clear plan to address them. Then, perhaps in six or twelve
or eighteen months’ time, you’ll know when the time is right to take the next step.
Step 2: Decide on the business operating structure
If you plan to form a partnership, whatever the legal entity chosen as the operational vehicle, you’ll need to
determine whether the potential partners are compatible ethically and professionally.
Partnerships have often been compared to marriage. Both involve more than just “me.” Both thrive when effective
communication occurs. Both involve sharing resources, sometimes with one partner agreeing to forgo something
for the sake of the other partner’s goals; there needs to be some give and take. Both should be seen as long-term
commitments. Both are messy, time-consuming, and often costly to unwind (and sometimes acrimonious).
Because unwinding a partnership can be difficult and messy, both parties should make sure that it’s right
from the outset. If you feel that you cannot raise an issue with potential partners beforehand, will you feel any
better placed to raise it after becoming partners? If you disagree over an issue that underpins the workings of
the whole firm (for example, the range of services provided, professional standards or the approach to profit
retention in the firm), friction will emerge in the longer term.
Take your time picking your partners. Once you have decided to work with a group of partners, work hard, and
communicate often and directly. Always base your decisions and actions on one criterion: the best interests of
the firm and its clients.
Step 3: Outline your mission, vision, and values
This is where many texts start their strategic planning process. However, a firm’s strategic plan must be built on
the foundations in Steps 1 and 2.
This section is especially important to those about to start a new firm, either on your own or in partnership.
There is no better time to set or influence the type of firm than at its commencement.
Firms start with a “Vision”: a concise statement about the overall benefit they expect to deliver to the clients and
other stakeholders who interact with the firm. The vision statement touches on the impact of the firm, rather
than on its services or potential markets.
Once the overall Vision is outlined, it can be turned into a more practical outline of the way that the firm will go
about making its impact, a Mission Statement is the next document to prepare.
If, on the other hand, you are buying into a firm, you should examine the firm’s mission statement, vision and
values and ensure the partners live these as part of your due diligence process.
“An organization’s mission is the purpose or reason for the organization’s existence. It tells what the company is
providing to society. A well-conceived mission statement defines the fundamental, unique purpose that sets a company
apart from other firms of its type and identifies the scope of the company’s operations in terms of products (including
services) offered and markets served.”
Wheelen & Hunger 2000

The mission statement for your firm might make reference to:
z The benefit that you deliver to your clients;
z A brief list of services to be offered by your firm;

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z A brief description of the clients that you plan to target; or
z A brief description of your prime market area. This could be limited to some physical boundary, such as a
suburb, town or region, or it could be a vertical market, such as a particular type of client.
The mission statement should be short and simple enough that it can be easily remembered by both, you and
your employees.
Once the Vision and Mission are described, the practice can focus on outlining the key behaviors or attitudes
it believes are necessary in achieving those standards. This is the function of a “Values Statement.” Values go
beyond the technical factors (such as “independence,” “integrity,” and/or “professionalism”) expected as part
of the accounting service. Instead, they describe the underlying attitudes and beliefs that the owners and
employees of the firm will use to govern their approach to issues as they arise in the future.
If the people working in the firm share a similar approach (or “Values”), then resolving conflicts or ethical
dilemmas becomes not only easier but also more predictable. Typical words used in a Values Statement for a
public accounting firm might include:
z Respect
z Courtesy
z Equality
z Responsiveness
z Client-focus
z Innovation.
Step 4: Define your strategic objectives
Clearly state several “big picture” targets that flow from your mission statement. These targets are used to
evaluate your success in achieving the mission statement; they are generally internal targets, not for disclosure
outside the firm.
“Objectives are the end results of planned activity. They state what is to be achieved by when and should
be quantified if possible. The achievement of corporate objectives should result in the fulfilment of a
corporation’s mission.”
Wheelen & Hunger 2000

In an accounting firm context, your objectives might look like these:
z To achieve an internally generated fee growth of (XX)% per year for the first five years of the firm’s life;
z To increase net earnings per partner by $(XXXX) per year;
z To reinvest (XX)% of annual profits into capital enhancement of the firm (for example, equipment for
enhanced productivity, system development or major personal development projects).
Your objectives should not all be financial. A profitable and growing business results from supplying a service
that is in demand, and providing it at a value-for-money price from the perspective of the client. A “balanced
scorecard” evaluates a business not purely on its financial performance, but on other indicators for example,
client satisfaction, development of the skills base of the firm’s team, and expenditure on development of new
products or services.

Your objectives will most likely need to address:
z The training and development of your people;
z The reputation of your firm within its prime market area;
z The quality and relevance of your services; and
z Client satisfaction.
You might need to develop some tools or indicators to track trends in your performance for each of the aspects
listed above. You might focus some of those on, your key clients, or conduct a regular satisfaction poll among
your employees.
Step 5: Define strategies for achieving those objectives
Having set some specific, measurable objectives, the next step is to look at ways of achieving them. Refer to the
checklist at Appendix 1.2 for help with this step.
This element focuses on the way that each service—such as bookkeeping, tax advice and lodgements, audit,
financial planning and business development advice—will deliver profits, achieve its share of the targeted fee
growth, or contribute towards the strategic objectives.
This is where the work starts to expand almost exponentially. In this way, you can easily communicate with key
people—such as current and potential employees, and external financiers—about the overall direction of the
firm. You can also start thinking about how to resource your strategic plan as it emerges. Extravagant ambitions
can be held in check by a healthy dose of (financial) reality along the way!
The aim of the detailed operational objectives is to give each person in each unit guidance and reassurance that
they are genuinely contributing to achieving the overall target.
Step 6: Determine some systems, policies, and actions necessary to implement your strategic plan
“A policy is a broad guideline for decision-making that links the formulation of strategy with its
implementation. Companies use policies to make sure that employees throughout the firm make decisions
and take actions that support the corporation’s mission, objectives and strategy.”
Wheelen & Hunger 2000

Policies are prescriptive statements that simultaneously enable yet constrain the actions of employees. As an
example, consider a range of finance policies that might apply in a start up firm:
z To use a mix of outright purchase and lease/hire-purchase/rental products when purchasing capital
equipment. This aims to keep approximately a 50% gearing in the acquisition of fixed assets.
z To pay a monthly salary of $(XXXX) to the principal/partners in the initial twelve months, then apply the
remaining profits towards funding the growing levels of work in progress and debtors of the firm. The balance
of cash requirement is to be funded via bank sources.
z To grow, via internally generated, organic means of adding clients through the firm’s own efforts and referrals
from current clients.
If a firm adopted all three of the sample policies above, it would neither contemplate nor be in a position to buy
a parcel of fees, if that opportunity arose. If the firm had a different set of policies (for example, if the third point
targeted rapid growth in client numbers and fee levels), then a merger with another firm would certainly be an
option in addition to self-generated growth.

MODULE 1: PLANNING FOR YOUR FIRM

Step 7: Implementation
The next step is to think about the implementation of your policies. This also generates a rapid increase in the
size of your lists and notes. Wheelen and Hunger (2000) identify three aspects:
z Programs: the activities and steps needed;
z Budget: a financial summary of costs, and hopefully income too, associated with each program; and
z Procedures: the specific actions to be completed.
Step 8: Monitor and adjust plan as required
A critical element of the planning process is to set up some key performance indicators (KPIs) to summarize
the actions taken within the firm and measure the outcomes from those actions. Some KPIs might be actuals
versus budgets; others might be your own standards, such as, “We always want to have a minimum cash buffer
of $10,000 in the firm’s check account.” Other KPIs might come from external sources, such as the financial
benchmarking provided by specialist research groups, or from firm support networks. Later in this module is a
list of the important KPIs that a firm can use to control and measure its performance.
If actual performance does not meet the budget or the benchmark, then go back into the planning process to
identify the cause of the problem. Once you have considered the reasons, make any necessary changes to the plan.
Where to now?
By thinking through the issues in this way, you will achieve two things:
z First, you will be more committed to your plan if it is in writing. The mere presence of this type of document
can often encourage you to achieve more goals than you might otherwise have achieved.
z Second, by thinking through some of the potential problems and having undertaken some scenario planning, you
can often sidestep them in the first place. One of the benefits listed in the risk management section (discussed fully
in Module 7) is that knowing in advance about a potential problem can often help you sidestep it altogether.
Earlier in this module, the point was made that the planning process often requires you to revisit earlier
decisions in the light of subsequent information. You should keep going through the process and the series of
steps, refining and updating as you go.
This does not mean that you never actually get any real work done! It means that in about six to twelve months’
time, you will need to go through the plan again, and update it to reflect your new starting point. Hopefully that
starting point will be six months closer to achieving your objectives! And hopefully you will not need to rethink
all your personal ambitions and goals, or rewrite the mission statement or the firm’s policies. Instead, you will
spend time improving systems and refining the budgets that govern your actions over the next six to twelve
months. All the time, you will know that every action moves you closer to achieving your objectives and your
mission. That’s what is meant by the term “living document” in relation to a strategic plan or a business plan.
1.4

Planning for effective relations with clients

Firms deliver a largely intangible product by harnessing skills and time and then communicating the outcomes and
benefits to clients. Clearly, dealing effectively with other people is a core skill in an accounting firm. This section
looks at factors that combine to build quality relationships with those you encounter in your professional life.
1.4.1

The challenges of generational diversity

Social commentators note that certain groups of people have vastly different aspirations and motivators. For
that reason, effective communication demands that you learn how to tailor a particular message to address
the key motivating factors for each generation. It is important for public practitioners to be aware of these

differences: your clients and your personnel are drawn from several generations. Using a single communication
or management style will not deliver a truly contented workforce nor will it guarantee effective communication
with all clients. Generational diversity among employees is addressed more fully in Module 4.
How your employees think differently from you
As individuals, everyone is shaped by their upbringing and the times in which they live. Consider how major
stages in a nation’s history might shape the views of people at different times: the danger or austerity which
might be linked to wartime; or the confidence and carefree attitudes resulting from prolonged upswings
in economic activity; or possibly the uncertainty which many countries faced during periods of economic
downturn, such as that of 2008–2009. People who live through such times will adopt a particular mindset
consistent with the needs or the opportunities of those times those mindsets can last a lifetime, and will
underpin their daily decisions and actions.
“Their top reasons for joining a firm are career growth opportunities, paid personal/vacation time and
salary—in that order ... A multi-faceted generation.”
Dennis 2006

“The firm has a low attrition rate compared with many of the UK’s top 60 accountancy firms, at around 10%.”
Perry 2008

“New hires generally last less than two years, and small firms lose about a tenth of their workforce annually ...
Other recruiters acknowledge they no longer even try to get accountants for small CPA firms.”
Tarasco & Damato 2006

Employee turnover is a significant issue for accounting firms; this subject, and understanding the employee
mindset, is covered in Module 4.
Core values
A “best practice” approach revolves around utilizing the skills offered by all personnel in the firm, and fostering
working relationships built on mutual respect.
Some motivators will be important to all employees and partners, whatever generation they represent factors
such as leaders’ integrity and consistency, recognition and praise for good work, skill development and variety of
work. When the leaders of a firm demonstrate these core values, other partners, employees, clients and suppliers
will develop a deep respect for those who are guiding them.
As an example, consider the following questions as they apply to the integrity of the strategies for recruitment,
retention or motivation of its people.
z What is the value of performance appraisal discussions or career planning if a principal does not raise or
identify a key negative factor in an employee’s performance? Open communication is essential, even though
it may be uncomfortable for one party or the other on occasion. Naturally, negative comments should be
handled sensitively, in order to keep the working relationship intact.
z Are you consistent in the application of the core values? If all people are not treated equitably your team will
not respect any reference to those core values.
z Is it ethical to describe a position or job role inaccurately to a prospective employee? The outcome could well
be that the new employee finds the position less interesting than he or she was led to expect and becomes
disenchanted, weakening the trust between employer and employee. It is likely to cause a resignation and
rehiring process, at considerable cost to the firm in time and money. The employee might also bear a cost,
MODULE 1: PLANNING FOR YOUR FIRM

either by having a very short-term period of employment in his or her history or becoming more cynical
towards all employers.
A few core values, built on respect, will underpin all dealings with the people involved with your firm. With
this foundation in place, you can use a variety of incentives or communication methods with employees from
different generations. In this way, you can effectively harness the talent and commitment of all the people
working in your firm to deliver high quality client services.
1.4.2

Clients’ perceptions

Social and technological changes will simultaneously lead to and reflect changes in client attitudes. You will
no doubt see the impact of this in many aspects of your firm. Module 5 examines how technology has affected
every aspect of accountancy today.
Clients expect rapid service and quick turnaround of work. The introduction of fax machines represented a
major change in the speed of commerce. Documents, especially those destined internationally, did not require
days or weeks to be delivered to recipients. This factor alone caused a radical rethink in the communication
process: it created an expectation that a particular matter can be dealt with now.
z The rapid adoption of email, particularly when combined with PDF and/or zip technology for locking and
compressing files or documents accelerated that trend. Now, substantial documents or files can be delivered
in seconds to virtually anywhere in the world. Laptop computers, wireless internet and mobile telephones
make people directly accessible at any location, either inside an office or outside it, at work or not. The rapid
expansion in the reach of technology creates expectations among clients that any problem can be addressed
to the “right person” (“my” accountant, “my” auditor or “my” business coach) within a matter of hours, if not
minutes. Answers can be sought, and delivered. Problems can be solved. Advisers are expected to be available
whenever they are needed.
z People are less patient in waiting for answers. The computer and software sales industries have created an
expectation that information can be provided “at the press of a button”: never mind the need to enter some
data, or the need to screen the input for quality or reasonableness or accuracy.
These factors lead clients to expect that work can be done quickly, and at lower cost. Not only that, but clients are less
likely to excuse errors or miscalculation. Clients expect rapid turnaround, achieved error-free and at minimal cost.
Therefore, firms need to adopt relevant technology, then learn its features and limitations. Firms require welltrained employees who can run the programs, as well as understand potential problem areas that would cause
an inaccurate result. They must deliver prompt and accurate information and service to clients. At the same time,
firms must train clients to understand that there are many clients, all of whom are important, and all of whom
expect top priority. Like many aspects of your professional life, it is a balancing act.
1.4.3

The “devaluing” of information by the internet

More and more organizations, including government departments or agencies, are putting substantial amounts
of raw information onto websites. Much of this information is free, especially if there is considered to be a
“community interest” in conveying that information. It is the responsibility of users to seek quality information
from reputable and credible sites.
This easy access means some clients will seek information for themselves, and self-diagnose problems within their
own businesses and/or to suit their taxation or other needs. This carries a risk that clients might misdiagnose the
underlying problem, or act on incomplete information, and therefore take an unsuitable course of action.
Accountants charge a fee to provide advice to clients: the advice is based on information (which some clients
might find free of charge via the internet) and it is applied to the client’s specific situation. Accountants must

consequently focus on value-adding for the client (delivering benefits not just information), and continually
resell the savings, security or the confidence that their services represent.
1.4.4

The challenges of greater client mobility

The combination of access to information coupled with a demand for quick response is helping to create better
educated clients (or at least to make clients believe that they are better educated). Such clients do not tolerate
errors or poor service from their accountants. These clients, therefore, might be more likely to complain, or even
to allege professional incompetence or neglect.
At the very least, clients are less willing to stay with an accounting firm if they are not satisfied with some aspect
of the service. Retaining clients for the long term requires more attention now than ever before.
1.5

Developing plans for your firm’s various functions

As part of your overall strategic planning, this section details how to develop more detailed plans for the
following functions:
z Service delivery;
z Risk management and mitigation;
z Personnel;
z Marketing and selling;
z Technology;
z Administration; and
z Finance, or budget, to integrate the financial implications and resources required to achieve the various plans.
1.5.1

Service delivery plan

This plan must clearly state the range of services provided by your firm. Just as importantly, it also should
describe how the firm will handle services it does not offer: whether clients will be referred to another
organization, or whether clients will simply be told to find another provider of the required service.
The service delivery plan should include the amount of professional development required, and whether this
will be largely provided in-house or by attending courses outside the firm.
The plan should describe the firm’s approach to its systems and procedures. Well documented and current
systems and procedures are essential to the effective delivery of services. Systems and procedures also specify
minimum (and ideally best practice) technical steps needed to deliver a sound and competent service. Clear, welldocumented systems help to establish the amount of time and labor required to perform a task; they minimize the
professional exposure from “getting it wrong”; and they enable partners to influence the overall professional work
within the firm without having to directly perform or personally review every action taken by employees.
Every firm should have a “champion” to oversee the updates and any expansion of the documents and procedures
used within the firm. This person must have the authority, supported by the full partnership, to confidently
update or amend documents, and then ensure that partners and employees use them. This might require some
technology assistance as well: for example, the master documents might need to be stored in a protected folder on
a computer system so that all documents can be accessed and read but not changed (see Module 5 ).
From time to time, a major workflow process within the firm might need to be changed: a new accounting
standard might demand an extensive redesign of the current process. Sometimes, implementing a new piece
of software might require a new process to be defined. Whenever these major changes are required, take the

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opportunity to redesign the particular process entirely. Doing this should keep the process simple and direct
without compromising professional quality. Naturally, once a procedure is amended, all personnel should be
advised of the change in an appropriate manner (for example, through training, or via an explanatory memo).
Remember that the service delivery plan can impact the entire organizational structure. Sometimes a division or
team within a firm can become so big that it affects the whole structure of the organization. In such a case, the
service delivery plan will need to be reviewed and, if necessary, amended to reflect the change.
1.5.2

Risk management and mitigation plan

Refer to Section 1. “Building a risk management mindset into your firm” for information about developing a risk
management plan. Module 7 contains specific guidance on risk management strategies within the firm (Section
7.3) and business continuity planning (Section 5.12 and Section 7.6).
1.5.3

Human resources plan

The human resources plan should dovetail into the service delivery plan, after all, it is people who deliver the
services offered by the firm. Accordingly, the personnel plan should attempt to forecast the likely number
and skills base of people required by the firm over about an eighteen-month period. If the firm looks beyond
eighteen months, too much guesswork is required. Which services are expected to grow strongly, and which
might decline? Can personnel be moved from one part of the firm to another? If so, is any retraining needed?
What ongoing training is needed to keep people current and efficient? How can the firm retain the key people
who will be most critical to their future success? All those questions can help to integrate the two plans.
The plan should address issues outlined in Appendix 1.4. See also Module 4 for more information.
A firm will almost certainly need to add other items to this list, according to its needs and the culture of the firm.
1.5.4

Marketing and selling plan

Your marketing plan should identify the steps needed to move from your current position (for example, no
clients, or possibly the wrong clients), to the goal position identified in your strategic plan. The key components
of your marketing plan should include:
z Your mission statement and the vision for your firm;
z A brief restatement of your marketing objectives and how they complement your mission statement;
z The timelines for your marketing program and any milestone events;
z Marketing strategies to be employed both internally and externally; and
z The resources (physical resources plus the cost) required to achieve your marketing plan.
Your marketing activities will normally be focused on one of several objectives. Even though you might have a
primary objective (for example, a particular rate of growth in fees, or to target new clients from a particular industry
segment), the other objectives are not necessarily mutually exclusive. Your marketing objectives could be to:
z Build market awareness of your firm;
z Build your brand identity;
z Refine your client base;
z Acquire new clients; and/or
z Grow your fee base by offering new services to existing clients.
For many firms the focus will be on the last two objectives, with the areas of market awareness and brand identity
seen as residual or secondary benefits. They are clear and measurable outcomes from a series of promotions.

z Marketing designed to gain new clients and increase your fee base will use some internal and some external
marketing strategies. External strategies are those that bring new clients to the firm. Typical examples of
external strategies include: Client referrals;
z Memberships of professional or community organizations;
z Professional network referrals;
z Speaking engagements;
z Holding functions for clients, members of referral networks, and prospective clients;
z Advertising and other media;
z Seminars;
z Advertising in telephone directories;
z Articles and editorials in newsletters;
z Website promotion; and
z Referrals through your professional association.
Internal strategies increase your fee base from your existing clients. There are three main ways to achieve this:
z Increased utilization of your current services by your existing clients;
z Introduction of new services to your existing client base; and
z Increased charge rates.
Decide where your emphasis should lie and reflect this in your marketing plan. As with all plans, however, the
focus must be on the action that each person will take to implement the plan. For example, your marketing
plan might state: “We will contact all existing business clients to discuss their estate planning and retirement
strategies.” This statement is of no value unless every partner and manager discusses this topic with the
applicable clients during the annual accounting review.
Marketing is sometimes seen as remote from the activities of an accountant. On the contrary, marketing is an
integral part of every accountant’s work: do good professional work, then tell clients about the benefits you
have achieved for them or for other clients. This should be a simple process (and a lucrative one) with current
clients; it can be as simple as asking a question or two as part of a larger discussion. In the example above, the
issue could be raised like this: “The business is going well at the moment, but do you have enough savings to
do the things you want to do once you’ve retired? We can help you prepare the business for sale and look at the
adequacy of your pension plan and savings.”
Use the template in Appendix 1.3to develop your marketing plan. Make sure it includes objectives and
strategies to achieve your strategic goals. A couple of examples are already included in the template for your
benefit. (You can remove and photocopy the template for your use.) Case study 1.2 in Appendix 1.5 illustrates
how a firm can devise ways of marketing their services to clients.
Marketing methods
You may need to spend substantial time thinking about planning each promotion, and more time drafting the
material. Keep the objective in mind: what are you asking the client or prospective client to do?
Here are some ideas.
z Institute a system or a checklist that ensuring that clients are made aware of other services relevant to their
situation. This might take the form of a key question (“What are you doing to prepare for your retirement?” or

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“How often does cash get tight in your business, during the year?”), or it could be a more formal outline of a
range of possible services. Make sure that all partners do this as part of their regular work with clients.
z Talk to each client as the new service is being delivered, to ensure that they see the benefits that the firm is
delivering and that the service delivery is smooth. Often, a visit by a partner to a client’s premises will identify
the need for additional accounting services.
z Plenty of money can be wasted in running “feel good” promotions that make the partners think they’re being
pro-active. A far better approach is to promote a specific service and generate feedback directly.
z Ensure that in any case study the client’s identity and details are disguised and remain confidential.
z Is it clear that you’re asking them to take action? A well-created letter or brochure can be wasted if it leaves
the client or prospective client uncertain. A good promotional piece should create interest and then stimulate
action. Use clear language in your promotional material.
z Measure the cost and the response. Avoid the approaches that don’t work, and focus on the ones that have
worked. You may have lots of good ideas for promotions, so feel free to test some of them. Look at the cost
per response, the cost per new sale and the conversion rate from inquiry to sale.
Beware of too much client concentration
While it is generally a good thing to be selling more work to your clients, there is a potential risk if a single client
predominates your firm’s work. The firm has a significant commercial exposure if the client leaves for another
firm. You could end up with too many employees, too much office space and too high an overhead structure.
These can quickly bite into profitability, since some of these costs are difficult to reduce.
1.5.5

Technology plan

Refer to Module 5 for information to consider when developing a technology strategy for your firm.
1.5.6

Administration plan

Good administration is essential for any firm—allocate roles that suit the abilities, and hopefully the interests,
of your people. A partner with a strong bent towards organization, order and process will be ideally placed to
take on a role in the administration area. Allocation of management or administration roles among the partners
or senior employees is a suitable model for smaller firms, which are unlikely to be large enough to afford a
dedicated “general manager” or equivalent position.
The administration plan needs to address issues which help the firm to run smoothly by ensuring that relevant
supplies are in place, that purchasing of minor office supplies happens in an efficient and controlled way, that
employees and suppliers are paid in a predictable and accurate way, that all the personnel, equipment and other
resources are available as required for the fee-earners to be able to perform their roles, and that clients are sent
bills and pay within the firm’s trading terms.
As firms change, the administration demands will also change each additional person will need resources
such as a desk, computer, some software licenses, and so on. Someone will need to think about the way that
office space is allocated and used. The firm might start to create specialist teams of fee-earners. More partners
might be added. More invoices will be raised for clients and more receipts will be processed. Changed billing
arrangements, such as the introduction of a monthly payment plan for clients, will change the processing
volumes handled by the administration team.
Each such change places a different pressure on a firm’s administration, so periodically review the allocation
of roles among senior personnel. From time to time, the underlying policies (for example, limits on who can
purchase items for the firm, or delegated levels of spending) will need to be reviewed. If a small firm eventually

becomes so large that the administration partner is losing too many billable hours, employing an administration
or a general manager will be a worthwhile investment.
1.5.7

Finance plan, or budget

Virtually every decision made within a firm will have a financial consequence, and these are reflected in the
budget or financial plan.
Each of the individual plans described above should have their own budget, or the budgetary implications
might be covered in the overall firm-wide budget. A budget allows a firm to prioritize its actions and plan for any
problems realistically, in advance. The budget will help you keep these types of pressures under control:
z It may make the partners feel good to see a quarter-page advertisement in a key regional newspaper every
day, but the return on investment must be assessed.
z It may impress clients that your firm operates from luxurious offices in a prestigious location, but the required
charge-out rates might price your firm out of its market.
z Employees might all wish for a pay raise or promotion, but it is essential that they also understand the impact
on charge-out rates or fee targets.
z Employees might appreciate using the latest electronic gadgets in their daily work, but each application
needs to contribute to the firm’s efficiency and revenue base.
A budget or financial plan imposes commercial discipline around each decision, and imposes controls on day-today activities. It also sets targets that motivate, such as billable hours per person, or a revenue target per person
or per team. Many firms are moving towards using team budgets instead of individual budgets for revenue, but
even within a team budget all personnel must contribute fairly towards the overall figure. Achievement of the
“production” or “revenue” target might then see some incentives being paid to some or all personnel.
Budget processes may evolve over time as the firm expands and diversifies. In a small firm, one partner might
take responsibility for preparing a realistic budget, which the other partners will automatically accept and adopt.
Larger firms will need to involve key employees (for example, technology and human resources specialists) and
additional partners from major service areas while framing the budget because the larger firms must ensure that
all users of a budget feel involved in developing realistic targets. This extra level of consultation takes more time,
and might require some diplomacy.
1.5.8

Assessing when plans need to change

Partners, especially those who accept management roles, should continually monitor the effectiveness of internal
systems and look for warning signs that something is amiss. These indicators might be measurable or technical
(for example, the load on telephone lines or a telephone system), or they might be more subjective (for example,
sensing more complaints about a policy or procedure). These warning signs should prompt some action. If a
genuine problem exists, then the partners need to lead the way to a newer better solution as quickly as possible.
Several tools can be used when assessing the need for change: the yearly or half-yearly partners’ retreat, traffic
counts on key transactions, the use of benchmarks or targets such as turnaround time, or a sense of the mood
of the organization. Each is valid, depending on the type of problem being examined. Select the right indicator
or tool, initiate a thorough review of the problem and then implement the best solution. Your role as partner
demands that you lead in management as well as in professional aspects of your firm.
Use the skills of individuals effectively. Partners and senior accounting employees are best used in fee-earning
roles, wherever possible. This generates the revenue can pay the wages of suitably qualified specialists to
manage the firm. In comparatively small firms, partners may be involved in management functions, along with

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assistants who perform routine transaction processing. So a managing partner in a small firm may well have an
administrative assistant or an IT officer, rather than an administration manager or an IT manager.
1.6

Building a risk management mindset into your firm

Some risks, should they eventuate, might only be an annoyance; others could threaten the viability of your firm,
or cause you to lose all your personal assets. Effective risk management helps you to control, and hopefully
eliminate, each risk or its impact. The most obvious precaution any firm can take is to carefully vet any new client
before agreeing to do business with them.
Risk management is fully discussed in Module 7. Here, you and your employees are shown how you can adopt a
risk management mindset to shape day-to-day actions within the firm.
1.6.1

Ten steps to successful risk management
1. Start with a quality recruitment process
Your recruitment process should attract high-caliber employees who are trustworthy and honest.
Screen and check the references of the short-listed applicants. Any job offer should be conditional upon
satisfactory validation of academic, professional, and reference records.
2. Ensure that employees are properly trained
Good training programs give employees adequate technical skills, show them how to deliver good-quality
work, describe essential communication skills, and reinforce the need for a professional approach in their
dealings with clients and team members.
3. Do not delegate tasks beyond capability levels
Delegation is essential to allow for the continued growth of a firm. Good delegation will see that tasks are
only delegated to employees capable of handling them. Good delegation will stretch each employee’s
professional skills slightly; the partner or manager must guide the employee through the new or
unfamiliar aspects of that work.
4. Ensure that employees are aware of systems and standard procedures
Without proper systems in place, your team might not have clear and concise guidelines to work within. In
turn, this could lead to you risking your professional reputation and losing the confidence of your clients.
Your systems are your quality control.
5. Have a procedure to identify weaknesses or problems with systems
Each member of your team should look for any deficiencies in systems. Once a deficiency, weakness, or problem
is identified, it should be reported to the firm manager or the relevant partner to be addressed and resolved.
6. Employ proper review processes
Decide to review all completed tasks this is just as essential for senior employees and partners as it is
for intermediate and graduate employees. Everyone makes mistakes, and the best way of avoiding the
resulting problems is to have a review system in place. This allows for a second pair of eyes to go over all
work and identify mistakes and correct them prior to incorrect material leaving the office.
7. Maintain an adequate spread in your fee base
Everyone has ideas about the ideal client: one who uses a broad range of the firm’s services, is not fee
resistant and is enjoyable to work for. Your firm should be built around these clients.

Every firm will have its larger clients. You should, however, be careful if a single client or a small group of
clients dominates your fee base. The risk is that you are building the resource base of your firm around a
small number of clients; if they should leave for any reason, your firm may be exposed. Obviously, where
a single client dominates your client base there is also the risk that you or your employees might be
unreasonably influenced by the demands of that client.
8. Have adequate insurance
The principles outlined above are all forms of insurance against accidents. Naturally, you also need to
have commercial insurance policies in place to protect you from the financial impact of, for example, a
fire sweeping through your office or a professional indemnity claim against your firm. The premiums offer
some protection, but they do not cover you against all possible losses: of time, sleep, reputation and so on.
The best form of protection is to avoid the problem in the first place!
9. Back up your technology and records
As technology becomes more ingrained into public accounting services, the need for proper back-up
procedures becomes all the more important. For example, a complete back-up server for your main files
does not represent an unreasonably large amount of money any more. Frequent back-ups of data must be
made, and a copy kept offsite. Periodically, run a recovery test to see what would happen if you needed to
restore or replace a file server or key piece of equipment.
10. Be fully aware of privacy and client confidentiality guidelines
Finally, professional training puts great store in the need to maintain confidentiality about business
information. Complying with both the spirit and the letter of the various requirements (ethical and/or
legal) for client confidentiality and security of private information is now a fact of business life. Make sure
that your team is aware of the high duty of care that accountants adopt.
1.6.2

Minimizing exposure to loss of key personnel

A firm depends on several key personnel and key roles. Since the commercial future of your firm depends
on avoiding errors or adverse circumstances in these areas, adopting or adapting the following policies and
guidelines is strongly suggested. (Module 4 is based entirely on effective management of the personnel side of
the accounting business.)
This model assumes that there is more than one partner managing the firm.
1.6.2a Partners and owners
The partners provide leadership at many levels: technical leadership, leadership in the production and
commercial aspects of the firm’s operation, and shaping the culture and atmosphere within the office. The
sudden loss of a partner could cause significant disruption to the firm in each of those areas.
To control any potential risks:
z Pay for a “key person” life insurance policy on each owner, to provide short-term cash injections to cover
increased operating costs and potential loss of profit, and to fund the purchase of the deceased partner’s
share of the firm. Re-assess the level of coverage each year to ensure it is adequate.
z Ensure that all work-related files and client engagements are sufficiently well documented to permit any
other senior person to use those files and to complete client work with minimal disruption.
z Commit to support the use of standardized work papers, template documents and filing systems (physical
and electronic). This enables all related documentation pertaining to clients to be stored and retrieved quickly
and efficiently.

MODULE 1: PLANNING FOR YOUR FIRM

z Develop the skills and knowledge of senior personnel, to develop potential future partners.
z Aim to create an effective firm culture (see Module 3).
1.6.2b Internal accountant/manager (if employed)
This role handles much of the financial resources and record-keeping, potentially exposing partners to:
z Losses or damage due to inadequate skills and/or poor performance;
z Fraud; or
z The impact of delays in reporting or analyzing the firm’s ongoing profitability and/or liquidity.
To control any potential risks:
z Decide who will supervise the accountant/manager. Write a detailed job description for this role, which
delegates certain responsibilities to the manager and other specific responsibilities to the supervising partner.
This ensures that all tasks are allocated to one individual or the other within the management team.
z Acquire a suitable firm management software package, to ensure that transactions are treated securely and
that reliable reports can be provided quickly. Where necessary, engage an external consultant to help define
special or regular reports.
z One of the partners should counter-sign with the manager all payments on behalf of the firm (with the
exception of minor purchases paid for via a credit card) another partner should counter-sign payments if the
first partner is away from the firm for an extended or inconvenient period of time. Where EFT is used, ensure
the most secure and up-to-date system is in place. Determine whether purchases over a certain cost must be
approved in advance.
z From time to time, review aspects of the manager’s work, especially in matters relating to cash handling
and other receipts from clients of the firm. Perform other reviews on a random basis, at the discretion of the
supervising partner.
z In the early days of the firm, review all incoming mail. This ensures that monies received from clients can be
audited and verified against their debtor records occasionally. Reviewing mail also allows the supervising
partner to monitor any negative feedback (received in writing) about the firm’s services.
The manager should:
z Recommend a realistic reporting schedule, covering profit reporting (and the basis on which profit is
determined), liquidity reporting, and review of work in progress and debtor ledgers. This ensures prompt
reporting, and if there is an unexpected or unjustified delay in reporting the supervising partner can step in to
identify the cause and any impact of that delay.
z Keep up to date professionally via in-house training and any further external professional development
activities as required.
1.6.2c Senior accounting employees
Involving senior fee-earning employees with each client directly and at a high level gives the most efficient
standard of service, and also ensures that the firm is continually building the broader skills base of its people.
However, this approach could leave the firm exposed to loss should the employee leave and take the client with
them, or exposed to professional risk arising from inaccurate or poor-quality advice given by the employee.
To control any potential risks:
z Devise screening tests for use in the pre-employment phase. These tests should examine the technical
knowledge of each prospective employee.

z Adopt best practice employment processes to check references and qualifications as part of the preemployment screening of applicants.
z Require each employee, as a condition of employment, to sign a restraint agreement to restrict some of their
actions should they leave the firm, such as approaching any of the firm’s clients or staff to lure them to another
firm, or making disparaging comments about the firm, partners or clients. The agreement should be professionally
drafted, and based on reasonable restrictions supported by the appropriate laws and professional regulations.
z Provide a range of support resources for clients, such as visiting their premises, writing newsletters or other
technical briefing materials, encouraging networking opportunities among clients where applicable and ethical,
and so on. These initiatives enhance the client’s loyalty to the firm rather than to any individual within it.
z Provide suitable professional development or other skills training, to ensure high technical standards of
service delivery.
z Review advice prior to its communication to a client.
1.6.2d Managing service risk
Restricting the range of services to the partners’ specialties permits the firm to give sound professional advice
with minimal professional risk.
To control any potential risks:
z Run internal professional development activities at least monthly to discuss changes in legislation or other
matters impacting on client work.
z Allocate a specialist from the team to monitor developments in key areas such as income tax, company tax,
indirect taxes, capital gains/inheritance taxes, and so on. Each specialist can use the training meetings to
familiarize the rest of the team with the changes.
z Conduct an annual firm review to identify (among other things) any new services the firm wishes to add; for
example, “The next anticipated addition is likely to be wealth management/financial planning services in
approximately two years’ time.”
z Form alliances with other specialist firms to ensure that clients have their full accounting needs met. For
example, have at least two reputable and competent firms you can introduce to a client, to give the client
some control over their choice of adviser. Monitor the advice and service at least annually to ensure high
standards are maintained.
z Conduct regular quality control reviews of files to ensure systems are being followed.
1.6.3

Minimizing potential problems in service delivery

Start-up firms may have limited access to existing procedure documents and workflow templates. This could
leave the firm exposed to providing incomplete professional advice, especially in its less common services; such
exposure would be detrimental to clients as well as the firm.
To control any potential risks:
z Provide services through separate legal structures, in order to comply with local regulations concerning limits
on professional liability.
z In light of the extensive time required to develop workflows and procedures in-house, source a commercially
available suite of work papers and process documentation. Use appropriate software applications to
standardize and streamline complex calculations. This enables partners to focus their time and energy on
locating and working with new clients, and expanding services to existing clients.

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z A partner should authorize any changes to the template documents to maintain control over the quality and
consistency of the firm’s work.
z Provide a regular training program to keep the team up to date professionally.
z Source convenient and relevant subscriptions to alert the firm to changes in legislation and/or regulations.
z Use and regularly update engagement letters for clients.
z Perform internal peer reviews of a small sample of client files during the year and welcome similar peer
reviews sponsored and/or arranged though the firm’s professional association.
z Hold professional indemnity/malpractice insurance to a minimum value of $(XXXX) (to be determined by the
firm). Review this amount annually, prior to renewal of the policy.
Module 7 considers risk management strategies in other aspects of firm management and Module 5examines
the risks associated with technology in more depth.
1.7

Implementing a practice manual and systems

A well-run firm will need and want to document its policies and procedures. A current practice manual is also
required under international quality assurance guidelines. IFAC Guide to Quality Control for Small- and MediumSized Practices can be downloaded from: http://web.ifac.org/publications.
Your professional association may have also created such a document for its members.
Module 7 provides more guidance on the implementation of quality control systems within an accounting firm.
A practice manual ensures that all personnel can quickly access details about the way the firm operates and its
professional standards. New personnel can be made aware of the full extent of a particular policy.
Documenting these processes will improve the quality and effectiveness of the training process. For example,
even an experienced person who is training a new employee might cover the substance of each process, but
miss one or two steps leaving the trainee with an understanding of perhaps 80% or 90% of the full process.
If that new employee subsequently trains another staff member some time later, then perhaps another 10%
or 20% of the process will not be conveyed accurately, or at all. Therefore it is conceivable that within two
“trainings.” Only about two-thirds of the full process might be conveyed to the third person. This creates an
opportunity for a firm’s systems to fall apart.
Several manuals will be required within a firm, each with a separate and distinct focus:
z A practice manual or quality control manual, which guides the way that professional work is performed within
the firm;
z A staff manual or office manual, covering the various administrative matters and processes which all
personnel need to know;
z The partners might even require a manual to govern some of their dealings with each other: this is especially
important if the partnership agreement is not very detailed or prescriptive.
See Appendix 1.4. for suggested content of an office manual.
If you are buying an existing firm and plan to run it as a sole principal, or if you are buying into an established
partnership, then these manuals should already exist in some form. You will need to assure yourself that they
incorporate or adopt best practice approaches to professional work and to the running of the firm. If they do
not, then you or senior personnel will need to spend some time upgrading and updating the individual policies
and procedures.

If you are starting a firm from scratch, you will need to document each policy as it emerges. Some of these can
be pre-empted (for example, a range of staff- or employment-related policies can be drawn up based on your
own experience as an employee), while other situations will arise in an unplanned way each first case can be
used to establish the firm’s policy.
You may find that a publishing firm or even another accounting firm will sell ready-made manuals. This outlay
can save you considerable time. Even though this type of manual is complete, you might still find that some
policies do not suit your own style or preferences, and will require changes.
1.8

Using benchmarks to drive performance and improvement

Some benchmarks or key performance indicators (KPIs) are commonly and widely adopted throughout the
profession; others might challenge you to develop specific indicators relevant to your own situation and performance.
Benchmarks can be obtained from several different sources.
1.8.1

External benchmarks

An obvious place to find benchmarks is from accounting firms broadly similar to your own. These are known as
external benchmarks. In many countries there are specialist benchmarking projects (some are run consultancy
firms, while others are run by or sponsored by the national or state-based professional association). These
studies collect information from firms, then group them according to specific features (possibly the size of firm,
its geographic location, its predominant source of fees, and so on). Once this grouping is achieved, an average or
a median result can be obtained to indicate what those firms typically achieve for each indicator. The partners or
managers in each firm can then evaluate their firm’s result relative to the typical result, and decide whether the
difference represents a strength, a weakness, or simply a difference of approach.
Sometimes a small group of firms exchanges this type of data among themselves. This approach demands that
all the representatives of all the firms have a great degree of trust in each other: the firms will reveal sensitive
and confidential information about their own performance and it is essential that no one breaches that trust.
Small groups of this type are often based on tightly defined criteria for similarity: they might all be, for example,
insolvency firms, or they might all be firms with three to five partners, located in inner-city offices.
The strength of external benchmarks is that one firm might be challenged by the achievements of the others.
For example, a firm might have adopted a particular approach to debtor collections and, despite regular
follow-ups with slow payers, may have an average collection period of seventy-five days. That firm might come
to believe that seventy-five days is as good a result as is possible. However, other firms might use different
techniques or different billing arrangements and achieve a thirty-day collection cycle. This type of difference
should rightfully challenge the “seventy-five day firm” to review its processes so that it moves closer
to the “thirty-day” result. External benchmarking reports often give generalized tips about improving
performance, and the small-group approach allows partners or senior personnel to ask more detailed questions
about the processes or policies that deliver better results.
1.8.2

Internal benchmarks

Benchmarks also come from within the firm. By regularly measuring and calculating certain indicators, a firm can
monitor trends in its own performance. Such an approach allows the firm to focus on special aspects of its own
performance and take account of certain unique attributes. While this is beneficial, it can lull a firm into a false
sense of security, as the “debtors” example above suggests. The use of internal benchmarks is most powerful
when it tracks firm-specific facts that are not easily or reliably compared with other firms.

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1.8.3

Other industry benchmarks

The third type of benchmarking involves using techniques, such as cross-selling or on-selling, adopted in other
industries; these techniques obviously need to be adapted to the accounting business. For example:
z Franchised fast-food outlets have excellent procedures for on-selling their products to customers (“Would
you like fries with that?”) and also at bundling “meal deals.” Both tactics are designed to offer a wider range of
products to clients, and in so doing to increase the average sales size. It is also conceivable that the add-on
components might be the higher margin lines, which will enhance overall profitability too. An accountant
would never ask “Would you like an audit with these accounts?,” but the concept of offering a wider range of
relevant services applies as much to accounting services as to fast food.
z Firms with high fixed-cost components need to continually build occupancy or usage levels as one
technique for boosting profitability. Airlines and accommodation providers are good examples where yield
management and occupancy rates are KPIs. These providers know their marginal cost of delivery, and use
differential pricing and/or special offers to lift utilization at a time of otherwise low demand. Labor cost is a
major fixed-cost item in accounting firms, so a similar concept might be applied. The firm might promote a
first-time systems audit for a mid-sized commercial client at lower charge rates during a traditionally slow
time of year. This would see more billable hours being sold than usual, yet the firm would still be making a
profit on those additional hours. If the client wishes to undertake a similar project the following year, then
your firm has the scope to lift the hourly charge-out rate towards your normal level.
z The key principle here is to look at what other firms are doing, then analyze why they are doing it. Once
you understand the underlying commercial concept, you can see if and how that concept might be applied
profitably in your firm.
There are many examples of this type of cross-industry benchmarking. Remember that benchmarking can occur
at different levels. Many benchmarks will be expressed numerically profit margins, cost structures, write-downs or
staffing structures can be expressed with numbers. Provided the definitions are clear, comparing numbers can give
a similarly clear perspective on business performance. It is also possible to benchmark processes or policies.
The benchmarks themselves are not the solution to a firm’s problems but they may indicate where a problem
exists and the size of the problem. It requires further work from key personnel to identify possible solutions and
implement the best ones. A subsequent re-measurement of the indicator should show some progress towards
“better firm” and possibly even to “best firm.” The sooner corrective action can be taken, the sooner will profits
and liquidity increase.
Keep in mind that the process of improving performance takes time and might require several steps or
decisions. Use tools like graphs or trend lines to monitor improvements over a period of time. Those tools make
it easier to see an unfavorable trend as it emerges, or to monitor real progress.
Here is a list of some of the most common benchmark indicators you might use to measure improvements in
firm efficiency or profitability. They are categorized according to whether they can be accessed and compared
effectively from external benchmarks, or whether they are more suitable as internal benchmarks.
1.8.3a Firm-wide KPIs suitable for external benchmarking
Profitability
z Wages cost as percentage of total revenue;
z Other overheads as percentage of total revenue;
z Net profit per partner/director;
z Write-downs as percentage of total production, or per person.

Personnel productivity
z Revenue per dollar of salaries (including notional salary of partners/directors);
z Fee to wage ratio;
z Revenue yield per productive hour (that is, hours excluding all leave, professional development time, nonchargeable time, etc.);
z Revenue per person working in the firm;
z Revenue per fee-earner (that is, excluding employees primarily in support or non-fee-earning roles);
z Revenue per partner;
z Productive hours worked per person per annum;
z Productive hours worked as percentage of available time (that is, excluding holidays, sick and professional
development leave, etc.).
Liquidity
z Days of work in progress unbilled;
z Days of debtors outstanding;
z Asset turnover;
z Structure and supervision:
} Employees per principal/director;
} Support personnel as percentage of total;
} Clients per person;
} Clients per professional (“fee-earner”);
z Fees per client.
Other
z Growth in firm revenue per annum;
z Fees generated from ten largest clients, as percentage of total revenue;
z Average fee per client;
z Growth in average fee per client.
1.8.3b Firm-wide KPIs suitable for internal trend reporting
Internal trend reporting might cover a wider range of indicators; some of those might be unique to your firm
due to a desire to measure the impact of specific objectives adopted within the firm.
Internal measurement should cover all of the above indicators, plus assets per person:
z Turnaround time for work;
z Partners’ equity as percentage of total assets;
z Distributed profit as percentage of total profit earned;
z Growth in firm profit per annum;
z Current ratio;

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z Debtors aging;
z Work in progress aging;
z Detailed expenses as percentage of revenue, and/or per person: focus on controllable variable costs, since the
fixed-cost percentages will vary according to the revenue base;
z Goodwill (or change in value of goodwill) based on the firm’s internal valuation formula;
z Revenue mix as percentage of total revenue (sources of revenue by service);
z Revenue from first-year (new) clients as percentage of total revenue;
z Number of clients gained and lost during the year, as percentage of number of clients at the start of the year.
1.8.3c Operational KPIs suitable for internal comparison
Finally, you might wish to benchmark within the individual departments or workgroups within the firm. It then
may be possible to compare, for example, the performance of one workgroup with another. This of course is based
on the assumption that the departments are reasonably similar in work methods or client mix and so on. At this
point, your choice of indicators can be highly focused and directly relevant to the work of each particular team.
When constructing these indicators, make sure that they highlight efficiency and not just activity. For example, it
would normally be considered more efficient if each person in the accounts department can raise more invoices
and process more payments per employee or per labor-hour. However, encouraging more invoices to be created
(for example, by mailing invoices to clients
semi-monthly rather than monthly, or by encouraging partial payments rather than full payments by clients)
might do nothing more than increase the level of activity, for no net gain to the firm. A cynical manager might
then use benchmarks to argue for additional employees to help process the higher volume of activity. That
would clearly not be a good result for the firm overall, because it increases the cost of running the firm while still
meeting the benchmark.
For each fee-earning division or team
z Revenue per person;
z Write-downs per person per annum;
z Revenue less direct costs and controllable costs (that is, exclude arbitrary cost allocations or apportionments)
equates to contribution to firm’s unallocated overheads;
z Direct salary cost (including employee-related on-costs) as percentage of revenue;
z Controllable cost as percentage of revenue;
z Fee growth per annum, total;
z Increase in average fee per client;
z Growth in contribution (that is, the department-related profit measure) per annum;
z New clients gained and clients lost during the year;
z Percentage attainment of division’s objectives. This indicator(s) will vary depending on the nature of the
objective. The aim is to quantify the extent of compliance with objectives (for example, percentage of clients
who were offered additional services during discussions with the client, or number and percentage of clients
who were migrated to lump-sum, monthly billing);
z Total work in progress and debtors.

For marketing activity
z Marketing outlay per enquiry;
z Marketing outlay per new client gained;
z Marketing hours (by all personnel) as percentage of total available hours, firm-wide;
z Revenue per marketing hour;
z Improvement in the client satisfaction index based on client surveys.
For administration or finance unit
z Administration employees’ hours as percentage of total available hours, firm-wide;
z Revenue per administration hour;
z Other efficiency indicators, such as percentage payments to creditors that were paid late.
1.9
1.9.1

The business of running your firm
The key stages in running an effective firm

Figure 1.2 The “virtuous circle” of an efficient accounting firm
Find a
new client
Tailor a
service

Bill and
collect

Communicate
outcomes

Agree price
and terms

Engagement
Letter

Deliver the
service
Gather
information

The key stages in this process are:
1.9.1a Find a client (later, on-sell to existing clients)
In a start-up firm, this is especially challenging. You might have brought some clients from your previous
employer’s firm (take care to act ethically in this regard, by complying with any agreements or undertakings you
gave while an employee), or you might be building a client base from nothing.
If you bought a firm or parcel of fees from another practitioner, you will want to focus on retaining those key clients.
If you are joining an existing firm, the immediate pressure to find new clients will be less, since there will be
some handover of clients from existing partners to you. No matter which situation applies to you, there is always
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the imperative to add more clients who fit your ideal client profile. There are many marketing and sales tools
available to you; you may want to refer to the earlier section on developing a marketing plan. Remember, though,
that a firm continually needs new clients in order to grow, or simply to replace the natural attrition of clients.
1. Tailor a service
This is where supply (your capacity to deliver services which benefit clients) meets demand (the specific need
which your client describes to you). The basic accounting service revolves around recording and summarizing
transactions, then reporting to a range of users. Then your own skills, complemented by the skills of colleagues
in the firm, enable you to deliver further services to benefit your clients.
You might need to look beyond your own skills to create the right package of services to completely satisfy a
client’s needs (whether stated or unstated). Be willing to introduce your client to other high-quality specialists
inside or outside your firm who possess the knowledge you do not have. The ways networks can help you meet
clients’ needs fully is addressed in Module 2.
2. Agree on price and terms
While your primary motivation is probably to deliver good service and outcomes to clients, basic business
principles must also be applied to guarantee a long and viable future for your firm.
Set a price that reflects your cost structure, and delivers a suitable profit for the time and investment you devote
to the firm. Tell clients how and when you will invoice them. Tell clients that you expect them to pay your
accounts promptly.
Help clients minimize the amount of low-level processing work that you must perform for them (for example,
install record-keeping systems or software in the client business, and train their employees in its use). This
helps clients to control the total accounting fee by providing you with quality source information. For your part,
estimate a realistic date for completion of the client’s work and deliver on that promised turnaround time.
Charge-out rate describes the hourly fee for each fee-earner that ensures the firm remains commercially viable.
Whether the firm actually charges by the hour for work performed, or whether the firm adopts a “package price”
for an agreed bundle of services, achieving this charge-out rate is essential to the economic success of the firm.
The rate must be high enough to cover all costs, to provide a return on equity invested in the firm, and to reward
the partners’ time properly.
3. Engagement letter
Most professional associations require a firm to produce a current and accurate engagement letter that
describes in reasonable detail:
z The nature and scope of work to be performed, including limitations;
z The way in which work outside that scope will be handled and priced;
z The client’s role in assisting you with source documents or other information;
z Your obligations in terms of professionalism, confidentiality, and completion; and
z The commercial terms of the engagement.
In this way, both parties know what is expected and how each contributes to the relationship. Sometimes a
new engagement letter might be prepared for new or unexpected work that arises in the course of the year.
Be guided by your professional association about the requirements of a valid engagement letter. Engagement
letters should be reviewed annually, and separate letters issued where additional assignments have been
agreed, or the scope of an existing assignment has been substantively changed. The client engagement process
is examined in detail in Module 7 .

4. Gather information
When you are negotiating the terms of the engagement, you will identify certain records or other information
that the client must provide. Once the engagement commences, the firm might use some checklists to gather
specific information from the client. This streamlines the process and ensures that all relevant information is
collected at the earliest opportunity. It should prevent or at least minimize the need to ask the client for further
detail; as a result, it speeds up the completion of work and ensures its quality.
There are many ways to gather this information: face-to-face meetings, telephone discussions, email, letters, and
so on. Use the method which best suits each client’s personality and preferences. This makes the communication
process as smooth, client-friendly, and efficient as possible. Web-based tools can allow clients to view the
progress of their work.
5. Deliver the service
This covers all the stages and processes used to convert your skills into an outcome for the client: the application
of your professional knowledge; easy access by accounting employees to subscriptions or research services;
the deadlines adopted and progress towards meeting them; the level of in-firm review of work by, for example,
a manager or partner; the use of the firm’s quality control systems; effective approaches within the firm to the
management of the assignment, including setting priorities; and having a focus on completing work. There are
administrative and process aspects of this phase, in addition to technical or professional aspects.
6. Communicate outcomes
Clients rarely see or know the full extent of the work you do. Therefore, the presentation of the final outcome
assumes great importance in ensuring that clients are satisfied with your work or advice.
The method of communication should be tailored to each client: a letter or written report, face-to-face meeting
and discussion, telephone discussion, or some other method? Decide based upon your client’s availability and
preferences, as well as your own.
Similarly, consider the type and amount of information to be communicated. How much will the client
comprehend? Should you incorporate diagrams or graphs to communicate effectively? How should you phrase
the message? Some clients will just want the answer, while others will want to understand the underlying
process as well. Some will prefer to deal in numbers, while others might comprehend graphs more easily.
Include and explain any qualifications to the advice. Also consider any professional guidelines related to the
information you must cover.
Make sure that the client understands not only the cost of your service, but also the net benefit they have
gained: in this way, you continually resell the importance of your work.
7. Bill and collect
This should be simple, as the billing arrangements should have been addressed while the engagement was
being outlined. Reaching specific milestones should trigger the automatic creation of an invoice for the
client. The client should expect this. A firm might opt for a single invoice on completion, or a progress invoice
determined by time (for example, on the first day of the month during May, June, and July, with the final figure
invoiced at completion of the job) or milestone for example, at the commencement of the interim audit work
and at the start of the final audit review). Both could lead to a significant build-up of work in progress and/or
debtor balances, and tie up considerable working capital as a result.
Many firms are moving towards fixed-scope, fixed-price engagements that are paid monthly, then charging
separately for any additional work. This model has been shown to smooth the cash flow for both client and firm;
it also sees less money tied up in work in progress and debtors.

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Some work lends itself to value-billing: your firm’s fee is governed by the benefit to the client rather than the
actual time spent on the work. This approach can yield an above-target return per productive or chargeable
hour, and contains an element of benefit sharing.
If you feel that it is necessary to write-down an invoice before it is raised, try to understand the reason behind it.
Was the excess time due to a staff member who needed training? Or was it due to a large amount of rework on a
part of the work? Does one person in the firm cause most of the write-downs? This will help you control the level
of write-downs, and put strategies in place to minimize them in the future. Every dollar of write-down represents
a dollar of profit given away, so these are important adjustments you are sometimes asked or required to make.
“Additionally too many firms are extremely lax when it comes to financial control: lockup is far too high, invoicing is not
done on a timely basis, nobody is specifically tasked with chasing up outstanding invoices and there is no system in
place to monitor the entire billing and collection process.”
Shohet & Jenner 2007

As for collection, clients should come to know that you will actively (but professionally and in a commercially
sensible manner) pursue any invoice that remains unpaid beyond your agreed trading terms. Again, this should
be outlined in the engagement letter, prior to commencing work. You and your employees should have the
so-called “hard conversations” with clients, so that clients know that you expect your invoices to be paid in a
particular timeframe.
8. On-selling other services
Public accountants provide a wide range of services, wider than many clients realize. This is done within the
ethical framework outlined by legislation and/or your professional association. The most effective selling of
additional services happens when you and your professional employees listen to comments from clients, then
assess whether an opportunity exists for your firm to resolve that particular problem. The client might volunteer
this information (for example, “I’m not looking forward to the next discussion with my bank manager, because
I’m always using all my overdraft”) or you might identify some operational problems in a business client’s
financial statements (“You seem to have problems collecting money from clients, and this is causing a high level
of bad debts”). Or you might develop a formal checklist that you review annually with each client, to unearth
opportunities, for example, for wealth management services or estate planning structures.
Understand the differences between a regular, ongoing service and a one-off assignment. The former will
deliver sustained revenue: one sale generates benefits to the firm for many years and enhances the lifetime
value of that client. The latter will only benefit revenue in the short term; such assignments, however, can be
highly interesting and/or professionally challenging so they should not be ignored. A quality firm will (among
other things) have a high level of recurring work that underpins each year’s budgeting and workflow planning.
On-selling services requires the wise practitioner to know the firm’s skill set and its limitations. On-selling
services must always be grounded in a strong desire to look after your clients properly, and simply to boost
revenue. This approach can and should see you providing excellent, pro-active service to clients and boosting
revenue and profits for both.
In Figure 1.2 the effective selling of additional relevant services puts us back at the start: finding a client and
tailoring a service.

“In order to listen and learn more about the current client’s situation, its plans for the future and challenges on the
horizon, they use activities such as: inviting clients to talk to fee-earners; attending clients’ industry conferences;
attending clients’ own meetings or conferences; reading clients’ trade press; investing non-chargeable time in building
the relationship and adding value.”
“To be able to offer more valuable solutions to clients, a client partner and team needs to be fully up-to-date with the
current capabilities and expertise their own firm has to offer. This is often more difficult than it sounds. As firms become
more successful and bigger in size, communication between departments fragments.”
Matthews & Telfer 2007

The following steps, included in the article “The Good, The Bad and The Ugly” (Pipe 2008), are a plan for taking a
pro-active approach to identifying and satisfying clients’ needs.
z Research and produce a master list of high-impact ideas to share with clients, and continually update it.
z Add a step to your accounts completion programme requiring the accountant in charge to review the list to identify
relevant ideas for the client.
z Write the ideas up in the form of a ‘Key Improvement Possibilities Report’—quantifying their impact where possible
and making a preliminary recommendation around each idea.
z Present and discuss the report and recommendations at the accounts finalisation meeting.
z Draw up an action plan containing the recommendations the client may want to implement.
z Ask the client if they want any help implementing the things on their action plan—you will sell additional services.
z Use value pricing wherever possible to link the fee to the benefits you have quantified—you will earn higher fees.
z Repeat the process for every client, every year—since that way every client benefits, not just the favored few—and it
embeds pro-activity into the culture of the firm.
z Win new clients by putting the offer of a free ‘Key Improvement Possibility Report’ at the heart of your sales and marketing.
z Give your clients and contacts a reason to refer their contacts to you by inviting them to offer a free ‘Key
Improvement Possibility Report’, delivered by you, to the people they know.
The author of this article, Steve Pipe, advises that “Being ‘pro-active’ is the simplest, least-salesy and most effective way
to increase your cross-sales of additional services to existing clients.”
Pipe 2008

Not all partners and practitioners will be expert in all these aspects of the practice cycle. There could well
be merit in introducing others into the process at those critical points in the cycle. There is certainly benefit
from adopting firm-wide systems or standard approaches (for example, using a standard checklist to identify
future needs, or the information required from a client). Partners and employees should also recognise
that occasionally unpopular tasks that they’d simply prefer not to do such as talking to clients about billing
and collection matters. All the steps in the cycle are important to running a viable firm, so they must all be
performed regularly, systematically and professionally. Allocate your team to roles that suit their skills: this gives
the best overall outcome for the entire firm.
Set up your firm as an efficient and well-oiled machine from the outset. This is likely to make it a more attractive
place to potential new partners or when trying to sell the firm in many years’ time. Implement a systematized

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approach to everything the firm does. A firm whose people can work methodically and consistently through the
cycle of services, and then ensure that the firm controls its profitability and liquidity along the way, becomes
a valuable business. This makes it easier to sell and probably more valuable than many other firms. It might be
premature to mention this now, but one day this will be very important to you!
1.10 Monitoring external forces
This section looks at some of the big picture issues that impact on professional accounting services, and for
which planning may be required.
1.10.1 Environmental sustainability
Any firm can make a serious attempt to act in an environmentally responsible manner. One natural by-product
of minimizing a firm’s carbon footprint often leads to running a less costly business.
A simple approach is to focus on “redesign,” “reduce,” and then if required, “offset.”
z Redesigning processes can often reduce the amount of resources, saving money for the firm. Eliminate
unnecessary or unproductive steps from your processes; this reduces the amount of labor time on a range of
inputs, and cost falls as a result.
z Reduce the volume of resources used in the business. This could involve an energy audit to identify highpower devices that can be replaced, or a decision to, use electronic communications rather than paper-based
ones. Some of these changes might be quick and simple (installing low-energy lights), while others (such
as progressively buying low-energy computers, printers and other appliances) might take a little longer to
achieve. Major projects such as retrofitting your office building to reduce energy usage might be warranted if
it can meet a cost-benefit or payback hurdle. Many of these changes will reduce costs without compromising
the quality or effectiveness of your service.
z Once you have minimized the firm’s footprint you can consider whether you wish to purchase carbon offsets
(sometimes referred to as “CO2 compensation”) to counteract or offset the remaining carbon emissions from
your firm.
There may well be a number of quick, easy decisions that can make a significant impact in a short space of time.
Take those decisions first, to demonstrate to partners and employees the benefits from this strategy. Reducing
your carbon footprint can also be a selling point to some clients, and attract employees to work in your firm.
The next few years will see the environmental responsibility becoming more central in decision-making and
the implementation of a firm’s plans. This phase will challenge firms to question assumptions about work and
the way they deliver services. After perhaps five years, firms will most likely have changed their approach to the
point where being environmentally conscious is just part of the way that everyone works. Therefore in the short
term, adopting this mindset should save some money for the firm, and can also be used as a promotional factor
to make your firm more desirable. Take advantage of this situation, and position your firm accordingly.
1.10.2 International standards for accountants
There is a trend towards globalization for the development of international standards which will impact both
practices and their clients. Many clients are becoming more global in their aspirations and business activities;
this demands that their accountants should respond, possibly through international alliances or links with other
practices overseas.
Like many new technologies, the more that International Financial Reporting Standards (IFRS) are adopted, the
less will any country be able to resist the implementation. The challenge for each local standard setting body is to
ensure that appropriate and sensible adaptations are made for firms that do not operate on an international basis.

In 2009 the International Accounting Standards Board (IASB) published an IFRS for Small and Medium-sized
Entities (IFRS for SMEs). It is likely that many countries will adopt this standard in due course.
Other international standards issued by the International Auditing and Assurance Standards Board (IAASB)
and the International Ethics Standards Board for Accountants (IESBA) continue to be adopted by the use IFAC
member bodies.
Recognizing the globalization of accounting services and growth in cross-border transactions, your personnel
may need to develop cultural sensitivity, and possibly skills in foreign languages, in order to cater to a broader
and more diverse client base. Strategies to deal with these challenges could include the recruitment of multilingual, staff and professional development in international accounting and business practice.
1.10.3 Rising levels of regulation and professional knowledge
The accounting profession has increased its professional scope significantly over the last thirty years. There
is a need for professional development across a range of accounting-based disciplines, simply to maintain a
current and adequate level of professional expertise. It is doubtful that this trend will slow, given rapid change in
technology and the nature of business.
The increasing emphasis on corporate social responsibility reporting, coupled with the likelihood of audits of
client firms’ environmental responsibility statements will add further complexity to the preparation, review,
and audit of financial statements. Accountants will come to play a significant role in these extensions of the
boundaries of accounting and reporting.
One likely continued outcome from global downturns is extensive level of re-regulation in many nations around the
world. The accounting profession will play a public and vocal role as the re-regulation is debated and implemented.
The combination of re-regulation plus higher professional standards will place enormous demands on accountants
and their employees. Heavy investment will be required in ongoing training and on subscriptions to a wider array
of information services, just to maintain current knowledge. In turn, this level of training and investment will also
place substantial pressure, both financial and emotional, on the principal or partners of small firms.
Give this issue special consideration if you are planning to start or operate a sole principal firm, as the
professional and technical leadership will have to come from you.
One response could be to aim for a firm development path that focuses on rapid growth so that you can add
at least one partner within a fairly short space of time; in this way, you can plan to spread the professional
workload and leadership pressure early in your firm’s development.
A second possible response is for you to give serious consideration to joining an existing partnership, so that you
can immediately surround yourself with a number of partners, enabling some specialization of effort or interest.
1.10.4 Mobility of talent
Technology is helping to internationalize business: it enables and encourages the amalgamation of data and
even businesses across national borders.
The local subsidiary of a multinational company might require your firm to perform audits, or give tax advice
that carries international implications for the parent company.
At the other end of the scale, specialized small businesses located in rural areas are using the internet to trade their
goods or services around the world. Such a business might approach your firm for guidance with secure-payment
products (ranging from the likes of PayPal or equivalents, to trade finance arranged through a local bank).

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These clients, large and small, require accounting skills, communication protocols, risk management, knowledge
of foreign exchange issues and so on. It matters little whether the client business and its accountant are based in
a remote regional area or in the middle of a major city.
As well, nations respond to accounting issues at different times and in different ways the experience gained
in one country dealing with a particular issue can be transplanted into another, reasonably similar nation by
moving some highly skilled people. The experience gained by accounting personnel has been accessed via
international transfers or international contract-based employment, as those other countries seek to avoid any
difficulties experienced in the earlier adopting nations.
The accounting bodies, in turn, are continually looking for ways of enabling (or at least not restricting) the
international flow of skills and qualified people. They do this via reciprocal recognition of the qualifications
issued in other countries.
In short, both professional and cultural factors are making for a more mobile accounting profession.
1.10.5 Technology
Technology will continue to be integrated within the accounting role. More and more applications will become
integrated, with more information being exchanged across different organizations (for example, exchanging
information between an accounting firm and a client’s bank is now a commonplace arrangement).
Most accountants will not be experts in the establishment of computer networks or in the technicalities
of communication linkages between different organizations. However, accountants will need to learn and
implement any applications that can deliver benefits to clients. Equally, accountants will need to screen
and review the quality of data that they process on behalf of clients. To do this effectively requires a level
of comfort with technology, rather than a high level of technical understanding of the programming or the
communications links.
1.10.6 Anti-money-laundering
Money laundering is the process by which criminal proceeds become legitimized, by passing those funds
through a range of transactions and/or entities to disguise the original source of the underlying cash. It
generally involves placing cash funds in some type of transaction, diverting that cash via one or more entities or
transactions, then demonstrating a “normal” commercial basis which explains the existence of the cash.
The Financial Action Task Force (FATF), based in the headquarters of the Organisation for Economic Co-operation
and Development (OECD), establishes anti-money-laundering principles internationally. It has published a
number of recommendations which national governments are moving towards adopting. These guidelines
require certain types of organization (for example, banks, bullion dealers, jewelry dealers, gambling venues, etc.)
to satisfy themselves as to the authenticity of the clients and products or services they deal with.
Spend some time understanding the specific requirements and regulations adopted within your own country,
and also be aware of any special requirements or exemptions that apply to members of the accountancy
profession. For example, the definition or threshold for a “large transaction” will differ, as will the extent of
disclosure required for a “large transaction.”
In some countries, anti-money-laundering controls have also been accompanied by parallel controls to monitor
possible terrorism funding. The aims may be the same, and the issues might be approached as a combined
package, but money laundering and terrorism funding are separate matters.
Key steps in your firm’s compliance process involve:
z Client due diligence, where you are expected to take reasonable steps to verify the identity of the client. This might
extend to screening your key personnel or frontline employees involved directly in dealings with the public;

z Transaction monitoring, which requires you to review any underlying transactions that involve large volumes of cash;
z Reporting, either based on monetary thresholds, or suspicious transactions;
z Record-keeping, to demonstrate compliance with local regulations and laws;
z Performing risk assessments within the firm, to identify high-risk products or activities or potential clients; and
z Developing specific policies for use within the firm to codify all the above steps.
You should be sensitive to transactions that involve some or all of the following: new, unknown clients; large
cash volumes without a supporting business activity; the use of complex webs of trusts and/or company
structures that move money for no or little or no apparent value or purpose, especially where part of the web
comprises international entities.
These processes or “high-risk activities” can be added to your standard client-screening activity, even if the antimoney-laundering or counter-terrorism funding procedures do not specifically apply to your firm.
1.11 Business continuity: the short-term and long-term imperative
The issue of business planning cannot be complete without some consideration of business continuity.
As a professional accountant, you take responsibility for providing high-quality services to clients, acting at all
times in an ethical manner. Circumstances occasionally arise in which continuity of service cannot be taken for
granted. These scenarios need to be addressed in your planning process.
1.11.1 Interruption to business
On occasions, natural events may prevent your firm from operating for a period of time, due for example to:
z Fires, floods, earthquakes and other natural disasters;
z Unexpected interruptions to power or computing infrastructure; or
z The severe illness or death of the owner or a key person in the firm.
These types of catastrophic events are well outside the control of a firm, yet they impact on your ability to
service your clients. A well-run firm requires a plan to cope with this type of shock. It is essential to imagine any
of these occurrences, so that you and your partners can document the steps that must be taken to minimize the
impact on clients. Those steps could cover issues such as:
z Can you prevent the occurrence? The (limited) answer to this might include regular health checks for key
personnel in the firm and fostering a healthy approach to diet and exercise. Many of the most severe shocks
simply cannot be avoided. However, so instead, we look to the next stage.
z How can you minimize its impact? Minimization might force the principal/partners to either locate the firm
in a more stable region (that is, away from a flood-prone or earthquake-prone region), or at least have spare
resources such as computers and/or back-up data files stored elsewhere. Perhaps the firm needs to locate
itself in a more robust building.
z What is the cost of the minimization? Budget the cost of the minimization strategy, and try to estimate the
cost and the impact of the event you are trying to protect against.
z Can you form links with other firms? You might identify and create formal links with some non-competing
firms elsewhere in your country, so that each of you could provide back-up to the other in event of a major
catastrophe. This would allow a quick re-establishment of services; naturally, confidential information relating
to each client base would need to be secured appropriately.

MODULE 1: PLANNING FOR YOUR FIRM

For a sole practitioner, sudden death or severe illness is a particular concern. You might deal with this issue by
locating a firm that is willing to take over the servicing of your client base in the event of death or severe illness.
The arrangement would need to address, for example, the length of time that this support is provided, the
circumstances under which it starts and stops, and (most likely) an approach to the valuation of the firm so that
a bereaved spouse would receive a fair price for the value of the firm.
1.11.2 Continuity of business: the second generation
If the firm’s fee base grows over a number of years, the firm may see a new partner admitted. This could be a
suitably qualified and experienced employee, or it might be a member of the founding practitioner’s family.
The admission of a new partner will typically involve some payment for the share in the firm, either (in the case of a
family member) by a reduced level of income from the firm for a period of time, or (in the case of a former employee)
by payment of a figure to buy a share in the tangible assets plus the goodwill built up in the firm by its founder.
The admission of a partner represents a major shift in the way the firm operates. Suddenly, decisions must
be made jointly. Agreement is necessary between the two (or more) partners. Different personalities must be
accommodated. Policies may need to be documented and more formal records might be required in relation
to the management of the firm (for example, to record the discussions among the partners). Roles should be
outlined, so that the partners know which decisions will take. A common view of the firm’s direction is needed.
Module 2 examines the sole practitioner and partnership models in more detail.
1.12 Conclusion
This module has examined strategic planning processes, especially in relation to services, clients and
personnel, and marketing, and has touched on other aspects of business planning, including understanding
the environments within which your firm operates. Every firm requires its own strategic plan, to govern the
direction and speed at which it moves. Every individual section of the firm needs its own plan to guarantee that
it contributes to the overall result.
A firm without a plan will simply meander along, responding to opportunities in an ad hoc manner. It may well
develop in directions and in ways that do not suit the needs of its owners. The end result could be disagreement
among the partners, leading to low job satisfaction and low commitment to the firm.
Like any road map, some indicators are needed to keep the firm on track. Benchmarks will keep the firm
travelling at the right speed and help partners make the right choices at major crossroads.
Every interaction your team has with clients is a marketing opportunity. Marketing is too important to be left
solely to the marketing partner or team.
At all times during the planning and implementation stages, remember that the firm is built on its people.
Employing the right people with the right approach will be the single most important decision you can make.
The wrong employees will have an impact far beyond their own personal performance: the wrong employees
have the power to disrupt other personnel; they take more of the partners’ time to counsel or discipline them;
they drag down morale in their own team or across the entire firm; and dismissing them can be a long, timeconsuming and potentially expensive process.
Developing processes and tools to screen out potentially poor employees and hire better-suited ones will repay
the investment many times over. Use your team to help find better colleagues: they won’t want to work with
negative, incompetent or difficult people, either.

The strategic planning process never ends. It moves seamlessly from planning for the next period, then monitoring
actual performance against that plan, to planning for the subsequent period. Enjoy the process, because you will
spend considerable time dealing with plans—and enjoying the results when the plan comes to fruition.
1.13 References, further reading, and IFAC resources
References
Dennis, Anita. “Understanding the best and brightest.” Journal of Accountancy November 2006.
http://www.journalofaccountancy.com/Issues/2006/Nov/UnderstandingTheBestAndBrightest.htm
Hayes, Michael. “Be an HR resource for your clients.” Journal of Accountancy November 2006.
http://www.ksphllc.com/uploads/pdf/sabrinajournalofaccountancyarticlenov2006_003.pdf
Kaplan Robert S., and Norton, David. The strategy focused organization. How balanced scorecard companies
thrive in the new business environment. Boston, Mass.: Harvard Business School Press, 2001.
Kaplan, Robert S. and, Norton, David. The balanced scorecard: translating strategy into action. Boston, Mass.:
Harvard Business School Press,1996.
Matthews, Paul and, Telfer, Paul. “Jekyll or Hyde?” Accountancy August (2007) : 58-59.
Monks, John and, Tovey, David. “In search of greatness.” Accountancy March and April 2007.
http://www.thepacepartners.com/articles/266-in-search-of-greatness
Perry, Michelle. “Making hay even when it rains.” Accountancy May (2008) : 48-49.
Pipe, Steve A. “The Good, The Bad and The Ugly.” Accountancy July (2008) : 34-35.
Shohet, Phil and, Jenner, Andrew. “The importance of being profitable.” Accountancy July (2007): 40-41.
Tarasco, Joseph A. and, Damato, Nancy. “Build a better career path.” Journal of Accountancy May 2006.
http://www.journalofaccountancy.com/Issues/2006/May/BuildABetterCareerPath.htm
Wheelen, Thomas L. and, Hunger, David J. Strategic Management and Business Policy. New Jersey: Prentice Hall,
Englewood Cliffs, 2000.
Further reading
Angel, Robert and, Johnston, Hugh. “Positioned to win.” CA Magazine October 2008.
http://www.camagazine.com/archives/print-edition/2008/oct/features/camagazine4312.aspx
Baker, Ronald J. “The Firm of the Future.” Journal of Accountancy November 2008.
http://www.journalofaccountancy.com/Issues/2008/Nov/The+Firm+Of+The+Future.htm
Baker, Ronald J. “Pricing on Purpose: How to Implement Value Pricing In Your Firm.” Journal of Accountancy June
2009. http://www.journalofaccountancy.com/Issues/2009/Jun/20091530.htm
Barcelo, Yan. “Ten ways to add value.” CA Magazine August 2009.
http://www.camagazine.com/archives/print-edition/2009/aug/features/camagazine28582.aspx
Chapman & Eastway. “How You Can Market Your Business to Success.” Business Management Series s.d..
http://www.chapmaneastway.com.au/articles_and_publications/how_you_can_market_your_business_to_
success
CPA Australia. About balanced scorecards.
http://www.cpaaustralia.com.au/cps/rde/xchg/cpa-site/hs.xsl/knowledge-leadership-toolkit-guides-balancedscorecards.html

MODULE 1: PLANNING FOR YOUR FIRM

CPA Australia. Checklist for purchasing an accounting practice.
http://www.cpaaustralia.com.au/cps/rde/xbcr/cpa-site/checklist-for-purchasing-an-accounting-practice.pdf
CPA Australia. Firm of the Future.
http://www.cpaaustralia.com.au/cps/rde/xbcr/cpa-site/opportunities-and-challenges-for-public-practices.pdf
Davey, Louise. “ Making it count.” CA Magazine Jan-Feb 2009.
http://www.camagazine.com/archives/print-edition/2009/january-february/regulars/camagazine5525.aspx
Kaplan, Robert S. and, Norton, David. The balanced scorecard: translating strategy into action. Boston, Mass.:
Harvard Business School Press, c1996.
Kaplan, Robert S. and, Norton, David. The strategy focused organization. How balanced scorecard companies
thrive in the new business environment. Boston, Mass.: Harvard Business School Press, 2001.
Kaplan, Robert S. and, Norton, David. Strategy Maps. Converting intangible assets into tangible outcomes.
Boston, Mass.: Harvard Business School Press, 2004.
Rosenhek, Stephen. “Make it rain.” CA Magazine April 2008.
http://www.camagazine.com/archives/print-edition/2008/april/regulars/camagazine5102.aspx
Williams, Hugh. “The timesheet is dead.” Accountancy, August (2007): 56-57.
(German)
Weiland, Heiner. “Strategisches Marketing und marketingorientierte Kanzleiführung.“ Deutsches Stuerrecht, 27
(2004): 1141-1148.
(Italian)
D’Agnolo, Michele. “Il marketing strategico.” in Strategia ed organizzazione degli studi professionali, Michele
D’Agnolo: chapter 8. Milano: Il Sole 24 Ore, 2008.
Ferrarini & Partners. Strategie di sviluppo dello studio del commercialista. S.Arcangelo di Romagna: Maggioli, 2004.
Multimedia training course “Professionista 24” n. 1 Organizzare lo studio professionale. Milano: Il Sole 24 ore, 2009.
Video: http://www.economiaefinanza.org/categoria/pianificazione-strategica
IFAC resources
IFAC publications http://web.ifac.org/publications
IFAC SMP Committee publications http://web.ifac.org/publications/small-and-medium-practices-committee
To find the most up-to-date listing of other useful resources relating to this module, please visit the Resources
section of the International Center for Small and Medium Practices at http://www.ifac.org/SMP/index.
php#Resources, especially the ‘relevant links’ at http://www.ifac.org/SMP/relevant_links.php
To search the websites of IFAC member bodies and other relevant websites for other useful resources relating
to this module, please visit the IFACnet search engine located on the home page of the International Center for
Small and Medium Practices at http://www.ifac.org/SMP/
To discuss issues relating to this module with practitioners from around the world, please visit the IFAC SMP/SME
Discussion Board at http://web.ifac.org/forum/SMP/1

Appendices
Appendix 1.1 A realistic self-assessment checklist
Think about your technical skills
Do you have a solid grounding in the key service areas that your firm will deliver? Are there any major gaps
in your professional knowledge?
Can you draw on practical experience in delivering these services?
Are your skills and experience sufficiently flexible to let you solve new problems in these key skill and
service areas?
Have you been diligent in maintaining your skills, via regular and well-directed continuing professional
development?
Think about your managerial or people skills
Do you like dealing with other people (supervising, motivating, coaching, and sometimes providing
constructive criticism)?
Do you consider yourself to be a leader, or a follower?
Do you know your management style? Are you autocratic? Firm in your opinions and hard to sway? A seeker
of compromise or consensus? Flexible? Uncommitted? There is not necessarily a “right” or “wrong” style, but
it is essential that you understand your own management style, so that you can know its strengths and its
limitations. Make a list of some of the words that fairly describe your management style.
Can you be fair-minded and open to a well-thought-out line of reasoning?
Do you ensure your opinions and decisions are based on sufficient facts?
Do you prefer to work solo, or be part of a team?
Think about your financial resources
Do you have access to some funds to set up or buy into a firm possibly without drawing a wage or
equivalent for several months?
Are you aware of the major elements involved in running and funding a public firm: the build-up of work in
progress and debtors; the ongoing cash outlays you should expect to make each week or each month; the
capital items or other initial outlays you need to make, even before the firm generates any revenue?
Would a financial institution lend you money for your firm, on reasonable terms?
Do you know how to set hourly charge-out rates for your time or the time of your employees?
Think about your marketing skills
Do you consider yourself to be an effective marketer or seller of your current employer’s services?
Are you comfortable when describing and quantifying the value or benefits that your services can deliver to
a client or prospective client?
Do you believe that your charge-out rate or billable rate fairly represents your value to your clients? One
way or another, running a profitable firm requires you to generate a certain amount of revenue from each
hour that you spend working for each client. You can’t afford the luxury of self-doubt. It is essential that
you believe you deliver value and benefit to your client base, otherwise your marketing will have a hollow
feeling about it.

MODULE 1: PLANNING FOR YOUR FIRM

Think about your personality
Are you a confident person?
Are you willing to work hard to achieve your objectives? At some times, you will need to work long hours to
complete specific deadline-driven work; if this will frustrate you, then you might need to take a generous
and more costly approach to staffing the firm.
Are you willing to make sacrifices at some times to achieve your objectives?
Do you enjoy working with and for other people? Clients, partners and employees are all people and each
person will have their own needs and wants from you and your firm. Each will have their own style and you
will need to utilize the strengths that each person brings to the firm.
How do you cope with work pressure? Or pressure from, for example, tight liquidity, either personally or in
the business?
Think about the support networks around you
Will family and/or friends support your decision to go into a public firm? Will they permit you the time and
flexibility to work long hours should the need arise?
How will you support yourself and/or your family financially, especially in the early days of a start-up firm?
(Especially for an intending sole practitioner) Do you have a trusted adviser (or a mentor or a coach) with
whom you can discuss a difficult issue?
Financial: Everyone has a view about the importance (or otherwise) of material wealth and a different definition
of a comfortable lifestyle. What is yours?
Specific things you want to do: What are they, and what is a realistic timeframe in which they could be achieved?

Appendix 1.2 Matters to be covered or addressed in the planning process checklist
Legal structure
z Sole practitioner or partnership?
z Choice of the particular legal entity: use of specific legal structures, with their related implications and
benefits for limitation of legal liability.
Services
z The range of services to be offered;
z Whether they will all be offered in-house, or some handled via referrals;
z The approach towards the referring of a client elsewhere (for example, do you expect referrals in return?).
Staffing
z The long-term mix of principal/partners versus employees;
z Some mention of career path options and criteria for advancement;
z Approaches (both the stated policies and hopefully a consistent culture) towards working hours, holidays,
other leave, and flexibility to accommodate short-term family situations that might affect a employee;
z Flexibility in permitting work-from-home arrangements;
z Reward programs you might wish to implement;
z Approaches to permitting periods of extended leave without pay or study leave etc and
z Methods to be used to attract and retain new personnel.
Systems and procedures
z The specific processes which your team will use to deliver services to clients, and the amount of flexibility to
be given to different employees;
z The sanctions that are applied when a system is ignored or not followed; and
z Precedents, work papers, and the quality review requirements of your professional association.
Technology
z Will this be developed and implemented by internal personnel (that is, principal/partners and/or employees),
or will it be driven via consultants and contractors?
z Set a target cost level that will ensure that the minimum range of technology is available from day one, which
keeps pace with the growth of the firm into the future.
Marketing and growth
z Some consideration of the methods to be used to achieve organic growth in client numbers;
z The approaches to be adopted to make clients aware of the full range of services offered by the firm;
z The importance of marketing within each person’s job description;
z Whether marketing is considered the responsibility of all client facing employees, or whether it is primarily
addressed by a small number of capable partners or senior personnel; and

MODULE 1: PLANNING FOR YOUR FIRM

z Whether growth is a key focus of the firm’s efforts, or a by-product of getting everything else right; whether
growth will be sought solely through organic development of the client and service bases, or through
merger/acquisition.
Finance
z An overall approach to the funding needs of the firm:
} Contributed capital;
} Retained earnings and
} Dividend/drawings levels;
z A broad approach to the lease versus buy options for purchase of capital equipment;
z The extent to which the firm will accept a “loss leader” service or is prepared to incur short-term losses in a
new service area as part of the development of a broader range of services in the longer term; and
z Allocation of responsibilities for financial management, administration, and management of the firm.

Appendix 1.3 Marketing program template
Marketing program
Year
Marketing objective

Strategy

Responsibility

Time frames

Cost

Results anticipated

To increase fees
by 5%

Introduce financial
planning into practice

Carol Taylor

by 31
December

$28 000

20 clients at $2500 per
client

To acquire 5 new
business clients

Quarterly seminar
programs

John Smith

by 30
September

$14 000

Acquisition of 1-2 clients
per seminar held

Internal

Example 1

External

Example 2

Total

MODULE 1: PLANNING FOR YOUR FIRM

Appendix 1.4 Sample Office Manual
A sample office manual follows as an example.
The manual should cover issues such as:
The mission statement and/or objectives
z List of services provided;
z List of specific target client-types or the principal market segment in which the firm operates;
z Key operating targets or aspirations for the current financial year.
Organizational structure
z Major teams or functional areas within the firm, both fee-earning and administrative;
z Senior personnel (at a minimum);
z (Ideally) allocation of all personnel into their work groups or teams;
z Key contact details for the firm: office location(s), mailing address, phone number, fax number, generic email
address, and so on.
Employment conditions
z Reporting lines and organization structure;
z Fair employment processes covering advertising a vacancy, screening applications, interviewing short-listed
candidates, checking references, creating letters to offer employment, and so on;
z Induction programs for new employees;
z Job descriptions;
z Ongoing professional development: in-practice activities, external courses and events, firm subsidy for
training or professional development, claw-backs of subsidies in event of early departure from the firm;
z Work hours and performance targets: minimum standards and expectations, overtime, flexible time, and so on;
z Dress standards;
z Smoking, alcohol and drug policies;
z Performance management: staff performance reviews and target-setting for the coming year;
z Salary-setting and review: salary scales if applicable, criteria used in salary reviews, frequency of reviews,
bonuses or incentives;
z Frequency and method of pay;
z Non-salary benefits provided by the firm (possibly non-cash benefits, salary-sacrifice arrangements,
retirement scheme etc.);
z Leave allowances and conditions: holidays, sick leave, long-service leave, bereavement leave, special leave,
unpaid leave, study leave, maternity and paternity leave, and so on;
z Grievance or appeal process;
z Termination of employment: notice required from either the employee or the firm.
Purchasing of minor requirements
z Delegation limits for proposed spending;

z Authorization of purchases and payments;
z Booking of travel or reimbursement of travel costs: standard of travel to be used, lowest practical cost to
determine, for example, choice of car versus air travel for long-distance trips, use of taxis;
z Charge-backs to clients for costs incurred during professional work.
Use of the firm’s equipment
z Resources provided within the office: computers, software, subscriptions, telephones, internet access, storage,
and so on;
z Resources provided for use outside the office: portable computers, mobile phones, vehicles;
z Reporting and reimbursement by employees for private use of office resources.
Performance standards
z The default or standard form and style to be used with correspondence; special greetings to be used when
answering the phone; quality or performance standards governing, for example, telephone-answering or
response times for email or other incoming contacts;
z Management of incoming and outgoing communications: phone, postage, email, fax;
z Document retention;
z Grievance process for clients;
z Guarantees for professional work;
z Privacy and confidentiality regarding client information;
z Authorization or limits on authorizing write-downs, amending fee invoices, or writing off invoiced amounts.
Fair work practices
Some or all of these might be governed by legislation, or by codes of conduct.
z Equal employment opportunity;
z Occupational health and safety or safe workplace: emergency contacts, fire drills;
z Anti-discrimination: for example, on the basis of age, race, religion, sex, sexual preferences;
z Harassment, whether in the form of bullying, sexual harassment, or other

MODULE 1: PLANNING FOR YOUR FIRM

Sample staff office manual

This is a sample manual only.
The content of this manual should
be customized to reflect your
individual practice requirements.

Table of contents
1

Introduction

1.1 General introduction

1.2 The Practice’s history

1.3 The Practices Mission & Vision Statements

1.4 The Practice’s objectives

1.5 Administrative structure

Employment

2.1 Performance of duties

2.2 Reimbursement of expenses

2.3 Travel

2.4 Dress and conduct

2.5 Payroll processing

2.6 Personnel details

2.7 Practice Motor Vehicles

2.8 Practice Motor Vehicle Insurance and Liability

2.9 Mobile telephones

2.10 Charge accounts

2.11 Personal telephone calls

2.12 Appropriate internet and email usage

2.13 Lateness for work

2.14 Medical examination

2.15 Property of the Practice

2.16 Security

2.17 Car parking

2.18 Annual review

2.19 Termination of employment

2.20 Smoke-free environment

2.21 Quality assurance system

2.22 Work for employees and family

2.23 Practice Code of Conduct

2.24 Special leave arrangements

2.25 Acceptance of Gifts and Entertainment Policy

Workplace health and safety policy

3.1 General Duty of Care

3.2 Safety rules and regulations

SAMPLE STAFF OFFICE MANUAL

6
7

3.3 Incident report form

3.4 Security and fire safety procedures

3.5 Visitors to the Practices Officers

3.6 First Aid

Equal opportunity, discrimination and harassment policy

4.1 Introduction

4.2 Discrimination

4.3 What is discrimination?

4.4 Workplace rights

4.5 Sexual harassment

4.6 Harassment

4.7 Consequences of breaching this policy

4.8 What can I do if I believe I have been harassed or discriminated against?

Professional standards

5.1 Code of Conduct

5.2 Other Professional Standards

Quality control

6.1 Practice Quality Control Procedures

Email and internet policy

7.1 Introduction

7.2 What does this policy cover?

7.3 Email protocol and guidelines for email use

7.4 Internet protocol

7.5 System protocol

7.6 Software

7.7 Practice’s surveillance policy

8.1 Purpose

8.2 Collection of personal information

8.3 Privacy Principles

General office procedures

9.1 Telephone

9.2 Email correspondence

9.3 Correspondence

9.4 Filing (including electronic)

9.5 Storage and disposal of documentation

9.6 Petty Cash Reimbursements

9.7 Staff Facilities

9.8 Photocopiers

9.9 Fax machines and other office equipment

10 Staff appraisal, training & development

10.1 Objectives of performance appraisals

10.2 How often should performance appraisals be conducted?

10.3 During the performance appraisal meeting

10.4 After the performance appraisal meeting

11 Finance policies

12 General employee grievances

12.1 Introduction to grievances

12.2 Procedures for dealing with employee conflict

12.3 Procedure for dealing with employee/client conflict

13 Office forms

13.1 Application for leave

13.2 Bank account details

13.3 Employee appraisal sheet

13.4 Travelling expenses claim form

13.5 Overtime sheet

13.6 Reimbursement expense form

SAMPLE STAFF OFFICE MANUAL

Introduction

1.1

General introduction

It is not possible for the Staff Office Manual (Office Manual) to cover all aspects of the operation and
administration of [INSERT NAME OF PRACTICE] (Practice). However, in respect to those issues dealt with in it,
the Office Manual sets out the broad philosophy of the practice and specific policies that staff members are to
follow. Staff members should familiarize themselves with the policies and procedures contained in this Office
Manual.
Employees must comply with the Office Manual as amended from time to time.
This Manual also forms part of the Practice’s Quality Assurance System and should be read in conjunction with
ISQC 1 (Quality Control of the Firm) [OR INSERT LOCAL EQUIVALENT STANDARD] as amended from time to time.
The specific benefits that adherence to the Office Manual will bring include:
[CUSTOMIZE THE FOLLOWING TEXT TO REFLECT PRACTICE PHILOSOPHY]
For our Practice:
z Defining the service levels our clients expect our practice to provide
z Enhancing the communication structure
z Providing training for staff members in performing their roles
z Ensuring consistency in the format and substance of working papers
z Reducing lost time due to re-work or ineffective and/or inefficient practices
z Reducing the risk of litigation
z Highlighting procedural or conflicting policies
z Resolving problems effectively
z Increasing profitability
For our Clients:
z Clear benchmarks of the standard of service they receive
z Understanding of the value of the services they receive for our fees
z Consistency in service
To meet the changing environment in which the Practice operates, it will be necessary to amend the Office
Manual from time to time. The Practice will give staff notice of any substantial changes to the Office Manual, and
staff will be required to follow the changed policies and procedures.
The contents of the Office Manual are confidential and should not be disclosed or discussed outside the Practice
without the Practice’s prior consent.
1.2

The Practice’s history

[INSERT DETAILS]

1.3

The Practice’s Mission & Vision Statements

[INSERT DETAILS]

1.4

The Practice’s Objectives

[INSERT DETAILS]
1.5

Administrative structure

The Practice’s administration systems and the people responsible are set out in the table below. Staff should
raise any concerns about areas of administration with initially, the employee’s supervisor; or if the employee’s
supervisor cannot resolve the matter, with the person specified in the table below:
Area of administration

Finance:
A. Debtors
B. Creditors and Payment of Accounts
C. Customer Evaluation
D. Internal Financial Data:
• Budgets
• Monthly reports
E. Insurances
F. Financial Computer Systems

Office
A. Technology:
• Computer System
• Telephone System
• Office Equipment
B. Consumables:
• Stationery
• Amenities
C. Motor Vehicles

Business Development
A. Marketing:
• Advertising
• Public Relations
• Functions
• Circulars
B. Training and Development

Person responsible

[SPECIFY POSITIONS HERE RATHER THAN
PARTICULAR EMPLOYEES. e.g. “The Staff
Partner,’ ‘The Office Manager’]

2
SAMPLE STAFF OFFICE MANUAL

People
A. Recruitment and Selection
B. Salaries
C. Discrimination and Sexual Harassment

Please refer to the complaints processes set out in
the Practice’s equal employment opportunity policy
in this Office Manual.

Quality Assurance
A. Quality Manager

Employment

2.1

Performance of duties

Employees’ duties are set out in their letters of appointment or employment agreements and include any other
duties advised by the Practice from time to time.
Whenever employees experience difficulty in understanding or performing any aspect of their duties they
should seek assistance from:
z their direct supervisor;
z if the direct supervisor is not available, another employee with a similar level of authority to the supervisor; or
z if neither the supervisor nor an employee with a similar level of authority is available, another employee more
experienced than him or herself.
All employees should perform their duties and represent the Practice in a professional and courteous manner.
Employees must at all times act in the best interests of, and promote the interests of, the Practice.
Employees should behave professionally towards clients at all times. Behaving professionally towards clients is
matter of common sense. It includes being polite when dealing with clients, whether in person, on the phone,
or via written communications, including email. It also includes refraining from speaking critically about, or
defaming the Practice’s clients.
Employees should maintain an awareness of the services offered by the Practice. Employees should be alert to
opportunities to “add value” to the Practice’s clients by providing additional services.
Employees should reply promptly to any client enquiries. Employees are to address clients formally (for example,
“Mr,” “Ms,” “Mrs,” “Sir” or “Madam”) unless invited to do otherwise by the client.
All employees represent the Practice, both during and outside working hours. Employees should not at any
time engage in conduct that could damage or discredit the Practice’s reputation. If any employee’s out-of-work
conduct has a relevant connection with their employment, or is contrary to the Practice’s interests, the Practice
may take disciplinary action to address an employee’s out-of-work conduct.
If an employee knows or suspects that a client:
is dissatisfied with the Practice’s services; or
is reluctant to provide information necessary for the Practice to supply services,
the employee should report the matter as soon as possible to their supervisor.
3

2.2

Reimbursement of expenses

The Practice will reimburse employees for pre-approved expenses properly incurred by employees in the proper
performance of their duties. Reimbursement will be subject to employees providing the Practice with receipts or
other evidence of payment and of the purpose of each expense, in a form reasonably required by the Practice.
Employees will also be required to complete the Expense Reimbursement Form which is included in the Office
Forms section of this Manual.
2.3

Travel

Reasonable travelling expenses, where incurred in the performance of an employee’s duties, will be reimbursed,
provided that all claims are made on the appropriate form, signed by the appropriate supervisor and supported
with the necessary documentation. The payment of expenses is at all times subject to the prior authorization of,
and at the discretion of, the Practice.
Employees should arrange travel and accommodation through the Practice’s preferred travel supplier prior to
departure.
Generally air travel will be by economy class, with a carrier chosen by the Practice.
2.4

Dress and conduct

Employees are expected to observe a standard of dress, personal appearance and grooming befitting for
employees of a professional organization, subject to the necessary requirements of the duties of each
employee’s position.
The Practice may, on occasion, provide alcoholic beverages for consumption in the workplace or elsewhere
during work-related social functions, for example, at a Christmas party or client lunch. Employees remain at
all times responsible for their decision to drink alcoholic beverages on such occasions, and undertake to act
responsibly at all times during these occasions.
Employees represent the Practice, both during and outside working hours. Employees should not at any time
engage in conduct that could damage or discredit the Practice’s reputation, including during work-related social
functions. The conduct of an employee during a work-related social function or after hours may result in the
Practice taking disciplinary action against an employee where the conduct of the employee reflects badly on the
business or reputation of the Practice.
2.5

Payroll processing

Payroll processing is conducted by the accounts department or such other authorised representative of the
Practice. For those employees who may be entitled to overtime, penalty rates or other allowances, work outside
normal rostered hours is only to be performed if authorised in advance by the employee’s supervisor.
2.6 Personal Details - change of address
Each employee’s current address is required for the purpose of complying with employment legislation. In
addition, it may be necessary for the Practice to contact an employee or their next of kin, for example, in the
event of an unexplained absence or emergency. For this reason all employees are required to keep the Practice
updated in relation to changes to their addresses or personal telephone numbers, as well as the contact details
of their next of kin.

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2.7 Practice Motor Vehicles
The Practice may make available to Practice employees, contractors and work experience staff (Persons)
company motor vehicles for use on work-related business (Practice Motor Vehicles).
The use of Practice Motor Vehicles is, where possible, to be booked in advance through the Practice’s vehicle
booking system. [INSERT DETAILS OF ANY PARTICULAR PRACTICE SYSTEM HERE]
Practice Motor Vehicles remain at all times the property of the Practice.
All Persons driving a Practice Motor Vehicle must:
z be in possession of a current, valid driver’s license, and must not drive a Practice Motor Vehicle if not licensed
or authorized to drive it;
z observe all relevant traffic regulations;
z drive in a manner which is safe and responsible in respect to themselves, any passengers and the general public;
z not drive or permit the driving of a Practice Motor Vehicle by a person under the influence of alcohol or drugs.
This means having a zero breath and blood alcohol level (notwithstanding that there are legal limits for
breath and blood alcohol), and not being under the influence of prescription or recreational drugs;
z show courtesy and consideration to all other road users;
z not authorize or allow any other person to drive the Practice Motor Vehicle without the written authorization
of the Practice;
z not drive or permit the driving of a Practice Motor Vehicle in a careless, reckless or dangerous manner;
z comply with the provisions of all statutes, rules and regulations in respect of the use or driving of a Practice
Motor Vehicle. Persons are responsible for the consequences of any breaches of those statutes, rules and
regulations during the period employees have the use of a Practice Motor Vehicle, including any speeding
fines, penalties or claims.
In the event a Person’s driver’s license is suspended or cancelled, a Person must not drive a Practice Motor
Vehicle under any circumstances.
It is the responsibility of any Person driving a Practice Motor Vehicle to ensure before use that:
z a current registration sticker is in place;
z tire pressures are correct;
z water, oil, battery, and fuel levels are correct; and
z all items in the vehicle are secure.
If any Person using a Practice Motor Vehicle detects or suspects any problem or defect in relation to a Practice
Motor Vehicle, the problem or defect must be reported immediately to that Person’s supervisor. If requested,
the Person must complete any requested documentation in respect of the suspected problem or defect. If any
Practice Motor Vehicle appears un-roadworthy, it should not be used.
The Person driving a Practice Motor Vehicle at the time that the fuel tanks becomes less than a quarter full is
required to refill the fuel tank with the appropriate fuel at a service station approved by the Practice or at which
the Practice has a fuel account.
Whenever a Person leaves a Practice Motor Vehicle unattended, the Person must ensure that the vehicle has
been properly locked and secured and, if possible, protected from the weather.
5

If Persons are involved in an accident or incident and a Practice Motor Vehicle requires towing, the police must be
advised immediately. Similarly, if Persons are injured in an accident or incident, the police must be called immediately.
Persons must report any accident/incident to transport services as soon as practicable. An accident/incident report
form must also be completed and forwarded to the Person’s supervisor at the earliest possible opportunity.
The Practice takes no responsibility whatsoever for any fines, infringements or penalties incurred by Persons
driving Practice Motor Vehicles. The payment of fines and penalties incurred by Persons will be the responsibility
of the Persons driving the Practice Motor Vehicle at the time the fine or penalty is incurred. Unless otherwise
notified, the fine or penalty will be the responsibility of the Person who originally booked the Practice Motor
Vehicle. If this cannot be determined, the custodian of the Practice Motor Vehicle will be responsible until such
time as the Person driving the Practice Motor Vehicle at the time the fine or penalty was incurred is identified.
2.8 Practice Motor Vehicle Insurance and Liability
If insurance is provided for loss or damage to the Practice Motor Vehicle the Practice’s insurer may bring, defend
or settle any legal proceedings in its sole discretion. The Practice’s insurer shall have the sole conduct of any
proceedings. Any such proceedings shall be brought or defended in the driver’s name.
In the event that a Person is involved in and is deemed to have caused an accident by the Practice’s insurer, the
Practice will bear the cost of the insurance excess unless the accident results from the Reckless or Illegal Actions
of a Person. “Reckless or Illegal Actions” that may invalidate the insurance policy include:
z driving a vehicle when the driver has a blood alcohol content in excess of the legal limit;
z driving a vehicle while not licensed or authorized to drive it;
z driving a vehicle in an unsafe condition;
z using the vehicle in a trial, race, test, or contest; or
z driving a vehicle in breach of traffic laws or regulations.
If a Person is using a Practice Motor Vehicle for work-related purposes and due to Reckless or Illegal Actions
of the Person, the Practice is exposed to liability, directly or indirectly due to the use of the motor vehicle, the
Person agrees to indemnify the Practice for any liability for which the Practice is not covered by insurance.
Persons must ensure that if they are involved in a motor vehicle accident in a Practice Motor Vehicle, or if a
Practice Motor Vehicle is stolen or otherwise damaged, that they do not breach or invalidate any insurance cover
and, in addition, must:
z report the accident or theft immediately to the Practice so that the insurer (and in the case of theft, the police)
can be notified;
z not admit liability for any accident, or make any attempt to settle or compromise any claims;
z not make any statements to the Practice or its insurer which are not truthful and frank;
z provide any assistance to the Practice or its insurer as requested to enable the Practice and its insurer to
defend or bring any claim in relation to the accident or theft; and
z deliver to the Practice immediately upon receipt every summons, complaint or paper in relation to an
accident or theft.
Practice Motor Vehicles are not to be used for personal use without the Practice’s prior consent. If a Person is
using a Practice Motor Vehicle for personal use (whether the motor vehicle is part of their remuneration package
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or not), the Person agrees to indemnify the Practice for any liability incurred directly or indirectly due to the
Person’s personal use of the motor vehicle for which the Practice is not otherwise covered by insurance.
2.9 Mobile telephones
If an employee is provided with a mobile telephone:
z the mobile telephone is provided so that the employee can properly perform their work-related duties.
During any period in which the employee is unable, or not required to perform their duties, the employee
may be required to return the mobile telephone to the Practice;
z the employee will use the mobile telephone for business purposes only;
z the Practice will pay for reasonable work-related costs associated with the mobile telephone. Employees will
reimburse the Practice for the costs of all personal phone calls, text messages and other messages associated
with the mobile telephone;
z it is the employee’s responsibility to ensure the mobile telephone is fitted with a charged battery in working condition;
z it is the employee’s responsibility to advise the Practice of any problems or defects which the employee
detects or suspects in relation to the mobile telephone; and
z the employee will maintain and take care of the mobile telephone and return it immediately (in good working
condition) to the Practice upon request.
The mobile phone remains at all times the property of the Practice.
2.10 Charge accounts
No employees are to make private purchases on Practice accounts, unless, on each occasion:
z prior authorization has been granted to the employee by the Practice;
z an official order form has been completed by the employee and approved by the Practice; and
z a written authorization or other agreement in the terms of the following clause, has been agreed to between
the employee and the Practice.
On each occasion that employees are permitted to make private purchases on Practice accounts, those purchases
must be paid for by employees by the end of the next pay period. Unless alternative arrangements are discussed
and agreed to in writing between the employee and the Practice, employees will be required to authorize the
Practice in writing to deduct from their pay, the amount attributable to the particular private purchase.
2.11 Personal telephone calls
Employees are urged to limit personal telephone calls during work hours. Making or receiving personal calls
during work breaks is acceptable.
The Practice discourages the receipt of personal telephone calls at work other than in cases of genuine
emergency. Employees are to discourage their friends or family from contacting them at work, other than during
breaks or in cases of emergency.
2.12 Appropriate internet and email usage
The Practice provides employees with access to computer systems, email and the internet to assist with the
performance of their duties. All computer systems and data belong to the Practice and may only be used for
authorized purposes.
7

Because of the opportunity for misuse of these resources, the Practice’s rules for the proper use of its computer
systems, internet and email resources are set out in the email and internet policy in section 4 of this Office Manual.
It is every employee’s responsibility to ensure that computer systems and internet and email facilities are used
responsibly and in accordance with this policy.
2.13 Lateness for work
Any absence or late arrival due to illness, injury, or any other reason, and the expected duration of leave must be
personally reported to your supervisor as soon as is practicable (and prior to your normal starting time wherever
possible). If you are unable to do this personally, you are requested to ask someone to telephone on your behalf.
Subsequent to this, you must keep the Practice informed of your progress.
Wherever possible you should make dental, medical, business or other appointments outside your normal
working hours.
It is essential that you are ready to commence work at your normal commencement time as other employees
and the Practice depend upon you and your contribution.
2.14 Medical examination
If the Practice reasonably suspects that you are unable to perform your duties because of illness or injury,
whether or not you are absent from work or on paid leave:
z we may direct you, and you consent to us, to instruct a medical practitioner to examine you and reporting to
us on your condition and capacity for work; and
z you will attend the examination.
We will not disclose the information provided to us by the medical practitioner to any person, other than to you,
for the purpose of managing your employment, or to our legal and other professional advisors.
If you fail to comply with a direction to attend a medical examination without reasonable excuse, this may result
in disciplinary action, including termination of employment.
2.15 Property of the Practice
It is the responsibility of employees to ensure that any Practice property in their custody or possession is kept
secure and maintained.
Practice property must not under any circumstances be abused, damaged or destroyed by employees, and
employees must not permit others to abuse, damage or destroy Practice property.
Any employee found abusing, damaging or destroying Practice property, or permitting someone else to do so,
may be subject to disciplinary procedures, up to and including termination of employment.
It is the responsibility of each employee to ensure that any Practice property in their possession is used only
according to product specifications or instructions. Employees agree to indemnify the Practice for any loss or
damage occurring to Practice property in employees’ possession if the loss or damage occurs otherwise than in
accordance with product specifications or instructions.
As provided for in individual letters of appointment or employment agreements, employees also authorize the
Practice to deduct from any sum payable to employees on termination of employment, any amount attributable
to damaged or destroyed Practice property.
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2.16 Security
Entry to the Practice’s premises [during and / or outside of normal business hours] will be by way of [security
access card / keys].
It is the responsibility of every Practice employee to ensure that this [access card / key] is kept in safe custody. It
must be returned on demand.
If building access [cards / keys] are lost or misplaced, you must notify your supervisor immediately so that the
[card / key] can be cancelled.
2.17 Car parking
Due to the limited availability of car parking spaces, it is not possible to allocate a car parking space to all
Practice employees. For this reason, only a certain number of employees will be allocated a car parking spaces.
Employees who are required to use their vehicles in the course of performing their work duties may be given
preference for parking spaces.
Any employee who has an allocated parking space must advise their supervisor if they are going to be absent
from the office for one or several days so that the parking space may be utilized by another employee on a
temporary basis.
Under no circumstances should an employee who does not have an allocated car parking space park a vehicle in
the Practice’s parking lot, unless prior authorization has been granted.
2.18 Annual review
The Practice will endeavour to formally review each employee’s conduct, capacity and performance annually.
However, the Practice encourages employees to raise any query or concern regarding their employment soon
after the query or concern arises, and not await an annual review.
The Practice will also endeavour to formally review employees’ terms and conditions of employment at least
annually. Any increases in remuneration or benefits will be at the Practice’s discretion.
There is an Employee Appraisal Sheet included in the Office Forms section of this Manual.
2.19 Termination of employment
General
Except in cases involving summary termination for serious misconduct, if the Practice dismisses an employee
(other than casual labor), the Practice will provide the employee with notice of termination (or payment in lieu)
in accordance with the employee’s letter of appointment.
Counselling and disciplinary processes
It will be sometimes necessary for employees to be counselled/warned or disciplined with regard to their
conduct, capacity, or performance.
Counselling and disciplinary processes need not be formal or in writing.
A failure to improve in accordance with counselling or disciplinary processes may result in a warning or dismissal.
Counselling and disciplinary processes may be combined with other meetings such as an employee’s annual review.
References
Written references are not provided by the Practice.
9

Following termination of employment and upon request, all employees will be issued with a simple statement
of service setting out:
z the name and address of the employee;
z the duration and periods of the employee’s employment with the Practice;
z the position held by the employee at the time of termination, and any other positions held during the
employee’s employment with the Practice;
z the location at which the employee performed their duties;
z a general statement of the tasks and duties performed by the employee for the Practice, and any specific
responsibilities held; and
z the contact person at the Practice who is available to confirm the content of the simple statement of service.
Employees may choose to issue personal references for other employees. However, employees must not do so
on Practice letterhead, nor in any capacity as a representative of the Practice. The Practice takes no responsibility
for any personal references that its employees may choose to provide with respect of other employees. The
Practice recommends that employees treat references, especially written references, with a degree of caution in
the current climate of litigation.
2.20 Smoke free environment
For health and safety reasons, the Practice operates a smoke-free work environment. Employees are prohibited
from smoking in or about the Practice’s premises.
Smoking is also prohibited in any of the Practice’s Motor Vehicles, and in or around any of the Practice’s client’s
premises.
2.21 Quality assurance system
The Practice’s Quality Assurance System is to be complied with by all employees. If for any reason an employee
does not think that it is appropriate or possible to comply with the Quality Assurance System in the particular
circumstances, the employee should consult their supervisor in the first instance.
A hardcopy of the Quality Assurance System documentation is located [specify]. The Quality Assurance System
documentation can also be accessed on the Practice’s computer network.
2.22 Work for employees and family
The Practice may accept instructions to perform work for employees and their families. Depending on the type
and the complexity of work required in each particular case, the Practice may be willing to reduce the costs for
employees and members of their immediate family.
In all cases in which instructions are received from other employees or their immediate family members,
the professional employee/s who will be performing the services must consult with their supervisor prior to
accepting any instructions, to determine the terms and conditions under which the services will be performed,
as well as the estimated fee.
2.23 Practice Code of Conduct
[INSERT YOUR PRACTICE’S CODE OF CONDUCT FOR EMPLOYEES HERE]
A Code of Conduct is a commitment to promote the highest ethical standards throughout a practice.
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A code of conduct should reflect the core values that underpin the way your practice works. These values
normally are a reflection of the integrity and ethical considerations of the profession and commit employees to
complying with practice policies and procedures.
2.24 Special leave arrangements
[CUSTOMIZE TEXT BELOW TO SUIT LOCAL JURISDICTION]
The employment standards provides an entitlement for employees to be absent for periods of ‘eligible special leave
activities that support the community or required by law’. An eligible special leave service activity may include:
a. jury service (including attendance for the purpose of jury selection);
If an employee receives notification of prospective jury service, they should notify their supervisor as soon as
possible after receiving the notice. Unless otherwise agreed, the employee must provide their supervisor with a
copy of the notice, as well as any indication the employee has received from the court about the possible length
of the jury service.
The employee must discuss the matter with their supervisor before completing any court documentation and
before attending court as requested in the notification. For the avoidance of doubt, this obligation applies to all
employees, including casual employees. If the absence of the employee would be inconvenient to the Practice,
the employee may be provided with a letter to attach to the court documentation setting out the reasons why
the employee’s absence would be inconvenient to the Practice.
Employees (other than casual employees) who participate in jury service are required to provide the Practice
with proof of any payments made to them in respect of jury service. If this requirement is met, the Practice will
pay the difference between the employee’s ordinary pay (excluding overtime and other allowances) and the
payment from the court for the first ten days of the employee’s absence on jury duty. If the employee fails to
provide the requested evidence, the employee will not be entitled to payment from the Practice. No payment
will be made to casual employees.
b. carrying out a voluntary emergency management activity; or
A voluntary emergency management activity is a voluntary activity that involves dealing with an emergency or
natural disaster.
c. an activity prescribed by the Regulations.
The period of leave will consist of time when the employee engages in activity, the reasonable travelling time
associated with the activity and reasonable rest time immediately following the activity.
Unless the activity is jury service, the employee’s absence must be reasonable in all the circumstances.
Notice must be given to the Practice as soon as reasonably practicable and the employee must advise the
Practice of the period, or expected period, of the absence.
If the Practice requires, the worker must provide evidence that would satisfy a ‘reasonable person’ that the
absence is because of the employee’s engagement in an eligible community service activity.
2.25 Gifts and Entertainment Policy
Employees should not offer nor accept any gift or entertainments that might influence (or appear to influence)
any work undertaken by the Practice.

It is acknowledged that from time to time employees will be offered gifts or benefits as part of their
employment. The Practice maintains a record of gifts, hospitality or entertainment received in connection
with employment, and employees must advise the Managing Partner through their manager of any gift or
entertainment received (INSERT VALUE LIMIT).
The Managing Partner will decide what should happen with the gift on a case by case basis.

Workplace health & safety

3.1

General Duty of Care

The Practice has general duty of care to ensure the health and safety of its employees and visitors in connection with
the Practice’s operations, in accordance with relevant government legislation, codes, regulations and standards.
Employees also have obligations to ensure their own health and safety and that of their co-workers. Each
employee is personally responsible for working in a safe manner and cooperating with each other to ensure
workplace health and safety. The cooperation of all employees in adhering to safe work practices and observe
safety rules and regulations at all times is vital for the success of the Practice’s commitment to health and safety.
All employees agree to abide by government legislation, codes, regulations, rules and the Practice’s workplace
health and safety policy, which is set out below. All employees must read this policy and raise any concerns they
have with their supervisor immediately upon commencing employment.
Any breach of this policy, or an employee’s obligations of health and safety towards themselves or others may
result in disciplinary action being taken against employees, up to and including dismissal.
If any employees have any concern or query regarding workplace health and safety, they should notify the
Practice’s designated health safety officer or their supervisors as soon as possible so that the issue can be
considered without delay.
3.2

Safety rules and regulations

Employees must report all accidents and near misses immediately to the designated health and safety officer or
their supervisors. An accident report (in the Incident Report Form below) must be completed as soon as possible
following the accident or near miss.
Employees must keep their immediate work areas and amenities clean and tidy. Clean up anything that could
cause a person to trip or fall. Check stability of tables and chairs.
Running and horseplay within the workplace is strictly forbidden.
Any protective clothing provided or required by the Practice must be worn.
Presenting at the workplace in an intoxicated state is strictly forbidden.
Employees must follow directions from the designated health and safety officer and their supervisors in relation
to health and safety matters.
Any employee with a suggestion or comment regarding health and safety should raise the issue with the
designated health and safety officer or their supervisors as soon as possible so that the matter can be
considered and addressed as appropriate.

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3.3

Incident report form
INCIDENT REPORT FORM

Date:
Time of incident:
Employee’s name:
Description of incident:

Witnesses to incident:
Name:
Name:
Name:
Name:
Action taken by employee to treat injury:

Was additional medical aid required/sought by the injured employee? (i.e.: doctor’s visits, hospital treatment,
etc). Please indicate the dates and description of additional treatment given as a result of this injury.

Please specify or describe the bodily location of the injury:

3.4

Security and fire safety procedures

[INSERT DETAILS OR REFER TO LOCATION OF INSTRUCTION CARD OF THE RELEVANT PROCEDURES FOR THE
PRACTICE’S PREMISES]
3.5

Visitors to the Practice’s Officers

All visitors are expected to report to reception and the employees they wish to see will be advised of their
arrival. Visitors arriving at reception are required to sign in and receive a visitor’s pass.
Receptionists should ensure that visitors are not permitted beyond reception and should report the presence of
any suspicious or unauthorized visitors to their building security representative. This is also a responsibility for all
employees.
All meetings are to be held in designated meeting areas. At no time are visitors allowed to enter the general
office working area. This is to ensure privacy of other employees and the confidentiality of client files.
3.6

First Aid

The four main aspects of first aid are:
z Emergency treatment
z Records maintenance
z Redressing of minor injuries
z Recognition and reporting of hazards
First Aid Kits
First aid kits are in [INSERT LOCATION] and accompanied by a list of trained first aid staff. Trained First Aid Staff
are responsibilities include:
z Dispense and control items from the first aid kit
z Ensure kit supplies are adequate
z Treat minor wounds and injuries
z Deal with fits, fainting
z Resuscitation
z Recording accident/injury details in accident book provided as part of the first aid kit
z Arranging further assistance if required
z Advising Human Resources immediately of any serious or potentially serious accident for which treatment has
been required.
First Aid Training
The Managing Partner / Human Resources will be responsible for ensuring that first aid staff maintain currency
in their qualifications and will arrange for additional staff to receive formal first aid training.

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4.
4.1

Equal opportunity, discrimination and harassment policy
Introduction

All employees are required to familiarize themselves with the following policy and ensure that they conduct
themselves in compliance with its terms. The reasoning for this is two-fold:
z the Practice wishes to ensure that all persons have an opportunity to fully participate in the Practice’s
workforce, including by giving prospective and current employees the opportunity to make choices regarding
their careers and by making fair and reasonable decisions based on merit; and
z by acting contrary to the principles set out in this policy and anti-discrimination legislation, both the Practice
and individual employees can be liable for acts of discrimination and harassment against prospective and
fellow employees, and clients.
The Practice is an equal opportunity employer. The underlying principle of equal employment opportunity is
the notion of merit. It is on this basis that the Practice undertakes to make appointments and promotions. This
means that the Practice aims to ensure that prospective and current employees are not subject to detrimental
treatment on the basis of irrelevant attributes or characteristics.
The Practice is also committed to fostering a work environment which is free from sexual harassment and
workplace harassment.
The prevention of discrimination and harassment is important because, aside from the obvious risk of litigation:
z work performance can suffer as a result of these behaviors creating an intimidating and hostile work
environment;
z the detrimental effects on work output are seldom limited to one person and are often spread across a section or
work unit;
z service delivery to clients may subsequently be negatively affected;
z the health of people subjected to discriminatory behaviors, harassment and sexual harassment may suffer,
resulting in increased sick leave or compensation claims as well as personal duress to the individuals
concerned; and
z such behaviors may result in employees resigning. This incurs a loss of the investment made in those people
and it may lead to increased recruitment and retraining costs.
The Practice requires its employees to comply with the terms of this policy in order for the Practice to achieve its
goal that:
a. employees treat each other with respect and trust;
b. employees are able to work in an environment free from discrimination and harassment;
c. the Practice is protected against vicarious liability for the actions of its employees; and
d. the Practice’s policy of equal employment opportunity is practiced as well as preached.
4.2

Discrimination

Various types of anti-discrimination legislation exist that prohibit discrimination and harassment in the pre-work
and work areas. [CUSTOMIZE FOR YOUR LOCALITY]

Such legislation also applies to the provisions of goods and services. To this extent, this policy applies equally to
the Practice and its employees’ dealings with clients. In other words, both the Practice and individual employees
can be liable for acts of discrimination against clients that the Practice and its employees may deal with in the
course of employment.
Generally speaking, discrimination occurs when a person with an “attribute” is treated less favourably than
another person without the attribute is or would be treated in the same or similar circumstances.
Examples of forms of discrimination may include:
z gender
z age
z race, color, national extraction, social origin, nationality
z impairment
z physical disability
z mental, intellectual or psychiatric disability
z medical record
z criminal record
z marital status
z pregnancy
z religion, religious belief or religious activity
z political opinion, belief or activity
z trade-union activity
z sexual preference
4.3

What is discrimination?

Direct discrimination occurs when someone with one of the above attributes is treated less favourably than
another person without the attribute would be treated in the same or similar circumstances. For example:
Two employees perform the same job and have similar qualifications and experience. One is a male with no
family responsibilities. The other is a female with family responsibilities. A development opportunity arises
and is given to the male on the basis that, as a male with no family responsibilities, he is presumed to be
more reliable and able to work longer hours.
Other examples of treating someone less favourably on the basis of an attribute they possess or by an act
involving a distinction, exclusion, or preference, include:
z judging someone on their political or religious beliefs rather than their work performance;
z using stereotypes or assumptions to guide decision-making about a person’s career;
z undermining a person’s authority because of their race, gender or sexual preference;
z making offensive jokes or comments about another worker’s racial or ethnic background, gender, sexual
preference, age, disability, or physical appearance; or
z denying further training to employees on the basis of impairment.
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Indirect discrimination occurs when a requirement is imposed:
a. with which a person with the attribute does not or is not able to comply; and
b. with which a higher proportion of people without the attribute comply or are able to comply; and
c. that is not reasonable.
It may initially appear that the requirement is fair because the same rules are applied to everyone, but a closer
look at the effect of the requirement being imposed will show that some people are disproportionately affected
by the requirement.
An employer requires all employees to wear a uniform that includes a cap. This is not a requirement for
any safety or hygiene reason, but is done for appearance only. While the requirement appears not to be
discriminatory, because everyone must comply, the requirement may be indirectly discriminatory against
persons who are required by religious or cultural beliefs to wear particular headdresses.
If an employee believes that they have been treated less favourably because of a personal attribute that is not
a requirement of their position, the employee should raise their concerns in accordance with the complaints
mechanisms set out in this policy.
Do not ignore discrimination thinking that it will just go away.
4.4

Workplace rights

In addition to the categories of discrimination under local law there may be additional rights in the workplace
for employees. These rights include the entitlement to, and the freedom to exercise entitlements to:
z the benefit of a workplace instrument or order;
z the ability to make complaints or enquiries in relation to their employment; and
z the ability to participate in proceedings that are permitted by law, including permitted industrial action.
Neither employers nor any other persons may take any adverse action against an employee because the
employee has or exercises workplace rights. Nor may any adverse action be taken in order to prevent the
exercise of a workplace right. These protections apply to all employees.
“Adverse action” is defined in broad terms to include:
a. injury to employment;
b. dismissal;
c. discrimination among the employees;
d. alteration of an employee’s position to his or her prejudice;
e. refusal to employ an employee; and
f.

4.5

discrimination in the terms and conditions of employment offered to a prospective employee and
includes threatening to take action, or organizing action.
Sexual harassment

[CUSTOMIZE TEXT BELOW TO SUIT LOCAL JURISDICTION]
Sexual harassment is unlawful.

Sexual harassment is essentially defined as unwelcome sexual attention or unwelcome conduct of a sexual
nature. It encompasses situations in which a person is subjected to unsolicited and unwelcome sexual conduct
by another person.
It may take the form of unwelcome touching or physical contact, remarks with sexual connotations, requests for
sexual favours, leering, or display of offensive material.
Sexual harassment will not be tolerated by the Practice under any circumstances.
More specifically, sexual harassment occurs when a person:
a. subjects another to an unsolicited act of physical intimacy (e.g., patting, pinching or touching in a sexual
way or unnecessary familiarity such as deliberately brushing against a person);
b. makes an unsolicited demand or request (whether directly or by implication) for sexual favours from the
other person (e.g., sexual propositions);
c. makes a remark with sexual connotations relating to the other person (e.g., unwelcome and uncalled
for remarks or insinuations about a person’s sex or private life or suggestive comments about a person’s
appearance or body); or
d. engages in any other unwelcome conduct of a sexual nature in relation to the other person (e.g.
offensive telephone calls or indecent exposure),
and the person engaging in the conduct does so:
a. with the intention of offending, humiliating or intimidating the other person; or
b. in circumstances in which a reasonable person would have anticipated the possibility that the other
person would be offended, humiliated or intimidated by the conduct.
Examples of conduct that could amount to sexual harassment include:
z kissing, attempts at sexual intercourse or overt sexual conduct;
z sexually explicit conversations or references to sexual contact;
z gender based insults, teasing or taunting;
z intrusive questions of a sexual nature;
z proposals of marriage or declarations of love; or
z innuendos and crude jokes.
Sexual harassment is not behavior based on mutual attraction, friendship or respect. If the interaction is consensual,
welcome and reciprocated, and does not create a problem for fellow employees, it is not sexual harassment.
Sexual harassment does not need to be repeated. A single act of sexual harassment is sufficient to give rise to a
complaint.
If you are unsure whether particular conduct or actions would amount to sexual harassment, a good rule of
thumb is that it is best to refrain from such conduct or actions.
4.6

Harassment

Employers have obligations to ensure the health and safety of employees under relevant workplace health and
safety legislation.

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SAMPLE STAFF OFFICE MANUAL

Workplace harassment (also known as bullying) has the potential to harm the health and safety of employees.
Consequently, the Practice is serious about minimizing the risk of bullying occurring in the workplace.
All employees are expected to abide by state and federal legislation, codes, regulations, rules and standards of
the workplace relating to harassment.
Generally, a person is subjected to workplace harassment or bullying if they are subjected to repeated behavior
(other than behavior amounting to sexual harassment) by a person, including the person’s employer or a coworker or a group of co-workers of the person that:
z is unwelcome and unsolicited;
z the person considers to be offensive, humiliating or threatening; and
z a reasonable person would consider to be offensive, humiliating, intimidating or threatening.
Some examples of behavior which, if they occur repeatedly, may amount to workplace harassment include:
a. abusing a person loudly, usually when others are present;
b. repeated threats of dismissal or other severe punishment for no reason;
c. constant ridicule and being put down;
d. leaving offensive messages on email or the telephone;
e. sabotaging a person’s work, for example, by deliberately withholding or supplying incorrect information,
hiding documents or equipment, not passing on messages and getting a person into trouble in other ways;
f.

maliciously excluding and isolating a person from workplace activities;

g. persistent and unjustified criticisms, often about petty, irrelevant or insignificant matters;
h. humiliating a person through gestures, sarcasm, criticism and insults, often in front of other people;
i.

racial sledging; and

spreading gossip or false, malicious rumours about a person with an intent to cause the person harm.

Some bullying is in reality criminal behavior and could also be the subject of criminal prosecution.
Workplace harassment does not include:
a. reasonable management action taken in a reasonable way by a person’s employer in connection with
the person’s employment, for example, conducting disciplinary action or managing unsatisfactory
performance; or
b. a single incident of harassing type behavior. However, while a single incident will not amount to
workplace harassment, it is still unacceptable.
4.7

Consequences of breaching this policy

If an employee engages in unlawfully discriminatory or harassing behavior, a court or tribunal can hold that
person personally liable for their behavior and they may be liable for damages to a complainant. The Practice, as
an employer, is also at risk of being held vicariously responsible for the employee’s conduct.
If you are not the direct perpetrator of the behavior, you can still be held liable for causing, instructing, inducing,
aiding or permitting another person to engage in the behavior.
If an employee engages in discrimination, sexual harassment or workplace harassment there will also be serious
consequences for that employee’s their ongoing employment. The Practice will not tolerate behavior of this
19

kind. If it occurs, it may result in disciplinary action against the relevant employee or employees. Such action will
depend upon the circumstances but may involve a warning, transfer, counselling, demotion or dismissal.
4.8

What can I do if I believe I have been harassed or discriminated against?

Allegations of discrimination or harassment will be treated seriously and investigated promptly, confidentially
and impartially by the Practice. A written complaint is not required.
If you believe that you have been the subject of unlawful discrimination, sexual harassment or workplace
harassment, the Practice encourages you to take steps immediately to address the matter in accordance with
the paths set out below. The situation is unlikely to improve if you do nothing about it. If you do not object to
the conduct, the person responsible may continue the harassment or behavior, not knowing how it makes you
feel. The Practice will use its best endeavours to ensure that no parties to a complaint are victimized.
There are a number of ways that you can take action to deal with a complaint.
Internal complaints procedure:
z You may choose to approach the person who is perpetrating the behavior with a view to discussing your
concerns with them and asking them to cease their behavior.
z Alternatively, you may approach your supervisor to report the matter and to ask for assistance. If you do not
feel comfortable approaching your supervisor, then you may choose to approach another senior employee to
report the matter.
z Every complaint will be treated seriously and investigated promptly, confidentially, and impartially.
z Disciplinary action may be taken against employees who are found to have unlawfully discriminated against,
or harassed, other employees.
External complaints procedure:
a. If you believe that you have been the subject of unlawful discrimination, harassment or sexual
harassment, you may at any time lodge a complaint with one of the organizations set out below.
b. While the Practice encourages employees to use the in-house complaints procedure before taking this
action, an employee may seek recourse at any time.
c. The organizations set out below are statutory bodies and, if your complaint is accepted, they will notify
the alleged perpetrators of the discrimination or harassment. You and the alleged perpetrators will usually
be required to attend a conciliation conference conducted by the organization to attempt to resolve the
complaint. If the complaint is not resolved, it may be dealt with through more formal legal processes.
Organizations
You are able to lodge a complaint through various Federal and State agencies. The contact details are set out in
the following table.
[INSERT RELEVANT DETAILS HERE]

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SAMPLE STAFF OFFICE MANUAL

5.
5.1

Professional standards
Code of Professional Conduct

Employees are required to be familiar with the applicable Code of Ethics for Professional Accountants (the
Code) [OR INSERT YOUR LOCAL EQUIVALENT STANDARD]. This code is the primary professional standard that
establishes ethical requirements for professional accountants.
The code includes guidance on the following fundamental principles:
z Integrity
z Objectivity
z Professional Competence and Due Care
z Confidentiality
z Professional Behavior
5.2

Other professional standards

[INSERT YOUR LOCAL ACCOUNTING STANDARDS]
[INSERT YOUR LOCAL AUDITING STANDARDS]
[INSERT OTHER PROFESSIONAL STANDARDS ISSUED BY YOUR PROFESSIONAL BODY]
[INSERT OTHER PROFESSIONAL STANDARDS ISSUED BY REGULATORS]
Where local standards are not issued refer to standards issued by the International standard setters including:
Ethical Standards: The International Ethics Standards Board for Accountants (IESBA)
Accounting & Auditing: The International Auditing and Assurance Standards Board (IAASB)

Quality control

6.1

Practice Quality Control Procedures

[INSERT NAME OF PRACTICE] (Practice) quality control manual documents the established policies and
procedures within their practice to ensure compliance with professional standards.
It provides a framework for a quality control system that incorporates the impact of mandatory standards on
practices providing public accounting and other professional services.
[INSERT DETAILS OF WHERE YOUR PRACTICES DOCUMENT QUALITY CONTROL PROCEDURES CAN BE
ACCESSED. THIS SHOULD BE IN BOTH ELECTRONIC AND PRINT FORMAT]
This guide is regularly reviewed.
[INSERT DETAILS OF RESPONSIBLE PARTNER]
IFAC has published a Guide to Quality Control for Small – and Medium-Sized Practices if your firm does not
have one in place. This guide provides non-authoritative guidance on applying the redrafted ISQC 1, which
requires firms to establish systems of quality control in compliance with the standard. It is not to be used as a
substitute for reading ISQC 1, but as a supplement to help practitioners understand and consistently implement
this standard within their firms when developing a system of quality control for audits and reviews of financial
information, and other assurance and related service engagement.

22
SAMPLE STAFF OFFICE MANUAL

Email and internet policy

The Practice sets out the rules for the proper use of its computer systems, internet and email resources as
follows. Because of the opportunity for misuse of these resources, the Practice believes that it is necessary to set
down some basic rules.
It is every employee’s responsibility to ensure that computer systems and internet and email facilities are used
responsibly and in accordance with this policy.
7.1

Introduction

All users of the Practice’s computer systems, email and internet facilities (including employees), consultants,
contractors, work experience students and other authorized users (Practice Users) are responsible for using
computer systems, email and internet facilities in a professional, ethical and lawful manner. Practice Users are
provided with access to computer systems, email and the Internet to assist with the performance of their duties.
All computer systems and data belong to the Practice and may only be used for authorised purposes.
All of the Practice Users are required to comply with this policy.
The objectives of this policy are:
z to set out the responsibilities associated with the use of Internet and email via the Practice’s systems, for the
benefit of all who use it; and
z to minimize the risks associated with improper use of the Internet and email.
7.2

What does this policy cover?

This policy covers access and use of the following:
a. searching the web;
b. internal email (sent or received); and
c. external email (sent or received).
Breaches of this policy may lead to disciplinary action, up to and including termination of employment.
7.3

Email protocol and guidelines for email use

Practice Users will be allocated a password to access the Practice’s network and email facilities. This password is
not to be disclosed to any other person/s. The system administrator will be the only other party with knowledge
of user login information. Treat your login and password details with the same care that you would your bank
account PIN.
All communications sent via external email must contain the standard disclaimer provided by the Practice in
relation to the content of the email message or attachments.
Practice Users may send ‘personal email’, that is, non-work related emails provided that:
a. only minimal email access (that is read, sent, or forwarded), during office hours and only during
designated breaks or rest periods or after hours; and
b. all guidelines set out in this policy are complied with.
Email at the Practice:
a. is not private, it belongs to the Practice;
23

b. can be monitored and read at anytime by the Practice;
c. uses the Practice’s name and address and therefore may give the impression that the sender is speaking
with the authority of the Practice (even though this may not be the case and the Practice may not have
authorized this); and
d. can in certain circumstances be inspected by parties outside of the Practice, for example, in the event of
litigation.
The following activities are strictly prohibited:
a. sending, receiving, displaying, printing or otherwise disseminating material that is fraudulent, illegal,
embarrassing, sexually explicit, obscene, intimidating, defamatory, or that would amount to harassment;
b. using the Practice’s internet resources for unauthorized commercial or personal advertisements,
solicitations, promotions, political material or any other similar use unless it is expressly authorized by
your supervisor or partner;
c. accessing the internet other than through the Practice’s security system, for example, accessing the
Internet directly by modem is strictly prohibited;
d. allowing external access to your computer via modem;
e. subscribing to mailing lists, sending unsolicited email messages and participating in chain letters;
f.

sending email using somebody else’s email address unless such use is expressly authorized; and

g. violating the intellectual property rights of others such as breaching copyrights by copying graphics or
text material, or using other licensed software without proper authorization.
Breaches of any of the above guidelines may result in disciplinary action being taken against Practice Users
ranging from the withdrawal of system access to dismissal.
All external email (other than ‘personal email’) must be conducted in accordance with the following protocol:
a. client-related emails should only be sent after supervisor/partner authorization or sign off has been
obtained (as appropriate);
b. a hardcopy of all outgoing email messages containing accounting advice or substantial accounting
commentary must be signed by the appropriate partner or other person with authority prior to the email
being sent;
c. a hardcopy of all outgoing email messages must be placed on the client’s file; and
d. all email received must be printed and stored on the relevant file.
7.4

Internet protocol

Accessing web sites which contain material that is illegal, embarrassing, sexually explicit, obscene, intimidating,
defamatory, racist, sexist or generally inappropriate is strictly prohibited.
Accessing Internet chat rooms is strictly prohibited.
Internet ‘surfing’ must only be conducted outside ordinary working hours, unless it is for a specific work-related
purpose.
Access to the Internet is restricted to Practice Users who have been given express authority and permission
by management for the use of the Internet for research purposes. Practice Users with access to the Internet
acknowledge that the system administrator may from time to time check the cache folders on their computers
to ensure that pornographic materials are not being viewed.
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SAMPLE STAFF OFFICE MANUAL

7.5

System protocol

No Practice User shall introduce any external data to the Practice’s computer network in any media form
whatsoever unless the media has been checked and approved by the system administrator for use on the
network. All media is to be virus scanned by the system administrator or a person appointed by the system
administrator to carry out such checks.
No Practice Users shall make any changes whatsoever to the structure or setup of their computer’s operating
system or associated applications. Such changes include the alteration of screensavers, background images/
wallpapers, sound schemes, desktop folders or shortcuts or physical operating characteristics of their workstation.
If any Practice User has difficulty working with certain colors or screen resolutions they should speak to the system
administrator to arrange the necessary changes. The Practice’s system has been designed and configured for
optimal efficiency, any changes to this configuration may adversely affect the operation of the system.
No Practice User is to carry out any form of maintenance or repair to their workstation, software or hardware
related, without the consent of the system administrator.
7.6

Software

Any computer software the Practice uses on its computer network is available through agreement with the
owners of the software. As such, it is imperative that Practice Users use the software strictly in accordance with
the Practice’s directions to ensure that the agreements with the software owners are not breached.
Unauthorized copying of software used on the Practice’s computer network is illegal and no duplicate should be taken.
No Practice User is to use the Practice’s computer network to access or use other software in breach of the rights
of the software owners.
No Practice Users should introduce any software, computer discs, computer programs or CD-ROMs to the
Practice’s computer network if they are unsure of the source of that material or whether it is contaminated in any
way. Before any software, computer discs, computer programmes or CD-ROMs are introduced to the Practice’s
computer network, the Practice’s computer virus protection program should be applied.
7.7

Practice’s surveillance policy

The Practice may, upon provision of notice required by law, monitor Practice Users’ use of email or internet
facilities, in accordance with such notice.
Where there is no requirement at law to provide notice of intended email or internet surveillance, the Practice
may monitor Practice Users’ use of these facilities without the provision of notice.
Email surveillance undertaken by the Practice may include, but is not limited to, monitoring and reading email
traffic both sent from and received by any email address owned by the Practice or an email address that is
accessed from a Practice computer.
Internet surveillance undertaken by the Practice may include, but is not limited to:
a.

monitoring the internet sites that are accessed by Practice Users;

monitoring the type of information downloaded from the internet to any Practice computers or data drives;

monitoring the importing and exporting of any data to or from any Practice computers by any portable
media storage device, for example, floppy disks, CDs, USB memory sticks or zip drives.

For any issues not covered by this policy, use common sense as the guiding principle. If you have any queries
about of Internet or email use, please contact your supervisor.
25

[CUSTOMIZE TEXT FOR THIS SECTION TO SUIT LOCAL JURISDICTION]
This policy should relate to personal information held about employees, contractors, work experience staff, volunteers
and candidates for employment only. It does not relate to personal information held with respect to clients.
Many countries have privacy laws which are based on “Principles.” In some countries there also may be monetary
thresholds in place which exempt small businesses or providers of designated services.
5.1

Purpose

Privacy laws govern the way in which we must manage personal information relating to both employees and
clients. Privacy Policies are often developed in accordance with those International Privacy Principles and
explain how we collect, use, disclose and handle your Personal Information.
Personal Information is defined to mean information or an opinion (including information or an opinion forming
part of a database) whether true or not and whether recorded in a material form or not about an individual
whose identity is apparent or who can reasonably be ascertained from the information or opinion. During the
course of your business, you may collect personal information from both employees and clients.
5.2

Collection of personal information

Personal Information about individuals should be only collected that is necessary for practice business
functions or activities and generally, every endeavour should be made to collect this information directly from
an individual through the use of our standard forms, over the internet, by telephone, or on submission of
an application. There may however be some instances where personal information about individuals will be
collected indirectly because it is unreasonable or impractical to collect it directly. An individual should be usually
notified about these instances in advance, or in case that is not possible, as soon as is reasonably practical after
the information has been collected.
5.3

Privacy Principles

Privacy principles must provide:
z Notice Individuals must be informed that their data is being collected and, about how it will be used.
z Choice Individuals must have the ability to opt out of the collection and, forward transfer of the data to third parties.
z Onward Transfer Transfers of data to third parties may only occur to other organizations that follow adequate
data protection principles.
z Security Reasonable efforts must be made to prevent loss of collected information.
z Data Integrity Data must be relevant to and reliable for the purpose it was collected for.
z Access Individuals must be able to access information held about them, and correct or delete it if it is
inaccurate.
z Enforcement There must be effective means of enforcing these rules.

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SAMPLE STAFF OFFICE MANUAL

General office procedures

[CUSTOMIZE TEXT FOR THIS SECTION TO SUIT LOCAL JURISDICTION]
9.1

Telephone

[CUSTOMIZE TEXT BELOW BASED ON PRACTICE’S POLICIES AND EQUIPMENT]
Calls answered by a dedicated receptionist / telephonist
It is essential that all inquiries should be dealt with as quickly, efficiently and courteously as possible.
The Practice telephone is to be answered with the name of the firm and “good morning” or “good afternoon this
is …speaking.”
Where calls are answered by a dedicated receptionist or telephonist, the staff member will ascertain the identity of
the caller and the person they wish to speak to place the call to the relevant person as required by the caller, and
announce the caller to that person. If that person is not at his or her desk then he or she should have redirected the
telephone to whomever is delegated to take the calls or the caller should be given the option of voice mail.
If the caller needs to speak to a staff member who is not in the Practice the caller will be advised that the person
is “out of the office” or “in a meeting.” The receptionist should indicate when the employee is expected back
before asking the caller if they wish to leave a message.
Calls answered by an individual or direct extension
Any staff member answering a telephone, whether the call is internal or external, is to answer with his or her
individual name. It may be appropriate on external calls to explain role, e.g. “personal assistant to Mr ABC” as well.
Any staff member who leaves his or her desk for longer than a few minutes is required to divert his or her
telephone to a secretary, or another member of the firm, for message-taking purposes. It is not necessary
to notify the switchboard, only the person to whom the telephone has been diverted. [INSERT DETAILS OF
PRACTICE’S PHONE SYSTEMS AUTOMATIC DIVERT PROCEDURES]
Group “pick-up” systems apply to teams of secretaries. Answer another phone in the group by picking up your
own phone and pressing [specify].
[INSERT FEATURES OF PRACTICE’S TELEPHONE SYSTEM IF SUCH DETAILS ARE NOT CONTAINED IN
TELEPHONE USER GUIDE]
Staff members should notify the receptionist or other team member of the period in the day when they will
return any calls which come in when the staff member is unavailable. This provides a professional and efficient
business to the client.
Voicemail
[CUSTOMIZE TEXT BELOW IF VOICE-MAIL FACILITIES ARE IN USE]
All staff members are responsible for checking and respond to voicemail messages in a timely manner. If you are
out of the office for longer periods of time, a specific voicemail message should be recorded or your telephone
system programmed to reflect your absence. It is important that any voicemail messages be reviewed regularly
and be reset upon your return to the office. Where possible the caller should also be provided with a menu
alternative to return to reception for an individual message to be left.

Personal calls
Short, local personal telephone calls are permitted. Staff may also receive incoming personal calls, but these calls must
be minimised and kept to a reasonable period of time. Any other calls should be made with supervisors’ consent.
Mobile phones
[INSERT GUIDELINES ON USE OF MOBILE PHONES IN THE WORKPLACE. GUIDELINES SHOULD INCLUDE:
DIRECTIONS ON THE GIVING OUT OF INDIVIDUAL MOBILE NUMBERS, DISTINGUISH WHEN THE NUMBER
IS RESTRICTED AND WHETHER IT CAN BE USED BY SUPERVISORS AND TEAM MEMBERS: AND ADDRESS
BUSINESS VERSUS PRIVATE USE.]
A landline phone is the preferred method of telephone communication.
The use of mobile phones within the practice should be kept to a minimum. Staff members using mobile
phones should be aware that this may be a distraction to other staff.
Where staff members are provided with a mobile work phone consideration the phone may not be used while
driving unless they have a legally approved hands-free option.
See also section 2.9 for mobile phones provided as part of an employment arrangement.
9.2

Email Correspondence

[CUSTOMIZE TEXT BELOW BASE ON PRACTICE’S POLICIES]
Electronic mail forms an important component of a practice’s corporate memory and like records in other
formats, may be subject to legislation and to legal processes such as discovery and subpoena. Electronic mail
should be integrated into a practice’s paper-based records by placing a hardcopy on file or storing via an
electronic document management system
All staff members have responsibility to create, keep and retain records in accordance with the Practices policy.
When electronic mail is received or sent the individual staff member should determine whether the message
and any responses should be placed on central file. As a general principle, a hardcopies of all email messages
concerned with the practice should be filed. Messages of a momentary nature, which are for information only,
e.g. notification of changes in the time/venue of a meeting, may generally be deleted.
For internal electronic records, printing and filing is the responsibility of the message originator. For messages
received from external sources, printing and filing is the responsibility of the recipient.
9.3

Correspondence

[CUSTOMIZE TEXT BELOW BASED ON PRACTICE’S POLICIES AND ADD IN DETAILS OF ANY DOCUMENT
MANAGEMENT SYSTEMS OR PROCEDURES]
Incoming Mail
Mail is collected / delivered first thing in the morning and all documents are opened at the discretion of the
receptionist or nominated staff member. The nominated staff member is a professional who will act with the
utmost discretion and will not use any information in an inappropriate manner.
Any correspondence that is of a personal or confidential nature should be marked “Private and Confidential” to
ensure it is not opened.
As the mail is opened it is sorted into individual piles:
z Invoices are given to Accounts Payable .
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SAMPLE STAFF OFFICE MANUAL

z Cheques are given to Accounts Receivable.
z “Junk” Mail (non-records mail, which will be distributed) is distributed to the appropriate officer.
z The rest of the mail is determined to be “real” mail (the Records). Each document in the “real” mail is stamped
with a document number (a different number for each document) and the date, and is assigned to the
designated employee.
Other Mail
If a letter is received over the front counter, the receptionist will note on the document any information given by
the person handing it in. It should then be stamped with the date stamp found at the front counter and placed
in the Inwards Mail tray for distribution.
Other letters may arrive by various means, but should all be dealt with in a similar method to the above. Attach
a note to the document noting the sender and any information they may give you about suggested or past
actions on the document. Also note actions you take or suggest, date the document, put your name to these
notes, and place it in the Inwards Mail tray (which is currently the Receptionist’s in-tray).
That may sound complicated but it’s simply a matter of passing on any information that may be helpful or
necessary to provide the best client experience.
Faxes
Faxes should be distributed whenever received and the copy given to the appropriate staff member. Before
distributing it, stamp with the Document Stamp, Doc Number stamp, and date stamp, and in the Officer field,
write, “Copy given to …..”
All faxes should be treated as urgent and this process completed as quickly as possible.
9.4

Filing

[CUSTOMIZE BY INSERTING PRACTICE’S POLICIES AND PROCEDURES SUFFICIENT FOR INDUCTION OF NEW
STAFF MEMBER]
9.5

Storage and disposal of documentation

[CUSTOMIZE BY INSERTING PRACTICE’S POLICIES AND PROCEDURES SUFFICIENT FOR INDUCTION OF NEW
STAFF MEMBER. POLICIES MUST MEET LOCAL REGULATORY REQUIREMENTS]
9.6

Petty-Cash Reimbursements

[CUSTOMIZE BY INSERTING PRACTICE’S POLICIES AND PROCEDURES]
A sample reimbursement form is included in section 13.6.
9.7

Staff Facilities

[CUSTOMIZE BY INSERTING PRACTICE’S POLICIES AND PROCEDURES FOR USING STAFF FACILITIES WHICH
SHOULD IDENTIFY THEIR LOCATION AND MAINTENANCE]
9.8

Photocopiers

[CUSTOMIZE BY INSERTING PRACTICE’S POLICIES AND PROCEDURES FOR USING PHOTOCOPIERS WHICH
SHOULD IDENTIFY THEIR LOCATION AND MAINTENANCE]
29

9.9

Fax Machines & Other Equipment

[CUSTOMIZE BY INSERTING PRACTICE’S POLICIES AND PROCEDURES FOR USING FAX MACHINES AND OTHER
EQUIPMENT WHICH SHOULD IDENTIFY THEIR LOCATION AND MAINTENANCE]

10. Staff appraisal, training & development
[CUSTOMIZE THIS SECTION TO SUIT LOCAL JURISDICTION AND PRACTICE’S CULTURE AND OBJECTIVES]
10.1 Objectives of performance appraisals
It is the Practice’s policy that work is undertaken in the most efficient and productive manner possible. Giving
regular, contemporaneous feedback to our employees in a positive manner plays an important part in ensuring
that this occurs.
To facilitate this, constructive, open communication is essential. Regular verbal and written feedback will help
staff to gauge their standard, of performance. The idea is not to make an employee feel threatened or insecure
but to reinforce the notion that our Practice has high standards and will always strive to provide of high quality
service to our clients. Regular performance appraisals assist in achieving this objective.
Very generally, performance appraisal is a formal system of planning and reviewing employee performance.
It provides employers with an opportunity for a comprehensive review of key aspects of their employees’
performance, including employees’ skills and knowledge, their behaviors and achievements, and their working
environment and supervisory requirements. It also provides employees with the opportunity to voice their
concerns and aspirations in relation to their employment.
10.2 How often should performance appraisals be conducted?
There is no legal obligation to conduct performance appraisals. However, they play an essential part in the good
management of our Practice.
The performance appraisal process provides an opportunity for employees and their supervisors to document
and develop goals.
This practice conducts performance appraisals [INSERT DETAILS] It is up to you to decide how often you
conduct performance appraisals. Guidelines for the use of performance appraisals
Broadly speaking, the performance appraisal involves:
z determining how well employees are doing their jobs;
z communicating this information to employees;
z establishing a plan for performance improvement or development;
z assisting employees to implement this plan, including providing access to training and development tools
as required.
Before the performance appraisal meeting
z A performance appraisal requires preparation before the meeting can occur.
z Before any performance appraisal, the employee will be made aware of the metrics by which their
performance will be assessed. This gives the employee a clear indication of the goals and objectives of the
Practice and what is expected of them.
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SAMPLE STAFF OFFICE MANUAL

z Prior to conducting a performance appraisal, employers need to consider the purpose of the appraisal and
have sufficient and correct information on hand, for example, copies of previous performance appraisals,
specific performance criteria, performance against budget statistics, and training and development
undertaken since the last appraisal.
Both employer and employee should also fill out an appraisal form, with a view to comparing and discussing
these forms with the employee during the appraisal. This will help maximize the benefits obtained from the
appraisal process and provide honest feedback how employees gauge their own conduct and ability.
10.3 During the performance appraisal meeting
The performance appraisal should be conducted in a private confidential area.
A performance appraisal is a mutual communication process that should seek to adopt a balanced approach
towards both positive aspects of performance, and those where there is room for improvement. A two way
conversation between employer and employee is essential to make the appraisal procedure effective. The
performance appraisal will include probing questions, for example, “Are there any parts of your job which you
feel you could perform better?,” “Are there any areas for training and development that you think would help you
to perform more effectively?” etc.
Both appraiser and employee should focus to discuss areas for improvement in such a way that shows that it
is the employee’s performance and not their personality which is under scrutiny. You should assist employees
with strategies to assist with continued development and performance in those areas and agree on timeframes
within which this will occur. In raising concerns over an employee’s performance, it is best to do so as objectively
as possible, to avoid the appearance of a personal attack on the employee.
At all times both the appraiser and employee should show respect for each other’s position and approach the
performance review as a personal development opportunity. The overall objective of the review is to encourage
continued learning and recommend initiatives for further improvement, while showing appreciation and
recognition for the efforts that have been made.
Appraisal forms should be signed and dated by both the employer and the employee as a record of the points
discussed and agreed upon. Completion of performance appraisal documentation and is sometimes considered
a nuisance. However, in seeking to retain talented employees and improve the performance of the Practice, it is
vital for all employees to participate fully in the process and to ensure that matters discussed, including agreed
outcomes and training and development needs highlighted, are properly recorded and acted on.
10.4 After the performance appraisal meeting
It is necessary for employers to ensure that the feedback and outcomes from the performance appraisal are
put into practice. This may include implementing training and development for an employee, or reviewing an
employee’s technical skills on a regular basis.
A sample Staff Appraisal Sheet is included in the Office Manual. It is a basic document that provides an example
of the kinds of questions employers and employees can consider prior to the performance appraisal meeting.
However, it is only intended as an example, and you should make appropriate adjustments to the sheet if
there are other matters particularly relevant to your Practice or to the employee whose performance is under
consideration.

11. Finance policies
[CUSTOMIZE THIS SECTION BY INSERTING PRACTICE’S POLICIES AND PROCEDURES]

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SAMPLE STAFF OFFICE MANUAL

12. General employee grievances
[CUSTOMIZE THIS SECTION TO SUIT LOCAL JURISDICTION’S LEGISLATION]
12.1 Introduction to grievances
For the purposes of this policy, a grievance should be treated broadly as any concern or complaint an employee
may have relating to work or the work environment. A grievance may be about any act, omission, situation,
or decision by the Practice or a co-worker/co-workers, that the aggrieved employee considers to be unfair,
inappropriate, or unreasonable.
Note: In the case of complaints of discrimination, workplace harassment or sexual harassment, employees
should refer to the complaints mechanisms in section 4 of this Office Manual.
12.2 Procedures for dealing with employee conflict
In all cases, until the grievance is resolved, the employee with the grievance should continue in normal work.
Direct resolution
If the behavior of an employee is causing conflict with another employee it is recommended that the employee
with the grievance approach that person directly and try to work out a mutual resolution. The employee with
the grievance should tell the person who is allegedly acting in an unfair or inappropriate way why his or her
behavior is unfair or unacceptable, and request that they alter or refrain from that behavior.
If the employee with the grievance is unwilling to approach the person directly, then they can refer their concern
to their supervisor or another senior member of the Practice in accordance with the following paragraphs.
Referral to supervisor or another senior member of the Practice
If the problem remains unresolved, the employee with the grievance should approach their supervisor to seek
to resolve the issue.
There are some situations in which an employee with a grievance may not want to take a complaint to a
supervisor, for example, if concern specifically relates to the supervisor, or if there is a personality conflict. In this
case, the employee with the grievance can refer the complaint to another senior member of the Practice.
If a supervisor is approached to deal with a complaint, but considers that it would be improper for them to
consider the grievance (because, for example, they have a particular relationship with the employee with the
grievance, or with the person the complaint is concerning), the complaint should be referred to another senior
member of the Practice.
The supervisor or senior member of the Practice (as the case may be referred to in the remainder of this policy as
“supervisor”) should fully discuss the aggrieved employee’s concerns, to get a full understanding of the issues.
The supervisor has the responsibility to listen, investigate, evaluate and respond to the aggrieved employee.
It may be necessary for the supervisor to talk to other people involved, and to impartially hear their side of the
story, before taking any steps to seek to resolve the matter.
Following a full consideration of the matter, the supervisor should offer suggestions as to how the dispute can
be resolved. For example, a conflict may be resolved by:
z compromise; or
z seeking an apology from the party complained about; or
z offering a change of working arrangements, if practicable.
33

However, no action should be taken without first talking to the aggrieved employee and getting their
agreement.
All stages of the grievance process should be documented and file notes provided to the parties involved as
appropriate.
Grievance paths beyond the Practice
If the employee with the grievance is not satisfied with the Practice’s response, then the Practice may need to
consider other forms of dispute resolution, for example, the use of mediation through a third party.
12.3 Procedure for dealing with employee/client conflict
Employees should never involve themselves in an argument with a client. At all times, employees must be
courteous and professional towards clients.
If an employee is involved in a discussion with a client that becomes heated, or if an employee receives a
complaint from a client, they should refer the issue to the supervisor. Becoming involved in an altercation with
a client is not acceptable and may result in disciplinary action if the incident is serious enough or if certain
behavior re-occurs.
The Practice may seek to engage an employee and a client in a discussion in an attempt to resolve the matter.

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SAMPLE STAFF OFFICE MANUAL

13. Office forms
[CUSTOMIZE THIS SECTION TO SUIT LOCAL JURISDICTION]
13.1

Application for leave

13.2

Bank account details

13.3

Employee appraisal sheet

13.4

Travelling expenses claim form

13.5

Overtime sheet

13.6

Reimbursement expense form

13.1 Application for leave
APPLICATION FOR LEAVE
EMPLOYEE NAME:
DATES

From:
To:

TOTAL NO. OF DAYS:
REASON FOR LEAVE

Annual Leave
Compassionate / Bereavement Leave
Personal / Carer’s Leave
Study Leave
Personal / Sick Leave
Long Service Leave
Other:

EMPLOYEE’S SIGNATURE
DATE OF APPLICATION
AUTHORIZATION:
DATE OF AUTHORIZATION:

36
SAMPLE STAFF OFFICE MANUAL

13.2 Bank account details
BANK ACCOUNT DETAILS
SURNAME:

GIVEN NAMES:

ACCOUNT 1:

ACCOUNT 2:

BANK:

BRANCH:

ADDRESS:

BSB - NO:

A/C NO:

AMOUNT: $

13.3 Employee appraisal sheet
EMPLOYEE APPRAISAL SHEET*
Unsatisfactory
Performance

Occasionally
performing below
job requirements

Meeting job
requirements

Occasionally
exceeding job
requirements

Consistently
exceeding job
requirements

PERSONAL
CHARACTERISTICS
Dress

Punctuality

Willing to undertake
professional development
Communication skills

Responsible with
confidential information

RELATIONSHIPS

Relationships with
supervisors and managerial
employees
Relationships with
co-workers
Relationships with persons
under their control
Relationships with clients

38
SAMPLE STAFF OFFICE MANUAL

SKILLS
Ability to supervise
Ability to deal with
problems
Time management
Able to market themselves
Able to market the Practice
Use of initiative
Able to follow instructions
Able to give instructions to
co-workers
Able to handle client
concerns
Able to make and write
reports
Awareness of current
policies and procedures
TECHNICAL SKILLS
Word processing
Email
Typing speed /accuracy
Filing
Listening comprehension
Phone manner

PROFESSIONALISM
Loyalty to employer
Loyalty to other employees
Willingness to promote the
Practice

TOTAL

* Delete any items that are not applicable to a particular employee’s position.
39

13.4 Travelling expenses claim form
TRAVELLING EXPENSES CLAIM FORM
NAME:
DATE:
PURPOSE:
CLIENT NAME:
FILE NUMBER:
TRAVEL BY VEHICLE
VEHICLE ENGINE CAPACITY:
TRAVELLING FROM:
TRAVELLING TO:
TOTAL KMS/MILES:
CALCULATION OF ALLOWANCE:

kms X $0

¢ per km/mile = $

AIR TRAVEL
FLIGHTS FROM:
FLIGHTS TO:
ACCOMMODATION:
SIGNATURE OF EMPLOYEE:
# COPY TO BE RETAINED BY EMPLOYEE
40
SAMPLE STAFF OFFICE MANUAL

13.5 Overtime sheet
OVERTIME SHEET
Employee’s Name:
DAY

Monday

Tuesday

Wednesday

Thursday

Friday

Saturday

Sunday

TOTAL NUMBER OF HOURS

Authorized:

DATE

START

FINISH

TOTAL
HOURS

AUTHORIZED

13.6 Reimbursement expense form
REIMBURSEMENT EXPENSE FORM
NAME:

DATE:

TYPE OF EXPENSE:
(Please tick appropriate box)
Taxi

Entertainment/Marketing

Other (please specify)

PURPOSE OF EXPENDITURE:

CLIENT NAME:

FILE NUMBER:

DATE EXPENSE INCURRED:

AMOUNT SPENT: $
PARTNER AUTHORIZATION:
DATE:

SAMPLE STAFF OFFICE MANUAL

Appendix 1.5 Case studies
These case studies relate to some of the elements of the modules and may be useful in illuminating key issues.
It concerns these hypothetical accountants.
z William Lam is thirty-seven years old. He has a commerce degree and has worked for six years in a prominent
accounting firm. He passed his professional exams three years ago and is a fully fledged member of his
accounting association. His career has centered mainly on tax-based issues and advice and he is seen as
having the potential to become a partner within his current firm.
z Indira Shah is thirty-eight years old, and attended the same university as William. She works in the audit
division of the same firm as William. Indira too is fully qualified and highly regarded within her current firm.
z Indira and William have kept in contact through the firm and also through shared musical interests outside
the firm, and they and their respective partners have become good friends. They know that specialization
brings with it some professional satisfaction, but both wish to provide a more rounded advisory service to
clients. They believe that the best way to achieve this is to create a new firm together.

100

Case study 1.1
This case study relates to the planning exercise in Module 1 titled “Are you ready?” and the self-assessment
checklist at Appendix 1.1.
Indira and William spent some time working through the checklist, they examined their own strengths and
weaknesses, then spent a few hours discussing their responses and providing feedback to each other.
Indira and William have a longstanding friendship and professional respect for each other. Because of this,
each could point out several weaknesses that the other had not seen in themselves. The overall result of their
discussion was a positive and realistic identification of the issues facing them and their new firm.
William’s strengths included his ready insight into quickly seeing the benefit of certain legal structures for clients
and his capacity to put potential clients at ease early in their business relationship, so that he could understand
their real need for professional services. Indira pointed out that on occasion, William’s self-confidence caused
him to override client’s comments or not address their concerns fully, once he believed he knew all the facts.
William has saved more money than Indira since they left university. He is happy to contribute more capital
initially to the firm, but wishes to see this equalized within two years of commencement. In the meantime he
feels that he should be paid interest on the “extra” funds that he contributes.
Indira has a quieter confidence, and so is less likely to generate rapid growth in the audit-based services offered
by the new firm. There is no feeling that Indira will be too timid to achieve a sound professional judgment in her
assurance work. Indira has always been known for the exceptionally high number of hours she spends at work,
and so both partners will need to ensure that this does not lead to perceptions between themselves that one is
“doing more” for the firm than the other.
Case study 1.2
This case study relates to Section 1.5.4 (“Marketing and selling plan”) in Module 1.
William and Indira developed their initial marketing plan after reviewing the marketing efforts of other firms
in their market area. Effective marketing demands that a firm stand out as different from its competitors. Most
local small firms limit their marketing to a listing in the telephone book, a small website (which talks about
professional skills and quality services) and a brochure that uses very similar words. William and Indira are clearly
focused on a specific range of business clients, as well as audits for government bodies. They decide to rely on
marketing tactics such as:
z A listing in the telephone book, of similar style to other firms;
z A website with contact details of key personnel, as well as descriptions of improvements or benefits the firm
has delivered to clients: brief case studies describing the profit improvements or other tangible impact on the
businesses, and testimonials from clients about the firm;
z A brochure with similar content to the website;
z A regular column in the local newspaper, which gives the chance to comment on the impact of current
economic conditions;
z A simple letter focusing on the benefits the firm has delivered for clients: small numbers will be mailed each
month to selected clients, in particular areas, who fit the firm’s “ideal client” profile; and
z A corporate brand, which is professional yet different from the typical accounting firm, developed by a
professional graphic design firm.

SAMPLE STAFF OFFICE MANUAL

101

The marketing effort is aimed at adding new clients in the early years of the firm’s life. Fee growth of 50% p.a. is
targeted for the first three years of the firm. Indira and William set an annual budget for marketing that provides
for the cost of marketing materials and also has a time budget for the hours contributed by the firm’s personnel.
Some years after developing and implementing this early marketing strategy, when the firm has several partners
and five different divisions for delivering its professional service, the marketing plan is extended. More of the
marketing effort is aimed at highlighting the benefits that each service has delivered.
The same underlying principles are still used: the focus is on the measurable benefit that clients have gained
from a particular service. Consequently, the range of brochures increases (one brochure per division).
The letters sent to prospective clients are written and distributed centrally. This prevents duplication of effort
and presents a consistent face to prospective clients. The letter focuses on several of the services offered by the
firm, to highlight the broad skills base of the firm.
The firm now wants to cross-sell its services. Each division obviously has a direct interest in promoting its own
service. However, the real benefit for the firm comes when every division can tell clients about the benefits of
relevant services provided by other divisions. The firm has decided to:
z Use work codes to identify the services that each client currently uses;
z Empower the partner in charge of each division to review this list of services by client and identify clients who
should be introduced to other services. Then a letter and brochure is sent to prospective clients.
z The cross-selling of specific services is reinforced during discussions with each client, possibly involving a
senior person from the other division.
The marketing plan has changed by focusing more on the specific divisions but all partners are aware of the
need to cross-sell services where relevant. As a result, the key performance indicators are improving.

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Appendix 1.6 Strategic Planning Diagram

Vision
What will the firm look like when it’s finished

SWOT Analysis
Where is the firm now and what opportunities are there

Strategic Plan

Mission
What needs to be done take advantage of the opportunities

Objectives

Business Plan

What strategic objectives should the firm pursue

Marketing
Strategy

Service
Strategy

Finance
Policies

Personnel
Strategy

Technology
Strategy

Change
Strategy

What clients
do you want to
serve

What services/
products will be
offered

How will fees be
generated and
growth funded

How many and
what type of
people do we
require

What hardware
and software is
required

What systems
will to used to
monitor and
respond to
change

Marketing
Plan

Service
Development

Finance
Processes

HR Plan

Technology
Plan

Change
Plan

Building a Brand
Promotion
Client management

Service offering
Audit, Tax,
Other?

Assets,
Liabilities &
Equity
Revenue
Costs

Recruit people
Retain people
Succession
Planning

Hardware
Software
Office applications
CRM system

Change
management
principles

Key Performance Indicators “Must be measurable”

SAMPLE STAFF OFFICE MANUAL

103

Module 2:

Practice models and networks

Contents
2.1 Introduction

2.2 Which practice model is right for you?

2.2.1 Sole practitioner

2.2.2 Cost-sharing arrangement

2.2.3 Partnership of equals

2.2.4 Unequal partnership

2.2.5 The consolidator model

2.2.6 Multidisciplinary firms

2.3 Practice management

2.3.1 Family members working in the firm

2.3.2 Decision-making approaches

2.3.3 Issues to consider when structuring or restructuring a firm

2.3.4 Partnership agreements

2.3.5 Remuneration and profit-sharing models

2.4 Using networks to add value

2.4.1 Advantages and disadvantages of network alliances

2.4.2 Referral network

2.4.3 Professional network

2.4.4 Management support network

2.5 The evolving firm and the need for regular review

2.6 Conclusion

2.7 References, further reading, and resources

Appendices

Appendix 2.1 Evaluating your potential partners checklist

Appendix 2.2 Items to be included in a partnership agreement or shareholder agreement checklist

Appendix 2.3 Establishing network alliances checklist

Appendix 2.4 Case studies

MODULE 2: PRACTICE MODELS AND NETWORKS

2.1 Introduction
This module looks at a number of structural considerations inherent in owning or running an accounting firm:
z The various models available: sole practitioner, partnership, and corporate structures;
z The major approaches to profit-sharing and to decision-making within a firm; and
z The use of networks to multiply the power of your own advice.
If your firm is built on a solid foundation of good decision-making, ethical and efficient processes and a balanced
team of committed leaders, it can be confident about its long-term future.
“Launching your own [accountancy] firm is one of the greatest professional challenges you’ll ever undertake—and
potentially one of the most rewarding. Fraught with hard work and long hours, it’s nevertheless a chance to build a
business, provide real value to clients who depend on you and, ultimately, shape your own destiny.... Most of the mustdo start-up activities are the same as for any small business.”
Myers 2006

2.2

Which practice model is right for you?

This section examines the key types of firm. One of these will be right for you, in a legal sense and also from a
business management perspective.
When considering the different models for accounting firms, contact your local professional association to
identify any special conditions or requirements that you must comply with. For professional, ethical, regulatory
or legal reasons, not all legal structures will prove usable in every country or region, so this module refers to a
range of options and sometimes uses country-specific examples. However, the bulk of the discussion will relate
to functional aspects of each firm model, rather than local legal issues.
For example, even a sole practitioner might be able to operate through several alternative legal structures such as:
z An individual with no separate legal entity; or
z A sole director company to afford some degree of asset protection; or
z A service entity that employs some employees and owns some operating assets and that also permits some
profit-sharing to a non-accounting person (for example, a spouse); or
z A cost-sharing arrangement with similar practitioner(s); or
z Some combination of the above.
A medium-sized or larger firm might create separate legal entities for specific parts of their service range, for example:
z An information technology services entity;
z A financial planning or wealth management entity; and
z Audit services provided through a traditional partnership of individual partners.
These options can be used to reward key employees with specialist skills who are not eligible or desirable for
partnership, or they might be adopted to comply with ethical rulings from your professional association. With
increasing focus on family concerns in accountancy, as elsewhere practice models need to allow for easy entry/exit
from partnership and this is often facilitated by structures that differentiate between equity and non-equity principles.
As you read through this module, you may wish to prepare an evaluation table to help you determine the most
suitable structure for your needs.

2.2.1

Sole practitioner

Many firms start life with a single principal. Perhaps this accountant has been employed by another firm and has
decided to go it alone. Perhaps he or she is dissatisfied with life as a partner in a larger firm and seeks a more
immediate or more direct say over key decisions. Perhaps this person is leaving a corporate or government role,
looking for a new career direction. The backgrounds are many and varied, but the issues remain the same.
A sole practitioner is responsible for the whole firm: fee-generation; development and maintenance of
professional standards and work processes within the firm; marketing, promotion and selling of services to
current and prospective clients; management of the firm; and providing funds for its operations.
The sole practitioner need not be the only person working in the firm, and need not be the only fee-earner.
It will be up to you to decide how extensively you involve the other people within your firm. This aspect of
your management style should be discussed with potential employees when you are doing pre-employment
interviews; their expectations and style will need to fit very closely with your own, especially in the vital first few
positions that you fill. If for example, you plan to grow the firm’s revenue but hold the ownership of the firm very
tightly, then an employee looking for early admission as a partner should be aware of that. When the principal
and the senior employees know each other’s ambitions, this gives the best chance of ensuring a compatible fit.
A sole principal might also use a combination of their own equity plus some external debt to fund the firm. Yet even in
this situation, it is the sole principal who is entirely responsible for repaying any debts that the firm might incur.
Potential benefits of this model include:
z The simplicity of decision-making. Either the principal makes the decision alone, or takes some advice from
suitably qualified and/or trusted experts, consultants or employees. The process is relatively quick and
straightforward and free of political considerations.
z No profit-sharing.
z The sense of direct involvement and control appeals to many people.
Potential drawbacks include:
z The principal might not have the range of skills or experience to run the entire firm. There might be a critical
weakness in a management discipline such as marketing, systems development or quality control. Such
weaknesses can be overcome by subcontracting part of the workload to a trusted specialist. If the weakness relates
to a field of accountancy services, the practitioner should refer that work to a suitably qualified firm or employee.
z Sole practitioners can find it very difficult to keep abreast of changes in legislation or accounting standards
due to the increasingly complex commercial environment in which accountants work. The broader the range
of services offered by the sole practitioner, the bigger this problem and the higher the professional risk.
z If there is only limited professional support within the firm (for example, a very senior and/or experienced
person who can make many decisions unsupervised) the principal can be on call much of the time, even on
holidays. If a principal is continually under this type of pressure, it can lead to significant health problems.
z Professional loneliness can reduce the quality of work or possibly the personal satisfaction of the practitioner.
It can be overcome by using professional networks (possibly available through your professional association,
discussion groups, and so on) to bridge the gap to some extent.
z The principal might not have enough money to fund the firm at a suitable level. Inadequate funding, or
excessive debt, might leave the firm starved of cash or the necessary level of investment (for example, underinvesting in training or technology might be the unfortunate outcome).

MODULE 2: PRACTICE MODELS AND NETWORKS

z The firm might spend too much of its fees on fixed-cost items (for example, rent, subscriptions, fixed assets,
software licenses, and possibly some employees). This happens because all firms need a minimum set of
resources, even though those resources might not be fully utilized during the year.
2.2.2

Cost-sharing arrangement

Cost-sharing helps overcome some of the drawbacks within the sole practitioner model. In essence, several firms
share the use and cost of a common set of resources. The individual firms earn their own fees and pay other
discretionary costs individually, plus their share of the common costs.
Potential benefits of this model include:
z Each firm retains much of its own flexibility and independence. If a single member of the group needs a
specialist item that member can purchase it alone.
z Sometimes firms who share costs in this way can also complement each other’s skills. One firm might be a
tax specialist; one might offer audit services; another might have a specialty in wealth-management services.
Those firms can then cross-refer clients within the group to ensure a well-rounded and relevant service
offering, without fearing loss of control over the client.
Potential drawbacks include:
z Each firm might remain relatively small, only offering a narrow range of services. The firms might even have
to agree among themselves not to compete directly in each other’s area of specialty; if so, that would restrict
their options for growth of their own firm.
z Some time is required to manage the central ordering and payments and to arrange the cost-sharing invoices
for each firm. If this role is not shared equally, or if the time is not incorporated in payment made by the other
firms, then it represents a cost for the firm doing the group work.
2.2.3

Partnership of equals

“Partnerships can be collegiate, flexible and professionally liberating. While they can also be haphazard, inefficient and
desperately political, they are some of the most successful business models that the world has ever seen.”
“As a result, leaders—really successful leaders—solicit the views of their partners much more extensively than, say,
those of a list company would.”
“Different leaders tackle this in different ways. One, for example, parceled out parts of his job to ambitious partners.
Another by contrast, took inordinate care to ensure that leading voices of the various small networks in his large firm
were represented on governance groups.”
Young 2008

Laurie Young’s article, quoted above, is a suggested text. It highlights the strengths and potential weaknesses of
a partnership model.
Within various countries, there are different legal options for trading as a partnership, so refer to your local
professional association to identify the range of options open to your firm in a legal sense. Different legal
options carry different implications, for example:
z The extent of personal liability assumed by each partner, especially for the actions of fellow-partners;
z Asset protection; and

z The range of services that can, or in some cases must be delivered through limited liability versus unlimited
liability structures.
If you start a new partnership, the firm must be established from the ground up: you initially have no policies,
procedures, systems, or resources, other than the collective knowledge of the partners. It will be important to
document those policies as they emerge, so that all people in the firm come to know “the way we do things
here.” Considerable time is needed to develop and refine your approaches. See Appendix 2.4, Case Study 2.1
for an illustration of how a partnership can be organized.
If you join an existing partnership then, for better or worse, you also inherit the existing systems, processes,
policies and philosophies of the current partner base. This might look quicker or easier than setting up from
scratch. However, you might still spend a lot of time trying to change the course of the partnership—and the
minds of your fellow partners—if you feel that a better approach is possible in some areas.
Buying into an existing firm requires you to pay a sizeable amount to the existing partners to compensate them
for any dilution of their interest in the profits of the firm. Alternatively, your payment might go into the firm as
working capital. Even though the size of the outlay will vary from one potential firm to another, it does have the
advantage of ensuring a reasonably predictable level of profit and/or drawings.
Starting a partnership, on the other hand, might involve a smaller outlay upfront, but the firm will take longer
to deliver a viable level of profit (or drawings, salary, etc.). Early profits might have to be used to fund a growing
level of work in progress and debtors, or further investment in key assets for the business.
In the simplest partnership models, all partners contribute equally to the funding of the firm, all share equally
in profits, and all are involved in decision-making. This approach is often used at the commencement of a
partnership, where shared goals and mutual respect give all partners a very similar view of the business.
In larger partnerships (for example, once firms reach around five partners or more), complexities arise because
the variety of professional skills and interpersonal relationships. Decision-making might become the province
of a subset of the partners; profits might be shared unequally depending on factors such as the length of time a
partner has been in the firm or the relative performance of each partner; ownership levels can also vary. These
issues will be addressed in more detail below.
Potential benefits of this model include:
z Two (or more) heads are better than one. A partner is a colleague who can swap technical information, discuss
strategic options, or provide back-up. One of the partners can stay within the firm while you have the chance
to take appropriate leave, and vice versa. A partner allows the responsibilities of running the firm to be shared;
z Simplicity in contributions and profit sharing;
z The capacity for individuals to specialize in specific services, thereby expanding the scope to fully service a
client’s needs; and
z Access to funds from more than one partner, to provide working capital to the firm.
Potential drawbacks include:
z As the number of partners grows, it becomes harder to achieve the common purpose that was present
in the earliest days. This is because the age of the partners will start to vary; their financial resources and
requirements will place different demands on the firm’s cash flows. Such factors will start to play a part in the
way partners relate to each other.
z A wider range of interests and abilities within the principal base while a strength of the model can also be
a weakness. Some might gravitate towards certain roles while others avoid those roles; the workloads of
individual partners may differ markedly; the contribution of some individuals to revenue or profit generation

MODULE 2: PRACTICE MODELS AND NETWORKS

may vary; even the attitudes towards the amount and intensity of work time might vary. These differences
have the potential to cause tension among individual partners.
z Decision-making can be slowed by the need to have all partners consulted (and possibly agree) before a
decision is made.
z All partners are generally bound by the actions of a single principal.
z Legal liability for errors or malpractice can be borne by all partners, depending on the nature of the specific
legal entity being used.
Appendix 2.1 provides a checklist for evaluating potential partners. In Appendix 2.4 , Case studies 2.2 and 2.3
illustrate how a partnership can be organized to recognize partners’ abilities and strengths.
2.2.4

Unequal partnership

In this section, we assume that all of the partnership of equals material above is understood. This section
highlights the differences that flow from having inequalities in either the ownership, workload and/or profitsharing arrangements.
An unequal partnership can come about for many reasons an older or established principal might take a
different approach to a particular issue from a newer or younger partner, or selling partners might have a
different approach to the cost of entry and the drawings policy than a buying or incoming partner. In some
cases, the firm value is so high that an incoming partner cannot afford to buy a full-parity share, so they buy a
smaller proportion initially, or build up their equity over time by trading off profits.
Buying into a firm requires a large outlay to acquire a share of firm assets, in particular for goodwill. This single
transaction may well require the incoming partner to borrow much or all of the investment. Fortunately, a
realistic repayment schedule can often be negotiated with the financier (or the partner who is selling down their
interest), based on the firm’s demonstrated cash flows. In this way, the debt can be reduced in a predictable way
over several years.
However, if the sale and purchase of the share in the partnership is handled badly by one or both parties, there is
potential for long term difficulty. This single transaction might cause resentment in the selling partner because
“the price was too low,” yet the incoming partner may feel that “an outrageous price was demanded.” This
difference of opinion could influence each partner’s dealings with the other, long into the future. It will certainly
create a demand for more drawings: the selling partner might want to compensate in some way for the low
price, while the incoming partner requires more cash to service the loan. That may turn out to be one of the very
few things that the two partners have in common! While these situations can occur, there will certainly be many
exceptions too.
Before joining a partnership (either in a new firm, or by joining an existing one), you must spend some time
discussing the way that partners will deal with each other. Many interesting court cases involve disputes over
partnership arrangements simply because no agreement was ever recorded or agreed on. See Appendix 2.2 for
the major issues that should be discussed, agreed on and documented by the partners.
One final point to consider about partnerships in particular, and (in the case of older partners) the notion of
having someone to sell out to. For many years, the partnership model was seen as a “carrot.” A bright accountant
would work for several years for slightly below average pay, a trade off for the chance to buy into the firm later.
Today, young accountants have many career options, and some are less inclined to wait patiently for their career
to progress within a partnership. This represents a challenge to the traditional partnership model.
So accountancy firms today are facing challenges to their very structure. A firm needs to be interesting enough
to compete as a career choice with the other, newer options available to accountants. It also needs to be
profitable enough to meet the requirements of a new breed of professionals.

Partnership as a structure presents some challenges in interpersonal relationships. But it has served the
profession well for many years and will continue to do so. However, if a partnership is not structured properly,
or if the fundamental relationships between partners break down, partnerships have a number of inherent
challenges. Since accountants become involved in helping to structure, and sometimes resolve problems in,
partnerships for clients, it is important to have your own house in order first.
2.2.5

The consolidator model

Consolidators amalgamate a series of small businesses into a single, larger one to extract operating efficiencies
and cost savings. Consolidators claim to be able to transfer best practice from within any part of the large group,
leading to cost savings and/or revenue gains. This of course requires strong and pragmatic decision-making by
the acquirer and acceptance by the acquired firm, in order to deliver the savings as quickly as possible.
A listed consolidator firm has a set of shareholders, which will generally include the partners of the formerly independent
firm(s) as well as other private and/or institutional investors shares in the business are traded on a stock exchange.
In the UK, Australia and the US, this listed consolidator model has been attempted with mixed results. For this
reason, “consolidators” are not a key proportion of the market now; their appeal tended to be greater for firms
facing a significant retirement of partners. By comparison, a newly established or strongly growing firm will
most likely value its own independence and not be interested in selling to a “consolidator” practice.
Listed consolidators offer several opportunities to the principal in a public firm:
z A way out for retirement purposes: swapping a firm for either cash or shares;
z Access to capital: this is especially important to help fund the technology costs faced by firms today;
z Access to improved systems of management;
z Access to a larger pool of talented people and specialist knowledge (for example, precedents, training and
industry specific knowledge); and
z A career path for high quality personnel, and a financial incentive to participate in the firm’s success through
shares and/or stock options.
On the other hand, they are culturally different from an independent accounting firm:
z Joint decision-making by the partners is often removed;
z A more corporate flavor is introduced into the office;
z Staff mobility may be seen as a benefit to employees, but clients might not see it the same way;
z Often, restrictions are placed on partners of the acquired firms to prevent them from selling their shares for a
period of time after their firm is purchased; and
z The ultimate value of a firm depends on the behavior of the stock market.
The lure of partnership is not necessarily as strong a motivator for some bright young people in these firms. In
turn, this is changing some of the culture of accounting firms.
As a result, the extent and manner in which an individual can make an impact on an office is different: some
would argue that an individual would have less impact in the office of a consolidated firm.
In the past few years, listed consolidators have experienced vastly differing performances. Several have ceased
to exist and, in large part, the component firms or offices were bought back by their previous partners.
The most successful current “consolidator” firms tend to be privately owned but acquisitive accountancy
firms. Larger firms buy out or merge with smaller practices; sometimes the principals from the “acquired” firm

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remain working in the larger firms sometimes they do not. The targeted firms might have special expertise
that is considered valuable to the larger group or they may broaden the geographic reach of the acquiring
firm. Whether the “consolidator” is a listed company or an unlisted firm, the principles and justification remain
the same: a focus on transferring “best practice procedures” through the larger group and at the same time
eliminating wasted or duplicated expenditures.
2.2.6

Multidisciplinary firms

In some countries, a professional association or regulatory body might restrict the sharing of profits between its
members and people who are not members of the association. Government legislation or regulation might also
prevent non-qualified persons sharing in the profits of an accounting firm.
This section outlines how some countries have approached this issue, which permits the accounting firm to offer
a broad range of services to clients, while also providing suitable incentives for the non-accounting specialists.
The most common approach is to create a series of special purpose entities, such that part of the equity is
contributed and owned by the accountants and part is contributed by the non-accounting specialist. For
example, the accounting partners could take a 50% interest in an information technology consulting company,
and have information technology specialists own the other 50% of the company. Similar approaches have been
taken to include finance specialists, or wealth management specialists in some firms.
Potential benefits of this model include:
z A clear focus for each separate entity;
z Separate legal liability for each entity;
z Each entity can develop in its own style;
z There is no dispute as to who “owns” each client relationship, since the accounting owners are the common
link in the entire chain of service delivery. In effect, the accounting practitioners at the core of the multidisciplinary group will have a major influence on the level of service provided to each client. The ownership of
clients is clearly understood by virtue of the common ownership links among the service providers;
z Considerable opportunity exists to cross-sell services from one entity to another within the same group; and
z Equity or other funding can come from a wider group of non-accountants.
Potential drawbacks include:
z This structure does not necessarily ensure that the best businesses are guaranteed access to internal funds
(that is, the equity or cash flow from across the group), owing to the different ownerships of each entity.
z There will be some additional management, accounting and reporting required to maintain the web of
separate entities.
If this arrangement may suit or be of interest to your firm, contact your professional association for guidance.
2.3
2.3.1

Practice management
Family members working in the firm

From time to time, members of a sole practitioner or partner’s family might be employed in the accounting firm
and may eventually come to own the firm entirely. The idea that an accounting firm should be handed down
from one generation is common in some countries; in others, it is an unusual event. The approach taken to
engaging family members in a practice may vary widely between countries, cultures and economic regions.

This issue of family member employment in a firm raises special considerations, over and above the normal
commercial issues.
z First, it is important for the family member who is employed within the firm to have a clearly defined role, in
the same way that any other employee would have. The role should be consistent with the family member’s
abilities at that stage of his or her career. The family member should have a similar employment experience as
their equally skilled fellow-employee(s). Expecting the family member to perform at a level beyond their skills
and experience is unrealistic and professionally dangerous.
z Second, if the family member is subjected to an accelerated learning program, then their on-the-job
experience should be supported by a mentor. In some cases, or for some parts of the professional work, this
may well be the related partner; in other cases it might be another partner in the firm, or a senior and highly
skilled staff member. Once again, the scope of the accelerated learning program should be described clearly:
the expected length of time to be spent in each professional area, the learning objectives to be achieved in
each phase, and the performance and skill targets that must be met.
The steps described above should result in creating a well-trained and disciplined professional, capable of
running the entire firm in due time. Retaining the respect of employees is a key objective of the entire process
they must have confidence in the leadership offered by the relative of the partner.
When the time comes for the “trainee” family member to be elevated to the status of sole practitioner partner or part
owner of the firm, another set of issues arises. At this stage, the firm faces a number of “second generation issues.”
The newly promoted family member must be given areas of responsibility within the firm. This applies to
both professional roles dealing with clients and delivering high-quality professional services and to a role in
“nonprofessional” work such as administration, management or possibly business development. One common
approach sees the senior family member perform much of the relationship-building with existing or potential
clients, with the “junior” equity owner performing much of the professional work, possibly under the guidance
of the senior family member.
When the junior family member becomes part of the ownership of the firm, it may be necessary for him or her to
make some payment into it. On occasions in lieu of this, the junior family member might accept a lesser amount
of total remuneration than the senior family member. In this way the junior family member is seen to pay for the
privilege of becoming an equity owner, and to contribute financially to the firm.
Promoting a junior family member to partial ownership of a firm may impact on the future prospects for
a capable employee, especially if that employee wants to become a part-owner of the firm one day. Such
employees are an important part of the firm’s success, and so the owners should consider ways of retaining their
services. This might involve some form of loyalty bonus or the salary of the senior employee might be linked to
the fees they generate.
In time when the senior family member starts to reduce working hours or ceases working in the firm altogether,
a smooth handover of clients becomes necessary. Even at this stage, the senior partner may find it difficult
to hand over clients and/or responsibilities; both parties must remain focused on the reasons for it. The aim
is to ensure continuity of service and the preservation of the firm itself. Both the senior and the junior family
members should exercise considerable tact and discretion in their dealings with the other during this handover.
While this is occurring, the junior family member may well continue paying the senior one a regular amount by
way of a pension or gratuity, even though the senior family member performs no work for the firm.
The family relationship should not be destroyed or weakened as a result of the involvement of other family
members within an accounting firm. The guidelines above should help achieve this, but it will require substantial
amounts of goodwill and effort by all parties involved in the transition from employee to owner to retirement.

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Module 8 examines succession planning options in more depth.
2.3.2

Decision-making approaches

In any firm with more than one principal, decision-making must be considered. The approach to decisionmaking will reflect the philosophies of the partners/owners; getting this wrong can cause considerable friction.
In smaller firms (up to four to five partners), a regular partners’ meeting commonly makes operational as well as
strategic decisions. Usually, all partners are present, and a decision needs the support of most (if not all) of them
in order to carry weight. The partners’ meeting might spend a considerable amount of time—sometimes all
the meeting time—debating minor operational decisions, and overlook strategic issues. When this occurs, the
development of the firm can slow dramatically because it becomes too hard to reach any kind of agreement.
When firms reach around five and more partners, it becomes harder to gain 100% or a high proportion of
support for many decisions. At some point, the partners will see that too much time is spent trying to achieve
consensus or an absolute majority of votes.
z One response is to deem a particular level of agreement as a valid and binding decision on operational issues
(75% of votes, for example). Other, more strategic matters (for example, admission or expulsion of a partner,
decision to offer a new service, merger with or purchase of another firm, or possibly the dividend/drawing
policy of the firm) might require 100% support. Differentiating the type of decision in this way represents a
clear admission that not everyone must support every decision, but all must abide by the decision. It also
reduces the time required to achieve a decision, because fewer partners will need to be convinced.
z A second response is to delegate some decisions to a management group or other subset of the partners.
Members might be elected from within the full partnership, or might volunteer for this role because of their
interest in management. In this way, the operational-level decisions can be made more quickly and efficiently
while still binding all partners. Other major decisions may be determined through a meeting of all partners.
This approach might work for up to around twelve to fifteen partners, possibly working across one or two
office locations.
It is important to understand the politics within a partnership. If a small number of partners continually disagree
with decisions or feel that their views are not being heard, they might become progressively more remote and,
at worst, form a splinter group, which might directly disrupt meetings or the progress of the firm, or their actions
might signal that employees need not comply with decisions that they do not like.
When a firm reaches around twelve to fifteen partners, and especially if it operates from several offices, it might
reach a point where they employ a general manager, chief executive officer, or managing partner to guide the
firm. This person might be one of the equity partners (who will then generally take a lighter fee-generating
role, or perhaps be relieved completely from any fee-generation responsibility at all) or it could be a specialist
employed for this role. Once again, it is likely that the chief executive officer/general manager would report
regularly to a subset of the partners and less frequently to the full group of partners. The chief executive officer/
general manager must be supported by a sizeable majority of partners.
Whatever management structure is chosen, it must be fully supported by the partners in order to function
effectively. Once a noticeable segment of the partner base fails to support it, a new structure must be tried.
2.3.3

Issues to consider when structuring or restructuring a firm

Some of these issues have legal or financial ramifications (which may point to a better or preferred option, based
on an objective review of the facts). In some cases, from a management perspective, the right answer is the one
that suits the current group of partners.

2.3.3a Your strategic plan
The strategic plan adopted within a firm is likely to shape the legal and organizational structure. For example, if
you invite non-accounting specialists (such as information technology employees or financial planners) to own
a portion of their part of the firm, local ethical rulings might see you create a separate legal entity to deliver that
service, and have a different ownership pattern from that of the rest of the (traditional) accounting services.
More on strategic plans is included in Module 1.
2.3.3b Legislation or rulings by your professional association
Professional regulations might place restrictions on the type of entity that can offer accounting services. Those
restrictions maintain some commercial and professional integrity, and might include:
z Separation of some work for professional indemnity purposes: In some countries, audit services might have
to be provided via a partnership entity, while other advice covering tax, management consulting or wealth
management could be provided through a limited liability company or partnership. In other countries, taxbased and advisory work can be delivered through a company, while other services can be offered through
limited-liability partnerships.
z Profit sharing arrangements: Can profits from an accounting firm be shared with non-accounting-qualified
personnel? In some countries this can be achieved by using a separate entity to provide “administration,”
leaving the responsibility for accountancy services to be provided through an entity owned by the
professionally qualified partners.
z Non-regulated services provided through a specialist entity: This allows the partners of the accounting firm to
profit from providing non-accounting services (for example, technology or human resources advice), without
all equity owners being members of the professional (accounting) association. This structure also allows the
accounting firm to provide incentives and equity involvement to the non-accounting specialists who are
critical to that wider service range.
Arrangements will be subject to your country’s laws or professional regulations; refer to your professional
association for details that apply in your region.
2.3.3c Legal options
There are many types of business entity defined in the legal systems of various countries. These include
corporations, cooperatives, partnerships, sole traders and other specialized types of organization.
The range of options available to you might include:
z Sole trader;
z Partnerships: either unlimited liability or in some countries, limited liability partnerships;
z A company or corporate shell;
z A trust; or
z Some combination of the above.
Limited liability partnerships are used by many of the largest accounting firms in the world. A limited liability
partnership (LLP) is a partnership in which some of all partners (depending on the jurisdiction) have limited
liability. A limited liability partnership exhibits elements of partnerships and corporations. In an LLP one partner
is not responsible or liable for another partner’s misconduct or negligence. Limited liability partnerships are
distinct from limited partnerships in some countries, which may allow all LLP partners to have limited liability,
while a limited partnership may require at least one unlimited partner and allow others to assume the role of

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a passive and limited liability investor. It should be noted that the regulations governing a particular types of
entity, even those described as roughly equivalent, may differ to a greater or lesser extent between countries.
2.3.3d Tax issues
Over the life of your firm, there may be admissions and/or departures of partners. Each legal structure has
certain benefits and drawbacks in this scenario.
You might need to consider:
z Income tax payable on trading profits;
z Taxes on distributions drawings or dividends, or on profits retained within the entity;
z Taxes linked to share transfers or asset transfers (possibly stamp duty or transfer taxes or even inheritance taxes); and
z Capital gains taxes, should the value of the equities in the firm vary with the various changes in equity.
Tax regimes vary greatly around the world. Those variations will impact the ease or the cost to transfer assets, or
the timing and amount of taxes. Your net return from the firm will be reduced if the wrong structure is selected.
For these reasons, select a structure that does not disadvantage the firm when partners inevitably move in or
out of the ownership structure.
2.3.3e Asset protection
In some countries, limited liability structures can be used as vehicles for accounting firms. Where this concession
applies, professional associations generally require a firm to hold a minimum level of professional indemnity
insurance. This protects clients as well as practitioners, if negligence or malpractice is proved against a firm.
The lawful and ethical use of a limited liability structure is a reasonable and prudent commercial strategy. You
will need to consider the risks for your firm and your own ethical standpoint in determining how far to take
advantage of the benefits offered by limited liability.
2.3.3f Other insurance
Every firm will require a basic level of insurance for professional indemnity, to protect clients; for physical assets,
against theft, fire and so on; and public liability, to safeguard employees and visitors who might be injured while
at the firm’s premises.
Other types of insurance cover can contribute towards the firm’s overall risk management strategy. They include:
z Income replacement insurance: Especially in smaller firms, the sole practitioner is a significant fee-earner. If
he or she becomes ill for an extended period of time, this insurance replaces the income that he or she would
have generated. It might enable a locum practitioner to be employed to keep the work flowing, or it could
replace the drawings or salary that the sole practitioner would have taken.
z Private health insurance: This funds all or part of the health-related costs incurred during an illness.
z A life insurance policy or key person policy, taken on the life of each partner: This pays a lump sum benefit if
a partner dies. The benefit might be paid to the firm, for additional employees or a locum partner or to cover
other increased costs incurred. It can be a powerful and flexible approach to succession planning, especially
in a smaller firm. In many small partnerships, each principal cross-insures the other partner(s); if a partner dies,
the insurance policy provides the funds needed to buy the deceased partner’s share of the firm. The value
of each policy is linked to the value of a share of the firm, so this policy needs to be updated and reviewed
regularly to ensure that adequate amounts of cover are in place.
z Business expenses or continuity insurance. This pays additional costs that flow from a severe disruption of
business (possibly data loss, or fire, flood, or storm damage to the firm’s premises).

Insurance policies are a core part of risk management. They involve small and regular outlays now in return for
a large payout if the event actually occurs. Every firm must perform its own assessment of the various risks, and
decide whether an insurance policy is a good-value risk-mitigation strategy.
The benefits include peace of mind as well as a greater capacity to cope with the financial impact, should some
disruption affect the firm.
Liability and insurance within a firm is examined in depth in Module 7.
2.3.3g Access to finance
If a firm operates as a sole trader or small partnership, any borrowings by the partner(s) may need to be
secured by, for example, mortgages or other guarantees over the partner’s personal assets. If the partner has
aggressively sheltered their assets (for example, all their assets are owned by a spouse or a separate trust), then
they will have no assets to use as security, and so has very limited capacity to secure borrowings for the firm
unless another party provides a guarantee for security.
However, where a firm is conducted through a large partnership or corporate entity, borrowings can also be secured
by means of the entity itself pledging a guarantee or giving security over its own assets. By way of example, a small
partnership might not be permitted to use its work in progress and/or debtors to secure a loan facility.
In larger firms especially, it becomes easier to raise financing through a company/corporate entity than through
a partnership. The financier still may require personal guarantees from the partners, but the mechanics of, for
example, signing loan documentation, become much more streamlined.
2.3.3h Flexibility to handle growth
Each legal structure has its own method for handling changes of ownership and/or entitlements. For example,
it is common practice for corporate or company structures to have shareholders buy or sell an interest in the
entity: these structures were designed with this purpose in mind. In contrast, changes of a partner within a
partnership entity may require the old partnership to be wound up and a new one created. This becomes
cumbersome, especially as the number of partners grows.
As outlined in the tax issues segment above, different structures might be more or less favorably treated each
time a change of owners occurs, depending on the tax regime in your country or state.
2.3.3i Management structure and approach
This issue is dealt with earlier in this module. You and your fellow partners should establish a practical and
workable management structure. This structure must ensure that all partners have sufficient input into relevant
decisions, without unduly distracting them from their professional work.
As with many aspects of management, the chosen structure should be suitable for the size of firm and should be
widely supported by the partners.
2.3.4

Partnership agreements

Once you have at least one partner in your firm, it is essential that you agree and document fundamental
aspects of the relationship as well as sharing similar values and principles. A partnership agreement outlines key
philosophies and directions about the firm’s operations. However, it can never seek to govern every decision,
and it should always be seen as a “living document,” which may change from time to time, as the mix and
attitudes of the partners change.
The checklist at Appendix 2.2 highlights the issues covered by a partnership agreement. A formal contract
drafted by a legal professional is preferred, as it is intended to be regarded as a binding document that governs
the dealings among those partners.

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Many disputes involving partners (and especially former partners!) could be avoided by having a clear,
documented partnership agreement in place. The agreement also answers a lot of questions and provides a
clear framework when a new partner is admitted to the firm.
2.3.5

Remuneration and profit-sharing models

As it grows and develops, your firm will probably appoint more partners with a range of personalities, skills,
interests and work ethics. The larger the partner base, the more significant these differences could become.
Growing your firm might also require partners to specialize in certain areas: some may be excellent marketers
(sometimes referred to as “rainmakers”), others will focus on management and/or administration of the firm,
others will develop technical specializations or support large amounts of fees, and still others will just go about
the business of managing a suitable workload competently and efficiently. It will not always be easy to properly
recognize the performance and provide a suitable reward for each person, but that is no excuse not to try!
2.3.5a Different attitudes at different times
In a sole practitioner structure, profit-sharing is easy: it’s all yours! You decide how much to draw out for personal
requirements, and how much to reinvest within the firm for working capital and/or capital assets.
You might consider sharing some profit, if you have fee-earning employees who contribute substantially to
the firm’s success. This verges on salary administration but it would be aimed at providing incentives for key
employees to stay at your firm and keep delivering high-impact results.
In a small partnership, and especially in a new partnership, the most common approach is for each partner to
contribute equally to the firm, and share equally in the profits.
As the partnership base expands further (perhaps to around five to six partners), the differences in attitude and
performance between partners can widen. This can occur when longstanding partners charge higher hourly rates
or fees for their expertise. Sometimes younger partners, soon after promotion, charge lower hourly rates and
deliver a smaller total fee base in a year. Sometimes the so-called “non-productive” roles such as management and
marketing eat heavily into the time of a few partners. A point can be reached when some partners feel that their
efforts are not adequately rewarded, or that “I’m doing more for the firm than some of my partners.”
This is when profit-sharing becomes a hot topic within formal and informal partner meetings. Wise leaders will
sense when to act. An unwise leader will have to deal with a group of de-motivated partners or even a possible
split in the firm: either situation weakens the fabric of the partnership.
2.3.5b Some factors to consider
Planning and introducing a differential profit-sharing system represents a major change of mindset. It acknowledges
that not all roles or performances are equal. Each reward given to one partner is paid for by the other partners.
Also (and especially in the larger firms), there might be a few high-performing partners at one end of the scale,
and possibly a few under-performers at the other end.
2.3.5c What are you rewarding?
The profit-sharing system must fairly reward and motivate each partner, reinforcing that they are better off
staying within the current partnership than striking out alone. In shaping an alternative system, the following
questions arise.
z Are you rewarding presence at the office; a basic achievement such as generating a fair level of fees; or
exceptional performance based on fees or another criterion? Does the system measure an individual’s
performance, or a team’s performance? Has the individual’s performance truly changed the firm or its
operating results?

z Some monetary or measurable criteria might include: total fees billed, individually or by your work group;
write-downs; level of premium billing performed (or value of write-ups); or number of chargeable or billable
hours performed.
z Some of the less measurable factors include: management, marketing or employee-related roles played by the
partner; other forms of non-billable work performed; gaining new clients or new work for other work groups;
contributing to activities of the professional association; and performance beyond the basic expectation.
2.3.5d What does the firm need?
Many firms now avoid owning assets within the firm itself. For example, firms will lease equipment or rent their
premises, rather than buying those assets outright. If a firm does own its premises, this might be done through
a separate entity (possibly owned by only some of the partners), which deals at arm’s length with the firm.
Therefore, how much profit must you retain in the firm, and how much can be paid out?
2.3.5e How frequently are the profits distributed?
Every firm must utilize its partners and employees to maximum effect, especially given that many firms are
facing shortages of qualified accounting personnel. People will generally work more happily and productively
when they are working in an area of special interest and/or expertise. This still permits those people to broaden
or deepen their skills, or to have the option of working in different parts of the firm, while continuing to deliver
genuine benefit to the individual as well as the firm.
Any incentive structure, whether for partners or employees, needs to encourage the right actions in the right
directions, consistent with the firm’s strategic plans.
2.3.5f Will the system be driven only by formula, or is there a subjective component too?
Some partners will favor a predictable, objective system, using targets, benchmarks or a formula to allocate the
firm-wide profit. This has the benefit of total transparency: each partner can work on specific aspects of their
performance (the ones that are rewarded by the model) to increase their share of the available profit.
Alternatively, some partners may believe that fundamental differences justify a more subjective approach
(for example, “Your department is more profitable/faster growing at the moment, and that disadvantages the
important work and clients that I look after,” or “I spend XX non-chargeable hours looking after this function
and so can’t achieve the fees that you generate”). If a subjective approach is used, then some fair method of
allocation needs to be devised: a voting system involving all partners, or perhaps a remuneration committee
with a small but representative number of partners. The aim is to generate a result that others will see as fair.
Are you allocating all the profit or just some part? The firm might allocate all its profit on the basis of
performance criteria, or it might decide to divide its profit into several distinct pools, for example:
z A regular amount per person, to reward a solid performance (this might be an equal amount per person, or it
could be a differential figure to reflect the role, the fee-load or the seniority); and/or
z A percentage return on investment in the firm; and/or
z A performance-based (using either an arbitrary or a discretionary set of rules, at the firm’s choice).
As you can see, many features can be incorporated into a differential profit-sharing system. The challenge is to
use an approach that is seen as fair, yet simple. Of course, the factors used in the formula must align with the
firm’s objectives.
Changing the profit-sharing model is one of the most sensitive decisions a firm can make. It should not be done
hastily, nor should it be changed too often. A good idea is to bench-test the proposed new model (for example,
using last year’s figures, or perhaps the last two years’ results) before finally accepting it. This lets all partners see

MODULE 2: PRACTICE MODELS AND NETWORKS

the practical impact of the new approach: “Who are the winners or losers?” “How will I personally be affected?”
Each person can judge its suitability.
If a firm has an under-performing partner(s), a differential profit-sharing system can help highlight the size of the
problem. It shows all partners how much profit the under-performer earns compared to others. However, the
profit-sharing system itself should not be used to discipline that partner. Instead, an under-performing partner
should be treated in much the same way as an under-performing staff member:
z They should be formally advised that aspects of performance are currently not suitable;
z They should be given guidelines and/or targets and timeframes for improvement;
z They should be given technical and/or mentoring support during the rehabilitation phase; and
z If this process does not improve performance to a suitable standard within a reasonable and agreed
timeframe, there is a strong argument that the poor performer should be dismissed.
The ultimate test of any proposed differential profit-sharing model is that it must be seen to give fair rewards
to the best performers in the firm, while also delivering a suitable remuneration for the important efforts of the
solid performers within the partnership.
The legal structure utilized by your firm will determine how profits are allocated (for example, is it a drawing
from a partnership or a dividend from a corporation but should not affect the basis of arriving at the various
profit shares.
In Appendix 2.4, Case study 2.4 illustrates how a small firm can arrange their profit-sharing to begin with then
alter profit allocation as the firm takes on more partners.
2.4

Using networks to add value

This section examines several types of network that a firm might want, or be permitted, to use. The essence of
any network is to utilize the skills or contacts of the other party, for mutual benefit. Here we will look at three
different types of network that an accounting firm could use:
z A referral network;
z A network to assist in delivery of professional services; and
z A network to benefit the management of the firm.
2.4.1

Advantages and disadvantages of network alliances

Advantages
z You can concentrate on your core services and leave others to focus on the technical requirements of their service.
z Networks are flexible, as you don’t incur the fixed costs of setting up that equivalent service. You don’t have
commitments to additional employees in your firm.
z The other owner worries about having the resources to cope with the volume of transactions they fund their
business and you fund yours.
z Networks can be changed quickly: if a better provider arrives on the scene, you can quickly start to refer work
to that new provider.
Disadvantages
z A network rarely guarantees the same degree of control as offering a service yourself: you rely on other
people to implement that particular service.

z If arrangements are made between the owners of two organizations, the delivery often happens through
their employees, who might not always have the same degree of commitment as the partners. There is a
cost involved in creating and nurturing an alliance: meetings to scope the “rules” and the service standards
to negotiate preferred bases of operation between the firms, and so on. The trade-off may well be that
it is quicker and easier to negotiate an alliance than it is to study the feasibility of, and subsequently to
implement, the new service directly through your own firm.
2.4.2

Referral network

A referral network exists when several firms agree to refer or introduce potential clients to the other(s) if the
referring firm cannot provide a particular service required by a client. For example:
z Legal;
z Marketing;
z Insurance;
z Wealth management or financial planning;
z Computer consulting;
z Bookkeeping;
z Real estate agencies;
z Valuations of land and/or businesses;
z Architects, engineers or surveyors; or
z Finance providers.
A referral network is generally built on a series of one-to-one arrangements, for example:
z A local legal firm referring clients who have recently purchased or started a business and who need a public
accounting firm;
z A real estate agent referring the purchaser of a business to the accounting firm; or
z Senior employees in a financial institution referring clients who need more help than their current firm can
deliver. This might come about when a business owner seeks finance for a loan and the financier requires
more detailed cash flow or profit forecasts.
You might prefer to offer a full range of services through your firm, or you might use networks to confidently
refer clients to specialists. Either approach requires an investment of time and possibly money. To illustrate:
z Your firm can invest time and money to develop a service. You will need to employ or re-allocate a senior
employee or partner while they learn the skills and gains the required qualifications and registrations. While
this happens, they cannot be a fully functioning fee-earner. Once the new service is offered, it will take some
time for the new service to become self-sustaining.
z Your firm may buy or merge with a qualified provider. This takes considerable time and investment to locate,
screen, purchase then integrate the new business into your own.
z Even when you refer a client to a separate firm, best practice demands that you keep in contact with your
mutual client and with the other firm.
z The final alternative is less palatable: Watch your full-service competitors take away your clients! This too has a cost.
Whichever option you take has financial consequences. Be guided at all times by the best interests of your client:

MODULE 2: PRACTICE MODELS AND NETWORKS

z Would the client be better off if I offered the service in house?
z Would the service be better?
z Would the cost to the client be lower?
z Would the return to your firm be higher?
z Would there be enough activity to make a viable business within your own firm from this service?
z Are the training requirement(s) and/or professional risk too high for this to be offered in-house?
Decide whether your relationship is with another practitioner, such as a trusted representative from each
business, or with the organization itself. This affects the way you evaluate each relationship, and whether you
need to review the choice each time there are personnel changes. While the culture or receptiveness of an
organization might only change over several years, the personnel can change very quickly this can have a
serious impact if a highly skilled operator leaves the other firm.
Key points to consider
z Do you expect that there will be referrals by both organizations? If so, you need to think about measuring
and monitoring the value to each party. If not, you can simply approach the other organization from the
perspective of enhancing client service.
z Which criteria will be used to add or to remove an organization from your panel or list? Do you need to
formally advise a firm or a key contact from time to time that it is on your panel, or will you presume that the
firm or contact is aware?
z Are there legislative or ethical considerations—such as privacy or confidentiality—that must be addressed
before clients can be referred?
z Will special conditions or benefits (such as special pricing or free initial consultations) be offered by either
organization to clients introduced by the other?
Any referral arrangement must be built around a healthy respect for the professional skills and service levels
offered by the other organization. If you refer a client to another firm and the client receives incorrect advice
or poor service that reflects poorly on your own firm. Keep in regular contact with a key contact from the other
organization to monitor progress with your mutual client. This tells your client and the other adviser that you are
committed to gaining the best result for the client.
Consider the organizations you will use in this way. Will you refer to only one provider, or will you refer to one
of several different firms? In an “earned exclusivity” arrangement, a firm offers such a good service, deal or level
of expertise that you wouldn’t want to refer anywhere else. This kind of approach can mean that the client gets
high-quality service, and that the referrer is confident that a better-than-average deal has been negotiated for
high service standards. The firm obtaining the referral will clearly know how many referrals are obtained and the
overall value of those referrals to the business.
When you establish a referral arrangement, don’t let it be too restrictive. If you tie yourself in a formal way to
another organization for referral or cross-selling, this might restrict your flexibility if a firm merger or sale comes
up. By keeping the arrangement flexible, you can move quickly if a major structural change in your own firm is
about to be made.
Module 6 examines the advantages and disadvantages of referrals as part of the client relationship
management.
In some businesses, sectors or geographical locations, the payment of referral fees or commissions may be
common practice, while in others it may be strictly prohibited. Receipt of referral fees or commissions may

give rise to self-interest threats to objectivity, professional competence and due care. You should consult the
IESBA Code or your professional bodies for further guidance. It is recommended that where referral fees or
commissions are allowed, appropriate disclosure is be made to the client. Ethical threats and safeguards are
examined in more depth in Module 7.
See Case study 2.5 in Appendix 2.4 which illustrates what needs to be taken into account when a firm decides
how it will manage referrals.
2.4.3

Professional network

A referral network (as described above) can also operate among accounting firms. A specialized part of the
client’s needs (for example, audit or wealth planning) might be performed by a suitably skilled firm. Or a service
might be required in a location you cannot service.
Examples might include referring a specialist tax problem to a firm skilled in that area. The client’s problem is resolved
with considerable expertise by the specialist, while the referring firm keeps full control over the client relationship.
The network might operate geographically, which allows a client to be referred after changing location if they
require a firm nearby. This can be especially important where national boundaries are crossed.
There is international debate about the ethical issues involved in large-scale outsourcing of some accounting
roles to firms located in other countries. The practice raises questions of client confidentiality and the extent
of disclosure. The same questions also apply with any referral of confidential client information outside the
home firm. For these reasons, partners should have a well-considered and well-documented set of criteria and
procedures when they subcontract professional work to other firms.
With any referral, a high-quality service is important to all three parties:
z The referring firm can have its relationship with the client tarnished if the other firm fails to provide good
advice or good service;
z The receiving firm might not gain a long-term client if they do not provide good service; and most importantly
z The client loses out if the advice is not good in a professional or technical sense.
Mid-tier or large firms might offer a fee-for-service arrangement to other firms. This could include access to
the mid-tier firm’s professional employees, possibly at concessional charge-out rates. Or it could gain access
to employee training programs, avoiding the need for the smaller firm to develop its own training packages. It
could even offer firm management services. The support service will probably extend to making professional
work papers and other template documents available. Investigate the availability of such a service, then see
whether it represents a good value option to support your firm.
Any such support service must be of high quality; it must also provide a quick response when you need it. The cost
might be based on a minimum annual or monthly fee to access the core services, plus an additional fee based on
use of other services (for example, to allow the smaller firm to send multiple employees to a training course).
Increasingly, too, professional associations are forming networks. Such alliances can make it easier for individual
members of any association to arrange international transfers or work experience assignments; it might help
make the transfer of people and skills easier via mutual recognition of the qualifications of individual members.
Look at the benefits that professional network may deliver, especially if you are a sole practitioner it could
provide an important and cost-effective level of protection.
Section 290 of the IESBA Code provides a definition of network firms. A firm is deemed to be part of a network
if it is part of a larger structure aimed at cooperation and profit or cost sharing, or shares common ownership,
control or management, common quality control policies and procedures, common business strategy, the use of
a common brand name or a significant part of professional resources.
MODULE 2: PRACTICE MODELS AND NETWORKS

2.4.4

Management support network

The third type of network deals in firm management information. At its simplest, it could involve bulk-buying
some services, to gain savings that would not otherwise be available to individual firms.
Your firm might join a network of accounting firms. The members of these affiliations often share management
insights, so that all firms in the group can benefit from best practice developed by any one member. Or perhaps
the cost-sharing allows highly renowned speakers or consultants to address specific management issues of
common interest.
Some of those groups run their own inter-firm or benchmarking comparisons; others run discussion groups
among managing partners and so on. They might even share the cost of developing specialist items (such as
performance appraisal forms or document templates).
There will be a cost for this type of information-sharing, but it can be less than each firm would spend individually.
So what is the best practice standard for forming network alliances?
z Strike up flexible arrangements with high-quality providers.
z Negotiate some favorable basis of dealing with your client. This may include an initial free consultation, or a
bonus piece of related undertaken by the service provider.
z Keep in contact with the clients you introduce to these other organizations, to make sure that each client is
happy with the service. In the event of problems, discuss these as early as possible with a senior member of
the other service provider. Tell your client that you have followed up on their problem. If no improvement is
noticed, consider referring your clients to another provider.
z Be prepared to offer reciprocal arrangements to firms that refer new clients or potential clients to your firm.
See Appendix 2.3 for a checklist on establishing network alliances.
2.5

The evolving firm and the need for regular review

In time, your firm will hopefully grow and develop in accordance with your plans. More employees, more clients
and perhaps more partners will change the shape and possibly the culture of your firm. This will usually be a
gradual change, unless there is a major event such as merging with or buying another firm.
It is important to take periodic snapshots of your firm to reveal the nature and extent of changes. This is the
purpose of an annual retreat meeting for partners: to look at the firm’s services, skills, strengths and weaknesses.
Only a realistic review of the firm as it is today will enable you to keep it headed in the strategic direction. If
certain decisions have taken the firm away from its strategic path, then either the firm can be steered back onto
the right path, or the strategy must be amended to reflect the new direction.
Sometimes the key personnel of the firm can perform this review more than capably. They know the firm
intimately, they are competent business analysts, and they know the challenges currently facing the profession.
On other occasions (such as in a larger firm, or one where there are significant factions), an external facilitator is
helpful to chair the meeting and discussion. A facilitator is independent from the regular decision-makers, and
can ensure that the discussion remains at a high level or policy level.
To be successful, change management must occur by design and in a specific, agreed-upon direction.
Case study 2.6 Appendix 2. in illustrates how a firm can manage it’s direction, through organizing or
reorganizing the way it is structured.

2.6

Conclusion

This module has discussed:
z The various types of firm you can create or join: sole practice, alliance, partnership of some type, or a
corporate firm structure.
z The alternative approaches to decision-making within a firm, so that decisions can be made in a transparent,
efficient and business-like manner.
z The need for structure or decision-making styles to evolve as the firm grows and develops.
z Some practical checklists and tools.
Keep considering your own suitability to the life of a partner in an accountancy firm: your ability to lead, advise,
motivate yourself and others, and your capacity to take on the responsibility and workload for professional and
the commercial success of your business.
It is an exhilarating journey, which requires hard work, focus and commitment.
2.7

References, further reading, and IFAC resources

References
International Ethics Standards Board for Accountants (IESBA). Handbook of the Code of Ethics for Professional
Accountants. (ed. March 2010). IFAC: New York, 2010.
Myers, Randy. “Start Your Own Practice. Shape your own destiny and provide value to clients.”Journal of
Accountancy, April 2006. http://www.journalofaccountancy.com/Issues/2006/Apr/StartYourOwnPractice.htm
Young, Laurie. “All For One.” Accountancy Magazine August (2008): 55-56.
Further reading
AICPA Journal of Accountancy Practice Management – Practice Administration articles –
http://www.journalofaccountancy.com/Search/Results.aspx?Topic=PracticeManagement%7cPracticeAdministra
tion
HKICPA. “Family matters: Putting down roots.” APLUS March 2010.
http://app1.hkicpa.org.hk/APLUS/1003/p20-26.pdf
Rosen, Hillel. “A model of efficiency.” CA Magazine May 2008.
http://www.camagazine.com/archives/print-edition/2008/may/regulars/camagazine4981.aspx
Rosenhek, Stephen. “Making it fit.” CA Magazine August 2008.
http://www.camagazine.com/archives/print-edition/2008/aug/regulars/camagazine4583.aspx
Rosenhek, Stephen. “The groundwork comes first.” CA Magazine October 2008.
http://www.camagazine.com/archives/print-edition/2008/oct/regulars/camagazine4341.aspx
(Italian)
Video: http://www.economiaefinanza.org/categoria/modelli-organizzativi
IFAC resources
IFAC publications http://web.ifac.org/publications
IFAC SMP Committee publications http://web.ifac.org/publications/small-and-medium-practices-committee

MODULE 2: PRACTICE MODELS AND NETWORKS

To find the most up-to-date listing of other useful resources relating to this module, please visit the Resources
section of the International Center for Small and Medium Practices at http://www.ifac.org/SMP/index.
php#Resources, especially the ‘relevant links’ at http://www.ifac.org/SMP/relevant_links.php
To search the websites of IFAC member bodies and other relevant websites for other useful resources relating
to this module, please visit the IFACnet search engine located on the home page of the International Center for
Small and Medium Practices at http://www.ifac.org/SMP/
To discuss issues relating to this module with practitioners from around the world, please visit the IFAC SMP/SME
Discussion Board at http://web.ifac.org/forum/SMP/1

Appendices
Appendix 2.1 Evaluating your potential partners checklist
If you plan to form a new partnership, you will need to ask:
Who will my partner(s) be? Do they also have the necessary qualifications to be my partner(s)? If not, when
will they be ready? Are we compatible?
Have we fully discussed our aims and objectives, so that we understand each other’s needs and
expectations? Are we compatible?
Have we recognized and reconciled significant differences of opinion, either to prepare for inevitable
disagreements, or to determine a way of handling those issues? Are we compatible?
Will we share profits equally, or on some differential basis?
Will we start completely from scratch and build our own client base?
Do we expect to have a client base come with us from our current employer(s)?
Will we buy a parcel of fees to start our firm’s work and cash flow?
Where will we practice?
Can we find suitable offices at a suitable price?
What employees will we need initially?
What licenses and approvals will we need to have: professional qualifications and memberships, local
council regulations, etc.?
What physical resources and equipment do we need: phones, fax, email, website, listings in phone books,
initial promotion of the opening of the firm, stationery and letterhead, office equipment, working capital?
Professional indemnity insurance must be arranged. Get more than you think you need!
What capital does each of us need to commit to the firm? What will finance our living costs in the early
months? Do we both have the resources or the reserves to equally fund our commitments?
Can I/we afford it?
If you plan to join an existing partnership, you’ll need to ask:
Who will my partner(s) be? Are we compatible?
Have we all fully outlined and discussed our aims and objectives, so that we understand each other’s needs
and expectations? Are we compatible?
Have we recognized and reconciled significant differences of opinion, to either prepare for the inevitable
disagreements, or to determine a way of handling those issues? Are we compatible?
Will we share profits equally, or on some differential basis?
What is the age profile of the partners? What are the other partners’ retirement plans? What are the buyout
arrangements when a partner decides to leave? Can I fund my initial purchase, plus a potential departure of
another partner? What contingencies do I need to cover to meet my commitments?
What due diligence process should I embark on before committing to buy into the firm? What assurances
do I need? What protections or “letters of comfort” do I need to obtain from the existing partners?
Check the firm’s professional indemnity insurance policy and terms, and any claims history that the firm may have.

MODULE 2: PRACTICE MODELS AND NETWORKS

Is the firm’s current client profile of good enough quality?
What role will each partner play in the new firm?
What price is being asked for a share of the firm? What am I buying? What return can I expect from the firm?
Can I live comfortably and still service the buy-in arrangement?
Can I/we afford this?

Appendix 2.2

Items to be included in a partnership agreement or shareholder agreement checklist

Aim of the firm
The range of services to be delivered;
Target client types;
Geographic location of the firm; and
Number of offices.
Ownership and profit sharing
Clear statement about the percentage of net assets to which each partner is entitled on dissolution or wind-up.
Profit-sharing arrangements (these could be equal or based on differential percentages, or based on an equal
draw of $[XXXX] per month per partner with the balance to be divided in some predetermined fashion).
Ownership and profit share are not necessarily identical in all partnerships.
A decision-making policy
Will decisions be based on the proportion of equity held by each partner, or one partner, one vote?
Will proxy votes be allowed if a partner is absent from the meeting?
How many partners must be present to represent a valid quorum?
Will the chairman have a casting vote if required?
What decisions must be made at a partners’ meeting?
What delegated authorities are given to each partner?
What proportions of the partners must agree, for a decision to be valid?
How often will partners meet?
A drawings policy
This should be a general statement as to whether profits will be, for example, paid out as soon as the cash
balance permits, or whether profit retention will be the preference. It could specify that a certain percentage
of accounting profit should be retained to fund working capital (for example, similar to the payout policy
that can be specified by a corporation listed on a stock exchange). It is largely a statement of intent, but
should set the tone for the firm’s approach to drawings.
A debt policy
Is interest payable on partners’ loan accounts? This could outline the types of debt finance likely to be used,
or could put some limit on the maximum debt tolerable by the partners (for example, “Total interest-bearing
debt is not to exceed the value of debtors fees outstanding at any month-end”).
Leave policies
The amount of each type of leave that will be accrued by the partners, and the means by which leave can be
scheduled or taken, especially in regard to the following:
z Holidays or recreation leave;
z Sick leave;
z Professional development leave;

MODULE 2: PRACTICE MODELS AND NETWORKS

z Compassionate leave;
z Unpaid leave;
z Time in lieu leave if some partners work substantially more hours per year than most others; and
z Sabbatical leave or long service leave.
Insurance
Presume that normal insurance the firm takes out such as for office equipment and professional indemnity.
This provision needs to deal with, for example, sickness insurance/income replacement policies and key
person or life insurance type policies.
Will these be taken out by the firm automatically for all partners, or taken by individuals at their option?
Will the cost be borne as a normal firm operating cost, or will it be charged as a drawing to each partner?
Motor vehicles policy
Will the firm own and operate partners’ cars?
Is the cost to be charged as a drawing to the individual concerned? Or should all partners make their own
arrangement totally outside the firm?
What rate is payable for genuine, firm-related vehicle usage?
A performance policy
This outlines the reasonable expectations that all partners should have of each other: for example, the
number of working hours chargeable hours or fee budget expected over a year.
Related to this is the way that any alleged under-performance will be handled by the partnership.
Acceptable forms of community support (pro bono work) that can be performed in firm time might need
to be listed. For example, time spent in professional bodies or regional development organizations might
be acceptable during normal working hours, but time spent networking with clients at the local golf course
might not be considered acceptable. This may prove a difficult issue to handle in a large partnership where
many different roles may need to be covered. In that case, a clear job description for each partner can be
used to recognize different roles and the related performance expectations.
An entry and exit policy
How are new partners admitted?
What amount of notice is required if a partner wants to exit the partnership?
How is a new partner to be admitted?
Who determines the percentage of the firm that will be offered to the incoming partner?
Will new partners enjoy full profit share immediately, or some form of lock-step entry over several years?
How is goodwill of the entire firm to be valued? It’s best to set a formula or other model, then let the
variables at the time of admission or departure determine the final price of a share.
Is there a compulsory retirement age?
What payment terms are offered on the way in or out? Will existing partners provide vendor finance and if
so, how are the terms structured?

What happens if a partner has to exit for unsatisfactory performance? Is a different basis used from the
normal formula? What if the exit is due to poor health?
How do the above issues change if the departing partner leaves (with clients) to set up a new firm? How will
the valuation be affected?
Will the firm own cross-insurance policies on each partner’s life? How will the proceeds be used?
What restraint of trade is suitable and enforceable when a partner leaves the firm?
Handling matters not covered in the agreement
z From time to time, matters will arise which have not been pre-agreed and recorded within the partnership
agreement. The agreement should specify the normal way to resolve these issues (for example, discussion
over perhaps several weeks, to guarantee that issues can be raised, debated, considered, then finalized;
guidelines as to the proportion of partners who must agree to a particular resolution). A methodology
for handling disputes or stalemates (possibly involving an independent chairman at some stage in the
deliberations, to ensure that procedural fairness and a balanced debate are achieved before the decision
is finalized).
Other matters as required
For example, a policy about hiring partner family members.
Appendix 2.3 Establishing network alliances checklist
What type of assistance do you want?
Technical: for example, details of recent tax changes, or changed accounting standards.
Referral: for example, someone who can deal with a specific, specialist piece of advice for a client, but not
end up poaching the client.
Management: for example, tips or advice about the organization and management of your firm.
Buying group: for example, discounts on commonly used items such as stationery.
Specialist service: for example, a financial planning research service, or provision of fully licensed support.
How much might these benefits be worth to your firm in a year?
In direct cost savings;
In time savings;
In comfort, confidence and security; and
In study time.
What fee is sought for the package?
Initial.
Ongoing.
Is the benefit greater than the cost?
Is the service provider sufficiently focused on providing support to you and other firms like yours or is it a
sideline activity for them?
Is there any benefit available in being seen as part of that brand? Will it assist your marketing? Which brands
do your clients know? Which brand is the most valuable? Or the least?

MODULE 2: PRACTICE MODELS AND NETWORKS

Does your involvement with the group prevent or restrict you from any of the following?
z Doing certain work;
z Taking on certain clients; or
z Promoting your firm or your services.
Can you talk to existing members about their degree of satisfaction with the following?
z The service;
z The value for money; and
z The people who create, or deliver, the service.

Appendix 2.4: Case studies
Case study 2.1
This case study relates to Module 2 (“Practice models and networks”).
In their discussions about the legal structure of their new firm, Indira and William recognise that they are likely
to add partners in the future; accordingly, they select a structure that makes admission of new owners relatively
simple and cost-effective.
Because they are not “buying fees” or another firm, they do not need qualified accounting employees initially.
William and Indira will each have sufficient time available to promote the firm as well as perform the work they
generate. This situation is likely to grow more difficult to juggle by the end of the first year of trading, but it is
manageable until then. The implication is that they will require some administrative assistance for the first year,
but no professional employees yet.
In their planning, William and Indira are keen to set the ground rules now for the way they wish the firm to
evolve. By doing this, they are set in place a long-term culture that they can explain to clients and to potential
employees they can then hire people who understand and accept that ethos.
William and Indira summarize their major employee-related policies as follows:
z Our firm sees all our people as an important part of our success. We all contribute to the benefits that clients
will derive from our services. We will involve our people in the full operation of our firm, and provide regular
updates as to our plans, our progress and our financial performance. (William and Indira took some time to
reconcile their personal views about that statement. William was keen to have full disclosure of the firm’s
financial results to all employees, but Indira was a little less willing. They discussed this difference in approach
and finally adopted a “middle-ground” approach, which discloses some actual results as numbers, and other
results as trend lines rather than specific numbers.)
z We respect our people. Our workplace will be free from any form of harassment or discrimination, and we will
be ever alert to ensuring our workplace is safe and secure.
z We expect our team to behave in an honest, ethical and professional manner. Where an employee has
concerns about a particular situation, it is to be discussed immediately with one of the partners of the firm.
All personnel will be expected to commit to maintaining confidentiality over information and to respecting
our firm’s right to continue serving our clients. All personnel will be asked to guarantee those performance
standards, using a legally enforceable and reasonable contract.
z We will cooperate with our team to provide a work environment that responds simultaneously to clients’
needs (in the timely delivery of high-quality advice) and to the needs of our people. We are willing to tailor
working conditions to suit the unique requirements of each employee: in this way we can respond in a fair
and balanced way towards family commitments, career development and day-to-day workloads.
z We value the development of skills. We contribute to this via our in-house training events and external
courses. We are willing to contribute part or all of the investment in short courses and formal qualifications, in
a way that reflects the impact of that training on our firm.
z Our remuneration policies will include incentive schemes relevant to the roles individuals play.
Indira and William anticipate that this statement will make their firm seem like a desirable place to work, thereby
giving them the best possible choice of applicants. They intend to send this statement to all applicants for to
work in their firm.

MODULE 2: PRACTICE MODELS AND NETWORKS

Case study 2.2
This case study relates to Modules 1 and 2 and touches on issues about self-assessment, partnership agreements
and funding arrangements for new partners.
When the firm began, Indira agreed with the way that the firm was expected to be funded, and was willing
to leave more undrawn profit in the firm initially. This approach would ensure that both partners had equal
investment in the firm within a reasonably short period.
As a result of their early review of their personal and professional situation, the partners went a long way toward
settling their services plan, addressing elements of funding the firm too. They documented these agreements as
the starting point of their partnership agreement.
Some years later, the firm has grown considerably. Each time a new partner was added to the firm, William and
Indira put the proposed partner through the same self-assessment exercise they had done. By doing this, the
existing partners hoped to ensure that the partners shared enough of the most important attitudes, and this has
made for a harmonious partner base in the firm.
For the first few new partners, they used the same checklist (Appendix 1.1 in Module 1 ) and invited the intending
partner to discuss the results with some of the existing partners. This approach worked well initially but became
more and more daunting (and therefore less useful) as the number of partners increased. Eventually the firm
decided to use an independent consultant to talk to the incoming partner as well as to the existing partners.
Because the firm was becoming progressively larger, there was slightly less flexibility about the financial
arrangements for the admission of a new partner. Instead of allowing differential levels of equity or lower
drawings to equalize the equity, the “existing” partners agreed to provide vendor-finance to the incoming
partner on favorable terms.
Case study 2.3
This case study relates to Section 2.2 (“Which practice model is right for you?”) in Module 2 .
William and Indira have decided on the following approaches to allocation of responsibilities and decision-making.
William will take primary responsibility for the professional matters relating to the firm’s tax advice; Indira will
focus 60% of her time on audit, with the remaining part spent on general accounting for a small group of clients.
Each will be available to take on some management advisory work, and each assignment will be allocated to
one of them according to the nature of the assignment rather than who “owns” the client.
Indira has accepted a role attending to administration and quality control issues; William will spend some of his
time in promoting the firm’s services across a range of current and prospective clients.
They have determined that both need to agree on decisions; this particularly applies to decisions regarding
accepting new clients, or adopting new internal processes. They expect that this will be a workable and
collaborative arrangement in the early days of the firm; however, each has also agreed to consider deferring to
the other’s recommendations if one of them feels strongly about an issue and the other is ambivalent about it. As
a result, the less significant decisions should not cause undue delays or friction between the partners. They are in
complete agreement, however, that once a decision is made, it will be adopted and embraced strongly by both.
These undertakings have been added to the partnership agreement.

Case study 2.4
This example relates to Section 2.3.5 in Module 2.
William and Indira each respect the work and commitment that the other gives to the firm. They see some merit
in initially sharing profits equally, but are also keen to structure a longer-term arrangement that will reward a
larger group of partners for visible contribution to the firm. In short, they want to start today with an approach
that they believe will suit a larger group of partners in the future. At the beginning of the firm’s life they decide
to allocate profits as follows:
z The key accounting policies are listed and agreed, so that both partners know how profit will be calculated.
z The interest paid to William (on his higher capital contribution to the firm) over the first two years will be
treated as an expense of the firm and will be paid before profit is struck.
z The first 80% of available profit will be shared equally between William and Indira.
z Of the remaining available profit 10% will be split in proportion to the total number of hours that each spends
working on direct client-related work plus the hours spent in their agreed management roles. In this way, the
management roles are rewarded on an equal basis with the fee-earning hours.
z The final 10% of profit will be shared in proportion to the dollar value of fees (net of write-downs and bad
debts,) which each partner generates personally.
z The dividend/drawings policy will see a fixed amount paid to each partner each month (expected to
represent about half the targeted net profit for the year). Other lump sum distributions will be paid quarterly,
subject to availability of cash within the firm.
This arrangement will exist on a trial basis for the initial two years of the firm’s life, then reviewed. It has been
written into the partnership agreement.
Note: This approach is provided solely to let you see one of the many ways that profit-sharing could be
approached in a new, tightly owned firm. It is NOT to be interpreted as best practice in profit-sharing
arrangements. The partners of each firm must tailor the profit-sharing and drawings policies to suit the unique
circumstances of their own firm.
Several years later, William and Indira are part of a much larger partnership. Their initial approach to profit
allocation worked well for a long period. The firm now has a full-time managing partner who earns no
professional fees at all. There is also a general manager who runs the firm on a day-to-day basis. As a result, most
partners spend almost all their time in fee-earning work.
One particular partner has developed a reputation for winning new clients. They are generally large clients,
capable of paying an above-average level of fees per hour and per year. This partner has increasingly come to
believe that he is not being rewarded properly for his impact on the firm’s growth and profits. There has been
talk of a partnership split. The other partners all accept that the particular partner has contributed substantially
to the larger size and profitability of the firm over the last five years.
During the course of several partners’ meetings, the partnership decides to change the profit-sharing formula:
z From the start of the current financial year, 60% (previously 80%) of available profit will be shared equally
among all partners.
z Twenty per cent of profit will be shared in proportion to the value of first-year fees generated by new clients
introduced by each partner.
z All other allocations will remain as they are.

MODULE 2: PRACTICE MODELS AND NETWORKS

These changes have been put on paper as part of the decision-making process. The partners who are not good
at winning new clients will earn a smaller share of total profit. They accept this because they benefit from the
total profit pool rising faster due to the new clients introduced. The partner who felt underpaid still feels he
could earn more by splitting from the firm. However, he sees the benefit of having a large group of trained
accountants on hand to perform the work requested by the new clients.
Indira and William are happy with this outcome: they know that partners must look beyond their immediate
interests to consider the benefit to the firm overall. They were impressed that the expanded group of partners dealt
with this issue in a positive manner, and that all partners were prepared to cooperate to achieve a sound solution.
Case study 2.5
This case study relates to Section 2.4.2 (“Referral network”) in Module 2 .
William and Indira initially decide to restrict their service offering for the first two years to traditional accounting
and write-up services, taxation advice and lodgements for clients, plus audits of small to medium-sized clients.
They will also offer management advisory services such as in-house financial controller support. This package
of services allows them to keep in regular and close contact with key clients, in turn allowing them to identify
additional services required by those larger clients.
They have examined their audit independence and have decided to develop a specialized audit niche in local
government bodies and not-for-profit firms. This minimizes the amount of other accounting work that they will
have to decline, since these organizations generally require only an assurance review. They are aware that this
approach may well limit the size of their audit firm and possibly require more travel out of their local region,
should they be appointed to audit far-flung organizations.
They decide to handle other work by forming strong links with one or two specialist providers of additional
services such as audit work that the firm chooses not to take on, wealth management, insolvency and
reconstruction, and finance broking.
For each referred service, William and Indira develop a list of approved providers, so that they can offer clients
a choice from among top-quality firms. Related to this, William and Indira have at least half-yearly meetings
with the other firms, to keep track of changes in personnel and to maintain a good working knowledge of each
client’s situation. They will ensure that clients give both firms the authority to discuss confidential information
pertinent to the client’s affairs. William and Indira anticipate that such strong links among the network member
firms will encourage the other firms to refer accounting clients to the firm; however, this is not a key requirement
for continuation of the referral arrangement.
Appropriate notes are to be taken and placed in the respective client’s file, following each of these review
meetings among the network members.
Several years later, the firm decides to add a new service, involving corporate rescue, insolvency and
reconstruction. The partners believe that the skills required for this work flow naturally from the extensive
business advisory services they deliver, and the in-house financial controller service that they deliver.
A partner is selected to gain the necessary licenses and registrations. This is expected to take a year, during which
time that partner’s fee-target will be halved and some clients reallocated to other accountants within the firm.
The partnership as a whole has developed a business plan for the new service. The plan estimates the impact on
both profitability and cash flow over the next three years. The short-term loss of profit is expected to be repaid
within two years of the commencement of the new service. The firm has already made key referrers aware of its
plans, especially the local banks.

Launching this new service in-house requires that the firm stop referring this type of work to their previous
referral-partner. The two firms worked well together so they remain on good professional terms with each other.
Case study 2.6
This case study relates to Section 2.5 (“The evolving firm and the need for regular review”) in Module 2.
As firms grow in size and complexity, they generally need to adapt the way they are organized to deliver
professional services. Since professional personnel are likely to constitute around 80% of all personnel in the firm,
reorganizing the professional teams will necessarily lead to a different organizational structure to support them.
Indira and William regularly examine the way that their firm is structured. Over time, it has changed.
When the firm started, the structure consisted of just two teams: one headed by William, providing general
accounting and advisory services; and one headed by Indira, focusing on audit services. This simple
arrangement suited their relatively narrow client base initially.
New employees were added to each team as needed: audit employees were added to Indira’s team, and all other
accounting personnel were added to William’s team. When Indira required staff for non-audit work, she arranged
this through William.
After a few years, Indira and William each acquired more clients for accounting and tax work, and Indira also
acquired new audit clients. As the number of employees increased, it became more and more awkward for
Indira to book access to employees through William’s team the number of requests became so high that it
reduced William’s productive time considerably. The two partners agreed that each would have a team of people
sufficient to handle the work that each principal supervised. Both also agreed to manage any excess workload in
one team by sharing with the other team’s personnel.
A few more years later, William and Indira added a new partner. This required handing over some clients (mainly
from Indira to the new partner) so that Indira could focus on running her audit team, while William and the new
partner looked after general tax and advisory work. The personnel in each team were realigned so that each
team had enough employees to handle the expected workload for “their” partner.
When the firm added a financial planning (wealth management) service, this required a further rethink of
structure and personnel. The service was very popular, and profitable, and it saw a rapid increase in employees.
The financial planning team was built up as a stand-alone team and could not assist the other teams with
overload work; nor could they use personnel from the accounting or audit teams when their own workload
became high.
The partners found that they needed to review the organization about every second year. Sometimes a major
reorganization was needed, and at other times only minor fine-tuning was required.

MODULE 2: PRACTICE MODELS AND NETWORKS

Module 3:

Building and growing your firm

Contents
3.1 Introduction
3.2 Developing a business plan for your firm
3.2.1 A simple business plan outline
3.2.2 SWOT analysis
3.2.3 The organization chart
3.3 Assessing growth requirements and developing a growth strategy
3.3.1 Benefits of growth, and sustainability
Table 3.1 Levels of fee growth
3.3.2 Should I grow, and if so, by how much?
3.3.3 Internal growth strategies
Table 3.2 Identifying which clients use which services
3.3.4 External growth strategies
3.4 Strategies for coping with increased regulation and competition
3.4.1 Increased regulation
3.4.2 Increased competition
3.5 Creating a good culture for your firm
3.5.1 Building a productive culture
Case study: Firm culture
3.6 Identifying target clients and new service opportunities
Table 3.3 Assessing prospective clients
3.7 Building a brand, marketing and promotion
3.7.1 Building a brand
Table 3.4 Branding checklist
3.7.2 Marketing and promotion
3.8 Putting your plans into operation
3.8.1 The importance of implementation
3.8.2 How to implement your plan
Table 3.5 Implementing a marketing plan
3.9 Financial management
3.9.1 The capacity budget
Table 3.6 Target billings calculator
3.9.2 The financial budget
Table 3.7 An example format for a financial budget
3.9.3 The cash flow forecast
Table 3.8 An example format for a cash flow forecast
3.10 Conclusion
3.11 References, further reading, and IFAC Resources

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Appendices
Appendix 3.1 Relationship management action plan
Appendix 3.2 Case studies

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Appendix 3.3 Summary Income Statement Budget
Appendix 3.4 Balance Sheet Budget
Appendix 3.5 Gross Revenue Analysis Worksheet

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3.1 Introduction
This module looks at planning and developing your firm, recalling some of the themes covered in Modules 1
and 2. It goes deeper into issues such as developing a growth strategy, coping with increased regulation and
competition, marketing, and how to enhance the “culture” of your firm. The module concludes by considering
aspects of financial management.
3.2

Developing a business plan for your firm

The importance of having a business plan was covered in Module 1 . This section recaps the main points.
The philosophy behind a business plan is simple. At its heart, there are three key elements:
a. Where is the firm now?
b. Where is it going?
c. How will it get there?
The most important is (b). The answer to this question identifies the key objectives of the firm. Its significance
cannot be overemphasized. Unless you know where you are going, you won’t know if you are on the right track.
If there is one thing about the business planning process that you must do, it is to clearly identify and define
where your firm is going and what it will look like when you get there.
You then need to set about answering (c), which identifies the strategies you will employ to achieve your
objectives.
Your business plan must answer these three questions. If it doesn’t, it’s not really a plan, and will most likely not
be effective.
3.2.1

A simple business plan outline

Your business plan identifies the objectives, key strategies and indicators of success aimed at consolidating and
growing your firm and its services.
z Executive summary: Write this last. It’s just a page or two of highlights.
z Company description: This includes legal establishment, history, start-up plans, and a summary of “where the firm is now.”
z Key objectives: Describe the key objectives of the business: a clear statement of “where the firm is going.”
z Service description: Describe what services you’re offering. Focus on client benefits, and how you can satisfy
their needs.
z Market analysis: You need to know your market, client needs, where they are and how to reach them.
z Strategy and implementation: Be specific. Include management responsibilities with dates and budgets. Make
sure you can track results.
z Management team: Describe the organization and the key management team members. Include an
organization chart with key areas of operation.
z Financial analysis: Make sure to include, at the very least, your projected profit and loss and cash flow tables.
3.2.2

SWOT analysis

One of the most effective tools to use when you undertake your business planning is a SWOT analysis. SWOT
stands for “strengths, weaknesses, opportunities and threats.” When applied to your firm, these words prompt
thoughts and discussion. The analysis typically highlights strategies and actions that are necessary for your firm
to achieve its objectives.

MODULE 3: BUILDING AND GROWING YOUR FIRM

The firm regularly needs to consider the opportunities before it and develop strategies to take advantage of
these. It is also essential to regularly identify any threats and put in place strategies to minimize the impact of
these threats, or to position the business outside their effect.
Strengths
A thorough understanding of strengths is vital as it allows you to become aware of, and build on these
attributes. The strengths typically highlight what is positive about the firm as a workplace and what it is good at
doing. Continually monitor your firm’s strengths, to ensure they remain that way.
Weaknesses (or areas to improve)
These are the areas where you do not perform well and that you need to work on. If left untreated, these
weaknesses can develop into major concerns. It is vital to identify and understand these issues, and put in place
plans to turn them around and improve. An open discussion with your team is a useful way to identify these
areas; they will often suggest ways to improve or overcome the weaknesses.
Opportunities
This is where it gets exciting! Opportunities represent the vast untapped potential sitting right there in front of you.
Opportunities represent what “can be.” In order to move forward you need to understand what the opportunities
are, then determine the most appropriate strategies and actions that allow you best to capitalize on them.
Opportunities bring with them an energy source of their own. They also create enthusiasm and excitement as
the firm moves into new areas.
Threats
It is critical to understand the threats facing your firm. These are the issues that could destroy it. It may not be
possible to completely overcome the threats, but it may be possible to identify alternative strategies and set
contingency plans in place now.
3.2.3

The organization chart

The organization chart provides the structure and framework for the firm to run effectively. It identifies the key
areas the firm will operate in, and properly implemented will lead to a clear allocation of responsibilities. This will
lead to accountability, which has a major influence on whether or not the firm will achieve its objectives.
Key functional areas of the organization chart
The key functional areas of an organization chart may be broken down into smaller components, which allows
for responsibilities to be allocated to each level and for specific strategies to be identified. These areas are as
follows:
z Marketing;
z Operations/administration;
z Finance;
z Human resources;
z Technology; and
z Future planning.
Marketing
z External

z Advertising and sponsorship
z Networking and events
z Website and referrals
z Marketing collateral
z Internal
z Increase services utilized by existing clients
z Offer new services to existing clients
z Increase charge-out rates
Operations
z Compliance
z Audit
z Taxation
z Financial reporting
z Pension planning
z Wealth creation/financial planning
z Specialized services
z Business valuations
z Due diligence
z Management reporting
z Business consulting
z Succession planning
z Office administration
Finance
z Monthly financial statements
z Budget and cash flow forecast
z Revenue per full-time equivalent
z Capacity calculation
z Compliance requirements
z Accounts receivable
z Accounts payable
z Payroll
z Bank facilities and funding arrangements
z Insurance requirements
z Facilities and resources

MODULE 3: BUILDING AND GROWING YOUR FIRM

Human resources
z Competency and training
z Culture
z Staffing requirements, current and future
z Occupational health and safety
z Anti-discrimination
z Sexual harassment and workplace bullying
z Safety and emergency procedures
Technology
z Technology strategy of firm
z Technology requirements, current and future
Future planning
z Business plan
z Marketing plan
z Operations plan
z SWOT analysis
These are the key areas the organization chart. The size of your firm will determine how many of these can be
dealt with and what resources can be allocated to them. Larger firms will be able to address all areas, while
smaller firms should deal with the areas they deem most important to their situations.
When the key areas of the firm are identified, roles and responsibilities can be allocated. Once this has been
done, those responsible can be held accountable for the achievement of their goals, and can put systems and
procedures in place for the areas over which they have responsibility.
The organization chart is one of the most important structures in the firm. A fully functioning organization chart
with clear reporting lines, and clear goals, will assist your firm to grow and achieve its business plan objectives.
In Appendix 3.2, Case study 3.1 illustrates how a firm can develop its organization chart.
3.3

Assessing growth requirements and developing a growth strategy

In order to assess your growth requirements, you need to review the business plan and reflect on your firm’s
objectives. The plan should make clear what the growth objectives are for the firm, and should clearly identify
fee and profit targets.
It is important to note that the focus must be on profitable growth, not just growth for growth’s sake. Many
firms fall into the trap of chasing new fees in order to reach growth targets, yet the new fees are not profitable!
This will actually damage the firm and its financial sustainability. It is difficult to support any argument that
encourages unprofitable fee growth for small to medium firms.
There may be certain occasions where a “loss leader” strategy is appropriate, but this needs to fit within an
overall marketing and pricing strategy. This is covered in more detail in Section 3.7.

3.3.1

Benefits of growth, and sustainability

There are a number of reasons you may be aiming to grow as a firm, such as to:
z Improve your ability to attract and service clients;
z Replace clients lost due to natural attrition or retirement;
z Retain staff as the firm provides a greater variety of work;
z Maximize return on investment on fixed overheads, such as rent and technology;
z Provide a more varied workplace; and
z Hit critical mass, to meet fixed overheads and profit targets.
Growth provides a level of natural regeneration in your fee base and smoothes out events over which you may
have no control. It helps you in your resource management and in managing the capacity issues which impact
on firm profitability.
Fee growth can come from a range of areas including:
z Acquisition of new clients;
z Greater level of utilization of your services by existing clients;
z Introduction of new services; and
z Increase in your fee rates.
Table 3.1 Levels of fee growth
Annual rate of fee growth

Impact

Up to 5%

Should manage inflation and provide a small level of natural growth.

5% to 10%

A steady, meaningful level of growth.

10% to 15%

Likely to cause resourcing pressures. Your firm will need to be very organized. This
rate of growth is also likely to cause liquidity pressures.

15% plus

A high level of growth is likely to cause a wide range of issues and pressures. It is
unlikely to be sustainable in the long term.

Table 3.1 should be taken as a guide and an indicator of likely impacts. The observations made apply to the
longer-term view where the firm strategy is to seek a sustained growth rate. The rates of growth need to be
considered in the context of the current economic situation of your local environment and will vary among
economic regions and developing economies.
The key message: the higher the rate of sustained growth you are seeking, the greater the pressures in the
areas of resourcing, liquidity and firm management. The secret is to work towards growth rates that are both
manageable and sustainable for your firm.
3.3.2

Should the firm grow, and if so, by how much?

The discussion so far has been on the importance of growth to your business plan. However, your firm needs to
take into account practical factors such as:
z Physical constraints of current premises, such as floor space, staff parking, etc.;
z Infrastructure requirements, such as technology, office requirements, etc.;
z Budget requirements to fund marketing, advertising and promotional activities;

MODULE 3: BUILDING AND GROWING YOUR FIRM

z Funding costs for new staff until they are billing and productive; and
z Impact on break-even position.
It is also important for you to consider your position relative to the economic and environmental factors at the
time, or in the foreseeable future. Growth may be inappropriate at a particular time.
Other reasons you may not wish to grow include:
z You are operating at full capacity now;
z Growth is not in line with your business objectives;
z Growth may cause conflict with work–life balance objectives;
z There is no desire for the increased stress associated with growth;
z Current fees and profitability are sustainable and comfortable;
z The practitioner is not concerned with the future of the firm, or its future value;
z There is concern that increased growth will mean the practitioner spends less time with longer-term clients
who have been loyal to the firm;
z There are physical limitations and practical constraints on the ability of the firm to handle and manage
growth, such as size of office premises, with no alternatives available;
z The firm may have recently gone through a period of strong growth and is now seeking to consolidate and
settle; and
z The age or health of the practitioner.
Very few firms manage their growth on a consistent and sustainable basis. It is more likely to come in fits and
starts, followed by some settling, then resurgence. It is also a reality that some firms experience a reduction in
fees at times. You need to be aware of this possibility and its consequences.
Some questions you should consider when thinking about growth issues include:
z What does the firm’s business plan say?
z What is the current resource capacity position?
z Can the firm grow without any loss in quality?
z Does the firm have adequate staffing to manage growth?
z Will growth improve the firm and add to its value?
z If the firm is planning to grow, by how much?
In answering these questions you are reflecting on three critical issues:
z Is growth part of the firm’s overall strategy?
z Is the firm well positioned to grow?
z What is the optimal growth objective?
Consider each of these issues in setting your growth plans. Growth for the sake of growth simply does not make
sense. You need to understand why you are growing, whether your firm can manage the growth, and whether
growth will add value to your firm.

Once you have identified that growth is indeed part of your strategy, make sure that your firm has the capacity
to do so.
Carefully consider the following statement: Resources should be put in place in anticipation of growth, not
as a reaction to it. Too often, firms grow, then rush around trying to put resources in place. The best way to
grow effectively is to identify your resource requirements and then put them in place to support your growth.
Obviously this will require budget considerations to financially support such a move. However, this approach
reduces the risk of falling quality control, and gives you the greatest opportunity for success.
Once you have decided on expansion, the next question becomes, how?
Broadly speaking, there are two types of growth. One is organic growth, which is the process of expansion
due to an increase in fees within the current structure. The other is growth by acquisition, which, as the name
suggests, means expansion due to mergers, acquisitions or some other activity separate from the firm.
There are a number of options within these two types of growth, which are discussed below.
3.3.3

Internal growth strategies

The first type of organic growth is internal growth. Essentially, internal growth is about increasing your fee base
from your existing clients. There are three main ways to achieve this:
z Increase the use of your existing services by your existing clients;
z Introduce a new service to your existing clients; or
z Increase your firm’s charge-out rates.
3.3.3a Increase existing services to existing clients
This is a fundamental yet often overlooked method of increasing growth. The key question is, “Are all of our
clients using all of our services?” If not, there is an opportunity.
Preparation work
In order to provide more of your existing services to your existing clients, you first need to understand which
clients are using which services at this current point in time. Refer to Table 3.2.
Table 3.2 Identifying which clients use which services
Step

Action

List all of your existing services across the top of the worksheet.

List all of your existing clients down the side of the worksheet.

For each service, mark on the worksheet which client is utilizing that service.

Complete this for all clients (or client segment).

Once complete, review the worksheet.

The “unmarked” clients represent opportunities to whom you can market
additional existing services.

Determine an appropriate marketing strategy for these clients, with actions and
timeframes allocated.

Implement the plan.

Completed

Your clients already know you, like you and trust you. If they have been happy with the service they have
received in the past, they will be open to your suggestions for additional services.

MODULE 3: BUILDING AND GROWING YOUR FIRM

Only suggest services that of benefit to the client. If you select wisely, present the additional service in a
context that will benefit the client, and as you have provided your current services in an accurate, timely and
professional manner, it’s likely that they will take up more of your services.
By focusing on your existing clients, you are broadening the relationship you have with them. This in turn then
increases the likelihood of referrals from these clients, who have now become advocates for you and your firm.
3.3.3b Introduce a new service to existing clients
This is another successful method for increasing growth. The key question is, “What other services could the firm
provide to its clients?”
Once again, the main reason this is successful is that you already have an established relationship with your
client. If the past experiences with your firm have been positive, then they are highly likely to take up new
services you offer them.
In fact, not only are they likely candidates, but your existing clients should be your first target segment for
introducing new services. This is because of the existing relationship you have with them. They are more likely to
provide you with honest feedback on the new service, and make suggestions for improvements if required. They
will then be curious to see whether you have incorporated their suggestions into your final offering.
Preparation work
Some firms struggle with the idea of introducing new services, as they feel uncomfortable learning and implementing
new ideas. But it doesn’t have to be hard. One of the best ways to identify a new service is to do an “information and
knowledge audit” on yourself and your team. Most practitioners and staff have a wealth of knowledge and experience
tucked away, which they only bring out when prompted. Now is the time to draw it out.
Complete the following steps:
z Sit down with each team member and gain a full understanding of their knowledge and experience in
business and in life together assess how this might be converted into a new service offering.
z Discuss other service areas that might be of interest to you and your team. Examples might include
bookkeeping services, budgets and cash flow (if not already consistently provided), succession planning,
business consulting, business valuations, franchise specialization, due diligence, business coaching, payroll
service, debtors follow-up and collection, financial planning or finance broking.
z Once you have identified the areas of interest, identify any knowledge gaps between your current level of
knowledge and the level of knowledge you expect would be required to provide the new service.
z Undertake additional training as required.
z Decide on the new service offering.
z Decide on the point or pricing model to be used.
z Determine what marketing collateral will be required to promote the service.
z Prepare supporting materials, work papers and any required information.
z Discuss the new service offering with one or two clients with whom you have a close relationship, and who
are supportive of your efforts to introduce new services.
z Meet with these clients and run through the new service on a trial basis.
z Take feedback and implement any changes that may be required.
z Review the listing of all your existing clients.

z Identify which clients, or client segment, to target for the new service offering.
z Determine the appropriate marketing strategy for these clients, with actions and timeframes allocated.
z Implement the plan.
3.3.3c Increase your firm’s charge-out rates
The most straightforward way to increase growth is to increase your charge-out rates. While this may be a simple
process to calculate, it may prove difficult to implement. Care needs to be taken that clients’ expectations are
managed and that they perceive an increase in value with the increase in rate.
Increase fees
The common increase to fee rates is at least the annual rate of inflation. Those firms seeking to increase rates over and
above the inflation rate need to be prepared to handle enquiries from their clients as to the reasons for the increase.
A simple increase in charge-out rates in tougher economic times can often become a difficult exercise,
particularly if the client perceives no corresponding increase in the value they receive.
Accordingly, discuss with your team what value-added services you could include along with your usual
services, to increase your clients’ perception that they are continue to enjoy good value for their money.
It may also be useful to consider charging differential charge out rates for different types of services and
perceived value. If you do not already do so, identify the different types of work you and your staff do. Consider
whether it is appropriate to charge differential rates for these different types of work. When you work through
this issue it usually becomes clear which areas of work can be charged at differential rates.
Airlines worked this out long ago. They have first class, business class and economy sections. Each section
provides different levels of service, and the prices for each section differ markedly. Yet the passengers all get to
the same destination. It’s the level of service they receive on the journey that makes the difference.
The same thinking can be applied to your practice. Some of your clients will appreciate, and pay for, first class
service. Others will prefer the economy rate. The point is you have the opportunity to be flexible in your thinking
and creative in your delivery. You can provide the level of service your clients want and appreciate. Differential
charge out rates may be quite appropriate for these levels of service your firm provides.
Bundle services
Another way to increase your firm’s effective charge-out rate is to bundle services together. This way the
individual fee for each service is not separately identified on the client invoice, which allows you to increase the
fees for the entire bundle of services. This may be an easier way to market the increased fees to your client, and
allows you to offer a broader range of services for a larger fee.
Increase recovery rates
While not strictly an increase in charge-out rates, another way to increase profits, and therefore achieve growth,
is to work deliberately on increasing the firm’s recovery rate. Essentially this means a reduction in write-offs.
The best way to do this is to improve the productivity management of the firm, and it is outside the scope of this
module. However, in brief, the key is to hold weekly productivity meetings with staff to check on the workflow
through the office, and clarify outstanding issues as they arise. Any issues with client matters can be raised in a
regular and timely manner. This allows them to be addressed and resolved promptly, with less time lost on each
job. This then leads to improved workflow through the office, meaning more efficient completion and invoicing
of jobs. This then leads to improved profitability per job, and increased profitability for the firm overall.

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3.3.4

External growth strategies

External growth is all about acquiring new clients for the firm. A number of strategies can be implemented to
acquire new clients. The most popular are outlined below. Each represents a tried and tested strategy, and some
of the key strategies are examined in detail. In Appendix 3.2, Case study 3.2 illustrates how a firm can develop a
growth plan.
The real power comes when a number of strategies are used simultaneously. This harnesses the momentum of
your marketing efforts, and is more likely to bring attention to your firm.
Most businesses in the market already have an accountant. In the majority of cases that means in order to grow
your firm, you will need to win clients away from other firms. And in order to do that, you must offer them a
compelling reason to change.
External growth strategies for professional services firms include:
z Advertising;
z Seminars;
z Sponsorship;
z Newsletters (email/printed);
z Public relations, writing articles and editorials;
z Events, client functions, cocktail parties;
z Telephone directories and prospect database lists;
z Telemarketing;
z Firm promotion through marketing materials;
z Mail-out of promotional brochure;
z Leaflet letterbox drop;
z Websites, links and search-engine optimization; and
z Team members: encourage to refer.
Other strategies for growth include:
z Networking;
z Referrals; and
z Acquisitions and consolidation
Each of the above should be considered in light of your country’s laws or professional regulations.
Guidance on networking and referrals are included in Module 2 . Options for consolidations, mergers and
acquisitions are examined in Module 8 .
3.3.4a Advertising
Advertising is one of the most powerful ways of getting your name and message out in the market. But beware:
it is crowded out there!
In order to get the best value from your advertising spend, there are some fundamental rules:

z Target group: You must identify the target group or market segment at which you will be aiming your
advertisement. The shotgun approach doesn’t work you must be specific.
z Client need: You must identify the client want or need that your service will satisfy.
z Client benefit: You must make it abundantly clear how your service will benefit the client. You must appeal to
their self-interest, What’s in it for them?
z A unique benefit: It is better to focus on one particular benefit than to use a broad-brush approach, which
dilutes the impact and confuses the message.
z Credibility and sincerity: The advertisement must ring true and convey professional credibility and sincerity.
You must avoid wild, exaggerated or unsubstantiated claims.
z The headline: It must capture the attention of the reader and encourage them to read on.
z Call to action: There must be a “call to action,” where the reader is told to take action, to call, visit or check your
website.
z “You” and “Your”: These words give your advertisement a personal impact, particularly when used in the headline.
z Clarity of purpose: You must be clear in your mind as to the purpose of the advertisement. Is it to inform,
persuade, remind or make the sale?
z Choice of media: You must research, and then use, the most appropriate media for your target audience.
Advertising is expensive, and you must get good value for the money you spend.
3.3.4b Seminars
Seminars can be an effective form of marketing. A number of formats can be used:
z Run your own seminars, and be the keynote speaker. This gives you a reason to advertise and promote yourself
and the firm, and the role of keynote speaker allows you to be seen as the “expert” on your chosen topic.
z Run your own seminar, but use a guest speaker. This gives you a reason to advertise and promote yourself and
the firm. It allows you to run a seminar even though you may not enjoy public speaking. It allows you to be
seen as pro-active by associating yourself associated with the guest speaker.
z Speak at seminars hosted by others. You need to get yourself on the speakers’ list. It gives you the chance to
promote yourself and firm, and also your technical expertise. Being the speaker allows you to be seen as the
“expert” on your chosen topic.
In each case, you can follow up the seminar with an article for the local paper, with key points from your
presentation. Clients can be invited, and encouraged to bring a business associate (non-client). You can use the
key points from your presentation in your firm’s newsletter.
3.3.4c Networking
“Word of mouth” is often regarded as one of the best forms of marketing and is effectively achieved through
networking.
Networking is not about trying to make a “sale” to the person you meet; instead, you want them to refer others
to you. Don’t feel you have to impress the people you meet with your charm, wit or technical know-how. Be
yourself. This gives them the chance to get to know you, and see if they are comfortable dealing with you. If they
are, they are more likely to refer others to you.
Have a plan for your networking an objective for the time you’re investing. This allows you to check that you are
getting a return on your investment.

MODULE 3: BUILDING AND GROWING YOUR FIRM

Try to meet two or three people you haven’t met before, and get to know them. Understand them and what
they are looking for. It’s easier to stay in contact with them afterwards if you feel a connection.
But how do you have a conversation with a total stranger? When you meet someone for the first time there are
at least three things you can talk about:
z The venue or occasion: There is some common reason why you have both attended this particular event.
That’s an easy place to start. Ask open-ended questions, and listen to their answers. This will give you a clue as
to how to respond.
z Themselves: Given a choice between talking about themselves or someone else, most people are more
comfortable talking about themselves. Ask open-ended questions, in a light, gentle manner—don’t make it
an interrogation! They will answer your questions and will most likely ask you a question about yourself and
what you do.
z You: This is the chance to let people know about you, and what you do. It’s important to have a brief answer in
mind, which succinctly explains what you do and the areas you like to work in. Often called the “elevator pitch”
(because it takes about the same amount of time as a chat in an elevator), it’s important because it also lets
people know the benefits they can get from dealing with you.
Don’t expect the person you meet to become your client. It might not be them, but it could well be someone
they know. This takes the pressure off, and you can just relax and chat normally. You don’t have to try to impress
or sell to these people. Get to know them, let them get to know you and see if you can help.
3.3.4d Referrals
Word of mouth referral is the best form of advertising for the professional accounting firm—referrals from
existing, happy clients are about as good as it can get. These should be actively sought and cultivated. The best
time to ask a client for a referral is when you have just completed a job or project for them. As they are basking
in the glow of another job well done, it’s easy for you to say, “If you know of anyone else who may appreciate our
work, we’re always happy to take on referrals.” This lets the client know that you are open for referrals, and that
you are looking for new work.
Another way to obtain referrals is to work through a structured program of meetings with potential referrers.
Often referred to as “centers of influence,” these contacts include bank managers, lawyers and people in
complementary businesses such as financial planning or finance broking.
Firms that successfully follow a structured, formal approach set aside a regular time to meet with potential
referrers. For example, they arrange lunch meetings with a different bank manager every Wednesday in a
month; the next month they may meet with a different lawyer each Wednesday. The following month it might
be financial planners or finance brokers. Then the cycle starts all over again with the bank managers.
This allows for a systematic approach to working through a contact list and also allows relationships to be built.
It is from these relationships that referrals will come.
You have the flexibility to mix up the routine of who you meet, and when. You may also wish to build deeper
relationships with contacts you may have met through networking, or other professional contacts you have.
There are a few points to note with this type of marketing:
z Be prepared to talk about your business. This is your chance to let people know about what you do, so
be prepared with some useful information about your firm. It helps if it’s something that makes you a bit
different, to stand out from the crowd.

z Remember to listen, too. It’s vital that you also understand what your contact is looking for. You might be
paying for lunch, but referrals are a two-way street. Look to give, as well as receive. Find out about them, and
what would help them with their businesses.
z It’s more than just a social catch-up. There needs to be a purpose for the meeting, more than just the social
component. Yes, the purpose is to build the relationship so they are comfortable in referring people to you,
but you need to remember you are there for a reason, to build your firm.
z Limit alcohol consumption. It’s important to stay focused on the task at hand, which is to present yourself
professionally, and be worthy of referrals. Over-indulgence may make this impression difficult to convey, and
reflect poorly on your image and reputation.
The table in Appendix 3.1 is an example template that provides a useful structure for setting your appointments
and for contact planning.
3.3.4e Acquisition growth strategies
There are a number of reasons firm may consider a merger and acquisition strategy over organic growth as a
way of growing the firm. These reasons include:
z Synergies: The combined firm can often reduce its fixed costs by removing duplicate departments or
operations, thereby increasing profit margins;
z Cross-selling: The ability to cross-sell specialized services from each firm to clients of the other; and
z Economies of scale: The combined larger firm may benefit from purchasing economies due to increased order
size and associated bulk-buying discounts. Also, where large volumes of specific services are processed, it’s
possible to maximize the investment in staff training and technology.
The typical forms of merger and acquisition activity will be discussed briefly below.
3.3.4f Purchasing a parcel of fees
This is where a separate and identifiable parcel of fees is purchased from a vendor. The purchaser should
undertake some form of due diligence on the fees to be satisfied that the fee parcel represents good value.
The purchaser can usually reduce the risk associated with the purchase by paying the vendor in quarterly
installments, with the final payment reduced for any loss of clients. They may also reduce their risk by having a
“claw back” clause in the purchase contract. This allows the purchaser to “claw back” some of the purchase price
if some of the clients in the fee parcel do not transfer across.
3.3.4g Merging with another firm
A merger is two firms combining to make one larger firm. It works best when the two firms are of similar
size; otherwise it tends to be more of a takeover. The equity in the combined firm is typically based on the
proportionate value of the fees going in. Key issues that typically arise tend to follow from the mix of firm
cultures, workflow patterns, technology and leadership styles.
3.3.4h Buying out another firm
One firm buys out the other firm, usually in the form of payments made to the principal or partners of the
vendor firm. There is often a time requirement the vendor(s) are required to stay on to facilitate the handover of
clients and settle staff into the new firm. The vendors typically agree to restraints of trade, where they agree not
to start a new firm in competition with the purchaser within a certain distance and within a certain timeframe, or
join another firm.

MODULE 3: BUILDING AND GROWING YOUR FIRM

3.3.4i Headhunting a partner of another firm, who brings or attracts own clients
Individual partners already working in firms are identified and approached to leave their firm and join another firm.
There is usually some reason they are identified, such as specialist knowledge in certain areas, or existing client base.
There needs to be a strong incentive for the partner to leave the current firm and join a new firm. This incentive is
usually financial; however, there can be other considerations, such as culture, work–life balance or location.
3.3.4j Headhunting a “rainmaker”
Similar to the above strategy, an individual with unique abilities is identified and approached to join another
firm. The key difference here irrespective of whether they have a client base which will move with them or not,
this individual has the ability to create a new client base or generate fees well in excess of the norm.
3.3.4k Using the “tuck-in” model
This is a strategy used by some mid-tier firms. Smaller firms (typically sole practitioners) are targeted by large
firms to “tuck in” to the larger firm. The large firm offers to look after the back office administrative tasks of the
smaller firm, which frees up the practitioner to focus on servicing his or her clients. The smaller firm accesses
the infrastructure and support of the larger firm and the larger firm gains a highly motivated new partner. The
clients of the smaller firm become part of the client base of the larger firm, and the principal becomes a partner
in the larger firm.
3.3.4l

Affiliating

Independently owned firms join together under one banner and present themselves to the market as a single
firm. There are a number of benefits for each firm, including:
z Appearing bigger than each individual firm is seperate from the group;
z Developing and sharing knowledge, systems and intellectual property with other firms in the group;
z Servicing larger clients with a need for multiple office locations;
z Attracting and retaining staff due to increased opportunities;
z Benefiting from economies of scale in training, purchasing, conferences and so on; and
z Access to financial and other resources.
As you can see, there is a wide range of strategies with which to grow your firm. Decide on the strategy or
mix of strategies you plan to implement, and put in place a workable plan that brings it all together. The key
components of the plan are:
z Your marketing objective;
z Your marketing strategies;
z Your team members (who will be responsible for action); and
z The timeframes within which they will be working.
Putting your plan into operation is discussed later in this module (Section 3.8 ).
3.4
3.4.1

Strategies for coping with increased regulation and competition
Increased regulation

There has been an enormous increase in the amount of regulation under which the accounting profession operates.
This has come from both government and non-government regulators and shows no sign of slowing down.

On one hand, this means there will be a continued strong demand for accountants and business advisers. On
the other hand, many practitioners may wonder how they can stay abreast of all the changes. In addition to the
pressures that come from keeping up with new regulations and requirements there will be ongoing pressure on
how to attract and retain staff.
There are internal and external strategies for coping with increased regulation.
Internal strategies
The key internal strategy is regular training for your team. This training can be done in-house, or with a third
party training organization. Many of the professional accounting bodies provide training, and some provide the
option of training on-site, or lecture style at another venue.
On-site training is becoming increasingly popular. It is also becoming popular for a number of smaller firms to
join together for training sessions, thus sharing the costs of the trainer and facilities. It allows the training to
focus more tightly on the needs of the group, rather than the broad-based style used in lecture-type situations.
Another advantage of this type of training is that it can be highlighted in job interviews when recruiting new
staff as one of the benefits provided by the firm to employees.
Other in-house training strategies include online learning, where the information is webcast or downloaded to
the staff member’s desktop where they can learn at their own pace, and at a time that suits them.
External strategies
There are a number of external strategies for dealing with increased regulation:
z Utilize your professional association: Most professional associations have technical departments that write
technical briefing papers on most regulations as they are issued. Ensure you maximize your membership and
take advantage of the resources available to you as part of your membership.
z Form alliances with specialists: A firm can build close relationships with other professionals who have
specialist technical knowledge in certain areas. These professionals can be called on to assist with specific
client matters as they arise. Typically the specialist invoices the firm for work done. The firm then can choose,
either to pass the fee on to the client, or absorb it in the fee they eventually charge the client.
z Join professional networks: A number of external professional networks operate commercially. They are
typically operated and resourced by accounting firms, which use them as marketing vehicles. The information
these networks provide is usually of high standard, and is internally generated. It is essentially a broaderbased approach to the alliance with specialists model discussed above.
z Build “buddy networks”: Smaller firms can check with each other on issues before escalating client matters to
the higher level (and costs) of specialist advisers. They tend to be based on relationships established through
professional associations. They may meet regularly, or not at all, depending on the needs of the group. This is
a highly effective strategy, but all participants need to contribute fairly equally, otherwise those contributing
can feel they are carrying the group.
z Join business associations: Business associations can provide information and support in other businessrelated areas, such as human resources or occupational health and safety. Examples include chambers of
commerce and industry bodies. They also provide an opportunity to network and become known in another
circle of business people.
3.4.2

Increased competition

Not only are accounting firms under pressure from increasing regulations and requirements, but there is
also pressure from increased competition. This competition comes from a number of sources, not just other
accounting firms. More and more, firms see competition from:
MODULE 3: BUILDING AND GROWING YOUR FIRM

z Overseas;
z Large public companies and institutions; and
z Nonprofessionals.
In a free marketplace you can’t prevent competition. The key to your ongoing success is how well you retain
your existing clients and grow your firm at the same time.
Your ability to retain clients is directly linked to your ability to serve their needs now and in the future. If your
clients are growing, their requirements are also growing. This raises questions that may impact the strategic
direction of your firm:
z How will you cope with your clients’ increasing requirements?
z What if they outgrow you?
z What will that mean financially for your firm?
If you cannot continue to service your clients as their needs grow, you will lose them, because they will seek the
assistance of others who can help them.
As for increased regulation, one way to deal with this is to become bigger. But unless you merge with another
firm or take on specialist partners (in all disciplines of business), you will best be served by increasing your
associations as outlined above.
Take advantage of those with specialist advice, join a professional network, or become a member of a business
association. Let your clients know that you have these associations and additional resources at your lest,
otherwise they, think they have outgrown you and look elsewhere for professional advice.
3.5

Creating a culture for your firm

A good workplace culture means you and your team enjoy coming to work every morning. Most people
overlook the fact that each firm already has a culture of its own. The question is, do you want to have some input
into culture, or will you simply let it look after itself?
A supportive workplace culture has been associated with a number of benefits for the employees and the firm
including:
z Higher levels of commitment;
z Lower intentions to leave;
z Higher levels of job satisfaction; and
z Lower levels of stress.
If the culture is right, you have the right platform to build the growth you’re are looking for.
3.5.1

Building a productive culture

There are many ways to build a productive culture in your firm. Looking at your current situation and seek ways
to improve the culture by changing people’s attitudes to their environments, each other and themselves.
First, identify any deficiencies that cause negative attitudes. These could include favoritism, lack of recognition
or different sets of standards for different employees.
Those who get the best from their teams inspire a positive workplace culture. Some positive influences include:
z Fair and equal treatment of all employees;

z Open and honest communication;
z Achievements recognized and rewarded;
z Clear goals set out;
z Regular training;
z Open management style;
z Regular feedback; and
z Equal opportunities for all employees.
So take the challenge and look to build a positive workplace culture in your firm. The results will support your initiative,
and you will enjoy work so much more. (Case study 3.3 in Appendix 3.2 specifically illustrates workplace culture.)
3.6

Identifying target clients and new service opportunities

While growth is important, it is also important that you look to achieve targeted growth—targeting the sort of
clients you wish to work with, and become more selective with the clients you take on.
In the early stages of a firm’s life, many firms take on nearly all clients as the need for building the client base is
most important. However, as your firm matures, you can be more selective about those you work with.
As you plan your growth strategies, you will be looking for growth that:
z Comes from a type of work you specialize in, or prefer doing;
z Produces a superior level of profitability;
z Comes from a preferred type of client; and
z Is suited to your firm and team mix.
Mature firms should be working toward refining their client base by increasing the number of clients of your
preferred type. When this approach is successfully implemented, it should produce higher levels of profitability,
higher levels of work satisfaction, lower levels of stress and pressure, and the ability to increase your level of
specialization.
Can you identify your firm’s target client? Of course, there is no correct answer. Different firms will have target
clients with different characteristics.
The questions in Table 3.3 are useful when deciding on whether to accept clients into the firm. Accountants
typically assess clients by their profitability potential to their firm. However, there are other nonfinancial criteria
that should also be applied.

MODULE 3: BUILDING AND GROWING YOUR FIRM

Table 3.3 Assessing prospective clients
Question
1.

Do we like working with them?

Do they respect us, our opinions, our work and our
team?

Do they represent a risk to our business?

Can we relate to them?

Do they relate well to us and our team?

Will they utilize a number of our services?

Will they pay their bills on time?

Will they work cooperatively with us when required?

Do they cause us stress?

10.

Will it be a cultural good fit?

11.

Can we add value to their business?

12.

Will they add value to our business?

13.

Would we be proud to introduce them as clients of our
firm?

14.

Would they be proud to introduce us as their
accountants?

15.

Do they observe ethical business principles?

16.

Will they ask us to compromise our ethical values?

17.

Is it just about the money?

18.

Consider in light of ISQC 1 and ISA 220.

Answer/Comment

Here are some of the ways you might identify your target clients:
z Business sector: for example, public companies, small business, not for profit organizations, investors;
z Industry sector: for example, farmers, manufacturers, medical practitioners, retailers and franchisees;
z Size of business: for example, revenue of greater than $2 million, or staff levels of greater than ten employees,
or subcontractors;
z Minimum fee level: for example, minimum fee level to the firm of $2000 per annum; or
z Services utilized: for example, clients who utilize at least three of your services.
There is an almost unlimited range of possibilities. Your target client may be any business that suits your firm
and adds value to it.
The key is to identify your target client and then plan your marketing around that client type. Always focus your
marketing on or above your target client, never below.
You will attract clients to your firm who do not fit your target client profile. They will come because of referral,
other advertising, or chance. You will need to choose whether to take them on, and that is a separate decision.
It is important that you invest your marketing dollars in areas that will attract your target client type. You don’t
want to invest your money, time and energy in attracting clients that are outside your area of focus.
While it is desirable to have a target client and to grow your fee base through these clients, you don’t need
to exclude all other clients. In fact, it is often a good idea to have a mix of clients in terms of size, complexity

of work and fee levels. This spread can provide you with the scope for development of your team and newly
qualified accountants. This applies to both areas of work complexity and building client service experience.
Once you have identified your target client, your marketing should work toward building the profile of your firm
within those target client communities.
3.7
3.7.1

Building a brand, marketing and promotion
Building a brand

Branding is an important area of marketing. To make your marketing as effective as possible you need to be
sending out clear messages. These messages need to encompass your brand. They should not only build on it,
but leverage it as well.
You might think, “I’m only a small firm, is branding really that important to me? Isn’t it only for big business?”
Brand is important, particularly if you are planning to grow.
Many companies invest millions of dollars in brand development. If you look at some of their advertising, you
will notice that they don’t advertise a single product or service. They promote their brands as a whole. One
reason is the cost of acquisition of business. This is a major issue for mature businesses and the cost tends to be
on the increase due to the level of competition. In building their brands, they try to establish a relationship with
their client base and broader market that encourages people to deal with them. The brand and the feelings,
emotions and connotations that come with it are powerful enough to influence consumer choice.
You can see this with major international companies like Coca-Cola, McDonald’s, Kellogg’s and Virgin. Each
invests heavily in its brand. They realize that if they are successful in building their brand it will translate into
increased sales and an increase in the value of their goodwill.
Look at your own professional body. You may see that it has invested heavily in building its brand.
Done well, branding can:
z Bring your market to you;
z Drive down the cost of acquisition of new clients;
z Open up business opportunities based on market perceptions;
z Reinforce the confidence and comfort levels of your existing client base; and
z Build the value of your goodwill.
Your brand is the message about your firm that you want to send to the market. It pervades all areas of your firm,
and goes beyond your logo and letterhead. It covers the services you offer, the way you deal with clients, the
image of the firm you want to convey. It becomes the banner that you market, and sits over all the services you
offer. Branding includes your communication, your presentations and your style.
Specifically, it means the way your website looks, the uniforms your team wears, the graphic design work and
logos used in your communication and presentations. It also includes the way you interact with clients and staff,
even down to the words used on the phone.
By building and promoting your brand, you are establishing expectations at a high level in the mind of the
market. When you then deliver the actual service for instance, the financial statements or tax returns, the
accuracy, presentation, and look and feel of your material needs to be consistent with the expectations you have
set. Your clients returns want the delivery to meet their expectations—expectations which you have set.

MODULE 3: BUILDING AND GROWING YOUR FIRM

Once you have resolved your brand identity, you need to ensure you have absolute consistency in your brand message.
Everything within your firm, and all the material that comes out of your firm, needs to have brand consistency.
The following checklist provides you with a guide to approaching the issue of brand identity.
Table 3.4 Branding checklist
Brand item

Answer/Comment

Do we present our brand consistently with:
1.

Our logo

Letterhead, business cards, compliments slips, fonts

The reports we present to clients

The way we speak and engage with clients

The way we speak and engage with our team

Our office premises

Our answering machine

Our emails and salutations

Our attire, dress standards and uniform

10.

Our screen savers

11.

All written communication with clients: letters, reports,
proposals, quotations

12.

All verbal communication with clients or prospects

13.

Seminar programs and materials

14.

Marketing and advertising material

15.

Client functions and events

16.

Team meetings and gatherings

3.7.2

Marketing and promotion

Marketing is a powerful tool that can transform businesses and significantly add to the growth of a firm. However,
marketing is undergoing rapid change, with new technologies altering how firms connect with their clients.
The aim of marketing is to acquire, retain and satisfy clients. Without their clients, accounting firms don’t exist!
Companies that are most successful have seven key characteristics:
z A good understanding of their clients;
z Strongly defined markets;
z The ability to motivate employees to produce high quality for clients;
z An emphasis on the business to serve and satisfy clients;
z A strong brand focus;
z The ability to respond to client needs and drive new innovations; and
z The ability to attract and retain clients.
Marketing needs to cover all aspects of the firm. A firm with a marketing focus will concentrate on:
z Client orientation (attention to the needs of the client);

z Sustainable competitive advantage (differentiate the firm from the competition); and
z Long-term profit (a client-orientated company balancing the efforts to satisfy clients with the need to
generate profit over the long term).
Traditionally marketing activities were commonly referred to as the 4 Ps and were “firm-centric”/inward-looking:
z Product;
z Price;
z Promotion; and
z Place.
However, the emphasis is now changing toward a “client-centric”/outward-looking focus:
z Client solution (the “product” or service);
z Client cost (the price);
z Convenience (the place);
z Communication (the promotion and ongoing engagement).
Differentiation
What is it that makes your firm different? Why should someone choose you?
These are two very good questions. If you don’t have very good answers, then read on. This will be a very
important section for you.
Competition is increasing. Thousands of accountants provide similar services. Then there are all the other service
providers who would like to work with your clients in the other areas where you may provide services. There are
many businesses promoting themselves and competing for similar market segments.
Your clients and potential clients will need to decide whom they engage to act for them. In making this decision
they are more likely to be influenced by differences between your firm and your competitors than by similarities.
Why do you buy from the businesses you buy from? Are you influenced by price, quality, experience, relationship
or novelty? It is likely to be one of these factors. Whatever the reason, it means your suppliers have managed to
differentiate themselves in some way from their competitors.
So, if a potential client asks you the question, “Why should I engage you as my accountant?,” what will your
answer be? What makes your firm different from the other firms in your area? If there is no difference, you may
struggle to secure this client. You are merely one of many firms offering similar services, with quality standards,
price and delivery.
Having a point of difference helps you stand out from other accounting firms in your area, at least in the minds
of your clients. But this is not necessarily an easy task. After all, firms deliver similar services and operate under a
similar code of professional ethics. Firms often price their services in a similar way, and may even brand themselves
in a similar way. Many firms also pride themselves on their professionalism, confidentiality, communication style
and the personalities of the principals and their team. So how do you make your firm different?
Differentiation can be achieved in a number of ways, such as through:
z The range of services you provide;
z The depth of specialization you have in a particular area;
z The way in which provide services;

MODULE 3: BUILDING AND GROWING YOUR FIRM

z Your accessibility;
z Your price and your pricing structure;
z The appearance and feel of your offices;
z The way in which you package your work; and
z The network that you can connect your clients into.
You can probably add to this list. Yet most firms spend very little time seeking to differentiate themselves. As a
result, they ignore a powerful marketing tool, one that could give them a competitive advantage when they are
seeking to attract a target client.
Consider the following differentiation messages:
z “Because you are busy we come to you.”
z “Our breadth of services provides you with a one-stop shop for your accounting, taxation and financial needs.”
z “We are specialists in the medical profession.”
z “We are available to you twenty-four hours a day. Here are all our contact numbers. If you need us we are only
a phone call away.”
z “Through our business consulting work we add real value to your business. Our aim is to work with you to
help your business grow profitably.”
z “We package our fees into an agreed fixed fee, covering all of our work, you can pay us, spreading the cost
over the entire year.”
z “Our contacts include high-quality legal, finance, insurance and real estate advisers. When you deal with us,
you have access to our network. An advisory team that works together for you.”
z “Your work will always be managed by a partner and you will always have access to them.”
These messages clearly state a focus for the firm and identify its point of difference. Notice that they do not
focus on the quality of the work, or the price. In reality, it is very difficult for a client to recognize a difference in
quality of work or advice, unless they have had a bad experience in the past.
Generally, clients expect their accountants to deliver a quality product and price is not an area where you want
to try to differentiate. Price competition requires a volume market to be profitable and typically the delivery of
professional services is not an area of high-volume transactions.
Differentiation is likely best achieved through your service offering. There is ample scope to identify what you
deliver that will be meaningful to your target market. Once you have done this, you can build a part of your
marketing program and message around your point of differentiation.
3.8
3.8.1

Putting your plans into operation
The importance of implementation

Once you have created your marketing program, the most important step is that you implement it.
A lot of energy and effort go into the development of a marketing plan. A real sense of achievement comes from
that development but this will count for nothing unless the plan is implemented properly and completely.
Many firms undertake their planning sessions at the beginning of the year, or financial year. They set plans
and goals, full of good intentions. However, as the year gets underway, the partner’s time is quickly consumed
with client demands and the operational requirements of the firm. As momentum builds, the easiest things to

let slip are the business and marketing plans set in place earlier in the year. This highlights one key point: the
implementation process requires discipline and commitment.
3.8.2

How to implement your plan

If you have completed the documentation of your marketing plan, you have identified what you are going
to do, who will champion the projects, how much it will cost, when it needs to be completed, and the results
you anticipate. This minimum level of documentation is critical. It will provide you with a necessary reference
point. It will also serve as a constant reminder of the objectives that have been set for the firm. This is part of
the discipline required. If you are not prepared to document your marketing plan, and commit to it, you are not
really serious about it.
Table 3.5 shows how to successfully implement your marketing plan.
Table 3.5 Implementing a marketing plan
Suggestion

Comment

Don’t attempt too many
projects at once.

If you are using internal and external strategies, you should probably have no more
than four to six running at any one time

Make sure your objectives
are achievable.

Set them so they are reasonable and practical.

Allow time for tasks to be
completed.

Allow them time in their work program to achieve the marketing tasks you have
assigned to them.

If your expectations are unrealistic, your team is likely to lose interest before they
get started.

If you don’t allow the time, it becomes an easy excuse for non-completion.
4.

Spread strategies across
the year.

When you are running multiple strategies, it works best to spread them across the year.

Allow an adequate budget.

An inadequate budget can frustrate the fulfillment process or lessen the
enthusiasm of those involved.

Measure the results.

You need to be able to assess the effectiveness of each program and strategy.

This allows each to be focused on, and keeps the level of interest high.

You should also celebrate the wins you have, and learn from any mistakes. This
will encourage and maintain the enthusiasm of the team.
7

Review regularly.

Review your marketing program at every management meeting.
Regular reviews will help to keep the program on track and keep the momentum
moving.

Set milestones.

Ensure you have milestone events within your program.
This will allow you to monitor your progress as you go, and check you are on track.

Allow for change.

10. Keep the momentum.

If a program or strategy does not appear to be working, accept the fact, be
prepared to adapt and change.
Once you have some momentum, keep it going, even if it means an ongoing
marketing program where you add additional projects as others are completed.
Momentum is the most critical factor, and will build on itself if promoted.

Someone must take the responsibility to ensure than plan is implemented. However, this often becomes the
task of the practitioner, which is difficult—especially for sole practitioners.

MODULE 3: BUILDING AND GROWING YOUR FIRM

In some countries it is becoming popular to engage the services of a mentor or business coach to assist with the
implementation process. The key word is “accountability”: having to answer to someone else for your actions (or
lack of actions).
In all of your marketing activities it is important to consider the ISO Standards, which cover quality, environment,
ethics and other issues.
Table 3.8 An example format for a cash flow forecast
Cash Flow Forecast for year 200X/0Y
Jul

Aug

Sep

Oct

Nov

Dec

Jan

Feb

Mar

Apr

May

Jun

Total

Jul

Aug

Sep

Oct

Nov

Dec

Jan

Feb

Mar

Apr

May

Jun

Total

Trading Income
Cash Inflows*
Cash received from clients
Other cash receipts
Total Cash Received
Cash Outflows
(details below)
Surplus/(Deficit)
Cumulative Position
(add to prior month)
* Cash inflows when the
cash is actually received
from invoices raised
previously
Cash Outflows
Disbursements
Accounting fees
Advertising
Bank charges
Borrowing expenses
Capital expenditure
Cleaning and sanitation
Commissions paid
Consulting fees
Courier costs
General and administrative
expenses
Finance charges

Cash Flow Forecast for year 200X/0Y

Jul

Aug

Sep

Oct

Nov

Dec

Jan

Feb

Mar

Apr

May

Jun

Total

Insurance
Lease payments
Motor vehicle expenses
Parking and tolls
Print, postage and
stationery
Rent
Repairs and maintenance
Rubbish removal
Security expenses
Staff training and welfare
Pension planning/
superannuation
Telephone
Uniforms and protective
clothing
Wages
Total Cash Payments

3.9

Financial management

Elements of financial management for a growing firm relate to three key areas: capacity budget, financial budget
and cash flow forecast. Each is briefly discussed below.
3.9.1

The capacity budget

This is an estimate of the potential income be generated for the firm if all available hours were billed. There are a
number of factors to consider including:
z Additional staff joining the firm;
z Salary increases;
z Available hours;
z Time off for study leave and training; and
z Increase in charge-out rates.
For a typical professional accountant, the available hours would be calculated as in Table 3.6.

MODULE 3: BUILDING AND GROWING YOUR FIRM

Table 3.6 Target billings calculator
Criteria

Weeks

Weeks in year

Annual leave

(4)

Public holidays

(2)

Sick leave

(1)

Training

(1)

Available weeks

Hours worked per week

37.5

Available hours per year

1,650

Expected productivity
Target billable hours
Charge-out rate per hour
Target billings

80%
1,320 hours
$150 per hour
$198,000

This target billings calculation should be applied across the firm for all productive staff. The total target of all
billings is referred to as the capacity budget for the firm.
Please note this is only an example of a billings calculator tool. You should amend the figures to suit your local
environment to be as relevant as possible.
3.9.2

The financial budget

The financial budget uses the capacity budget as expected income, and also incorporates the budgeted
operating expenses of the firm. An example format is shown in Table 3.7.

Table 3.7 An example format for a financial budget
Budget 200X/0Y
Actual Position

Budget Forecast

200W/0X
$

200X/0Y

+ 5%

+10%

-5%

-10%

Income
Fees
– Audit
– Compliance
– Consulting
Disbursement Reconciliation
Other Income
Consulting
Other income
Total Income
Cost of Sales
Direct wages (chargeable
staff)
Disbursements
Total Cost of Sales
Gross Profit
Expenses
Accounting fees
Bank finance, fees & charges
Commissions paid
Consulting and professional
fees
Communication
• Telephone
• Courier costs
• Print, postage and
stationery
General and administrative
Insurance
Information Technology
• Software license
• Computer Hardware &
maintenance
• Printers & photocopiers
Marketing & Promotion
• Advertising
• Entertainment
Motor vehicle

MODULE 3: BUILDING AND GROWING YOUR FIRM

Budget 200X/0Y
• Car maintenance
• Parking and tolls
Occupancy Costs
• Cleaning & rubbish removal
• Electricity & utilities
• Rent
• Repairs and maintenance
• Security
Staff amenities
Training & development
Wages
Total Expenses
Net Profit

3.9.3

The cash flow forecast

The cash flow forecast utilizes the information in the financial budget to anticipate when the timing of the cash
associated with the income and expenses will affect the bank account balance. An example format is shown in
the attached worksheet (Table 3.8 ).Table 3.8 An example format for a cash flow forecast
Cash Flow Forecast for year 200X/0Y
Jul

Aug

Sep

Oct

Nov

Dec

Jan

Feb

Mar

Apr

May

Jun

Total

Jul

Aug

Sep

Oct

Nov

Dec

Jan

Feb

Mar

Apr

May

Jun

Total

Advertising
Bank charges
Borrowing expenses
Capital expenditure
Cleaning and sanitation
Commissions paid
Consulting fees
Courier costs
General and administrative
expenses
Finance charges
Jul

Aug

Sep

Oct

Nov

Dec

Jan

Feb

Mar

Apr

May

Jun

Total

MODULE 3: BUILDING AND GROWING YOUR FIRM

3.10 Conclusion
The business of building and growing a firm, as demonstrated by this module, is multi-faceted. Careful planning,
particularly in relation to your overall business plan, and ensuring implementation are keys to your firm’s success
Overriding factors to consider in all of your marketing endeavors include consideration of the professional,
ethical and quality position you with your marketing and the messages you and about your firm. You need know
your firm is capable of fulfilling the expectations you set in the market in regard to your offering.
3.11 References, further reading, and IFAC resources
Further Reading
AICPA Journal of Accountancy Practice Management – Marketing articles –
http://www.journalofaccountancy.com/Search/Results.aspx?Topic=PracticeManagement%7cMarketing
AICPA Journal of Accountancy – Practice Development articles –
http://www.journalofaccountancy.com/Search/Results.aspx?Topic=PracticeManagement%7cPracticeDevelopment
Collins, James C. Good to Great: why some companies make the leap - and others don’t. London : Random House
Business, 2001.
Maister, David H. Managing The Professional Service Firm. New York: FreePress, 1997.
Putman, Anthony O. Marketing Your Services. A step-by-step guide for small business. New York, John Wiley &
Sons, 1990.
Rosenhek, Stephen. “One for all”. CA Magazine Jan–Feb 2008.
http://www.camagazine.com/archives/print-edition/2008/january-february/regulars/camagazine5427.aspx
Sawhney, Robert C. “How to market your firm: Marketing, when done properly, can maximize your firm’s financial
performance”. HKICPA APLUS January 2010.
http://app1.hkicpa.org.hk/APLUS/1001/Marketing.pdf
Scapens, Robert W., Burns, John, Baldvinsdottir, Gudrun and, Ezzamel, Mahmoud. Future Direction of UK
Management Accounting Practice. Amsterdam, London : Elsevier, 2003.
Stapleton, James J. Developing a CPA Practice: A comprehensive guide to building a successful small to mid
sized accounting firm (2nd edition). New York : John Wiley & Sons Inc, c1997.
Young, Laurie. Marketing the Professional Services Firm: applyng the principles and the science of marketing to
the professions. Hoboken, New York: John Wiley & Sons, 2005.
(German)
Mauer, Reinhold, Krämer, Andreas and, Becker, Rolf. Unternehmensführung für rechts-wirtschaftsberatende
Berufe. Munchen: Jehle Rehm Verlag, 1997.
(Italian)
Arcari, Anna Maria. Economia delle imprese di servizi professionali. Logiche e strumenti di controllo. Milano:
EGEA, 1991.
Di Francesco, Roberto (a cura di). Il controllo di gestione dello studio professionale. Torino: MAP Servizi srl, 2005.
D’Agnolo, Michele. “Il controllo gestionale dello studio.” in Strategia ed organizzazione degli studi professionali,
Michele D’Agnolo: chapter 4. Milano: Il Sole 24 Ore, 2008.

Mio, Chiara. “Performance Measurement negli studi professionali dei dottori commercialisti ed esperti contabili”.
Torino Lingotto 11-13 marzo 2009.
http://www.bibliotecacndcec.it/Index.php?it/143/pubblicazioni/120/1-congresso-cndcec-11-13-marzo-2009relazione-chiara-mio
Mio, Chiara. “Il controllo di gestione negli studi professionali” Rivista dei Dottori Commercialisti 1(1991): 145-162.
IFAC resources
IFAC publications http://web.ifac.org/publications
IFAC SMP Committee publications http://web.ifac.org/publications/small-and-medium-practices-committee
To find the most up-to-date listing of other useful resources relating to this module, please visit the Resources
section of the International Center for Small and Medium Practices at http://www.ifac.org/SMP/index.
php#Resources, especially the ‘relevant links’ at http://www.ifac.org/SMP/relevant_links.php
To search the websites of IFAC member bodies and other relevant websites for other useful resources relating
to this module, please visit the IFACnet search engine located on the home page of the International Center for
Small and Medium Practices at http://www.ifac.org/SMP/
To discuss issues relating to this module with practitioners from around the world, please visit the IFAC SMP/SME
Discussion Board at http://web.ifac.org/forum/SMP/1

MODULE 3: BUILDING AND GROWING YOUR FIRM

Appendices
Appendix 3.1 Relationship management action plan
Contact

Jan

Feb

Mar

Apr

May

Jun

Jul

Aug

Sep

Oct

Nov

Dec

Note: For each referrer, include the activity you plan to undertake with them in the relevant month
Appendix 3.2
Case study 3.1
This case study relates to Section 3.2.3 (“The organization chart”) in Module 3 .
William and Indira agree on the importance of using the Organization Chart to assist with the internal structure
of the firm. After assessing their strengths and weaknesses, William agrees to take responsibility for Marketing
Indira agrees to take Finance. Even though they are both responsible for their separate areas of work within the
firm, William takes responsibility for Operations and even though it’s currently a smaller role, Indira looks after
Human Resources.
They agree that they will meet each month to discuss the firm as a business and each of them agrees to present
a report to the other at the monthly Partners Meeting for their area of responsibility.
As part of the Marketing responsibility, William drafts the Marketing Plan to cover the key approaches and areas
he considers the firm should do business in. This plan details the important topics of target clients, key services
to be offered by the firm, suggested pricing as well as the specific methods by which the firm will market these
services. At the Partners Meeting, William discusses the plan with Indira. After considering a number of changes
in depth they agree on the plan and set a specific timeline with specific actions which each of them agrees to.
As part of the Finance responsibility, Indira prepared a draft budget and cash flow forecast for the firm for the
coming year. She presents this to William at the Partners Meeting and after discussion agrees to update the
reports to incorporate the expected increase in fees from the marketing efforts identified in the marketing plan.
She will also revise it for the new marketing expenses identified in the marketing plan.
Indira has also prepared a set of management financial statements, including Profit and Loss Statement and
Balance Sheet and presents these at the Partners Meeting. She agrees to update the presentation of these

reports now she and William have agreed on the budget. Indira identifies that a cash shortfall will arise over the
coming holiday period and they discuss how best to deal with it. Their favored approach is to find new clients,
and raise the fees before the shortfall hits. However, they both agree to ensure there is sufficient bank financing
available to help them through the short-term difficult period.
As William’s responsibility also includes Operations, before the Partners Meeting he has already obtained a status
report from Indira in regard to her team’s workload. He incorporates this into his team’s workflow so that he can
present a total firm workload and capacity report. This allows them both to see what capacity the firm has for
new work prior to the holiday period, which in turn gives them some confidence that may be able to avoid the
upcoming cash shortfall that Indira identified. However, it highlights the importance of the marketing initiatives
producing result, otherwise they may still find themselves in a difficult position.
Indira reports on the Human Resources issues currently facing the firm. The key point raised is the need for
formal performance appraisals for the staff to give them feedback on their performance. William agrees with the
approach and they both agree that Indira will draft the performance appraisal they will use and bring it to the
next Partners Meeting for final approval. They also agree to set the dates for the performance appraisals for staff
at the next meeting.
William and Indira then confirm the time and date for their next Partners Meeting.
Case study 3.2
This case study relates to Section 3.3.4 (“External growth strategies ”) in Module 3.
As part of the marketing plan, William has identified seminars as one of the key marketing strategies for the
firm. He believes that seminars will allow the firm to raise its profile in the local business community and give
them a reason to advertise and promote. He plans to invite existing clients and referral contacts along but also
considers it a good opportunity to invite prospective clients along. In this way they can mingle with clients
and staff in a non-threatening environment while at the same time hearing some information of interest and
relevant to their business situation.
In the preparation phase for the seminar, William spoke to a number of clients to gauge their interest in attending
and what topic they would like to hear about. Many clients were interested in the state of the economy and
how it would affect their businesses. William decided to link a general discussion about the current economic
environment to the specific effects it might have on the local business community. He discussed this with Indira
and she was supportive of the idea and the topic. William then set about preparing his presentation.
As for the logistics of the seminar, William prepared a checklist of key items that had to be addressed to ensure
the seminar went well. It included:
z Compiling a list of full names and addresses of all invitees;
z Preparation of the invitation;
z Ensuring the invitations get sent to the invitees;
z Preparation of the advertisement for the local newspaper;
z Booking the room in the local function center for the time and date of the seminar;
z Paying any holding deposit required to secure the room booking;
z Sketching a layout of the seating arrangements for the room;
z Deciding on refreshments to be served before and after the seminar;
z Ensuring name tags are completed for attendees;

MODULE 3: BUILDING AND GROWING YOUR FIRM

z Ensuring staff members were available to assist with registrations for attendees;
z Providing handouts of the key points of the seminar to attendees; and
z Preparation of follow-up letter to be sent after the seminar.
William then set about allocating various tasks on this list to various team members within the firm to ensure the
workload was spread among the team, and did not rest on the shoulders of any one person.
As the day of the seminar drew closer, William was actively involved promoting the seminar to as many clients
and prospective clients as he could. He believed this would be a great way to lift the profile of the firm and
also allow him to increase his personal profile in the local business community. Even though he was not that
comfortable with public speaking, he was confident enough that he could get by. He practiced his presentation
a number of times before the seminar as a way of building greater confidence in himself and in his material.
Two days after the seminar was held, William ensured that each attendee received a letter thanking them for
attending and mentioning again the key points covered in the presentation. For those who were not existing
clients of the firm, William made a special offer they could meet with him at no charge, to discuss any specific
points that were relevant further discussion.
Case study 3.3
This case study relates to Section 3.5 (“Creating a good culture for your firm”) in Module 3.
Case study: Firm culture
Victory Accounting decided to change the culture of its firm and went through a transforming process to
achieve this. The following is a snapshot of their new culture.
Victory Accounting fosters a high performance, fun and rewarding environment through the following:
Central operating principle: sustainability
All staff are guided by our central operating principle: “To create value for Victory Accounting stakeholders
by building a sustainable accounting firm through the integration of economic, social and environmental
considerations into all Victory Accounting decision support systems.”
Core values
We believe that the service we provide is of value to the community and society. This is underpinned by the
following core values.
z Making sense: Helping people to understand their accounting and taxation through education, assistance
and advice.
z Always helping: Understanding people’s needs and helping them work through financial problems and issues.
z Trust and integrity: Being reliable, honest, and principled, and engendering confidence.
z Respect and encouragement: Valuing diversity, assisting each other and maintaining a positive outlook at all times.
z Learning: An ongoing search for knowledge and skills enables Victory Accounting to embrace change and
continuously improve. This is vital in these times of constant change to regulations and requirements.
z Quality: Striving to do better as Victory Accounting benchmarks its performance against their highest
standards, not against competitors.

Commitment to learning and development
Staff members are encouraged to develop their skills and careers within Victory Accounting. The firm provides
ongoing training and development, as well as financial assistance and study leave for relevant courses.
Involvement in our future direction
Each month, we hold a team meeting where the firm’s performance and future direction is outlined, and teams
are given the opportunity to present their current projects.
Community involvement
Victory Accounting is committed to helping our local community and allowing staff the opportunity to
participate in volunteering activities. Alliances with various charities are currently being developed to enable
staff to learn more about a range of community issues, and volunteer their time to help those in need.

MODULE 3: BUILDING AND GROWING YOUR FIRM

Appendix 3.3 Summary Income Statement Budget
Monthly Budgeted Amounts
Description
Gross revenues
Less billing
adjustments
Net Revenue received
% of revenues

Cost and expenses
Salaries
Professional Staff
Support Staff
Personnel expenses
Facilities expenses
General expenses
Other
Total costs and
expenses
% of revenues
Operating profit
% of revenues

Interest income
Interest (expenses)
Other income
(expense)
Gain (loss) on sales
assets

Net income (expense)
% of revenues

Corporations should
complete the
following information
Income taxes
Net Earnings
% of revenues
Long-term debt

Total liabilities

Partnership equity

Prior
Yr

Total

Monthly Budgeted Amounts
Description

Prior
Yr

Total

Beginning Balance
Current Earnings

Total equity

Total liabilities and
equity

Memo items
Debt proceeds
Principal payments
Partner drawings
Gain or (loss) on
disposal
TOTALS

MODULE 3: BUILDING AND GROWING YOUR FIRM

Appendix 3.4 Balance Sheet Budget
Monthly Budgeted Amounts
Description
ASSETS
Current assets
Cash & cash
equivalents
Unbilled work in
progress
Billed accounts
receivable
Prepaids
Other current assets
Total current assets
Property and
equipment
Less: accumulated
depr.
Net property and
equip
Other assets
Total assets
Capital additions
Depreciation
Asset disposal cost
Sales proceeds
LIABILITIES AND
EQUITY
Current liabilities
Accounts payable
Accrued expenses
Short term debt
Other current
liabilities
Total current liabilities

Prior
Yr

Total

Appendix 3.5 Gross Revenue Analysis Worksheet
Instructions: It is useful to budget gross revenues (gross charges before billing adjustments) by work type based
on comparison with prior years. The following schedule allows the firm to summarize prior year accounting
and audit, tax and consulting revenues on a month-by-month basis. When preparing your budget you should
consider a number of factors in budgeting future gross revenues in addition to prior year revenue amounts.
These factors include:
z Anticipated changes in charge-out rates;
z Work that will not be repeated during the upcoming year;
z New clients that will be served for the first time during the upcoming year;
z New services to be provided in the upcoming year; and
z The effect of any other known or reasonably expected differences from the prior year.
Once gross revenues for each work type are budgeted, the monthly amounts should be totalled and carried
forward to the Summary Income Statement Budget at Appendix 3.3.

MODULE 3: BUILDING AND GROWING YOUR FIRM

Gross Revenue Analysis Worksheet
Accounting and Audit
Month

Total

Prior
Year
Reve
nues

% of
Total

Current
Year
Budget

Tax
% of
Total

Prior
Year
Reve
nues

% of
Total

Current
Year
Budget

Consulting and Other
% of
Total

Prior
Year
Reve
nues

% of
Total

Current
Year
Budget

Total
% of
Total

Prior
Year
Reve
nues

% of
Total

Current
Year
Budget

% of
Total

Module 4:

People power: Developing a
people strategy

Contents
4.1 Introduction

4.2 Your firm and its people

4.3 Factors impacting people management

4.3.1 Community expectations

4.3.2 Economic changes

4.4 Your people management strategy

4.4.1 The mix of employees

4.4.2 Clarifying expectations

4.4.3 Considering generational diversity

4.4.4 Attracting Generations X and Y

4.4.5 Recruitment

4.4.6 Induction

4.5 Leading your team

4.5.1 Setting an example: “tone at the top”

Figure 4.1 The overlapping team, task and individual model

4.5.2 What employees expect from leaders

4.5.3 Building a high-performing team

Table 4.1 Stages of group formation and team growth

Table 4.2 Leadership styles for effective teams

4.5.4 Communication

Figure 4.2 Effective communication

4.5.5 Delegation: The key to firm leverage

4.6 Managing and retaining employees

4.6.1 Motivation

4.6.2 Keys to a productive, cohesive work environment

4.6.3 Performance management

4.6.4 Productivity versus performance

4.6.5 Calculating productivity

Table 4.3 Standard Hours Calculator

Table 4.4 Efficiency levels

Table 4.5 Charge rates

Table 4.6 Individual revenue capacity

4.6.6 Assessing performance

Figure 4.3 Assessing performance

Table 4.7 Common assessment biases
Figure 4.4 Assessing performance: Seven-factor model

29
29

MODULE 4: PEOPLE POWER: DEVELOPING A PEOPLE STRATEGY

4.7 Training and development

4.7.1 Identifying development needs

4.7.2 Development is an investment

4.8 Rewards and recognition

4.8.1 Remuneration

4.8.2 Providing recognition

Table 4.8 Informal recognition strategies

4.9 Exiting/transitioning employees

4.9.1 Termination

4.9.2 Retaining older workers

4.9.3 Exit surveys

4.10 Conclusion

4.11 References, further reading, and IFAC resources

Appendices

Appendix 4.1 Functional leadership checklist

Appendix 4.2: Senior accountant/manager role description

Appendix 4.3: Assistant accountant role description

Appendix 4.4: Junior accountant role description

Appendix 4.5: Personal development

Appendix 4.6: Performance agreement

4.1

Introduction

This module explores staffing issues you will have to be address as your firm grows. During this process, your
management team’s ability to attract, retain, motivate and lead your employees will be pivotal to your success.
There are many management strategies you can use to ensure this period of growth goes smoothly. Factors to
consider include the people management strategy of the firm, and how leadership is manifested. Appropriate
management of individual staff issues is vital to a harmonious workplace . Such issues include training and
developing staff skills, and rewarding and recognizing your staff ’s contribution to the firm. It also includes
dealing with the exits and transitioning of employee, as well as attracting and retaining graduates and qualified
accountants from other firms who will become the future leaders of your practice). The degree to which you can
provide a high level of professional service is determined by the quality and calibre of your people.
4.2

Your firm and its people

Setting goals to develop a business, without first exploring the availability of people with the appropriate skill
sets for your business model may cause unnecessary frustration and hardship. Your business planning and
staffing strategies need to be linked.
Each firm is different in its business strategy, service offerings, partner values, culture, skills mix, location and client
base. There is no single “formula” providing a percentage mix of the variables that will determine your success.
4.3
4.3.1

Factors impacting people management
Community expectations

You and your employees are products of your community. Community standards and expectations have
changed in the last ten or twenty years. Today, community members are:
z Generally well educated, with a sound grasp of their rights and entitlements;
z Willing to express and claim those entitlements;
z Keen to make someone (whether an individual or a commercial organization) accept responsibility for
mistakes, wanting to see firms or individuals accountable for their performance; and
z Insisting that business (in particular) accept and adopt higher standards of ethics and behavior
Many of these community expectations are legislated, imposing obligations and costs on the employer that will
impact employment policies.
The community is also in a state of constant change.
z Amendments to industrial relations legislation in many countries continuously change the dynamics
of employment, for example by creating more flexibility in working conditions or providing for equal
opportunity in the workplace.
z The demographics of the population in many countries indicate that the community is gradually aging.
z Social commentators show that people from different generations within the workforce have different
expectations and attitudes.
The accounting profession is affected by these changes, and will continue to adapt to reflect the community’s
new expectations. More emphasis is now put on communicating with, and protecting the rights of, clients and
employees, and devising systems and procedures to prevent mistakes.

MODULE 4: PEOPLE POWER: DEVELOPING A PEOPLE STRATEGY

4.3.2

Economic changes

Prior to 2008, most worldwide economies had experienced many years of consistent and rapid economic
growth. This led to strong business profitability and optimism about future business performance.
Many leading world economists expect that economic changes precipitated by the collapse of the US banking
infrastructure will continue for a number of years. This will have a strong impact on the types of services offered
by accountants, the pricing policies utilized, and the requirement for specific accounting knowledge.
In such economic circumstances it is likely that more clients will benefit from holistic business advice, rather
than compliance accounting, while other services such as financial forensics and fraud control measures might
come to the fore.
Other factors likely to create challenges for the accounting profession are described on the following page.
Shortage of qualified accountants: The accounting profession competes with many alternative career paths, and
the supply of qualified accountants has not met demand in many markets. Skill gaps are being met in part by
employing graduates from disciplines other than accounting, then conducting short-term intensive training in
accounting skills.
Increasing gender balance: As more women enter the accountancy profession, employers need to amend their
employment policies to attract and retain women in their firm and not waste the training invested because they
are inflexible on work conditions.
Skilled migration targeted in specific industry sectors: This has obvious implications for the portability of
qualifications, the language skills possessed by the migrants, and other social factors such as the impact on
infrastructure and social services. Accounting is one skill set targeted in many markets.
Accounting and processing work outsourced overseas: Firms increasingly choose to process transactions and
information offshore at a lower cost than that offered by the local workforce.
Slowing wage growth: The changing dynamics of supply and demand for accounting skills has resulted in
subdued wage growth for some accounting personnel, compared with other segments of the profession as
compared to earlier years.
Retirement expectations of older workers: Many employees look to retire at an earlier age. While this may be
desirable for personal reasons, it might not be sustainable when taking into account their accumulated pension
plans and other savings. It also restricts the supply of qualified personnel eligible for employment. Policies to
retain the knowledge these older employees have amassed are important for the future.
Barriers to employing older workers: Often people find it harder to gain employment once they reach their late
forties and early fifties. As the Baby Boomer generation ages in many economies, the number of people in this
age group will obviously increase, so the attitude towards employing older workers will need to change.
Some of the factors listed are positives for the profession and some are negatives that will reduce the supply of
potential employees. It is crucial that you monitor these trends because they will determine the supply of, and
demand for, accounting personnel. While you cannot influence all of these factors, there are proactive measures
you can take to position yourself as an employer of choice.
4.4
4.4.1

Your people management strategy
The mix of employees

So far this module has analyzed possible workplace expectations, but how do you assess which type of
employees you actually require?

The dynamics within accounting firms are changing. Different ownership structures have emerged and firms are
moving to a structure with more employees per partner. There is a gradual decline in the proportion of support
employees, with qualified accounting personnel forming a larger proportion of the total staffing base. Firms
are also adding new services to cater to various client requirements. It is therefore important to clarify the skills
required to optimize your business performance.
Skills mix identification
You need a blend of people and skills. A balanced accounting team will usually have a partner, a qualified
accountant, and some administrative support. In addition, some firms will have experienced, though not
qualified staff graduates with little experience and additional secretarial support. Clearly it will take a new firm
a little while to get to the stage where all these people are fully productive, but using this mix will permit you to
provide cost-effective services to your clients.
To identify the required skills mix:
z Compile an organizational chart identifying the roles and positions required to service client requirements;
z For each role (such as senior accountant, junior accountant or secretarial support people), create a role
description (see Appendices );
z Break this role description into the required qualifications, skills, knowledge and experience (competencies)
required to carry out the duties adequately;
z Do an audit of the positions filled using these role descriptions and your knowledge of your existing (and
projected) work. Where are the gaps? Can you redefine the allocation of tasks into a more streamlined process?
Can some of the roles or tasks be eliminated altogether? Can the workflow be streamlined, or could it be
handled more efficiently if you were to design it from scratch today? This is called process re-engineering in
management jargon, and it is more likely to be necessary in a large organization than in a small, growing firm.
As a general rule, aim for work to be done by the lowest-cost person capable of doing it competently, and in the
most efficient manner possible.
4.4.2

Clarifying expectations

Employers and employees may have different expectations of the working relationship. For example, employers
may expect that:
z Employees will approach their work in a positive manner, showing enthusiasm for their tasks and courtesy
towards others.
z The productive or fee-earning employees will generate fees of around two to four times their annual salary
cost, depending on their experience and seniority. (Please note that these are broad guides only: each firm
must determine its own performance targets.) Non-fee-earning personnel are expected to work their agreed
number of hours, productively and efficiently and for the benefit of the firm.
z Employees will accept instructions and comply with them. This extends to compliance with the firm’s
procedures, policies and workflows. The employee may question instructions on occasion, perhaps to suggest
a better approach or if there is a legal or ethical reason why the instruction should not be implemented. Once
this discussion is complete and a clear course of action is agreed, then the employee is expected to do as
instructed within a suitable timeframe.
z Employees will demonstrate initiative in, for example, enhancing efficiency, finding new ways of delivering
client service, or developing their own skills. Where necessary, the employee should obtain any necessary
approvals for a particular action beforehand. Employees will not abuse the access they are granted to the
internet and email and will preserve the confidentiality of client and firm information.
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Employees may have the following, different expectations:
z An employer will offer a role that suits the employee’s skills and experience.
z Employees will be properly remunerated and rewarded for performing their work to an adequate standard.
z Above-expected levels of performance will be recognized and rewarded in a suitable way.
z Employees will receive training as required to assist them to perform their role, and the employer will provide
equipment and support.
z Fundamental rights such as respect and a safe working environment will be provided.
z Good communication will exist between employer and employee, so that any problems perceived by one
party can be clearly identified and the other party has the opportunity to correct any perceived problem. This
communication will be achieved via a transparent and fair process.
Other features demanded by many include good prospects for promotion or increased levels of responsibility. Not all
employees will see promotion as a requirement, so this aspect should reflect the personal needs of each employee.
Individual firms and employees are likely to have additional expectations.
These expectations will often be documented by means of a Code of Conduct and included in the employment
agreement.
4.4.3

Considering generational diversity

Demographers and marketers have in recent years come to assign people to age-based “generations.” They claim
to have identified distinctive attitudes and expectations as being predominant in each group. These are believed
to reflect the particular era in which people grew up, including key historical events, cultural developments,
social changes, prevailing values and lifestyle influences.
Veterans: born 1929–1945
z Are disciplined respect law and order
z Like consistency and a standardized approach.
Baby boomers: born 1946–1964
z Are optimistic, ambitious, loyal, and believed employment was guaranteed;
z Consider job status and symbols important; and
z Focus in the workplace on process and output, not implications and outcomes.
Generation X: born 1965–1979
z Often had both parents working;
z Are more resourceful, individualistic, self-reliant and irreverent;
z Focus in the workplace on relationships, outcomes, their rights and skills;
z Are not interested in long-term careers, corporate loyalty or status symbols; and
z Are easy to recruit, but hard to retain.
Generation Y: born after 1980
z Expect greater workplace flexibility;
z Think differently from any other members of the workforce;

z Are similar to veterans in that they are optimistic, confident and sociable, with strong morals and sense of
civic duty; and
z Are comfortable with “diversity,” and very much into “connectivity” (networks, technology).
Although people are far more diverse as individuals than the particular age group to which they belong, there
appear to be general attitudes, expectations and “motivators” that are reflected in different generational groups.
4.4.4

Attracting Generations X and Y

To attract and retain employees from Generations X and Y, you may want to consider the following:
Develop a learning organization
z Engage people in goal setting.
z Implement personal development plans.
z Utilize subscriptions, such as those for professional development tools or web-based learning.
Job redesign
z Adopt more fluid job descriptions. In accounting, this could mean involving an employee in a broader range
of work for a particular client, and giving them a more holistic involvement and relationship with the client.
Coach the less-experienced employees
z Generation X prospers with frequent guidance and coaching.
z Generation Y appreciates being mentored by the veterans.
Educate leaders of your organization
z Leaders must be true to their word and follow through on their commitments. Generations X and Y will not
tolerate inauthentic leadership. Integrity, consistency and genuineness are essential characteristics of leaders.
z Enable work–life balance.
4.4.5

Recruitment

Once you identify the gaps, there are in your staffing requirements, you will need to consider whether the gaps are
definable into full-time roles, or whether you need to outsource or purchase part-time services in specialized areas.
Once this is established, you need to attract and recruit the appropriate people.
4.4.5a Employer of choice
The term “employer of choice” has typically been associated with recruitment and retention strategies for
employees. They include company reputation, family friendly work policies, employment awards and conditions,
and social and community responsibility. The combination of these factors adds (or takes away) impetus for a
potential employee to associate him or herself with a particular company.
With the current employment market favoring those seeking employment because of an accounting skills
shortage, the perception of an organization as an employer of choice is fast becoming a strong distinguishing
factor in who attracts qualified employees and who does not.
4.4.5b Your employment offering
Your challenge is to position your firm as an employer of choice in order to attract and retain the right people.
Ideally, create a package valued by your current staff as well as those you want to employ. It should cover:

MODULE 4: PEOPLE POWER: DEVELOPING A PEOPLE STRATEGY

z The firm culture: honesty, integrity, consistency, respect and involvement;
z Employment conditions and remuneration: allow some flexibility so that the overall outcome represents a fair
set of conditions for a fair day’s pay;
z Skill and career development through job design and flexible and challenging work; and
z Responsiveness to the individual needs of employees and partners: this may require tailoring the
employment arrangements in a way that lets the firm deliver quality, value and timeliness without rigidly
following a single set of rules of employment.
The nature of the package will be shaped by the skills and knowledge you require. For example, if you need
someone with a vast amount of experience it is likely that staffer will be a Baby Boomer who will only join your
firm if you offer security, stability and some assurance about their future, such as partnership or enhanced
pension plan options. If, however, you want someone specialized skills but do not have enough work to keep
them fully occupied, you may be looking for Generation Y: someone who likes variety and flexibility in their
work, and has less need for security. They are likely to be enticed by a promise of leading-edge and exciting
contract work where they will gain valuable skills, a high degree of autonomy, and a good salary package
allowing time for hobbies.
4.4.5c Your employment agreement
An employment agreement sets out the terms of the employment arrangement between the firm and its staff.
Typical areas the agreement covers include a description of the duties to be performed, the manner in which
they are to be performed, the compensation to be paid, loyalty to the employer’s interests, the confidentiality of
client and firm information, the basis for discipline or termination, non-competitive activity, and the ownership
of firm property and information. The agreement should also cover the basis of performance assessment
whether performance appraisals will be conducted and their timing. An employment agreement is an important
document for the firm for these reasons.
4.4.5d Your promotional plan
Your promotional plan is the approach you choose to use to attract potentially suitable employees to your
organization.
How will you brand yourself in the market? Is your firm seen as a good place to work (as an “employer of choice”),
or a place where people do not stay very long? This perception will impact the caliber of person who applies for
a position in your office, and may limit your choices. Branding can be improved by being proactive in your local
community, having your people consistently describe your firm as a genuinely good place to work, encouraging
a free flow of information and offering opportunities for your people to develop their skills and do varied work.
What promotional method(s) will you adopt? There are many options, such as:
z Approaching people your employees know and recommend;
z Advertising on internet job boards;
z Advertising in local print media such as newspapers and accounting magazines;
z Using specialist recruitment companies;
z Approaching local universities for graduates;
z Searching social networking sites such as LinkedIn and Facebook;
z Creating a “group” for your company on Facebook, calling it something like “(XYZ Company) is hiring,” and
listing your latest jobs along with information on how to apply.

z Monitoring blog pages and accounting community discussion forums noting opinion leaders, and
approaching them directly; and
z Ensuring that your company website is continually updated as new job opportunities become available.
Two issues to keep in mind when deciding your promotional plan are:
z Where can you feasibly attract candidates? Are you limited to your local region, your country (because of
recognition of qualifications), or can you bring someone in from overseas?
z Do you want to tap only the market of candidates who are actively looking for work (active candidates), or do
you want to try to entice someone to join you who is currently working elsewhere (passive candidates)?
4.4.5e Your selection process
In most countries, employers are required to give equal opportunity to applicants, and to treat everyone to be
treated equally throughout the selection process. To avoid any claims of unfair practices in local tribunals, it is
wise to follow the same selection process for all candidates applying for a position.
This process should be determined prior to advertising a position, and could incorporate elements such as those
outlined below.
4.4.5f Background checking
Confidentiality of client information, an increase in fraud activities, and greater awareness of money-laundering
particularly in relation to funding terrorist activities, means that clients and governments are holding companies
responsible for the actions of their employees. It is highly advisable to do some form of background screening
on any potential candidates. In some cases this is a requirement of Professional Indemnity policies.
This traditionally incorporates two aspects:
Background checking: This includes gathering information on behavior in the past through seeking referee
reports, criminal records, checking for bankruptcy, checking claims made on résumés, etc. Extrapolations are
then made on the basis of past behavior as to how the candidate will behave in the future.
Psychometric testing: There are many forms of psychometric testing, and any test should be tailored to your
company’s specific need. Psychometric testing gives a picture of the person’s current personality and behavioral
characteristics, which has proven a far more accurate method for determining future behavior than background
checking alone.
While both these methods require an investment of time and money, the devastating effects of an unethical or
“white anting” employee cannot be underestimated. Should you inadvertently hire someone like this, it will cost
your firm much more in the long run.
A sample checklist of employment conditions is included in the sample office manual Appendix 1.4.
4.4.5g Interviewing
It is highly recommended that you have a fixed set of questions (within reason), to ask each applicant. Where
possible, have a face-to-face interview, where you can more readily assess body language, and get a more
accurate “feel” for the person. If you cannot interview in person, you may wish to utilize facilities such as webcam, rather than just a telephone interview.
Ideally, provide the candidate with a role description at the interview so they can understand the position they
are applying for and be more specific in their comments.
Where possible, the same employees should interview each applicant. Since each interviewer will have a
different approach or perspective, a consistent interviewing panel assists in ensuring consistency.

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Make notes during the interview that can be referred to later in the decision-making process. They can also be
produced as evidence should an applicant query your hiring decision.
4.4.6

Induction

Once you have selected the successful applicant, it is important for them to get to know your firm in more detail.
Induction (also known as orientation) may be regarded as the final phase of recruitment and selection. However,
it is also the first phase of learning and development. It is the formal process of familiarizing new employees
with the firm, their roles within it, and how the firm operates.
Some firms do not have a formal employee induction program. This is unfortunate, since there are a number of
very practical and cost-effective benefits to a well-run program, even for smaller firms. Benefits can include:
z The new employee forms a favorable impression of the organization contributing to their overall enthusiasm
for the job. In this way, it can be an important factor in reducing staff turnover and employee dissatisfaction.
z It lets you establish a good working relationship with the new employee through explaining their job in
relation to others in the organization. It also allows the person in charge of the induction to explain the firm’s
rules and regulations, thus reducing future misunderstandings.
z Transitions from school or university/college are made easier for employees with limited work experience.
z The employee adapts to the job and work environment more quickly, thus increasing their confidence. This
reduces disruption and increases productivity.
4.4.6a Induction program
The type of job and structure of the firm will determine the kind of induction program undertaken. In some
organizations, it may simply take the form of a conversation with a partner, with more detail provided by a
supervisor. In larger firms, it may involve conversations with the human resources manager, partners, and
supervisor and include several days (perhaps weeks) of training.
Make a list of topics you will need to cover. Put them into a suitable sequence and use this induction program
again for each new employee, with occasional minor updates. Generally you will need to cover the following
three main areas.
4.4.6b An introduction to the firm
Provide a tour of the firm and give information about:
z Its history, vision, mission, structure, services and clients;
z The lines of communication within the firm, both formal and informal;
z The industry;
z Working environment: policies, rules and work practices;
z Sources of advice and assistance;
z Policies on smoking, alcohol, misconduct, holidays and absences;
z Grievance procedures and other relevant policies;
z Where to find washrooms, lockers, parking, toilets, kitchen and fire escapes;
z Security systems such as fire drills, fire warden, location of extinguishers, and procedures in case of accident or
emergency; and
z Safety information and occupational health.

4.4.6c Defining the individual’s terms of employment
Provide information about:
z Relevant awards and enterprise agreements, systems of pay and relevant local regulations;
z Hours of work, breaks and finishing time;
z Time-keeping and recording procedures; and
z Performance appraisal processes and competency requirements.
4.4.6d Acquainting the employee in detail with the requirements of the job
z Provide them with role descriptions;
z Introduce workmates and other people they will need to deal with in their roles;
z Identify promotion opportunities;
z Outline training and development opportunities;
z Discuss details relevant to their jobs: what tools, equipment, and supplies will be used and how these can be
obtained, as well as safety requirements;
z Explain where jobs fits into the overall firm structure;
z Train them on the firm’s software;
z Define supervisors’ expectations of them; and
z Define peers’ and clients’ expectations of them.
Provide directly relevant information before proceeding with more general information. People want to know
first about things that affect them immediately, such as the location of the toilets, where to park and how their
pay is calculated.
After a few days of formal induction the program can become more flexible, with stages for such activities as
learning about each individual service of the firm, or the learning and executing of each type of work.
A sample office manual in Appendix 1.4 and the review of employment, workplace health and safety and equalopportunity, discrimination, and harassment policies should form part of a new employee-induction program.
4.5
4.5.1

Leading your team
Setting an example: “tone at the top”

Accountants are trained to be skilled in the management of information and systems. The moment you take on
a leadership role through, you also accept responsibility for affecting on the behavior of other people, and for
exerting a significant daily influence on their understanding of their jobs and awareness of their performance.
This requires developing integrity, personal responsibility, personal vision and self-understanding. It means
working with people who may have different backgrounds, work preferences or personal and professional
strengths. Above all, it entails a willingness to be accountable and to expect accountability in return.
Another useful way of thinking of the distinction between “management” and “leadership” is:
z Management is working with processes to accomplish goals; and
z Leadership is working with people to accomplish agreed results.

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It is important to remember that processes are managed while people are led. In their jobs, individuals to
some extent will need to balance both aspects, the particular “blend” depending on overall job demands and
circumstances. Team leaders should try to find the balance between the task, the person and the team.
Creating the right “tone at the top” is not only an important element of corporate governance, but also critical
to the effective operations of audit firms, according to a paper issued by the IFAC Forum of Firms. The “Tone at
the Top and Audit Quality” paper describes five areas in which management can address “tone at the top” issues:
strategy, communication, job descriptions, performance appraisals, and monitoring. Examples are also provided
to clarify further the types of policies and procedures being put in place, and the corresponding system of
rewards and sanctions. “Tone at the Top and Audit Quality” can be downloaded free-of-charge from the IFAC
website at http://web.ifac.org/publications.
Functional leadership model
The challenge for team leaders is to ensure that one element does not draw attention or too many resources
away from the other two areas so that all three interlock evenly (as shown in Figure 4.1 below). At times you
will need to allow for a short-term imbalance in order to rectify problems or focus resources on particular
issues. However, if one element is allowed to “overshadow” the others for too long, then imbalance, conflict and
dysfunction can occur.
Figure 4.1 The overlapping team, task and individual model

Team

Individual

Task /
Organizational
focus
Essentially this model states that:
z Teams work best when they know the task they are expected to perform (or the outcome to achieve) and that
there is a good likelihood of success;
z Team members have a basic need to work together as a team and be seen as achieving results; and
z Every individual in the team needs to feel that they are doing a good job and is a valued part of the team.
Effective leaders pay attention to all three areas.
4.5.2

What employees expect from leaders

People are remarkably consistent in reporting what they expect from their leaders.

Team members want leaders who are “honest”
This means:
z Leaders mean what they say;
z Employees know where they stand with the leader;
z Leaders do what they say and ensure their actions are consistent with their words;
z Leaders aren’t afraid to admit they don’t have all the answers; and
z Leaders engender trust.
Employees want leaders who are “competent”
This means:
z Leaders understand what is required to get the job done;
z Leaders have the people skills to engage the team effectively;
z Leaders communicate clearly so that employees know what is going on and whether they are doing a good job;
z Leaders understand the capabilities and interests of team members and who can harness this within the
team; and
z Leaders engender respect.
Employees want leaders who are “inspiring”
This means leaders:
z Are enthusiastic;
z Have a vision and can communicate it to others;
z Look forward as well as building on the past;
z Create an environment that helps to motivate employees;
z Focus people on long-term goals while celebrating achievement of short-term goals; and
z Engender commitment.
Employees want leaders who are “credible”
This means a leader who:
z Has a proven track record;
z Deals with people directly;
z Understands that credibility must be earned and can be lost very quickly; and
z Engenders confidence.
4.5.3

Building a high-performing team

It is helpful to understand how to develop a high-performing team culture.
What is a team? People generally share needs for affiliation and connection. An effective team usually evolves
from a group of employees who have come to know each other well, are focused on a shared objective over
time and know the capabilities of each member and each member’s contributions to the success of the whole.
This is commonly seen in, say, a sports team, a debating team or a well-functioning work team.

MODULE 4: PEOPLE POWER: DEVELOPING A PEOPLE STRATEGY

Members of a team share:
z Recognition and membership: being accepted and recognized as a valued member of a defined team;
z Identity: mutual awareness and respect, agreed symbols, fellow feeling;
z Open communication: free exchange of information, ideas, and views, and full interaction between members;
z A common goal: consciousness of a common cause, task, goal, ideal; a reason for being and staying together
to achieve something; and
z Mutual accountability and interdependence.
Teams are a powerful vehicle for enhancing productivity, creativity and empowerment. They offer many benefits
to a firm as it seeks to maintain and improve core business performance in a rapidly changing, unpredictable
strategic and operational environment, including:
z Better decision-making;
z Increased quality;
z Higher productivity;
z Improved performance;
z Stronger communication and coordination;
z Greater flexibility both for individuals and the firm;
z Better service;
z Diverse skills and ideas;
z Higher job satisfaction and morale;
z Reduced operating costs;
z Fostering of creativity and innovative work practices;
z Increased synergy (the effectiveness of the whole is greater than the sum of individual efforts);
z Leaders released from detailed work to think strategically; and
z Succession.
4.5.3a How to form an effective work team
z Agree on clear and achievable goals: A team works best when members clearly understand where they are
going and why.
z Set a clear plan: Once the team has agreed a clear purpose, help them determine what advice, training,
and other resources they may need. Develop an action plan that details who is going to do what, by what
deadline, and what resources or support are required.
z Define roles clearly: Effective teams empower their members and expect each to contribute. Everyone needs
to know what they are expected to do, and how performance will be measured. Be clear about which roles are
shared. Clear job roles are an important foundation for effective feedback on performance.
z Insist on clear communication: Team members depend on each other to achieve shared outcomes. All need to
keep the shared goal in mind, listen actively, ask questions and share relevant information in a timely manner.
z Encourage team behaviors: A supportive team climate encourages all to work closely together. The team
leader needs to establish a collaborative team environment and to step in when team members display
contrary behaviors.

z Establish effective decision-making: Decision-making should be open, transparent, and involve team
members where possible, particularly on changes that impact them. Team members need to understand the
reasons for decisions.
z Increase awareness of group processes/group dynamics: Team members need a solid understanding of
how the team works together and how individuals behave in teams. The team should conduct regular selfassessments to see what could be improved.
z Expect and encourage participation: Most people are goal-directed, social beings and teams provide
opportunities to be involved in decision-making discussions, especially where outcomes are likely to affect
them. All members should have the opportunity to participate, and be prepared to contribute their talents.
z Establish ground rules: Have the team agree on “ground rules” as early as possible. Have processes in place to
reinforce the ground rules and take appropriate action when they are not being followed.
z Insist on the best available information: Having good information makes it much easier to agree on, and
get, effective solutions. Sound data also help to minimize divergences of opinion and disagreements. Team
leaders should promote and model good information-gathering processes.
Adapted from: Flanagan and Finger 2003
4.5.3b Stages of team growth
Five stages in a team’s formative process have been identified. While these are most apparent in a new team, any
team can exhibit characteristics of the various stages whenever there is a significant change—for example, in
membership, leadership, or in team goals or functions.
A team will not necessarily progress through each stage in a linear fashion. Change at any stage can force the
team back to any of the earlier stages. The team leader needs to identify this process and respond appropriately
to “get the team back on track.”

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Table 4.1 Stages of group formation and team growth
Stages

Feelings

Behaviors

Forming

Excitement, anticipation, optimism
Initial, tentative attachment to the team

Attempts to define the task, acceptable group
behavior and decision-making processes

Suspicion, fear, anxiety

Abstract discussions of concepts and issues
Discussions of symptoms not relevant to the task
Complaints about organization and barriers to task

Storming

Resistance to the task and different approaches

Arguing among members

Sharp fluctuations in attitude

Defensiveness and competition
Questioning wisdom of appointed leader
Establishing unrealistic goals
Perceived “pecking order” emerges
Increased or unresolved tension and rivalry

Norming

Growing ability to criticize constructively

An attempt to achieve harmony

Acceptance of membership in the team

More friendliness, confiding, sharing

Relief: everything is going to work out!

Sense of team cohesion
Establishing and maintaining rules and boundaries
Emerging sense of direction and focus

Performing Clearer insights into personal and group
processes
Understanding of each other’s strengths and
weaknesses

Constructive self-change
Ability to prevent or work through group problems
Close attachment to the team
Progress, energy, achievement

Satisfaction with the team’s progress
Sense of shared achievement
Adjourning
/
(Mourning)

Sense of loss of common purpose

Output drops/low-level conflict

Concern about disengagement

Individuals withdraw

Concern about withdrawing from group
relationships

Separation “rituals”

Adapted from: Tuckman 1965 and Tuckman & Jensen 1977

Interdependency drops

4.5.3c Leadership styles
How can you arrange things so you get to the high performing stage more quickly? The answer lies in your
flexibility as a leader, as one style of operating does not suit all people or all situations.
Table 4.2 Leadership styles for effective teams
Leadership
Style

How It Builds Resonance

Impact on Climate

When Appropriate

Visionary

Moves people toward shared
dreams

Most strongly positive

When change requires a new vision,
or when a clear direction is needed

Coaching

Connects what a person wants
with the team’s goals

Highly positive

To help a person contribute more
effectively to the team

Affiliative

Creates harmony by connecting
people to each other

Positive

To heal rifts in a team, motivate
during stressful times, or strengthen
connections

Democratic

Values people’s input and gets
commitment through participation

Positive

To build buy-in or consensus, or
to get valuable input from team
members

Pacesetting

Sets challenging and exciting
goals

Frequently highly
To get high-quality results from a
negative because poorly motivated and competent team
executed

Commanding

Soothes fears by giving clear
direction in an emergency

Often highly negative
because misused

In a crisis, to kick-start a turnaround

Adapted from: Goleman, Boyatzis and McKee 2002

As you can see, different styles of leadership each have their uses.
For more information about personality types and tools, you may like to research the following, which are
discussed only briefly.
z Myers-Briggs Type Indicator (MBTI) (developed by Katharine Cook Briggs and Isabel Briggs Myers) measures
where someone gets energy (extraversion/introversion), how someone takes information in (sensing/
intuition), what decision-making process is used (thinking/feeling), and how the individual organizes
themselves in life (judging/perceiving).
z DISC (based on the work of William Moulton Marston) stands for Dominance—relating to control, power and
assertiveness; Influence—relating to social situations and communication; Steadiness—relating to patience,
persistence and thoughtfulness; and Conscientiousness—relating to structure and organization. From these,
measures of assertiveness, passivity, openness and guardedness may be drawn.
z The Herrmann Brain Dominance Instrument (HBDI) (developed by William Hermann) is a type of cognitive
style measure and model similar to the MBTI and DISC.
More recently, a concept of forms of intelligence other than intellectual has been gaining prominence. It is said
that factors such as emotional capacity may also affect an individual’s ability to perform.
z The theory of multiple intelligences (developed by Howard Gardner) includes interpersonal intelligence (the
capacity to understand the intentions, motivations and desires of other people) and intrapersonal intelligence
(the capacity to understand oneself, to appreciate one’s feelings, fears and motivations). In Gardner’s view,
traditional types of intelligence, such as IQ, fail to fully explain cognitive ability.

MODULE 4: PEOPLE POWER: DEVELOPING A PEOPLE STRATEGY

z Emotional intelligence (EI), often measured as an Emotional Intelligence Quotient (EQ), measures someone’s
ability to read and manage their own emotions and those of others and groups. Daniel Goleman has
outlined four emotional intelligences: self-awareness, self-management, social awareness and relationship
management. These are said to be learned rather than innate intelligences, and therefore a leader may
develop and heighten these traits.
While some take to leadership naturally, many do not, so it is reassuring to think that many of its components
may be learned over time. It is well worth putting the required effort into this—as leaders will be rewarded by a
proportional increase in productivity, and thus profitability.
4.5.4

Communication

Good communication within a firm is vital to avoid friction and enhance productivity. It ensures that information
relating to a particular client or skill can be shared and that people are aware of any difficulties experienced
elsewhere in the organization. By communicating well with the workforce, a partner can outline the firm’s
expectations clearly, discuss them, and have them accepted as reasonable by the firm’s employees, this
communication will avoid later conflict.
Communication promotes professional standards within the firm. All employees need to know where to find
certain items, how to perform certain tasks, how to fill any gaps in their personal knowledge, and who to ask for
help when needed. This communication might be via email or memo, through having a set of common work
papers to standardize the way a task is completed, a procedures manual, or it may be achieved through staff
meetings or training activities.
4.5.4a Interpersonal communication model
Effective communication should result in shared understanding.
As shown in the diagram below (Figure 4.2), how the message is understood will depend on how clear the
communication process is between the sender and the receiver.
Whatever your reason for communicating, your receiver needs to:
z See some benefit in paying attention to your message;
z Be clear on what you intended to convey; and
z Have the opportunity to respond appropriately (to note your message, agree with it, get more information, do
something or simply agree to disagree).
Figure 4.2 Effective communication
Message

WHOM?
Why?
How receptive are they?

Is the environment right?
What?

Receiver

Sender

What is their preferred
communication style?

Is the timing right?
How?

Receiver
What are my perceptions
and expectations?

Is it the right person?
Am I using the right manner?

Sender
What is their situation?
What is their background?

Field of experience

Feedback

Field of experience

Effective communication occurs when the message is precise, and when the message passes through the
communication channel between sender and receiver without any form of interference. The sender has two
important roles: first, to convey the initial message and second, to use feedback to ensure that the receiver has
received and interpreted the message correctly. Feedback is achieved when the sender asks some question of
the receiver to test the level of understanding. If the message has not been received correctly or completely, the
sender may then restate and explain the message.
This process is obviously easier in meetings and telephone conversations than if the “channel” is a letter, memo,
or web page. These situations do not generate immediate feedback, so you don’t know if the message has been
correctly received. As a general rule, the best outcome in any communication is to use multiple channels, such
as a verbal description backed up by writing.
4.5.4b Seven-step strategy for practical communication
1. Preparing the message
z What is your key message?
z Who is it intended for?
z What outcome are you looking for?
z How can you best get your message across?
z When is the best time?
z Where is the best place?
z Are the main points clear?
z Is there any ambiguity in your message?
z Are the facts correct?
z Is the necessary action clear?
z Is all the necessary information included?
2. Preparing yourself
z Consider your own attitude and confidence levels.
z Draw on your assertiveness skills.
z Be aware of verbal/non-verbal congruence.
z Seek to create the environment that will bring out the best in you as you communicate.
3. Gaining attention
z Be direct and ask for attention.
z Use eye contact with confidence.
z Engage your listener’s interest with a dramatic statement, an anecdote, or a straightforward question.
z Use vivid visual images or vocal intensity.
z Use emphatic body gestures or positioning.
z “Dress to impress” (personal appearance).

MODULE 4: PEOPLE POWER: DEVELOPING A PEOPLE STRATEGY

4. Preparing the receiver
z Make it clear what it is you wish to communicate or discuss.
z Point out the importance of your communication and/or the benefits to the listener.
z Check that they are willing for you to proceed.
5. Sending the message
z Use simple language and emphasize the key points.
z Speak clearly and audibly, varying your voice pitch, tone and volume for emphasis or to convey emotion and
meaning.
z Be ready to respond to signs of boredom or disinterest.
z Pause for questions or clarification.
z Summarize to help understanding.
z Talk “to” people, not “at” them.
z Change your approach if need be.
6. Receiving and clarifying
z Actively listen and show interest in the speaker.
z Do not switch off just because you disagree.
z Ask for clarification, restatement, or more explanation if you are not sure you understand.
z Try paraphrasing to check your understanding.
z Do not miss main points by getting blinded by detail.
z Concentrate on what is being said, not on your own opinions, biases or problems.
z Give a fair hearing to the other’s point of view before responding.
7. Closing
z Agree on a course of action or ask for a reaction.
z Suggest a way or ways forward.
z Summarize what has been achieved so far.
z Arrange another meeting.
z Indicate that you have finished.
z Thank the person for his or her time and attention.
4.5.5

Delegation: The key to firm leverage

Often in an accounting firm, the most senior people are the busiest in the organization. These are the people
under the most pressure, who often work the longest hours and who sometimes simply do not have the time to
do all the things they would like to.
Telltale signs of difficulties include employees unable to access a partner to get a query answered, a backlog of
jobs awaiting review, invoices raised but not sent, and client questions awaiting resolution. Partners are too busy
doing client work engage with the firm management.

Delegation is crucial to freeing up partner time in order to allow them to manage client relationships and to
make the most efficient use of their time and talents. The trend is for each partner to have more employees who
achieve higher levels of profitability, but clearly the more people a partner supervises the less time they can
spend directly doing work for clients. Delegation is the only way the work can be completed effectively.
4.5.5a What is delegation?
Delegation involves assigning tasks, duties and projects to your employees, along with the responsibility, power
and authority necessary to accomplish those tasks and achieve the expected results.
Delegation allows your team to use its abilities to the fullest capacity. In addition, it enables you to position
the right work at the most efficient responsibility level, helping both you and your team members to meet
benchmark turnaround times. In the process, you expand skills and improve the contribution to the firm. Finally,
it allows you to focus on the big picture and on your most important tasks.
4.5.5b Why senior employees fail to delegate
There are a number of reasons some partners fail to delegate:
z Delegation means giving up some control.
z They do not want to risk their relationships with the clients.
z Quality control might be at risk if they do not do the work personally.
z They might like what they are doing and get satisfaction from doing it.
z It is quicker and easier to do it themselves.
z They can do a better job than any of their employees.
While well-intentioned, this thinking prevents a partner from achieving the best long-term results for the firm.
4.5.5c Keys to successful delegation
1. Determine the tasks or area of responsibility to be delegated
Delegate anything that:
z Is time consuming;
z Is low priority;
z Is recurring or mechanical;
z Someone else could do either better than you or at a lower cost; and
z Will train and develop the skills of your employees.
and then:
z Decide which employee should complete the task;
z Give clear job instructions;
z Set a deadline for the task;
z Set milestones to report back on;
z Set a deadline for completion, and
z Monitor progress of junior staff.

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Remember, however, that there are certain things only you can do, decisions that only you can make and critical
areas that only you can handle. Approach delegation on a “cascading” basis. Areas of lower risk, requiring lesser
levels of specialization, and where fee pressure is most likely to occur are the first places to consider for delegation.
Sole practitioners and partners should seek to drive the work down through the firm and retain for themselves the
work that demands their level of expertise. The more you delegate and train, the more your people will be able to
take on. The delegation cycle should go from each level to the next. Ideally, the partners’ time can eventually focus
almost exclusively on client management, client cultivation, and management of the firm and team.
2. Decide which of your employees should complete the tasks
You know the capabilities of each member of your team. You will find it easier to delegate work to senior
members of your team, whose work you have confidence in. However, when you are completing the workflow
scheduling, decide which member of your team could do the job most effectively. If no employee has the
necessary skills, train one.
3. Give clear instructions
Clearly communicate the objective, timeframe and outcome of the task, including how much initiative is
expected and autonomy is allowed. Have systems and procedures in place to support the completion of a task in
a consistent manner.
4. Ensure that you provide the necessary authority and tools
Ensure that your employees have the necessary authority and tools to do what is asked of them. When they
complete tasks successfully, acknowledge that contribution to the success of the firm.
5. Communicate trust and confidence in people’s ability
Stress the importance of the task, and express confidence in the person to whom you have delegated a task.
6. Set milestones at key points
Despite delegating tasks and responsibilities, you still retain the ultimate accountability for the actions of your
team. Consequently, you must allow time to check completed work, to correct any errors that have been made,
and to answer any questions. Your employees will not have the same level of skill as you and may not see things
from your viewpoint, so it is vital that you have a means of catching up with those you delegate to. This will
protect the integrity of your firm’s work.
4.6

Managing and retaining employees

Accounting firms often underestimate the cost of staff turnover. The obvious cost of replacement, such as
recruitment and training, is just the start of the cost equation. There is also possible disruption to productivity
from a dissatisfied employee prior to their departure, which also applies to the remaining employees who
need to pick up the work until a replacement is found. Increased pressure on remaining employees can
lead to reduced capacity for new business growth. While a certain level of staff turnover is inevitable, a firm
manager wanting to maximize the firm’s profitability will do their best to minimize staff turnover and retain
key employees.
A number of factors influence staff retention rates; the most important of these are outlined below.
4.6.1

Motivation

Motivation is an inner drive or need that influences individual behavior, attitudes and responses. People may not
be conscious of all their needs, yet these needs may still affect the workplace.
While people are motivated in different ways, there are underlying themes and commonalities that apply to everybody.

Maslow’s “hierarchy of human needs”
Abraham Maslow identified a hierarchy of human needs. He argued that when people’s needs were satisfied
at one level, then they were no longer motivated by those needs. For instance, people are no longer driven by
hunger once they are fed. On the other hand, when people are starving, all other needs are irrelevant and will
not motivate them. His hierarchy is as follows:
Survival (physiological): These are the basic needs to sustain life: food, drink, shelter, bodily needs and sex drive.
Security (safety): This reflects the need to be free from danger. In work terms, this can mean freedom from the
fear of losing one’s job or home. Most people need to feel that the world around them is orderly. Having a job, or
at least a source of income, provides for this level of motivation.
Social: People have an underlying need to feel accepted, and to give and receive affection to some degree. This
is usually expressed through belonging to a group and having friends. People who feel excluded or without
friends in a workplace are usually lonely and unhappy. This reflects a universal need for affiliation, and being
valued by others.
Self-esteem: Once people have fulfilled their social needs, they feel the need to be respected. This builds a sense
of self-worth and self-confidence. People in all sorts of jobs like to feel that they do their jobs well and contribute
to their organizations, and that other people respect them for it. This need relates to the need for self-respect,
status, recognition and ego fulfillment.
Self-actualization: Maslow argued that this was the highest human need: the desire to achieve one’s highest
potential, make a difference, accomplish one’s best possible performance. Personal and professional
development, taking on a very challenging job or winning a promotion might be manifestations of this need in
the workplace.
Self-transcendence: This is the level at which the person attains and surpasses self-actualization and works
beyond notions of “self” in favor of the collective good of others. There have been many examples of people who
have lived selfless and generous lives.
Some may have stronger social needs than others and not everyone has a strong desire to accomplish great
things. In any case, partners and managers have to be aware that everyone has needs that those needs can vary
enormously according to personal circumstances.
Signs of poor motivation/morale
Indicators of poor motivation/morale in a team include:
z High absenteeism and employee turnover;
z Values conflicts/poor relationships; and
z Low job satisfaction, productivity and achievement.
Be aware of these signs and be prepared to address them directly with individual staff members or with the firm
as a whole. Remember: either too much or too little work can be a source of tension, stress, dissatisfaction and
low morale. Morale is influenced strongly by attitudes and behaviors of co-workers, supervisors/managers and
team members, and assumptions in the workplace culture.
4.6.2

Keys to a productive, cohesive work environment

z The right mix of competencies and maturity (individual and whole team);
z A motivating environment;
z A good match between people and jobs, and a good balance within the team;

MODULE 4: PEOPLE POWER: DEVELOPING A PEOPLE STRATEGY

z Appropriate reward and recognition processes;
z Support systems and networks;
z Well-integrated recruitment, training, development, orientation and assessment systems;
z Treating people as individuals with unique strengths and preferences; and
z Recognition that personal style differences can exist between peers, and between supervisors/managers and
their own managers.
While the culture of a firm and the motivation of its employees have a direct correlation to performance levels,
there are measures you can take to increase productivity.
4.6.3

Performance management

Performance management is the use of interrelated strategies and activities to monitor and improve the
performance of individuals, teams and the firm as a whole. It involves:
z Clarifying performance objectives (this could include tasks, outcomes, behaviors) and linking these with the
firm’s business plans;
z Periodic performance appraisal of individuals or teams against the achievement of these objectives;
z Feedback from this appraisal;
z Recognition or reward for performance, including performance pay, salary progression guided by
performance or non-pay reward systems;
z Team and individual development to build capabilities; and
z Coaching, or other action to deal with poor performance.
Performance management should be an ongoing activity, where timely feedback can be given to keep performance
on track. Ongoing monitoring and dialogue feeds into a formal system of documenting the performance of an
individual called performance appraisal. Often the outcome of the formal performance appraisal is linked to
remuneration and recognition, so it requires a higher degree of robustness in the processes used to reach the
outcomes, whereas ongoing performance management tends to be more informal and situational.
To be a good performance manager, ideally you will:
z Communicate a clear “context” for the individual’s job and work;
z Agree clear objectives and expectations with the team and with each individual;
z Show clear relationships between the work of the individual, the team and the firm;Provide guidance and
support as needed, without being obtrusive;
z Give ongoing, timely and specific feedback;
z Be open to receiving and learning from constructive feedback;See performance management as a positive role;
z Focus on issues relating to performance, behavior and development, not personality clashes;
z Allow for differing stages of employees’ “maturity” as well as changing circumstances; and
z Encourage continuous learning, using people’s strengths and developing potential.
But even if you do the above, how do you know if an employee is performing adequately or not?

4.6.4

Productivity versus performance

There is a difference between “productivity” and “performance.” Productivity can easily be measured by
chargeable hours, but performance also needs to encompass factors such as the quality of the work, the ability
to recover the time spent and the attitude with which the work was done. For example, you may have two
employees who are both billing the same hours, and yet one employee requires little supervision and gets their
work done correctly the first time, whereas the other employee may make many errors and require much senior
employee time quality controlling the work, thus increasing the cost to the firm. Similarly, an employee who has
a morose or resentful outlook can have a negative impact on those working around them.
4.6.5

Calculating productivity

4.6.5a Identifying revenue capacity
z Step 1: Identify the standard hours worked by your people.
z Step 2: Set charge rates.
z Step 3: Calculate capacity/revenue budget.
Identify the standard hours worked by the people in your firm and set efficiency levels for them
Standard hours need to be calculated after an allowance for annual leave, sick leave and statutory holidays.
Even though you might work longer hours than an average working week, it is important to leave a level of
conservatism in your estimate.
Table 4.3 Standard Hours Calculator (example)
Criteria

Weeks

Weeks in year

Annual Leave

(4)

Public Holidays

(2)

Sick leave

(1)

Training (Continuing Professional Development)

(1)

Available weeks

Hours worked per week

37.5

Total Standard Hours

1,650

This approach determines the number of hours that are available for the firm, referred to as Standard Hours.
The starting point is the total number of weeks available in the year. Deduct from this the time that is not
available. For instance, annual leave, public holidays, sick leave and staff training or CPD. This is the number of
weeks available.
Multiply this by the hours worked each week.
This is the total standard hours per year.
The above table can be used to calculate the standard hours for your firm. Use it as a template and adjust for
local variations. For instance, annual leave and public holidays are likely to differ from to the example above, and
differ between countries, as will the standard hours worked per week.
Efficiency levels relate to the level of chargeable work within the available timeframe. Since employees generally
have some non-chargeable functions such as completing timesheets, professional development and team
meetings, Table 4.4 gives a guide to calculating these levels.

MODULE 4: PEOPLE POWER: DEVELOPING A PEOPLE STRATEGY

Table 4.4 Efficiency levels
Position

Efficiency Level

Partner

50 — 70%

Professional employees

70 — 80%

Support employees

Depends on duties

When setting efficiency targets it is important to consider that efficiency levels will depend upon the business
model the firm uses and the type of work undertaken. For example, compliance work tends to demand higher
efficiency rates, whereas consulting work tends to have lower efficiency, but commands higher charge-out rates.
4.6.5b Set charge rates
Charge rates for each position will differ. Office location, market forces, and the salary and level of experience
of each person influence rates. There is a commercial trade-off. You want these rates to be competitive and
realistic so that you do not price yourself out of work, or spend too much time handling client complaints about
excessive fees. But they also drive your profitability, so they should not be set too low.
Since charge rates need to reflect the seniority and experience of personnel, one approach is to set your rate for
the partner(s), then cascade your rates down through the organization (see Table 4.5 ).
Table 4.5 Charge rates
Position

Charge Rate

Partner

100%

Manager

75 — 80%

Senior

55 — 60%

Graduate

40 — 50%

Support employees

50% or less depending on role

Another option is a detailed calculation of a multiplier that is applied to the wage cost of each person. To come
up with a figure for each person, the multiplier takes into account the overheads of your firm, the likely working
and chargeable hours, and your desired profit level.
4.6.5c Calculate capacity/revenue budget
From the information above, revenue capacity can be established. Table 4.6 shows how this is done for an
individual.
Table 4.6 Individual revenue capacity
Staff member

Standard hours

Efficiency level per
hour

John Smith

1650

75%

Charge rate

Revenue budget

$160

$198 000

Joe Black
Mary Brown

This process not only creates a budget for the firm, also sets some productivity standards against which
employees can be evaluated. Once you have established your annual budgets, break them down to a monthly
basis and then measure actual time performance against the budget. If budgets are not being met, you need to
start looking for the reasons.

4.6.5d Monitoring productivity
Time is a key resource for any accounting firm, so it is important that a firm manager monitor the use of time and
employees’ productivity.
7. Establish and communicate performance standards
Productivity cannot be monitored properly until performance standards are established. Standards are set at
two levels. The first is the chargeable time percentage that employees are expected to achieve; the second is the
time budgets for completion of individual pieces of work for clients.
These standards must be realistic and achievable. If they are too restrictive, employees may compromise on the
quality of work simply in order to achieve the target. Alternatively, if the standards are too flexible, time may be
wasted on unnecessary functions.
Where employees are mainly providing administrative and support functions, other standards may need to be
established.
The firm’s standards must be communicated to employees. What they are not aware of, they cannot strive to achieve.
8. Have employees maintain a continual record of time usage and fee billing
Most firms maintain timesheets in order to bill clients for work undertaken; however, these are also used
for monitoring employees’ productivity. Timesheets should indicate the client’s name or code, the type of
work being completed, and the time spent. This allows a partner or manager to monitor both the number of
productive hours worked and the length of time taken on each task.
In order that they accurately reflect the time spent on each task, timesheets must be updated regularly through
the day. It is useful for employees to get into this habit so they can accurately record the details of what they
were working on.
9. Check time summary and fee budget against agreed standards each month
Most practice management packages provide a report comparing productive hours against standards for each
employee. This will indicate whether a particular employee has met budget for the month in question.
10. Identify discrepancies and discuss these with the employee
Where significant variances appear, promptly discuss this with your employee to understand why the budgets
are not being met. Perhaps the budgets are not realistic or achievable. Perhaps there are other impediments
to meeting the agreed standards, such as poorly functioning equipment. If the discrepancies are considered
achievable and there are no other impediments, a training plan can be put in place to assist the employee in
meeting the goals in the future.
11. Take necessary action to improve productivity
Talk alone will not fix a poor productivity situation, action is needed. This may be as simple as reducing reworks,
instituting new standard systems such as working papers and procedures, repairing or replacing equipment that
is hampering employees’ efforts, or providing training.
4.6.6

Assessing performance

Performance can be identified through:
z Direct observation (productivity, attitudes and behavior);
z Assessment of work outputs (quality, quantity, process, product and turnaround time);
z Degree of adherence to agreed performance standards;

MODULE 4: PEOPLE POWER: DEVELOPING A PEOPLE STRATEGY

z Information from work monitoring systems, audits, reviews;
z Formal or informal discussions/feedback; and
z A report or complaint by another employee, client or other person.
Figure 4.3 Assessing performance

You observe or have evidence
of effective or ineffective
performance

Provide timely constructive
feedback to correct behavior

Does performance
improve?

YES

Is performance effective?

YES

Continue to provide ongoing
feedback

Consider other action as
appropriate. This might include:
counselling, underperformance
action, code of conduct action, or
an assessment of fitness for duty

Summarize and consolidate
ongoing feedback at formal
performance appraisal meeting.

Provide timely constructive
feedback to support behavior

4.6.6a Bias and objectivity
It is important to be fair when doing performance appraisals. But in order to ensure fairness, it is essential to be
aware of some of the most common forms of bias that may influence your assessment.
Table 4.7 Common assessment biases
First Impressions

First impressions not balanced
by “factoring in” subsequent
evidence

The “Halo” or “Horns” Allowing good or bad performance
Effect
in one or two areas of work to
color assessment in other areas,
resulting in overall assessment as
high (halo) or low (horns)

Contrast Effects

Assessing people against others
rather than strictly against job
requirements

Central Tendency

Similarity / Clone
Factor

Tendency to assess others more Assumptions /
highly if they are similar to oneself Hearsay (the person
is “lazy,” “dishonest”
etc)

“Filling in the gaps” without direct
evidence, or by believing what
others tell you

Recency /
‘Prominence’ bias

Tendency to assess people
based mainly on recent behavior

Over / UnderAttribution (Leniency
or Severity Bias)

Assessing higher or lower than
is actually warranted: the most
common is “leniency”

Personal / Personality Focusing on personality factors
Bias
rather than behaviors, which can
be changed

Opportunity Bias

Ignoring or overlooking factors
beyond the employee’s control
that contribute to high or low
performance; credit or blame
can be wrongly assigned to the
employee

Stereotypes /
Preconceptions

Over-focusing on one or
two attributes, leading to
unwarranted generalizations

False Attribution
Errors

Tendency to attribute success or
failure solely to individual effort
and ability rather than examining
the role that other factors (such
as systemic factors) may have
played

Direct / Indirect
Discrimination

Assuming everyone should have
the same work “style,” instead of
tying performance to measurable
indicators of work achievement

MODULE 4: PEOPLE POWER: DEVELOPING A PEOPLE STRATEGY

Habit of assessing most people
as “average”: neither very high
nor very low

Figure 4.4 Assessing performance: Seven-factor model
Factor 1: Aptitude
• Inherent ability to perform, or learn to
perform task/s.
• Difficult to determine.

Factor 2: Skill Level

Factor 7: Outside / Environmental
Influences

• Skills can be learned (up to the limits
imposed by natural aptitude)

• May be the work environment,
relationships with managers or
co-workers.

Factor 6: Choice to Persist
• This may result in projects started
but never completed

• “Could the person do the job if their
life depended on it?”

7 Factor
Model

Factor 3: Understanding of Task
• If someone does not know the nature
of the task or what is expected, no
amount of skill or motivation will
suffice (e.g. delegating).

• This can indicate boredom, fear of
failure, or may relate to a lack of
skills or confidence.

Factor 5: Choice of Degree
of Effort to Expend
• Varying amount of effort expended
• May be limited by low motivation

Factor 4: Choice to Expend Effort
• If the person has the aptitude, skills and understanding, it may
indicate other causes (e.g. personal, work environment)
• May be accompanied by other indicators (absenteeism, lack of
participation in meetings etc)

If a staff member is not performing according to expectations, there are several steps to follow. These are
outlined below.
4.6.6b Handling under-performance
The first step is to understand possible cause of under performance. Acknowledge that performance can be less
than expected due to:
z Changes in objectives, duties or work priorities;
z Unclear or unrealistic job roles, responsibilities or performance expectations;
z Lack of ongoing feedback or feedback that has not properly addressed poor performance;
z Lack of skills or knowledge that has not been adequately addressed;
z Variable or poor motivation: related to organizational or personal issues;
z Structural or other organizational changes (e.g new IT systems, changes in processes or policy);
z Deliberate misconduct;
z Poor decision-making processes leading to unintended consequences;
z Personal issues outside of work, such as family, health, finances, etc.; and
z A lack of resources (such as financial or systems) or support (such as team, peer or managerial support).
The key is to determine which of these reasons may have caused the employee’s underperformance, and to put
appropriate measures in place to rectify. This may entail:

z Providing more frequent, informal constructive feedback on performance;
z Addressing learning and development needs;
z Providing support, information and coaching;
z Addressing system or physical resource issues;
z Adjusting the performance agreement if set too high originally;
z Changing job responsibilities to better suit the person’s interests, skills and aspirations; or
z Adopting a formal counseling process, which ultimately will lead to termination of employment if
performance does not improve by a specified time.
It is most important to have open communication with the employee. Keep in mind the following:
z Never procrastinate. Address the issue when it arises, or employees will question whether you are serious
about rectifying the problem.
z When talking to an employee about their poor performance, indicate why it is a problem, and then quickly
move on to prevent it from recurring. This moves the focus from blame to improvement.
z Whenever possible, elicit the employee’s suggestions about how to prevent a recurrence. Encourage the
person to take responsibility and offer support to implement a solution.
z Focus comments on performance, not personality. Restrict comments to instances of inappropriate
performance and avoid implying that the person is lazy, uncaring or incompetent.
z Remember that to improve performance it is often necessary to eliminate fear. Inducing fear is more likely to
reduce performance, loyalty and effort.
z If you never recognize effective performance, and do not praise those who perform well, you will not be
effective in dealing with problem performance!
Remember that even the best employees will find a discussion about inappropriate performance unpleasant.
Some will take it personally, so be prepared for some defensiveness. Do not rise to the bait. Stay in control of
yourself and the situation.
4.6.6c Performance appraisal
This is the term often given to the formalized process of assessing performance. There are many ways to
implement a performance-appraisal system, and they will depend on variables such as:
z The size of the firm;
z The ratio of employees to partners—that is, the time efficiency needed;
z How conversant partners and senior managers are with performance appraisal processes;
z The degree of technological sophistication in the organization; and
z How much money the partners are willing to invest in establishing the system.
Regardless of the methods used, some general principles will be consistent.
At its simplest, performance appraisal should involve an assessment by the supervisor and the individual
of the individual’s performance against the performance indicators identified in their role description
(see Appendices 4.2–4.4 ). Any discrepancies in perceived performance are then discussed until a common
understanding is reached. This is recorded either electronically or on paper.

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Increasing levels of sophistication invariably come from data gathering. For example, should you wish to have other
perceptions of performance other than the supervisor’s and the individual’s you may wish to consider a process called
360-degree feedback. This is where the person’s staff, peers and supervisor all complete questionnaires providing
feedback on the individual, which then provides the basis for the performance discussion.
Regardless of the complexity of the system you decide on, at minimum you will need to establish a performance
agreement with each employee. See Appendix 4.6.
4.6.6d A performance agreement
Key result areas (KRAs)
KRAs constitute the focal point of an agreement. They provide the main framework for formal feedback.
z They outline what an employee is expected to do, including activities, tasks, or special projects.
z They are written to reflect the employee’s contribution in achieving the corporate goals.
z They acknowledge contribution to a team environment, or making the workplace a positive environment to
work in, not just billings generated for the firm.
Performance measures
These measures describe, in broad terms, how the job should be done.
z They outline how well the employee is expected to perform the major activities in each KRA.
z They are the basis for evaluating how often these behaviors are exhibited.
Skills and knowledge (competencies)
Competencies are the combination of skills and knowledge that the employee needs in order to meet
performance measures. Competencies are actually a formally agreed-on framework that groups skills and
knowledge into “bundles” so that training can be designed in a consistent way. Using this consistent framework,
the “competence” of one person can be measured against that of another person, because predetermined
standards and evidence are documented, with consistent evaluation systems in place. External industry-specific
bodies design these competencies. It is your choice to implement competencies in your firm, or simply to list the
knowledge, skills, and attributes someone requires in order to perform satisfactorily.
Development required
z Outlines training and development to help employees meet their KRAs to the required standard;
z May address core or job-specific competencies, certification requirements (such as certified professional
development programs,) or general personal development;
z Identifies resources and support needed; and
z Includes formal training, on-the-job training, or project work.
Consider development options that also address further professional development, career planning, or change
of assignment.
If you have used a role description suggested in the Appendices, designing a performance agreement will be
straightforward, as you have already identified the primary responsibilities, performance measures, and the
competencies (that is, skills and knowledge) required for the job.
Appendix 4.4 shows you an example of what this might look like for a junior accountant. The “development
required” column is used to take notes on any development needs that arise from the discussion. These can then

be implemented and monitored in the separate personal development plan (Appendix 4.5). Developmental
options will be further explored in Section 4.7: Training and development.
Much is at stake for the employee from the performance appraisal process and the resultant discussion, so it is
important that you approach it consistently and professionally. An outline of a best-practice format is provided below.
4.6.6e The performance review discussion: seven-step structure
1. Establish goals of the meeting
z Explain what to expect and how much time has been scheduled.
z Convey your expectation that this will be an open and honest discussion.
z Outline your plan for the session and find out if the employee wishes to include anything for discussion.
2. Encourage dialogue
z Invite the employee to share their views first.
z Ask open questions to elicit information: “What do you think you have done particularly well?”“What could
you have done better?”“Can you explain any obstacles that are preventing you doing your work?”“One of your
objectives was to … How do you feel that went?”
3. Discuss significant achievements
Use the “Four-step reinforcement process”:
z Be specific about outstanding behavior (to reinforce and encourage repetition): “The training I asked you to
implement for new members of the team was outstanding! It gave them a clear picture of what we do and why.”
z Express your feelings about the achievement (detail specific improvements): “I was impressed by how well
you demonstrated fundamental training principles during the session. Your skills have really improved over
the past few months!”
z Specify the behavior or activity you want to continue (reiterate what is working well): “Your strategy of
assessing your team’s training needs before conducting the training helped you achieve these great results.
Keep doing that in future, as it gives you a great framework to focus on key information.”
z State your confidence in the employee (convey further opportunities) “I knew you would do well with this
project. I will be suggesting at the next management meeting that other teams consider having you deliver
this training to them.”
4. Review primary responsibilities and performance measures
z Honestly explore with the employee what has not been achieved against KRAs, major activities, and
performance measures, as well as what has!
z Remember this is a two-way discussion, and an opportunity to explore reasons why performance may not be
reaching expected standards.
5. Discuss unsatisfactory performance
Phase 1: Review expectations
z Focus on performance issues in terms of actions and results, not personality.
z Use directive questioning to encourage honest exploration of the issues: “Your reports contain all the
necessary information but often they are not forwarded to me on schedule. Why is this happening?”

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Phase 2: Understand their response
z Listen carefully, paraphrase responses and encourage specific examples.
z Avoid blame and fault-seeking: emphasize that you want to look at improvement for the future.
z Use questions to encourage reflection, Employee: “Our output would be higher if we changed the procedures
we use.” [Listen and paraphrase what you hear] Manager: “You’re sure that output can be improved?”
Phase 3: Solve it together
z Engage in a problem-solving dialogue: offer support, but make it clear that it is ultimately the employee’s
responsibility: “What do you suggest as a fair solution?” “What options do you see here?” “How could you have
done that better?” “Some ways you could be even more effective are” “A strategy I’ve seen used effectively
would be for you to”
Phase 4: Keep it real
z Be specific about what you expect and on what deadline: “Please keep me up to date with how you are
progressing every week by 5 pm each Friday/end of shift during the next review period.”
6. Discuss future major activities and development goals
z Set realistic performance goals supported by an achievable development plan.
z Encourage the employee to set at least some of their goals: “So what would you be willing to commit to doing?”
[Answer] “By what date?”“An area I’d like to see you tackle is the difficulty we’ve had with … Let’s set an objective
and a timeframe for solving it.”
Document the agreement and the plan for achieving improvements.
7. End on an upbeat note
z Summarize the discussion and be positive about the future: “Let’s restate what we agreed upon” “I’m feeling
good about what we discussed”
Note: Even if your employee has agreed to the KRAs and major activities, it is important to have them say so one last
time. If you feel you need to check their level of comfort with what was agreed, ask, “Do you foresee any problems
achieving what we have discussed?” Discuss questions and seek to resolve any concerns before the meeting ends and
the employee to signs the performance agreement.
4.7

Training and development

Training and development are pivotal to your firm in many ways:
z It is how your employees gain the skills and knowledge necessary to carry out their duties.
z It provides the interest and mental stimulation often required to keep employees engaged and loyal to the firm.
z It increases the capacity of your firm to service its clients, often with flow-on financial benefits.
z It is a risk mitigation strategy.
4.7.1

Identifying development needs

Identifying development needs can occur at any time; however, development needs should be reviewed and
formalized during the performance appraisal discussion with your employee. Base the discussion on identified
gaps in competency compared with performance measures or certified professional development programs.
A need for new or upgraded skills can also arise when changes occur to legislation, policy, procedures,
technology and organizational structure.

Document the development requirements in a personal development plan. This plan should be a
straightforward description of the steps to be taken in development activities. It should include:
z What development activities are required;
z The names of those who will assist the employee; and
z Target dates for completion of the plan’s objectives.
See the personal development plan in Appendix 4.5.
Opportunities for development
New skills and knowledge can be learned through:
z On-the-job training;
z Internal or external courses;
z Computer-based (online) learning;
z Action learning using projects;
z Personal coaching and mentoring, either by someone within the firm or an external coach;
z Vocational or tertiary extension development, such as masters or postgraduate study;
z Working towards and attaining formal assessment under industry professional certification programs;
z Understudying someone on the job;
z Attending conferences, trade exhibitions and seminars;
z Job enrichment (more challenging projects);
z Job enlargement (widening range of learning opportunities on the job);
z Job rotation (moving to another part of the firm for a while);
z Videos, books and journal articles;
z Reading documents such as manuals and legislation;
z Work-based projects such as the development of a new firm-management approach in a particular discipline;
z Delegation for development (as a real part of the job, not just a task);
z Delivering presentations to clients or other employees; and
z Representing the firm at conferences or on industry committees.
These methods can be used individually or in combination for a more effective outcome—for example,
postgraduate studies with work provided in that field of study in the workplace, and coaching from a partner.
4.7.2 Development is an investment
At times you will need to move away from the general principle of the most cost-effective way of servicing
your clients in the interest of training and developing your employees. This may mean you work on a particular
component of a client job with an inexperienced person, to start transferring your knowledge. In this situation,
the time-recorded cost will be higher because you will spend time explaining and training, then assisting or
monitoring the employee, then reviewing the end result. At the same time, your trainee will probably spend
more time than an experienced employee doing the first few examples of this work.
This is where “write-down” comes into an accountant’s vocabulary. This is the reduction of a bill to allow for
training, rework, or other factors outside the client’s control. You will need to treat this write-down as an
investment in the future of the firm, but remain balanced in your approach because a dollar of write-down
represents a dollar of profit being given away.

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Best practice standard
If you want a learning ethos to become part of your firm’s culture, training and development will be ongoing.
There is always a new piece of work that someone has not yet done; there is always something that one person
can teach another, for the benefit of your clients. If this is part of your culture, the exchange of information can
happen freely and it will not always flow from partners to employees.
Record the value of write-downs and, if possible, divide the dollar value into the different major controllable
elements,—for example:
z Training write-downs that will occur frequently and are an essential part of the development of your people and
your firm;
z Rework write-downs that indicate mistakes, or inadequate training, so they can and should be eliminated; and
z Research write-downs, where a large amount of time is considered to be non-recoverable from an individual client.
In this way, the cost of each type of write-down can be examined and the problem can be corrected at the
source, with more training and better systems.
4.7.3

Remuneration

Remuneration is a potential source of aggravation for both partners and employees if negotiations on its components
and the rationale behind them are not clearly communicated and agreed. Here are some factors to consider.
z What do you expect of the individual employee? Have you communicated that expectation clearly? Are you
referring to a given level of output, or are you focused on measuring time? How important to the perceived
success of the employee will it be for them to, for example, achieve or exceed the annual fee budget? Can the
output from this role be easily measured (for example, in fees generated or chargeable hours worked), or does
it require more subjective evaluation? Has the employee accepted your expectation as reasonable? Unless
this basic ground is accepted and understood, the discussion will be unsatisfying for employer and employee.
z What hours do you expect the employee to work? Is it acceptable for the employee to work conscientiously
for 35 or 38 hours per week only, or do you want them to work more hours? If you expect them to work
longer, this should be recognized either through a higher base wage or through some type of variable
remuneration that reflects the additional effort.
z Have you assisted the employee in every reasonable way? In the case of an employee going through a salary
review, ask yourself whether you have provided suitable training, coaching, advice and assistance, and have
given them the equipment necessary to do the job effectively. Or have you (probably unknowingly) put
obstacles in the way of their achievement?
z What is the market rate for this position? This might be the local rate, particularly for firms in a rural or coastal
region, where the pool of alternative employees is limited to a specific town or area. Or it could be a wider rate, such
as a city rate, even though your firm might be based in the suburbs. Use the various salary surveys conducted for
the accounting profession as another set of input; employment agencies might also be able to assist. What special
factors would lead you to pay above these market rates to an individual or a group of people?
z What non-financial benefits will you offer? This might cover allowing some flexibility in taking leave, or
allowing an employee to work some hours on a more flexible basis. It could mean allowing the employee
the chance to salary sacrifice part of their salary as a way of increasing its net value to the individual. It could
mean building in additional training or professional development activities, or supporting the employee
through, for example, their professional certification program. Often these nonfinancial benefits cost your
firm nothing, yet they increase the value of the employment relationship to the employee.

z Decide on the frequency of salary review. This could be annually, or in line with the consumer price index.
Best practice standard
Get agreement as to a reasonable expectation for each person and agree on the job and the measurement
criteria used. Check local sources and salary surveys for current pay rates.
Make sure that the remuneration package consists not only of the salary component, but also of nonmonetary
factors such as training, mentoring, development, flexibility and interesting work, so that the employee can
bundle up a range of benefits or arrangements that they value.
For the money component, focus on the delivery of a result to your firm relative to any additional salary, so
that the employee is aware that the extra financial reward must be tied to some additional productivity or
performance. Bonuses might play a part in the overall remuneration package, and these are most effective
when they are linked to performance above the minimum acceptable level. For example, if you expect a person
to generate 1200 chargeable hours per annum with no more than 10% write-offs, then you might pay a bonus
of $20 per chargeable hour beyond 1200 hours. In this way, the base salary covers the acceptable level of
performance and the bonus rewards the performance above this level.
Be careful that your remuneration policy does not drive undesirable behaviors. For example, remuneration for
increased chargeable time may discourage delegation, training of junior staff or contribution to improvement in
the firm’s systems and procedures.
Ultimately it will be a negotiation between you and the potential employee, with some give and take in relation
to the components and their weighting.
Remember that the performance management process starts with this initial negotiation; from it comes
agreement about expectations and resultant remuneration.
4.8

Rewards and recognition

There is an important distinction between the terms “recognition” and “reward’. How reward and recognition are
handled must, of course, be culturally appropriate—in some countries singling out one particular employee can
be seen as an indictment of the rest of the team.
4.8.1

Rewards

A reward provides something in return for a completed task or project, usually remuneration or compensation
for services provided—for example, when service exceeds expected requirements. Sometimes a performance
bonus may be given to reward the person for extra effort or an excellent outcome.
4.8.2

Providing recognition

Recognition acknowledges and honors effective and/or exceptional performance. It focuses on genuine,
personal appreciation of an employee’s accomplishment, and can be provided as part of normal feedback
processes or in a more formal one-off award or ceremony. People have a basic need for recognition to
encourage them to perform at consistently high levels. A simple “thank you” for good work from the sole
practitioner or a partner can boost morale and improve people’s willingness to be accountable and sustain good
performance over time.
Recognition strategies benefit via:
z Raising a person’s self-esteem;
z Improving individual and team performance;
z Promoting and reinforcing desired actions and behaviors; and
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z Helping create a high-performance work culture.
All of these contribute to increased productivity, and thus profitability.
Barriers to providing recognition
Barriers to providing appropriate rewards and recognition include:
z A lack of skills or confidence to do it properly;
z Personal beliefs that recognition strategies are tokenistic elitist, do not assist in improving performance;
z Bad past experiences in giving or receiving recognition;
z An unwillingness to single out one employee over another;
z A lack of knowledge about the range of strategies available and what others might value; and
z A lack of time or resources to do it well.
All these barriers can be overcome if they are recognized and steps are put in place to address them.
Table 4.8 Informal recognition strategies
Written / verbal

Job-related

Symbols and honours

• Thank-you letter, card

• Additional development
opportunities (for example, attend
conferences)

• Provide certificates or plaques

• Positive job reference
• Email message (cc:d to others)
• Informal verbal feedback
• Affirming performance feedback
• Public praise (for example,
employees meeting)
• Sharing accomplishments (for
example, employees meeting)

• Learning resources (for example,
management books, videos)
• More challenging assignments
• Cross-training opportunities
• Higher proportion of more
enjoyable work, fewer tasks that
are less enjoyable

• Take the person out to lunch
• Hold a presentation ceremony at a
breakfast or afternoon tea
• Give them a gift voucher for
somewhere related to a personal
interest
• Donate money to their a favorite
charity

• Opportunity to represent the team
at an important meeting
• More involvement in setting goals,
generating ideas and making
decisions

Formal recognition strategies include nominating your employee for a professional body or industry award, or
creating formal company rewards such as highest billing hours or outstanding project awards (for a team).
Managers should only use formal recognition strategies to acknowledge top performance. To ensure that they
have meaning:
z Promote criteria widely so they are well understood by all employees;
z Be transparent about the reasons for using the formal awards;
z Match the award to the contribution and outcomes of individuals or teams;
z If reward to an individual is nonmonetary, allow the person to select the reward;
z Provide informal recognition to complement formal processes; and
z Provide formal recognition as soon as practicable after the event. For formal awards that are offered once a
year, provide informal recognition at the time.

Ensure that recognition is delivered in a personal, sincere and honest manner. Match the ceremony to the
importance of the award and to meet the personal preference of those being recognized.
4.9
4.9.1

Exiting/transitioning employees
Termination

Unfortunately, no matter how diligent your employment screening process is, sometimes an employee will not
work out as expected. It is fairest for all parties to address this openly and promptly in order to minimize risk.
The regulatory framework in relation to termination changes from time to time, and varies across countries,
but most guidelines prevent employees from being treated in a harsh, unjust, or unfair way. You will need to
show that you have followed due process in reaching the conclusion that the employee is unsuitable, and that
you have documentation to support this. This may be in the form of records of billable hours agreed, position
descriptions and performance measures, file notes on performance records of counseling discussions and copies
of performance appraisal outcomes.
The Employment Agreement is an important document to refer to when you terminate staff as the legal
obligations of the parties should be outlined. You must ensure you meet your contractual and statutory
obligations to your staff member and you may need to remind them of meeting theirs. Such matters may
include the confidentiality of client and firm information, noncompetitive activity and property or information
owned by the firm.
While there are some employees you may want to remove from your firm, there will be others you will want to
keep on for as long as possible.
4.9.2

Retaining older workers

In many countries, the “baby boomers” comprise a large percentage of the skilled workforce and are starting to
retire. There are not enough younger employees to take their places once they retire, without even taking into
account the lost knowledge and expertise that will walk out the door with them.
Many organizations are investigating ways to keep these employees in the workplace longer, as it often benefits
both parties. For example:
z Older workers might be permitted to reduce the number of days or months that they work each year and
earn proportionately less in wages. This can have the personal benefit of preparing them for their eventual full
retirement, while keeping their social networks and professional skills current.
z In a firm that has peaks and troughs in workload, older employees provide an ideal contract solution while
still providing a high-quality, professional service to clients.
z Job sharing can be attractive to this group. Some financial institutions are specifically recruiting older workers
for frontline service roles.
4.9.3

Exit surveys

When employees leave of their own volition, it helps the firm to understand the reasons behind this decision
so that it can continuously improve its work environment. The two main ways of gathering this information a
discussion with the employee and asking them their reasons for leaving; and a standardized survey.
Bear in mind that the employee may not always feel comfortable telling you the real reasons they are leaving, if it
may impact adversely on their career options within the wider industry or limit their opportunity to come back to
your firm at some time in the future. For this reason, in large organizations, anonymous surveys are usually used.
Obviously in a small firm this is impossible, as there is not the level of employee turnover to provide anonymity.

MODULE 4: PEOPLE POWER: DEVELOPING A PEOPLE STRATEGY

Unless you ask questions, though you will not gather any information that will improve your firm. At the
very minimum, it shows the employee that you care about staff views, and seek to provide a good working
environment.
4.10 Conclusion
This module focused on developing one of your greatest assets, the people within your firm. One of the most
important ways to do this is to develop your people management strategy. The module discussed the key
components of this such as the importance of clarifying expectations, and also considered the impact of
generational diversity. Another important element covered was identifying the skills mix required for your
practice and how to go about recruiting and training your team to fulfill these needs.
The key areas you should take into account when recruiting new employees, including your selection process,
interviewing and induction were discussed too. A very important area directly impacting a firm’s success is
leadership, and the module shows how to apply key leadership principles in small and medium sized practices.
Module 4 also explored how to build and develop teams, emphasising the importance of managing and
retaining staff. This led to a fuller understanding of productivity and of implementing the right measures for
motivating and rewarding your team. A number of checklists and personal development tools are provided in
the Appendices, which will be useful for implementing much of the material discussed in the module.
As this is such an important area for all firms, it is well worth taking the time to fully understand the essential
messages contained in the module and how best to apply them to your firm’s personnel.

4.11 References, further reading, and IFAC resources
References
Flanagan, Neil and, Finger, Jarvis. The Management Bible. London: New Holland, 2005.
Goleman, Daniel, Boyatzis, Richard and, McKee, Annie. Primal Leadership: Realizing the Power of Emotional
Intelligence. Boston, Mass. : Harvard Business School Press, 2002.
Lundin, Stephen C., Christensen, John, Paul, Harry and, Strand, Phillip. Fish! A remarkable way to boost morale
and improve results. New York: Hyperion, 2000.
Tuckman, Bruce W. and, Jensen, Mary Ann C. “Stages of Small-Group Development Revisited” Group &
Organization Management 4(1977): 419-427.
Further reading
Buckingham, Marcus and, Coffman, Curt. First, break all the rules : what the worlds greatest managers do
differently. London: Simon and Schuster, 1999.
Mascherpa, Vittorio. Managing Zen. Verona : Positive Press, 2004.
AICPA Journal of Accountancy Practice Management – Staffing articles –
http://www.journalofaccountancy.com/Search/Results.aspx?Topic=PracticeManagement%7cStaffing
(Italian)
D’Agnolo, Michele. “La gestione delle persone” in Strategia ed organizzazione degli studi professionali, Michele
D’Agnolo: chapter 7. Milano: Il Sole 24 Ore, 2008.
Multimedia training course “Professionista 24”, n. 11: La gestione delle risorse umane. Milano: Il Sole 24 ore, 2009.
Multimedia training course “Professionista 24”, n 13:L’office manager dello studio professionale e le sue funzioni.
Milano: Il Sole 24 ore, 2009.
Piantoni, Gianfranco, Salvemini, Severino (a cura di). Gestire persone e idee nel terziario avanzato. Milano: EGEA, 1991.
IFAC resources
IFAC publications http://web.ifac.org/publications
IFAC SMP Committee publications http://web.ifac.org/publications/small-and-medium-practices-committee
To find the most up-to-date listing of other useful resources relating to this module, please visit the Resources
section of the International Center for Small and Medium Practices at http://www.ifac.org/SMP/index.
php#Resources, especially the ‘relevant links’ at http://www.ifac.org/SMP/relevant_links.php
To search the websites of IFAC member bodies and other relevant websites for other useful resources relating
to this module, please visit the IFACnet search engine located on the home page of the International Center for
Small and Medium Practices at http://www.ifac.org/SMP/
To discuss issues relating to this module with practitioners from around the world, please visit the IFAC SMP/SME
Discussion Board at http://web.ifac.org/forum/SMP/1

MODULE 4: PEOPLE POWER: DEVELOPING A PEOPLE STRATEGY

Appendices
Appendix 4.1 Functional leadership checklist
Task

Team

Individual

As a leader, you:

• Agree team goals with your
partners/board;

• Explain goals to your team
and agree on priorities;

• Are clear on your authority
and delegations;

• Let team members know
what you expect (outcomes
and standards);

• Ensure each individual knows
their job role and how it fits
into the “bigger picture”;

• Understand what you and the
team are accountable for;

• Encourage team involvement
in decision-making;

• Gain agreement from
employees on tasks, priorities
and standards;

• Seek suggestions and input
from the team;

• Provide the equipment,
resources and information
needed;

• Are clear about what each
task is and what it entails;

• Keep the team informed of
any changes and how this
affects the team;

• Get to know each employee
(strengths, weaknesses
and potential);

• Know how the success of
each task will be measured;

• Spend time on “team
maintenance”;

• Use delegation as a
development tool;

• Assess the resources and
skills required;

• Make sure team members
observe health and safety
principles;

• Coach, train and develop
individuals;

• Have a team plan to achieve
agreed goals;
• Take time to plan and set
priorities;

• Delegate work effectively;
• Distribute workload fairly and
appropriately;
• Monitor and evaluate
performance; and
• Model high standards of
behavior.

• Model appreciation of
diversity;

• Build a strong working
relationship with each
individual;

• Apply rules and standards
equitably;

• Give frequent, constructive
feedback;

• Deal promptly with team
conflict;

• Recognize and reward good
work;

• Represent your team
positively to your manager;
and

• Deal promptly and fairly with
individual concerns; and

• Build a positive team climate
by being present and
involved.

• Understand what motivates
each individual and use this
knowledge wisely.

Appendix 4.2: Senior accountant/manager role description
Senior accountant/manager role description
Division: Accounting

Team: Tax

Reports to: Partner/Principal

Roles reporting to this one: None (Is this correct?—surely this person
has team members reporting to him/her?**)

Hours: 8.30 am – 5.00 pm (one-hour lunch)
38 hours/week (and reasonable overtime as required)

Remuneration: $(XXXX), plus (XXXX) incentives and annual salary
review based on performance

Strategic Direction Summary: Contributes to the organization by delivering such high-quality service that clients see (Company X) as their
accounting firm of choice.
Position Summary: Be responsible for client portfolio, including tax accounting, business advice and other service areas as delegated by principal/
partner. Ensure accuracy and completeness of work with attention to detail, while at the same time maintaining productivity and team performance.
Suitable for accountants with five (plus) years’ experience.
Performance Appraisal: Three-month probation review, and then annually from commencement.
Key Accountabilities
Key Result Area

Major Activities

Performance Measure

Accounting

• Attend to queries and final review work done by team.

• Ensure accurate and timely completion of jobs by team.

Monthly Trial Balance

• Attend to queries and final review work done by team.

• Ensure accurate and timely completion of jobs by team.

Taxation

• Finalize end of year trial balance, including all
adjustments, end of year entries for depreciation,
provisions, accruals, and prepayments.

• Ensure work papers, checklists and internal processes
have been completed accurately and in a timely manner.

• Prepare working papers for tax returns for individuals
and businesses.

• Ensure client satisfaction.

• Prepare draft financial statements.

• Ensure accurate and timely completion of jobs by team.
• Ensure compliance with tax laws and regulations.
• Ensure timely lodgements of all jobs with regulators.

• Prepare income tax returns.
• Attend to queries and final review work done by team.
• Attend to client queries and communication.
VAT compliance

• Review VAT reconciliations, based on computer
records against client records.

• Work papers and checklists completed accurately and in
a timely manner.

• Prepare VAT returns.
Management of Team
Performance

• Clearly explain to team members their role,
accountabilities, and support provided by practice.

• All team members are clear on what is expected of them
and where to obtain resources/support.

• Maintain a positive team dynamic.

• All members of team are completing work to a high
standard on time.

• Identify any negative team dynamic issues before they
impact on performance.
• Put appropriate strategies in place to restore a positive
team dynamic.
• Provide ongoing feedback to team members on their
performance and work standard.
• Undertake formal performance appraisal process
annually, including identifying development requirements.

• Team members provide positive feedback that they enjoy
working in the team, and for the firm.
• All team members receive ongoing feedback about their
performance and work standard.
• All team members are formally appraised annually.
• All team members have current personal development
plans, and are supported in completing their
plan’s activities.

Liaise with clients, principal/partner, firm manager, other accountants and support employees.
Supervise accounting team

MODULE 4: PEOPLE POWER: DEVELOPING A PEOPLE STRATEGY

Skills and Knowledge (Competencies)
Essential

Desirable

• Sound accounting and taxation skills and knowledge

• Eye for detail and accuracy

• Sound computer literacy: ability to navigate around a computer and
access email, internet

• Sound understanding of the accounting industry

• Medium level understanding of Microsoft suite of products
• Sound understanding of accounting software programs
• Ability to supervise team
Personal Attributes
Essential

Desirable

• Good communication skills, both written and oral, and in particular a
professional and pleasant phone manner

• Positive, proactive demeanor

• Ability to work as a member of a team
• Initiative
• Ability to juggle multiple priorities
• Willingness to learn
• Attention to detail
• Business-like personal presentation
• Responsible for self and team performance against
predetermined standards
Education, Training and Development
Essential
• Degree in accounting or business
• Five years’ minimum experience in professional accounting firm
• Sound understanding of income tax and VAT provisions together with
other statutory regulations and requirements

Desirable

Appendix 4.3: Assistant accountant role description
Assistant accountant role description
Division: Accounting

Team: Tax

Reports to: Tax Manager, who is ultimately responsible to the
Partner/Principal

Roles reporting to this one: None (Not even junior accountant as
indicated below?)

Hours: 8.30 – 5 pm (one-hour lunch)
38 hours/week (and reasonable overtime as required)

Remuneration: $(XXXX), plus (XXXX) incentives and annual salary
review based on performance

Strategic Direction Summary: Contributes to the organization by delivering such high-quality service that clients see (Company X) as their
accounting firm of choice.
Position Summary: Be responsible for client work for tax accounting areas as delegated by manager. Ensure accuracy and completeness of work with
attention to detail, while at the same time maintaining productivity.
Suitable for accountants with two to three years’ experience.
Performance Appraisal: Three-month probation review, and then annually from commencement.
Key Accountabilities
Key Result Area

Major Activities

Performance Measure

Bookkeeping

• Review work done by junior accountant.

• Ensure accurate and timely completion of jobs.

• Review general journal and general ledger, including
sales ledger and purchase ledger.

• Ensure accurate and timely completion of jobs.

• Review reconciliation of bank accounts, sales and
purchase ledgers.

• Completed accurately and in a timely manner.

Monthly Trial Balance

• Calculate and post end of month entries for depreciation,
provisions, accruals and prepayments.
Taxation

• Finalize of end of year trial balance, including all
adjustments, end of year entries for depreciation,
provisions, accruals and prepayments.

• Work papers and checklists completed accurately and in
a timely manner.

• Prepare working papers for tax returns for individuals
and businesses.
• Prepare draft financial statements.
• Prepare income tax returns.
VAT compliance

• Review VAT reconciliations, based on computer
records against client records.

• Work papers and checklists completed accurately and in
a timely manner.

• Prepare VAT returns.
Management of Team
Performance

• Clearly explain to junior accountants answering to
you their roles, accountabilities, and support provided
by practice.

• All team members are clear on what is expected of them
and where to obtain resources/support.

• Maintain a positive team dynamic.

• All members of team are completing work to a high
standard on time.

• Identify any negative team dynamic issues before they
impact on performance.

• Team members provide positive feedback that they enjoy
working in the team, and for the firm.

• Put appropriate strategies in place to restore a positive
team dynamic.

• All team members receive ongoing feedback about their
performance and work standard.

• Provide ongoing feedback to team members on their
performance and work standard.

• All team members are formally appraised annually.

• Undertake formal performance appraisal process
annually, including identifying development requirements.

• All team members have current personal development
plans, and are supported in completing their
plan’s activities.

Liaise with clients, team manager, other accountants and support employees.
Supervise junior accountant.

MODULE 4: PEOPLE POWER: DEVELOPING A PEOPLE STRATEGY

Skills and Knowledge (Competencies)
Essential

Desirable

• Sound bookkeeping and accounting skills

• Eye for detail and accuracy

• Sound computer literacy: ability to navigate around a computer and
access email, internet

• Sound understanding of the accounting industry
• Ability to supervise junior and support employees

• Medium level understanding of Microsoft suite of products
• Sound understanding of Accounting Software programs
Personal Attributes
Essential

Desirable

• Good communication skills, both written and oral, and in particular a
professional and pleasant phone manner

• Positive, proactive demeanor

• Ability to work as a member of a team
• Initiative
• Ability to juggle multiple priorities
• Willingness to learn
• Attention to detail
• Business like personal presentation
Education, Training and Development
Essential

Desirable

• Degree in accounting or business

• Training or experience in income tax and VAT

• Two to three years’ minimum experience in professional accounting
firm or commercial environment
• Understanding of basic income tax and VAT provisions

Appendix 4.4: Junior accountant role description
Junior accountant role description
Division: Accounting

Team: Tax

Reports to: Tax Manager, who is ultimately responsible to the
Partner/Principal

Roles reporting to this one: None

Hours: 8.30 – 5.00 pm (one-hour lunch)
38 hours/week (and reasonable overtime as required)

Remuneration: $(XXXX), plus (XXXX) incentives and annual salary
review based on performance

Strategic Direction Summary: Contributes to the organization by delivering such high-quality service that clients see (Company X) as their
accounting firm of choice.
Position Summary: Be responsible for client work for bookkeeping and tax accounting areas as delegated by manager. To ensure accuracy and
completeness of work with attention to detail, while at the same time maintaining productivity.
Suitable for fresh graduates.
Performance Appraisal: Three-month probation review, and then annually from commencement.
Key Accountabilities
Key Result Area

Major Activities

Bookkeeping

• Data entry of bank details, income and expenses.

Performance Measure
• Records kept up to date on weekly basis.
• Accuracy and completeness.

• Maintain general journal and general ledger, including
sales ledger and purchase ledger.

• Records kept up to date on weekly basis.

Monthly Trial Balance

• Reconcile bank accounts, sales and purchase ledgers.

• Reconciliation reports completed accurately and in a
timely manner.

Taxation

• Prepare working papers for basic tax returns for
individuals and businesses.

• Work papers and checklists completed accurately and in
a timely manner.

• Prepare VAT reconciliations, based on computer
records against client records.

• Work papers and checklists completed accurately and in
a timely manner.

• Accuracy and completeness.

Liaise with clients, team manager, other accountants and support employees.
Supervise junior accountant.

MODULE 4: PEOPLE POWER: DEVELOPING A PEOPLE STRATEGY

Skills and Knowledge (Competencies)
Essential

Desirable

• Basic bookkeeping and accounting skills

• Eye for detail and accuracy

• Reasonable computer literacy i.e ability to navigate around a
computer and access email, internet

• Basic understanding of the accounting industry

• Basic/medium level understanding of Microsoft suite of products
• Basic level of understanding of accounting software programs
Personal Attributes
Essential

Desirable

• Good communication skills, both written and oral

• Positive, proactive demeanor

• Ability to work as a member of a team
• Initiative
• Willingness to learn
• Attention to detail
• Businesslike personal presentation
Education, Training and Development
Essential

Desirable

• Degree in accounting or business, or approved certificate
in accounting

• Training or experience in income tax and VAT

Appendix 4.5: Personal Development Plan

Covers the period_____/_____/_____to_____/_____/_____

For__________________________________________________________________________________________
_____(person’s name)

Key Result
Area

Major Activity
requiring some
development

What development
activity will
enhance your
effectiveness?

Who will
support
you?

Indicate a
priority

Date
completed

Signed by both parties
(after development
activity completed)

The following are provided as examples only, and are by no means exhaustive.
Team
Performance

Appraise
performance.

Undertaking course Direct
in how to undergo supervisor
an effective
performance
appraisal process.

Team
Performance

Maintain
positive team
culture.

Take part in
workshop on how
to develop a highperforming team.

Direct
supervisor

Taxation

Remain
current on tax
legislation.

Attend professional Direct
association update supervisor
programs.

Taxation

Remain
current on any
changes to tax
compliance
requirements.

Read up-to-date
materials and
journals.

Direct
supervisor

MODULE 4: PEOPLE POWER: DEVELOPING A PEOPLE STRATEGY

Appendix 4.6: Performance agreement

Covers the period_____/_____/_____to_____/_____/_____

For__________________________________________________________________________________________
_____(person’s name)
Senior Accountant/Manager (Example)
(Fill out the first three columns from the role description at the beginning of the twelve-month period, and
ensure the employee understands and agrees with what is expected of them. At the end of the twelve-month
period, review each item and agree a level of performance with employee, filling in the remaining two columns.
If you want to add another degree of sophistication to the process you can identify competencies required
to meet the performance measures, and thus insert a column between “performance measure” and “meets
requirement.”)

Key Result
Area
Accounting

Meets Requirement
(Can be Yes / No,
or % degree of
meeting)

Major Activities

Performance Measure

Attend to queries and final
review work done by team.

Ensure accurate and timely Yes, 80% of time
completion of jobs by
team.

What is required
to maintain
or improve
performance?
Increase focus on
team progress to
ensure 100% on
time completion.
Attend to team
member questions
on the spot
if possible.

Monthly Trial
Balance

Attend to queries and final
review work done by team.

Ensure accurate and timely Yes
completion of jobs by
team.

Taxation

Finalize end of year trial
balance, including all
adjustments, end of year
entries for depreciation,
provisions, accruals, and
prepayments.

Ensure work papers,
checklists, and internal
processes have been
completed accurately and
in a timely manner.

Prepare working papers for
tax returns for individuals and
businesses.
Prepare draft financial
statements.
Prepare income tax returns.
Attend to queries, and final
review work done by team.
Attend to client queries and
communication.

Yes, 60%
Calculations in
working papers
using outdated tax
legislation.

Ensure accurate and timely
Clients
completion of jobs by
commenting that
team.
there is a threeEnsure client satisfaction.
day turnaround
on responding to
Ensure compliance with
their queries.
tax laws and regulations.
Ensure timely lodgements
of all jobs with regulators.

Nil

Update tax
legislation
knowledge.
Respond to
client queries the
same day.

Key Result
Area
VAT
compliance

Major Activities

Performance Measure

Review VAT reconciliations,
based on computer records
against client records.

Work papers and
checklists completed
accurately and in a timely
manner.

Prepare VAT returns.
Management Clearly explain to team
of team
members their role,
performance accountabilities, and support
provided by the firm.
Maintain a positive team
dynamic.
Identify any negative team
dynamic issues before they
impact on performance.
Put appropriate strategies
in place to restore a positive
team dynamic.
Provide ongoing feedback
to team members on their
performance and work
standard.
Undertake formal
performance appraisal
process annually, including
identifying development
requirements.

Meets Requirement
(Can be Yes / No,
or % degree of
meeting)

What is required
to maintain
or improve
performance?

Yes

Continue to read
up-to-date and
journal material.

All team members are clear No
on what is expected of
Strong
them and where to obtain
dissatisfaction
resources/support.
expressed by some
team members,
All members of team are
completing work to a high with two employees
leaving in last
standard on time.
twelve months.
Team members provide
positive feedback that they
enjoy working in the team,
and for the firm.

Learn how to build
a high-performing
team.
Learn how to
conduct a formal
performance
appraisal process,
including providing
effective feedback.

All team members receive
ongoing feedback about
their performance and
work standard.
All team members are
formally appraised
annually.
All team members
have current personal
development plans,
and are supported in
completing the plan’s
activities.

Supervisor signature and Date ___________________________________ ____/____/____/

Employee signature and Date ___________________________________ ____/____/____/

MODULE 4: PEOPLE POWER: DEVELOPING A PEOPLE STRATEGY

Module 5:

Technology and e-business

Contents
5.1 Introduction

5.2 Software and hardware options

5.2.1 Choosing a hardware/operating system platform
5.2.2 Terminal Services/Citrix (thin client computing) versus traditional local area network
(PC-based or fat client computing)
5.2.3 Software options

7
7
9

5.2.4 Communications

5.2.5 Document management, workflow and scanning

5.2.6 Integrated suites

5.2.7 Software and hardware selection

5.2.8 Other hardware/infrastructure considerations

5.3 Maximizing your current software and hardware capabilities

5.3.1 Application champions

5.3.2 Typing

5.3.3 Multi-screen workstations

5.3.4 Client concerns

5.3.5 Email overload

5.3.6 Personal digital assistants (PDAs, Smart phones, BlackBerries)

5.4 New and emerging technology (including Web 2.0)

5.4.1 Hosted applications

5.4.2 Social networking/online communities

5.4.3 Wikis—collaborative knowledge

5.4.4 Multimedia, video sharing and games platforms

5.4.5 Blogs

5.4.6 Communications technologies

5.4.7 Freeware

5.5 Introducing a paperless office

5.5.1 Overcoming factors that work against the paperless office

5.5.2 Potential issues with regulators and courts

5.6 Exploring the role of knowledge management systems in business

5.6.1 Creating competitive advantage with your firm’s knowledge

5.6.2 Using technology to filter information in search of knowledge

Figure 5.1 Key components in information management

5.6.3 The rise of RSS, wikis, blogs and social networking as Web 2.0

Figure 5.2 Gartner Group technology hype cycle 2007

MODULE 5: TECHNOLOGY AND E-BUSINESS

Figure 5.3 Gartner Group technology hype cycle 2008

Figure 5.4 Key concerns related to knowledge management

Figure 5.5 Interlocking functions of knowledge management technology

5.6.4 Preparing for knowledge centric information systems

Figure 5.6 Considerations in knowledge management

5.6.5 Exploring document and content management

5.6.6 Understanding document management: an accounting firm context

5.7 Establishing knowledge and information repository requirements

5.7.1 Establishing requirements for your firm

5.7.2 Establishing when you need a document management solution

Figure 5.7 An integrative overview of IDCM and KMS for accounting firms

Figure 5.8 Document and workflow process

5.8 Technology to deliver efficient document management

5.8.1 Technology considerations for document management solutions

5.8.2 Client portals and delivering information in a secure collaborative environment

5.8.3 Moving to a “less paper” firm

5.9 Introducing an e-business strategy

5.9.1 The client portal

5.9.2 Hosted applications

5.9.3 Product/service sales

5.9.4 Client engagement

5.9.5 Client communications

5.9.6 Recruitment

5.9.7 Multimedia

5.9.8 Calculators

5.9.9 Other possibilities

5.10 The role of the virtual office and working remotely
5.10.1 Outsourcing/insourcing (also known as resourcing)

5.10.2 Mobile working

5.11 The emergence of the global reporting system

5.11.1 Data collection and reporting

5.11.2 Data consumption and analysis

5.12 Business continuity and disaster recovery strategies

5.12.1 Back-up

5.12.2 Maintenance plans and technical support

5.12.3 Insurance

5.12.4 Redundancy in hardware configuration

5.12.5 Uninterruptable power supply

5.12.6 People and documentation

5.12.7 Policies

5.13 Developing a technology strategy

5.13.1 Snapshot of current position

5.13.2 Update knowledge and summarize opportunities

5.13.3 Alignment with firm strategy

5.13.4 Summarize the projects

5.14 Conclusion

5.15 References, further reading, and IFAC resources

Appendices

Appendix 5.1 Firm management evaluation

Appendix 5.2 Website/internet/extranet software evaluation

Appendix 5.3 Document management/workflow evaluation

Appendix 5.4 The workplace of tomorrow

MODULE 5: TECHNOLOGY AND E-BUSINESS

5.1

Introduction

In the 21st century, small to medium-sized accountancy firms rely heavily on technology to provide efficient,
cost-effective, high-quality and profitable services for their clients. Effective selection, implementation and
management of technologies, as well as training employees to use these tools, are fundamental to the success
of any firm.
In most jurisdictions since the 1970s, there has been an increasing number of suppliers have are focused
on information technology and solutions for accountancy firms. These specialty applications have assisted
practitioners in the automation of many procedural tasks. More recently, as small business has embraced
computerized accounting, the role of the practitioner, in many jurisdictions, has changed as write-up work has
reduced. Technology solutions now enable accountants and their clients to easily share accounting data. As the
internet becomes widespread, new opportunities continue to emerge for practitioners to transform how they
engage with clients and how they organize their team. Regulators are also adapting and building systems to
automate the collection and transmission of data with firms.
In this climate of ongoing change it is even more critical that practitioners ensure that they have adopted best
practice in respect to their technologies.
It’s important to note is that, despite the productivity improvements that technology has delivered over the past
forty years, firm profitability has not significantly changed in real terms. This is due to most practitioners passing
on productivity improvements to clients by way of lower fees. Consideration should be given to ensuring that, in
calculating charge rates or in pricing work, an adequate allowance is made for the investment the firm has made
in systems and processes.
Practitioners must ensure that they commit sufficient resources to the selection and implementation of their
firm’s core technologies. Failure to do so will severely negatively impact the quality of service provided to
clients as well as the morale of team members. Once systems are selected and implemented it would be highly
expensive and disruptive for the firm to change to alternative systems—once in place, core systems are not
changed for many years. Accordingly, failure to acquire and effectively implement the best possible system for
the firm can have significant long-term impact.
5.2
5.2.1

Software and hardware options
Choosing a hardware/operating system platform

In establishing a technology platform for their firms, practitioners face wide array of choices. It can be quite
daunting to determine the appropriate hardware/operating system (the software that brings the hardware to
life) platform.
In virtually all jurisdictions, the dominant platforms are Intel-based computers with Microsoft-based operating
systems. Other choices include platforms based on Apple Computer technology, or platforms using the Linux
operating system.
The principal factor in determining the appropriate hardware/operating system platform is the specialty
software supplier selected by your firm to provide the core software. Operating outside the supplier’s guidelines
is fraught with danger. Suppliers will be reluctant to provide support in these circumstances and will often
blame noncertified platform when problems arise.
Yours is an accounting firm, not an information technology (IT) business (except in rare cases where there is
also an IT specialty). Accordingly, you need to be conservative in the selection of hardware/operating system
platforms, to minimize risk and ensure that support can be easily obtained. For virtually all firms, a platform
based around Intel and Microsoft is the proven, low-risk option that will be supported by every software

supplier. Any decision to adopt an alternative platform should only be made after careful consideration of the
risks of additional downtime and cost that may result from resolving difficulties.
Consider these two important factors when selecting a hardware/operating system platform:
z Is the platform recommended by your firm’s preferred software supplier/s?
z Is technical support readily available to support the preferred platform?
5.2.2

Terminal Services/Citrix (thin client computing) versus traditional local area network
(PC-based or fat client computing)

A further decision is whether your firm should adopt “thin client” computing over the more traditional personal
computer (PC)-based “fat client” computing.
In the Intel/Microsoft world, thin client computing is generally based on Microsoft’s Terminal Services (shipped
with various versions of Microsoft’s server operating systems) or products from Citrix (www.citrix.com) that
provide enhancements to the Terminal Services environment.
In PC-based networks all users have PCs on their desks, connected to a file server that allows users to share
resources such as printers, email and files. All the applications are installed on the PC. This means that for an
office running thirty applications with twenty team members it will be necessary to perform 600 software
installations and have twenty little “islands” to manage. This is called “fat client computing” since the PC contains
all the software the user needs.
In a “thin client” model (Terminal Services/Citrix) all users log in to one or more central servers running Terminal Services
or Citrix. The users do not need the applications installed on their PCs. All software is only installed once on each server
and is instantly available to all users.
5.2.2a Fat client advantages and disadvantages
Advantages
z Software is generally designed to run in a fat client environment. There are usually fewer problems in
installing and maintaining software; the complexity arises from needing to install software on every machine.
z All peripherals (webcams, USB, printers, and scanners) are supported, as again these devices would have been
primarily designed for the traditional PC environment.
z A large number of IT support organizations are familiar with and can support this environment.
Disadvantages
z As the software is installed on every PC, each machine has to be individually managed. While there are tools
to assist in the management of the applications, these are presently generally not cost-effective for smaller
organizations.
z Remote access is difficult to set up and generally slow. However, a variety of tools is available that can
facilitate remote access including Remote Desktop, which ships with Microsoft Windows. Most often, these
involve establishing a connection to a PC on the network and taking remote control of the machine.
z Supporting multiple offices and/or mobile users who may wish to share data is difficult and may require
workarounds such as emailing files backwards and forwards.
5.2.2b Thin client advantages and disadvantages
Advantages
z Application management is easier. Applications are installed on the server/s rather than on individual PCs.

MODULE 5: TECHNOLOGY AND E-BUSINESS

z Remote users (other offices, mobile users, team members working from home) are easily supported. They
connect to the servers via the Internet. The applications execute on the servers. The communications link
is used to transfer screen display, keyboard and mouse activity, printing and other peripheral activity such
as remote scanning. Accordingly, with a caveat relating to printing and scanning, the communications link
required can be relatively slow. Dial-up modems, while not ideal, are usable in this environment.
z The workstation used by the team member can be cheaper as it doesn’t need the same processing power that
a fat client environment requires because the applications run on the server not the workstation.
Disadvantages
z Not all applications work. Until recently, software developers generally developed their applications for
the traditional PC fat client environment. Some have decided that the cost of certifying and supporting
their products in a thin client environment is not worth the effort. Others only provide limited support.
Accordingly, it is often more difficult to resolve software issues in a thin client environment. Many software
companies lack the knowledge and skills to resolve their product’s thin client problems. Clearly, it is critical
that the firm ensures that all software they require is certified and can be supported by the supplier in the thin
client environment. As software development moves to the web (internet browser-based applications) this
disadvantage should be largely eliminated.
z Not all peripherals work. As most of the devices (USB devices, webcams, scanners, printers, etc.) were
designed to function with traditional PCs, there can be problems getting some of these devices to work,
which can lead to additional cost and frustration.
z Optimizing Terminal Services/Citrix is more complex. Fewer people have sufficient in-depth knowledge of
these environments. Specialist skills are required. Often it can be a hidden tweak to the configuration makes
all the difference in system performance.
z Printing and scanning can be slow, depending upon the speed of the communications link as these
applications can move large amounts of data to and from the remote location. As broadband penetration
continues to increase, this disadvantage is largely removed.
z Support for multi-screen environments is more complex and less elegant than in a fat client arrangement.
Often applications can appear split between screens. Support for multi-screen systems continues to improve
with the latest editions of Terminal Services and Citrix.
z The servers become a single point of failure. As all applications execute on the service, should the server not
be available no applications are available for the end user. In a traditional PC (fat client) arrangement, users
may be able to continue with some tasks without servers being available as the software is loaded locally.
z Applications can be quite basic. To optimize the terminal server performance, usually applications are
configured with minimum functionality and look. The thin client world is generally not as attractive as the
PC world. Power users can become quite frustrated with a thin client environment as they generally have the
desire to customize their set-up. Thin client environments heavily restrict the customization allowed.
5.2.2c What to choose
Choosing between a thin and a fat client environment can seem like a religious argument, with evangelists
taking one side or the other. There are clear advantages and disadvantages in both environments. Some firms
run hybrid environments, with a traditional PC-based (fat client) environment internally, and a thin client
environment for remote access (generally when remote access isn’t too critical). This has the potential to be the
worst of both worlds and needs to be carefully managed.

Factors driving the decision include:
z Software supplier support for the environment;
z The need for multi-locations and/or remote access;
z The ability to source skilled IT professionals to support the environment;
z Whether critical peripherals will operate;
z The number and complexity of applications where a thin client environment makes it easier to manage
installations and updates;
z The effect on team members of the more austere computing environment generally delivered in the thin
client world; and
z Cost differences over the life of the system.
Care also needs to be taken with software licensing to ensure that sufficient licenses are held for the
environment implemented.
While there are other thin client environments in addition to Microsoft Terminal Services and Citrix, many
software vendors will not support their products on these alternative environments, and technical support may
difficult to find. Potential cost savings can be quickly disappear when problems arise. Unless your firm possesses
a high degree of technical skill and is willing to bear the risk of software not being supported or failing, avoid
these alternative environments.
5.2.3

Software options

A firm’s software is the combination of generic business software with specialty applications targeting the tasks
undertaken in an accounting firm. Often specialty suppliers have integrated specialized applications with the
leading generic business applications to increase efficiency and value.
The applications fall into the following categories.
5.2.3a Operating systems
Operating systems are the software that brings the computer hardware to life, and provides the services used by
the business software applications. Every computer has an operating system. Microsoft dominates the supply of
operating system software to businesses such as accountancy firms. It provides Windows Server software for the
systems servers and the desktop Windows operating system for PCs. It is for this environment that the software
industry targeting the profession develops its software. It is not recommended that firms move outside the
Microsoft world for their operating systems except in special circumstances.
Operating system suppliers, particularly Microsoft, provide regular, often weekly, updates to their software. It is
critical that these updates are loaded, as they often contain changes to close security holes discovered in the system.
Even though Microsoft provides an automatic update service, firms should ensure that a manual check is done on a
regular basis.
5.2.3b Protection from malicious software and external attack
Most important among the critical system utilities is software to protect you from malicious attack.
z Virus protection protects your system from attack by software code that can do anything from displaying
annoying messages to erasing files and disks.
z Malware/spyware protection protects your system from software code that may pop up annoying windows or
have more insidious intent, such as logging usernames and passwords for fraudulent purposes.

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z Anti-spam software protects email inboxes from being clogged by unwanted broadcasted email.
z Anti-phishing software protects users visiting websites that are designed to trap user information which can
then be used for fraudulent purposes.
z Firewalls are software (and also hardware) designed to protect your system from attack from people accessing
the firm’s systems via its external communication links.
All are mandatory for any well-managed system. The cost of an attack can be significant, involving loss of data,
fraud, and the significant cost of rebuilding systems.
Always use a well-known, reputable supplier. Some companies purport to supply these utilities but in fact
the utilities themselves can be malicious software. Be cautious about using free software or software from an
unknown vendor. Generally, it is best to use the utilities recommended by your systems integration (technical
support) organization, as they will be responsible for its installation, configuration and maintenance.
Maintenance of these applications is critical. New malicious software emerges every day. Most software vendors
provide at least daily automatic updates to their databases to ensure that the system continues to be effectively
protected. Ensuring that these updates are correctly implemented is essential.
5.2.3c Back-up
Back-up is covered in Section 5.12. Every firm must ensure that adequate on-site and off-site back-ups are
maintained.
5.2.3d Personal productivity
Word processing, spreadsheets, calendar, tasks, presentation software and email are the most heavily used
applications in any firm. This software is designed to improve productivity in performing everyday tasks.
Microsoft Office (www.office.microsoft.com) dominates this category; the products are feature rich and have the
following distinct advantages:
z Almost all team members are familiar with the software, thereby reducing training costs.
z Files can be sent to external parties with confidence that they can be easily read and/or edited. (It is better to
convert the file to Adobe PDF format if the intention is for the information to be read but not edited.)
z Many third party software applications integrate with Microsoft Office, which improves the productivity from
both the third party application and Microsoft Office itself. Integration of all the Microsoft Office applications
with document management systems is common, as with integration between accounts production and
other compliance applications and Excel.
Many accountants favor spreadsheet applications like Microsoft Excel for preparation of budgets, cash flows, work
papers, and many ad hoc calculations. Of particular concern is research that has shown that over 90% of spreadsheets
contain errors (Professor Ray Panko, University of Hawaii and others). Issues that can lead to errors include:
z Unintentional formatting where numbers are formatted as text;
z Formulas being overwritten by numbers;
z Incorrect formulas; and
z Incorrect cell references in formulas.
Accordingly, care should be taken in the preparation of spreadsheets and where information is being provided
to clients who will rely upon the outputs. It would be prudent for a second person to check the design of the
spreadsheet.

A number of third party Excel add-ons are available that will audit an Excel spreadsheet to highlight possible
errors. For example, these products can highlight where there are inconsistencies in cell formulas and can
use color/shading to make it easy to review a spreadsheet’s structure. They can also highlight cells that are
precedent or dependent on a particular cell, so that the effect of changes in a particular cell can be understood.
Many help with documenting a spreadsheet’s structure and improving the annotations within a spreadsheet.
For critical spreadsheets where the consequences of error may be significant, consideration could be given to
engaging a specialist consulting firm to review the spreadsheet. In many jurisdictions, specialized spreadsheet
auditing companies provide this service.
While Microsoft’s applications are often chosen for the reasons outlined above, it is clear that many team
members do not use the products efficiently. An ongoing focus on training to ensure the efficient use of these
products is critical in maintaining individual productivity. These products also contain functionalities that can
improve productivity by automating of particular tasks. For example, Microsoft Word allows documents to be
prepared and formatted based on sophisticated criteria. Few firms invest the time to explore this functionality to
improve practice performance.
Competitors to Microsoft Office include:
z OpenOffice.org, which is the leading open source office software suite for word processing, spreadsheets,
presentations, graphics, databases and more. It is available in many languages, and works on all common
computers. It stores all the data in an international open standard format, and can also read and write files
from other common office software packages. It can be downloaded and used completely at no charge for
any purpose.
z Google Docs, which includes a free web-based word processor, spreadsheet and presentation application,
complement Gmail (email) and Google Calendar. Google Gears allows users to edit their documents offline.
The benefit of Google’s approach is that the documents are stored on the web. The applications have been
built for collaboration. Sharing, allowing people at different locations to edit documents at the same time,
is simple. Where only basic functionality is required, this provides a cost-effective means of collaboration,
regardless of location.
OpenOffice.org and Google Docs can import and export files to/from each other and Microsoft Office, although
care should be taken with important documents using rich Microsoft Office functionalities.
While the zero cost associated with OpenOffice.Org and Google Docs is attractive, this needs to be balanced
against the advantages of Microsoft Office’s applications. Integration with firm software may be a key
productivity benefit that should not be overlooked.
5.2.3e Firm management software
Firm management software is the underlying database application. Every firm, except perhaps the smallest solo
operators, needs a firm management system to manage the business. The system is the source of basic data on
clients and team members.
For most firms these systems are also used to record time spent on jobs, prepare bills and maintain accounts
receivable. Some systems integrate general accounting applications that provide accounts payable, general
ledger, and payroll functionalities.
Often, these applications are provided as part of an integrated suite of applications so that data (in particular
client information) can be shared across the applications.
Some firm management systems are integrated to Microsoft Outlook (email and calendar) to create time entries directly
from the Outlook calendar and/or will synchronize Outlook contacts with the firm management client database.

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Depending upon the system, reports and graphical representations are available which can highlight:
z Productivity of team members;
z Profitability of individual jobs, clients, or work types; and
z Billing and collection performance.
Many systems utilize Microsoft’s SQL Server technology. Microsoft SQL Server provides the underlying database
for the system. It provides security and is a reliable and scalable database to support businesses as they grow.
It also features a rich set of integrated services that enables the user to do more with the data, such as query,
search, synchronize, report and analyze. Often a dedicated server is established to house the SQL Server
database; however, for many firms it is possible, depending upon the size of the firm and the services required,
for the server to provide the SQL Server platform along with other services, such as file and print or email. A key
benefit of SQL Server is that other applications access the data, thereby enabling greater integration of data and
the ability to produce custom reports from the data.
Some firm management systems also manage the throughput of jobs in the firm (often called workflow). Generally,
they assist in the allocation of jobs to teams or team members and provide a means to track the status of a job.
Older systems often were not used as the amount of data entry required was too detailed and required
scheduling of each task. More recently, some software developers have redesigned their job management
functionality to track jobs at engagement or client level rather than task level, thereby reducing the data entry
required and improving the overall view that can be obtained of the status of work in the firm. Some workflow
systems also provide capacity planning to assist in determining the resources needed to complete the predicted
workload for a year or month.
Some firm management systems have expanded to incorporate CRM (Customer Relationship Management)
functionality. This records all interactions with clients, and sets alerts for when a client needs to be contacted or
an action for the client is required. To benefit, your firm needs to ensure that all interactions are captured. Many
firms struggle to establish such a culture.
Some firm management systems incorporate data warehouses and business intelligence tools to “mine” the data
for insights into the client base, such as the type of work, client industry, and team member combinations that
generate the most profitable work.
A significant challenge for small firms is maintaining a database. Information is often missing or out of date. In
particular, email addresses are often not recorded or updated. Processes need to be established and followed to
ensure that each client’s record is reviewed and updated at least annually.
Generally small and larger firms have similar requirements; however, as a rule, small to medium-sized firms should
look for systems that:
z Are easy to implement and learn: you cannot afford the time and cost of complex implementations; and
z Have less complex functionality: larger firms generally require greater flexibility in how a system is configured
so it can more closely match their operations. Usually, the greater the flexibility, the greater the complexity.
For most small to medium-sized firms it is more efficient to trade off this flexibility for greater simplicity.
However, you may need to adjust your processes to match the functionality of the software.
Appendix 5.1 is a checklist of possible functionalities in firm management software to assist you in your
software selection.

5.2.3f Compliance services
Accountants use these products to produce financial statements, tax returns, and other documents required
by regulators, generally designed specifically for the country or region. Categories of compliance software are
outlined below.
5.2.3g Accounts production software
This software produces financial statements that comply with the regulations and accounting standards
applicable in the firm’s jurisdiction. It can often be used to produce management and other reports to update
clients periodically on about how their business is performing.
Generally the products include a report generator with formats that can be regularly updated as regulatory
requirements change. For small to medium-sized firms, it can be a challenge to learn how to use these report
writers to make changes efficiently when required. Some systems integrate to Microsoft Excel, enabling
production of graphs and other summary reports.
Originally these products were designed to process ledger entries from source documents. Newer versions have
abandoned general ledger functionality in favor of systems that can efficiently import client data and produce
financial statements.
Some products facilitate efficient write-up work when it is not effective for the client to maintain a dedicated
computerized accounting system. Often, these products have interfaces to assist in efficient downloading and
processing of bank statement data. Functionalities such as coding memorization build efficiency since all similar
transactions can be coded from a single entry.
In some places, small owner-operated private companies have significantly reduced the need to comply fully
with accounting standards. Some firms therefore use the basic accounts formats available in their client’s small
business software and have abandoned the use of accounts production software.
Many accounts production software suites incorporate asset ledgers to maintain a list of a client’s assets and
calculate and record depreciation. In some jurisdictions, calculation of depreciation is different for accounting
and taxation purposes. These systems generally calculate and record depreciation for both situations.
Some accounts production software can generate and manage the supporting work papers for an accounts
production engagement. These systems save time by generating the work paper schedules directly from the
accounting data, which team members can then edit.
In some jurisdictions where audit services are required for most companies’ accounts, production software is often
linked to audit software to enable efficient conduct of the audit process. As SaaS (Software as a Service) web-based
accounting applications emerge, there is potential to further transform accounts production. Historically, the
movement of data between the client and the accountant has presented a challenge. Issues arise with the client
and accountant using different versions of the software, and also ensuring that data in the accountant’s and client’s
systems stays synchronized. Web-based accounting software can eliminate these issues.
z Web-based accounting systems enable the accountant and the client to share the same data. The client no
longer needs to save the data for sending on to the accountant. With appropriate security permissions, the
accountant could access the data at any time and make appropriate adjustments. The accountant and the
client always share the data so concerns over data being synchronized are also eliminated.
z Web-based accounting systems provide potential new opportunities for the accountant to assist the client.
For example, where clients are unsure of the coding required for a particular entry they could email a link to
a transaction to the accountant who could quickly review it and/or respond to the query or code it directly.
Alerts could be also created so that accountant is quickly notified when certain conditions arise.

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The XBRL initiative (www.xbrl.org) discussed in Section 5.11 has significant potential to increase the efficiency
and accuracy of data between systems and to banks, regulators and other users of financial information. Thus
for, adoption has been aimed at the larger listed companies, although initiatives are under way to apply XBRL to
a broader group of entities and users of accounting information.
When considering accounts production software, ask whether it:
z Is capable of producing financial statements that comply with the jurisdiction’s requirements;
z Is easy to edit the financial statements;
z Is able to produce graphs and other reports to enable clients’ greater understanding;
z Requires an asset ledger;
z Is compatible with clients’ accounting systems and will efficiently share data with clients; and
z Requires the system to generate work papers.
5.2.3h Tax return preparation
The software for tax return preparation facilitates the production of clients’ income tax and other tax documents.
These products are usually designed for a particular jurisdiction to meet their regulators’ specifications. The
systems generally provide an interface that follows the design of the paper form and applies validation to assist
in eliminating errors. Your region’s legislation will generally determine how complex a given system it is.
A key aspect in most jurisdictions is the ability of the system to file documents electronically with the regulators.
Often, the regulator conducts tests and will only allow systems that have met their criteria to lodge documents
electronically.
Software suppliers are often challenged by the continual changes that occur to tax and related legislation that
need then to be incorporated into the software. This can often lead to product reliability issues, as bugs are
created from the constant changes or software being late.
Some systems incorporate “tax management” functionality to track the status of a particular document, such as
awaiting the client’s signature or lodged with the regulator, and can often assist firms to meet specific filing deadlines.
Purchasing tax return preparation software from the same supplier as the firm management software data
generally ensures integration. This means that client names, addresses and other information are shared. In
some instances, bills for return preparation prepared in the tax system can be uploaded into firm management.
Some systems are increasing their use of the internet to deliver further benefits to firms and their clients. For
example, a system allow clients to perform limited data entry functions or inquire as to the status of a particular
document. Other systems provide links to regulator or tax research websites so that team members can quickly
access the information needed to complete a document.
In some jurisdictions, regulators are moving to populate tax return preparation systems with client’s income and
other data held on their systems. This should increase the efficiency and accuracy of tax preparation systems.
When considering tax preparation software, ask:
z Is the system appropriate for the relevant jurisdictions?
z Is the system integrated to your firm’s management system, to eliminate duplication of client data?
z Does your firm need software to assist in managing its deadlines with the regulators and to track the status of
documents?

z Can the system produce documents efficiently? A firm whose client base consists of a large number of small
returns will need greater efficiency than a firm whose client base is a smaller number of larger clients.
z Does the supplier have a good track record in shipping up-to-date, reliable software in a timely fashion?
5.2.3i Company statutory records maintenance and forms lodgement
In most jurisdictions, companies are strongly regulated. Forms need to be lodged regarding changes in
company particulars. Accordingly, software companies in many jurisdictions have developed software to
maintain company records and produce the required forms when changes occur. Many produce company
minutes and other documents related to changes as well.
As with tax preparation software, in some jurisdictions, regulators have the power to control aspects of the
product design, particularly when the system facilitates electronic lodgement of documents. Software suppliers
can be challenged to update software for regulatory changes in a timely and reliable fashion.
Integration with companion firm management software eliminates duplication of data as client names,
addresses and other data are required by both systems. Some systems also produce fees that are uploaded into
the firm management system.
In some jurisdictions, regulators provide web-based applications to facilitate notification of changes online,
thereby reducing the needs for company statutory records software.
When considering statutory records software, ask:
z Does the regulator provide a web-based interface that allows efficient processing of changes in particulars,
thereby eliminating the need for statutory records software?
z Is the system appropriate for the relevant jurisdictions?
z In the system integrated to your firm’s management system, to eliminate duplication of client data?
z Does the supplier have a good track record in shipping up-to-date, reliable software in a timely fashion?
z Are minutes and other documents that don’t need lodgement with the regulator needed?
5.2.3j Trust and/or pension fund administration and reporting
In many jurisdictions, retirement planning and investment management are often conducted in highly
regulated trust structures. As well, trust funds and pension (superannuation) funds are heavily regulated. This
has resulted in the development of software targeting the administration of these funds. Often these systems
incorporate a general ledger as well as an investment ledger. They can have complex calculation engines for
actuarial purposes or to incorporate complex legislative demands including taxation.
Like tax preparation software, they can be subject to constant legislative change, which can affect product
reliability and timeliness of updates. Integration with firm management software eliminates duplication of data.
Some systems incorporate data feeds from banks, stockbrokers, stock exchanges, managed funds and others
for a significant reduction in both data entry and errors. Many firms use these systems to maintain investment
ledgers for other entities that hold investments, such as estates, charities or individuals.
The system provides a significant lift in efficiency compared with using a combination of spreadsheets, general
ledger software and word processors.
Often, these systems can be quite complex and team members with knowledge of the legislation and software
are responsible for this area of the business.
When considering trust and/or pension administration and reporting systems, ask:

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z Does your firm have sufficient business in this area to justify the investment in the software, implementation,
and training?
z Is there sufficient legislative complexity to justify the investment, or can accounts production software handle
the requirements?
z Is the system designed for your jurisdiction?
z Does the supplier have a good track record in shipping up-to-date, reliable software in a timely fashion?
5.2.3k Audit automation
Audit automation software is designed to assist in the management and conduct of audits. The products
generally contain template audit programs, checklists and template work papers. Most contain functionality to
monitor engagement progress, highlighting outstanding tests and queries.
Many systems link to account production systems to generate audit schedules. Adjusting journals are
maintained and linked to schedules. Control of sign-off is generally maintained.
Some systems contain sophisticated functionality to assist in assessing risks, materiality and financial ratio calculations.
Some audit applications are integrated to firm management systems for time and billing,
In some jurisdictions, audit is not required from small companies, trusts, and other entities. In these situations,
the time required to implement audit automation systems is difficult to justify since audit services are only
required for a small number of clients. In other jurisdictions, where audit is required for a larger number of
clients, the investment in audit automation software can deliver significant efficiencies.
When considering audit automation software, ask:
z Do you have sufficient audit business to justify the investment?
z Do the template programs match the type of client audited and the audit standards of your firm?
z Does your firm have team members who will be able to implement, customize and manage the software?
z Does the software provide simple interfaces to your clients’ accounting systems?
5.2.3l Statistical sampling
Another aspect of auditing and forensic accounting is the use of statistical sampling software. This software can
import data from accounting systems and, by using complex algorithms can:
z Generate transaction samples for review by audit team members;
z Highlight unusual transactions for detailed review; and
z Unlock unforeseen trends in the data.
This software can significantly improve the efficiency of the audit process and improve the ability to uncover
possibilities of fraud or unusual trends. It can also be used for tax investigation work.
Issues to consider in purchasing statistical sampling software:
z Does the firm have sufficient business in audit or forensic accounting to justify the investment required to
effectively implement the software?
z Does the software have the capability to import accounting data from the firm’s key clients’ accounting systems?
z Will the system generate statistical samples that comply with the auditing standards of the firm/jurisdiction?

5.2.3m Insolvency management and reporting
Insolvency management software generally contains a general ledger to record trading activity; a system to
manage assets through to ultimate realization; manage creditors and other claimants; and functionality to meet
the reporting requirements to regulators, creditors and others.
Many incorporate task management and document management systems to record all the work and
documentation associated with an engagement.
These systems are often expensive and only bought by specialist insolvency firms.
When considering specialist insolvency management software, ask:
z Does your firm have sufficient insolvency business to justify the investment required?
z Does it meet the legislative and court requirements of the relevant jurisdictions?
5.2.3n Advisory services software
All small to medium-sized firms endeavor to provide additional advisory services to assist clients in improving
their businesses or to ensure that they are effectively planning for taxation and other costs. The following
software products can assist in the provision of these services. Some include functionality for two or more of the
categories listed below.
5.2.3o Enhanced reporting
Often the reporting provided in small business accounting software is limited. The reports may not have been
designed with small business people, who have limited accounting knowledge, in mind. Accordingly, products
have emerged that integrate or download data from small business accounting software and generate simple,
easy to interpret reports. These summarize key financial indicators and use graphics to emphasize key points.
When considering enhanced reporting software, ask:
z Can the system easily import data from your clients’ small business accounting software?
z Will your clients interpret the reports easily?
z Will the reports create a positive image of your firm?
z Can the reports be easily customized?
5.2.3p Benchmarking
These systems provide reports to clients so that they can compare their business performance with similar
businesses. Often the benchmarks include both nonfinancial information as well as financial data. Some systems
are industry-specific and provide detailed benchmarks in areas such as sales and profitability of individual
product lines. Others are more general and aim to provide benchmarks that follow the financial statements for
the business.
A key consideration is whether the benchmarking system has sufficient samples of comparable businesses
(location, size) in the industries where benchmarks are sought. A limited sample size can severely limit the value
of any benchmarks produced. In addition, industry classifications are critical. Two businesses in a similar industry
grouping may be significantly different—for example, companies in the construction industry can be involved
in building high-rise commercial premises, residential homes or roads and bridges. It is important for the
benchmarks to correctly reflect the specific business of the client, as the results may be misleading.
When considering benchmarking software, ask:
z Are benchmarks available for the industries applicable for your firm’s clients?

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z Are sample sizes large enough to produce effective benchmarks?
z Are the benchmarks applicable to the client’s business?
z Is it easy to extract the required data and create benchmarks?
z Are reports easy to understand?
5.2.3q Budgeting
Many firms do not use budgeting software and relying on Microsoft Excel for budget preparation. But, using
electronic spreadsheet software is prone to error due to:
z User-created formulas that are incorrect;
z Data being entered into incorrect rows or columns. Numerical information can sometimes be entered as text;
z New information requiring reformatting of rows and/or columns; and
z Professional reports that have to be manually created. It is a complex exercise to create a spreadsheet that
accurately produces a budgeted cash flow, profit and loss and balance sheet.
Specialist budgeting software often contains data entry screens to ensure that all the information required to
calculate the budget is correctly entered. For example, details of finance agreements can be entered, which the
software then interprets to ensure that the treatment in the budget is correctly calculated and shown in the
appropriate period. In addition, specialist budgeting software contains calculations to ensure that the budget
is correctly prepared. For example, a change in the number of days accounts receivable are outstanding will
result in a recalculation of cash inflows across periods including the appropriate lags that may relate to taxation
amounts included in receipts.
Accordingly, errors in producing budgets with specialist budgeting software are significantly reduced when
compared with electronic spreadsheets or manual calculations.
When considering budgeting software, ask:
z Do the calculations take account of the relevant taxation and other regulations into account?
z Can the system import data from clients’ and/or your firm’s accounting system?
z Can budgets be prepared for the years and periods required? Is the functionality flexible to meet the needs of
each client?
z Are the reports produced easy to interpret?
5.2.3r Scenario planning
This helps clients to understand what the key drivers of their businesses. Generally, financial information
is imported or entered from the client’s financial statements. The system then permits key drivers for the
business to be modified so that the financial effect of the change can be observed. Many products also
provide “work back” capabilities where the desired financial result is entered and the system highlights the
changes required to the key drivers in order to achieve the desired financial result. Most products highlight
key financial ratios which further assist clients in understanding the importance of regular reporting and
monitoring of critical financial indicators.
Many reports are produced such as break-even analysis reporting or key performance indicators and ratios.
In some jurisdictions, financial institutions use this software to assess the creditworthiness of businesses. These
products can also help firms assist their clients in business planning, loan applications, and business valuations.
When considering scenario-planning software, ask:

z Can the system import data from clients’ and/or your firm’s accounting system?
z Do the calculations take account of the relevant taxation and other regulations?
z Can multiple scenarios be prepared and stored for individual periods and can years and period applicable to
clients be established?
z Are reports produced easy to interpret?
5.2.3s Business planning
Firms use business-planning software to assist clients in composing a plan for their businesses. The software
generally contains template documents and spreadsheets and provides examples of text that can be used for
different types of businesses.
Business planning functionality can often be found in scenario-planning software, enhanced reporting software
and scenario-planning software.
When considering business-planning software, ask:
z Are the templates applicable to the relevant jurisdictions?
z Are the templates applicable to the client’s business?
z Are the templates of high quality?
z Is the plan generated of high quality?
5.2.3t Business valuations
This software incorporates models to help accounting firms assess the value of businesses. Some products
include questionnaires that help assess risk to determine the appropriate capitalization rate for the valuation.
Other products include models to assist in the calculation of affordability for the purchaser.
Firms often use these products to highlight to clients the need to improve business performance. This ensures
that a successful exit value can be achieved to fund the owner’s retirement.
When considering business-valuation software, ask:
z Are the tax calculations in the software appropriate to the jurisdictions?
z Are the questionnaires or other industry-specific issues addressed by your clients’ software?
z Will your clients understand the reports?
5.2.3u Tax planning
This kind of software is used to assist clients in understanding the financial effects of tax-planning measures,
timelines and amounts of future tax payments based on various scenarios, and tax consequences of legislation
changes. Often they are similar to scenario-planning tools. They allow various models to be created to work
clients through the taxation consequences of business decisions. The products can be invaluable in assisting a
clients’ plan to ensure that monies are set aside to meet taxation liabilities by the
due dates.
When considering tax-planning software, ask:
z Are the taxation models applicable to the jurisdiction?
z Does it provide frequent and accurate updates to ensure that legislative change is incorporated on a timely basis?
z Is the quality and clarity of reporting high enough?

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5.2.3v Wealth management tools
Many firms provide wealth management/financial planning services, including risk products (such as income
protection and life insurance) and finance. Generally these services are highly regulated. Most often, products
are tailored for a specific jurisdiction to ensure compliance with the regulations, and include:
z Products to gather information, generate financial plans and model scenarios;
z Products to monitor client investment portfolios; and
z Platforms, generally online, to assist firms in accessing finance and other financial services products.
As the highly regulated nature of the wealth management industry means that the products could differ
substantially across jurisdictions, the fundamental issue for any firm looking to acquire these products is
jurisdictional compliance. Other factors include the quality and clarity of reports produced.
5.2.4 Communications
Firms increasingly seek ways to connect with their clients and their team as the world goes online. Technology
is provides new ways to service clients and greater flexibility in work arrangements. More and more, team
members are working from home, away from clients and even from different cities and countries. The success of
a firm today is more dependent than ever before on the judicious deployment of communications technologies.
5.2.4a Firm websites and extranets
Many firms now have a website. Most provide an overview of the firm’s services and people, and give some
information for potential recruits.
To date, few firms have used their websites to assist in service delivery. However, some have created extranets
to enable clients to securely access electronic copies of documents, pay fees online or book appointments.
Essentially an extranet uses internet technologies to provide secure access to specific data and functionalities.
Firms that use this technology are primarily focused on providing access and functionality to clients. However,
other opportunities also exist such as insolvency firms providing access to creditors, or firms generally providing
contact with to other advisers such as financial planners, law firms or other advisers through secure client
portals where electronic copies of client documents are stored.
Clients’ extranet access can enable clients to obtain access copies of their financial statements, taxation, and
other documents whenever they are required. Some document management providers also provide this portal
functionality, which can then be linked to your firm’s website extranet. Other firms have created opportunities
for clients to pay their fees online or book appointments. As accounting software moves online, firms are
starting to provide branded accounting and other applications for clients to use.
Some have engaged web developers to custom build a website. This can be time consuming and expensive.
Often these websites are difficult to maintain and update and your firm is locked in with the web developer for
ongoing maintenance and support.
Other firms have used templated website solutions developed for accounting firms. These often incorporate
sought-after functionality at a competitive price. For example, many provide client portal functionality,
appointment-booking systems and recruitment functionality. A downside is that your firm’s website may not
look notably different from others using the same template. However, some providers engage web designers to
ensure that each firm’s website has a significantly different look, even though the functionality is the same.
Your firm needs to be able to update content without the involvement of the website developer. Many websites
incorporate a content management system (CMS), which can publish standard word processed documents
without the user needing to know coding. This means that a non-IT professional can maintain much of a website.

For most firms, your website’s prominence in search engine results is not necessarily critical, since it is unlikely
you will win any significant new business directly from the web. However, it can be a useful marketing aid. In
theory, search engine optimization (SEO) can bring a website to the top of search results when specific words or
phrases are searched; however, it can be expensive and impermanent, since search engine companies change
their search algorithms regularly. Search engine marketing (SEM) enables purchase of key words that bring a
website into prominence (via a sponsored link) when those key words or phrases are used. A charge is incurred
if a user clicks on the link that takes them to the sponsor’s website. The amount incurred for SEM activities can
be easily controlled and SEM providers supply detailed analytics website owners understand which key words
achieve the best results.
Your firm would be wise to explore the websites of other accountants regularly, and review the functionality provided.
Appendix 5.2 contains a checklist of the functionalities that may be available in firm websites to assist
practitioners in their software selection.
5.2.4b Intranet management systems
Your firm’s intranet facilitates internal communication. It is the internal equivalent of your firm’s website.
Generally the intranet will contain news, links to commonly used applications and websites and an internal
contacts directory. Most also contain reference libraries where technical and other reference papers can be
uploaded; however, many firms struggle to maintain these. A dedicated team member should ensure that the
library is maintained.
Include an online version of the firm’s manual, containing checklists, standard letters, standard work papers, and
other precedent documents, to ensure that quality is maintained and to enable efficient production. Many firms
also list standard procedures. These document the necessary steps to complete a particular assignment. This
reduces training and assists in ensuring that all team members follow the procedures your firm has designed to
maintain quality and efficiency. Many suppliers of firm intranet technology also provide standard precedents.
Many professional bodies also provide a series of precedents for use by their members.
You may wish to integrate the intranet with your firm’s management system. This enables standard letters and
other documents to be automatically populated with client names, addresses and other details which reduces
errors and increases efficiency.
A key aspect of the firm’s intranet is the ability to capture the intellectual property in the minds of team
members (knowledge management). This may include a precedent on a key advisory topic, a checklist to
ensure that work is complete and accurate, or research material. Other forms of knowledge relating to client
interactions are often maintained in practice management systems.
In many firms, knowledge management systems fail. Underlying technology is only a small part of any successful
knowledge management system. The most important element is firm culture and training, to ensure that everyone
in the organization is committed to capturing that key data. Team members need to be encouraged to:
z Capture details of client interactions;
z Record information about a client that may assist others who may work with that client in the future;
z Capture past reports, advice and other information that may assist others on similar assignments in the future;
z Make suggestions to improve existing precedents and checklists; and
z Store (with relevant keywords) research material, newspaper articles and other information that may assist
others in the future.

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The intranet/knowledge management technology needs to incorporate functionalities that enable rapid
access to information by keywords or full text searching (i.e like an internet search engine). Many document
management systems incorporate firm intranet functionality.
Appendix 5.2 contains a checklist of the functionalities that may be available in firm intranets to assist
practitioners in their software selection.
5.2.4c Training
In some jurisdictions, organizations have turned to technologies to train team members. Many training
organizations provide web based interactive training sessions at a low price which reduces both cost and time out
of the office. These training materials use video and other multimedia tools to maintain attention and retention of
material. Some also provide online assessment tools to test whether the material has been understood.
Software platforms can also be licensed so that firms can develop their own online, interactive training
materials. However, the cost of licensing these platforms and developing the training programs makes these
platforms unaffordable for smaller firms.
5.2.5

Document management, workflow, and scanning

In recent years, many firms have moved to improve efficiency in document creation, storage and retrieval and to
reduce the space and cost associated with paper storage. Document management solutions may be integrated
with a firm’s management systems.
5.2.5a Document management
This is the electronic storage of your firm’s letters, work papers and other documents. The mere storage of
documents does not provide the breakthrough in productivity that a full document management system
can achieve. Many suppliers only provide a document storage facility with limited document management
functionality.
Document management functionality includes:
z The ability to filter and sort the document store based on sophisticated criteria: Many systems enable firms to
store user-definable data (metadata) on documents that can then be used for document retrieval. Examples
include work types, years, type of document, reviewer or approver. This enables users to quickly locate
documents or groups of documents.
z Access control: This controls who is able to create, edit, view, delete, review, or approve a document. It ensures
the integrity of the document store. For accounting firms, it is critical to maintain the review and approval
process. Approved documents need to be locked so that they cannot be changed without the approver’s (or
authorized administrator’s) action. Only with effective access control can firms consider abandoning paper
and rely fully on their document management system.
z Check in/out functionality: This ensures that two people cannot edit the same document at the same time,
and that one individual does not overwrite the work of another.
z Versioning: This keeps each version of a document as it is edited. It enables reversion to older versions of the
document if necessary or to review the changes made from one version to another. This is implemented in
most law firms; however, most accounting firms do not see the value in maintaining multiple versions of the
same document.
z Audit history: Some systems maintain a record of document changes. This can be helpful to ascertain who has made
changes and when.

z Full text and keyword searching: A full text index enables the system to index every word in every document
for most document types. The system automatically maintains the index as documents change. Once
documents are indexed, users are able to search for documents in the same way they would use an internet
search engine Access is instantaneous. Note: Windows Vista has document indexing capability, as do products
like Google Desktop.
z Multi-office synchronization: Some systems provide the capability to synchronize data between offices.
This enables each office to work independently using a local copy of the database to ensure access speed is
maintained. Periodically the versions of the database at each location are synchronized so that a firm-wide
document store is maintained.
Access speed is a critical component of any document management system. Team members will quickly become
frustrated if documents take too long to find or load. For this reason, care should be taken in considering
an online document management solution, since its usefulness will depend on the speed and reliability of
communications links. Therefore, in many jurisdictions, online document management systems are not viable.
Some document management systems assist in the entire document creation process. They incorporate document
creation functionality, which launches the editing application (such as Microsoft Word); provide rapid document
profiling (creation of user-definable metadata); and on completion, the document is automatically stored in the
system. In other systems, the document is created outside the system and imported into the document store on
completion. Systems that assist in the document creation process are generally more efficient.
Document management systems often utilize Microsoft SQL database technology to enable rapid searching, sorting and
access to documents and to ensure that performance is not significantly impaired as the system grows. Even for smaller
firms, the document management store can quickly grow to a large size. This is less important as disk storage and backup technology continues to rapidly grow.
Many systems incorporate functionality that enables emails to be stored into the document management
system directly from the email system.
Document management systems often drive significant change in firm operations. To be effective, everyone in
your firm must use the system. This requires changes to personal work practices, which often can be difficult to
achieve. Significant time and effort should be put into implementation.
You need to ensure that team members have the technology platform that optimizes their use of the system. The
first requirement is to ensure rapid access to documents even when the system is under heavy load. The second is
to implement multi-screen technology that enables review and editing of multiple documents at the same time.
Multi-screen workstations are discussed in Section 5.3.3.
Appendix 5.3 contains a checklist of the functionalities that may be available in document management systems
to assist practitioners in their software selection.
5.2.5b PDF creation
Adobe PDF has become the de facto standard for transmitting documents between organizations. While not
totally secure, PDF documents are more difficult to change for the average computer user. Accordingly, most
firms will create PDF versions of financial statements and other documents for storage in their document
management systems and for electronic transmission to clients.
Some PDF creation software products also incorporate PDF collators, which enable multiple PDF documents to
be incorporated into a single PDF file, with the user able to manipulate the order of the documents. This means
that when multiple documents are sent to clients in PDF form, they can be incorporated into a single file in the
order that your firm would like the client to review them.

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Other PDF creation software facilitates the inclusion of “Sign here” stickers, addition marks, or ticks to indicate
that a document has been reviewed, as well as watermarks.
Storage of documents into the document management system directly from the PDF creation software enables
efficient storage of PDF documents.
5.2.5c Document workflow
Document workflow is not yet incorporated into most document management systems. It is a different concept
from job workflow which is discussed at 5.2.3 under firm management software. Document workflow is the
integration of tasks and queries with documents. Many firms use ad hoc systems that record tasks and “to do” lists.
A system that incorporates document workflow goes one step further, connecting tasks and documents a task
or query can be attached to a document and delegated to a team member. Team members can request that
the system to show only those documents with open tasks that have been delegated to them specifically. The
tasks/queries list is highlighted and for each task or query, the document it relates to is connected. This greatly
increases the efficiency of accessing information to complete tasks or queries.
Examples include requesting a document to be reviewed, asking a question about how to complete a
document, or requesting a task be completed for a document. Without document management systems, team
members revert to sending emails, often with a copy of the document attached. This can create confusion with
multiple versions of documents but also means that it is not possible to review the status of the particular task
or query. Think of it as the paperless office’s version of a Post-It note on a paper document.
5.2.5d Scanning
In most firms, a significant volume of paper is still received from clients, regulators, and other parties. If a
document management system has been implemented, scanning enables efficient electronic storage of these
paper documents.
In some firms hardcopies of work paper files are still preferred, as file review is considered more efficient with
paper (however, see comments above regarding multi-screen workstations in the document management
section). In these firms the work paper file is often scanned upon job completion, and the paper file destroyed.
Scanning solutions require hardware and application software. Often the hardware supplier provides them
but the software applications are quite generic. Scanning applications that are designed for the accounting
profession are available and should work with most scanning hardware as almost all such applications use
common interfaces.
Scanning should be high speed, facilitate duplexing (scanning both sides of the page) and be integrated into
the document management system to facilitate rapid storage with appropriate user-defined metadata. Some
scanning systems can remove marks on documents and can rotate documents right side up.
Some scanning solutions incorporate optical character recognition (OCR) functionality, which reads the text
on the document after it is scanned. Often, these systems can interpret the document and intelligently store it,
often utilizing the data to automate other processes. For example, some can interpret source documents for tax
preparation systems and then populate the items on the tax preparation system automatically. Others can scan
source documents from regulators and automatically generate letters to clients outlining the action to be taken.
A potential downside to OCR functionality is sometimes the speed. Because the OCR application needs to read
the text from a scanned document, it can be quite slow. Firms should ensure that “real world” examples of the
application are shown in any demonstration.

5.2.6 Integrated suites
Often, suppliers provide an integrated suite incorporating many of a firm’s applications. These suites will include
firm management, accounts production, tax preparation, company statutory records, intranet and document
management functionalities. The benefit of the integrated suite is the sharing of data between applications.
For instance, a change of address in firm management needs to be incorporated into a tax return as well as
the statutory records for the company. In an integrated suite the change is made once, and all applications
automatically update. The software is also generally aware of any processes to generate documents needed by
these applications resulting from the change.
Integrated suites also facilitate firm-wide reporting so that data from multiple applications can be incorporated
on a single report. For example, useful insights may occur from including firm management and tax preparation
data in the same report.
Most integrated suites use Microsoft® SQL database technology, which enables easy integration and reporting
across the applications.
5.2.7 Software and hardware selection
Small to medium-sized firms need to make an objective assessment of the software and hardware options.
Suppliers often confuse purchasers in order to promote their solutions. Don’t let your supplier control the
evaluation process. Take control of the selection process and subject all suppliers to the same evaluation criteria.
Only in this way can you make a fair assessment of the solutions and the value to your firm.
5.2.7a Choosing a product
Does the product fit within your firm’s technology plan and budget?
Undertaking system acquisitions without a plan is dangerous and can result in poor decisions that lead to
increased cost, lost productivity, and failure to capitalize on benefits that could have proceeded from better
options. Without a plan, your firm may buy what the supplier wants to sell not what your firm really needs. Your
plan needs to consider possible future software acquisitions as well as the software you need now.
With a plan, your firm is able to filter supplier offerings and concentrate on those that are immediately
important. Find out what benefits a product will bring to your firm before you accept any offer from a supplier.
5.2.7b Choosing a supplier
Purchasing application software is a long-term investment. The cost of implementation, training and data
conversion is significant and prevent firms changing software regularly. In purchasing software, your firm is
establishing a long-term relationship with the supplier.
You need to be confident that the supplier will continue to improve the product to leverage technology
developments and increase firm efficiency, profitability and/or client service.
Suppliers should articulate their vision for their businesses and for the accounting industry. Your supplier should
also have a roadmap for product development, so that your firm understands new products and enhancements
in development.
Issues to consider when choosing a supplier:
z The quality of its executives. Look for experience in and/or knowledge of the accounting industry. Also, how
stable are its ownership and the senior management team?
z Its track record. Has it met promises and been consistent with its vision, or has it been constantly changing? A
poor track record reduces confidence that current roadmaps and visions will be achieved.

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z The supplier’s success and profitability. A lack of profitability can affect the quality of product support and
future development. In the worst case, the supplier could disappear, bringing potentially catastrophic
disruption to your firm.
z Its investment in research and development.
z The personnel the supplier has dedicated to the product and whether this has changed significantly in the
past three years. A significant drop in headcount would indicate potential loss of clients or a scaling back of
further product development.
z How the supplier engages with its customers. Companies that actively engage with customers and seek
their feedback to improve their products and services tend to ensure that they remain closely aligned to the
customers’ needs and deliver effective products and services.
5.2.7c Underlying technologies
Your firm’s technology is used to deliver quality and profitable services. Technology should be proven and
reliable. You cannot afford non-standard or unproven solutions that, if they fail, will disrupt your operations and
incur significant time and cost to resolve.
Generally, only deploy industry standard technologies. This usually means Microsoft’s operating systems and
databases. However, many suppliers have very effective legacy products that use older technologies: in this case,
it is important to understand the supplier’s plan to upgrade the application to the latest industry standards.
Supplier certification of their products for the latest hardware, operating systems, and database platforms
can delay the release of these new platforms by many months. Some software applications also require
other applications to be installed on the system. In particular, Microsoft Office can be a prerequisite for some
applications. You need to understand the requirements and versions of these applications.
Consider product scalability. Your firm should seek assurances from the supplier that the product can handle
projected transaction volumes and database sizes without any serious degradation.
The supplier should provide its recommended hardware and other infrastructure configurations to ensure
effective and reliable system performance. The cost of all the underlying technology needs to be factored into
the overall purchase decision when comparing suppliers who may have different infrastructure requirements.
Also consider system complexity. The more components to the recommended hardware and software solution,
the greater the likelihood that one component may fail. It is vital to understand these interdependencies and
the consequences of their failure on the entire system.
5.2.7d Product fit
When considering a product, ask the suppliers for details of the number of its users, the size of the five
largest users and the size of the five smallest users. This will indicate whether firms of similar size to yours are
successfully using the product.
Ask for a summary of any client satisfaction surveys relating to the product.
5.2.7e Product functionality
Customers often make the mistake of allowing suppliers to control demonstrations, which means that product
shortfalls can be overlooked.
Before any demonstration, team members should develop a functionalities wish list. These items should
be prioritized so that when a demonstration occurs, you can assess whether the product contains the
functionalities you need. Examples of these checklists are provided in the Appendices.

For some functionality, performance benchmarks are a good idea: for example, the time for an application to
load, the time to access a document or the time to print a report.
5.2.7f Development plans
Ask the supplier to explain future developments for the product, and review the development roadmap of the
product. Ask for a list of enhancements that users have requested.
5.2.7g Implementation
Ask the supplier to provide the implementation plan it recommends to its new customers. This will outline the
resources that your firm is expected to commit to the product’s implementation. Also ask for a firm timeline for
the product’s implementation.
The firm also needs to devote sufficient resources to ensure that the implementation is successful. Generally a
team member should be appointed to champion the process. Issues that need to be addressed include:
z That information that is accurate and up to date is recorded in the new systems and that processes are
implemented to ensure that accurate data is maintained.
z That the new applications are fully reviewed to ensure that these processes will maximize the efficiency and
profitability achievable by the firm.
z That adequate training is conducted to ensure that all team members are proficient in using the systems.
z That adequate support systems are in place to ensure that team members receive the support they need
when using the new systems.
The installation of a new system often succeeds or fails based on the quality of the supplier’s consultant. Ask
the supplier for details of their consultant’s experience with the product and its implementation—look for
accounting industry experience along with their experience in implementing software products generally.
5.2.7h Training
Ask the supplier for details of their recommended training program. Many suppliers provide options for
classroom training, web-based training or online self-paced training. Which alternatives are on offer and what is
the cost of the initial and ongoing training for team members?
5.2.7i Support
Prompt and high-quality product support is essential. Many companies do not provide support outside normal
office hours, which can sometimes cause issues, as software updates are often loaded at that time. Some
companies have limited telephone support and rely on email/web-based support.
Ask for details of their average response time in relation to the product. Find out the number of people who
provide support and their experience with the software. For some applications, such as tax preparation software
during peak periods, prompt and reliable support is a key consideration.
5.2.7j Contracts and conditions
You must review supplier contracts. Occasionally clauses exist that place undue obligations on the customer
and attempt to exclude the supplier from any liability, should failures occur. Check the supplier’s warranties or
guarantees and the obligations placed on customers. There should be a mechanism to deal with breaches. For
large or complex contracts, seek the advice of lawyers.

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5.2.7k Cost
Suppliers are often expert in concealing the overall product cost. Suppliers can price products differently, which
makes comparison difficult. It is important to understand all of the costs associated with the product:
z The upfront cost to acquire the software;
z The ongoing software maintenance cost: the services included in maintenance should be outlined;
z The cost of future enhancements, if not included in maintenance;
z The cost of hardware and related infrastructure and any additional software required;
z The cost of implementation and training;
z The cost of internal resources that will need to be dedicated to implementation, training and ongoing internal
support; and
z The supplier’s track record for maintenance price increases.
Assessing these costs for all suppliers enables a true cost comparison over the product’s projected life on a
discounted cash flow basis.
5.2.7l Customer references
There is no better way to assess a product than to talk to existing customers. Ask for at least three references and
ask the referees:
z Has the software met their expectations?
z What additional enhancements do they think the product needs?
z Did the supplier meet their promises?
z What is the quality of training?
z What has been the quality and responsiveness of support?
z How often and for what reasons do they need to contact support?
Ask also for references for the proposed implementation consultant. Ask the referees:
z Did the consultant understand your firm’s needs?
z Did the consultant have deep knowledge of the product?
z Was the implementation a success? If not, why not?
z How could the implementation have been improved?
z Was the consultant responsive and accessible?
z Did the consultant fulfill all promises made?
5.2.8

Other hardware/infrastructure considerations

Most small to medium-sized firms lack the technical knowledge and resources to implement and support
key infrastructure components. Most use external support organizations, and the appointment of the right
organization is therefore critical to the success of the overall IT solution.
Some organizations specialize in supporting accounting firms, and often have quite detailed knowledge of the
various software applications on the market. Many have worked for the suppliers during their careers. Given
the reliance of most small and medium-sized firms on Microsoft’s server, database and workstation operating

systems, Microsoft’s certification of a support organization provides reassurance that they have a strong
understanding of those technologies. Other suppliers with similar certifications may be relevant, depending on
the technology implemented.
While the support organization will implement and maintain the technology infrastructure, you still need to
appreciate the components required to ensure a robust and reliable system.
5.2.8a Cabling and switches
Cabling standards often change with new technology. There is no need to implement the latest standard, which
will generally be more expensive. However, cabling is long-term infrastructure. You need to know it will cope
with emerging technologies. Ensure that a data cable professional performs the installation. Many electricians
with limited data cable experience install cables, which can result in poor reliability and performance due to
poor connections or incorrect placement next to other infrastructure.
Switches join the workstation cables to the server infrastructure. It is the point through which vast amounts of
data move. Look for quality switches.
5.2.8b Wireless networks
The use of wireless networks is on the increase, particularly for meeting rooms, situations where cabling is
difficult or expensive to implement and for teams working at a client’s premises. Ensure that these networks are
secure, since wireless networks can be accessed from a remote location. Some of the low level security features
of wireless networks can be easily overridden. It is important to implement the highest level of security.
Wireless networks generally are significantly slower than cabled connections, and are not recommended as
a firm-wide solution. Like other infrastructure, however, speeds and supported distances between devices
continue to increase.
5.2.8c Server hardware
Servers are critical components of any system. A server failure can cause significant disruption and loss of
productivity. Additional expenditure to gain greater assurance of server reliability is a prudent investment.
Many firms prefer “name brand” server hardware, since response times for parts and service technicians may be
superior. With workstations, reliability is less critical, since only the individual workstation user is affected should
a failure occur.
It is important to configure server hardware with redundant components such as hard disks and power supplies
so that, should a failure occur, the operation of the server is not affected.
5.2.8d Laptops
Laptops are portable and therefore can improve productivity; however, there are extra complications, particularly
involving security. Often, important client and firm data are stored on these machines. Laptops need to be
effectively secured so that data cannot be accessed, should the machines be stolen or otherwise compromised.
Look for encryption technologies to protect data stored on hard disks. These should be implemented and
passwords stored in a secure area on your firm’s main systems in case the passwords are forgotten.
Most of these systems have internet access capabilities via wireless networks, which means there is high risk
of infection from malicious software. Install and maintain software to protect systems from malicious attack
on every laptop. Failure to protect laptops could expose your firm’s infrastructure to attack when the laptop is
reconnected inside your firm.

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5.2.8e Printers and scanners
Printing and scanning technology continues to evolve at a rapid rate. Multi-function devices that combine
printing, scanning, copying and facsimile services are in use at most firms. Key considerations are:
z Does the firm have sufficient printing and scanning resources to ensure that team members do not waste
time waiting for print jobs, or to use the device?
z Is colour printing a requirement? Some firms purchase black and white laser printers for the bulk of their
printing with only a single colour printer for special jobs. Ink for colour inkjet printers is expensive and inkjet
printers cannot match the speed of laser printers.
z Is privacy a requirement? If so, small printers in individual offices may be necessary but overall the larger,
faster general office printers will be more cost effective and efficient.
z Can the scanner duplex, scan to PDF format, and scan a large number of pages rapidly? This is a critical
component of any document management solution.
A further consideration with printers and scanners is whether to adopt a policy of using personal or
departmental technologies. Personal printers and scanners are located at the user’s workstation and have the
obvious advantage of easy access, while departmental printers and scanners are located at a central location for
use by the entire firm or team.
Departmental technologies have the benefit that the firm can afford to invest more and acquire devices that are
significantly faster, have more sophisticated features and are generally more reliable than desktop printers and
scanners. A downside of departmental printers and scanners is that, should the firm provide insufficient printing
and scanning resources, team members can waste time and become frustrated having to wait for print jobs or to
access the scanning technology. Accordingly, sufficient centralized resources should be provided.
On the other hand, desktop printers encourage printing and therefore can work against a firm’s initiatives to
move to less paper. Each device is generally low cost (due to the need to deploy on a large number of desks).
Accordingly, they can be slower less reliable, and inefficient for large jobs. Printer consumables are generally
more expensive when compared on per page cost compared with departmental technologies. Desktop
scanners can support paperless initiatives by enabling convenient access to scanners.
5.2.8f Uninterruptable power supply (UPS)
In many areas, particularly rural areas, power supply can be unreliable. Power spikes can damage hardware, and
power outages can cause complete system failure. Accordingly, in virtually all firms (even those with reliable
power supplies), it is prudent to implement an uninterruptible power supply. These solutions incorporate
batteries that, should the power fail, continue to provide power to the system. This enables the system to
continue to operate for some hours and allows an orderly shutdown of the system should power not be
restored. These systems vary in the length of time they can maintain power and often also incorporate alarms to
notify technicians that a power outage has occurred. Ensure that you acquire a system with sufficient battery life
to enable a technician to arrive to shut these systems down if power has not been restored.
5.2.8g Energy efficiency
As concerns about the environment and the cost of energy continue to grow, there is an increased focus on the
energy efficiency of technology used by the firm. Many hardware manufacturers are developing equipment that
can operate on low power and can switch off various components when they are not being used for a period
of time. Other innovations include controlling fan speeds based on the thermal requirements of a system, and
more efficient power supplies and processors.

Moving to a lower-paper environment can also achieve significant energy savings, ranging from using less paper
to a reduced usage of printers.
Firms should also consider implementing energy efficiency policies such as switching off workstations and other
equipment overnight and on weekends.
5.2.8h Security
Your firm must implement effective security to control access to its infrastructure and applications. As almost
all firms now maintain permanent connections to the internet, the risk of unauthorized access is significant.
Firewalls, either hardware or software-based, should be implemented; this limits the traffic with permission to
access your firm’s infrastructure.
Team members must have individual username/password combinations. Passwords should not be given to
others and should be changed regularly. Team member profiles should control their access to applications and
data. Some workstations, particularly laptops, are now incorporating biometrics such as fingerprint recognition
to further enhance security.
Some firms limit internet access by blocking undesirable internet sites, which prevents distraction and limits the
likelihood of attack from malicious software. Make sure such measures do not become too restrictive, as it can
frustrate team members. Often internet use is better managed by firm policies and culture rather than a heavyhanded blocking of sites.
With myriad data storage devices such as USB drives and portable hard drives, it is almost impossible to fully
protect your firm’s data from theft by team members. While USB ports can be disabled, USB drives and other
devices assist in moving data and providing temporary back-ups. This emphasizes the need to secure servers so
that team members only have access to the data they need for their duties. It is also possible to secure data by
only allowing access via the application. This prevents people from accessing and copying the data directly.
Develop and communicate clear policies in relation to the removal of data from your firm’s premises.
5.2.8i System audits
Many firms conduct regular system audits. This involves inviting a suitably qualified technical support
organization to audit your firm’s infrastructure. During the audit, the organization reviews the configuration of
servers, back-ups, and other hardware; tests system security; and looks for issues that may affect the system’s
performance and reliability.
5.2.8j Software licensing
It is critical that all firms understand and comply with the laws regulating software licensing. While smaller
firms may be tempted to reduce cost by copying software onto multiple machines there are significant legal
ramifications to this, including stiff penalties and criminal prosecutions.
The Business Software Alliance (BSA) is an international organization representing leading software developers
in sixty-five countries around the world. BSA members include companies such as Adobe, Apple, Macromedia,
Microsoft, and Symantec. Their primary mission is to educate users about software copyrights and to fight
software piracy. They have also been very successful in prosecuting companies for software piracy.
Every firm should maintain a register that contains an inventory of all software used by the firm, with a record
of the licenses purchased, and the location of the evidence that the licenses were acquired. Maintaining such
registers can sometimes reveal that firms are paying for more licenses than they actually need and can therefore
reduce some licensing costs. Software tools are available that will scan servers and workstations to list all the
software loaded. The Business Software Alliance website (www.bsa.org) contains tools that can assist firms in the
management of their software licenses.

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5.3

Maximizing your current software and hardware capabilities

It is often said that users only use about 15% of the functionality of their systems. Improving the use of your
existing system delivers almost immediate increases in firm profitability.
5.3.1

Application champions

Training is critical; however, people often learn computer applications incrementally slowly building their
knowledge and habits. It’s useful to appoint “application champions” for each key application. These champions
have three roles:
z Learn and discover: Allow time for each champion to dig deeper into the software, read manuals and
otherwise explore the application. Since champions concentrate on a single application, they will discover
significant additional functionalities.
z Train: Champions provide regular training to other team members. Each training session is short and limited
to one or two additional ways that an application can be used. These limited training sessions mean that
information is remembered, and is therefore more likely to be used. In this way, the skills of the entire team
slowly improve.
z Innovate: As the champion unlocks application capabilities, they can recommend ways to use the application
to transform your firm’s processes for improving productivity or client service.
This process is not sophisticated, but has gradual and significant long-term impact. Simple issues should not be
ignored: for example, most computer users do not know what the Windows á key on the keyboard is for. Many are
unaware of short cut keys that speed up document navigation, cutting and pasting, and other common activities.
5.3.2

Typing

Typing speed has a significant effect on productivity yet improving typing speed is generally ignored.
Websites such as www.typequick.com (with local equivalents in some countries) test typing speed and provide
inexpensive applications to improve typing skills. Regardless of the age of team members, improving typing
skills is fundamental to improving productivity.
Some firms are using voice recognition systems as an alternative to typing. These systems do work; however,
patience is required to implement the system and to train it to understand the user’s voice and phraseology.
Generally, voice recognition is more effective when large slabs of text are being prepared. For many accountants
this is not pertinent.
5.3.3

Multi-screen workstations

Dual screens can significantly increase productivity. Often, team members need to work on multiple applications
at the same time: for example, producing financial statements while also editing the associated work papers.
Using dual screens significantly increases productivity and reduces the need for paper to be printed. Some firms
use a larger single screen and split the screen to achieve a similar effect (using products such as Splitview www.
splitview.com). Dual screens are more effective as they avoid the need to resize applications. Dual screens can be
more difficult to implement in a thin client environment; however, it is possible to achieve similar results.
Some firms incorporate a third screen so that three applications can be visible at the same time. Often the third
screen is set in portrait mode (vertically) instead of the standard landscape (horizontal) mode. This enables
documents to be viewed and edited full size. Three or more screens can be more difficult to implement, as most
video cards only support two monitors and the addition of a second video card can create conflicts. Inexpensive
USB-based video drivers allow the third screen to be connected. The only downside is that the video refresh rate
is significantly slower, although it is usually quite satisfactory for general business applications.

5.3.4

Client concerns

Many firms are reluctant to significantly increase electronic communications with their clients and reduce paper
and postal communications in turn for fear that clients will respond unfavorably. However, research has shown
that most clients would be pleased with a move to greater electronic communications. Some clients will be
resistant, so the firm should give them the choice, but let them know that this will involve an extra charge.
Invest some time to discuss electronic communications with clients. Receiving client data, handling queries and
transmitting completed documents electronically can significantly improve productivity.
5.3.5

Email overload

Telephone messages piled up on desks in the 1970s and 1980s, today, there is a seemingly never-ending stream
of emails. This can significantly affect productivity. Many messages have little value, yet take time to read and
distract team members from important client work. Some organizations have resorted to disabling email
systems except for a few hours each day so that employees can concentrate on their work. However, when
judiciously used email is a very productive tool.
z Inboxes should be limited to email requiring a response. File email that has been answered in a document
management system or client folders. Some systems automatically file messages based on preset criteria.
z Install effective spam filters to remove any junk mail.
z Consider a firm policy on using the subject line of an email to indicate its function. For example, messages
for review may be called “For information: (Subject)” while messages needing a decision may be called “For
Decision: (Subject.)” This helps people prioritize emails.
z Create a policy that limits messages that are copied to other team members.
5.3.6

Personal digital assistants (PDAs, smart phones, BlackBerries)

These devices provide access to calendars, contact information, notes, tasks and email while team members are
out of the office. While they can be intrusive and require disciplined management, PDAs can be invaluable in
coping with email overload. All team members are occasionally idle (sitting in a taxi, on a bus, at the airport, etc.)
At such times, emails can be actioned and cleared so that on returning to the office the listed of unanswered
messages is reduced.
Devices with keyboards are generally more productive than ones that use a stylus. A key attribute is reliability.
Email forwarding must be reliable or frustration occurs and productivity is affected.
Smart phone provide easy to install applications to make better use of the internet. Many application developers
are writing small applications to allow access from smart phones.
Ergonomics
Productivity can be improved by improving work habits and office ergonomics. Positive changes to be
considered include:
z Pausing periodically during repetitive tasks;
z Changing visual focus every hour;
z Ensuring that chairs are high enough elbows should be slightly higher than the keyboard;
z Using footrests if feet are not flat on the floor when sitting;
z Ensuring adequate clearance for legs under desks;
z Better placement of keyboard and screens;

MODULE 5: TECHNOLOGY AND E-BUSINESS

z Using document holders;
z Improving lighting;
z Using telephone headsets to enable hands-free phone calls while working at computer workstations; and
z Using anti-glare filters for screens in bright environments.
5.4

New and emerging technology (including Web 2.0)

Information technology continues to evolve rapidly. Faster, more reliable, and cheaper internet connections
fundamental changes in how applications are developed, deployed, implemented and used.
Innovators are experimenting with using the internet as an application platform. These technologies are
commonly referred to as Web 2.0, described in Wikipedia (itself a Web 2.0 application) as “changing trends in
the use of World Wide Web technology and web design that aim to enhance creativity, communications, secure
information sharing, collaboration and functionality of the web. Web 2.0 concepts have led to the development
and evolution of web-culture communities and hosted services, such as social-networking sites, video sharing
sites, wikis, blogs, and folksonomies.”
To date the impact on business and accounting firms in particular has been minimal; however, it is clear that
there will be changes in how accountants interact with their clients and team members.
5.4.1

Hosted applications

Also known as SaaS (Software as a Service) or ASP (Application Service Provider) applications or cloud
computing, these are applications hosted by the service provider and accessed by customers over the internet,
often with a simple web browser but sometimes with a small application automatically downloaded from the
hosting provider. Hosted applications have a number of advantages.
z The infrastructure required by the end user can be quite simple: often just a computer capable of running a
web browser and internet connection. Low-cost web books (cheap laptops) have emerged to capitalize on
these new applications.
Software deployment is eliminated. There is either no software installation on the user’s workstation or a
small application is automatically downloaded and installed. Users don’t undertake a complex installation
procedure. Furthermore, updates are automatically loaded, allowing team members use the latest versions of
the software applications.
z The hosting company hosts the data, and has responsibility for security and back-up. Security is much higher
than the measures small businesses can usually afford. Premises are highly secure and sophisticated security
systems are deployed. Users are released from the need to provide security and regularly back-up.
Users are free to access the application at any time of day from any location where an internet connection
is available (increasingly everywhere). This enables team members to work where it is most productive (for
example, working from home or in a different city).
Some concerns exist with hosted applications. Hosting companies generally don’t accept liability for any security
breach. This concern is mitigated by the significant investment of most hosting companies in ensuring highly
secure premises and application/data access. Accessing or downloading data, should the user terminate the
service or the provider cease business, is also a concern. Often service agreements try to exclude the supplier
from liability for almost anything.
Despite these concerns, hosted applications may transform how accountants and clients work together.
z Hosted accounting applications may overcome problems such as inefficient transfer of information and
amendments. Since the application is online, the accountant and their client can access the same data at the

same time. This means that any adjustment made by one will be seen by the other. Further, the inconvenience
of moving data to and fro is eliminated.
z Some providers are developing greater functionality. For example, a client may not know the coding for a
particular transaction. A question could be posted for the accountant who, by clicking on the link, could
review the transaction and could either respond to the client’s query or code the entry directly. During yearend work, accountants could mark for the client’s attention entries that appear to be incorrectly processed.
z Hosted accounting applications that incorporate alert systems may enable the accountant to see trends
occurring in real time. The accountant can then contact the client to rectify the issue of concern before
performance deteriorates. For example, if receivables collections start to wane, the accountant may see this
trend and contact the client to suggest increasing collections activity.
z Hosted applications generally require a fast and reliable internet connection. Even where the best
infrastructure is available, internet connections fail, connection to the application is lost and productivity
suffers. To overcome this risk, developers are creating “stateless” applications, which while hosted can
continue to operate when the connection is lost. A synchronized version of the application and data are
stored to the local machine. When the connection is lost, processing can continue on the local machine.
Once the connection is re-established, the application and data between the hosting platform and the
local machine is synchronized and processing continues on the hosted application. Google Gears is a good
example of this technology.
5.4.2

Social networking/online communities

Perhaps the most obvious impact of Web 2.0 is the creation of social networking sites or online communities, which
are transforming how younger generations in particular communicate. Facebook, MySpace, and Twitter are examples.
Generally users can join networks organized by geographic location, workplace or interests. Users can add
friends or connections and send them messages, or they can update their profiles and notify their friends or
connections about their activities.
Business use of social networking has been limited. Many businesses try to limit access, as they are concerned
about productivity loss in the workplace. Some sites such as LinkedIn target businesspeople directly to create
a network of colleagues that can be used as a referral network or to find a trusted individual or company
with sought-after skills. Some firms are creating their own groups within these social networking sites to stay
connected with current and past employees. Others sites such as guru.com create a directory of consultants who
can bid for work posted on the site, thereby facilitating a worldwide market for consulting services.
As the iGeneration (born after 1986) moves into the workplace it is likely that social networking and other
communication platforms such as instant messaging, used in their formative years, will become important
platforms to communicate internally and externally. Businesses will increasingly use social networking sites to
connect with groups of individuals who may be attracted to their products.
5.4.3

Wikis—collaborative knowledge

A wiki (defined by Wikipedia, the most famous wiki) “is a page or collection of Web pages designed to enable
anyone who accesses it to contribute or modify content, using a simplified mark-up language. Wikis are often
used to create collaborative websites and to power community websites. The collaborative encyclopedia
Wikipedia is one of the best-known wikis. Wikis are used in business to provide intranet and knowledge
management systems.”
Few accounting firms have created wikis, but wikis could improve productivity by allowing people to share
knowledge building document precedents, defining processes recording technical knowledge. It is unclear
whether wikis will deliver these benefits and whether the loss of productivity to maintain the wikis will be justified.

MODULE 5: TECHNOLOGY AND E-BUSINESS

5.4.4

Multimedia, video sharing and games platforms

For over fifty years, generations have become accustomed to using pictures, video and sound to absorb
information and to communicate. As internet bandwidths continue to increase, video and rich web-based
multimedia environments have emerged.
Graphically rich games platforms have created online environments where millions of people can interact and
work collaboratively on projects. Some businesses are now licensing these platforms to create virtual workplaces
to enable teams which work collaboratively regardless of geographic location.
Video-sharing sites such as YouTube permit the simple upload and sharing of videos. Podcast technology
enables the simple creation and sharing of sound files.
Accountancy firms often use multimedia in web-based video training for their team members.
It is only a matter of time before multimedia affects the way small and medium-sized firms engage with their
clients. Many firms have incorporated graphical presentations to help clients understand their financial results.
A few are experimenting with the use of video and podcasts to provide information to clients on business
management and the latest legislative changes.
5.4.5

Blogs

A blog is a website, generally maintained by an individual or a company, which comments on a particular
subject. Often readers can respond and post their own thoughts on the blog. Blogs could be used by small
and medium-sized firms to outline business management ideas and create an additional medium to highlight
expertise and further engage with clients and prospects.
5.4.6

Communications technologies

A clear influence of the internet (and technology change generally) is the revolution in communications
technology. In less than twenty years, communications have been transformed, with significantly lower costs and
widespread all-pervasive availability. The downside has been the expectation of an instant response. This needs
careful management in firms to ensure that team members do not become distracted responding to almost
constant communication, with a resulting loss of productivity (refer earlier to the problem of email overload).
Many new communications platforms have emerged. Voice over IP (VoiP) is continuing to transform telephone
communications. VoiP is the transmission of voice/sound communication using internet technology. The sounds
are converted to data packets that are transmitted over the internet and reconverted back to sound at the
receiver’s end. The quality of VoiP calls continues to improve, although sometimes they can suffer from latency
(delay) caused by poor-quality internet connections between the callers.
Products such as Skype facilitate free or very low-cost voice communication that can be invaluable team
members who are at different locations or for clients located in other cities or countries. Video calls are now also
commonplace, although they require connections with greater bandwidth.
Instant messaging systems are also heavily used, particularly by younger people. Mobile phones are used
throughout the world and costs are continually falling as there is more take-up. These systems can be helpful
in a business setting for quickly responding to a simple question. Use should be carefully controlled so that the
potential for constant interruption does not hamper productivity.
5.4.7

Freeware

Freeware is software that is distributed for free. The supplier often achieves revenue from advertising or
encouraging purchase of other products. Some freeware applications are “open source” applications: built by
developers who wish create quality applications and learn from collaborations with like-minded developers.

Internet browsers are the most common freeware. Microsoft’s internet Explorer, Mozilla’s Firefox, Google’s
Chrome and Apple’s Safari are all free. Mozilla’s Firefox browser is also an open source development. Most online
email systems are also free such as Microsoft’s Hotmail and Google’s Gmail. Free alternatives to Microsoft Office
have already been mentioned.
Take care when considering freeware for any critical firm applications. Review issues such as the availability of
support and reliability of product. Generally, avoid freeware unless it is well known with a strong reputation for
quality, functionality and reliability.
5.5

Introducing a paperless office

The paperless office has been predicted ever since the advent of the personal computer, but it hasn’t yet come
to pass. In fact, paper use has continued to rise for a number of reasons, based on the fact that people will
generally adopt a mode of working that involves the least amount of effort to achieve maximum productivity.
z Printers have become fast and reliable. It is often faster to print a document than to retrieve a paper file.
z Desks are bigger than screens. It is often easier to navigate large documents by spreading a paper copy out
on a desk than by paging through a document on a screen. Many say they get a better sense of a document
when it is spread out on a desk.
z Navigating through a paper file can be significantly faster than paging through, for example, a large PDF.
z Paper can be read anywhere, at any time. It doesn’t rely on batteries, it can be easily annotated, and it is the
medium that most people have worked with for most of their lives.
Does this mean that the paperless office will never become a reality? Technology is providing solutions that
mean working with electronic documents is significantly easier than paper.
Paper has long had its drawbacks. It is expensive and time-consuming to back up, and is highly vulnerable to
fire, flood and other destructive forces. It fades and generally deteriorates over time. It is more expensive to
transmit to another location. It is almost impossible to work collaboratively with a single paper document. It
is expensive to store, consumes valuable office space and is time-consuming to search. In addition, there are
strong environmental arguments against using too much paper, and in favor of reducing our usage as much as
possible. Clearly paper is not the perfect medium. The challenge is to overcome the shortcomings of electronic
documents while leveraging their distinct benefits.
5.5.1

Overcoming factors that work against the paperless office

Technology developments that can overcome the disadvantages of electronic documents include:
z Multi-screen technology, which over time, will match or exceed the advantages of laying documents out on a
desk. Larger and larger screens are emerging at lower and lower prices. Many small and medium-sized firms
have moved to two or three screens on team members’ desks, and have reported significant productivity
increases and less need to print paper documents.
z Inexpensive, small, and light netbooks, which are highly portable and will enable team members either carry
their electronic documents with them or access them over the internet.
z Continued increases in processing speed, which will make navigation through even the largest electronic
documents fast and efficient.
z Improvements in software, which will allow fast annotation of electronic documents or insertion of bookmarks
to assist in faster navigation. Indexing systems continue to improve the capability to search documents.

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z Software improvements, which will facilitate efficient onscreen completion of documents using radio buttons,
check boxes and drop-down lists.
Technology is only one issue. People generally are change averse. Some lack the time, energy, or interest to
learn to use new electronic tools efficiently. So, even with the technological solutions the challenge of weaning
people off paper remains. Many do not trust computer systems, particularly if they’ve “lost” a document or
it has become corrupted and can’t be recovered. To successfully use less paper in a small and medium-sized
firms, not only is investment required in technologies, but considerable effort and investment needs to be
made in implementation and training. Interestingly, often it is start-up practices that are the most successful
in the adoption of paperless technologies. These firms are not burdened by needing to change current work
practices, processes and attitudes. However, existing firms can achieve success with the right commitment to
implementing the necessary changes:
z Firm leaders must fully support the move, and be willing to spend the time and effort to change their
personal work habits and fully embrace the system. For some older practitioners, this may involve improving
their typing and document navigation skills. Many firms are unable to achieve this level of commitment and
generally these firms will be unable to achieve any significant success.
z Appoint a “champion” (already discussed in Section 5.3.1 ) to drive the implementation in the firm. This
person needs to have enthusiasm for the project, and principals need to empower them to address issues
and concerns as they arise and remove barriers to adoption as quickly as possible. The champion should be
the liaison with the system suppliers. The champion will also be responsible for training and handling team
member queries.
A key task for the champion is to facilitate the design of template documents that enable fast and simple onscreen completion. This can include:
z Population of document data (such as client names and addresses) from other systems;
z Automated document creation from standard paragraphs so that customized documents to meet a particular
circumstance can be quickly generated;
z Use of radio buttons, check boxes and drop-down lists on documents to enable fast completion; and
z Use of bookmarks and hyperlinks to assist in rapid navigation within a document and between documents.
A considered approach works better than an aggressive rollout. Many successful implementations commence
with a pilot in one group. This enables teething issues to be discovered and resolved before a firm-wide
implementation occurs.
Replacing accounting and audit work papers has proved a stumbling block. Many firms have experimented with
Microsoft Excel Workbooks. However, most firms lack the skills and/or are unwilling to invest sufficient time to
build template sheets that are efficient to complete. Few have created solutions that elegantly cater to query
management and sign-off. Work paper solutions can be purchased in some jurisdictions; however, many of
these lack the sophisticated functionalities required to facilitate efficient onscreen completion and review. The
functionality of these third party applications is improving and may be the source of significant productivity
improvements in the future.
You will need to implement a document management system that will enable your firm to unlock the key
benefits that electronic documents deliver. See Section 5.2.5.
The internet is enabling document collaboration. For many, this is a difficult concept to embrace, since it rarely
exists in the paper world. Document collaboration enables two people to work on the same document at the
same time, regardless of location. The best example of document collaboration is Google Docs—Google’s web-

based hosted applications. It allows many people to edit or view a document regardless of location. Only an
internet connection is needed. Consider these possible applications:
z Your firm builds a forecast for a client. The client could view the spreadsheet from their office. Over the phone
the accountant and the client could discuss possible changes. The accountant could make the changes and
the client could instantly see the effect of those changes. In this way discussions could occur with clients in
different locations: suburbs, cities, states or countries.
z An important document is being prepared. As it is being prepared, clients or other advisers could review the
document and suggest possible changes.
Clearly, as document collaboration becomes common, new applications will emerge to enable teams,
accountants and their clients, and various third parties to work more effectively together.
Scanning is also a critical component of a move to a less paper environment. Scanning systems are emerging
that can automatically file documents by utilizing OCR (optical character recognition) technologies. These
“read” information on the document to enable the system to file the document appropriately and in some cases
automatically generate letters and other documents for the client.
How documents are signed in a paperless environment is also an issue. Some firms merely embed a digital image
of a signature into the document. Should this approach be taken, firms should build in safeguards to ensure that
the digital signature files are secure, and access is only for those authorized. (Bear in mind, however, that there is no
security guarantee for these signatures. Anyone with a scanner could easily create a copy of the signature file.)
Digital signatures are more sophisticated technologies that embed a “digital signature” into the electronic
document. The digital signature can only be embedded after the user has been appropriately authenticated
(using username and password or fingerprints or other biometrics). Some jurisdictions are moving to require
digital signatures on certain documents.
A matter of some contention is the importance of imaging prior-year records. There are clear benefits in having
all documents available online; however, the cost of imaging prior-year files is considerable. The reality is that
the requirement to access prior-year records is rapidly diminishing. Most firms generally will only scan prior-year
permanent documents such as legal documents, incorporation documents, trust deeds and important enduring
work papers that will be required to complete future years’ assignments.
Finally, some firms are capitalizing on their paperless systems by conveying an environmentally friendly image
to their clients and the community. With today’s greater focus on the environment, it is likely that firms may find
themselves under increasing pressure to adopt environmentally friendly practices.
5.5.2

Potential issues with regulators and courts

A question often raised in relation to moving towards a paperless environment is the attitude of regulators and
courts to the acceptability of electronic copies of documents. From the outset it must be stressed that this is a
general overview and may not be applicable to particular circumstances. Small and medium-sized firms should
obtain their own legal advice regarding the acceptability of document images for a particular circumstance.
Each jurisdiction will have its own laws in respect to admissible evidence. Further, each regulator may have their
own laws and regulations regarding the acceptability of document images. These should be fully reviewed and
understood before any decision is made to destroy original documents and rely on electronic copies.
In most jurisdictions, courts and other public authorities generally accept that electronic copies of documents
will be admissible as long as the copy is produced by a technique “which accurately reproduces the original.” The
issue is whether the other party in a court case may contend that the copy does not accurately reproduce the
original. For this reason, consideration should be given to storing documents in a format that is difficult to alter.

MODULE 5: TECHNOLOGY AND E-BUSINESS

Difficulties can arise when different authorities require documents secured in different ways or in different
formats. This can result in the firm having to maintain multiple applications to create and secure documents for
different regulators.
TIFF (tagged image file format) is often regarded as a format that is difficult to alter. However, many firms prefer
to use PDF (portable document format) because to it:
z Is universally compatible (files can be read with the free Adobe Reader software);
z Is generally smaller than TIFF files (and therefore more quickly transferable);
z Generally presents better onscreen, and when printed;
z Maintains the orientation for each page (whereas in TIFF files, the orientation is set by the first page);
z Can be password protected and/or protected by electronic signatures to maintain integrity; and
z Can be searched electronically (except where the PDF is created from a scanned image).
The document management system must assist in verifying that the document has not been altered. It is
critical that approved documents can be locked, with a record of when the document has been locked. Ideally,
a document history recording when the document was created, edited, reviewed and approved should be
maintained so the courts can be assured that the integrity of the system has not been compromised.
In some jurisdictions, some regulators require documents to be submitted with the original “wet” (ink) signature.
Slowly some are moving to accept images or electronic signatures. Some other organizations also refuse to
accept electronic documents, which can create a significant barrier to storing some electronic documents. These
instances should continue to diminish.
The local professional body may provide additional information regarding the regulatory requirements in the
jurisdiction.
5.6
5.6.1

Exploring the role of knowledge management systems in business
Creating competitive advantage with your firm’s knowledge

Information is competitive advantage, whether it is the capacity to deliver services more efficiently, or to provide
consistent services regardless of employees’ skills or know-how. McDonald’s has accomplished the conversion
of information to knowledge through the use of franchise manuals, designed to provide information from
accounting methods right through to hygiene and food preparation methods. The capture of this information
ensures more consistency in the delivery of the principal service, while minimizing the requirement for knowhow or highly intelligent trouble-shooters. The main aim is to ensure that this information is understood,
disseminated, and followed as part of business operations (Leidner, 1997).
There is no universal understanding of “knowledge” and “information,” although knowledge is seen as
importance or power. When knowledgeable employees leave an organization, it is perceived that with them
leaves some degree of tacit knowledge, whereas information is within the reach of any organizational member
(Firestone, 2003). Firestone further clarifies the role of knowledge within a dynamic knowledge lifecycle, citing
its fluidity and adaptability to the information that it encompasses.
Studies have found that companies that share and collaborate on organizational information continue
to do so with more efficiency with the introduction of knowledge management systems (KMS), whereas
organizations that do so less frequently and efficiently continue in the same manner and pattern, even with
KMS (Vandenbosch & Ginzberg, 1997). Understanding the culture of an organization before embarking on
knowledge transfer will help to identify and work within the boundaries of what level of information is useful
and beneficial. The key challenge is to manage the transition to an organization that promotes knowledge sharing.

Search engines and web portals are instrumental in delivering information as you need it. Mastering these
technologies can be an art form, with search operators becoming more of a necessity in filtering through the
millions of results returned from a common string search.
5.6.2

Using technology to filter information in search of knowledge

Information retrieval can be dynamically re-engineered with the advent of new technology and solutions. Over
time, the retrieval and retention systems technology will adapt and change with new systems as they evolve,
further improving the quality and recovery of pertinent information (as shown in Figure 5.1 below).
Figure 5.1 Key components in information management

Technology

Culture

Information

5.6.3

The rise of RSS, wikis, blogs, and social networking as Web 2.0

Technologies such as corporate intranets, social networking and really simple syndication (RSS) now form
the majority of knowledge sharing, providing syndication systems for information to be disseminated
beyond corporate boundaries. These systems are part of Web 2.0, which allows companies large and small to
communicate their ideas and values to potential and current clients.

MODULE 5: TECHNOLOGY AND E-BUSINESS

Figure 5.2 Gartner Group technology hype cycle 2007
visibility
Virtual Environments/
Virtual Worlds
Open-Source Collaboration
Mashup
Enterprise Social Software
Semantic Hypertext
Expertise Location
and Management
Collective Intelligence
Web 2.0 Office
Productivity Suites
Video Telepresence
Content Analysis

Office Open XML File Formats
Podcasting
Open Document Format for
Office Applications (OpenDocument)

Web 2.0 Workplace Technologies
Portable
Personality
Folksonomies
Instant Messaging Federation

Unified Communications
and Collaboration

Ubiquitous
Collaboration

Workplace-Enhanced
Business Applications

Enterprise Instant Messaging
Presence
Taxonomy
Web Conferencing

Social Network
Analysis

RSS Enterprise
Enterprise Portals
Open-Source
Office Products
Wikis
E-Learning Suites
Corporate Blogging
Semantic Web
As of July 2007

Peak of
Inflated
Expectations

Technology
Trigger

Trough of
Disillusionment

Slope of Enlightenment

Plateau of
Productivity

time
Years to mainstream adoption:
less than 2 years

2 to 5 years

5 to 10 years

more than 10 years

obsolete
before plateau

Figure 5.2 and 5.3, from the Gartner Group, show the rise, fall and then plateauing of Web 2.0 technologies.
With so much information already available through the internet, Web 2.0 technologies help to streamline and
access greater volumes of information, and to present it in simpler and more accessible ways.
Figure 5.3 Gartner Group technology hype cycle 2008
visibility
Green IT

Microblogging

Social Computing Platforms
Video Telepresence

3-D Printing
Cloud Computing
Surface Computers
Augmented Reality

Solid-State Drives

Mobile Robots
Basic Web Services
Behavioral Economics
Public Virtual Worlds
Web 2.0

Location-Aware Applications
SOA

Service-Oriented
Business Applications

Tablet PC
Electronic Paper

Virtual Assistants

Wikis
Social Network Analysis
Idea Management
Corporate Blogging

RFID (Case/Pallet)
Context Delivery Architecture
Erasable Paper Printing Systems

Technology
Trigger

Peak of
Inflated
Expectations

Trough of
Disillusionment

Slope of Enlightenment

As of July 2008

Plateau of
Productivity

time
Years to mainstream adoption:
2 to 5 years
less than 2 years

5 to 10 years

more than 10 years

obsolete
before plateau

Much of the corporate focus during the formative period has been around the capture of knowledge,
particularly capturing talent and providing a directory of that talent: for example, when you need a
specialist, you only need search the corporate mySite (http://office.microsoft.com/en-us/sharepointserver/
HA101087481033.aspx) looking for someone with such a specialization.

Two of the most pervasive information repositories to emerge from the Web 2.0 era are blogs and wikis,
which have become an important part of information dissemination. Search engines use a number of search
algorithms to determine relevance (or, as Google defines it, “page rank”).
Technologies such as Microsoft SharePoint (http://office.microsoft.com/en-us/sharepointserver/
FX100492001033.aspx) seemed
to promise that companies could capture corporate knowledge in information repositories such as corporate
intranets, wikis and blogs, and extract it to static storage. However, it can become just more useless information
more of a distraction than relevant to one’s duties.
Collective technologies such as AJAX (Asynchronous JavaScript and XML) (http://en.wikipedia.org/wiki/AJAX)
improve the usability and functionality of web pages and portlets (a portlet is an integrative component
embedded into a portal page, delivering information from other business systems). As the user types a problem
or search term, the technology searches through the metadata to find commonality between what they are
seeking and what has already been defined in the knowledge base. By returning of data contained within
the repository, querying large volumes of data without the need for the user input (normally by pressing the
“Submit” or “Search” button). These functions have been widely adopted by search engines such as Google and
Bing, which provide relevant (and frequent) search terms based on literal string input.
Leidner noted several concerns related to information, management and technology each representing a core
attribute of successful implementation of a knowledge management system (see
Figure 5.4 Key concerns related to knowledge management
z Building the date repository and retrieval system to avoid information overload
z Management, consistency and accuracy of data
Information

z Privacy and effective utilization of correct information
z Change management implications
z Knowledge transfer from individuals and business units (departments)

Technology

z Knowledge custodians and moderators
z Warehousing vast arrays of data and infrastructure requirements
z Technologies to leverage informations retrieval

Management

z Information privacy and security, especially sensitive corporate know-how

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Figure 5.5 Interlocking functions of knowledge management technology

Database /
Database
Management

Browsing and Retrieval

Enterprise Systems

Communication
& Messaging

Users are already overloaded with information, leading to concerns that people may not understand the
information captured in the KMS. This supports the assertion by Courtney et al. (1997) that “omitting the
unimportant may be as important as concentrating on the important.” In some cases documenting the routine
and trivial processes in your business may detract from accessing key information from the KMS.
In accounting firms, more procedural document systems can link process, information, and knowledge. Software
systems can be crafted to assist in workflow management, ensuring that, as a work document moves through
the defined processes, it can be reviewed and approved for distribution or allowed to progress to the next stage.
Many of the current systems provide easy-to-use interfaces to aid in the creation of workflow steps.
KMS solutions need clear integration with enterprise systems, so that information is retrieved at the time it is
required. Failure to integrate these features will result in a less than desirable outcome.
5.6.4

Preparing for knowledge centric information systems

There is no defined science that provides a step-by-step process in converting your processes and knowledge
to an electronic solution. Some key attributes will ensure that your decision to move to electronic systems will
provide the desired outcome, both in capitalization of investment and in efficiency gains.
5.6.4a Key considerations when implementing KMS in your business
David Maister (1993) confirmed that the work that you do will dictate the structure of your firm. Timbrell (2008)
hypothesized on the need for businesses to focus on the process of converting “expertise to efficiency” and the
structures that underlie the modern firm. Understanding where your firm can gain from efficiency should be the
starting point for documenting the requirements of a knowledge management system for your firm.

Figure 5.6 Considerations in knowledge management

Expertise

Experience

Efficiency

High Diagnosis Intensive

High Execution Intensive

Highly Customized

Programmatic

High Client Risk

Low Client Risk

Few qualifies Vendors

Many qualified Vendors

Low Leverage

High Leverage

High Fees

High Fees Sensitivity

Adapted from: Timbrell 2008; BusinessFitness 2008
Only processes that can effectively cross the information chasm should ever be considered for knowledge
transfer. Knowledge that cannot be easily applied to create efficiency, or that requires too many conditional
outcomes, may lead to inefficient or incorrect outcomes requiring rework and thereby becoming inefficient.
Pundits hypothesize that knowledge cannot be managed, only information, and that information only becomes
knowledge when assimilated by those who access this information (Lefkowitz & Lesser, 1988). What is agreed is
that knowledge management, in whatever form, facilitates success when it can be imparted and integrated at
an organizational level (Asprey & Middleton, 2003).
5.6.4b Rewarding input: a process to collaborative success
Firm-wide KMS usually require profound cultural renovations because, traditionally, organizations have
rewarded their professionals and employees based on their individual performance and know-how. In many
organizations, a major cultural shift would be required to change their employees’ attitudes and behavior
so that they willingly and consistently share their knowledge and insights. An effective way to motivate
knowledge sharing is through the organizational reward and incentive mechanisms. PricewaterhouseCoopers
uses this mechanism to promote knowledge sharing among its consulting and professional employees. For
example, number and frequency of use of a consultant’s publications (a measure of knowledge sharing) is an
important component of the consultants’ promotion decisions. PricewaterhouseCoopers enhances the appeal
of knowledge sharing by revising professionals’ performance reviews to reward them for knowledge sharing
activities (Hildebrand, 1994).
Such metrics will ensure that content contributed by the “specialists” contributes to the overall value of the
information contained within the knowledge repository. From there, data metrics can be obtained from
users that access the published content and provide relevance and qualitative feedback on the currency
and relevance of such information. These feedback mechanisms are invaluable in determining whether the
perceived value is in fact its realized value.

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5.6.4c Why even the best laid plans fail at adoption: will cultural readiness derail the effectiveness and relevance
of your firm’s knowledge management system?
Establishing cultural readiness is paramount in successfully adopting such technology in any business,
regardless of size. Experts agree that cultural balance and acceptance of new systems must be prioritized ahead
of implementation or deployment, to improve the chances of successful adoption (Firestone, 2003). One clear
element is the balance of use, where the use of the KMS is central to one’s duties, not adjunct to them. Many of
these line-of-business KMS integrate seamlessly into other firm systems.
KMS can deliver an overload of information. The duty of an effective KMS strategy is to provide a filter for
relevant, timely information. Systems that learn or comprehend specific taxonomies can provide contextually
relevant information at the time of requirement this can be achieved through the use of specialized software
and applications, designed to interrogate scores of information, returning the top most-matching results. The
corporate value of such systems when implemented successfully can be related to business ability to attract
higher EBIT ratios in value beyond industry norm, where knowledge is effectively managed (in this context)
(Asprey & Middleton, 2003).
5.6.5

Exploring document and content management

Documents are generally thought of as something on paper that provides information or evidence (Asprey
& Middleton, 2003), or, more generally, anything that makes use of marks or symbols to indicate a person’s
thoughts. Needing to manage documents is not new; it dates back to times when simple documentation
methods were used to record notable events and actions of prominent people, so they could be recalled for
historical purposes. This simple communication method has evolved over time. Early document management
systems have been employed for the vast array of physical documents catalogued in the world’s libraries and
archives over the centuries, to provide a retrievable storage vessel for information.
Moore’s law of electro-capacitance (see http://en.wikipedia.org/wiki/Moore%27s_law) hypothesizes that
electronic capacities (in silicon chip capacity) increase at exponential rates every twelve to eighteen months.
This same theory is used among CPU (see http://www.intel.com/technology/mooreslaw/) chip manufacturers
and hard drive manufacturers (see http://www.semiconductor.net/article/339296-Molecular_Imprints_Takes_
Template_Replication_to_HDD_Production.php).
Extrapolating from this, the terra byte drives of today (1012 - bytes) will quickly be replaced with drives capable
of storing peta bytes (1015 - bytes). It’s hypothesized (Mancini et al., 2009) that this rule can be equally applied
to the way in which electronic documents have grown in proportion to the capacity of their storage. Using these
raw figures and extrapolating studies into documents stored on the internet, drives capable of storing one peta
byte of data (1 PB) will be able to hold approximately 1,847,865,595 average-sized (5.14 MB) PDF documents
(Lyman & Varlan, 2002).
Electronic document management has only really progressed in the last thirty years, following the advent of
digitized documentation systems in scanning and optical character recognition (OCR) technologies. Together
with the of electronic commerce systems (e-commerce) and electronic data interchange (EDI) via the internet, the
volume and requirement for management of electronic communication has grown exponentially. Studies from
the University of California (Lyman & Varlan, 2002) estimated that some 7,500,000,000,000 office documents are
created each year, with most created and stored in a digital format. This shows that businesses need to identify and
strategize the way in which they will create, record, store, archive and destroy their documents.
5.6.6

Understanding document management: an accounting firm context

Integrative document and content management (IDCM) in accounting firms has been defined as “The definition,
development, and implementation of information systems to support the overall document life-cycle and

management of document content. This implies a holistic IDCM Systems Architecture, embracing subsystems
that provided management of [enterprise documents]” (Asprey & Middleton, 2003).
Storage requirements and emerging systems considerations
With the voluminous increase in document storage requirements, technologies need to ensure business
continuance in the event of hardware failure. You also need to consider back-up and disaster recovery strategies.
Documents can be stored, whether in-premise or in virtual internet data environments (colloquially called “The
Cloud”), in Microsoft Office Word (docx), portable document format (PDF) format, or as a dynamically created
page on a website through formats including eXtensible Markup Language (XML) or the common reporting
framework extensible Business Reporting Language (XBRL).
Such standardized frameworks are helping to shape the direction of electronic delivery of the mountains of
paper-based forms used to report on entities around the world. With government initiatives aimed at simplifying
the reporting requirements of multiple agencies, such processes will further change the landscape of document
and data storage requirements under an IDCM.
Governments such as in the Netherlands and Australia have embarked on or delivered XBRL reporting
framework projects. Madden (2009), in his address to an accounting symposium on XBRL technology initiatives,
said there were over thirteen unique words to describe “income” across eleven different (Australian) government
agencies, demonstrating the need for review and assimilation of reporting information for government and
statutory requirements. Such “streamlining” can only be established when applications, agencies and legal
reporting requirements can be defined in a universally acceptable way, delivering information as required
without the need for multiple different forms (and online portals). In a utopian environment, such reporting
frameworks can create efficiencies through pre-filling data labels on reports that have cross-divisional reporting
requirements (such as to state and federal government).
These initiatives highlight the need for accounting firms to establish IDCM strategies, to leverage efficiencies
gained through such technological advances. Otherwise, you will continue to contend with physical paper
storage and archiving, and see your business and employees consumed by the tidal wave of information to
come (Mancini et al., 2009).
Moving to a document and content management solution
In accounting and legal professions an IDCM is referred to as a “record keeping” solution, or in some instances
a “paperless” initiative. This approach merely covers one aspect of the document lifecycle record retention. To
move to a fully integrated “paperless solution” (where no paper is printed or physically stored) would require the
encompassing of standard documents such as compliance documentation, work papers, template documents
and so on to ensure success through such an integrative approach. Kepczyk defines more definitive benchmarks
for accounting firms of America through the annual report “AAA for benchmarking paperless office practices,” to
assess the efforts made by accounting firms in moving to a more streamlined workflow and process automation
(Kepczyk, 2008).
Digital documentation includes:
z Digital office documents;
z Email;
z Physical office documents;
z Drawings and technical documents;
z Document images;

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z Document indexing, such as OCR and barcode;
z Business processes using automated capturing technology and workflow management; and
z Reporting outputs such as XBRL and static reports.
The IDCM solution may also need to be integrated with line-of-business applications, including some key
systems used in accounting firms, such as:
z Practice management systems;
z Knowledge portals; and
z Government and compliance systems (for statutory reporting).
5.7

Establishing knowledge and information repository requirements

5.7.1

Establishing requirements for your firm

Understanding which systems can add value to your business ensures that your firm will accept in a cultural
sense those chosen. It will also ensure that positive outcomes proceed from implementing them. However, firms
have to be clear on what requirements suit them best.
5.7.2

Establishing when you need a document management solution

So far, the nature of the document, the compounding growth of document volume and the compelling reasons
information workers will need considered solutions in managing the ”tidal wave of information” have been
established. Coupled with the need for an integrated approach to knowledge management is a business
imperative for capturing and harnessing enterprise assets, whether knowledge, information, content or records.
BusinessFitness (2009) identified twenty-two phrases that indicate a degenerative information state within
an accounting firm. The following resonated as the most relevant for, which an IDCM would provide relief and
productive value (or return of
productive time):
a. I don’t know what emails have been sent to this client.
b. Emails are stored in each person’s inbox, which makes it difficult to follow-up on communication.
c. The client file appears to be missing some documents.
d. Where would (he/she) have saved that file?
e. I’ll get the file and get back to you.
f.

It’s so tedious to find information on our system.

g. Which version of this document is the most up-to-date?
h. New team member induction is such a time-consuming process.
i.

We need some standard operating procedures around here.

Businesses need to consider the impact of such problems across the business. A fifteen-minute lapse in
productivity (per day, due to technology) across a two partner firm can equate to several thousands of dollars
in lost productivity (PRO.ACTIVE Technology Audit for Accounting Practices, see http://simpleitaudit.proactivesolutions.com.au/).

Figure 5.7 An integrative overview of IDCM and KMS for accounting firms

Integrative Document, Content and Knowledge Management
Knowledge and Content

Practice Applications

Desktop Applications

Repositories
Knowledge

Policies and

Transfer

Procedures

Workflow Management

Enterprise
Knowledge Portal

HR Guidelines

Corporate

Governance &

“Yellow-Pages”

Accountability

Client Record

Enterprise

Management

Client Portal

Procedural

Collaboration

Working

Tools

Documents

Internet
Delivered
Resources

Schedules and

Enterprise

Calculations

Portals

Letters and

Consolidated

Templates

Data Services

Wiki’s Blogs

Check Lists

An integrative approach to document, content and knowledge management (see Figures 5.7 and 5.8) has a
distinct advantage and requires that all aspects of the workflow process are included in the document lifecycle.
Failing to consider or omitting the value of a single component (such as email client integration) can have
detrimental consequences to the overall functionality and usability of such systems within the organization.
Figure 5.8 Document and workflow process
Knowledge
z Expert defined process
z Definition of outcomes
z Scope of delivery
Information
z Procedural checklists
z Work instruction
z Delivery requirements
Workflow
z Managed workflow
z Review process procedure
z Standardised preparation and completion
Delivered outcome
z Finished work item
z Delivered, retained, stored
Guidelines for developing and implementing information management systems
Whether considering the requirements for document retention in physical or electronic format, the key
principles that surround governance of electronic record keeping strategies have already been well defined and
embodied under ISO 15489. For example, the DIRKS approach (as utilized by the Australian National Archives:
http://www.naa.gov.au/records-management/systems/DIRKS/index.aspx) provides an eight-step guide for

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implementing such systems. These steps can be unilaterally applied to an accounting firm when considering
the functional and cost benefits for an IDCM. Shown below is an adapted version (Asprey & Middleton, 2003) of
these steps that shows how these guidelines apply to an accounting firm:
1. Preliminary investigation to identify resources, define boundaries, and establish housekeeping functions and
associated issues.
This is one of the clear imperatives before selecting technology, or systems based on functional specification.
Questions such as “What does our business need from an IDCM?” should be considered before “What are the
functions of [specific] IDCM solution?” Taking the approach of requirement before solution will ensure that
you are not taking a blinkered view of a single product or solution.
2. Analysis of business activity, including stakeholder identification, risk assessment and development of a
business classification scheme.
This is often neglected under the pretense that the software will do as the firm requires. Every business has
differing requirements, based on existing processes, whether manual or otherwise.
3. Identification of record-keeping requirements.
What governance and reporting requirements exist in your jurisdiction? IDCM systems implemented without
consideration for housekeeping (retention, archival and destruction) can often become an electronic
document landfill, further detracting from the usability of information.
4. Assessment of existing systems, including gap analysis.
Much of the requirement of a successful implementation (more so in adoption) comes from the need to
replicate current system or process functions. Opting for the displacement of a solution (either software or
manual process) within your implementation plan may have unexpected outcomes, when such systems are
later defined as business imperatives. Careful consideration of requirements and functionality should be given
to systems that will no longer be available under the proposed IDCM.
5. Development of strategies for record-keeping.
Understanding how you will record and maintain records created as part of your business processes will also
play an integral part in understanding the long-term requirements for storage and data warehousing.
6. Design of a record-keeping system, including:
a. Establishment and maintenance of record-keeping;
b. Assignment of responsibilities;
c. Design or redesign of work processes, documentation, guidelines, and operating procedures;
d. Design of electronic or hybrid systems for records creation, capture and control;
e. Development of a training plan; and
f.

Development of initial system implementation plan.

In principle, this part of the guidelines is the establishment of your project implementation methodologies.
Engagement of a consultant familiar with the solutions selected is recommended to ensure that best practice
methodologies are implemented. Where many projects fail is in the failure to surround the investment
with adequate resources—or placing ill-equipped technical experts (such as the partner responsible for
IT, who happens not to have any formal understanding of the technologies or methodologies required in
implementing such systems) at the helm of the project implementation.
7. Implementation of a record-keeping system, including the collection and analysis of implementation
strategies and management of the process.

Asprey & Middleton provide a complete process for assessing and evaluating solutions in determining needs
assessment. This should form the basis for selecting a solution that meets the requirements as set out as part
of the defining requirements stage (Asprey & Middleton, 2003); adapting these processes into your project will
help to ensure appropriate considerations are made when implementing the chosen solution.
8. Post-implementation review, including the collection and analysis of performance data and the
identification of corrective actions.
In many instances, post-implementation review takes a blinkered approach as it reviews only what was agreed
as required (for implementation) from the business requirements, rather than the overall requirement of
the business. It is important to assess the overall impact of the project—not in isolation from the needs of
the business. It’s not possible to deliver a solution that meets every business need, and in some cases, some
business needs take priority over others however, it is important that business needs not included in the original
assessment be included in assessment post-implementation, to ensure that excluded processes do not detract
from the overall efficiency and success of the overall objectives.
5.8

Technology to deliver efficient document management

5.8.1 Technology considerations for document management solutions
Refer to References and further reading for websites and information. The following provides more specific
technology considerations when reviewing document management requirements. Software vendors differ
in each region, so to provide a review or feature comparison between each software vendor would not be
practical, or beneficial, as features and key benefits frequently change.
Strategy for technology that delivers efficiencies from IDCM systems
What an information system should deliver was clearly articulated in Jenson’s (2002) work on information and
knowledge clarification in the workplace. It is defined in cultural principles that can drive a successful change in
information management, including:
z Clarity: My manager organizes and shares information in ways that help me work smarter and faster.
z Navigation: In my workplace, it is easy for me to find whomever or whatever I need to work smart enough, fast
enough.
z Fulfillment of basics: In my workplace, it is easy to get what I need to get my work done—right information,
right way, in the right amount.
z Usability: In my workplace, corporate-built content (such as IT training and support) is easy to use.
z Speed: In my workplace, that same corporate-built content gets me what I need, as fast as I need it.
z Time: My firm is respectful of my time and attention, and is focused on using it wisely and effectively.
It’s not hard to understand the reasons why businesses are considering IDCM systems, when studies have
identified considerations in the document lifecycle such as:
z It costs $20 to file a document, $120 to find a misfiled document and $220 to reproduce a lost document.
z The average document is photocopied nineteen times.
z Professionals spend 5–15% of their time reading information, but up to 50% of their time looking for the right
information.
Selecting the right method for your businesses cannot be defined with a cookie-cutter approach; several
individual considerations need to be taken into account (see Mancini et al., 2009). The foremost requirement,

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however, is commitment from all stakeholders, including the rank and file. Without this considered support
failure is guaranteed.
5.8.2

Client portals and delivering information in a secure collaborative environment

Email as a primary collaborative medium is falling out of vogue, and limits the extent of collaboration due to the
disconnected nature of each communication (Mancini et al., 2009). Client portals provide access for clients to
collaborate with static information published through IDCM document controls.
These systems further improve the client–provider relationship in communicative collaboration, where
documents can be “approved” or accessed as part of the process. Through individual audits of firms’ efficiencies,
Smith (2009) noted that firms with the highest productivity and profit per partner were those that produced
invoices in draft format, engaging the client prior to preparation of “final” documentation, further minimizing
rework post-finalization. Client portals allow for engagement of clients through this process, with automated
workflow triggering notification via mobile (SMS) delivery, or a conventional email requesting more succinct
input requirements from the client.
There are several other areas in which centralized document collaboration is beneficial in workflow management:
z Prohibition: Limitations of some jurisdictions when sending personal information, such as [Tax file Number/SS
Number/IRS Number] over email is prohibited.
z Document source control: Delivery of information to a secure web portal, to enable control of documents.
Once documents leave your email server, there is no control over where and who will access the information.
You need to feel you can control what information is available to relevant stakeholders, such as bank
managers, clients and shareholders.
z Document security: Web portal and format control (in secure PDF settings) can control further in-document
functions such as copying text and printing. Documents delivered through a web portal can then have
structured security policy enforced on them, ensuring document properties are not misused.
5.8.3

Moving to a “less paper” firm

Efficiencies from moving to electronic filing systems include reduction of paper usage, a smaller physical
footprint for archives, simplified electronic review processes and many other cost-effective processes. Some
technology considerations are fundamental to a firm’s overall ability to successfully move to a less paper (or
“paperless”) environment.
5.8.3a Technology solutions
1. Multiple screens
Much of the efficiency relates to the ability to find, refer and work with electronic mediums. Increased screen
real estate becomes a critical component in the success of “paperless” initiatives.
Much of the negative hype surrounding “multiple monitors” centers on the misunderstanding that the screen is
foreign and not easily utilized through common interfaces (keyboard and mouse). This is not the case, with new
and seasoned users of multiple monitors singing the praises of its efficiency and its necessity for an electronic
work environment. PRO.INTEGRATIONS, through its SimpleIT audits (PRO.INTEGRATIONS, 2009), provides
an unusual method of determining the return on investment of multiple monitors, correlating productive
improvement to workdays recovered. A standard information worker recovers on average seven workdays per
annum through efficiencies gained, further demonstrating the fiscal value of such an upgrade.

2. PDF printing processes
Portable document format (PDF) is by far the most versatile document format, and is commonly referred to as
a secure platform for document sharing. However, PDF documents lack security, with most PDF editors able
to mark up and change information contained within the document. Attention must be paid to the security
policies that will govern files shared by your firm.
z Printing: will this be allowed by the end recipient, or will it require a password in order to enable this feature?
z Selecting text: where text can be selected, it can be copied or exported to other document formats.
z Selecting images and objects: this allows for content to be copied or extracted.
z Digital signatures: will documents be signed digitally (most secure), or using a secured image of a signature
(less secure)?
Programs such as Adobe Acrobat and Nuance PaperPort allow for the creation of a common platform PDF
document, so users can apply various levels of security. Enhanced features enable multi-page documents to
be “stacked” and recompiled in a single PDF document, allowing for document compilation from multiple
application sources (such as annual reports and financial statement preparation).
Consider automated processes for converting documents (by scripting and automated software processes) to ensure
that documents intended for use outside the organizational firewalls have appropriate security controls in place.
3. Scanning methodologies
Scanned source documents also require automated processes. Applications that automate the process of
handling scanned documents are imperative to delivering a paperless solution.
With many governments still reliant on submission of paper-based returns, accounting firms need to manage
the documents that form the volumes of correspondence received. An integrated scanning solution is a must.
Systems that provide the following functionality can greatly reduce the time spent:
z Automated saving of client correspondence into IDCM systems;
z Generation of general correspondence (cover letters, notification and summaries);
z Accessing and merging common data fields such as address details; and
z Ability to manage non-standard document, i.e ad hoc scanning of handwritten notes or non-standard
correspondence.
4. Standardized documentation and templates
Practice management systems that provide an integrated repository of standard procedures, letters and
templates, with automated content processes (merging address and common client details directly into
outputted files), will provide a distinct advantage over solutions that only provide document repository features.
These automated procedures will simplify and reduce administration time in preparing correspondence. Some
of these automated features would include:
z Auto profiling document when created, saving directly into the IDCM solution under the relevant client/work task;
z Common documents in template form, with integrated merge capabilities; and
z Ability for such documents to be created, inserting the objects that permit data to be populated by the
automated merge processes.

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5. Electronic work papers and checklists
The generation and compilation of electronic work papers ideally will be done electronically. Manual work
papers necessitate a manual filing system, and scanning the resultant (manual) work papers into an IDCM does
not constitute an electronic process. In order for an accounting firm to capitalize on a truly electronic (and
paperless) initiative:
z All steps in the process must be paperless;
z There must be electronic linking of documents to a central “index” page, allowing reviewers to access the
back-up (or background documentation);
z The process must capture who has prepared, completed and reviewed steps as part of the process; and
z The process must be defined and followed by each partner, with minimal (or no) changes for “personal
preference.” Partners must agree on how electronic documents are completed, and the process documented
and followed. Out-of-process changes for a personal preference can detract from the efficiency gained from
an electronic solution.
5.9

Introducing an e-business strategy

Few small and medium-sized firms have an e-business strategy other than using email communications.
Research has shown that the most common reason clients access a firm’s website is to obtain the telephone
number. The challenge is to embrace the internet’s opportunities and transform how you interact with clients,
team members and third parties. Firm websites are discussed
in Section 5.2.4.
Functionality that facilitates greater use of e-business functionality can include the following measures.
5.9.1

The client portal

The heart of an e-business strategy for any firm is the client portal. The portal provides a secure space on
your firm’s website that clients can securely access. The portal would facilitate efficient and secure transfer of
information between your firm and its clients. Email is inherently not secure. It can be secured, but it is still
inefficient. A client portal has a significantly higher level of security. Generally, SSL (secure socket layer) is used
(when the lock is shown in the browser).
The client portal allows clients to upload source documents for your firm to access. Similarly, your firm can
upload completed documents for clients’ access. However, the portal can add further value to clients by
become the repository for all clients’ financial and legal documents. The client would then have a single source
from which to access tax documents, financial statements, deeds, contracts, wills, and any other important
documents. Often these portals are externally hosted. Review the hosting company’s security to ensure, as far as
possible, that unauthorized people cannot access client documents.
Further, your firm could use the portal to provide electronic access to commonly requested information. For
example, clients often call to obtain identifying numbers for an entity, a copy of a particular document, or a copy
of your firm’s fee. Your firm could provide information on the portal so that the client can obtain this information
directly at any time.
The client portal could also deal with administrative issues. Clients could update their name, names, and
addresses and other contact details, review their fees and payment histories and pay their fees online. Some
firms offer clients the opportunity to book meetings online or book attendance at a client seminar or event.

Firm extranet
A firm extranet is a secure part of the firm’s website that can be accessed (with username and password) by
clients, banks, solicitors and other business partners.
The firm may provide exclusive information with greater value on its extranet. It could also establish data rooms
to assist in the management of client transactions that might involve law firms, banks, other accountants and
other third parties. Insolvency firms can use extranets to provide information to creditors.
5.9.2

Hosted applications

Hosted accounting, described in Section 5.4.1, has the potential to transform the accountant–client relationship.
In the future it is likely that an increasing number of firms will offer an online accounting facility for clients.
Clients will access the accounting system via their accountant’s website. Accountants and their clients will access
the same accounting data simultaneously and work collaboratively on completing the accounting data. As
clients will regularly visit their accountant’s website, the ability to promote other services via the web increases.
Other emerging hosted applications, include portfolio-monitoring software, which permits clients to access
updated information regarding their investment portfolios.
5.9.3

Product/service sales

Some firms have incorporated online shops on their websites to sell accounting and other software. Other firms
market business, software to clients that can assist them to creating their own business plans, marketing plans
and creating policies and precedents.
Some insolvency practitioners use the web to promote and sell assets and to provide other information to creditors.
5.9.4

Client engagement

Some firms are experimenting with online questionnaires to unlock the issues that concern clients. Your firm
can use the results to frame the products and services you offer, to ensure services are relevant and adding
the most value. However, this may not be as effective as face-to-face discussions with clients to discover their
personal needs and objectives. Meetings in person may be better enable the firm to further develop personal
relationships with clients and to more closely tailor services to meet their needs.
Some firms implement web-based client survey systems, such as www.surveymonkey.com, as an efficient way to
gather feedback on service delivery.
5.9.5

Client communications

Many firms have moved their newsletters online. Many web-based services include templates that enable non-IT
professionals to create newsletters. Many also allow your firm to track the people who open the newsletter email
or read a particular article. This reveals which topics are of interest to the client, thereby enabling your firm to
target additional service offerings.
These services also generally include facilities to comply with spam laws and other regulatory requirements,
such as the need to incorporate an “unsubscribe” facility. These laws, although similar, often have key differences
in each jurisdiction.
Articles can contain links to relevant areas of your firm’s website. In your move to electronic communication,
you will need to implement processes that ensure client email addresses are regularly reviewed and updated.
5.9.6

Recruitment

Your firm’s website is often the first place potential recruits visit to obtain more information about the firm.
As such, it is critical that your firm provides career information that satisfy the information needs of new and

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prospective employees. Information regarding your firm’s training programs, education assistance, leave
policies, and flexibility in working conditions should be prominently displayed. Provide online application
facilities as well as regularly updated information about available positions.
5.9.7

Multimedia

As internet bandwidth continues to increase, greater use of multimedia should be considered. Your firm should
provide videos or podcasts of client testimonials or of current employees highlighting the positive aspects of
their career in your firm. You can use these cheaply, using services such as www.youtube.com to host videos.
5.9.8

Calculators

Some firms have included simple calculators on their website to let clients calculate a variety of financial issues,
including tax payable, social security payments, loan repayments or retirement, payouts. This enhances the value
of the firm’s website to clients and will encourage further visits. Comments associated with these calculators can
outline the issues that the client may need to consider and encourage them to seek advice on the matter.
5.9.9

Other possibilities

Other opportunities to use the web to improve clients’ services include:
z Accessing information about the status of work with projected completion dates;
z Client reminders of key dates and appointments with email and/or SMS reminders;
z Facilities to enable clients to perform credit checks on their customers; and
z Registration of businesses, domain names or performance of business searches.
Appoint a web “champion” to work with the management team to determine priorities, develop content, and
work with the web developers. Ensure that the content is continually updated. Outdated information must be
regularly deleted and new, relevant information displayed.
5.10 The role of the virtual office and working remotely
Possibly the greatest transformation brought about by the internet is the elimination of barriers caused by
geographic separation. In particular, technology enables remote auditors working at client’s offices to stay
connected to the firm accessing resources and exchanging information with other team members from remote
locations. The technology also enables more opportunities for employees to work from home.
Many firms have created “thin client” environments (see Section 5.2.2), which enable all team members to access
your firm’s systems and work as though they are located in the office, regardless of actual location. Document
management systems are critical to enable access for all client files.
Some firms use VoIP (see Section 5.4.6) systems such as Skype to communicate cheaply with remote team
members and clients. Many VoIP systems include video to enrich the experience.
A challenge in some jurisdictions and in many remote areas can be the quality of internet connections. Cities,
particularly in developed countries, generally provide fast and reliable connections. Regional locations are often
limited in speed, due to distance from exchanges and poor availability of more modern infrastructure. Satellite
internet is generally not viable for business use due to connection latency (delay.) Wireless communications
continue to improve, and over time are likely to provide high-speed, reliable, and cost-effective communication
for remote areas.
The past twenty years have seen significant changes: the number of women in the accounting profession has
increased and many employees seek opportunities to work flexible hours or work from home (“remote working”).

Many firms remain reluctant to permit significant remote working. There are concerns about supervising a
team member to ensure productivity is maintained. Working from home requires personal discipline, a quiet
work area free of disruption, and all the enabling technology. Some firms have found that works for some team
members but not for others. It is prudent to start with a trial period, with a clear understanding that your firm
can refuse remote working if it does not appear to be effective.
Another consideration is the effect on firm culture. The remote worker can start to feel isolated and may not
build strong relationships with other team members. Poor communications can result in misunderstandings and
frustrations. Some firms require their remote workers to visit the firm regularly, and to participate in training and
other firm activities to encourage a sense of belonging.
As the remote worker is not subject to the same supervision, clear expectations and guidelines need to be
provided. Communication channels need to be available to deal with questions quickly and to update the status
of work. VoIP technologies can be very helpful in maintaining cost-effective communication. VoIP can also
facilitate participation in training sessions.
Some firms are using Webinar technologies for web-based training sessions which permit remote participants to
view the computer screen of the presenter and listen to their presentation. The presenter can use any computer
application (often Microsoft PowerPoint). Participants are provided with facilities to ask questions. There are
many providers of Webinar technologies, which are now cost-effective for every firm. Remote workers can
use Webinar training to maintain their skills. Webinar technologies could also be used to conduct web-based
seminars for clients, helping to build the relationship between your firm and clients in remote locations.
5.10.1 Outsourcing/insourcing (also known as resourcing)
The internet also enables access to labor in other cities, states, or countries. As labor shortages increase in
developed countries, firms have looked to developing countries.
Two modes of operation have generally been used:
z Remote workers access your firm’s systems using “thin client” technology (see Section 5.2.). They connect
to your firm’s systems and work in the same way as your own employees. By using document management
systems, remote workers can view and update the necessary client files and post queries. Some firms
outsource the entire assignment while others outsource individual tasks.
z Source files and documents are scanned and accessed at the remote location. The workers use the systems
at the remote location to process the data, preparing work papers, financial statements, and taxation
documents. Final documents are then sent to your firm in PDF format often data are returned to your firm for
importing into your firm’s accounts production and taxation preparation systems.
In some jurisdictions it is necessary to disclose to the client when work is sent overseas and/or to third parties
these jurisdictions have specific legislation to ensure data protection and privacy. Local professional bodies may
be able to provide advice as to the requirements in their local jurisdiction.
Some people are concerned about security when work is sent overseas or to third parties. Some are concerned
with identity theft, and whether criminals have access to private information to create documents, credit cards
or other contracts in the name of the individual that could create liabilities for the individual whose identity has
been stolen. These situations can be difficult to rectify.
z To overcome these security concerns, many companies operate in a paperless environment and disable USB
ports, disk drives, and general internet access so that it is not possible for employees to copy and remove data
from the business.

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z Other providers locate all data on “thin client” environments housed in the local country. Workers in the
foreign country only access data on these services. In this way the providers guarantee that the data will not
leave the country.
Another concern is training for workers in foreign countries. Like training for local remote team members,
foreign workers can access internet-based training facilities.
These services endeavor to deliver a number of benefits to practitioners:
z Access to labor that is scarce in the source country.
z Savings, not just from labor costs, but also from ancillary costs such as training, technology and office space.
z Management of peak workloads—in many countries the tax season is compacted into a few months. This
either means that your firm needs to recruit more team members, which is difficult since all firms face the
same issue, or service levels drop.
z Improve turnaround time performance—these third party providers are focused on implementing highly
efficient processes. They are not distracted by the need for client engagement and other day-to-day issues
that reduce productivity in most firms.
z Higher and more consistent quality of output—delivered by their singular focus on the implementation of
the most efficient, high-quality and reliable systems and processes. Efficient processing is their only product,
unlike firms who have a wider relationship with their clients.
z Freeing team members from compilation work so that emphasis can be placed on higher value business
improvement work. Some firms, however, have expressed concern that this can result in a loss of skills within
their own firm.
Many resourcing providers have implemented sophisticated internet-based workflow systems to assist in the
management of the assignment. Many of these systems provide information to firms regarding the status of
work and estimated delivery dates and to manage queries and other communications between your firm and
the third party provider.
Some firms have created their own offices in other countries to directly access the labor available directly, and
eliminate the need to involve a third party. In the long term, this may result in cost savings, but the initial set-up
time and cost may be considerable. Most firms use these services for a relatively small proportion of their work
(generally less than 20%) as a means to cope with peak workloads. Some use them for specialist activities such
as pension fund compilation work, in which the firm may not possess the required skills.
Some providers price their services at an hourly rate basis. Others quote a price for different types of
assignments or take their fee as a percentage of the price charged to the client.
Consider these issues when selecting a resourcing provider:
z Their track record in providing a quality, reliable, and timely service;
z Their system security;
z The training given to their team members;
z Their supervision and review processes; and
z Pricing models.
An ancillary benefit is that using third party resource providers drives the firm to adopt document management
and other paperless technologies. Other firms have seen the efficiency of the systems adopted by third party
providers and have adopted them internally.

5.10.2 Mobile working
Another form of remote working is the mobile team member. Equipped with a laptop or netbook, these remote
workers can work from any location—home or clients’ offices. Working from client’s offices has the potential to
increase efficiency as it can facilitate faster resolution of queries.
Some firms with large numbers of clients in remote areas schedule “tours” where team members visit a region
and, with the appropriate technology, meet clients and complete all or most of the work while on site.
5.11 The emergence of the global reporting system
Since the 1990s there has been a drive to implement a global reporting system. Many countries have adopted
international accounting standards. The accounting profession in fact sponsored the XBRL initiative; this
initiative enables producers and consumers of financial data to concentrate on analysis of financial data thus
eliminating the manual and time-consuming processes involved in comparing and manipulating data.
XBRL stands for “eXtensible Business Reporting Language.” It is one of a number of XML languages that
becoming a standard way of packaging information to be sent over the Internet and used by different computer
applications. It is a language for the electronic communication of business and financial data and provides major
benefits in the preparation, analysis and communication of business information. It also offers cost savings,
greater efficiency and improved accuracy and reliability to all those involved in supplying or using financial data.
The XBRL website (www.xbrl.org) explains: “Instead of treating financial information as a block of text—as in
a standard internet page or a printed document—it provides an identifying tag for each individual item of
data. This is computer readable. For example, company net profit has its own unique tag … XBRL tags enables
automated processing of business information by computer software, cutting out laborious and costly processes
of manual re-entry and comparison. Computers can … recognize the information in a XBRL document, select
it, analyse it, store it, exchange it with other computers and present it automatically in a variety of ways for
users. XBRL greatly increases the speed of handling of financial data, reduces the chance of error and permits
automatic checking of information.”
The benefits of XBRL can be summarized as follows.
5.11.1 Data collection and reporting
By using XBRL, companies and other producers of financial data and business reports can automate the
processes of data collection. For example, data from different company divisions with different accounting
systems can be assembled quickly, cheaply and efficiently if the sources of information have been upgraded
to XBRL. Once data is gathered in XBRL, different types of reports using varying subsets of the data can be
produced with minimum effort. A company finance division, for example, could quickly and reliably generate
internal management reports, financial statements for publication, and tax and other regulatory filings, as well
as credit reports for lenders. Not only can data handling be automated, removing time-consuming, error-prone
processes, but software can check the data for accuracy.
Small businesses can benefit by standardizing and simplifying their assembling and filing of information to the authorities.
5.11.2 Data consumption and analysis
Users of data in XBRL can automate the handling of information, cutting out time-consuming and costly
collation and re-entry. Software can also immediately validate the data, highlighting errors and gaps that can
immediately be addressed. It can also help in analyzing, selecting, and processing the data for re-use. Human
effort can switch to higher, more value-added aspects of analysis, review, reporting and decision-making. In
this way, investment analysts can save effort, greatly simplify the selection and comparison of data, and deepen
their company analysis. Lenders can save costs and speed up their dealings with borrowers. Regulators and

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government departments can assemble, validate, and review data much more efficiently and usefully than they
have hitherto been able to do.
For XBRL to be successful, it needs to be adopted by software developers, regulators, banks, and other users
of financial information, who well need to modify their systems to create or receive XBRL data for intelligent
processing. Throughout the world, many regulators are moving to adopt XBRL as a standard for receiving
financial information, and many software developers are implementing XBRL so that XBRL data can be easily
created or imported.
XBRL will present a challenge to auditors. Auditors will need to look at every financial statement element and
confirm the choice of the XBRL taxonomy element. Should companies create their own extension elements,
auditors will need to determine that the change is a material change. Best practice in audit for XBRL is still
emerging for the time being expert advice should be sought should an audit of XBRL data be required.
Many tax regulators around the world have either adopted XBRL or have XBRL under consideration. This will
require significant amendments to software as XBRL is adopted.
Many countries have their own XBRL organizations to promote XBRL in their jurisdictions. A list of these
organizations can be found at on www.xbrl.org (section titled “Around the World).”
Small and medium-sized firms will need to monitor XBRL activity in their jurisdictions. As banks, regulators and
other users of financial information move to adopt XBRL, small to medium-sized firms will need to ensure that
their software is able it to generate XBRL data in the required format. Monitor your local XBRL organization’s
website to keep abreast of developments in your area.
5.12 Business continuity and disaster recovery strategies
The absence of an effective business continuity and disaster recovery system can be catastrophic. Fires,
equipment failure, data theft by disgruntled team members, and hackers can create serious rectification costs
and/or loss of productivity.
Your firm needs an effective risk management plan. While, it may not need to be a long and complex document
small and medium-sized firms, it should cater to the following systems issues.
5.12.1 Back-up
Firms need to back up systems effectively backed up, so that the systems and data can be recovered in the event
of a system failure. There are different types of back-up:
z Bare metal back-ups: these back up everything possible on the server, including device drivers and other lowlevel configurations, so that a server can be restored exactly as it was configured.
z Full system back-ups: these back up all server operating systems, application software, and data but often
may not back up key server configuration information.
z Data back-ups: only back up data, not operating systems or application data.
If only data back-ups are maintained, the time, cost, and effort to restore systems significantly increases. As full
system back-ups are significantly larger than data only back-ups, some firms perform data back-ups daily, and
full system back-ups only weekly or monthly. Should any significant change occur to the configuration of the
server or applications a fresh bare metal or full system back-up should occur.
Some back-up systems perform incremental back-ups. This backs up only data that has been changed since the
last back-up. This can mean that to perform a full system restore, multiple back-ups will be required. The back-up
software maintains a database of the back-ups so that it can locate specific files.

5.12.1aBack-up media
Traditionally, tape systems have been used for back-ups. These systems have proven reliability but the tape
drives are generally expensive although this expense is offset by the lower cost of individual back-up tapes. A
downside of tapes can be the alignment of the drive (where it writes data on the tape). Over time the alignment
might change slightly, or if the drive fails a new drive may have a slightly different alignment. For this reason, it is
important that regular tests are performed to ensure that data can be read from back-up tapes.
Many firms have implemented portable hard drives as a viable back-up solution. While this eliminates the cost
of an expensive tape drive, each individual portable hard drive is considerably more expensive than tapes. These
costs are continuing to fall. It is likely that the cost differential will be eliminated over time and that tape systems
may disappear. Many of these portable hard drives use a USB interface this is relatively slow, and can mean
that back-ups can take considerably longer than tape systems. Faster implementations of USB technologies are
emerging that should eliminate this shortfall.
In locations where internet connections are fast and reliable, some companies, are now providing online backup services for firms. This means that each day the system is automatically backed up across the Internet to the
service providers’ servers. The viability is dependent on the costs and the ability to satisfactorily complete the
daily back-up in a timely fashion.
5.12.1b Rotation
An important consideration is the rotation of the back-up media or, if the back-up is online, the management of
when back-ups are overwritten or deleted.
Generally firms maintain a separate back-up for each day of the week. This allows a file or system to be restored
for any day (in case a file is deleted). Most firms then hold the last daily back-up for a given week for four weeks.
Some then hold the fourth weekly back-up as a monthly back-up, which in turn is held for twelve months.
Finally, some firms hold a yearly back-up forever.
In this way, it should be possible to restore a file that was deleted a day ago, a week ago, a month ago, a year ago
or at any point in between.
It should be noted that this rotation will require five daily, four weekly, twelve monthly, and one yearly for a total
of twenty-two back-up copies. For this reason tape systems continue to be the cheaper alternative.
Back-ups should be maintained offsite in case of fire or other disasters at a secure location that can be quickly
accessed if a disaster occurs. Back-ups should not be held in team member homes, due to the risk of loss or
destruction should the team member become disgruntled.
5.12.1c Back-up software
A back-up is only as good as the back-up software. It is the software that ensures the right files are backed up
and can be restored. For small and medium-sized firms with limited IT knowledge, only well-known brand backup software should be considered. As a general rule, use the software recommended by your firm’s external
support company, since that company will be responsible for its maintenance and support.
5.12.1d Reviewing logs
Most back-up software systems maintain logs to record the success or failure of the back-up. Some back-up
systems cannot back up some file types while the file is in use. Accordingly, it is important that the back-up logs
are reviewed daily to assess whether any failures have occurred.

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5.12.1e Trial restores
The most effective test of a back-up is to attempt to restore a file. Procedures should be adopted that ensure
that a trial restore occurs at least monthly to ensure back-ups are working effectively.
5.12.2 Maintenance plans and technical support
Maintenance contracts should be maintained with hardware suppliers so that hardware failures can be quickly
rectified. These contracts should specify the service levels that the supplier will meet in the event of failure.
Critical hardware such as servers, switches and back-up technologies require prompt attention. Many contracts
specify four-hour response for failure of these components. Other, less critical hardware such as individual
workstations can have longer response times.
Some firms, particularly in remote areas, purchase some critical components that have a higher potential to fail,
such as disk drives or power supplies, as spare parts that can quickly replace a failed component. For firms that
reply on maintenance contracts, your firm should ensure that the support organization maintains an adequate
supply of spare parts.
The quality of your firm’s external IT support organization is critical to correct implementation and support.
Issues that need to be considered in selecting an appropriate organization include:
z Their knowledge and experience with your firm’s hardware and operating system configuration;
z Their knowledge and experience with your firm’s application software;
z Certifications held with major hardware and software companies, which provides assurance as to the
competency of the people in the organization;
z The number of people within the organization with the required knowledge to support the system. Reliance on a
single individual can result in significant delays and cost should that individual be unavailable for any reason; and
z Their ability to provide support services remotely to enable rapid response to issues at a reasonable cost.
5.12.3 Insurance
Adequate insurance should cover the cost of replacing infrastructure as well as the labor costs to rebuild systems
and restore data. Consider also insurance for the loss of productivity resulting from a major system failure or
catastrophic event.
5.12.4 Redundancy in hardware configuration
Server configuration is discussed in Section 5.2.8. A key issue to consider is the installation of redundant
components that allow the server to continue operating after a component has failed. Redundant power
supplies and disks are often installed as these components are more likely to fail. RAID (Redundant Array of
Inexpensive/Independent Disks) is often used so that data is distributed across the disks.
z Some firms use RAID 1. This provides for disk mirroring a second disk maintains a copy of the first so that,
should the first disk fail, the second disk can continue. The downside is that the second disk must have the
same capacity as the first disk.
z Many firms use RAID 5, which distributes the data across all the disks. If a single disk fails the remaining disks can
continue to operate by calculating the missing data. Unlike mirroring, this does not require duplication of disks.
In rural area or locations where service technicians may not be able to readily access replacement machines or
parts, it may be appropriate for your firm to hold a stock of commonly needed replacement parts. Some firms
with multiple servers have ensured that all servers are configured in a similar way should a critical server fail, a
less critical server may be switched over temporarily to take the critical server role.

5.12.5 Uninterruptable power supply
See Section 5.2.8. UPS is an important part of any system’s risk management, particularly in areas where power
supply can be unreliable.
5.12.6 People and documentation
Your firm should establish a plan to mitigate the risk of key people being unavailable in the event of a system
failure. Keep a list of contact details for back-up technicians. Document the configuration of hardware and
software applications and keep this up-to-date so that a new technician can quickly rebuild the system.
5.12.7 Policies
Implement policies to ensure that systems are not misused. Individual jurisdictions are likely to have enacted
legislation that may require particular policies, or issues within a particular policy, to be addressed. The local
professional body may be able to assist. Common policies are listed below.
5.12.7aSystem use policy
This policy generally outlines the rules by which your firm’s IT systems can be used. Issues to be considered in
this policy include:
z Use of passwords, including the need for passwords to be changed regularly and a prohibition of providing
passwords to other team members or third parties;
z Prohibition of copying firm data and removing from the office without approval;
z The physical security of equipment;
z Use of the system during business hours for your firm’s business only; and
z Rules for the private use of the system, if allowed, outside office hours.
5.12.7b Email use policy
Issues to be considered in this policy include:
z Prohibiting the use of personal email accounts for business matters;
z Responsibility to check email regularly;
z Responsibility to organize and file email;
z Use of professional standards and courtesy in messages;
z Prohibiting email use for unlawful purposes (copyright infringement, obscenity, slander, fraud, computer
tampering, etc.);
z Prohibiting email use outside your firm’s policies;
z Prohibiting sending large attachments;
z Prohibiting opening email attachments from unknown sources (as they may contain malicious software);
z Prohibiting accessing email accounts of other individuals;
z Prohibiting sharing email account passwords;
z Prohibiting excessive personal use of your firm’s email;
z Notification that the firm will monitor email; and
z Reporting of misuse.

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5.12.7c Internet use policy
The issues to be considered in this policy include:
z Limiting internet use to business purposes;
z Notification of the ability of your firm to track internet usage;
z Prohibiting access to sites that are offensive to a person’s gender, sexuality, religion, nationality or politics;
z Other prohibited sites (some firms prohibit sites that can affect productivity);
z Ensuring that downloads only occur from a safe and reputable website;
z Prohibiting downloading executable (program) files, as they may contain malicious software as well as pirated
music, movies or software;
z Prohibiting providing the users’ business email address to limit the likelihood of SPAM; and
z Consequences of violation.
5.12.7d Remote access policy
Issues to be considered in this policy include:
z Approvals required for external access;
z Reimbursement of external access costs;
z Security procedures (including disclosure of passwords, third party use of system, disconnection from other
networks while accessing your firm’s systems, use of firewalls and installation of appropriate software to
protect the remote system from malicious attack);
z Physical security of firm supplied equipment such as laptops;
z Reporting of any possible breach of security, unauthorized access or disclosure of your firm’s data;
z Agreement that your firm can monitor the activities of the external user to identify unusual patterns of usage
or other activities that may appear suspicious; and
z Consequences of noncompliance.
5.13 Developing a technology strategy
Few small to medium-sized firms have a technology strategy or plan. Many make ad hoc decisions that can
result in poor outcomes such as not selecting the best technologies appropriate to their firm or not allocating
sufficient resources to implementation and training gain maximum advantage, from their systems. Failing to plan
can result in partners’ meetings about for almost every acquisition. Firms should establish a three-year technology
plan and budget that is reviewed and updated every six months. The firm’s management team or partner group
should review and approve the plan. Once approved, the partner or manager responsible for technology should
be free to execute the plan and only seeking additional approvals when a material deviation from the plan is
required. The elements of a technology plan are as follows.
5.13.1 Snapshot of current position
Review your firm’s current technologies and summarize:
z Hardware deployed—Include all hardware, noting main specifications, age and maintenance plans and
recommendations for upgrade or replacement.
z Software deployed—Include all software applications, noting versions and maintenance plans.

z Technology management structure—The internal and external resources used to maintain your firm’s
systems, highlighting the skills of the individuals, the time required, and the main areas where time is spent.
Improvements needed would also be highlighted.
z Expenditures—All costs including internal labor costs.
z Outstanding projects—Highlight the resources required, timelines to achieve successful completion and any
barriers to completion.
z Strengths and weaknesses—Your firm’s technology achievements, and areas where your firm has struggled,
highlighting the reasons behind the positive and negative results.
z Desired improvements and problems being experienced—Seek the views of all team members. A survey
could be used or groups of team members interviewed to discover their issues with the current system and
their thoughts as to how it could be improved.
5.13.2 Update knowledge and summarize opportunities
For many practitioners, especially those who have little personal interest in technology, ensuring that they
keep up to date with the latest developments in firm technologies can be difficult. Supplier or accounting
body conferences, websites, journals and newsletters can provide useful updates as well as the websites listed
in Section 5.12. Independent industry experts in some jurisdictions can also provide useful insights into the
practical benefits new technologies can bring to your firm. This section of the plan should summarize new
developments in hardware and software and their potential benefits. Activities of the major suppliers should be
highlighted as well as future trends to keep in mind when making purchasing decisions.
5.13.3 Alignment with firm strategy
Ensure that the technology plan is aligned with the overall strategic plan for the firm. Growth targets, numbers
of offices, services offerings, and standards will all drive the technologies that your firm needs to deploy.
In addition, your firm may seek to harness technology developments to improve its efficiency, client service, or
profitability. This could include remote access, document management and scanning, multi-screens, or website
improvements. Set a ”light on the hill“ for your firm to aim to achieve in a three-year timeframe.
Summarize your firm’s strategic technology objectives, and clearly prioritize them to focus on projects that have
the potential to deliver the greater outcomes.
A key aspect to consider may be changes to your firm’s requirements driven by growth in the business. Larger
firms require systems that assist in the management of workflow, that more closely monitor and report on
operational risks, summarize information to provide the management team with snapshots of the practice
performance and assist in identifying exception to be investigated.
Some suppliers provide product offerings that are more aligned with the needs of small and medium-sized firms
with simplified functionality, less reporting, and less flexibility. As firms grow, these restrictions can hamper practice
performance, requiring firms to consider the acquisition of systems more suited to the needs of larger firms.
5.13.4 Summarize the projects
Having established your firm’s strategic technology objectives, the next step is to determine the projects that
required to achieve the desired outcomes. Develop a plan and justification for each project, including:
z The benefits of the project;
z The tasks required to complete the project;
z Resources required;

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z Hardware/infrastructure acquisition costs;
z Software acquisition costs;
z Implementation and training costs (including internal labor costs);
z Ongoing maintenance, training and associated costs;
z The best person in the organization to drive the project;
z The key milestones to be tracked to ensure that project overruns are discovered early and quickly rectified;
z Whether the project is dependent upon other projects, so that it cannot be started until part or all of another
project is completed; and
z How long the project will take.
5.13.4aPrioritize and schedule projects (project plan)
Having listed all the projects, bring them together into a cohesive workable plan with projects correctly
prioritized and projected target dates established.
5.13.4b Create a budget
Develop a three-year budget that takes into account current recurrent expenditures and any planned increases,
as well as the costs associated with the new recommended projects. Set out the assumptions used, including
the firm’s growth, number of offices, services and service delivery methodologies, useful life of hardware,
storage requirements, hardware pricing and amount of training required.
5.13.4c Create a resource plan
This outlines the time people will need to undertake the projects successfully while continuing to maintain the
existing systems. Often firms fail to adequately resource the implementation of new systems, resulting in delays, poor
implementations, and the potential benefits from the deployment of the new system being severely diminished.
5.13.4d Pressure test the plan
Step back and consider whether the overall plan is achievable. Is the financial burden too great? Will it be
difficult to deploy sufficient resources to ensure successful project implementations? You may need to fine-tune
the overall project plan, budget, and resource plan to make the plan achievable.
5.13.4e Determine how the plan will be managed
This section of the plan should consider:
z Who within your firm has the authority to approve the plan?
z What approvals are required for expenditure that is in the budget and for unplanned expenditures?
z How will project status be monitored and managed?
z Who is accountable for the overall plan?
5.13.4f Review
Outline how the plan will be kept up to date at least every six months, so that the latest developments in
technology are explored. How will project outcomes be assessed and feedback from users addressed? Consider
ongoing training and training of new team members. Highlight how the firm will review and, where appropriate,
adopt improvements to applications.

By developing a detailed technology plan and budget, firms position themselves to harness technology
developments and deliver optimum outcomes to the firm and its clients.
5.14 Conclusion
To sum up this vital component of a modern accounting firm, here are the main points you must consider:
z Develop a strategic plan and budget for your practice technologies.
z Implementation and training are the key to successful use of technologies.
z Ensure that a system selection process is followed and not overly influenced by suppliers.
z The Internet is transforming how firms today are interacting with clients.
z Firm websites are critical components in servicing clients and in positioning the firm for recruitment.
z Firms must ensure adequate technical support for efficient and reliable systems.
z Stick to mainstream hardware and applications that are in wide use so the firm can have confidence that the
applications and systems will deliver desired outcomes.
z Practice management, accounts production (and audit) and tax software, together with word processing and
spreadsheet software are the key production platforms that underpin the efficiency of most firms. Hardware
platforms should be implemented that efficiently and reliably support these applications.
z Document management and knowledge management applications have the potential to deliver significant
improvements in client service and efficiency in the future.
z Hosted solutions/cloud computing solutions are emerging that have the potential to enable small and
medium-sized firms to operate with lower infrastructure investment and system management costs.
z Adequate attention and resources should be dedicated to risk management to prevent catastrophic failures.
Technology is a key component of success in any firm in today’s world (see the case study in Appendix 5) It is
critical that practitioners stay up to date on the solutions available and the benefits these technologies can
deliver. It is equally important to dedicate sufficient resources to ensure that any solutions that are deployed
are properly implemented and maintained. To succeed, firms must ensure that people fully understand
and capitalize on the functionality of the software, and that all team members are well trained to derive the
promised productivity gains from any solution are achieved.

MODULE 5: TECHNOLOGY AND E-BUSINESS

5.15 References, further reading, and IFAC resources
Further reading
AICPA Journal of Accountancy Practice Management – Technology articles –
http://www.journalofaccountancy.com/Search/Results.aspx?Topic=Technology%7cPracticeManagement
Asprey, Len and, Middleton, Michael. Integrative Document and Content Management: Strategies for Exploiting
Enterprise Knowledge. Hershey PA: Idea Group Publishing, c2003.
Business Fitness. The Good, the Bad & the Ugly of the Accounting Profession. Australian Edition. Business Fitness
Pty Ltd, Brisbane, 2008.
BusinessFitness. 22 Red Flag Phrases That Mean Your Business Needs a Paper Less Office Document
Management System. Business Fitness Pty Ltd, Brisbane 2009.
Desjardins, Ray. “Going down the paperless road.” CA Magazine November 2009.
http://www.camagazine.com/archives/print-edition/2009/nov/regulars/camagazine30920.aspx
Morochove, Richard. “The right fit.” CA Magazine March 2008.
http://www.camagazine.com/archives/print-edition/2008/march/features/camagazine5192.aspx
Rosenhek, Stephen. “ The implementation phase”. CA Magazine December 2008.
http://www.camagazine.com/archives/print-edition/2008/dec/regulars/camagazine4147.aspx
Dzinkowski, Ramona. “Do you speak XBRL?” CA Magazine December 2008.
http://www.camagazine.com/archives/print-edition/2008/dec/features/camagazine4118.aspx
Firestone, Joseph M. Enterprise Information Portals and Knowledge Management. Amsterdam, London :
KMCI Butterworth-Heinemann, 2003.
Hildebrand, Carol. “The greater good”. CIO, 4(1994): 32 – 40.
Kress, Jeff. “Paper reduction.” CA Magazine November 2008.
http://www.camagazine.com/archives/print-edition/2008/nov/regulars/camagazine4275.aspx
Sedgwick , John. “Moving to the clouds”. APLUS March 2010. http://app1.hkicpa.org.hk/APLUS/1003/p34-37.pdf
Sedgwick , John. “Finding software that fits”. APLUS February 2010. http://app1.hkicpa.org.hk/APLUS/1002/
software.pdf
Ryan, John. “Securing your data”. APLUS September 2008. http://app1.hkicpa.org.hk/APLUS/0809/Datasecuring.
pdf
Jensen, Bill. Work 2.0: Rewriting the Contract. Cambridge, MA Perseus Publishing Group, 2002.
Kepczyk, Roman H. “AAA 2009 Benchmarking Paperless Office Best Practices Survey 2008.”
At http://www.itpna.com/Vision/2008/20081220AAA2009BenchmarkingPaperlessOffice.htm
Lefkowitz, Lawrence S. and, Lesser, Victor. “Knowledge acquisition as knowledge assimilation.” International
Journal of Man-Machine Studies, 2 (1988): 215 – 226.
Leidner, Dorothy. Knowledge management systems: issues, challenges and benefits. 1997 Retrieved from
Integrative Document and Content Management; Strategies for Exploiting Enterprise Knowledge: http://www.
acm.org
Lyman, Peter and, Varian, Hal R. How Much Information. [Berkeley, Calif.] : School of Information Management
and Systems, University of California at Berkeley , 2003 http://www.sims.berkeley.edu/research/projects/howmuch-info-2003http://www2.sims.berkeley.edu/research/projects/how-much-info

Madden, Paul. SBR: Reducing the reporting burden. Accounting Technology Showcase Australia. Sydney: FMRC
Smiththink, 2009.
Maister, David H. Managing the Professional Service Firm. New York : The Free Press Simon & Schuster, 1993.
Mancini, John [et al.] “8 reasons you need a strategy for managing information -before it’s too late” 31 October
2009. http://www.aiim.org/forms/downloads/8-reasons-you-need-a-strategy-for-managing-information-beforeits-too-late-1.pdf
PRO.INTEGRATIONS. Simple IT Audit for Accountancy Practices. 2009 Retrieved 10 October 2009, from
www.proactive-solutions.com.au : http://simpleitaudit.proactive-solutions.com.au
Seminar on Quality Control Review, ICAP Lahore 15 August 2007. Viewed at
http://www.icap.org.pk/Members/ISQC-15-Aug-07.ppt
Vandenbosch, Betty and, Ginzberg, Michael J. “Lotus Notes and Collaboration: “Plus ça change”.” Journal of
Management Information Systems (3)1996: 65–81.
http://www.boomer.com (Boomer Consulting)
Offers free material covering IT as well as firm management. It runs technology circles: groups of fifteen or so
firms that join to discuss management of technology within an accounting firm. They communicate throughout
the year via an online community. Each firm is represented by the partner or shareholder responsible for
technology and the chief technology person on staff.
http://www.webcpa.com (WebCPA) (US based)
Provides tools and resources for online accountants, including online content of the Accounting Technology
Magazine; product reviews related to tax preparation, accounting, time and billing; and free newsfeeds
subscriptions.
Australian Government XBRL Project: http://www.sbr.gov.au
International XBRL Site List: http://www.sbr.gov.au/Government_and_international/International_SBR.aspx
Document Workflow—Paperless Office, Automation, Scanning
http://www.itpna.com/Vision/2007/20070420CCHStatusofthePAPERLESSOffice.htm
Research report on the status of American Practitioners moving to PaperLess office systems.
http://www.itpna.com/Vision/2006/20061220BecnhmarkingPaperlessPractices.htm
Benchmarking report from the AAA research report on PaperLess initiatives.
http://hownow.net.au/the-modules-2/knowledge-manager/
IT Counts (http://www.ion.icaew.com/itcounts) Institute of Chartered Accountants in England and Wales (UK
based) An online community relating to IT for accounting and finance professionals.
IFAC resources
IFAC publications http://web.ifac.org/publications
IFAC SMP Committee publications http://web.ifac.org/publications/small-and-medium-practices-committee
To find the most up-to-date listing of other useful resources relating to this module, please visit the Resources
section of the International Center for Small and Medium Practices at http://www.ifac.org/SMP/index.
php#Resources, especially the ‘relevant links’ at http://www.ifac.org/SMP/relevant_links.php

MODULE 5: TECHNOLOGY AND E-BUSINESS

To search the websites of IFAC member bodies and other relevant websites for other useful resources relating
to this module, please visit the IFACnet search engine located on the home page of the International Center for
Small and Medium Practices at http://www.ifac.org/SMP/
To discuss issues relating to this module with practitioners from around the world, please visit the IFAC SMP/SME
Discussion Board at http://web.ifac.org/forum/SMP/1

Appendices
Appendix 5.1 Firm management evaluation
Product:____________________________ Evaluation Date:______________________________
Rating
Importance to Firm
(0=Not required,
1=low requirement,
5=high requirement)

(0=Function does not exist,
1=exists but poor
implementation,
5=exists and excellent
implementation

Comments

Feature
Function
Multi-currency
Remote timesheet
Drill down enquiry capability
Online detailed billing
Centralised processing of connected
multi-location sites
Configurable security
Customization allowed
Auto Alerts: email trigger on certain
condition
Integrated General ledger and accounts
payable
Budgeting
Integration with Microsoft Office
General
Existing Smallest client
Existing Largest client
Implementation issues
Support
Clients
Function
Maximum characters for client number
Auto client numbering option
Detect potential duplicate client names
Client grouping
Client hierarchy
Ability to identify prospects versus
active clients
User definable reporting fields for a
client
Multiple addresses
Engagements / Matters / Jobs

MODULE 5: TECHNOLOGY AND E-BUSINESS

Rating
Importance to Firm
(0=Not required,
1=low requirement,
5=high requirement)
Function
Maximum characters for engagement
number
Auto engagement numbering option
Setup a new engagement based on an
existing engagement, modify the new
engagement
Change the status of an engagement
Multiple target and actual date fields
User definable reporting fields for an
engagement
Define engagement as chargeable /
non chargeable
Engagement grouping
Engagement hierarchy
Close the engagement for timesheet
entry but remain open for billing
Re-open closed engagements
Link engagements to a budget
View engagement status
Define multiple responsibilities at
engagement level
Record expected fee
Record agreed fee
Limit billing to agreed fee
Engagement Budgeting
Function
Engagement description field
Input budgeted income and expenditure
by phase / task with a timeline
Import budget details from external
source
Roll over budgets from prior years
Job managers and resources be
allocated to the job by time
Job budget approval facility
Multiple charge out and cost rates
for individuals and disciplines and the
engagement type
Budget variations and track history of
changes
Show projected revenue, costs and
gross margin at detail and summary
level

(0=Function does not exist,
1=exists but poor
implementation,
5=exists and excellent
implementation

Comments

Rating
Importance to Firm
(0=Not required,
1=low requirement,
5=high requirement)

(0=Function does not exist,
1=exists but poor
implementation,
5=exists and excellent
implementation

Comments

Compare total job budget to actual
Budget views based on reporting
hierarchy
Display onscreen total job budget
and its components including
disbursements
Timesheet Capture
Function
Data Entry
Enter chargeable time
Enter non-chargeable time
Enter time and expenses at the
same time
Online entry and update
Off-line entry and update
Internet time entry
Time periods: User Configurable
Quick time entry facility
Ability to enter time in units or hours
Enter future timesheets
Ability to adjust time entries from
previous time periods
Spreadsheet style
Diary style (docket)
Personalised client /
engagement lists user
Restrict entry to active clients
Restrict entry to active engagements
Require entry of a minimum number of
units per day
Require entry of a minimum number of
units per week or TS period
Carry forward frequently used
time entries
Facility to enter new code (client or
engagement) when entering data
Enter time by proxy user (delegations)
User comment field
Restrict use of client / engagements to
specific staff members or groups
Notify the employee that budget for the
engagement has been used

MODULE 5: TECHNOLOGY AND E-BUSINESS

Rating
Importance to Firm
(0=Not required,
1=low requirement,
5=high requirement)
Notify the employee when a percentage
of the budget has been reached (e.g.
80%)
Approval / Authorisation
View timesheet at approval
Approve timesheets by an approved
authority
Mandatory authorisation
Optional authorisation
Multiple levels of approval
Multiple timesheet approval (associate,
team, office)
Estimate hours to complete job / phase
/ task / activity
Reporting
Printing timesheets
User-defined timesheet reports for
printing
Employee inquiry to identify missing
timesheets
Employee utilisation reporting
Roll up reporting from employee to
group
Administration
Identify employees with missing
timesheets
Make adjustment once posted to WIP
Separate firm standard and expected to
bill time values
Time in Lieu
View Leave balances
Timesheet by Recording period total
Units, Hours, and Decimals
User defined time units entire system
User defined time units (per user)
User defined time recording window
Post previous period timesheets
Interface / integration
Import timesheets
Integrate with payroll for overtime, part
time hours, leave etc
Third party software interface
(e.g. MS Outlook)
Interface with scanner

(0=Function does not exist,
1=exists but poor
implementation,
5=exists and excellent
implementation

Comments

Rating
Importance to Firm
(0=Not required,
1=low requirement,
5=high requirement)

(0=Function does not exist,
1=exists but poor
implementation,
5=exists and excellent
implementation

Comments

Interface with time clocks
Expenses / Disbursements Capture
Function
Data Entry
Enter chargeable expenses
Enter non-chargeable expenses
Enter time and expenses
at the same time
Adjust expenses entered from previous
time period
On Line entry and update
Off Line entry and update
Enter tax information, automatically and
manually (optional)
Approval / Authorisation
Electronic approval
Authorise expenses prior to update
Reporting
Produce an overhead expense report
providing analysis of non chargeable
expenses
View the details on an individuals
expenses
Administration
Disbursements Fixed or % Mark Up
Allows for future disbursements capture
Special rates per Matter / Engagement
Table for mileage rates
Record travel advances and have them
appear on the employee expense
report
Standing / Regular Charges
Expense payment type
(e.g. check, direct debit, payroll)
Expense types or activities record
General Ledger information
Restrict use of client / engagements to
specific employees
Multiple levels of expense report
approvals e.g. employee, team, office
Enter business rules such as
reasonableness of expense amounts
e.g. meals > $200, airfare > $1,000
Prior period adjustments
Interface / integration

MODULE 5: TECHNOLOGY AND E-BUSINESS

Rating
Importance to Firm
(0=Not required,
1=low requirement,
5=high requirement)
Prepare a General Ledger posting
summary
Import credit card information to an
employee expense report from the
credit card company
Interface with electronic transaction
output from photocopiers, facsimile,
telephone systems etc
Interface with accounts payable
system
Work in Progress (WIP) Management
Function
Perform WIP write-offs and write ups
Approval of WIP write offs and write ups
Bulk write offs for multiple engagements
on the one screen
Modify charge out rates for individuals
Modify charge out rates for groups
Compare WIP to budget
Tie bills to actual timesheets and
expenses
Provision for future write offs
Bulk transfer of time and expense
entries to different engagement
Intercompany cross charging
Days outstanding in WIP functionality
Fees/billing/invoicing
Function
Types of Billing / Bills
Interim/Progress billing: bill which
raises a debt but does not reduce WIP
until a Bill is raised which absorbs that
amount. The purpose of an Interim or
a Progress bill is to improve the cash
collection cycle.
Draft billing: bill pending approval prior
to affecting the balances
Final bills
Fixed amount billing
Transactional billing: ability to tag
individual time entry or expense
transactions to be billed, held, written
off etc.
Bill oldest WIP first
Bill specific WIP items

(0=Function does not exist,
1=exists but poor
implementation,
5=exists and excellent
implementation

Comments

Rating
Importance to Firm
(0=Not required,
1=low requirement,
5=high requirement)

(0=Function does not exist,
1=exists but poor
implementation,
5=exists and excellent
implementation

Comments

Manual billing: bill which has been
prepared outside of the system
Off-line billing
Use amounts from time and expenses
(including narrative) to generate basis
of bill
Bill in advance
Bill up to amount
Auto billing (user defined triggers /
schedules)
Client specific: one-off fees
Sundry billing: a bill which is raised that
does not relate to WIP
(one off charge)
Multi client billing
Multi engagement billing
Billing at client level
Billing at client level and
absorb Interim Bills
Billing at matter/engagement level
Billing at activity/section level
Support for time, activity and
expense billing
System suggested bill value
Modify system suggested bill value
Bill a different debtor from WIP
Produce multiple invoices on an
engagement in one period
Produce one invoice across multiple
engagements
Partially invoice time or expenses
Bill on % complete
Schedule invoices
Credit Notes / Reversal
Credit notes
Final bill reversal
Cancel draft bills
Credit notes for partial bill
Cancel bill and return to WIP
Accruals / Write Offs / Write Ons
Generate a write on
Write off a value
Write off individual charges

MODULE 5: TECHNOLOGY AND E-BUSINESS

Rating
Importance to Firm
(0=Not required,
1=low requirement,
5=high requirement)
Write-on-off reason
WIP Accrual facility at time of billing
Approval / Authorisation
Billing approval by manager
Billing approval by partner
Enforce mandatory authorisation
Allow optional authorisation
Electronic authorisation
Multiple levels of authorisation
Set up criteria for authorisation
(e.g write-off over a certain amount)
Authorisation of credit note
Reporting
Print messages on the invoice
Change draft invoices
Print both draft and final invoices
Print invoices by category
e.g engagement manager
Print duplicate invoices at any time
Administration
Create and invoice online at any time
Multiple invoice formats
Credit terms field
Billing arrangements field
Nominate the date of the invoice
Bill in dispute
Cost unposted time (batch system)
Expenses accrual facility at time of
billing
Bill follows partner
Allows future entries
Multiple debtors Ledgers
(professional / sundry)
Itemise disbursements
Include / exclude intercompanies for
reserve, interest etc
Calculate and record interest on
overdue invoices
Distribute realisation and
write offs by employee
Twelve-month rolling averages for
realisation and write offs by office,
team, job, account manager etc

(0=Function does not exist,
1=exists but poor
implementation,
5=exists and excellent
implementation

Comments

Rating
Importance to Firm
(0=Not required,
1=low requirement,
5=high requirement)

(0=Function does not exist,
1=exists but poor
implementation,
5=exists and excellent
implementation

Comments

Record and track product sales
Manual bill numbering
Bill intercompany
Receipts / Adjustments and other
Function
Data Entry
Allocate to invoice based on age
Allocate to specific invoice
Automatically allocate to a block of
invoices
Reallocate cash to same debtor
Reallocate cash across debtors
Process partial payments
Allocate receipt to a suspense account,
reallocate to debtor
Display outstanding invoices to apply
cash receipt to
Types of Receipts
Enter miscellaneous cash receipts
Disbursement WIP Receipts
Allow for future entries
Record dishonoured cheque
(negative payment)
Accept credit card payments
Process a credit card refund
Process credit card
processing fees (Amex etc)
Reporting
Print bank deposit slip
Generate payment reminders on unpaid
invoices
Administration
Open item
Balance brought forward
Capture payer details,
reference information
Enter credit limit
Enter credit terms
Add notes to debtors
User defined allocation of receipt
monies (i.e. allocate to GST then
disbursement)
Retain open items indefinitely

MODULE 5: TECHNOLOGY AND E-BUSINESS

Rating
Importance to Firm
(0=Not required,
1=low requirement,
5=high requirement)
Debtors Aging
Bad Debts / Provisions
Automatic provision calculation against
aged debts
Record and track questionable
receivables
Write off bad debt invoices
Tax reclaim calculation from bad debts
WIP & accounts receivable restricted
to Partner and Manager of the
engagement
Define multiple bank accounts
Bank Reconciliation
Interface/integrations
Prepare a General Ledger posting
summary
Debtors general ledger Journal
Import and apply cash from third party
software
VAT
Function
Support for tax on Invoice and
Payments
Tax only invoices
(Adjustment invoicing)
Tax Invoices
Credit Tax Invoices
Tax on Invoice basis WIP & DRS
Tax on Cash basis WIP & DRS
Multiple tax levels
Show tax separately on the invoice
Separate tax levels for time and
disbursements
Detailed tax reporting
Support for discounts pre-post Tax
Tax reclaim calculation from bad debts
General ledger journal for tax
Reporting
Function
Print to printer
Print to screen
Print to file
Print to spreadsheet

(0=Function does not exist,
1=exists but poor
implementation,
5=exists and excellent
implementation

Comments

Rating
Importance to Firm
(0=Not required,
1=low requirement,
5=high requirement)

(0=Function does not exist,
1=exists but poor
implementation,
5=exists and excellent
implementation

Comments

Use of third party report writers
Debtor statements :
pre-prepared / modifiable
Debtor Statements :
multi-engagement
Print statements by client range
Reprint statement
Suppress printing of credit statements
Suppress printing of zero balance
statements
Suppress printing if balance below a
certain value
Pre-defined back office reports
User defined reports
Graphical reporting such as bar and pie
charts
On-line reports can be sorted by
any field
Reprint reports for up to
thirteen months
Reprint reports for longer than thirteen
months
Current and prior year reporting
Fiscal year reporting
Calendar year reporting
Batch, offload reports
Electronic distribution of reports
Drilldown to transaction data
Hierarchical reporting structure
View on screen all reports
Executive Information
Function
Analysis Query Tool
Budgeting WIP at engagement level
Future budgets
Budgeting fees
Budgeting employees
Contacts and Marketing
Function
Multiple contact types
User-defined contact types
Multiple addresses
Multiple telephone numbers

MODULE 5: TECHNOLOGY AND E-BUSINESS

Rating
Importance to Firm
(0=Not required,
1=low requirement,
5=high requirement)
Addresses formatted for local
requirements
Search on name or any part of name
Search on beginning of name only
User defined relationships
Duplication management
Create clients from contacts
Track name changes
Freeform notes facility per contact
Event logging
Alias facility
Data security at field level
Contact/interest groups
Record and track the time and activities
performed by a resource in identifying
and selling the assignment
Mailing
Function
Function available
Mailout Control data maintained
Duplication tests
RSVP and Attendance recording
Historical records of mailouts
Import data from integrated systems
Produce labels
Produce mail merge files–user specified
Human resources / employee
records
Function
Employee records maintained
Employee types
Multiple charge rates
Default activity
Integrate with time entry system
to track utilisation for performance
evaluation
Define a rate per employee that
is applied as the standard when
registering time
Define a rate per position / group
Define additional rates per
employee that can be applied
when registering time

(0=Function does not exist,
1=exists but poor
implementation,
5=exists and excellent
implementation

Comments

Rating
Importance to Firm
(0=Not required,
1=low requirement,
5=high requirement)

(0=Function does not exist,
1=exists but poor
implementation,
5=exists and excellent
implementation

Comments

Group employees according to position
Differentiate individuals as employees,
contractors, sub contractors
Designate employee status as either
active or not active
Staff Contacts
Record the location of a member of
staff (e.g. on site office location and
phone number)
Staff able to enter their own contact
information but not others
Staff able to enter their own contact
information remotely
Resource Scheduling
Function
Function available
Integration to MS Project (or similar)
Time planning
Expense planning
Ad hoc assignments
User-definable tasks
User-definable milestones
Template basis for creation
of new plan
Schedule can act as timesheet template
Multiple versions of plan
View by day, week or period
View by staff / project
Review after T/S of actual
effort vs. scheduled
Review financial performance
versus plan
Off Line usage
Job budgeting information to form basis
of resource scheduling
Scheduling by date
Entry of length of activity
Entry of type of activity
Input of leave schedules from
human resources
Schedule future loadings by
classification and or employee,
across jobs by engagement
controller/manager/branch
Capture actual time from timesheets

MODULE 5: TECHNOLOGY AND E-BUSINESS

Rating
Importance to Firm
(0=Not required,
1=low requirement,
5=high requirement)
Enter chargeable and non-chargeable
activities
Schedule non labour resources
(e.g. cars)
Automatically maintain a schedule of
availability for each staff member /
contractor
Available hours should not include
statutory holidays
Available hours should not include
booked leave
Schedule resource time by month
Schedule resource time by week
Schedule resource time by day
Schedule resource time by hour
Roll up or consolidate individual
schedules to group employees or
resource units
Assign resources to multiple
assignments at the same time
Import and export schedules
and assignments plans to project
managements software such as
MS Project
Review the scheduled assignments for
an individual or group of individuals
Examine an assignment for the
schedules of each individual
Provide notification to individuals
entering data into the schedules
that their input creates a conflict in
the schedule
Integration to general ledger
Function
Interface available
Account selections – user defined
Journal definitions – user defined
Choice to print report and journalise
manually
Export file available
Allocate multiple cost centres per fee
Accounts Payable
Function
Function Available
Desktop facilities
Function

(0=Function does not exist,
1=exists but poor
implementation,
5=exists and excellent
implementation

Comments

Rating
Importance to Firm
(0=Not required,
1=low requirement,
5=high requirement)

(0=Function does not exist,
1=exists but poor
implementation,
5=exists and excellent
implementation

Comments

Integration to
Microsoft Office/Outlook
Off Line Capabilities (remote)
Function
Timesheets & Expenses
Billing
Master file updates
Resource Scheduling
Security
Function
Row Level Security
Column Level Security
Menu Level Security
Group Security
Audit trails: data entry
Audit trails: Maintenance routines
Functional security
General Functionality
Function
Conversions available
Multi-company, multi-site support
Web enabled
Multi-level corporate hierarchy
(Firm, office, Division, Unit etc)
Bulk update of responsibilities. for
example when partner/manager leaves
the firm.
Detailed cost centre reporting
Multiple debtors ledgers
Multi-entity, multi-level budgeting
Internal Integrity checks
Online manual
Online help
User-definable On line help
Numeric field size
Retain history data
Generate a to do list
Modified screen formats, menus,
parameters, and files are automatically
applied to new releases
System comes supplied with a test
environment and database

MODULE 5: TECHNOLOGY AND E-BUSINESS

Rating
Importance to Firm
(0=Not required,
1=low requirement,
5=high requirement)
Module security levels are automatically
applied to new releases
Capability for Web browser, internet
and intranet front office processing
Desktop Faxing
Archive data
Retain static data history
(e.g. client maintenance)
Architectural queries
Function
Program file sizes
(Including Manuals and Help)
Maximum data file sizes
Client Server
32 bit application
Workstation requirements
Server requirements
Database (SQL Server)
Server processing
Scheduled server processes
Development Environment
Multi site replication
Does the DBMS have any
dependencies on the underlying
operating system
Dependencies the application Software
may have on the underlying operating
system
Can the DBMS make use of
multiple processors
User Interface
Function
Graphical User Interface (GUI)
32 bit Windows client
Standard Microsoft Windows
conventions
Customizable screen content
Minimal use of codes (names)
User-defined lists
Scalability
Function
Robustness of multi-site support
Proven for large data volumes

(0=Function does not exist,
1=exists but poor
implementation,
5=exists and excellent
implementation

Comments

Rating
Importance to Firm
(0=Not required,
1=low requirement,
5=high requirement)

(0=Function does not exist,
1=exists but poor
implementation,
5=exists and excellent
implementation

Comments

Proven support for large number of
concurrent users
Bandwidth conservation measures
Programming Interfaces
Function
Routines for data export
Routines for data import
Documented
Data level support for third party
reporting tools
Explicit links between business rules
and programming interface
Registered business logic objects
Company and Support
Function
Number of users
Reference sites
Support provided
Documentation Provided
Implementation Services Provided
Training Programs
Client satisfaction surveys
Company financial stability
User Groups
Pricing
Customer input into development
Conversion from other products

Other functionality required

Comments:

MODULE 5: TECHNOLOGY AND E-BUSINESS

Appendix 5.2 Website / intranet / Extranet Software Evaluation
Product:____________________________ Evaluation Date:______________________________
Rating
Importance to Firm
(0=Not required,
1=low requirement,
5=high requirement)
Website
Website templates provided
Client newsletter facility
Client/prospect registration facility
Client surveys
Optional News and business content
automatically provided to site
Assistance in website design/logo design etc
Ease of website content creation (no need
to learn HTML or other technical website
creation skills)
No limits to number of pages or sub pages
Secure Shopping facility (shopping cart)
Credit card payment facilities
Broadcast email facility
Client database integration to practice
management
Website hosting provided
Supplied form templates (feedback forms,
invitations, competitions)
Email a friend functionality
Search engine management
(for the website to be found by popular
search engines)
User defined forms can be included
Job board (employment opportunities)
Event registrations
Intranet
News area
Web Links
User defined Favourites (links to websites
documents or other data)
History
(recently accessed documents or pages)
Provides views of firm management and
other firm applications data
Provides access to best firm precedents
and procedures

(0=Function does not exist,
1=exists but poor
implementation,
5=exists and excellent
implementation

Comments

Rating
Importance to Firm
(0=Not required,
1=low requirement,
5=high requirement)

(0=Function does not exist,
1=exists but poor
implementation,
5=exists and excellent
implementation

Comments

Staff Directory / location tracker
Firm Knowledge base
(technical and other papers)
Outlook integration (email, calender)
Automated emails when news/knowledge
base and other updates loaded
Extranet
Upload documents directly to extranet from
other applications
Add or remove documents from extranet
based on date ranges
Secure client login creating secure location
for client interactions
Secure client discussion forums
Public client discussion forums
Client product/service exchange (community
of clients)
Email notification to clients or firm
when documents uploaded into client
secure space
Share documents with multiple clients from
a single operation
Client ability to update details (addresses, etc)
Client ability to review debtors ledger and
pay fees
Other
Scanner integration
Key word indexing
Full text indexing
Support for all file types (sound, video, pdf etc)
Integration with Optical Character
Recognition
Statistical reporting of website / intranet /
extranet usage
Content Management System
(approvals, removal dates)
Access Controls to individual aspects of
website management system
Search facility
Spell checker
Company
Number of customers
Smallest customer

MODULE 5: TECHNOLOGY AND E-BUSINESS

Rating
Importance to Firm
(0=Not required,
1=low requirement,
5=high requirement)
Largest customer
Support provided
Implementation Services Provided
Training provided
Client satisfaction survey results
Reference sites
Server requirements
Workstation requirements
Provider financial viability
User Groups
Pricing
Customer input into development
Conversion from other products

Comments:

(0=Function does not exist,
1=exists but poor
implementation,
5=exists and excellent
implementation

Comments

Appendix 5.3 Document Management / Workflow Evaluation
Product:____________________________ Evaluation Date:______________________________
Rating
Importance to Firm
(0=Not required,
1=low requirement,
5=high requirement)

(0=Function does not exist,
1=exists but poor
implementation,
5=exists and excellent
implementation

Comments

Document Management
Function
Email Storage
Check-in, Check-out
Versioning
Integration with Microsoft Office and Outlook
Clients/engagements integrated with
firm management
Integration with firm tax, accounts production,
statutory records, pension plan and other
compliance applications
Launch applications from document
management system
Track history of edits
Views of documents by outstanding queries,
document preparer, document type, follow-up
dates etc
User definable views of document lists
Store documents by client
Store documents by engagement
Store documents by file type (correspondence,
minutes etc)
Drag and drop document to document
management folder
Permanent File support
Document retention processes for automatic
archiving
Integration to PDF creator software
Document Access Control
(reader, creator, editor)
Client/engagement access control
Attach user definable attributes to documents
View documents by user definable attributes
Review notes on documents
General comments on documents
Workflow
Track queries on documents
Assign documents to staff members
Assign tasks to documents

MODULE 5: TECHNOLOGY AND E-BUSINESS

Rating
Importance to Firm
(0=Not required,
1=low requirement,
5=high requirement)
Track document delegators
Create document due dates/follow-up dates
Track status of document
(in preparation, in review, approved)
Lock documents once approved
Uses document links rather than copies of
documents to email around the firm for review
Tracks date the document was sent to
the client
Email document from within application
Document threads (hierarchy) that is, parent/
child documents
Ability to link related documents
Online approval of documents
Automatic notification of outstanding issues
Automatic escalation of outstanding issues
Email Management
Store email direct from in-box
Send email from application and store copy in
application and outbox
Keep firm-wide archive of all inbound and
outbound email
Approval tracking on emails
Prevent staff from sending unapproved emails
Ability to route emails to employees and
allocate tasks
Templates
Create documents from standard templates
Templates client names and addresses
integrated with practice management system
Suite of template documents supplied
Standard letter templates
Checklist templates
Work paper templates
Template updates supplied
Template versions maintained
Template usage tracked
User templates can be added
User amendments to standard templates not
overwritten on update
Facility to distribute user templates to multiple
offices
Best firm procedures provided, linked to best
practice documents

(0=Function does not exist,
1=exists but poor
implementation,
5=exists and excellent
implementation

Comments

Rating
Importance to Firm
(0=Not required,
1=low requirement,
5=high requirement)

(0=Function does not exist,
1=exists but poor
implementation,
5=exists and excellent
implementation

Comments

Individual users can have their own suite of
documents
Facility to track reviews and authorisation of
standard documents
Other
Internet access to application
Access to documents from other applications
Documents replication/synchronisation
(disconnected access to documents)
Scanner integration
Key word indexing (searching)
Full text indexing (searching)
Smart filters to enable viewing of only required
data
Integration with secure client extranet
Support for electronic signatures on
documents
Integration with Optical Character Recognition
Company
Number of customers
Smallest customer
Largest customer
Support provided
Implementation Services Provided
Training provided
Client satisfaction survey results
Reference sites
Server requirements
Workstation requirements
Provider financial viability
User Groups
Pricing
Customer input into development
Conversion from other products

Comments:

MODULE 5: TECHNOLOGY AND E-BUSINESS

Appendix 5.4 Case study 5.1 The workplace of tomorrow
William and Indira, who are just setting up their firm, wish to harness the latest available technologies to enable
them to deliver the best possible service to their clients. They wish to do this in the most efficient manner
resulting in a highly profitable business.
William and Indira understand that they have a distinct advantage over existing firms who have established
systems and processes. Firms that are long established would find it difficult to adopt new systems and
processes, since people in those firms and their clients would be required to change the way they work. In
starting afresh, William and Indira can design their processes to capitalize on the opportunities provided by
modern internet-enabled hardware and software.
Some traditional applications generally will be required in the firm. Word processing, spreadsheets, and
presentation software will be necessary. Microsoft Office will be selected since it incorporates integration with
other applications and is well known by most computer users. However, William and Indira are considering
Google apps which deliver free web-based products competing with Microsoft Office.
Ideally the firm would prefer to adopt cloud computing to reduce its infrastructure and management costs.
However, not all of the firm’s requirements are available as cloud computing applications. Accordingly, the firm
will adopt a tradition LAN-based infrastructure that will interact with cloud computing applications with the
intention to moving to a wholly cloud computing environment in time.
Practice management is the first of the key applications that must be implemented. Since integration of the
client database maintained by the practice management with other applications is critical for efficiency, William
and Indira are giving preference to integrated software suite providers.
Another consideration for William and Indira is whether they will perform compilation work in their firm. They
plan to review various providers who may provide compilation services for the firm, to enable the partners to
concentrate on advisory work.
A key consideration will be to recommend to the firm’s small business clients that they adopt a hosted
accounting application which would enable the firm and the client to collaborate in the clients’ bookkeeping
and year end compilation work.
Working in a paperless environment is a clear objective for William and Indira. All team members will have
three screens, with one set up vertically as a document reader to enable efficient manipulation of electronic
documents. A firm intranet will be implemented that will contain standard processes, checklists, and precedents
to ensure that quality is maintained and consistent processes are applied.
William and Indira are also keen to enable their team to work effectively at clients’ premises and at home. They
plan to provide their team with laptops equipped with mobile broadband connections.
The firm’s website will be a vital platform for the firm. A secure portal will be implemented to exchange data
with clients and to provide a repository for compilation reports and statutory returns. William and Indira plan to
use multimedia and social networking to connect with potential clients, and potential team members.
Before any money is spent, however, William and Indira will develop an IT strategic plan. This will outline the
above objectives consider how the systems can be effectively implemented and managed and ensure that all
risks are properly considered and mitigated.

Module 6:

Client relationship management

Contents
6.1 Introduction

6.2 Knowing your client

6.2.1 Client questionnaire

Table 6.1 Sample client questionnaire: Business

Table 6.2 Sample client questionnaire: Family Group

6.3 Reviewing your client base

6.3.1 Client classification

Table 6.3 Client base classification criteria

Table 6.4 Client classification exercise

6.3.2 Benefits of client classification
6.4 Measuring and exceeding client expectations

10
10

6.4.1 What do clients want?

Table 6.5 What clients want

6.4.2 Measuring client expectations

Table 6.6 Steps to measure and exceed client expectations

6.4.3 Exceeding client expectations

Figure 6.1 Sample sales graph

Figure 6.2 Sample balance sheet

6.4.4 Internal versus external strategies

Table 6.7 Sample plan for regular client contact

Table 6.8 Client relationship management action plan

6.5 Benchmarking service levels

6.5.1 Benchmarks

Table 6.9 Benchmarking client relationship management

6.6 Embracing opportunities for enhanced relationships

6.6.1 Using gap analysis

Table 6.10 Gap analysis model

Table 6.11 Existing client–service matrix

6.6.2 Summary: maximizing opportunities

Table 6.12 Maximizing the opportunities from an enhanced client relationship

6.7 Developing strategies to provide a full range of quality services

Table 6.13 Steps to developing a full range of services

6.7.1 Identifying the services required in the marketplace

Table 6.14 Services checklist

Table 6.15 Related services checklist

Table 6.16 Internal questionnaire

MODULE 6: CLIENT RELATIONSHIP MANAGEMENT

6.8 Strategies for providing a full range of quality services: mergers, networking, referrals

Table 6.17 Forming an alliance

Table 6.18 Target list of possible alliances

6.8.1 Common concerns with referrals or introductions

Table 6.19 Discovering your potential referral partner’s attitudes

6.8.2 Mergers

6.8.3 Cherry-picking

6.8.4 Alliances

6.8.5 Referrals

Table 6.20 Sample plan to deliver a full range of quality services

6.9 Invoicing and collection

6.9.1 Credit control

6.9.2 Collection techniques

6.9.3 Some fundamental rules

6.9.4 Why clients don’t pay

6.10 Conflict resolution and arbitration services

6.10.1 Five signs of rising conflict

6.10.2 Dealing with conflict

6.11 Ending a client relationship

6.12 Conclusion

6.13 References, further reading, and IFAC resources

Appendices

Appendix 6.1 Case studies

6.1

Introduction

The relationship accountants have with their clients is fundamental to the value of the accountancy firm.
Increased competition demands that accountants shore up their client relationships so that clients are less
vulnerable to persuasion from competitors.
Each word in the term “client-relationship management” is important.
z “Client” implies an ongoing, professional relationship. This means that once an initial relationship is
established, both the firm and the client intend to continue to deal with each other.
z “Relationship” implies that the association between client and firm is more than a simple transaction, or a
one-off purchase of a service. It is often the case that the client shares private or confidential information with
the firm, and hence a level of trust is established. Both the client and the firm come to know each other, and
gain an understanding of how the other works.
z “Management” implies that the relationship doesn’t just happen, it needs to be managed. This means that
there is an active involvement, more than just the firm responding to client requests.
Establishing a deeper client relationship makes good commercial sense. It has been established over a number
of surveys that it costs far less to retain a client than it does to acquire a new one. This should be of particular
interest to accountants, who are often very concerned with matters relating to cost and cost management.
6.2

Knowing your client

Knowing your client means understanding their business affairs. It’s about understanding what motivates them,
what their fears are and why they do what they do.
It’s valuable to understand what’s important to clients—their values and their core characteristics. You need
to understand the visions they have for their businesses. You also need to keep in mind that clients have lives
separate from their businesses: a business can be a person’s escape, his means of making a living, or be his mode
of expression, but it is not who he is.
By understanding your client, you will know how to be of service, and how to assist them on their journey. In so
doing, you will become an integral part of the client’s team.
The service you provide will be well regarded, and valued. When you achieve this level of relationship, price
becomes less of an issue. The client becomes less concerned about the lowest price because they are getting
sound advice from their trusted adviser. (They will still want good value, though!)
Getting to know your client:
z Builds a closer relationship;
z Strengthens your position as their “trusted business adviser”;
z Means that price becomes less of an issue;
z Increases client loyalty, which means clients will be less interested in approaches from competitors;
z Increases client retention, and therefore profitability;
z Increases staff satisfaction, as they also build relationships with clients;
z Increases efficiencies: your firm and its clients know each other’s systems and methods; and
z Tends to be more professionally satisfying.
This module provides assistance to those who realize the benefits of deepening the relationship with their
clients and are looking for ways to do it.

MODULE 6: CLIENT RELATIONSHIP MANAGEMENT

6.2.1

Client questionnaire

The best way to get to know your client, and understand the client’s vision and long-term plans, is simple. You
must ask them and be genuinely interested in the answer. This works best when done in a structured way.
Table 6.1 is an example of a client questionnaire. Two questionnaires are provided, one with a business
focus, the other with a family focus (Table 6.2 ). You can use this format, or use the ideas to design your own
questionnaire.
When you meet your client and ask the questions, make sure you give them time to answer fully. Take the
time to listen. Clients often like to elaborate on their answers, as they are keen for you to understand them
and their plans better. You may choose to use a formal approach (such as a questionnaire) or engage them in
conversation, gathering usable information in a less official manner.

Table 6.1 Sample client questionnaire: Business
Question

Reply/Comment

Client:
Directors:
Owners:
Age of directors/owners
Experience in business
Time in current business
Expertise in current business
What is your current business plan?
What do you want to achieve in this
business?
What are your goals and key objectives?
Where do you see your business in two,
five and ten years?

Two years:
Five years:
Ten years:

Where is your business now in relation to
where it needs to be?
What are the key steps you need to take
to get there?
What might stop you from getting there?
What are the most important things you
want from your accountant?
What are your key frustrations?
Identify key employees
Note the length of their service
What are their ambitions, goals and
objectives?
How long do you want to stay involved in
this business?
When do you plan to retire?
What else do you like to do apart from
working in the business (hobbies,
interests, etc.)?

MODULE 6: CLIENT RELATIONSHIP MANAGEMENT

Table 6.2 Sample client questionnaire: Family Group
Question

Reply/Comment

Client:
Family Members:
Age of Family Members
Overview of family member in
family business interests and/
or investments[?]
Level of interest of each family
member in family business interests
and/or investments
What is family business or investment
plan?
What does the family want to achieve
from their investments?
What are the family goals and key
objectives?
Where do you see the family
investments in two, five and ten
years?

Two years:
Five years:
Ten years:

When do family members plan to
retire?
What else do you like to do apart from
working in the business (hobbies,
interests, etc.)?

6.3

Reviewing your client base

One of the key elements in client relationship management is continual focus on the client. Even though
accounting firms deal with numbers, laws and regulations, it is the relationships the client has with the firm that
will bring them back to you, year after year. This adds the real value to your firm.
The reality for most firms is that the relationship they have with their clients vary. Firms may provide the same
professional services, such as an audit, or tax return, to many clients, but the relationship differs from client to
client. People run each business, and people are different wherever you go.
It is important to understand how your clients interact with your firm and just what the client relationship is
based on. One effective way to do this is to classify your clients. This allows you to see which clients have a
strong relationship with your firm, and which do not. It also allows you see where resources should be allocated
and if there are any areas which requiring special attention.

6.3.1

Client classification

There are many ways to classify clients. Questions you could ask include:
z How much time does the client spend with our firm?
z What is our return on investment with this client?
z What contribution margin do they make?
z What hourly contribution margin do they make?
z Client contribution as % of total?
z How many of our services do they currently utilize?
z Do they pay our bills on time?
z Do they dispute or argue over fees?
z Do we make good recovery on their fees?
z Do they respect our advice?
z Can we add value to their business?
z Do we enjoy working with them?
Firms that go to the effort to rank their clients often do so this on the basis of the fees the clients pay. This is fine
as one indicator; however, it is important to remember that you deal with clients on many levels and some “nonmonetary” criteria should also be used.
Tables 6.2 and 6.3 show how client bases might be classified according to different criteria.
Table 6.3 Client base classification criteria
A+

“Up and comer”

Spends $20,000
or more per year

Spends $10,000– Spends $5000–
$20,000 per year $10,000 per year

Spends $2000–
$5000 per year

Spends $2000 or
less per year

Enthusiastic client
of firm

Utilizes five or
more of our
services

Utilizes four
to five of our
services

Utilizes three
to four of our
services

Utilizes two to
three of our
services

Utilizes only one
to two of our
services

Potential to utilize
three or more of
our services

Monthly payment
arrangement

Respects our
advice

No monthly
payment
arrangements

Will do monthly
payment
arrangement
when ready

Values our
services

We enjoy dealing
with them

MODULE 6: CLIENT RELATIONSHIP MANAGEMENT

Minimal scope
for advice, but
does appreciate
our services
We enjoy dealing
with them

Respects our
advice
Values our
services
We enjoy dealing
with them

Table 6.4 Client classification exercise
Action
1.

Determine the criteria on which you will classify your clients.

If this includes financial information, ensure that this information is
available.

Determine the coding system you will use (for example, A+, A, B,
C, etc.).

Access a listing of all clients of the firm. (This works best in
electronic format.)

Allocate a classification code against each client.

Sort client list according to code.

Review list for anomalies.

Make list available to all employees for review and comment.

Determine appropriate strategies to maximize use and value of
this information.

6.3.2

Completed/Comment

Benefits of client classification

A number of benefits may be gained from the process of client classification.
6.3.2a Demographics
Classification allows the firm to discern:
z Which clients are utilizing which services;
z The popularity of certain services;
z The resources and training required to support these services;
z The opportunities to up-sell and cross-sell additional services; and
z Those clients who utilize most services in the firm.
It is important to share this information with all the employees in the firm so that they know where clients sit
in the firm rankings. This will help them deliver the appropriate level of client care and support. It will also keep
them alert to the opportunity to up-sell and cross-sell additional services, to those clients who utilize a lower
number of services.
6.3.2b Pricing
Client classification may also allow the firm to consider special pricing arrangements. These may apply in
different circumstances.
Preferential pricing may be considered for clients who utilize a large number of services. This may enhance the
client relationship and show loyalty and appreciation to the client for their support of the firm, by providing
lower prices in some areas.
Preferential pricing may also be considered for clients as an incentive or inducement to increase the number of
services they utilize. For example, a firm could offer 10% off fees on the additional service in the first year of use.

In addition to preferential pricing, the firm could also consider different pricing structures that may apply to
different service levels, or to different types of work, or to services provided.
6.3.2c Valuation
It may be possible to attribute a value to the clients within each category of classification. While this may not be
an exact or precise measure, it may at least give an indicative value of the client base. It will also allow the firm to
assess the return on investment that is being realized from the client base.
One method of valuation is called the Lifetime Value of the Client. This involves estimating of how much the
client will spend with your firm during the lifetime of the mutual relationship. Also make an estimate of how
many other clients they are likely to refer to your firm, and what the value of those clients will be to the firm. This
will then provide the firm with a guide as to how much they spend to get a new client.
As you can see, there are many ways to use the information gained from the classification of clients can be used.
It then becomes important to determine the appropriate strategies the firm should use to make the most of the
opportunities that this information presents.
6.4

Measuring and exceeding client expectations

The starting point for measuring and exceeding client expectations is to understand what those expectations
are in the first place.
6.4.1

What do clients want?

A survey of small to medium-sized business owners asked what they wanted from their accountants. Their
responses are summarized in the following table.
Table 6.5 What clients want
Result

Quotation

Accessibility

“Be available for me, whenever, wherever.”

Initiative

“Come up with ideas that will help me and my business.”

Timeliness

“Be in the present, stay current with me, not focused on
the past.”

Comprehensible advice

“Relate to me in ways I can understand.”

Client choice and control

“Give me options, let me choose.”

Improved relationship

“It’s more than just a transaction.”

Take a few moments to review this list and consider its implications. You can see that the main emphasis is on
how available the accountant is to their clients.
Many accountants focus on the specifics of the service they deliver. Accountants need to look beyond the actual
transaction at what the client is actually looking for.
Consider, for example, the preparation of a tax return. The accountant assumes this is what the client wants. But
the client is more concerned about ensuring that their tax obligations are being met. The tax return is simply the
mechanism for getting this done.
This highlights the importance of understanding what clients really want from their accountant. Firms then have
the opportunity to develop so that they can deliver a service of real value to their clients.
Real value also needs to be considered vis-à-vis what the clients can afford and wish to pay. From a clientmanagement perspective this means there may be no need to over-service clients.

MODULE 6: CLIENT RELATIONSHIP MANAGEMENT

6.4.2

Measuring client expectations

In order to measure and exceed client expectations, a number of steps must be completed.
Table 6.6 Steps to measure and exceed client expectations
Step

Action Required

Know what your client’s expectations are.

Quantify your client’s expectations.

Check regularly to see whether their expectations are being met: Ask your client.

It is only by understanding what a client expects of you that you an exceed those expectations. The client’s
expectations should be identified in your first meeting with them. Use the client questionnaire in Table 6.1.
6.4.3 Exceeding client expectations
If you can exceed your client’s expectations, you will ensure a long-term relationship with them and a constant
stream of client referrals.
Exceeding client expectations is all about giving them something unexpected, something they did not predict. It
has been called the “wow! factor” and it is worth considering as an effective way to enhance the client relationship.
You must be innovative and creative. You must think constantly about how you can go beyond what they
expect. As soon as you introduce an initiative, you will need to be thinking about the next. You need to set the
bar higher each time.
As mentioned earlier, the technical areas are a given: you are expected to be competent in those areas. But it
might be in the nontechnical areas that you make an early impression.
6.4.3a Phone calls
One example is an unsolicited phone call. After the initial chat, say something along the lines of, “I just thought
I’d give you a call to see how your business is doing. How are things?”
Clients usually warm to such a conversation very quickly, and will soon talk about the issues they are facing.
Sometimes there may be ways you can help, other times not. But you can be assured that your client will
appreciate the call. This will go some way toward building your relationship with your client.
6.4.3b Does your client understand you?
Key Performance Indicators (KPIs) are important for every business and the practitioner is well placed to explain
the financial indicators to their clients. KPIs based on the Profit and Loss Statement are usually of interest to the
client. For example, a discussion of the break-even sales point, or the safety margin will typically attract interest
from the client.
Another approach might be to translate ratio analysis for your client. Explaining a ratio brings it to life. Consider the
current ratio: the calculation is “current assets/current liabilities.” Traditionally we would describe this in terms of
“2:1”, or “two times.” This might be meaningful to the accountant, but doesn’t necessarily make sense to the client.
Make that ratio more meaningful to the client. For example: “For every dollar of current liability, you have $2 of
current asset to pay for it.” Or, “Last year, for every dollar of current liability, you had $2.20 to pay for it.” Now the ratio
has come to life. It brings new meaning to the ratio and opens a whole new area of understanding for the client.
By taking this approach to ratios, your own staff ’s understanding and interest will also increase. Your employees
will enjoy preparing the ratios so they can assess your client’s performance. You may wish to give a staff member
the responsibility of setting up your accounting software to produce the ratios and the sentences that go with
them automatically.

This is a simple example of how to engage with client, while at the same time improving staff morale by
encouraging their involvement.
6.4.3c Graphs and charts
“A picture paints a thousand words.” Accountants are comfortable looking at numbers all day. They are
accustomed to seeing the relationship between figures and financial situations. However, most clients are not
like that. So it is important that firms present information to their clients in ways they can understand. Graphs
and charts are a simple way of doing that.
Most spreadsheet packages can generate graphs quickly. Yet is surprising how few firms present their client’s
financial information in this form. It is certainly one of the most cost-effective methods of impressing your
clients and giving them something of real value.
Figure 6.1 Sample sales graph
160000
2009

2010

140000
120000
100000
80000
60000
40000
20000
0
Jan

Feb

Mar

Apr

May

Jun

Jul

Aug

Sep

Oct

Nov

Dec

Consider the other information that your clients would appreciate seeing in graph format, such as:
z Sales versus last year’s sales;
z Sales versus budget;
z Sales versus gross profit;
z Wages versus sales; or
z Sales versus net profit.
Many other combinations would be useful to graph. The important thing is to gauge the level of interest from
the client. They usually show a keen interest when shown the graphs, and often suggest other information they
would like see graphically presented in the future.
6.4.3d Pie charts
Balance sheet items are often best shown in the form of a pie chart. Multiple formats can be used. Find the
format that works best for your client and gives them the information that is most useful.

MODULE 6: CLIENT RELATIONSHIP MANAGEMENT

Figure 6.2 Sample balance sheet

Assets
Liabilities
Net worth

There are other benefits to producing graphical information.
z It typically generates additional interest within the firm, as the results are so easy to see, and arouses staff curiosity.
z Standard formats can be preset on your computer system and can be produced with the press of a button.
z Generation Y is highly computer literate and can usually produce graphs with ease.
z The image and perception of professionalism are enhanced.
6.4.3e Other services
A number of accounting firms have broadened the range of services they provide in response to demand from
current and prospective clients. Review the following list and consider whether your firm could incorporate
some of these services could be incorporated in your firm, in addition to traditional tax and accounting services.
z Annual planning session: Meet with client each year to map or update the strategic direction of the client’s business.
z Develop action plan: Assist in completing the action plan to achieve the goals identified. This includes
identifying the necessary follow-up steps, and allocating responsibilities for tasks and deadlines.
z Implement and update the action plan: Ensure the plan is fully implemented, with regular follow-up,
mentoring and coaching.
z Goals and objectives: Identify and establish the goals and objectives of the business, and together determine
how to get there.
z Organization chart: Review the client’s organization chart of the client, including allocation of responsibilities
and accountabilities. This also includes a review of position descriptions for each position.
z Site visits: Regularly spend time in the client’s business to physically assess the continued sustainability and
development of the business.
z Monthly meetings: Meet with the directors on a monthly basis to discuss the financial performance, growth
and development of the business.
z Management accounts and KPIs: Review the business’s performance against the budget. Also review the KPIs
and relevant financial and nonfinancial information relating to the performance of the business.
z Annual budget: Prepare and review.
z Annual cash flow forecast: Prepare and review.
z Sales pipeline: Regularly review.

z Accounts receivable: Review and track accounts receivable monthly. Consider the impact on the cash flow
forecast and bring any concerns to the attention of the directors.
z Accounts payable: Review and track monthly. Check against the annual budget allocation, and consider the
impact against the cash flow forecast.
z Key performance indicators (KPIs): Identify the specific KPIs for the business that are to be regularly reported on.
z Finance and funding: Review the finance and funding arrangements that are in place to ensure that the most
appropriate and cost-effective forms of finance are being utilized.
z Bank manager: Meet with the client and the client’s bank manager annually to discuss the performance of
the business and future plans. This discussion should include a review of the relative appropriateness of the
funding arrangements in place.
z Bank security: This discussion will be linked to a review of the security the bank holds to support the finance
structure. These meetings should coincide with a monthly management meeting.
z Corporate structure: Review and consider the corporate structure through which the business operates, to
ensure it continues to reflect the client’s intentions for the business.
z Asset protection: Link to the review of corporate structure a consideration of asset protection measures that
are in place.
z Investment plans: Review and discuss the client’s investment and development plans, in light of taxation and
investment benefits.
z Succession: Consider annually what the client intends to do regarding their succession. Include the timing of
their progressive withdrawal from the business, and the relative position of the business in light of taxation
issues, stamp duty, etc.
z Estate: Confidentially discuss and consider the legal wills of the client and the client’s intentions in regard to
their estate planning, from a financial and taxation perspective.
z Insurance coverage: Review insurance cover in place to ensure it is appropriate for the current and ongoing
needs of the client.
z Insurance broker: Meet with the client’s business insurance broker annually to discuss the current level of
insurance coverage and provide an update as to future plans and expectations. These meetings to coincide
with one of the monthly management meetings.
z Staff salaries and bonus structures: Review and discuss staff salaries and bonus structures annually.
z Risk assessment: Conduct a formal risk assessment of the client’s business annually to ensure key areas of risk
are identified. Also ensure appropriate risk mitigation strategies are identified and recommended.
z Profitability analysis: Conduct client profitability analysis and product profitability analysis to ensure that the
clients and product lines that your client deals with are profitable. If not, review their continuation.
z Key clients: Meet your client’s key clients to discuss their financial terms and arrangements. Gain an
understanding of their dealings with and expectations of the client’s business.
z Key suppliers: Meet with the client’s key suppliers to discuss their financial terms and arrangements, and seek
to negotiate better terms.
When considering which other services to introduce, subject of course to your client’s openness to embrace
these new offerings, you should be aware of ethical considerations and any local restrictions that may apply in
your jurisdiction.

MODULE 6: CLIENT RELATIONSHIP MANAGEMENT

6.4.4

Internal versus external strategies

So far the discussion has focused on internal strategies to exceed your client’s expectations. Other strategies
include building on the relationship you already have with your client.
External strategies
Some accountants have semi-regular contact with some of their clients on an ad hoc basis. Many accountants
only see their clients once a year, to sign up their tax returns and financial statements.
Building closer relationships with your clients depends on changing this around. Set a plan for regular contact
and a range of activities. This has a very positive proven effect on client relationships and the retention of key
clients. It will almost certainly exceed their expectations and deepen the relationship you have.
The most important factor is to have a plan that covers:
z Whom should we invite: clients, prospects, referrers, alliance partners?
z What should we invite them to: what are their interests?
z Where is the event, or function: how do we get clients there?
z When would this suit the client?
It is recommended you to do this for your top ten or twenty clients but, you should also consider doing this
for your prospective clients, referrers and alliance partners. It really is an excellent way to build and deepen
relationships. Map these points in a table, as shown in Table 6.7.
Table 6.7 Sample plan for regular client contact
Who

What

Where

When

ABC Ltd

Cirque du Soleil

City

March

CBC Bank

Lunch

Local restaurant

May

Lew & Wing

Theatre: Les Miserables

North Shore

May

Sokya & Epstein Football: client is keen supporter of Wests football club

Football stadium

July

Maria M

Tulip festival: client is plant breeder and horticulturalist

Regional

September

Lawyers Co

Breakfast meeting to discuss referral and alliance prospects City

October

Frontline

Races

Race Club

November

IT Partners

Golf day

Muifield

June

Abbott & Co

Sailing afternoon

Harbour

April

Leadership seminar

Central

January

10. Damien W

Subject to your country’s laws or professional regulations, there may be a few limits on what you could do. The
key is to make the event or activity appealing to your clients or contacts. It is not necessary to spend a lot of
money ti’s the contact that matters. In fact, it matters more than the event.
You might also decide to increase your client outings and contacts as an important step towards growing and
developing your firm. Include members of your team. This will deepen the relationship they have with the firm
and allow them to build closer relationships with the clients.
By planning your activities, you will see how much time you have available. You may wonder why you haven’t
done something like this before! What a wonderful way to exceed your client’s expectations, and it’s likely you
will enjoy yourself as well.
Refer to Table 6.8 as an example of the format to use as a planning tool.

Table 6.8 Client relationship management action plan
Client

6.5
6.5.1

Jan

Feb

Mar

Apr

May

Jun

Jul

Aug

Sep

Oct

Nov

Dec

Benchmarking service levels
Benchmarks

At their most basic, benchmarks compare one set of information with another. It’s important to decide exactly
what you need to compare.
The following indicators can be benchmarked for client relationship management. Work your way through this
list of indicators, and select the ones relevant to your firm. Determine your own benchmarks. Then track your
actual firm performance against these benchmarks regularly (see Table 6.9 ).

MODULE 6: CLIENT RELATIONSHIP MANAGEMENT

Table 6.9 Benchmarking client relationship management
Client relationship management key indicators
People
Staffing

Number of full-time equivalents
(FTEs)

Number of employees

Client-facing staff

Number of FTEs (with clientfacing responsibilities)

Number of FTEs with client-facing responsibilities

Percentage of total staffing

Revenue per FTE

Networking Meetings
attended

Client-facing staff as percentage of total staff
We want this to increase as we improve our client
relationship culture

Firm’s billings divided by number
of FTEs

Indicates revenue per FTE

Number of meetings attended

Indicates intention of team to proactively market the
firm

Firm’s aim is to increase this over time

To be tracked regularly and compared against target
Mentoring hours

Number of hours

Indicates number of hours team members have been
mentored
To be tracked regularly and compared against target

Productivity
Work in Progress

$ value

Indicates how much time is recorded on timesheets yet
to be billed to client
Emphasis should be on recording time which the client
will appreciate in the completion of their work

Work in progress (WIP)

Age (WIP days)

Indicates how long work has been in office and in
progress
Emphasis should be on reducing WIP days, thereby
improving turnaround times for client

Accounts Receivable

Age (debtor days)

Indicates how long clients take to pay their accounts.
A very good indicator of client satisfaction
Also a good indicator of our internal follow-up and
control

Write-offs

Write-off ($ value)

Indicates time charged, but not recoverable
Firm takes decision not to invoice client, and writes it off
WIP
Emphasis to be on reducing write-offs. Time charged
should be of value to the client, and therefore billable

Profitability
Net income percentage

Labor as percentage of
revenue
Services

Net income as percentage of
total firm’s billings

Indicates profitability of firm

Labor costs as percentage of
total firm’s billings

Shows employment costs as percentage of billings

Indicator of capacity of firm to reinvest in people and
client services

Indicates if too many non-productive staff

Client relationship management key indicators
Services utilised

Number of services utilised (#)

Indicates number of services utilized by clients
Indicates depth of client relationship
Emphasis to be on increasing the range of services
utilized

Number (per annum) of
additional services taken up by
existing clients

Indicates additional services taken up throughout year

Number (per annum) of new
services introduced by firm
during year

Indicates new services introduced throughout year

Emphasis to be on increasing the services utilized by
each client

Emphasis on continuing to introduce new services to
clients
Positions firm as innovative and creative
We may deliver service, or it may come from an alliance
partner

Revenue ($ per annum) from
new services introduced by firm
during year

Indicates revenue value of new services introduced
Important to separately identify
Specific costs can be allocated against revenue to
determine gross profit contribution

Number of unsolicited client
contacts made during week

Indicates if you are spontaneous and proactive. You
need to be!
Increase this number

Number of hours spent on noncharged client-related initiatives

Indicates time you invest in your clients
A number to track, not necessarily increase
Caution: don’t be excessive on this. You can’t do
everything for free!

Number of proposals for new
or additional services delivered
during month

Indicates success of marketing new or additional
services

Excellent (%)

Measure client satisfaction with regular surveys

Satisfactory (%)

Provides feedback on firm performance and client
perception

Emphasis is to increase this until target levels of service
utilization are reached

Client Service
Client Ratings

Unsatisfactory (%)

Emphasis should be on continual improvement
Disputes

Number of disputes

Client disputes. Track the nature of the dispute and
dollar impact
Goal: no disputes

Extra Service Activity

Number of occurrences

Track non-standard service and assistance provided to
clients
Over and above normal service levels
Emphasis is on increasing this activity on ongoing basis

MODULE 6: CLIENT RELATIONSHIP MANAGEMENT

Client relationship management key indicators
Client Referrals

Number of referrals

Number of new clients referred to the firm
Indicates if existing clients happy with service levels and
experience

Client Seminars

Number of seminars

Indicates number of seminars held
To be tracked regularly and compared against target in
marketing plan

6.6

Embracing opportunities for enhanced relationships

So far, this module has shown ways to develop the relationship with your client—this is of great importance to
the firm, and there are various methods to use. The next section is on making the most of the opportunities that
arise as a result of this enhanced relationship.
Recall the client classification model (see Section 6.3.1 ). You will recall that your goal is to move your clients
from their current classification category to the next level up.
6.6.1

Using gap analysis

Gap analysis is one of the more powerful business development tools. It is simple, yet can produce remarkable
results. The model is produced in Table 6.10 ; how to use it is shown below.
Table 6.10 Gap analysis model
Services

Existing

New

Clients

New

Gap analysis provides a brilliant framework for your client relationship management strategy. It provides the
context within which you determine your next step.
Quadrant 1: Existing services to existing clients
Quadrant 1 is all about understanding your existing client base.
Which clients use which services? The results are usually surprising. When you analyze whether all of your
existing clients use all of your existing services, the answer is usually no.
As a matter of priority, list all your clients and the services they use. It works best to do this on a spreadsheet.
This will clearly show you the clients you should be targeting now. Table 6.11 gives examples of the services
used by different clients of an accounting firm.

Quadrant 1 also shows the marketing path of least resistance. Your clients know and trust you and are more
likely to be open to your suggestion to try additional services.
Table 6.11 Existing client–service matrix
Audit

Accounts

VAT

Income Tax

ABC Ltd

SCK Chin Pty Ltd

Smith & West

Impala & Co

Lawyers Co

Frontline

Hanif Partners

Laurence Yuen

Jersey Co

San Marco

X
X

Finance

X
X

Showing the services utilized in this matrix format demonstrates where the opportunities lie for promoting
additional services.
Quadrant 2: New services to existing clients
This assumes/supposes you have new services available.
Quadrant 2 shows that the best market initially is your existing client base. Existing clients who are satisfied with
your firm’s service will be open to new services, even if on a test basis.
After Quadrant 1, Quadrant 2 is the second path of least resistance and should be pursued only once you have
mined Quadrant 1 completely.
Quadrant 3: Existing services to new clients
Here, you are looking for new clients to use your existing services. The advantage is that the services are not new
to you. You’re familiar with the processes involved, you know what you’re doing and the systems are all in place.
Quadrant 4: New services to new clients
This is where you look to break into new markets with new services. Quadrant 4 is the toughest option: these
services are new to you and also new to the market. There are likely to be multiple aspects you have yet to come
to terms with.
From a business development perspective, it is better to exhaust the other three quadrants before addressing
Quadrant 4. Avoid it altogether during tougher economic times.
6.6.2 Summary: maximizing opportunities
The steps to maximize the opportunities from an enhanced client relationship are summarized in Table 6.12.
Table 6.12 Maximizing the opportunities from an enhanced client relationship

MODULE 6: CLIENT RELATIONSHIP MANAGEMENT

Opportunity

Action required

Be clear on the direction you wish your firm to take. This should be clearly stated in your business plan.

Be specific about which services you will offer your clients.

Have a good understanding of how the services will be delivered, and how they will be priced.

Undertake a gap analysis on your client base.

Identify the additional services you can market to your existing clients.

Set a plan for how and when you will approach your clients.

Have marketing material available at all times, which outlines the benefits of additional services.

6.7

Developing strategies to provide a full range of quality services

There is a series of steps toward developing strategies to provide a full range of quality services (set out in
Table 6.13 ).
Table 6.13 Steps to developing a full range of services
Action

By Whom

Determine what your market considers the full range of services to be.

Identify those services your firm currently provides.

Decide which additional services your firm would like to develop capability in.

Determine which services you will refer to other firms.

By When

As a result of the information gained, your firm can decide which services it will continue to provide, which
services it will develop, and which services it will refer to other firms.
6.7.1 Identifying the services required in the marketplace
Ask your clients what their current requirements are and what they expect them to be over the next few years.
You may do this by running a focus group, or simply by asking your clients and contacts.
Use the list of suggested services in Table 6.14 to determine the level of interest for each service suggested.
Table 6.14 Services checklist
Service
1.

Audit and assurance

Taxation advice

Financial statements

Management accounting

Tax return preparation

Regulatory compliance

Company secretarial

VAT preparation and compilation

Business valuations and due
diligence

10. Financial planning

Do you use this
service now?

Would you expect to
use in future?

Comment

Service

Do you use this
service now?

Would you expect to
use in future?

Comment

11. Business coaching and mentoring
12. Tax planning and consulting
13. Insolvency and liquidation
14. Corporate finance
15. Risk management and asset
protection
16. Finance broking and mortgage
lending
17. Succession planning
18. Wealth management and
coaching

Table 6.15 lists related services that accounting firms may provide, or could provide introductions for. Again,
you may choose to ask your clients, potential clients and contacts which of the following services would be of
interest to them and their businesses.
Table 6.15 Related services checklist
Service
1.

Information technology provider

Residential real estate agent

Commercial real estate agent

Finance broker

Taxation specialist

Stockbroker

Personal risk insurance agent

Lawyer

Banker

10.

General insurance broker

11.

Human resources provider

12.

Utilities

13.

Stationery and office consumables

Do you use this
service now?

Would you expect to
use i future?

Comment

These questions work well when asked in a formal and structured way. Most accounting firms don’t ask many
questions to better their understanding of their clients’ requirements. You can differentiate yourself in the
market by asking questions like these, and gaining an understanding of what your clients really want. Your firm
must then decide if it will provide the service, develop the capability, or refer clients on to other firms.
Consider using the questionnaire shown in Table 6.16. Firms looking to introduce a broader range of services to
their clients and the marketplace in general may complete this. Your opportunity to offer these services will be
subject to local restrictions and ethical considerations.

MODULE 6: CLIENT RELATIONSHIP MANAGEMENT

Table 6.16 Internal questionnaire
Question

Reply/Comment

What services do our clients need?

What is the best way to find out?
(for example, questionnaire, focus group, etc.)

Can we provide these services? If so, which ones?

If not, which services can we develop?

What resources and training will be required if we
choose to develop the competency in-house?

Which services should we refer to another firm? (See
next section.)

6.8

Strategies for providing a full range of quality services: mergers, networking, referrals

The exercises above demonstrate to many firms that they need help to provide a full range of services. Some
firms may wish to form an alliance with another firm. Table 6.17 shows the questions to ask.
Table 6.17 Forming an alliance
Question

Reply/Comment

Whom should we align with?

How will we assess their competence and capabilities?

What structure should our alliance or referral
arrangements take, if any?

What quality assurance processes will we have in
place, to ensure our partners provide quality service?

Should there be any financial arrangements to
consider?

Which services should we refer to another firm? (See
next section.)

In deciding which organization to ally with, the starting point is for the firm to assess the services they are likely
to refer to other firms. The firm should then consider the likely contenders (see examples shown in Table 6.18 ).
Table 6.18 Target list of possible alliances
Specialisation

Name of Firm, or
person

Preferred
arrangement

Action required

By Whom

By When

Financial Planning

Sharpe Planning

Joint venture

Meet to discuss

April 15

Stockbroker

Gecko & Assoc

Alliance

Lunch

PK & GG

May 31

Audit and assurance

Smith & Co

Referral

Meet to discuss

June 25

Business Coach

Maximus Consulting

Potential merger

Due diligence

Third-party firm

October 15

6.8.1

Common concerns with referrals or introductions

A number of concerns arise when clients of one firm are introduced and referred to another firm. These include
concerns that the referred firm will:
z Not give the client a good, professional experience;
z Not provide service at the standard that the client and referring firm would expect;
z Disappoint or upset the client; or
z Destabilize the relationship the client has with the referring firm.
These concerns all stem from the fact that most firms strenuously protect their client relationships they have
with their clients. Most firms will do all they can to retain their clients, and enjoy a long and healthy relationship.
Prior to the commencement of any referrals, each firm involved is advised to do a “mini due diligence” on each
other. This will allow the firms to confirm that each has the same concern for client welfare as the other does.
This should also ensure that the client has an excellent professional experience.
Table 6.19 will assist you to determine the attitude of your referral partner toward client service and satisfaction.
Table 6.19 Discovering your potential referral partner’s attitudes
Question
1.

Describe how you and your firm will deal with any
clients we may refer to you.

Describe the attitude you and your firm have toward client
service.

How will you ensure that our clients will have a good
professional experience with your firm?

Describe the level of client service you and your firm
provide.

What assurances can you give that you will not upset
the client, or destabilize the relationship we have with
them?

Which services should we refer to another firm? (See
next section.)

Reply/Comment

This type of discussion will allow each firm to better understand each other’s service standards. It will also allow
each firm to make its expectations clear to the other.
The various strategies that can actually deliver the full range of services to the client base and marketplace are
shown below.
6.8.2

Mergers

This is where two firms join together to form one new firm. It was discussed in Module 3 as a growth strategy
and is equally relevant when considering the delivery of quality services.
There are a number of issues that typically arise during a merger. Differing work cultures often raise questions about:
z Work ethics;
z Work–life balance;

MODULE 6: CLIENT RELATIONSHIP MANAGEMENT

z Work practices;
z Blending of personalities;
z Human resources;
z Different expectations;
z Technology;
z Billing and debt collection practices;
z Profitability variations; and
z Two becomes one.
There are also a number of advantages and disadvantages to consider.
Advantages
z Each firm brings its unique strengths to the combined firm, thereby making more services available to all.
z There are economies of scale: a more efficient team, can usually do more work.
z There is a reduction in duplication of effort and certain staffing roles.
Disadvantages
z A merger is an extreme position to take if you are simply providing one or two additional services.
z The issues arising from the merger might cause significant distraction to the business. This may have a
negative impact on profitability, workflow and the overall client experience.
6.8.3

Cherry picking

Rather than merging two firms, it may be possible for one firm to “cherry pick”, or “headhunt” a partner or senior
manager from another firm who has specialist skills the firm needs.
The specialist may have a small team of workers who may also join the new firm. Essentially, this allows the firm
to create a new division and provide a broader range of services.
Advantages
z Simplicity of approach.
z Usually only minimal disruption.
Disadvantages
z It could be an expensive exercise to attract the right person.
z It will be an expensive exercise if it doesn’t work out.
6.8.4

Alliances

When two or more firms, or specialists within firms, work together on client matters on a project-by-project basis
this is an alliance.
Advantages
z Each party retains its individual identity and structure.
z There is a combined focus on the joint objective of satisfying the clients’ requirements.
z It allows each party to bring their specialist skills to the table, for the overall benefit of the client.

z The fee on the assignment is usually split on the basis of contribution to the project.
Disadvantages
z There is potential difficulty with sharing resources on occasion.
z No centralized administration.
z There is potential for conflict, as one party typically needs to take the lead role.
6.8.5

Referrals

One firm refers work to another firm (see Table 6.20 ). These arrangements are very popular. Some are tightly
structured, with a minimum number of cross-referrals required per month. Others are loosely structured, and
there is simply an agreement between the firms to refer work as the need arises.
In some arrangements, referral fees are paid between the firms, usually in some proportion to the value of the
fee on the project. Others have no referral fees, as the referring firm is simply concerned about the client matter
getting resolved by the most suitable person.
Advantages
z They are flexible in structure.
z They are flexible in financial arrangement.
z The arrangement allows each firm to stay focused on its area of specialization.
z Each party retains its own independence.
Disadvantages
z The referring firm has no control over the work performance of the referred-to firm.
z Low-standard work by the referred-to firm may reflect badly on referring firm.
z The referring firm must trust in the ability of the referred-to firm.
You should consult the IESBA Code or your professional body for further guidance regarding the receipt of
referral fees or commissions. Ethical threats and safeguards are examined in Module 7.
Table 6.20 Sample plan to deliver a full range of quality services
Services required by
Clients and/or Market

Services we
currently provide

Strategy for delivery
of service we do not
currently provide

Action required

Taxation

Not applicable

N/A

Referral to audit firm

Develop relationship
PK
with professional
colleagues who provide
audit services

Not applicable

N/A

Referral to specialist
firm

Find appropriate firm.
PK
Check with professional
colleagues for reputable
firm

Audit

Company secretarial
Business valuations
and due diligence

Company
secretarial

MODULE 6: CLIENT RELATIONSHIP MANAGEMENT

By
Whom

By When
March 31

June 25

Strategy for delivery
of service we do not
currently provide

Action required

Liquidation

Referral to specialist
firm

Succession planning

Referral then possible
merger

Services required by
Clients and/or Market

6.9

Services we
currently provide

By
Whom

By When

Contact previous
colleagues

ASAP

Have lunch with Brian
to discuss

PK and
BC

October

Invoicing and collection

This module has said a great deal about the importance of a good working relationship with your client. However,
it is equally important that you get paid for the work you do. The following discussion addresses credit control and
some proven collection techniques, before discussing some of the reasons why some clients don’t pay.
6.9.1

Credit control

Use these tips to develop an effective approach.
z Develop a credit policy. Write a clear and concise credit policy that applies to all clients.
z Consider flexible arrangements for your larger clients.
z Specify clear terms: make your clients fully aware of your terms and conditions.
z Implement the policy: train your employees on the policy and how to enforce it.
z Screen prospective clients: there is no sense taking on new clients if they don’t pay you.
6.9.2

Collection techniques

These techniques will enable more successful collection of payments.
z Explain your credit terms and expectations clearly from the outset.
z Make sure your clients understand them.
z Quantify your fees in advance where possible (it usually is).
z Provide payment alternatives.
z Follow up debts systematically and frequently.
z Replace the aging classification of your debtors instead of “Current, 30 Days, 60 Days, 90 Days, 90+ Days”, use
only “Due Now” and “Overdue.”
z Commence follow-up early.
z Make it easy for your clients to pay.
z An effective collections process requires regular weekly attention.
To get the best results, focus on the “just overdues,” as these are the easier accounts to collect.
6.9.3

Some fundamental rules

z Invoice by email rather than post: it is faster and provides you with online records.
z Invoice as close as possible to the time you deliver the service.
z Start the follow-up process early.

z Don’t wait to follow up. When the account is overdue start reminding the client that payment is expected.
z Always be courteous and professional.
z Collections should be a process, not a punishment.
z Most clients are honest and will pay if they know they have to.
z A series of gentle, non-confrontational reminders will get most clients to pay.
z Be persistent and consistent.
z Consider the benefits of offering incentive options, like small discounts for early or prompt payments.
As you can see, this process is really all about communicating with clients to make sure they are fully aware of
your firm’s requirements.
One of the secrets of effective debt collection is a system that makes it as easy as possible for your clients to pay
on time. A good collection system starts with the initial client contact, and moves through the whole workflow
process to invoicing, and then to any follow-up.
Early identification of clients who have poor intentions regarding payment of their account, will ultimately
determine the success of or level of, frustration with, your system. Not having a system will ensure poor results.
6.9.4

Why clients don’t pay

There are typically a number of reasons, most of which you can deal with.
1. Client has a genuine dispute
The best approach is to start follow-up early. A reminder letter will flush the issues out and it is far easier to
resolve a complaint when the matter is still fresh.
Waiting ninety days to find out a problem exists significantly reduces your chances of a successful resolution and
payment in full.
2. Client is careless
The client forgot to pay the invoice, or simply didn’t understand when they were supposed to pay. This may have
been because you weren’t particularly clear about your terms.
The best approach is to start early, and make it easy for your clients to pay. A reminder letter is a gentle prompt,
and has a great result for this group. There are many other things you can do before you issue the invoice that
will increase your chances of being paid on time. It is important to be extremely clear with your client in regard
to your terms and expectations.
3.

Client is disorganized

Once again, the best approach is to start early and make it easy for your clients to pay. If they are disorganized
now, they will still be in trouble in sixty days. Don’t join the queue of creditors: move to the front.
4. Client has no money
The intent is there but not the cash. Again, the best approach is to start early and make it easy for your clients
to pay. Getting payment arrangements agreed early ensures a greater chance of being paid in full. Small regular
amounts confirm the client’s intent.
If they are in real trouble, it is important to find out early. This lets you avoid doing more work. Alternatively, you
might see an opportunity to assist the client in sorting out their problems.
5. They are unconcerned and can’t be bothered

MODULE 6: CLIENT RELATIONSHIP MANAGEMENT

The best approach is to start early and be difficult to ignore. You must be persistent with this type of client. You
should also consider alternative payment arrangements before you do further work.
You should also assess whether you wish to continue acting for clients such as these, as they are likely to be
outside your target client model.
6. They are dishonest
This is not the type of client you should continue with. The best approach is to start early and be difficult to
ignore. Also, don’t get emotionally involved in your communications with this client. Ensure that you have
established rules internally and that your collection system is followed consistently.
Do no further work for this client, and decide on an exit strategy for them after they have paid in full.
6.9.4a The engagement letter
The engagement letter outlines the terms and conditions of trade of the firm. Each firm should carefully
consider how to incorporate their trading terms into their client-engagement letter. This becomes a strong piece
of evidence in any dispute, particularly if the client has signed their acceptance of the engagement.
6.10 Conflict resolution and arbitration services
This module is about the development of client relationships. Unfortunately sometimes that relationship breaks
down. This section will concentrate on the relationship between the client and the firm. However, it is worth
noting that the strategies discussed apply equally well to all relationships, whether they are in the workplace, or
in a private context.
6.10.1 Five signs of rising conflict
In order to begin to resolve conflict, there needs to be an awareness that conflict is happening or is about to
happen. You need to be sensitive to the signs of conflict. There are five levels of escalating seriousness in a
typical conflict situation.
1. Discomfort
Discomfort is the vague feeling that something is not quite right between you and the client, even though
nothing may have been said or done overtly. This is a good time to consider reaching out to the other person to
explore whether or not there is a problem.
Think about possible causes of the discomfort, either in yourself, the other person or the total situation. Ask
yourself, “What steps can I take, what questions can I ask, what can I do right now to clarify and perhaps relieve
the problem?”
This requires you to take the first step in clarifying any issue. It may be difficult to bring yourself to do this, but it
is an important step.
2. Incidents
This is where there is a minor clash or disagreement between you and the client. Although you don’t feel
particularly upset, it may disturb, surprise or irritate you enough to remember it for a day or two. This is a step
beyond mere “discomfort.”
You may choose to discuss this with your client, in order to clarify any issues or fallout from the disagreement.
However, you may find this awkward, and decide to let the moment pass, and let the passage of time heal any
small wounds.

3. Misunderstanding
In situations where there are different expectations between your client and your firm, or where communication
is incomplete, words and actions can be misinterpreted. Unfortunately, this can often lead to misunderstanding.
This is especially the case where there is a lack of rapport or openness between the client and the firm.
As a result, you start to pay close attention to things that confirm what you had already started to believe about
the other person, or the about situation. This then becomes a “self-fulfilling prophecy” as you see more and more
instances confirming your belief that the client is in the wrong.
4. Tension
When you are experiencing tension in the client relationship, your feelings and perceptions about nearly
everything they say or do can become quite negative. It may come about from a simple misunderstanding that
quickly escalates.
In these situations, you will find it difficult to interact or work with them without feeling anxious or defensive.
It is then likely that you will concerned about losing them as a client and the potential damage to your firm or
reputation as a result.
5. Crisis
In a crisis situation, people tend to behave in extreme ways that they would normally not even consider. This
may have significant consequences for a firm, depending on the actions the client or the firm takes.
As examples, the types of behavior that represent a crisis include actual or threatened physical violence, verbal
and emotional abuse, destruction of property, or the breakdown of the client relationship. This can become
particularly difficult for a firm if the client takes legal action against the firm, and reports the firm to their
professional body.
6.10.2 Dealing with conflict
Fortunately you can address any of these stages in a number of ways. It is important to learn these methods, as
you never know when you may need to call on them.
1. Don’t react, respond!
z Keep yourself calm in the present moment.
z Breathe deeply to compose yourself.
z Maintain your composure; be receptive.
z Keep track of your emotions, reactions and body language.
z Consider how you are coming across to the other person.
2. Let your position go
z Don’t be defensive.
z Respect the other person’s need to express how he or she feels.
z Move aside from your position for now.
z Be prepared to be flexible, and consider options.
z Ask, “What would it take to solve this issue?”
3. Focus on the other person
z Listen actively and reflect feelings and the meaning he or she has expressed.

MODULE 6: CLIENT RELATIONSHIP MANAGEMENT

z Listen so that people can and will talk.
z Are you really listening? Is that clear?
z Acknowledge the importance of the other person’s issues and concerns.
4. Seek clarity
z Check, clarify and confirm by asking open and reflective questions.
z Honestly explore problems, effects and possible causes.
z Look for opportunities in what you are hearing.
z What would they like? What would they not like?
z See the problem in a broader context. Are people seeing the whole picture, or just their own point of view?
5. State your position
z Explain how it is for you, using statements which clearly state your position.
z Stay in tune with your values, principles and objectives.
z Express your own needs and concerns assertively, but not aggressively.
z Attack the problem, not the person. Speak so that people will listen.
z Be soft on the people, hard on the problem.
6. Look for a win-win outcome
With a “win-win” outcome both parties’ needs and concerns are respected.
z What are the best possible options to meet both parties’ needs?
z Identify areas of “common ground” and build from there.
z What will help achieve solutions that are mutually satisfying?
z Would more time or information help?
z Identify and work on the issues causing the “blockages.”
z If possible, work together for change, or you may agree to disagree.
z Be creative look for possibilities. What’s the most positive outcome you can both achieve?
z Get commitment and agreement on the next steps.
7. Maintain the relationship
z Review progress and follow up.
z Take time to maintain and strengthen the relationship.
As you can see, conflict resolution is a big issue—but there are tools and techniques for dealing with it. The
relationship with your client is an important one and has far-reaching consequences. By gaining a better
understanding of conflict, and ways in which to handle it, you will be better able to cope with these situations if
they arise, and continue a satisfactory relationship with your client.
6.11 Ceasing a client relationship
After completing the client-classification exercise, you will be a good position to assess the client base of your
firm. One of the outcomes of this process may be that you decide to end some client relationships. It may be

that they no longer fit the profile of your firm, or that after considering a number of factors you have decided
your firm should no longer deal with them. Whatever the reason, you have come to a significant decision.
The way you handle the client departure is very important. There are a number of ways to end a relationship
with a client, including:
z Sending a letter stating that you are no longer available to act on the client’s behalf;
z Increasing fees until the client leaves;
z Referring the client to another accounting firm;
z Selling the client; or
z Meeting with the client and talking it over.
Each of these is discussed briefly below.
6.11a Sending a letter
This is the most formal and, some would argue, the most professional way of ending a client relationship. These
letters tend to be fairly brief and to the point. However, the content usually depends on the relationship the
firm has had with the client over the years. This will determine how much detail the firm discloses as to why it is
ending the relationship.
Whatever the reason, it is important to state quite clearly that the relationship will end, or has ended, and that
the client should seek alternative professional advice and service. It is also customary to add your best regards,
and wish the client well in their future endeavors.
6.11b Increasing fees
This method involves increasing the fees charged to the client on a progressive basis. It is hoped that the client
will eventually come to the conclusion that the firm has become too expensive and make the decision to leave.
There are a number of problems with this strategy.
z The client might not leave. If they don’t leave, you will have to continue putting up with them (but at least
you’re getting paid!).
z The client might not pay the fee, but still expect the work to be done. If this happens, you will have incurred
costs in preparing the work, but will then see lengthy delays getting paid.
z The client may become obnoxious (or more obnoxious). They may already be obnoxious, but they may become
worse. This puts additional pressure and stress on your employees. Such pressure is probably not worth it.
z They may report you to your professional body. You may not be breaching any regulations, but your client
may argue that you are not acting professionally.
Another possible outcome is that the client comes to appreciate the true value of the service your firm is
providing, and the relationship improves.
6.11c Referring to another firm
This is quite a popular method. Firms with different specializations or skills may refer clients between
themselves. The referring firm may have realized that the relationship with the client is not working, yet thinks
it might work with another firm. The referral can take place in writing, face-to-face, or over the phone. The firm
maintains credibility in the eyes of the client the client has been provided with an alternative adviser, and the
matter has been handled in a professional manner.

MODULE 6: CLIENT RELATIONSHIP MANAGEMENT

6.11d Selling the client
It may be possible to bundle a number of clients together and sell them to another firm that may appreciate
these clients.
6.11e Meeting with client
This is the preferred approach. After all, the client you are saying goodbye to has paid your firm over the years. They
have supported you to some degree. But now, for any number of reasons, the relationship has come to an end.
A face-to-face meeting is most highly regarded by clients when they are told their relationship is over. It gives
the opportunity for other matters to be discussed. It also allows for any misunderstandings to be cleared up, and
for best wishes to be given.
6.12 Conclusion
Strong and effective client relationships are the backbone of your firm. As this module has made clear, you need
to really know your clients, and what they want. Good business practice requires that you meet and, where
possible, exceed these expectations. There are many resources and methods available to help you to improve
and cement your client relationships, including networks, referrals, and other alliances. Even where there is
conflict, good client relationship skills can help you to achieve a positive outcome.

6.13 References, further reading, and IFAC resources
Further reading
Anderson, Kristin L. and, Kerr, Carrol J. Customer Relationship Management. New York: McGraw-Hill, 2001.
Po-Chedley, David A. Client Relationship Management. Illustrated edition. Amherst, MASS: HRD Press, 2001.
Scapens, Robert W., Burns, John, Baldvinsdottir, Gudrun and, Ezzamel, Mahmoud. Future Direction of UK
Management Accounting Practice. Amsterdam, London : Elsevier, 2003.
Sheth, Jaqdish N. and, Sobel, Andrew. Clients for Life: Evolving from an Expert-for-Hire to an Extraordinary
Adviser. New York: Free Press, 2002.
Young, Laurie. Marketing the Professional Services Firm: applying the principles and the science of marketing to
the professions. Hoboken,NJ : John Wiley & Sons, 2005.
(Italian)
D’Agnolo, Michele. “Il networking professionale” in Strategia ed organizzazione degli studi professionali, Michele
D’Agnolo: Chapter 9. Milano: Il Sole 24 ore, 2008.
Napolitano, Enzo Mario. Il professionista orientato al cliente. Milano: Franco Angeli, 1996.
IFAC resources
IFAC publications http://web.ifac.org/publications
IFAC SMP Committee publications http://web.ifac.org/publications/small-and-medium-practices-committee
To find the most up-to-date listing of other useful resources relating to this module, please visit the Resources
section of the International Center for Small and Medium Practices at http://www.ifac.org/SMP/index.
php#Resources, especially the ‘relevant links’ at http://www.ifac.org/SMP/relevant_links.php
To search the websites of IFAC member bodies and other relevant websites for other useful resources relating
to this module, please visit the IFACnet search engine located on the home page of the International Center for
Small and Medium Practices at http://www.ifac.org/SMP/
To discuss issues relating to this module with practitioners from around the world, please visit the IFAC SMP/SME
Discussion Board at http://web.ifac.org/forum/SMP/1

MODULE 6: CLIENT RELATIONSHIP MANAGEMENT

Appendices
Appendix 6.1 Case studies
Case study 1
This case study relates to Section 6.4.3, “Exceeding client expectations.”
William and Indira had noticed there was increased competition in the market they were operating in. Were
more accountants competing with them for the same clients but that some of these accountants were reducing
their prices to increase their market share. William and Indira decided to provide additional value to their clients
rather than simply matching the lower fees their competitors were offering.
The first area they reviewed was the presentation of clients’ financial statements. They agreed with the idea that
graphs should be included in all reports prepared for their clients. They discussed this with their staff and the
staff also agreed it would add an extra element to their financial statements.
One employee, Manu, had excellent skills in Excel and put together a number of standard template graphs. He
saved these as “Masters” on the office computer system which meant they were then available for entire the staff
to use. Manu trained the staff how to update the “Masters” with the relevant client information and save them as
separate client files.
Once the training was complete, Indira sent a memo to all staff instructing them to complete a set of graphs
with all year-end financial statements for clients. William and Indira had decided that for the majority of clients
they wanted a line graph to plot sales for the year against sales for the prior year. They also wanted a pie chart
to represent the balance Sheet. Staff were instructed to prepare these graphs each time they ran a final set of
accounts for their clients—unless the information was unavailable, or would require too much time to compile.
Clients reacted very favorably. Most clients appreciated the extra information the graphs provided, though
some were concerned it would create additional costs. William and Indira assured the clients that the graphs
would not cause a fee increase and they were included so the clients could more easily understand the financial
information they received.
An unintended benefit arose for William and Indira’s firm after they started producing the graphs with the
financial statements. There was an increase in the level of inquiry from new clients who had heard about the
graphs being produced by the firm, they also wanted graphs with their financial statements.
The level of interest which had been generated from the introduction of such a simple initiative such as the
graphs encouraged William and Indira to consider other measures they could introduce to add additional value
for their clients.
Case study 2
This case study relates to Section 6.6, “Embracing opportunities for enhanced relationships.”
William decided to introduce a Planning-session meeting for his key clients at the beginning of the new financial
year. He decided he would restrict the Planning Session to just his top five clients and see how well the idea was
received. All of the clients he discussed the idea with were delighted to be involved.
William structured the session around the following agenda:
Planning Session Agenda
z Identify the key objectives for the business
z Identify three goals to be achieved this year

z Identify the most pressing issue to be addressed urgently
z Identify the key milestones
z SWOT analysis
z Identification of client’s strategic plan
z Review organization chart
} Allocate responsibilities
} Identify accountabilities
z Budget and cash flow: set date for completion and review
z Other business
z Set date for next meeting
William was pleased with the response he received from his clients when he started working with them on the
planning for their businesses. He had assumed most business owners spent quite a deal of time on planning
already and was surprised to discover that most spent very little time on this most important aspect of their
businesses.
There was only one client who was not particularly interested in assistance from William. After discussing the
reasons with the client, William discovered that the client considered William not particularly skilled in this area
and preferred that William stay in the accounting arena! However, all the other clients were delighted to take up
William’s offer for assistance with their planning.
One of the key results of the planning Session is to establish key milestones; achievements that the business
seeks to reach throughout the year. Achieving them lets the business owners know they are on track to achieve
their full year goals. It also means William gets to meet the clients at regular intervals throughout the year, which
gives him the opportunity to provide additional services and generate additional fees.

MODULE 6: CLIENT RELATIONSHIP MANAGEMENT

Module 7:

Risk management

Contents
7. 1 Introduction
7.2 Professionalism and ethics within the firm
7.2.1 The Code of Ethics for Professional Accountants
7.2.2 Fundamental principles of the IESBA Code
7.2.3 Ethics threats
7.2.4 Safeguards
7.2.5 Ethics threats and possible safeguards
7.3 Risk management within the firm
7.3.1 Identifying risk within an accounting firm
7.3.2 Examining internal risk
7.3.3 External risk
7.3.4 Developing a risk framework for your firm
7.3.5 Adopting risk mitigation strategies
7.4 Client engagement
7.4.1 The engagement process
7.4.2 Review and re-engagement
7.4.3 Reviewing ongoing engagements
7.4.4 Managing the disengagement process
7.5 Quality control processes within an accounting firm
7.5.1 Objective of quality control
7.5.2 Benefits of an effective quality control system
7.5.3 General principles of quality control
7.5.4 Quality control elements
7.6 Business continuity planning and disaster recovery
Figure 7.2 Business Continuity Planning Process
7.6.1 Prevention—Risk Management Plan
7.6.2 Preparedness—Business Impact Analysis
7.6.3 Response—Incident Response Planning
7.6.4 Recovery
7.6.5 Death or incapacity of practitioner
7.7 Liability and insurance within your firm
7.8 Conclusion
7.9 References, further reading, and IFAC resources
Appendices

4
5
5
5
6
7
9
11
11
14
16
16
18
20
20
22
23
23
24
24
24
24
25
32
32
33
34
38
42
44
47
49
50
51

Appendix 7.1 Leadership responsibilities for quality within a firm

Appendix 7.2 Circumstances and relationships requiring notification
(to engagement partners in the case of assurance engagements)
Appendix 7.3 Annual independence confirmation

52
53

Appendix 7.4 New client acceptance checklist

Appendix 7.5 Client Engagement Procedures: Changes in Professional Appointments

Appendix 7.6 Risk Management Checklists

MODULE 7: RISK MANAGEMENT

7. 1 Introduction
The concept of risk is not new to practitioners. It has been around as long as the profession has provided
services in a commercial setting. However, the issue of risk and risk management has increased in importance as
the number and size of legal claims has increased over the years.
You will notice this module is entitled risk management not risk elimination. This is an important distinction and
key to the material covered—mostly it is about managing the risks you can identify, and if possible, eliminating
them. However, even if you can’t completely eliminate most of the risks associated with being a practitioner you
can reduce and manage them to an acceptable level.
Risk management has a specific impact on life in an accounting firm. It is important in terms of protecting
the assets, finances and operations of the firm and contributing to satisfactory legal compliance, corporate
governance and due diligence. Consequently of this, risk management will protect the reputation, credibility
and status of the firm.
Establish a risk management “culture” in the firm. A risk management culture emphasizes at all levels of your
firm the importance of managing risk as part of each staff member’s daily activities at all levels of the firm. The
goal of creating a risk management culture is to create a situation where partners and staff instinctively look for
risks and consider their impacts when making effective operational decisions. The essence of a risk management
culture is that it is not geographically dependent, or specific to any country or location. The principles in
establishing this culture are universal and relevant to each locality.
The sections of this module cover the component parts of establishing a risk management culture. This module
discusses ethical issues and their impact on the risk exposure of your firm. The client engagement process is
examined as well as how best to manage your risk in this area.
The module discusses quality control processes within an accounting firm emphasising the important role
they play in assisting practitioners manage their risk in the day to day working of the firm. Business continuity
planning and the key elements of prevention, preparedness, response and recovery are also covered. This also
includes strategies to deal with the death or incapacity of the practitioner.
The module concludes with a discussion on liability and insurance within your firm and reviews the types of
insurance that are most relevant to it.
7.2

Professionalism and ethics within the firm

This section provides background and information regarding ethical issues for small to medium-sized firms. It
discusses the nature and impact of different types of ethical issues in providing assurance and non-assurance
services. A greater understanding of these issues will allow practitioners to be better equipped when they have
to face said issues.
7.2.1

The Code of Ethics for Professional Accountants

The Code of Ethics for Professional Accountants was issued by the International Ethics Standards Board for
Accountants (“the IESBA Code”). This module has used the IESBA Code as a guide on how practitioners should
deal with the ethical issues they face in small to medium-sized firms and recommends that practitioners use it as
a key resource.
The foundation of the IESBA Code is a principles-based conceptual framework. This was explicitly intended to be
broadly applicable around the world. Such an approach allows for differences in legal systems and jurisdictional
variations. The focus therefore is on underlying principles rather than on prescriptive regulations, as this allows
professionals to apply the principles to their own circumstances. The IESBA Code essentially covers three key
areas. Firstly, it establishes the fundamental principles for professionalism and ethical behavior within the firm.

Secondly, it identifies ethical risks and assists in evaluating the significance of these threats. Thirdly, it provides
guidance on how to apply suitable safeguards to eliminate or reduce the threats to an acceptable level.
A discussion of the five fundamental principles on which the IESBA Code is based appears below.
7.2.2. Fundamental principles of the IESBA Code
Principle 1: Integrity
Act with integrity. Be straightforward and honest in all professional and business relationships. Integrity implies
fair dealing and truthfulness. Disassociate from matters such as reports, returns or communications that are
materially false or misleading, or that obscure or omit information, that renders them misleading.
It is appropriate that integrity is listed as the first principle because it is the foundation on which professional
behavior is built. It should also be the foundation stone on which your firm is built. Integrity should pervade
all areas of your firm. It would be a worthwhile exercise to consider your organization chart and ensure that
integrity is exercised in all key areas of operation. For instance, consider the key areas of marketing, operations,
human resources and finance within your firm. You need to be sure each area operates with integrity.
Principle 2: Objectivity
Be objective. Do not compromise your professional or business judgment due to personal interest, bias, pressure
or the interests of others. Your objectivity may be impaired if you perform a professional service where there is
a relationship bias, resulting in a compromised judgment. Objectivity means not being influenced by outside
interests; the practitioner makes up his or her own mind.
Principle 3: Professional competence and due care
Ensure all work is performed with professional competence and due care. Both you and your staff should
possess the knowledge and relevant skill to ensure competent professional service.
This also means your firm must exercise reasonable care and diligence in applying technical and professional
standards. Professional competence means having attained certain skills and knowledge and having the
capability to perform the task. You should ensure competence is maintained through continuing professional
development.
When undertaking an engagement, ensure that you and your staff act responsibly in accordance with the
requirements of the assignment. You and your staff should be careful, thorough, and on time. Proper training
and supervision must be given on an ongoing basis to ensure that all services are provided competently and
with due care.
Principle 4: Confidentiality
Keep all client and firm information confidential. Do not disclose any client information outside the firm without
authority and do not use client information for personal gain or purpose. Be cautious at all times, including in a
social environment, to ensure that information is kept confidential.
There are limited exceptions to the principle of confidentiality. You have a duty to disclose if authorized by the
client and are required by law to do so. There is also a duty to disclose when required to comply with quality
review checks, or in response to an inquiry. Disclosure may also be made to protect the professional interests of
an accountant in legal proceedings, or to comply with technical and ethical standards.
Principle 5: Professional behavior
A distinguishing mark of the accountancy profession is its acceptance of the responsibility to act in the public
interest. This means that professional behavior requires a practitioner to put the interest of his clients and the
public ahead of his or her own.

MODULE 7: RISK MANAGEMENT

It also means complying with all relevant laws and regulations, and avoiding any action that may discredit the
profession. This also applies when you promote or market professional services. Promotions must be made
honestly and truthfully, and not contain exaggerated claims or disparaging references to the work of others.
There is no one definition of professional behavior as it can be quite subjective and can vary from country to
country. It is up to each professional to monitor and assess his or her own behavior and avoid any action that
may discredit the profession.
Professional behavior applies internally and externally. The practitioner must ensure it applies to everyone
within his or her own firm. This can apply to a broad range of areas but essentially applies to the very heart of
the firm. For a firm to be a professional entity, it must exhibit professional behavior.
It also applies externally for the firm, in how the firm deals with all external parties. In all of these dealings, the
firm itself must display professional behavior and act in a professional manner.
7.2.3

Ethics threats

Ethics threats put your ethical position at risk. There are five types of ethics threats identified by the IESBA Code.
These are discussed below with examples given for each.
1. Self-interest
The threat is that you will act in your self-interest over the interest of your client. A financial or other interest may
inappropriately influence your judgment or behavior.
2. Self-review
The threat arises when you have to evaluate or form a judgment on a past service provided by your firm, or by
yourself.
3. Advocacy
The threat arises when you advocate the position or interest of your client. You may promote a particular
position in favor of certain interests to the point that your objectivity is compromised.
4. Familiarity
The threat arises when you become too familiar with your client. A long or close relationship with a client or a
related party may mean you may become too sympathetic towards their interest.
5. Intimidation
The threat arises when you are intimidated by your client to act in a certain way. You may be placed under
pressure and your objectivity may become compromised. The pressures may be actual or perceived.
Each of these ethics threats could occur on its own at some stage during the client relationship. There may
also be times when more than one threat occurs at once, or in extreme cases, all five ethics threats could
occur together. This may place the practitioner and their firm under extreme pressure to compromise their
fundamental principles and ethical positions.
Examples of ethics threats
The IESBA Code also provides some examples of ethics threats to use as a guide—however, it is impossible for
all threats to be identified or described. The overriding principle is that professional accountants should not
knowingly engage in any business, occupation or relationship that might impair their ability to uphold the
fundamental principles.

Table 7.1 Examples of threats firms may face
Types of threats
Self-interest

Examples
Direct financial interest in client, including loans or other significant business relationships, or
entering into a contingency fee arrangement relating to the assurance engagement.
Dependence on total fees from a client or concern about losing a significant client.
Potential employment for any member of the assurance team with a client.
Inappropriate promoting and marketing of professional services.
Acceptance of clients with illegal dealings or questionable conduct.
Lack of the required skills and competence when accepting an engagement.
Accepting gifts offered by client.
Conflict of interest such as performing services that are incompatible for the same client.
Competing directly with client or having joint ventures with major competitors of client posing
objectivity threat.
Discovery of a significant error from a previous professional service performed by the same firm.

Self-review

A firm issuing an assurance report on the effectiveness of a system after designing or
implementing the system.
A firm performing a service for an assurance client that directly affects the subject matter
information of the assurance engagement.
Accepting an engagement, the subject matter of which has been prepared by the firm.
A member of the engagement team being or having recently been a director or officer of
the client, or employed in an executive position by the client (with direct influence on the
assurance matter).

Advocacy

Promoting shares in a listed audit client.
Acting as an advocate on behalf of an assurance client in resolving disputes with third parties
or in litigation.

Familiarity

Close or immediate family relationship with a director or officer of a client or with an employee
who is in a position of influence over the subject matter of the engagement (applies to any
member of the engagement team).
A former engagement partner of the firm being a director or officer of the client, or an
employee with direct and significant influence over the subject matter of the assurance
engagement.
Accepting gifts or preferential treatment, unless the value is clearly insignificant.

Intimidation

Being threatened with dismissal or replacement in a client engagement.
An audit client indicating that it will not award a planned non-assurance contract to the firm if
the firm continues to disagree with its accounting treatment for a particular transaction.
Being threatened with litigation by a client.
Being pressured to reduce inappropriately the extent of work required in order to reduce fees.
Feeling pressured to agree with the judgment of a client employee because the employee has
more expertise on the matter in question.
Being informed by a partner of the firm that a planned promotion will not occur unless the
accountant agrees with an audit client’s inappropriate accounting treatment.

MODULE 7: RISK MANAGEMENT

7.2.4

Safeguards

Identifying threats is an important first step, but it is also important to be aware of the safeguards that can be
put in place. Safeguards are measures that may eliminate or reduce the threats so they do not cause excessive
pressure on the practitioner and the firm. The ethics threats may not be eliminated altogether, but they may be
reduced to an acceptable level.
There are different types of safeguards. The profession, legislation or regulation can create safeguards, or they
can be developed within the firm’s environment.
The safeguards created by the profession, legislation or regulation include:
z Proper education and training and experience requirements for entry into the profession;
z Continuing professional development requirements;
z Corporate governance legislations;
z Professional standards and guidelines;
z Professional or regulatory monitoring and disciplinary procedures; and
z External review by a third party of the reports, returns or communications or information produced by the
professional accountant.
Safeguards can also be clearly communicated within the firm to deter unethical behavior. This may take the form
of effective and well-communicated complaint systems, which enable staff to draw attention to unprofessional
or unethical behavior.
There may be times when you are faced with an ethical dilemma. In such cases, a formal ethical conflict
resolution process may be required. This process will involve:
z Making sure all the relevant facts are obtained;
z Identifying the ethical issues involved;
z Identifying the fundamental principles significant to the circumstances concerned;
z Establishing internal procedures to ensure fair hearing; and
z Identifying the possible alternative courses of action and finding the best possible outcome.
You must document all relevant information and the rationale involved in reaching a resolution. Where a
significant conflict cannot be resolved, consider obtaining professional advice from your relevant professional
body, or from legal advisers.
Firm-wide work environment safeguards include:
z Firm leadership, which emphasizes compliance and ethics;
z Quality control and review policies for all client engagements;
z Policies and procedures that ensure all relationships or interests are disclosed;
z Documented policies regarding the identification of threats and the application of safeguards to eliminate or
reduce the threats to an acceptable level;
z Documented internal policies and procedures requiring compliance with the fundamental principles;
z Policies and procedures to monitor and manage the reliance on revenue received from a single client;
z Using different partners and teams with separate reporting lines for the provision of non-assurance services
to an assurance client;

z Policies and procedures that will prohibit individuals who are not members of the engagement team from
inappropriately influencing the outcome of the engagement;
z Timely communication of a firm’s policies and procedures and any changes therein, to all partners and
professional employees, and appropriate training and education on such policies and procedures;
z Advising partners and professional employees and related entities from which independence is required;
z A disciplinary mechanism to promote and uphold compliance with policies and procedures; and
z Encouraging and empowering employees to communicate to senior employees within the firm any ethical
issue that concerns them.
Safeguards that are engagement-specific include:
z Having a professional accountant who was not involved with the non-assurance service review the nonassurance work performed;
z Having a professional accountant who was not a member of the assurance team review the assurance work
performed;
z Consulting an independent third party such as a committee of independent directors, a professional
regulatory body or another professional accountant;
z Rotating senior assurance team personnel;
z Discussing ethical issues with those in charge of client governance;
z Disclosing the nature of services provided and the extent of fees raised to those charged with governance of
the client; and
z Involving another firm to perform or re-perform part of the engagement.
Safeguards within the client’s systems include:
z Persons other than management ratifying the appointment of an independent firm to perform an
engagement;
z The client having competent employees with experience and seniority to make managerial decisions;
z Internal procedures to ensure objective decisions and choices in commissioning non-assurance
engagements; and
z Proper corporate governance structure with appropriate oversight and communications regarding the firm’s services.
7.2.5

Ethics threats and possible safeguards

The IESBA Code provides an overview of the types and examples of ethics threats and the recommended
safeguards to address these threats. These are noted in the following tables together with the relevant section of
the IESBA Code.

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Table 7.2 Likely threats and possible safeguards
Professional appointment (Section 210 of the Code)
Stage
Client acceptance

Likely threats
Questionable management conduct (for
example, involvement with illegal activities,
money laundering, dishonesty or questionable
financial reporting practices)

Possible safeguards
Obtain thorough knowledge and
understanding of client and its governance
structures.
Secure client’s commitment for corporate
governance practices and internal controls.
Periodically review acceptance decisions for
recurring clients.

Engagement
acceptance

Lack of adequate skills and knowledge to carry Acquire appropriate understanding of the
out engagement
nature and complexity of the business.
Reliance on improper or inadequate advice

Acquire proper knowledge of the relevant
industries.
Obtain experience with relevant regulatory
requirements.
Use experts where necessary.
Agree on realistic timeframe for the performance
of the tasks.
Assign sufficient and experienced employees
with necessary competencies.
Comply with quality control policies and
procedures.
Where reliance on an expert is necessary,
ascertain their reputation, expertise, resources
and applicable professional and ethical
standards.

Changes in
professional
appointment

Rationale for changes in professional
appointment not fully known, leading to
uninformed decision to accept

Contact the existing accountant before
acceptance.

Ascertain the reasons behind change.
Request to perform complementary or
Request information on any facts that in
additional professional work to the existing
the opinion of the existing accountant, the
work of another professional accountant where
proposed accountant needs to be aware of.
there is a lack of or incomplete information
Request the disclosure of information through
The professional appointment is constrained
the client from the existing accountant.
by an issue of confidentiality or prohibition by
Discuss with the client in order to obtain
legal regulation in obtaining information
confidential information from existing
accountant.
Inquire of third parties or background
investigations of senior management or those
charged with governance of the client.

Conflicts of interest (Section 220 of the
Code)
Likely threats (business relationships)
The professional accountant competes
directly with client or is in a joint venture
with a major competitor of a client
Professional services for clients whose
interests are in conflict or in dispute with
each other in relation to the matter in
question

Possible safeguards
Notify client of the firm’s business interest that may present a conflict of
interest and obtain their consent to act.
Notify all known relevant parties that the professional accountant is
acting for two or more parties in respect of a matter where the respective
interests are in conflict and obtain their consent to act.
Notify the client that the professional accountant does not act exclusively
for any one client in the provision to the proposed services and obtain their
consent to act.
Other safeguards include:
• The use of separate engagement teams;
• Procedures to prevent access of information;
• Clear guidelines for members of the engagement team on issues of
security and confidentiality;
• The use of confidentiality agreements signed by employees and
partners of the firm; and
• Regular review of the application of safeguards by a senior individual
not involved with the relevant client engagement.

Client has refused consent for the firm to
act for another party in respect a matter
giving rise to a conflict of interest

• Discontinue acting for one or more parties in the matter giving rise to
the conflict of interest.

Conflicts of interest (Section 230 of the
Code)
Likely threats (business relationships)
Providing a second opinion on the
application of accounting, auditing or
other reporting standards on behalf of
a company that is not an existing client,
especially when it is not based on the
same set of facts

Possible safeguards
Obtain client permission to contact the existing accountant, describing
the limitations surrounding the second opinion with the client and
providing the existing accountant with a copy of the opinion.

Fees and other types of remuneration (Section 240 of the Code)
Likely threats (business relationships)

Possible safeguards

Lowballing: a self-interest threat to
professional competence and due care
when fees quoted are lower than the
amount required to perform a competent
service

Make client aware of the terms of the engagement with respect to the
basis of the fee quoted.

Contingency fees: a threat to objectivity,
especially on non-assurance engagement

Provide advance written engagement with the client regarding the basis
of remuneration.

Assign appropriate time and qualified employees to the task.

Disclose to intended users the work performed and the basis of
remuneration.
Have in place quality control policies and procedures.
Have an independent third party review the work performed.

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Referral fee or commission received will
create a self-interest threat to objectivity
professional competence and due care

Disclose to the client any arrangements to pay a referral fee to another
professional accountant for the work referred.
Disclose to the client any arrangements to receive a referral fee for
referring the client to another professional accountant.
Obtain advance agreement from the client for commission arrangements in
connection with the sale by a third party of goods or services to the client.

Marketing and promoting professional services (Section 250 of the Code)
Likely threats (business relationships)
Marketing services, achievements or
products that are inconsistent with the
professional behavior expected of a
professional accountant

Possible safeguards
Do not make exaggerated claims for services offered, qualifications or
experience gained.
Do not make disparaging references or unsubstantiated comparisons to
the work of others.

Gifts and hospitality (Section 260 of the Code)
Likely threats
Accepting a gift from a client creates a
self-interest threat or familiarity threat; an
intimidation threat to objectivity may also
result from the possibility of such offers
being made public

Possible safeguards
Consider, based on a reasonable and informed third party, weighing all
specific facts and circumstances, if the gift is trivial and inconsequential
so that any threat to compliance of the fundamental principles is at an
acceptable level.
If this is not the case, do not accept the gift.

Custody of client assets (Section 270 of the Code)
Likely threats
Holding client’s assets or being entrusted
with money belonging to other parties
may pose a self-interest threat to
professional behavior and objectivity

Possible safeguards
Keep such assets separate from personal or firm assets.
Use the assets only for the purpose for which they are intended.
At all times be ready to account for those assets and any income,
dividends or gains generated, to any persons entitled to such
accounting.
Comply with all relevant laws and regulations relevant to the holding of
and accounting for such assets.
Consider legal and regulatory obligations during engagement acceptance
procedures if the engagement involves entrusting of assets.
Consider seeking legal advice if there is suspicion of illegal dealings.

Objectivity: all services (Section 280 of the Code)
Likely threats
Having interests in, or personal or
business relationships with, a client or
its directors, officers, or employees may
pose a familiarity threat to objectivity

Possible safeguards
Withdraw from the engagement team.
Institute supervisory procedures.
Terminate the financial or business relationship giving rise to the threat.
Discuss the issue with higher levels of management within the firm.
Discuss the issue with those charged with governance of the client.
If the safeguards cannot eliminate or reduce the threat to an acceptable
level, decline or terminate the engagement.

7.3

Risk management within the firm

7.3.1

Identifying risk within an accounting firm

Risk management is an area of life within a firm that has increased in importance over the last few years. There
are a number of reasons it is essential for a firm to have a risk management program in place, including:
z To protect the assets, finances and firm operations;
z To contribute to satisfactory legal compliance, corporate governance and due diligence;
z To improve the services offered by the firm;
z To protect the reputation, credibility and status of the firm; and
z To enhance confidence in the firm.
Implementing a risk management program provides many benefits to accounting firms. These include:
z More effective strategic planning in their firms;
z Better cost control through better workflows and client evaluation and engagement processes;
z Increased profitability through better client and job controls;
z Reduced risks of litigation as a consequence of better processes and contingency plans;
z Increased knowledge and understanding of exposure to risk;
z A systematic, well informed and thorough method of decision-making;
z Less disruption and less rework through better understanding of process by all staff in the firm; and
z Sets the scene for continual improvement within a firm.
7.3.1a Establishing a risk management program
In order to establish a risk management program it is important to understand the steps involved. These steps are:
1. Establish the context
a. Consider the goals and objectives of the firm;
b. Consider the environment within which the firm operates; and
c. Identify internal and external stakeholders.
2. Identify risks
a. Identify existing and potential risks as well as existing controls.
3. Analyze and evaluate risks
a. Analyze and evaluate your own firm’s risks on a continuing basis; and
b. Identify high and low risks.
4. Treat and manage risks
a. Develop strategies to manage the identified risk.
5. Communicate and consult
a. Communicate and consult with all parts of the firm, as well as outside parties, to ensure that all are kept
well informed.

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6. Monitor and review
a. Monitor and review the risk management strategies on an ongoing basis.
7. Record
a. Keep a written record of all policies and procedures including documentation of the assessment process,
major risks identified and the measures designed to reduce the impact of these major risks.
After completing this risk review, where an area of the firm has been identified as posing a high risk, you need to:
z Evaluate your ability to reduce the risk in terms of existing procedures;
z Adjust or reconsider that area and its development;
z Retrain or employ personnel to meet any staffing weaknesses;
z Review the engagement with clients in that area of your firm; and
z Apply risk management procedures.
It is also important that you consider risk management procedures such as:
z Clarity on the terms of the engagement;
z Advising the clients on the risks involved;
z Obtaining adequate insurance and controlling claims once they have occurred;
z Maintaining accurate and contemporaneous documentation;
z Ensuring timeliness of action and diary systems;
z Only practicing in those areas where there is sufficient expertise; and
z Implementing strict selection criteria for clients and consultants or agents used.
Questions you should ask yourself to identify risks and determine how to treat them follow. Please note that the
following checklist should be used as a guide only and should be customized for the individual circumstances of
each firm.
1. Establish the context
The risk management process requires the practitioner to consider matters such as those set out in
Table 7.3 below:
Table 7.3 Matters to consider in terms of context
What outcomes does the firm want to achieve?
What is the environment in which the firm operates?
(for example, cultural, legal and operational)
Identify internal and external stakeholders.
(for example, clients, personnel, consultants, agents, internal systems, third parties, suppliers, etc.)

In defining the relationship between the firm and its environment, including all stakeholders, identification is
made of the practice’s strengths, weaknesses, opportunities and threats.
This “strategic” plan will include financial, operational, competitive, political (public image and perception),
social, cultural and legal aspects of the firm.

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2. Identifying risks
Once the context has been established, the potential risk factors or threats, and the existing risk controls of the
firm need to be identified. Potential risks in a firm can be categorized as:
a. Services performed
b. Contract risk
c. Acceptance or continuance risk, and
d. Performance risk.
A checklist has been established to review each of these areas of risk and is attached as Appendix 7.6 at the end
of this module
3. Analyze and evaluate risks
A practitioner should analyze and evaluate the firm’s risks on a continuing basis. Risk evaluation takes into
account the following
(see Table 7.4 ):
Table 7.4 Analyzing and evaluating risks on a continuing basis
A comparison of exposure levels against the predetermined tolerance level.
Importance of the activity that is being risk managed and its outcomes.
Degree of control over the risk.
Potential or actual losses that may arise from the risk.
Benefits and opportunities presented by the risk.

There may be times when practitioners would like to identify the cost of the controls and their adequacy. There
are a number of ways to evaluate this—the simplest model is to consider the likelihood of occurrence of an
event and the consequences of that event, e.g. Risk = Likelihood x Consequence.
Consult with others and use your experience to calculate the level of risk. It may be categorized as extreme,
high, moderate or low. The risks should be ranked to establish management priorities.
Among other matters, the assessment process needs to canvass items shown in Table 7.5 below
Table 7.5 Assessing level of risk
Consideration
1.

The firm’s existing and anticipated areas of practice

The composition, experience and expertise of the firm

The management and internal control procedures of
the firm

The likelihood of being sued and the potential ambit of
any claim

The process to assess new and existing clients

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Comment/Action

Date completed

Other approaches which may be used to analyze identified risks include checklists, judgments based on
experience and records, flow charts, brainstorming, systems analysis and scenario analysis.
Many practitioners have procedural manuals, checklists and internal processes already in place. The level of
risk analysis undertaken will depend on the information and data available. It can range from qualitative, semiquantitative to quantitative. In the case of quantitative analysis, a sensitivity analysis should also be used to test
the data being used.
When assessing the kind of risks the firm is exposed to, it is important to consider both the internal risks and the
external risks. These two areas of risk are set out in more detail below.
7.3.2. Examining internal risk
7.3.2a Risks posed by staff
The practitioner should consider whether employees see the firm as a short-term employment option or a longterm opportunity.
The risk lies in the perception of the firm as a short-term employer, high staff turnover could result in disruption
to the practice, and generate the expense of finding and training new staff who won’t deliver a return to the firm
if they also leave after a short time.
The practitioner should also consider whether there are employees in the firm who are critical to its success. If an
employee is critical to the firm’s success, billings and profits may suffer if that employee leaves the firm, sets up a
practice in competition, or goes to work for a competitor.
The practitioner also needs to consider whether staff face occupational health and safety risks. If staff members
work in an unsafe environment, the firm is at risk for fines and penalties and, the absenteeism, injury or even the
death of an employee.
Risk mitigation strategies for these types of risks include:
z Implementing selection procedures that increase the probability of finding the right staff for the firm, those
who take a longer-term view;
z Putting in place confidentiality agreements and/or reasonable restraint of trade agreements signed by key
staff, or all staff where appropriate;
z Implementing a robust performance development system for communicating performance expectations and
goals, monitoring performance and setting remuneration;
z Providing ongoing training and cross-training for staff, consistent with the needs of the firm;
z Allocating several people to fulfill key tasks and provide back-up in the event of illness or sudden departure;
z Rotating employees through various functions of the practice to familiarize them with other areas of the firm;
z Implementing suitable occupational health and safety policies to minimize risks;
z Using equity interests, profit-sharing or other incentives to help retain key personnel and let them share in the
success they create for the practice. But be careful how such incentives schemes are designed, as they could
encourage unintended behavior; and
z Reviewing the period of notice required of staff who resign. Be careful with this as it could have unintended
legal consequences, depending on your local regulations.

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7.3.2b Risks posed by the business premises and its location
The practitioner needs to consider how dependent the firm is on its current location.
If the firm depends significantly on where it is located to generate billings, a move to premises away from the
location may cause disruption by affecting customer, staff and supplier access. Another risk is that, in the event
of a fire, flood or other disaster, the business may not be able to restart trading if the premises, equipment,
materials and/or records are destroyed.
Another matter for the practitioner to consider is whether the business is growing, or is relatively stable. If it is
growing strongly, the practitioner will need to consider how long this can be expected to continue and how big
the premises will need to be in two, five or ten years’ time.
Unless plans have been made to expand the current premises, the risk is that the business may not be able to
grow to its full potential and it could stagnate or be overtaken by competitors.
Risk mitigation strategies for the above risks include:
z Identifying a number of suitable alternative premises which would suit customers, suppliers and staff;
z Where the premises suit the business’s long-term needs, consider securing a long-term lease or right of first
option when the lease expires; and
z Managing the business to predict future space requirements early.
7.3.2c Threats to goodwill and reputation
An important matter for the practitioner to consider is how exposed the firm is to a threat to its reputation or
goodwill. For example, what would happen if the firm provided bad advice, or was involved in a major fraud?
The risk is that a fraud, or other similar event, would be likely to generate bad publicity. This could cause
immediate distress to the firm and possibly also cause longer-term damage to its goodwill and reputation.
Risk mitigation strategies would include:
z Incorporating robust review processes and quality assurance systems to avoid a situation that may damage
the firm’s reputation;
z Investing in research and development and keeping up-to-date with technological advances; and
z Compulsory training and development programs for staff.
7.3.2d Risks posed by information technology
The important issue to consider here is the extent to which the firm relies on information technology (IT). The
level of risk created by using IT increases as the firm becomes more reliant on it.
The obvious risk is that if the firm is heavily reliant on IT, it might not be able to operate without it—for example,
if the main server or processor fails during a high usage period. There are many other risk areas associated with
IT, including:
z IT service delivery: do all the software applications (including spreadsheets) work as intended? Are they all accurate?
z IT solution delivery: do you try to integrate IT solutions into daily work processes, so that the firm runs more
efficiently and predictably?
z IT benefit realization: consider not only the cost of an application, but also consider the cost of not
implementing that application. Some IT outlays are essential simply to keep pace with others in the industry

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Risk mitigation strategies include:
z Protecting laptops and desktops;
z Keeping data safe by performing back-ups and storing those back-ups off-site;
z Using the internet safely;
z Protecting networks;
z Protecting servers;
z Securing the line of business applications;
z Ensuring appropriate IT support is available within an acceptable timeframe;
z Having an uninterrupted power supply unit; and
z Conducting appropriate IT training for staff.
7.3.3 External risk
7.3.3a Risks posed by customers
An important matter for the practitioner to consider is whether the firm is highly dependent on a small number
of major clients. For example, is there one client, or client group who generates 65% or more of total revenue?
The risk is that if the firm relies on a small number of major clients, profit and cash flow may be affected in the
short term if one of them stops yielding revenue.
Risk mitigation strategies include:
z Locking in major clients through long-term service contracts, regularly visiting them, or continually asking
their views about the firm’s services;
z Spreading the risk by developing smaller, existing customers so they become larger customers;
z Seeking new, profitable customers; and
z Finding lower-cost ways of servicing the less profitable customers.
7.3.3b Risks posed by competitors
Virtually every business has competitors. However, if competitors—both current and potential—pose a
significant threat to the practice, then the viability of the firm is at risk. The practitioner needs to consider
whether their competitors pose a threat.
Risk management strategies include:
z Continuing to build on relationships with clients and the local community (providing great service as a way of
combating competitors!);
z Researching industry trends, and adopting new services, or ways of delivering those services;
z Investing in the development of new services; and
z Continually monitoring competitors, including the prices they charge.
7.3.4. Developing a risk framework for your firm
When assessing your firm for sources of risk, you should consider the following areas:
z Integrity
z Services offered
z Marketing and communication

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z Staff and human resources issues
z Information and resource management
z Regulatory obligations and intervention
z IT issues and security
z Management collapse (succession planning)
z Acceptance and continuance of clients
z Cash flow management.
Figure 7.1 shows these in diagram form.
Figure 7.1 Sources of risk for an accountancy firm

Management
Collapse

Integrity

(Principal
Succession)
Acceptance &
Continuance
of Clients

Staff & HR
Issues

Services
Offered

PUBLIC
PRACTICE

Regulatory
Intervention

Marketing &
Communication

Information
Management
IT
Problems

Cash flow
Issues

Each of these areas should be considered as you develop your firm’s risk framework.
A series of checklists has been established to review each of these areas of risk and is attached as Appendix 7.6
at the end of this module, covering:
z Integrity
z Services offered
z Marketing and communication
z Staff and human resources
z Information and resource management
z Regulatory obligations
z Information technology and security

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z Management collapse and succession planning
z Acceptance or continuance of clients
z Cash flow management.
Note that these checklists are suggested as a guide only and should be amended to suit the specific needs of
your firm.
7.3.5

Adopting risk mitigation strategies

Strategies need to be developed to manage the risks you identify in your firm. Options can be selected from any
of the following:
z Accept
z Avoid
z Transfer (in part or full)
z Reduce likelihood
z Reduce consequences; and
z Retain the risk
Where risks fall within the tolerance level of exposure, they may be treated as low-priority and accepted.
Optimal action plans are developed based on:
z Current levels of risk exposure
z Benefits arising from actions/controls
z The duration of time to implement actions
z Available budget.
7.3.5a Risk management strategies
There are numerous examples of strategies that can be used to manage risk. These include
i.

contingency strategy: applies to risks of higher consequence but lower likelihood of occurrence and aims
to bring the potential consequence of the risk within acceptable confines. Simple examples of such a risk
control strategy are insurance and contractual indemnities, business continuity plans and contracting some
or all of the activity to another organization or person.

ii.

preventative strategy: applies where potential impacts are not very large but the likelihood of occurrence
is high, for example client complaints. In this case, quality control assurance procedures, supervision and
training would be instances of this strategy.

iii. monitoring strategy: is suited to exposures where the likelihood and consequence of risk are deemed to
be relatively small. This strategy aims to ensure all “standard safeguards” are in place and working. It also
requires the risk to be periodically reviewed. For example, quality checks, regular reporting, audit and
performance reviews.
iv. mixed strategy: corresponds to managing a risk environment, that is managing potentially likely negative
outcomes and outcomes of high impact or consequence which would involve a combination of strategies
outlined above.
Where an area of the firm is identified as posing a high risk, the firm should follow actions suggested in Table 7.6
below:

Table 7.6 Strategies to manage risk
a.

Evaluate its ability to reduce the risk in terms of existing procedures;

Adjust or reconsider that area of the firm and its development;

Retrain or employ personnel to meet any staffing weaknesses;

Review the engagement with clients in that area of the firm; and

Apply risk management procedures.

7.3.5b Risk management procedures
The IESBA Code outlines a number of important risk management procedures that need to be considered by the
firm. These include:
1. The engagement letter
z Confirms acceptance of the appointment;
z Outlines the objective, scope and extent of the engagement;
z Highlights the extent of the member’s responsibilities to the client;
z Defines the client’s responsibilities;
z Manages the “client expectation gap”, i.e. matching the services expected by the client with the services delivered;
z Confines the extent of exposure by:
} specifying limitations on the work to be undertaken;
} confining the advice to the client only;
} restricting use of member’s name on documentation supplied to the client;
} obtaining an indemnity from the client, any third party or in connection with [?] receiverships, trust and
secretarial work; and
z Sets the fees applicable to the engagement.
A letter of engagement is an essential document in any firm and benefits both the practitioner and the client. It
is covered in greater detail in Section 7.4 of this module.
2. Advise clients on risks
To avoid having to assuming responsibility for the client’s risk-taking, advise the client in writing of relevant
dates and consequences in the event of failure by the client to act. This will transfer the risk of noncompliance
back to the client to act and/or follow-up.
3. Accurate and contemporaneous documentation
It is recommended that all advice a member of staff provides be noted in a file/diary system or by confirmation
letter or report to the client. The information that should be included is:
z Date
z Time
z Content of conversation/advice
z Notation to whom it was made
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z Signature (if applicable).
4. Timeliness of action and diary systems
File notes will have the dual effect of:
z Assisting with the recollection of events if there is litigation many years later; and
z Being tendered in Court as evidence that a conversation actually occurred (subject to authenticity of
documentation being established).
5. Practice in areas where there is sufficient expertise
Each staff member should recognize his or her own limitations. If the staff member forms the view that there is
insufficient time or he or she does not have the skill required to perform the service requested, then the matter
should be referred on to a specialist.
6. Client selection
A review of the firm’s client mix is recommended with a view to considering increasing the proportion of clients
requiring lower risk advice.
z type of business conducted by the client:
z ongoing work or one-off engagement
z effect of economic climate on client’s business.
It is important to note that the application of such measures does not relieve the member of the duty to exercise
the level of skill, care and judgment appropriate to the service provided and therefore application of the highest
standard at all levels is essential.
Generally, the firm should consider its quality control and assurance procedures, the problems that have arisen,
and how they have been dealt with in the past.
7. Monitoring
A firm needs to continuously monitor and review the strategies used to manage risk.
It is also necessary to monitor and manage the implementation of the action plan against time and budget.
Over time, new risks are created, existing risks are increased or decreased, risks no longer exist, the priority of risk
may change or the risk treatment strategies may no longer be effective.
Monitoring should comprise:
z Monitoring existing risks
z Identifying new risks
z Identifying any trouble spots
z Evaluating the effectiveness of current risk treatment strategies.
Monitoring ensures that, as risks change, new measures are introduced to control these risks. Ongoing review is
required to ensure that strategies remain relevant, and that the overall risk control position is relative to the risk
financing position.
8. Communication and consultation
The risk management process requires continuous communication and consultation with all parts of the
business as well as with outside parties to ensure that all personnel are informed of all stages of the process.

9. Record-keeping
All policies and procedures should be in writing. Records should be maintained documenting the assessment process
carried out, the major risks identified and the measures recognized to reduce the impact of these major risks.
Failure to document policies can lead to breaches in performance due to misunderstanding or misinterpretation. A
written set of policy statements supplied by documented procedures provides a constant reference, a guide to action
and a framework for checking that the operations are conducted in the manner intended by the staff member.
7.4
7.4.1

Client engagement
The engagement process

The relationship between a practitioner and a client is important one to both parties. As already discussed,
the practitioner brings a number of important elements to the relationship. These should include integrity,
objectivity, professional competence and due care, confidentiality and professional behavior. In addition to
these characteristics, the practitioner also brings individual interpersonal skills to the relationship.
One of the most important aspects of the professional relationship is a clear understanding of what the
relationship is about; what specifically it is that the client has engaged the practitioner to do. The formal way of
acknowledging this is in the form of an engagement letter, or engagement document, in which the practitioner
provides a formal, written understanding of what the client is seeking.
Such a letter confirms the arrangement—or provides the opportunity to clarify any uncertainties— which may
exist between the client and the practitioner. It goes a long way towards avoiding client disputes as the terms of
the engagement are clearly stated upfront in a clear and explicit manner. This may not always be the case, but
without an engagement letter the practitioner is in a weakened position.
7.4.1a Terms of engagement for professional services
The engagement letter is one way of formalizing the relationship between a practitioner and a client. The
process of documenting and communicating the terms of the engagement should ensure that there is a clear
understanding between the client and the practitioner regarding the terms of engagement. It is in the interests
of both the client and the practitioner that this occurs, preferably before the engagement commences, to avoid
misunderstandings with respect to the engagement.
The terms of engagement do not need to take the form of a letter or agreement. For example, a standard format
handout, brochure, leaflet or electronic communication is also acceptable.
The law establishes the objectives and scope of some engagements. It should be noted that documentation
of the terms of engagement cannot reduce those obligations imposed by law. Where the engagement is
undertaken under legislation, the practitioner should refer to the applicable provisions of the law in the
engagement letter or document.
7.4.1b General contents of an engagement document
The following is a guide to matters that should the practitioner may wish to consider for inclusion in an
engagement letter. Examples of the types of matters you may wish your firm to consider include:
Purpose: The engagement document should explain that its purpose is to set out and confirm the
understanding of the practitioner of the terms of the engagement.
Objectives of the engagement: A brief summary of the objectives of the engagement including reference to the fact that:
z Procedures to be performed will be limited exclusively to those related to the engagement;

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z Neither an audit nor a review will be conducted and, accordingly, no assurance will be expressed (if
applicable); and
z Unless otherwise agreed, the engagement cannot be relied upon to disclose irregularities, including fraud,
other illegal acts and errors that may occur.
Scope of the engagement: Pertinent details of such matters as:
z Time periods covered by the engagement;
z Period of appointment and time schedules;
z References to any legislation and professional standards that may be relevant to the engagement;
z Client operations or procedures to be included in the engagement;
z Details of information to be provided by the client;
z Any limitations on the conduct of the engagement; and
z Other matters considered necessary or appropriate.
Engagement output: Details of reports or other anticipated outputs, including:
z Expected timing;
z Intended use and distribution of reports; and
z Nature of any anticipated disclaimer or arrangement that limits the liability of the practitioner, including
appropriate limitation of liability clauses for those practitioners participating in legislative schemes which
limit their liability with respect to the client or any other user of the results of the engagement.
Relative responsibilities: Responsibilities agreed upon, detailing those acknowledged as the responsibility of:
z the practitioner, including reference to relevant confidentiality requirements and the impact of them on the
quality review program of the relevant professional body to which the practitioner belongs;
z the client, noting the fact that the client is responsible for the completeness and accuracy of information
supplied to the practitioner; and
z any third party.
Involvement of other members in public practice: Where the work of another practitioner is to be used on some
aspects of the engagement, the details of this involvement should be documented in the engagement document.
Fees and billing arrangements: Reference to the basis of fees (e.g. time-based billing, fixed price contracts, contingent
fee arrangements or other similar agreement). Details of agreed-upon billing schedules should also be included.
Ownership of documents: The engagement document should make clear who owns any documents produced
as a result of the engagement or provided by the client for such a purpose including electronic data. If a firm
has a policy of seeking to exercise a right of lien over such documents in the event of a dispute with a client, this
policy should be disclosed in the engagement document communicated to the client including the procedure
for dealing with disputes over the lien.
Confirmation by the client: Request for a response from the client confirming its understanding of the terms of
engagement as outlined in the engagement document. It is preferable for this confirmation of client acceptance
to be obtained in a written form.

7.4.2

Review and re-engagement

Practitioners should be aware of the importance of reviewing their relationships with their clients to ensure that
are satisfied with the service they are currently receiving. This also provides the client with the opportunity to
offer feedback, if needed, on how the accounting firm can improve its services. It also provides the practitioner
with the opportunity to discuss new or additional services that may be relevant to the client.
In light of this, the firm should establish policies and procedures for the acceptance and continuance of client
relationships and specific engagements. These should be designed to provide reasonable assurance that the
firm will only undertake or continue relationships and engagements where it:
z Has considered the integrity of the client and does not have information that would lead it to conclude that
the client lacks integrity;
z Is competent to perform the engagement and has the capabilities, time and resources to do so; and
z Can comply with ethical requirements.
The firm should obtain the information it considers necessary before accepting an engagement with a new
client, when deciding whether to continue an existing engagement, and when considering acceptance of a
new engagement with an existing client. Where issues have been identified, and the firm decides to accept or
continue the client relationship or a specific engagement, it should document how the issues were resolved.
With regard to the integrity of a client, matters which the firm should consider include, for example:
z The identity and business reputation of the client’s principal owners, key management, related parties and
those charged with its governance.
z The nature of the client’s operations, including its business practices.
z Information concerning the attitude of the client’s principal owners, key management and those charged
with its governance towards such matters as aggressive interpretation of accounting standards and the
internal control environment.
z Whether the client is aggressively concerned with maintaining the firm’s fees at as low a level as possible.
z Indications of an inappropriate limitation in the scope of work.
z Indications that the client might be involved in money laundering or other criminal activities.
z The reasons for the proposed appointment of the firm and non-reappointment of the previous firm.
Module 3 of this guide discussed the process a firm should undertake when assessing prospective clients
and whether they would represent a good fit for the firm. The process of client review also gives the firm the
opportunity to reassess their level of interest in retaining the client.
The following table provides useful guidance when assessing whether to continue servicing current clients of the firm:

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Table 7.7 Reviewing clients of the firm
Question
1.

Do the management and staff of the firm like working
with the client?

Does the client respect the firm, its opinion, its work
and its management and staff?

Does the client represent a risk to the firm?

Do the firm’s management and staff relate to the
client?

Does the client relate well to the firm and the firm’s
team?

Does the client utilize a number of the firm’s
services?

Does the client pay bills on time?

Does the client work cooperatively with the firm when
required?

Does the client cause the firm’s management and
staff stress?

10.

Is there a good fit culturally?

11.

Does the firm add value to the client’s business?

12.

Does the client add value to the firm?

13.

Is the firm proud to introduce the client as such?

14.

Is the client proud to introduce the firm as its
accountants?

15.

Does the client observe ethical business principles?

16.

Has the client asked the firm to compromise the
practice’s ethical values?

17.

Are there other ways of servicing this client?

7.4.3

Answer/Comment

Reviewing ongoing engagements

As mentioned above, the review and re-engagement of clients provides the practitioner with the opportunity
to meet and discuss work performed to date with the client. It not only provides the opportunity for the client
to discuss how the practitioner could improve their service, but also allows the practitioner the opportunity to
discuss with the client areas they can improve the way in which they deal with the practitioner.
For recurring engagements, the practitioner may decide not to send an engagement letter on each occasion.
The following factors may affect this decision:
z Any indication that the client misunderstands the objectives and scope of the engagement;
z Any significant changes in the terms of the engagement;
z A recent change of client management or ownership;
z A significant change in the nature or size of the client’s business; or
z Legal requirements.
Any of these factors may cause the practitioner to consider issuing a new or revised engagement letter.

7.4.4

Managing the disengagement process

It is a fact of life in an accounting firm that relationships with clients will sometimes come to an end. This may
come about because you want the client to leave, or if—for any number of reasons—the client chooses to go to
another firm.
You may receive a professional letter from the new accountant who has been engaged advising you of their
appointment. It is recommended that you acknowledge their letter and provide whatever details they request,
within your policy guidelines.
Unless the client has contacted you already, you may wish to contact the client to let them know you have
received the professional letter from the other accounting firm and that you will act accordingly.
You may wish to engage in a discussion with the client as to the reasons for their leaving. This may provide you
with important feedback on your firm. If you approach it with the right attitude, you may discover a systemic
problem in your firm that needs to be addressed.
The firm should establish policies and procedures for those occasions when it withdraws from an engagement
or from both the engagement and the client relationship. It should include consideration of issues including the
following:
z Discussing with the appropriate level of the client’s management and those charged with its governance
regarding the appropriate action that the firm might take based on the relevant facts and circumstances.
z If the firm determines that it is appropriate to withdraw, discussing with the appropriate level of the client’s
management and those charged with its governance withdrawal from the engagement or from both the
engagement and the client relationship, and the reasons for the withdrawal.
z Considering whether there is a professional, regulatory or legal requirement for the firm to remain in place,
or for the firm to report the withdrawal from the engagement, or from both the engagement and the client
relationship, together with the reasons for the withdrawal, to regulatory authorities.
z Documenting significant issues, consultations, conclusions and the basis for the conclusions.
7.5
7.5.1

Quality control processes within an accounting firm
Objective of quality control

Quality control is an important component of any strategy for delivering consistent, high-quality services to
clients. Quality control encompasses the firm and its objectives, the services provided, the delivery of those
services, the quality of the work, the processes and policies adopted and the staff and management.
A system of quality control essentially consists of policies designed to achieve the objectives of the firm and
procedures necessary to implement and monitor compliance with those policies. Professional accounting firms
also need to ensure that the quality of their work meets professional standards. A quality control system means
they have documented what they do and how they do it.
The relevant minimum standards for quality control are:
z International Standard on Quality Control (ISQC) 1 Quality Control for Firms that Perform Audits and Reviews
of Financial Statements, and Other Assurance and Related Services Engagements issued by the IAASB;
z International Standard on Auditing (ISA) 220 Quality Control for an Audit of Financial Statements issued by
the IAASB; and
z Code of Ethics for Professional Accountants issued by the IESBA.

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The Guide to Quality Control for Small- and Medium-Sized Practices, which provides guidance on implementing
ISQC 1, can be downloaded at http://web.ifac.org/publications/small-and-medium-practices-committee
7.5.2

Benefits of an effective quality control system

An effective quality control system reduces the risk of error thereby reducing exposure to complaints from
clients and possible litigation or professional indemnity claims. It is also important in demonstrating that
appropriate standards have been followed in the event of any litigation or professional indemnity claims. Other
benefits offered by an effective quality control system include:
z Enhanced reputation and brand value in the marketplace;
z Enhanced risk management;
z Improved client relationships;
z Improved recruitment and retention of employees; and
z Improved efficiencies in the provision of services.
7.5.3

General principles of quality control

Quality control systems for professional accounting practices are essentially based on ISQC 1 (the standard). This
states that a system of quality control consists of policies and procedures designed to achieve two objectives. A
firm can have reasonable assurance that:
z The firm and its personnel comply with professional standards and regulatory and legal requirements; and
z Reports issued by the firm, or engagement partners, are appropriate in the circumstances.
The system of quality control is to include policies and procedures that address each of the following:
z Leadership responsibilities for quality within the firm;
z Ethical requirements;
z Acceptance and continuance of client relationships and specific engagements;
z Human resources;
z Engagement performance; and
z Monitoring.
The quality control policies and procedures are to be documented and communicated to all staff. They should
include a full description of the relevant policies and procedures and outline the objectives they are designed
to achieve. It should also be made clear that each staff member has a personal responsibility for quality and is
expected to comply with the firm’s policies and procedures.
The firm should also recognize the importance of obtaining feedback on its quality control system from staff
encouraging communication of staff views or concerns on quality control matters.
The nature of the policies and procedures developed by individual firms will depend on various factors, such
as the size and operating characteristics of the firm. They do not need to be complex, or time-consuming
to be effective, but it is important for firms to establish policies and procedures that are both relevant and
proportionate to the size of their practice.

7.5.4 Quality control elements
7.5.4a Leadership responsibilities for quality within the firm
Your firm should aim to establish policies and procedures that promote an internal culture which recognizes that
quality is essential in performing client engagements. These policies and procedures will require you to assume
ultimate responsibility for the quality control system of the practice.
The example you set will significantly influence the culture of the firm. Promoting a quality-oriented culture
depends on clear and consistent actions and messages from all staff. Such deeds and attitudes encourage a culture
that recognizes and rewards high quality work. Training seminars, formal or informal meetings, mission statements,
newsletters, or briefing memoranda may communicate this message. It can be incorporated in the firm’s internal
documentation and training materials. It can also be included in staff appraisals in a way that supports and
reinforces the firm’s view on the importance of quality and how it is to be achieved in a practical sense.
7.5.4b Relevant ethical requirements
The firm is to establish policies and procedures designed to provide it with reasonable assurance that the firm
and its staff comply with relevant ethical requirements.
The relevant ethical requirements are based on the fundamental principles contained in the professional
standards which include:
z Integrity;
z Objectivity;
z Professional competence and due care;
z Confidentiality; and
z Professional behavior.
In order to comply with these ethical requirements, the firm must have policies and procedures in place to
identify and evaluate those circumstances where these requirements are under threat. It must then outline the
appropriate action to eliminate those threats, or reduce them to an acceptable level so that compliance is not
compromised.
It is therefore necessary to identify any actual or perceived conflicts of interest between your firm and your
clients. The trust and confidence of clients is crucial to any ongoing professional relationship and avoiding
real, potential or perceived conflicts of interest builds trust. Included at Appendix 7.2 is a form to assist in this
assessment.
The firm’s policies and procedures addressing these ethical requirements must be communicated to all staff
and you should reinforce them through education and training, monitoring and providing a process for dealing
with noncompliance. It is important to continually review these protocols to take into account any change of
circumstances, including staff changes, client acquisitions or structural changes such as mergers.
Compliance with the ethical principles that apply to all areas of a professional accounting firm require:
z All personnel to adhere to the relevant ethical requirements;
z The establishment of procedures to communicate independence requirements to firm staff and, where
applicable, others subject to them;
z The establishment of procedures to identify and evaluate possible threats to the fundamental principles,
and to take appropriate action to eliminate those threats, or reduce them to an acceptable level by applying
safeguards; and

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z At least annually, written confirmation of compliance with the firm’s policies and procedures on
independence from all firm personnel required to be independent by relevant requirements (see
Appendix 7.3 for an example form).
z For assurance practices it is particularly important to establish policies and procedures to deal with identifying
threats to independence, criteria for determining the need for safeguards and the reporting of any breaches
in a timely manner. Sections 290 and 291 of the IESBA code outline the requirements for independence when
undertaking an assurance engagement.
7.5.4c Acceptance and continuance of client relationships
The firm is to establish policies and procedures for the acceptance and continuance of client relationships
and specific engagements. These are designed to provide the firm with reasonable assurance that it will only
undertake or continue relationships and engagements where it:
z Has considered the integrity of the client and does not have information that would lead it to conclude that
the client lacks integrity;
z Is competent to perform the engagement and has the capabilities, time and resources to do so;
z Can comply with legal and ethical requirements; and
z Has reached an understanding with the client regarding the services to be performed.
1. Client integrity
Factors to consider regarding to the integrity of a client include:
z The identity and business reputation of the client’s principal owners, key management, related parties and
those charged with its governance;
z The nature of the client’s operations, including its business practices;
z The attitude of the client towards such matters as aggressive interpretation of accounting standards and the
internal control environment;
z Whether the client is aggressively concerned with maintaining the firm’s fees at as low level as possible;
z Indications of any inappropriate limitation in the scope of work;
z Indications of involvement in money laundering or other criminal activities; and
z The reasons for the proposed appointment of the firm and non-reappointment of the previous firm.
Other factors to consider include:
z Relevant industry knowledge and experience within your firm;
z Staffing resources necessary to complete the engagement; and
z Actual or perceived conflicts of interest and independence issues.
A new client acceptance checklist produced by ICAA is included in Appendix 7.4 which will provide additional
assistance in this area.
2. Client continuation
It is also important for you to review existing clients to ensure that any significant changes in the client’s
operations, business environment, or their key personnel are identified and documented, where appropriate.
These changes may affect on your ability to comply with ethical requirements, which includes having the
necessary knowledge or expertise to handle all of the issues the client may now be exposed to.

7.5.4d Human resources
The firm is to establish policies and procedures designed to provide it with reasonable assurance that it has
sufficient personnel with the capabilities, competence, and commitment to ethical principles necessary to
perform its engagements, in accordance with professional standards and regulatory and legal requirements and
to enable the firm to issue reports that are appropriate in the circumstances.
These policies and procedures are to address the following personnel issues:
z Recruitment;
z Performance evaluation;
z Capabilities;
z Competence;
z Career development;
z Promotion;
z Compensation; and
z The estimation of personnel needs.
Compliance with this element of quality control requires:
z Recruitment of staff of integrity with the capacity to develop the capabilities and competence to perform the
firm’s work;
z Identifying the capabilities and competencies possessed by personnel;
z Assigning personnel based on the knowledge, skills, and abilities required in the circumstances and the
nature and extent of supervision needed;
z Having personnel participate in general and industry-specific continuing professional education and
professional development activities; and
z Selecting for advancement only those individuals who have the qualifications necessary to fulfil the
responsibilities they will be called on to assume.
The firm’s performance evaluation, compensation and promotion procedures should give due recognition
and reward to the development and maintenance of competence and commitment to ethical principles. In
particular, the firm is to:
z Make staff aware of the firm’s expectations regarding performance and ethical principles;
z Provide staff with evaluation of, and counseling on, performance, progress and career development; and
z Help staff understand that advancement to positions of greater responsibility depends, among other things,
performance quality and adherence to ethical principles. Failure to comply with policies and procedures may
result in disciplinary action.
The size and circumstances of the firm will influence the structure of its performance evaluation process. Smaller
firms, in particular, may employ less formal methods of evaluating the performance of their staff.
1. Recruitment and retention
The recruitment and retention strategy of the firm should include policies and procedures which cover:
z Position interview and evaluation procedures;

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z Maintaining current job descriptions for all positions;
z Orientation of new personnel; and
z Ongoing professional development and training to ensure maintenance of professional and educational standards.
2. Assignment to engagements
As a practitioner you should only take on engagements for which you are confident you have the necessary
skills, knowledge and experience to competently complete the work. Staff should be assigned after taking into
account the nature and complexity of the engagement and the staff ’s capabilities and competencies.
7.5.4e Engagement performance
The firm is to establish policies and procedures designed to provide it with reasonable assurance that
engagements are performed in accordance with professional standards and regulatory and legal requirements
and to enable the firm to issue reports that are appropriate in the circumstances.
Through its policies and procedures, the firm is seeking to establish consistency in the quality of its performance
on the engagement. This is often accomplished through written or electronic manuals, software tools or other
forms of standardized documentation, and industry or subject matter specific guidance materials where
relevant. Matters addressed include the following:
z How individual staff members are briefed on the engagement to obtain an understanding of the objectives of
their work;
z Processes for complying with applicable engagement standards;
z Processes of engagement supervision, staff training and coaching;
z Methods of reviewing the work performed, the significant judgments made and the form of report being issued;
z Appropriate documentation of the work performed and of the timing and extent of the review; and
z Processes to keep all policies and procedures current.
It is important that all members of staff working on the engagement understand the objectives of the work they
are to perform. Appropriate team working and training are necessary to assist less experienced members of staff
to clearly understand the objectives of the assigned work.
Supervision includes the following:
z Tracking the progress of the engagement;
z Considering the capabilities and competence of staff members, whether they have sufficient time to carry
out their work, whether they understand their instructions and whether the work is being carried out in
accordance with the planned approach to the engagement;
z Addressing significant issues arising during the engagement, considering their significance and modifying
the planned approach appropriately; and
z Identifying matters for consultation or consideration by more experienced staff during the engagement.
Responsibilities for review are determined on the basis that more experienced staff review work performed by
less experienced staff. Reviewers need to consider whether:
z The work has been performed in accordance with professional standards and regulatory and legal
requirements;
z Significant matters have been raised for further consideration;

z Appropriate consultations have taken place and the resulting conclusions have been documented and
implemented;
z There is a need to revise the nature, timing and extent of work performed;
z The work performed supports the conclusions reached and is appropriately documented;
z The evidence obtained is sufficient and appropriate to support the report; and
z The objectives of the engagement procedures have been achieved.
Policies and procedures also should require that consultation takes place when appropriate, for example, when
dealing with complex, unusual, unfamiliar, difficult, or contentious issues. In these cases it is necessary that:
z Sufficient and appropriate resources are available to enable appropriate consultation to take place;
z The nature, scope, and conclusions of such consultations be documented; and
z The conclusions resulting from such consultations are documented and implemented.
In addition, a policy should establish criteria against which all engagements are to be evaluated to determine
whether an engagement quality control review should be performed.
To comply with this element the firm needs to establish and maintain policies to:
z Plan all engagements to meet professional, regulatory and legal requirements;
z Perform work and issue reports and other communications that meet professional, regulatory, and the firm’s
requirements;
z Require that work performed by other team members be reviewed by qualified engagement team members,
which may include the engagement partner, on a timely basis;
z Require that differences of opinion be dealt with and resolved and documented;
z Require that all engagements are evaluated against the criteria for determining whether an engagement
quality control review should be performed;
z Establish procedures addressing the nature, timing, extent, and documentation of the engagement quality
control review; and
z Establish criteria for the eligibility of engagement quality control reviewers.
7.5.4f Completion of the assembly of final engagement files
The firm is to also establish policies and procedures for staff to complete the assembly of final engagement files
on a timely basis after the engagement and relevant reports have been finalized.
7.5.4g Confidentiality, safe custody, integrity, accessibility and retrievability of engagement documentation
The firm shall also establish policies and procedures designed to maintain the confidentiality, safe custody,
integrity, accessibility and retrievability of documentation used for the engagement.
Relevant ethical requirements require staff to maintain at all times the confidentiality of information contained
in engagement documentation, unless specific client authority has been given to disclose information, or there
is a legal or professional duty to do so. Specific laws or regulations may impose additional obligations on staff to
maintain client confidentiality, particularly where data of a personal nature are concerned.
Whether engagement documentation is in paper, electronic or other media, the integrity, accessibility or
retrievability of the underlying data may be compromised if the documentation could be altered, added to or

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deleted without the firm’s knowledge, or if it could be permanently lost or damaged. Accordingly, the firm is to
design and implement appropriate controls for engagement documentation to:
z Enable the determination of when and by whom the engagement documentation was created, changed or
reviewed;
z Protect the integrity of the information at all stages of the engagement, especially when the information is
shared within staff or transmitted to other parties via the internet;
z Prevent unauthorized changes to the engagement documentation; and
z Allow access to the engagement documentation by staff and other authorized parties as necessary to
properly discharge their responsibilities.
7.5.4h Retention of engagement documentation
The firm is to establish policies and procedures for the retention of engagement documentation for a period
sufficient to meet the needs of the practice or as required by law or regulation.
The needs of the firm to retain engagement documentation, and the period of such retention, will vary with
the nature of the engagement and the circumstances of the firm, for example, whether the engagement
documentation is needed to provide a record of matters of continuing significance to future engagements.
The retention period may also depend on other factors, such as whether local law or regulation prescribes
specific retention periods for certain types of engagements, or whether there are generally accepted retention
periods in the jurisdiction in the absence of specific legal or regulatory requirements. In the specific case of
audit engagements, the retention period ordinarily is no shorter than seven years from the date of the auditor’s
report, or, if later, the date of the group auditor’s report.
Examples of procedures that the firm may ordinarily adopt for retention of engagement documentation include
those that:
z Enable the retrieval of, and access to, the documentation during the retention period, particularly in the case
of electronic documentation since the underlying technology may be upgraded or changed over time;
z Provide, where necessary, a record of changes made to the engagement documentation after the
engagement files have been completed; and
z Enable authorized external parties to access and review specific engagement documentation for quality
control or other purposes.
The firm is also to ensure that the quality control system remains relevant and operates effectively by
monitoring and updating the system on a regular basis. It is important to maintain policies and procedures and
keep them current to reflect changes in professional standards and regulatory and legal requirements.
7.5.4i Monitoring
The firm is to establish policies and procedures designed to provide it with reasonable assurance that the policies
and procedures relating to the system of quality control are relevant, adequate, operating effectively, and complied
with in practice. Such policies and procedures are to include an ongoing consideration and evaluation of the firm’s
quality control system, including a periodic inspection of a selection of completed assignments.
The purpose of monitoring compliance with quality control policies and procedures is to provide an evaluation of:
z Adherence by the firm to professional standards and regulatory and legal requirements;
z Whether the quality control system has been appropriately designed and effectively implemented; and
z Whether the firm’s quality control policies and procedures have been appropriately applied, so that
engagement outputs that are issued by the firm are appropriate in the circumstances.

Monitoring encapsulates all the other elements of quality control, as it ensures compliance with policies and
procedures established for meeting the objectives of leadership, ethics, client acceptance and continuance,
human resources, engagement performance, as well as monitoring itself. However, review of engagements
is only one aspect. Monitoring also requires documentation of the procedures and findings, and the
communication of those findings.
It is important that the responsibility for the monitoring process be assigned to the practitioner or to partners
with sufficient and appropriate experience and authority to assume the responsibility.
Monitoring procedures consist of the following:
1. Assessing the firm’s compliance with its quality control policies and procedures
z Review selected administrative and personnel records pertaining to the quality control elements;
z Review engagement working papers, reports, and clients’ financial statements;
z Discuss with the firm’s personnel;
z Summarize the findings from the monitoring procedures at least annually, and consider the systemic causes
of findings that indicate that improvements are needed; and
z Determine any corrective actions to be taken or improvements to be made with respect to the specific
engagements reviewed or the firm’s quality control policies and procedures.
2. Communicating results of monitoring
z Communicate the identified findings to appropriate management personnel within the firm;
z Communicate at least annually, to relevant engagement partners and other appropriate personnel,
deficiencies noted as a result of the monitoring process and recommend for appropriate remedial action; and
z Communicate the results of the monitoring of the firm’s quality control system process to relevant firm
personnel at least annually.
3. Evaluation of quality control system
z Appropriate firm management personnel are then to consider the findings. They should also determine any
actions that may be necessary, including any modifications required to the quality control system, and see
that these are implemented on a timely basis;
z Assess:
} The appropriateness of the firm’s guidance materials and any practice aids;
} New developments in professional standards and regulatory and legal requirements and how they are
reflected in the firm’s policies and procedures;
} Compliance with policies and procedures on independence;
} The effectiveness of continuing professional development, including training;
} Decisions related to acceptance and continuance of client relationships and specific engagements; and
} Staff ’s understanding of the quality control policies and procedures and their implementation.
4. Appropriate complaints handling
The firm is to establish policies and procedures designed to provide it with reasonable assurance that it deals
appropriately with:

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z Complaints and allegations that the work performed by the firm fails to comply with professional standards
and regulatory and legal requirements; and
z Allegations of noncompliance with the firm’s system of quality control.
Complaints and allegations, which do not include those that are clearly frivolous, may originate from within or
outside of the firm. Staff, clients or other third parties, may make complaints or allegations.
As part of this process, the firm is to establish clearly defined channels for staff to raise any concerns, in a manner
that enables them to come forward without fear of reprisals.
The firm is then to ensure documentation of the complaints and allegations and the responses to them
including:
z Complaints and allegations that the work performed by the firm fails to comply with professional standards
and regulatory and legal requirements;
z Allegations of noncompliance with the firm’s system of quality control; and,
z Deficiencies in the design or operation of the firm’s quality control policies and procedures, or noncompliance
with the firm’s system of quality control by staff.
5. Documentation
The firm is to establish policies and procedures requiring appropriate documentation to provide evidence of the
operation of each element in its system of quality control.
The form and content of such documentation is a matter of judgment and depends on a number of factors,
including the following, examples:
z The size of the firm and the number of offices; and
z The nature and complexity of the firm’s practice and organization.
The firm is to retain this documentation for a period of time sufficient to permit those performing monitoring
procedures to evaluate the firm’s compliance with its system of quality control, or for a longer period if required
by law or regulation.
7.6

Business continuity planning and disaster recovery

The key to business continuity planning and disaster recovery is to look at it as an entire function, as whole and
complete in itself. The most effective way to coordinate your thinking and planning in this area is to document
the various components required in one central document. This is called the Business Continuity Plan.
The purpose of developing a Business Continuity Plan is to ensure the continuation of your firm during and
following any critical incident that result in disruption to your normal operational capability.
This section will assist you to prepare a Risk Management Plan and Business Impact Analysis, and create Incident
Response and Recovery Plans for your business.
1. Developing a Business Continuity Plan
The Business Continuity Plan is based on the Prevention, Preparedness, Response and Recovery (PPRR)
framework. Each of the four key elements is represented by a part in the Business Continuity Planning Process.

Figure 7.2 Business Continuity Planning Process
Prevention
(Risk Management Plan)

Recovery
(Recovery Plan)

Preparedness
(Business Impact Analysis)

Response
(Incident Response Plan)
2. Prevention
Prevention is all about risk management planning. This is where the likelihood and/or effects of risk associated
with an incident are identified and managed. The key elements of the risk management processes are
implemented at this stage, with threats identified and dealt with, or reduced to an acceptable level. These have
been covered in detail in Section 7.3 of this Module, but will be discussed briefly again here to maintain the
context of the discussion in this section.
3. Preparedness
The key tool for the Preparedness element is the Business Impact Analysis. This is where the key activities of the
firm that may be adversely affected by any disruptions are identified and prioritized.
4. Response
The key function of the Response element is Incident Response planning. This plan outlines the immediate actions
in response to be taken to respond to an incident in terms of containment, control and minimizing of impacts.
5. Recovery
The Recovery section focuses on recovery planning. The purpose is to outline the actions that are to be taken to
recover from an incident in order to minimize disruption and recovery times.
Another important element of the Business Continuity Plan is the concept of regular updates and review. It is hoped
that you will never need to use the plan, but if the need ever arises,you should know the plan is up to date with
current details, information and resources. This is important as it should reflect the changing needs of your firm.
The templates and checklists provided in the following sections should be used only as a guide only to assist
you in developing your own Business Continuity Plan. You should customize it to suit the specific requirements
and needs of your firm.
6. Key items the plan should include:
z Distribution list: An up-to-date list should be maintained of the people you have supplied with a copy of the
plan and their contact details. Remember to keep a copy of the plan in a safe off-site location.
z References and related documents: Make a list of all the documents that have a bearing on your Business
Continuity Plan.
z Table of contents: A table of contents should be included at the beginning of the plan.

MODULE 7: RISK MANAGEMENT

z Objectives of the plan: Objectives clarify the purpose of the plan and should describe the intended result. An
example of some objectives for a practice would include:
7. The objectives of this plan are to:
z Undertake a risk management assessment of our firm;
z Define and prioritize our critical practice functions;
z Detail our immediate response to a critical incident;
z Detail strategies and actions to be taken to enable our firm to continue operating; and
z Review and update this plan on a regular basis.
7.6.1

Prevention—Risk Management Plan

You need to manage the risks to your firm by identifying and analyzing the things that may have an adverse
effect on it and choosing the best method of dealing with each of them.
There are a number of steps to take in establishing your Risk Management Plan:
1. Select someone to take responsibility for risk management. Typically this will be the practitioner when first
establishing the Risk Management Plan. Once established, the management and maintenance of the plan
can be delegated to another responsible staff member.
2. Identify the risks. Review the checklists provided in Section 7.3 (Table 7.2 in Section 7.2.5 also is like a
checklist and is very detailed) as a starting point and brainstorm with your staff other areas of risk within
your firm.
3. Evaluate and prioritize risks. Use the assessment guide provided in Section 7.3 (Table 7.5) as the key tool for
this task.
4. Identify possible preventive actions and/or ways in which to minimize the risks.
5. Identify the contingency plans you will establish if the identified threat were to eventuate.

Table 7.8 Risk assessment table
Risk Assessment Table

Date

Key:

Impact

Risk Description

Priority

Very High
High
Moderate
Low

Likelihood

VH:
H:
M:
L:

Interruption
to process
for producing
financial
statements

Client does not
pay their account

Preventative Action

Back-up copy of data maintained at all times
Laptop computers to have current software
loaded

Regular follow-up with debtors and review of
aged listing

Contingency Plans

Off-site storage of all computer
programs and client data

Debt collection processes and
contact details in place

The questions to ask yourself and your team are:
z What could go wrong?
z What could cause an impact?
z How serious would that impact be?
z What is the likelihood of this occurring?
z Can it be reduced or eliminated?
7.6.2. Preparedness—Business Impact Analysis
The key tool for the Preparedness element is the Business Impact Analysis. This is where key activities of the firm
that may be adversely affected by any disruptions are identified and prioritized.
1. Business Impact Analysis
Practitioners should undertake a Business Impact Analysis as part of the firm’s Business Continuity Plan. To
prepare this you use the information in your Risk Management Plan to assess the identified risks and impacts
relating to the firm’s critical activities and determine the basic recovery requirements.
Critical activities are those primary business functions that must continue in order to support your firm.

MODULE 7: RISK MANAGEMENT

You need to identify:
z Your firm’s critical activities;
z The impact on your firm in the event of a disruption; and
z How long your firm could survive if it did not perform this activity.
As part of your Business Impact Analysis you should assign Recovery Time Objectives (RTO) to each function. The
RTO is the time from which you declare a crisis has occurred to the time that the critical business function must
be fully operational in order to avoid serious financial loss.
The following questions will help you and your team determine these critical activities for your firm (see
Table 7.9 below):
Table 7.9 Critical activities checklist
No.

Question

List the activities which must be performed to ensure your firm
continues to operate effectively:

Comment
Financial statements production

1.
2.
3.
4.
5.
2.

For each activity listed above, complete the following:
Activity Name:

Financial statements production

Activity Description:

Preparation of financial statements

What is the loss to the firm if this activity could not be provided?
Loss of revenue:

$10,000 per week

Increased costs:

N/A

Staffing impact:

Staff will need to be reduced

Service delivery:

No financial statements can be prepared
until production resumes

Fines or penalties due to missed deadlines:

Possible/minimal

Legal liability, public harm, personal damage:

Unlikely

Loss of goodwill, public image:

Will occur if unable to meet client deadlines

Comments:

Current work in progress of 3 weeks work

No.

Question

What is the maximum amount of time this activity could be
unavailable (either 100% or partial) before the losses would occur?

Comment/(Example)

Hours:______________

Days:_______________

Weeks:_____________

Weeks:____2–3______

Months:_____________

Comments:

If financial statements are not produced within
2–3 weeks the firm is likely to come under
significant pressure from clients, with potential
loss of revenue and also losses of clients

Does this activity rely on any outside or third party service for its
successful completion?
No:

No, all production is done in-house

Yes:
If yes, select:
Sole supplier:
Major supplier:
Many alternate suppliers:
6.

On a scale of 1 to 5 (1 being Most Important) where would this
activity fall in terms of being important to the operation of the firm?
1.

1. MOST IMPORTANT!! CRITICAL!!

Comments:

Preparation of financial statements is the
primary activity of the firm. The firm is
therefore dependent on this activity

Completed by:
______________________________
Name
_______________________________
Date

Completion of the above questionnaire will allow you to complete the Business Impact Analysis. A suggested
Business Impact Analysis is shown below in Table 7.10 , using the example data shown above:

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Table 7.10 Business Impact Analysis
Critical
Practice
Activity
Financial
statement
production

Description

Priority

Impact of Loss

RTO (critical period
before losses
occur)

Preparation
of financial
statements for
clients

High

Billings reduced by up to $10,000 per week

2–3 weeks

Some staff may need to be laid off
No financial statements can be prepared until
production resumes
Possible fines due to late lodgement with
regulators
Likely loss to goodwill if unable to meet client
deadlines
The firm is likely to come under significant pressure
from clients, with potential loss of revenue and
also losses of clients if financial statements are not
produced within 2–3 weeks

7.6.3 Response—Incident Response Planning
The key function of the Response element is Incident Response Planning. This plan outlines the immediate
actions that are to be taken in response to an incident in terms of containment, control and minimizing impacts.
7.6.3a Incident Response Plan
The purpose of the Incident Response Plan is to prepare your firm for a timely response to major or critical
incidents and reduce the impact of those incidents on your practice operations as identified in your risk
assessment. It also prepares key personnel to provide and coordinate an effective response to ensure minimal
disruption to the firm’s operations in the event of emergency.
Table 7.11 below provides an example of the type of information, including checklists, you might include when
planning your response to a major or critical incident. Together these form your Incident Response Plan.
Table 7.11 Incident Response checklist
INCIDENT RESPONSE

Check X

ACTIONS TAKEN

Have you:
• Assessed the severity of the incident?
• Evacuated the site if necessary?
• Accounted for everyone?
• Identified any injuries to persons?
• Contacted Emergency Services?
• Implemented your Incident Response Plan?
• Started an event Log?
• Activated staff members and resources?
• Appointed a spokesperson?
• Gained more information as a priority?
• Briefed team members on the incident?
• Allocated specific roles and responsibilities?
• Identified any damage?
• Identified critical activities that have been disrupted?
• Contacted key stakeholders?
• Understood and complied with any regulatory or compliance
requirements?
• Initiated media/public relations response?

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7.6.3b Evacuation procedures
You need to have appropriate evacuation procedures that cater to both staff and visitors. These procedures
should be stored in a place accessible to all staff.
The objective of an evacuation plan is to provide a set of procedures to be used by site occupants in the event of
a critical incident. You should:
z Start with a floor plan of the site;
z Clearly identify the location of emergency exits;
z Develop strategies for providing assistance to persons with disabilities;
z Make sure that everyone knows what to do if evacuation is necessary;
z Select and indicate a meeting place away from the site; and
z Test the plan on a regular basis.
7.6.3c Emergency pack
If there is damage to the building or if it must be evacuated and operations need to be moved to an alternative
location, the emergency pack can be taken quickly and easily carried off-site or alternatively stored safely and
securely off-site. Document within your plan what is contained within your emergency pack and when it was
last checked.
Items that you may wish to include are:
1. Documents
z Business Continuity Plan—your plan to recover your firm in the event of a critical incident.
z List of employees with contact details, including home and mobile numbers, and even email addresses. You
may also wish to include next-of-kin contact details.
z Lists of customer and supplier details.
z Contact details for emergency services.
z Contact details for utility companies.
z Building site plan (this could help in a salvage effort), including location of gas, electricity and water shut-off points.
z Evacuation plan.
z Latest stock and equipment inventory.
z Insurance company details.
z Financial and banking information.
z Engineering plans and drawings.
z Local authority contact details.
z Headed stationery and company seals and documents.
2. Equipment
z Computer back-up tapes/disks/USB memory sticks or flash drives.
z Spare keys/security codes.
z Torch and spare batteries.

z Hazard and cordon tape.
z Message pads.
z Marker pens (for temporary signs).
z General stationery (pens, paper, etc).
z Mobile telephone with credit available, plus charger.
z Dust and toxic fume masks.
z Disposable camera (useful for recording evidence in an insurance claim).
3. Notes
z Make sure this pack is stored safely and securely on-site or off-site (in another location).
z Ensure items in the pack are checked regularly, kept up-to-date, and function.
z Remember that cash/credit cards may be needed for emergency expenditure.
This list is not exhaustive, and you should customize it to suit your own firm’s situation.
7.6.3d Roles and responsibilities
Table 7.12 allows you to assign responsibility for completion of each task to one of your designated roles.
You will then assign each role, or multiple roles, to one or more staff members and assign back-up staff as
appropriate.
The staff members involved should then be given this table in order to understand their roles and as a task
assignment list for completion of pre-emergency planning and emergency tasks.
You should customize this table to suit your firm’s needs and structure.

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Table 7.12 Roles and responsibilities list
Role

Designated Staff Member

Team Leader

Alternate

Name: Brenton Peters

Name: John Johnston

Contact Details:

0400 113 224

0400 234 445

Emergency responsibilities:
•
•
•
•
•
•

Ensure the Business Continuity Plan has been activated
Oversee smooth implementation of the response and recovery section of the plan
Determine the need for and activate the use of an alternate operation site and other continuity tasks
Communicate with key stakeholders as needed
Provide important information to the Communication Officer for distribution
Keep staff apprised of any changes to situation.

Role

Designated Staff Member

Title

Alternate

Name:

Contact Details:

Emergency responsibilities:

Role

Designated Staff Member

Title

Alternate

Name:

Contact Details:

Emergency responsibilities:

7.6.3e Key contact sheet
1. Contact list—internal
Use Table 7.13 to document your staff emergency contact details.
Table 7.13 Staff emergency contact details
Person

Contact number

Responsibilities

Brenton Peters

0400 113 224

Brenton.peters@accounts.com

Team Leader

John Johnston

0400 234 445

John.johnston@accounts.com

Alternate team leader

2. Contact list—external
Use Table 7.14 to document your staff emergency contact details. to document external services (including
Emergency Services) contact details.
Table 7.14 External services contact details
Key contacts

Contact number/s

Police
Emergency Services
Ambulance
Medical
Security
Insurance company
Suppliers
Water and Sewerage
Gas
Electricity
Telephone
Professional Associations
Computer Hardware/Software suppliers
Bank manager
Landlord

3. Event log
Use the Event Log (see Use Table 7.15 to document your staff emergency contact details. below) to record
information, decision and actions in the period immediately following the critical event or incident.
Table 7.15 Event log
Date

Time

Information/Decisions/Actions

Initials

00/00/X0

Time

Activate Business Continuity Plan

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7.6.4. Recovery
This section focuses on recovery planning. The purpose is to outline the actions to be taken to recover from
an incident in order to minimize disruption and recovery times. Recovery is the return to your pre-emergency
condition. Performing your critical activities as soon as possible after a critical incident is your primary focus.
You will see below the structure for the Recovery Plan (in (Table 7.16 ). You should complete this table with the
intention of supporting recovery in “worst case” scenarios. It can then be modified according to the degree of
loss to your firm. The recovery process includes:
z Developing strategies to recover your firm’s activities in the quickest possible time;
z Identifying resources required to recover your operations;
z Documenting your previously identified RTOs; and
z Listing the people who have responsibility for each task and the expected completion date.
Table 7.16 Recovery Plan
Critical
Business
Activities

Preventative/ Recovery
Actions

Production Reassess financial position of
services— firm including cash flows due
halted
to loss of revenue to meet
minimal overheads
Minimize overheads, review
expenses, and develop plan
of action to reduce fixed
overheads include reduction
of casual and permanent staff
hours

Resource Requirements/
Outcomes

Recovery
Time
Objective

Put aside cash reserves to 2 weeks
cover costs

Responsibility

Completed

Practitioner

00/00/X0

Reduce costs where able
Research new service
offerings
Identify alternative
equipment providers

Source alternative temporary
equipment to continue
production
Diversify service range of
offerings to clients

7.6.4a Incident recovery checklist
This checklist (Table 7.17 ) should be used once the crisis is over and you are looking to re-establish your firm
back to full operation. You will need to customize this list to include information specific to your firm.
Table 7.17 Incident recovery checklist
INCIDENT RESPONSE
Now that the crisis is over have you:
• Refocused efforts towards recovery?
• Continued to gather information about the situation as it affects you?
• Assessed your current financial position?
• Contacted your insurance broker/company?

Check X

ACTIONS TAKEN

INCIDENT RESPONSE

Check X

ACTIONS TAKEN

• Developed financial goals and timeframes for recovery?
• Kept staff and other key stakeholders informed?
• Identified information requirements and sourced the information?
• Set priorities and recovery options?
• Updated the Recovery Plan?
• Documented lessons learned from your individual, team and firm
recovery?
• What is the current financial position of your business?
• Have you determined how much cash your business has
currently available by creating a cash flow statement?
• Have you considered and noted your recovery objectives, actions
and priorities?
• Have you established a recovery team with clear responsibilities
from the recovery plan?
• Can you support such team members working off-site?
• Do you have adequate resources (staff, finances, etc.) to bring
the business up to former operating levels?
• Have you priced out your recovery plan and can you afford it?
• Do you have a marketing strategy to promote that you are open
for business?
• Have you completed cash flow and profit and loss forecasts?
• Do you intend to fund the reopening of your firm from the firm
itself or from other sources?
• Where the business has existing debt financing arrangements,
have these been reviewed to ensure that the finance facility and
structure fits the new needs of the firm?
• What existing lines of credit does the firm have access to and can
these lines of credit be accessed to fund the reopening of the firm?
• Given the potential changed market conditions, are your firm’s
premises situated in the right location?
• Are there any plans by local government or others that may
impact the viability of the location of your firm, such as changes
that may restrict access?
• Is the size of your premises too large or too small given the future
potential of your firm?
• Do you still have the plant and equipment your firm needs to restart?

MODULE 7: RISK MANAGEMENT

7.6.4b Update, maintain and review
It is critical that you rehearse your plan to ensure that it remains relevant and useful. This may be done as part of
a training exercise and is a key factor in the successful implementation of the plan during an emergency.
You must also ensure that you regularly review and update your plan to maintain accuracy and reflect any
changes inside or outside the firm.
The following points may help:
z A training schedule must be prepared for all people who may be involved in an emergency at the site.
z Pay attention to staff changes. Incorporate an overview of the plan in new staff induction procedures.
z It is best to use staff titles rather than names.
z If you change your firm’s structure or suppliers and contractors this must be amended in your plan.
z After an event, it is important to review the performance of the plan, highlighting what was handled well and
what could be improved upon next time.
Record details of your plan reviews in Table 7.18 below.
Table 7.18 Review of Recovery Plan
Update/Review date

7.6.5

Reason for review

Changes made

Death or incapacity of practitioner

Another key area of risk for the firm is the death or incapacity of the practitioner. Much of what has been
discussed in this section so far has concentrated on the risk management processes for the firm itself. However,
it is also appropriate to give some attention to risk mitigation strategies for the death or incapacity of the
practitioner.
7.6.5a Risk mitigation strategies
Risk mitigation strategies to prepare in case of death or incapacitation of practitioner, or partners (see Table 7.19
below for a checklist):
1. Document sensitive information
a. It is important for the practitioner to document and keep in a safe place critical information necessary for
the effective running and operation of the firm. This information may include:
i.

Client agreements and arrangements;

ii. Employee agreements and arrangements;
iii. Supplier agreements and arrangements;
iv. Personal guarantees provided and to whom;
v. Bank and finance arrangements;

vi. Lawyer’s name and contact details;
vii. Intellectual property residing within or developed by the firm; and
viii. Recommendations for ongoing management of the firm.
2. Maintain adequate insurance
a. It is important to maintain adequate insurance to cover the practitioner and also the firm.
b. If the practitioner has partners, it is prudent to ensure that the firm has adequate insurance to cover each
partner and to provide the funds to pay out the estate for the partner’s share of the firm in the event of
their death.
c. The prudent practitioner will insure their key human assets just as they do their physical assets.
d. Important insurance cover to hold includes:
z “Key Man” Insurance
z partnership/shareholder insurance
} This provides for payment to the survivors of the partner
z business equity insurance
} It is important that the business equity insurance policy is supported by a “buy/sell agreement”,
discussed below.
3. Ensure there is a valid “buy/sell agreement”
a. If there are partners in the firm, it is important to ensure there is a valid “buy/sell agreement.” This
outlines the terms and conditions agreed between the partners for the purchase or sale of their share in
the firm.
z Ensure legally drawn buy/sell agreement has been prepared; and
z Confirm it has been reconciled with the partnership/shareholder Insurance cover to ensure there is no
shortfall.
4. Inform bankers and suppliers
a. It is important to consider beforehand what might be the reaction of bankers, other lenders and
suppliers to the death or incapacitation of the practitioner.
z Would they be prepared to continue with their financial arrangements or would they call up their
debt?
z Does the business have sufficient financial reserves to cover this situation?
5. Ensure adequate training of staff
a. Appropriate training should be provided to staff in the key areas of management and the operation of
the firm so that it is not totally dependent on the practitioner.
6. Ensure procedures manual written and maintained
a. It is vital to the ongoing operation of the firm that a procedures manual has been prepared which fully
documents the procedures, processes and operations of the practice.
b. This lets the firm is able to continue to operate during the death or incapacitation of the practitioner
until certainty as to its future is known.
c. The procedures manual also becomes a key document in any valuation process which is undertaken as it
tends to add value to the firm, by reducing reliance on the practitioner.
MODULE 7: RISK MANAGEMENT

7. Ensure job descriptions are completed
a. It is important that job descriptions have been completed for all roles within the firm and that each staff
member is clear on the tasks they are to perform.
8. Undertake regular staff appraisals
a. Regular staff appraisals allow staff to stay informed of their progress and development within the firm
and also provides the practitioner with the opportunity to provide feedback on their performance.
b. It also provides the practitioner the opportunity to advise the staff member of the steps that should be
taken if the practitioner were to die or become incapacitated.
9. Partnership issues
a. If there are partners within the firm, it is important they clarify what will happen in the event of either
their deaths or their incapacitation.
10. Other business relationships
a. It is important to understand whether the untimely death or incapacitation of the practitioner or partner
would unduly affect any other business relationship that the firm has.

Table 7.19 Checklist of risk mitigation strategies
1.

Risk

Questions to ask

Document sensitive firm
information

Is the following information documented and in safe keeping:
1. Client’s agreements and arrangements;
2. Employees’ agreements and arrangements;
3. Suppliers’ agreements and arrangements;
4. Personal guarantees provided and to whom;
5. Bank and finance arrangements;
6. Lawyer’s name and contact details;
7. Intellectual property residing within or developed by the firm;
8. Recommendations for ongoing management of the firm.

Maintain adequate insurance

Is the following insurance held:
1. Key man Insurance?
2. Partnership/shareholder insurance?
3. Business equity insurance?

“Buy/sell agreement”

1. Has a legally drawn buy/sell agreement been prepared?
2. Has this been reconciled with the partnership/shareholder insurance?

Bankers and suppliers

1. Are they prepared to continue with their financial arrangements or would
they call up their debt?
2. Does the firm have sufficient financial reserves to cover this situation?

Staff training

1. Have staff been trained in management and the operation of the firm?

Procedures manual

1. Has a Procedures Manual been prepared?
2. Is it maintained and kept current?

Job descriptions

2. Have job descriptions been prepared?

Staff appraisals

1. Are regular staff appraisals held?
2. What is their format?

Partnership issues

1. If there are partners within the firm, have they clarified what will happen in
the event either of their death or their incapacitation?

10.

Other business relationships

1. Would the death or incapacitation of the practitioner unduly affect any
other business relationship the firm has?
2. Can anything be done about this?

MODULE 7: RISK MANAGEMENT

7.7

Liability and insurance within your firm

This module has focused on the topic of risk management and discussed strategies to manage or mitigate
that risk. You can eliminate some of these risks, however, many risks you have to manage and, over time, try to
reduce.
Practitioners in public practice should consider insurance as an important component of their overall risk
management strategy. In the process of managing their business risks, practitioners will identify certain risk
exposures that could have a significant impact on their firm. As discussed throughout this module, the approach
to take is to identify the risk, quantify the risk, and treat the risk.
However, when you reach the conclusion that a risk is too great to hold, the option is to transfer the risk.
Insurance is one of the oldest forms of risk transfer and professional indemnity insurance is a mandatory
requirement for members of some professional bodies and regulators.
For the practitioner, there are many different types of insurance that can provide protection now and in the
future. It is important to choose the most appropriate form of insurance to suit your circumstances. To do this,
you will need to understand your position and the level of exposure and liability you may be facing.
For most types of insurance cover, an insurance broker will act as your representative. The broker will approach
the underwriting market on your behalf. Accordingly, it is important to have confidence in your broker’s ability
to know your profession, understand your risk profile and convey it correctly to the underwriters. It is also
important that your insurance broker meets the appropriate licensing requirements for your geographical
location.
Your broker should have not only a good understanding of your profession but also a solid grounding of
insurance law. It is useful for you to understand the underwriter and qualitative policy issues, such as their
experience in the profession and how suitable the cover is. It is important to determine whether the underwriter
is prepared to provide assistance to reduce your risk.
7.7.1

Professional indemnity insurance

Professional indemnity protects a practitioner against their legal liability towards third parties for injury, loss or
damage arising from their professional negligence or that of their employees.
Levels of coverage can vary greatly from insurer to insurer. Among the issues you need to consider are the
extent of the coverage, applicable excess, retroactive date, geographical coverage and exclusions. You should
also be clear on what is included in the insurance coverage you are taking on.
7.7.1a Cover for all of your work
You must be fully informed of any restrictions, limitations or exclusions on policies that can affect the coverage
you have for your activities. Where possible, you should obtain written confirmation of the coverage provided
for the areas of work you are doing. Examples of these activities, subject to jurisdictional regulations, include:
z Audit work;
z Investment advice;
z Pension planning;
z Eldercare services;
z Mortgage/finance broking;
z Insolvency;
z Mergers and acquisitions;

z Buying or selling businesses;
z Migration;
z Work for deceased estates; and
z Insurance and risk management advice.
7.7.1b Other issues to consider
1. Identifying your risks
It is important to fully disclose all the facts concerning your risk profile when you apply for professional
indemnity insurance cover. The proposal form plays a critical role in helping the insurer understand this.
The majority of professional indemnity insurances are not renewable contracts, which means the policy will
terminate on the expiry date. Accordingly, you will need to submit a new proposal form for coverage before the
current policy expires. The information you provide in the proposal gives the underwriter the information they
need for their quote and the basis for their position.
2. Reinstatements of the limit of indemnity
Unlike other forms of liability policy, the sum insured by the professional indemnity policy typically is limited
so that the limit applies to the aggregate of all claims against the policy during the policy period. An automatic
reinstatement allows this aggregate limit to be increased for the number of reinstatements specified in the
policy, while the limit for any one claim remains the limit of the sum insured. As this may vary from policy to
policy, it is preferable to have unlimited reinstatement of the limit of indemnity.
3. Retroactive date
The retroactive date is the date after which acts, errors or omissions of the insured are covered. Any act, error or
omission arising from work done after the retroactive date will be covered under the policy. The inception date
is the start of the policy period.
Any limitation on your retroactive coverage could affect coverage for some or all of the work you may have done
in the past. Carefully consider the impact of any such limitation.
4. Cover for past firms or business
Check whether your policy covers you for claims made in connection with a previous firm or other business.
5. Extensions to standard coverage
Extensions likely to be available include:
z Libel and slander;
z Loss of documents;
z Dishonesty;
z Fidelity;
z Outgoing and/or incoming partners; and
z Inquiry costs and complaints resolution services.
Some of these extensions may be automatic if the policy provides coverage for any civil liability. It may be
worthwhile checking to see if there are any other extensions are offered.

MODULE 7: RISK MANAGEMENT

6. Run-off coverage
Run-off is a term used by the insurance industry to describe how a firm will reduce (or “run-off ”) its liability to its
clients after it has ceased operating. It is simply a professional indemnity policy that provides limited coverage
(that is, coverage limited to work done prior to the date the firm closed).
Professional indemnity insurance is underwritten on a “claims made” basis. A firm is therefore only covered
against claims that may be made against it, for work it performed while operating, for as long as that firm
maintains insurance protection.
Run-off coverage can only be provided to a firm that is no longer operating. Such a firm may be closed because
the partner(s) has retired or following the sale of the business to another firm.
There is no limitation on your liability to your clients and therefore no limitation on the period of time for which
the insurance needs to be continued. Coverage simply needs to be continued until the firm’s partners feel
satisfied that there is no longer any likelihood of problems with their work.
7.7.2

Other types of insurance to consider

The following types of insurance may be worth considering for your firm. However, be aware that different
insurances and requirements may apply in your local jurisdiction. This information is provided for guidance
purposes only.
1. Business interruption or loss of profit insurance
This type of insurance covers the firm for interruption due to damage to property by fire or other insured perils.
The coverage should ensure that ongoing expenses are met and that anticipated net profit is maintained
through a provision of cash flow.
2. Building and contents insurance
This insurance should cover the building premises of the firm, as well as contents and stock, against loss due to a
number of circumstances.
3. Public liability insurance
Public liability insurance should cover the owner and business against the financial risk of being found liable
to a third party for death or injury, loss or damage of property, or economic loss resulting from the firm or
practitioner’s negligence.
4. Key person insurance
This type of insurance should help cover the loss of a key member of staff.
5. Personal accident and illness insurance
This insurance is important for practitioners to cover their own positions as self-employed operators, subject to
local and jurisdictional requirements.
6. Burglary and theft cover
Firm and business assets should be protected against burglary by this type of insurance. This may also be
covered under property contents insurance.
7. Fidelity guarantee
Losses resulting from misappropriation by employees who embezzle or steal should be covered by this
insurance.
8. Plant and equipment/machinery breakdown insurance

This insurance should protect the firm against plant and equipment and machinery breakdown—this is
important where there is high dependence on computer hardware. These items may also be covered under
property contents insurance but it is worth checking the specific policy.
7.8

Conclusion

This module has discussed the issue of risk management and the specific impact it has on accounting firm life. It
has provided a framework for identifying, evaluating and acting on risks you identified within your firm.
It also discussed the ethical issues you must be aware of in a firm and discussed the safeguards that can be
put in place to help you deal with ethics threats. The module went on to discuss quality control processes and
the important role they can play in managing the firm’s risks. It then covered business continuity planning and
included strategies to how to deal with the death or incapacity of the practitioner.
The module finished with a discussion on liability and insurance within your firm and reviewed the types of
insurance likely to be most relevant to the practitioner. Practitioners are encouraged to be watchful and remain
vigilant for all areas of risk within their firm and look for ways to reduce or eliminate those areas where their risk
is at an unacceptable level.

MODULE 7: RISK MANAGEMENT

7.9

References, further reading, and IFAC resources

References
IFAC Guide to Control for Small- and Medium-Sized Practices. New York: IFAC March 2009.
http://web.ifac.org/publications/small-and-medium-practices-committee
Institute of Chartered Accountants in Australia. Quality Control Guide. 2nd edition. Sydney: ICAA, 2009.
International Federation of Accountants (IFAC). Code of Ethics for Professional Accountants. New York: IFAC,
2009.
Further reading
Brooks, Leonard J. and, Dunn, Paul. Business and Professional Ethics for Directors, Executives and Accountants.
Mason, Ohio, United States: South-Western Cengage Learning, 2010.
CPA Australia Insurance Resources http://www.cpaaustralia.com.au/cps/rde/xchg/cpa-site/hs.xsl/knowledgepractice-toolkit-insurance.html
Committee of Sponsoring Organization of the Treadway Commission (COSO). Enterprise Risk Management Integrated framework. AICPA, New York 2004.
Deppe, Larry A. “Client acceptance: what to look for and why. Tips for accountants on deciding which new clients
to accept”. The CPAJournal Online, May 1992.
http://www.nysscpa.org/cpajournal/old/12543349.htm
Hildebrand,Clive. “The greater good.” CIO, 8(1994): 32 -40.
Jensen, Bill. Work 2.0: Rewriting the Contract. Cambridge, MA Perseus Publishing Group, 2002.
Leung, Philomena, Coram, Paul, Cooper, Barry J. and, Richardson, Peter. Modern Auditing and Assurance
Services. Sydney: John Wiley & Sons Australia, 2008.
Maister, David H. Managing the Professional Service Firm. New York: Free Press, c1993.
(Italian)
Multimedia training course “Professionista 24” n. 15: Responsabilità professionale e strumenti assicurativi.
Milano: Il Sole 24 ore, 2009.
Video: http://www.economiaefinanza.org/categoria/risk-management
IFAC resources
IFAC publications http://web.ifac.org/publications
IFAC SMP Committee publications
http://web.ifac.org/publications/small-and-medium-practices-committee
To find the most up-to-date listing of other useful resources relating to this module, please visit the Resources
section of the International Center for Small and Medium Practices at http://www.ifac.org/SMP/index.
php#Resources , especially the ‘relevant links’ at http://www.ifac.org/SMP/relevant_links.php
To search the websites of IFAC member bodies and other relevant websites for other useful resources relating
to this module, please visit the IFACnet search engine located on the home page of the International Center for
Small and Medium Practices at
http://www.ifac.org/SMP/
To discuss issues relating to this module with practitioners from around the world, please visit the IFAC SMP/SME
Discussion Board at http://web.ifac.org/forum/SMP/

Appendices
Appendix 7.1 Leadership responsibilities for quality within a firm
ISQC 1 Paragraphs 18 and 19
In compliance with ISQC 1, the firm recognizes the importance of promoting an internal culture that recognizes
quality as essential in performing engagements. Ultimate responsibility for the firm’s system of quality control
has been accepted by the partner(s)/principal/managing board of partners and as such the firm has established
policies and procedures which address each of the elements of a system of quality control as described in ISQC 1.
Partner(s)/principal/managing board of directors assigns operational responsibility for the firm’s system of quality
control to:
(insert name/s) ______________________________________________________
who has/have sufficient and appropriate experience and ability, and the necessary authority, to assume that
responsibility, and who has/have accepted the role.
Signed ________________________
Date _________________________
Signed ________________________
Partner________________________
Date _________________________

MODULE 7: RISK MANAGEMENT

Appendix 7.2 Circumstances and relationships requiring notification (to engagement partners in the
case of assurance engagements)
Where an employee (or assurance team member) is aware of a relationship/association with a client, a quality-control
officer needs to be notified so that appropriate action can be taken. Such relationships/associations include:
z Employment of family or friends by the client;
z Future or recent employment with client serving as officer, director or company secretary

of client;

z Close business relationship with client;
z Financial interest in the client;
z Having loans and or guarantees to or from the client;
z Receiving a gift, benefit or hospitality from the client; and
z Any other association that may compromise integrity and objectivity.
Upon notification, engagement partner/partner responsible for evaluating any threats to independence and
objectivity will take appropriate action to eliminate those threats or reduce them to an acceptable level by
applying safeguards. Documentation provides evidence of how threats that have been identified have been
dealt with. Below is a pro forma for assurance practices from the IFAC Guide to Quality Control for Small- and
Medium-Sized Practices.
Schedule A
Partner and Staff Independence
List and briefly explain the nature of all matters that to the best of your knowledge and belief might affect
independence. Refer to Section 290 of the IESBA Code when completing the list.
Each item will be reviewed by the engagement partner. Further information may be necessary to determine
what action, if any, is required.
All decisions and the course of action to be followed shall be fully documented.

Description

Detail how independence might be
affected

Appropriate safeguard applied (if
applicable) to eliminate or reduce
threats to an acceptable level

Appendix 7.3 Annual independence confirmation
Instructions
Alll team members, including partners, should complete this form to assess their compliance with the firm’s
independence policies and procedures. It should be completed:
z By new employees as part of the orientation process
z At each annual employee performance review
z By partners annually.
Name of employee ……………………………………………………………………………
Yes

No
Do you have a direct or indirect material financial interest in a client or its subsidiaries/
affiliates?
Do you have a financial interest in any major competitors, investors in or affiliates of a
client?
Do you have any outside business relationships with a client or an officer, director or
principal shareholder having the objective of financial gain?
Do you owe any client any amount (except as a normal customer, or in respect of a
home loan under normal lending conditions)?
Do you have the authority to sign cheques for a client?
Are you connected to a client as a promoter, underwriter or voting trustee, director,
officer or in any capacity equivalent to a member of management or an employee?
Do you serve as a director, trustee, officer or employee of a client?
Has your spouse or dependent child been employed by a client?
Has anyone in your family been employed in any managerial position by a client?
Are any billings delinquent (high WIP) for clients that are your responsibility?

If you answered YES to any of these questions, you must detail the reason for this threat to independence on the
independence resolution memorandum, together with an explanation of how the threat to independence has
been eliminated or reduced to an acceptable level.
I have read the independence policy of the firm, and the IESBA Code of Ethics for Professional Accountants,
and I believe I understand them. I am in compliance except for the matters on the independence resolution
memorandum.
Signature of employee ……………………………………………… Date ………………..
Signature of partner…...……………………………………………… Date ………………
Adapted from: Institute of Chartered Accountants in Australia, QC Guide. 2nd edition March 2009.

MODULE 7: RISK MANAGEMENT

Appendix 7.4 New client acceptance checklist
Instructions
This form should be used to document the decisions to accept the client.
Warning: Practitioners are reminded that care should be taken when completing this checklist to avoid any
possibility of defamation of individuals, for example, in the course of assessing their integrity.
Client ……………………………………………………………. Date ……………...........…
Comments
Client integrity has been considered and we do not have
any information that would lead us to conclude that the
client lacks integrity.
Competent to perform engagement?
Resources to complete on time?
Independence considerations:
Assurance engagement— independence checklist
completed?
Non-assurance engagement—no significant threats to
independence?
Fee level/collection issues?
Consideration of client screening questions?
Genuine reason for leaving previous accountant?
Any conflicts of interest considered and threat reduced to
an acceptable level?
Ethical letter response considered?

Record keeping and accounting system review visit scheduled

Y/N

Date ……………………………………….
Decision made to accept client

Y/N

Review of client information on ATO Portal and necessary follow-up

Y/N

Client engagement task checklist completed

Y/N

Engagement letter sent

Y/N

Add to team meeting agenda to inform staff

Y/N

Prepared by …………………………………………….. Date ……..............
Partner review ………………………………………….. Date ……..............
Adapted from: Institute of Chartered Accountants in Australia, Quality Control Guide. 2nd edition March 2009.

Appendix 7.5 Client Engagement Procedures: Changes in Professional Appointments
Client name ………………………………………………… Year end ……………..
Comments/Sch. Ref.

Initials

1. Request prospective client’s permission to communicate with the
existing auditor. If permission is refused, decline the appointment.
2. If permission is received, write to the existing auditor requesting
all information that ought to be made available to enable the
prospective auditor to decide whether or not to accept the
appointment. Reasons for not accepting the appointment could
include ethical and commercial reasons: outstanding fees owed to
the predecessor auditor are not of themselves grounds for declining.
3. The existing auditor must obtain the client’s permission to give
information to the prospective auditor. If permission is withheld, the
existing auditor should inform the prospective auditor, who should
decline the appointment.
4. Communication received from predecessor auditor (can be verbal
or written). Such communication must be treated in the strictest
confidence, whether or not the appointment is accepted.
5. Note any reasons given by the existing auditor as to why the
appointment should be declined. The existing auditor is required to
give specific reasons to the prospective auditor.
6. If no reply is received from the existing auditor, send a follow-up
request by recorded or registered delivery, stating a deadline after
which it will be assumed that there are no professional reasons why
the appointment should be declined.
7. If no reply is received from previous auditor, obtain proof of
resignation or valid removal from office.
8. Type the individual’s name and company name into Google.
Investigate any unusual hits or reports of illegal or unethical behavior.

MODULE 7: RISK MANAGEMENT

Appendix 7.6 Risk management checklists
Identifying potential risks in a firm
a. Services performed
Have you adequately scoped the assignment, and in particular excluded areas that you are not accepting
responsibility for?
How do you evaluate knowledge/experience requirements for both new and ongoing work?
How do you assess client expectations/intended use of reports?
Is the service provided high risk? (e.g., assurance engagements undertaken or provided)
Can you deliver an objective report, or does the client require subjective judgment?
b. Contract risk
How do you formally agree on the terms of engagement and any variation?
Do you utilize “standard terms and conditions” for all engagements?
Can your liability be capped?
How do you manage “contingency fees” or performance-based remuneration?
Are you precluded from holding financial interests in the client or receiving commissions?
c. Acceptance/Continuance risk
How are you formally assessing potential clients for acceptance?
Why is the client changing accountants?
Have any other professionals rejected the potential client?
Are there early signs of disputes on the fees that are proposed to service the client?
Has the client allowed sufficient time for the acceptance process to be completed?
How do you evaluate retention of clients from time to time?
How do you address any conflict of interest?
How are you maintaining independence?
Are there any concerns about a client’s viability, reputation, or management?
d. Performance risk
Do you seek the opinion of a second partner or an external “mentor”?
How are you maintaining confidentiality?
Are fees too low for quality work?
Are you investing enough in continuing professional development for yourself and your staff?
Have you complied with minimum continuing professional development requirements?

d. Performance risk
What is the level of your professional indemnity insurance?
Is it adequate in terms of level and policy conditions?
Have you declared all services offered to the underwriter?
Are you aware of the potential of a claim and have you given notice to the underwriter during the period of
insurance or on your proposal for insurance?
Have you a claim for fees that could result in a client counter-claiming for negligence?
What are the risks of the performance of different professionals from within the firm?
Are other professionals covered by liability capping schemes?
How are you engaging subcontractors/agents/consultants and how are you indemnified in respect to their
work?
Have you considered skill levels, levels of insurance coverage and is there an indemnity in place?
Are you or is your advertising/promotional material deceptive or misleading as to your skill, qualifications, etc?
How have you given appropriate guidance and assistance to personnel?
How have you given appropriate supervision to personnel?
How have you appraised ongoing performance of personnel?
Do you have appropriate inspection and review processes in place?
Have the roles and responsibilities of personnel relative to risk management been defined and
communicated?

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Integrity
Questions to consider:
Integrity checklist
No.

Question

Do you review client files?

How often do you review each client’s files?

Do you have operational notes in client files

Comment

Date completed

Comment

Date completed

(e.g. software, postal preferences, etc)?
4.

Do you have criteria for new clients and for
client retention?
Are they documented?

Do you use an engagement letter?
To whom are they sent and how often?

Does your firm use checklists?
Is there a central list of these?
Who uses the checklists in the office?
How often are they updated and by whom?

Do you have documented procedures such as
manuals, standard letters, etc?
If so, where are they kept?

Who in the firm is the person responsible for
managing the procedures of quality control to
ensure all work is performed to a high quality?

Services offered
Questions to consider:
Services offered checklist
No.

Question

Do you know what services your firm offers?
Is there a centralized list available for clients and
staff?

Do you offer services that you are not qualified
to offer?

Do you ensure that the services you offer are
well known to the clients in the form of an
engagement letter?

Are the staff members allocated to clients’ work
capable and trained in the relevant area?

Are the services right for your firm’s profile and
resources?

No.

Question

Do you have the resources to meet delivery of
the services to be performed?

Do you have a referral network and how do you
ensure quality control for referral?

Do you outsource any part of your work and do
you ensure quality control (e.g. bookkeeping,
auditing, etc)?

Comment

Date completed

Comment

Date completed

Comment

Date completed

Marketing and communication
Questions to consider:
Marketing and communication checklist
No.

Question

Do you have a marketing and/or strategic plan
suitable for your firm (big or small)?
If so, how is this monitored and appraised for
any risks?

Is this plan documented and communicated to any
or all of your staff?
If so, how is this done?
If not, why not?

Every firm has a culture. Have you identified
your firm’s culture?
If so, are your staff aware of it?

Do your clients understand the culture of
the firm and, if not, do you see the need for
communicating it to them?

Have you considered your competition in your
marketing plan?

Staff and Human Resources issues
Questions to consider:
Staff and Human Resources checklist
No.

Question

Do you have staff and have you identified each of
their roles?

Do you have employee work contracts or similar
for your staff? If not, it is highly recommended
that you do provide each staff member with a
work contract.

Have you considered your staff’s security and
personal safety?

Do you have an occupational health & safety
policy?
Is it enforced and practiced?

MODULE 7: RISK MANAGEMENT

No.

Question

Does your firm have a complaint resolution
policy?

Do you have a staff induction procedure?

How do you monitor staff performance?

Comment

Date completed

Comment

Date completed

When is this done, and how often?
8.

How are staff trained and updated on important
office and regulatory changes?

Are your staff members properly supervised?
Is their work reviewed?

10.

If staff members give advice to clients, are you
aware of the advice given?
Are they covered under your professional
indemnity insurance policy?

11.

If they give advice, is it monitored and recorded
for future reference?

12.

How do you ensure that you or any of your staff
are properly qualified to give the advice to the
clients?

Information and resource management
Questions to consider:
Information and resource management checklist
No.

Question

Identify/describe any electronic medium you use
to communicate with government regulators, or
any other government body you interact with.

Identify how you take reasonable care when
advising clients and interacting with the various
legislative requirements.

How to you keep up-to-date with all the latest
changes that may affect your firm and that of
your clients?
How do you keep your staff informed?

What steps do you take to ensure that you are
not professionally negligent?

Where do you obtain your information and
resources that you rely on?
Are your information sources reliable?
Do they support your obligation to take
reasonable care?

Do you know what your obligations are with
regard to professionalism?

No.

Question

Do you and your staff comply with continuing
professional development requirements?

Comment

Date completed

Comment

Date completed

How do you keep up-to-date?
How is this monitored?

Regulatory obligations
Questions to consider:
Regulatory obligations checklist
No.

Question

What is your procedure for filing of your firm’s
forms with all government and regulatory
bodies?

Do you have a client list?
Do you know what role you play for each client?

Do you monitor your client list according to the
filing and reporting program?

In regard to workflow for your firm, do you know
what is to be completed and the current status
of each job at any given point in time?
How do you do this?

Do you communicate with your clients regarding
their filing and reporting obligations, and your
work flow?

Do you measure your filing and
reporting performance?
How do you do this?

Do you identify any risks associated with late
filing and penalties?
Do you communicate with your clients once any
risks are identified?

MODULE 7: RISK MANAGEMENT

Information technology and security
Questions to consider:
Information technology and security checklist
No.

Question

How secure is your hardware, software, and any
information that is stored electronically?

Is all your software licensed?
If not, have you considered the risks to your
firm?

How do you guard your firm against pirating/
copying of your software?

Back-ups:
What back-up plans do you have in place?
Do you know whether your back-up restores
successfully?
Do you test your back-ups?
Who is responsible for this function in your firm?
Where is this process documented?

Internet:
What virus protection (if any) do you have?
How frequently is this updated?
What policies do you have regarding information
downloads that are inappropriate?
Is this documented?
Do you have a firewall?
Do you have anti-spam software?

Emails:
Do you have policies and procedures to
manage the email use of your staff?
Do you have a disclaimer outlining the “limited
liability scheme” and the “privacy statement”
where applicable?

Do you have immediate assistance or technical
specialists on hand, or easily available, if you
suffer computer or software failure?

Comment

Date completed

Management collapse—succession planning
Questions to consider:
Management collapse—succession planning checklist
No.

Question

Who is the principal/main partner of the firm?

Comment

Date completed

Comment

Date completed

Does the same person have the responsibility of
office management?
If not, who has that responsibility?
2.

Is there anyone else in the firm who can
manage this responsibility in the event that the
primary person being unable to?

What back-up arrangements are in place if the
principal person is unable to carry on?

If you are a sole trader, have you considered
what possibilities could put you out of action for
an extended period of time?

Do you have any plans for when your staff are
sick for extended periods of time?

Do you have contingency plans for your firm in
the case of fire, flood or other disaster?

Regarding delegation, are there any areas of
practice which only one person is familiar with?
Consideration should be given to cross-training
of staff,
so the firm has at least two people who know
each particular job.

Acceptance or continuance of clients
Questions to consider:
Acceptance or continuance of clients checklist
No.

Question

How often do you review your clients and
whether they meet your acceptance criteria?

Do you evaluate retention of clients from time to
time?

Do you note any client disputes that could
potentially lead to a professional indemnity
issue?
Do you then inform your insurance company?

Have you ensured that your objectivity and
integrity are not jeopardized?

How are you maintaining client confidentiality?

MODULE 7: RISK MANAGEMENT

Cash flow management
Questions to consider:
Cash flow management checklist
No.

Question

Do you have a credit management policy?
Who is responsible for this in your firm?

Do you have contingency plans to cover you in
a deficit cash flow position?

Do you have sufficient working capital to sustain
your firm, now and in the future?

Is your business trading in a solvent position?

Comment

Date completed

Module 8:

Succession planning

Contents
8.1 Introduction

8.2 Succession planning for the sole practitioner

8.3 Developing your succession plan

8.3.1 Understanding your firm

Table 8.1 Understanding you and your firm better

8.3.2 Your future purchaser

Table 8.2 Purchaser considerations
8.3.3 Succession plan

8
9

8.4 Selecting your succession option
Table 8.3 Issues to consider when selecting your succession option
8.5 Firm valuation and pricing

10
10
11

8.5.1 Value may differ from price

8.5.2 Valuation methods

8.5.3 Capitalization of future maintainable earnings

8.5.4 Rule of thumb

8.5.5 Net book value

8.6 Options for partnerships, consolidations, mergers and acquisitions

8.6.1 Thinking about shared ownership

Table 8.4 Self-assessment questionnaire for those considering partnership, consolidation or merger

8.6.2 Partnership/merger

8.6.3 Consolidation

8.7 Sale of firm, fee parcel or progressive sell-down

8.7.1 Sale of firm

8.7.2 Sale of fee parcel

8.7.3 Progressive sell-down

8.8 Developing internal succession plans

8.8.1 Internal succession

8.8.2 Admission of new partners

8.8.3 Buyout by existing partners

8.9 Exit considerations

8.9.1 Taxation implications

8.9.2 Constraints of trade

8.9.3 Lifestyle changes

8.9.4 Compliance issues

8.10 Conclusion

8.11 References, further reading, and IFAC resources

MODULE 8: SUCCESSION PLANNING

Appendices

Appendix 8.1 Partnership/merger checklist

Appendix 8.2 Consolidation checklist

Appendix 8.3 Sale of firm checklist

Appendix 8.4 Sale of fee parcel checklist

Appendix 8.5 Progressive sell-down checklist

Appendix 8.6 Internal succession checklist

Appendix 8.7 Admission of new partners checklist

Appendix 8.8 Buyout by existing partners checklist

Appendix 8.9 Compliance issues checklist

Appendix 8.10 Case study

8.1

Introduction

As professional accountants grow older their thoughts inevitably turn to their exit—not only from the firm, but
from practicing accountancy altogether. As they consider their departure from business life, they wonder if the
firm they have built up will have value in someone else’s eyes.
It has provided them with an income stream over the years, and allowed them to serve the community. They
have built relationships with clients over this time, helped them, served them and supported them. Yet the
question remains will the firm be worth anything to anyone else? And if so, how much and to whom?
A succession plan allows for the orderly exit of the practitioner. This means it is not left to chance, and there is a
plan in place. This gives a degree of comfort to those involved, particularly staff.
This module considers these questions and many more. Its objective is to assist you in coming to terms with the
issues you need to consider and to help you get “succession-ready.”
8.2

Succession planning for the sole practitioner

The number of issues currently facing the profession has been well documented, and covered in previous
modules. These include:
z The aging of the profession;
z Trouble attracting and retaining staff ;
z Compliance and regulatory pressures;
z Time pressures on sole practitioners; and
z Client requirements at a high level, which means practitioners have little time to focus on their succession
plan requirements.
In addition, most accounting firms are one to two partner firms. This is what the practitioners wanted but many
sole practitioners will need to consider taking on partners as part of their succession plan. Many will find this
difficult, as they will have been on their own for so many years. This may seem contrary to the whole philosophy
of operating as a sole practitioner.
If anything, this highlights the fact that the sooner the succession plan is underway, the sooner these issues can
be addressed.
This module provides checklists and resources to assist in this process. In this module, the term “succession
planning” is used essentially in the context of firm exit.
8.3

Developing your succession plan

One of the most common questions asked by practitioners as they begin to consider succession planning is,
“Will someone pay me for this firm?” The answer is usually, “Yes but the answer to the question, “How much?”
depends on a number of factors.”
8.3.1

Understanding your firm

One of the best ways to enhance the value you realize on exit is to plan for it in a structured manner. Table 8.1
below sets out pertinent considerations for someone thinking of retiring. The answers to these questions will
help you determine the approach you should take with your succession, and also help you assess which of the
potential options you should consider.

MODULE 8: SUCCESSION PLANNING

Table 8.1 Understanding you and your firm better
Question
1.

What options do I have?

What needs to be done to make it all happen?

What would I like to see happen to my clients?

What would I like to see happen to my staff?

What restraints of trade will I find acceptable?

When should I start talking to potential purchasers/
partners?

How much do I think my firm is worth?

How much is my firm really worth?

How much money do I want to exit with?

10.

Do I enjoy working with others or prefer working on
my own?

11.

How long will I need to stay involved in the firm after I
sell my interest?

12.

Whom should I start talking to about buying my
interest?

13.

Are any of my staff potential purchasers?

14.

How profitable is my firm?

15.

What systems, procedures and processes do I need
to put in place to enhance the performance of my
firm?

16.

Would my firm represent a worthwhile investment to
someone else?

Response/Action

Once you have answered these questions, you need to review the rest of this module to gain an understanding
of the succession options available. This module discusses eight such options in detail. At least one of these will
stand out to you as the preferred option. You should plan to position your firm in such a way as to maximize the
return you can achieve by pursuing that option.
8.3.2

Your future purchaser

Whichever option you choose, if you plan to sell one day, you must always be mindful of your future purchaser.
Your future purchaser will need to have the following questions satisfied:
z Is this a good investment?
z Will it provide me with a good return on my investment?
z Does it represent good value?
The first step in succession planning is to get your firm “succession-ready.” The best way is to consider the
questions a potential purchaser or future partner will ask. You should then develop your firm in such a manner
as to be able to give strong positive answers to these questions.
A purchaser will typically assess their purchase against the criteria shown in Table 8.2.

Table 8.2 Purchaser considerations
Area

Level

Analysis

Fees

History of fee levels

What have fees been over the last one, three, and five
years?

Response

Calculate and assess growth over these years.
Maintainability of fees

Will fees be maintained?
What evidence exists to support this?

Impact of nonrecurring fees

Identify non-recurring fees.
Assess impact on expected future maintainable fees.

Profitability

History of profits

Identify profits over last one, three, and five years.

Maintainability of
profits

Will profit levels be maintained?
What impact will the succession event have on profits?

Impact of nonrecurring fees on
profits

Identify non-recurring profit component.

Assess as to impact on recurring profit.
”Add backs” of nonoperating expenses

Identify non-business expenses.
Add back to profit to assess profitability from a
business perspective.
Items may include excessive wages to owner, travel
and accommodation, utilities.
Assess normalized profit against purchase criteria.

Debtors

Debtors position

Review debtors.
Review and assess bad debts.
What are current levels of bad debt write-offs?
What are expectations for future?

Debtors control
process

Identify current debtor control process.
Identify collections history.
Assess effectiveness.

Work in
progress
(WIP)

WIP position

Review WIP.

Assess WIP and likelihood of converting to fees and
collection.
What are current levels of write-offs and expectations
for future?
WIP control process

Identify current WIP control process.
Assess effectiveness.

Client base

Stability of client base

Assess client numbers over last three years.
Check number of clients acquired over last three years.

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Area

Level

Analysis
Check number of clients lost over last three years.

Spread of clients

Check spread of clients across industry sectors.
Check size of clients that is, turnover, number of
employees, etc.

Dependency

Staff

Age of business
owners in client base

Check age of business owners in client base. If close
to retirement age this will likely have an impact on
future earnings of firm.

Clients

Check for dependence on any one client, or few
clients.

Industry

Check for dependence on any one industry, or few
industries.

Practitioner

Check for dependence on existing practitioner, from
both clients and staff.

Quality of existing staff Assess for competence and ability.
Assess qualifications and experience.
Review and assess billings history.

Systems

Internal infrastructure

Assess internal infrastructure, processes, systems,
quality control procedures.

Compliance

Government regulator

Identify any outstanding issues.
Assess impact on new owners.

Government tax
department

Identify any outstanding issues.
Assess as to impact on new owners.

Weighting

Value of top five
clients as percent of
fee base

Identify top five clients.

Determine their fees.
Total these and calculate as a percentage of fee base.
Transition

Handover process

What is the “handover” process?
How long is vendor prepared to stay for handover?
Look for planned approach, which should include:
Strategy for handover;
Strategy for communicating with key clients, e.g.
meetings to be held with each;
Communication strategy for balance of client base;
Strategy for communicating with existing staff, e.g.
team meeting; and
Training on systems and procedures.

Restraint

Assess restraint of trade conditions.
Assess non-compete issues.

Ethical

Assess as to existence of ethical issues within client
base which may impact on ethical position of firm.

Response

8.3.3

Succession plan

Whichever succession option you choose your firm may need to improve its financial position to be a more
attractive investment option for potential purchasers.
There are typically a number of key areas in which a firm can improve and which will have a positive impact on
financial performance. It is important that these improvements have been implemented and are ingrained in
the firm before it goes up for sale.
Key areas for firm assessment include:
z Revenues;
z Profitability;
z Liquidity;
z Debtor control;
z Work in progress control; and
z Growth.
Other modules discuss approaches to improving these areas.
8.4

Selecting your succession option

It is important to consider which succession option is most naturally attractive to you and which you think will
maximize your final settlement amount. There are three to choose from.
z The first is joining with others and becoming larger. This ensures you have others who are in a position to
buy you out. These options are covered in Section 8.6, and include partnership, consolidation, and merger
alternatives.
z The second is selling off the firm, whether in total, or selling a fee parcel at a time, or on a progressive selldown basis. These options are considered in Section 8.7.
z The third is a series of internal options, which are covered in Section 8.8 and include internal succession, the
introduction of new partners and sale to existing partners.
Each option is quite distinct and brings its own set of considerations. As Table 8.3 shows, a number of issues
apply to each.

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Table 8.3 Issues to consider when selecting your succession option
Issue

Comment

Planning

Set date for completion.
Discuss with key stakeholders.
Identify checklists to complete.

Taxation

Consider tax implications of alternative
options.
Identify any reorganization of entity
structures required.
Put in place new structures within
timeframe requirements.

Funding

Consider funding requirements for your exit.
Organize financial arrangements as
required.
Introduce topic of funding early in
discussions with potential purchasers to
ensure capacity.

Exit

Consider full impact of your exit from the
firm.
Consider strategies to ensure minimal
disruption to ongoing firm performance.
Implement strategies to ensure effective
handover on your final exit.

Response

8.5
8.5.1

Valuation methodologies
Introduction

The valuation of your firm is an important step in your succession plan. If one of your objectives is to maximize
the amount you receive at settlement when you leave, you should focus on ensuring that this valuation is as
high as possible. By understanding the component parts of the valuation methodology, you can concentrate on
those areas that need to improve.
It is well established that valuation is more of an art than an exact science, albeit with sound methodology behind
it. It is also important to be clear on the definition of the actual valuation. The technical definition would be, “The
fair market value is the price that would be negotiated in an open market between a knowledgeable, willing but
not anxious buyer and a knowledgeable, willing but not anxious seller dealing at arm’s length.” This would correctly
establish the fair market value, but may be different from the amount which is finally paid
There can be many reasons for this, including external factors beyond the control of the parties. These would
include factors such as the economic climate, interest rates and the supply and demand of firms for sale at that
particular time.
It may also include other factors over which the parties do have control, such as the state of readiness the firm
is in at the time of sale, the internal systems and procedures, the level and capability of staff, or the financial
position of either the vendor or purchaser.
Value is usually a function of profitability multiplied by a “multiple,” where the multiple takes into account growth
prospects, risk, quality of earnings, and other factors discussed throughout this module. However, it is also wise to
consider the synergistic benefits available to potential purchasers. This could be the elimination of a competitor,
opening a new market, or adding fees to an existing cost base.
To maximize value, it is important to recognise such factors and incorporate them into your strategy for the
future sale of the firm, while at the same time acknowledging of the areas over which you do have control, and
putting strategies in place to improve these.
It may take a number of years for these strategies to have an impact on the value of the firm, which highlights
the need to start the succession process early.
8.5.2

Valuation methods

The traditional methods used in business valuation include:
z Capitalization of future maintainable earnings;
} value is based on expected future earnings, relative to the risk return expected, where a capitalization rate,
or multiple, is applied against an estimate of future maintainable earnings,
z Rule of thumb, or industry method;
} value is based on an “industry standard” applied to each firm, with the value expressed in terms of a multiplier, or
cents in the dollar.
z Net book value;
} value is simply based on the net book value of the assets of the firm.
z Discounted cash flow
} value is based on estimated future cash flows discounted to give their present values, where the discount
rate used reflects the risk of the expected future.

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The most commonly used method is the capitalization of future maintainable earnings method, followed by the
rule of thumb method. Where partnership agreements are in place, the agreement would normally nominate
the valuation formula to be applied and identify certain key components, such as number of years’ earnings to
be included and capitalization rate to be used.
8.5.3

Capitalization of future maintainable earnings

This is a widely used method for valuing accounting firms.
This methodology seeks to determine the current value based on expected future earnings, relative to the risk
return expected.
There are two key elements in this model.
The capitalization rate is the rate that will be applied to the earnings to determine the value. It is essentially an
application of the price/earnings ratio. It is not a precise figure that can be applied universally as each situation will
be different. However, it is often within a range that takes into account the particular circumstances of a case.
Future maintainable earnings is an estimate of the earnings the firm will generate on a maintainable basis into
the future. Earnings from the recent past are taken as a guide. Traditional accounting firms with a strong audit
or compliance base tend to have a high level of recurring income. This provides them with strong earnings
potential, as their clients come back year after year.
Other factors that will impact earnings need to be taken into account, such as the loss of a key client, or the
introduction of new services. Also, non-recurring income is identified and removed from the calculation.
This approach can be expressed as a formula:
Future maintainable earnings
Valuation = –––––––––––––––––––––––––––––––
Capitalization rate
8.5.3a Capitalization rate
The capitalization rate is essentially the return on investment that the valuer expects from that particular
investment. Factors to consider include:
z The current “risk free” rate of return available in the market, usually the government bond rate;
z Bank interest rates;
z Price earnings ratios of publicly listed shares;
z Ability to re-sell the firm, supply of ready buyers;
z Industry and business risks;
z Length of time the firm has been operating;
z Impact of technology on the firm;
z Where the firm is in its business lifecycle;
z Dependency on clients, staff, or practitioner;
z Impact of any regulation changes; and
z Comparative rate used in comparative firm sales.
The starting point is the risk-free rate, which is then adjusted according to consideration of factors influencing
the rate, such as those listed above. A common way to express the capitalization rate is to invert it and refer to it
as the “multiple.” That is, 1/Cap Rate is the multiplier.

8.5.3b Discounted cash flow
Discounted cash flow is a valuation approach determines what someone is willing to pay today in order to
receive the anticipated cash flow in future years. Essentially it means converting future earnings into today’s
money. The future cash flows are discounted in order to express their present values to properly determine the
value of the investment under consideration.
The discounted cash flow or DCF approach describes a method of valuing an investment using the concepts of the
time value of money. All future cash flows are estimated and discounted to give their present values. The discount
rate used is generally the appropriate weighted average cost of capital that reflects the risk of the expected future
cash flows. The discount rate reflects two things:
z The time value of money. Investors would rather have cash immediately than have to wait therefore, they
must be compensated by paying for the delay.
z The risk premium. This reflects the extra return investors demand because they want to be compensated for
the risk that the cash flow might not materialize after all.
The DCF for the purchase of an accounting firm is calculated by estimating the investment you will have to make
at the start and the return you think you will receive. The timing for when you expect to receive the payments
also needs to be estimated. Each transaction then needs to be discounted by the opportunity cost of capital
over time between now and when you expect to receive the return on your investments.
8.5.4

Rule of thumb

The rule of thumb valuation method applies an “industry standard” to each business within that industry. It is
typically expressed in terms of a multiplier, or cents in the dollar. It is applied to either the net earnings of the
business (EBIT) or to its turnover.
For instance, accounting firms may apply a certain level of cents in the dollar to their gross fees. This valuation
method is popular for smaller firms, where other factors affect the valuation decision. Likely purchasers of fees
at this level are sole practitioners looking to enter business at a low fee level. Essentially, they want to “buy a
job,” and are prepared to pay a higher price for the fees than the price point at which traditional methods would
value them.
If there is a high reliance on low value work, such as income tax return preparation, they tend to be toward the
lower end of this price range. If there is a strong recurring base of business client work, it tends to be at the
higher end of the price range.
The main drawback to adopting the rule of thumb approach is that it assumes all firms are run and managed in
the same way. It assumes clients interact the same way and pay their bills in similar ways and the cost structure
of the firm is the same. Clearly this will not be the case, but even so, this method is fairly widely used. The main
reason is its simplicity; it is also widely understood.
8.5.5

Net book value

The net book value valuation method is used where there is unreliable profit and loss information or where the
business being valued is trading at a loss. If it is trading at a loss, the future maintainable earning method cannot
be applied.
This method may be appropriate in situations where vendor and purchaser agree that there is some value in the
firm but that this will not be realised from future earnings. The value is essentially held in the balance sheet and
both parties agree to accept that as the starting point. It is mostly used in those situations where the firm is asset
rich but earnings poor.

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In such situations, it is advisable to engage an independent valuer for the assets of the business because the
assets are likely to be stated at historic cost value, and depreciation is likely to be charged at tax rates, not useful
life. The written-down book value may be quite different from the market value in such cases.
8.6

Options for partnerships, consolidations, mergers, and acquisitions

One succession pathway is to join others and become larger. This may allow the practitioner to become a more
attractive investment target, or provide a ready pool of fellow partners who are in a position to buy out the
practitioner. There are a number of structures to consider.
1. Partnership
Two or more people carry on business in common with a view to a profit. Rules relating to partnerships include
joint ownership, participation in gross returns, sharing of profits and losses, and the exercise of partners’ rights.
One of the key issues in a partnership is joint and several liabilities of all partners; this will be subject to your
country’s laws or professional regulations.
2. Consolidation
A larger company purchases a number of smaller firms and “consolidates” them into one larger entity, seeking
to achieve operating efficiencies and cost savings. The consideration is usually a combination of cash and shares
in the larger company. The shares in the larger company are typically held in escrow and cannot be sold until a
prescribed time period has elapsed. Consolidators are typically structured in a corporate model, with external
investors, board of directors, chief executive officer and management team.
3. Merger
Two firms combine to make one larger firm. It works best when the two firms are of similar size; otherwise
it tends to be more of a takeover. The equity of each partner in the combined firm is typically based on the
proportionate value of the fees going in.
As you can see, there is a common thread running through each of these structures: the coming together of
existing businesses and structures. Note that the issues involved in working with others in joint ownership are
quite different from issues relating to the sale of a firm, or the sale of fee parcels, which are covered later. As
such, there are a large number of issues common to partnerships, consolidations and mergers, which need to be
considered prior to the actual event.
8.6.1

Thinking about shared ownership

For many sole practitioners, the idea of sharing the ownership of their firm is contrary to the philosophy of their
professional careers. Some may have been involved in or worked in partnerships previously and decided it was
not for them. Others may simply have decided to be on their own from the start. One thing is certain: being
involved in a partnership, consolidation or merged firm is distinctly different from being a sole practitioner.
Accordingly, prior to becoming involved in such structures, the practitioner should self-assess their aptitude and
carefully consider the questions in Table 8.4.

Table 8.4 Self-assessment questionnaire for those considering partnership, consolidation or merger
Question
1.

Do I really want to share decision-making, control and profits
with other people?

What am I really getting myself involved in?

Do I want to share ownership of the firm?

Does the upside of shared ownership outweigh the downside?

Can I trust my partners?

Will they work as hard as I do?

How much money will I make?

Will I make more in the new structure, or less?

What are the key reasons I am doing this?

10.

Have I considered the advantages and disadvantages of each
option? What are they?

Response/Comment

If you have decided that this is the most suitable succession pathway, it is important to consider each option in
greater detail.
8.6.2

Partnership/merger

In the context of succession, there are two important steps in the partnership or merger process. The first is the
challenge of the partnership or merger itself. The second is the exit of the practitioner. Remember that the main
reason for choosing this option is to enable your exit from the firm.
It is important that all partners have a clear understanding of this from the outset and clear expectations. It
is essential that the partnership agreement takes this into account and documents how and when the exit
is to occur. The partnership agreement should also deal with valuation issues. The value on exit is typically
determined by the value of the partnership or the merged firm, unless prior agreement has been reached
among the partners.
There are a number of advantages and disadvantages of partnerships and mergers.
Advantages
z Expected economies of scale;
z Broadening of experience and skill base within firm;
z Potential broadening of services offered to the market;
z Cost savings proceeding from reduction in duplication of resources;
z Broadening of knowledge pool from which firm can draw internally; and
z Larger pool of resources from which firm can pay out exiting partner.
Disadvantages
z Challenges of aligning firm cultures;
z Practitioners’ sense of loss of control;
z Discomfort with shared decision-making and profit sharing; and

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z Lack of enjoyment in working with partners after merger takes effect, therefore lower professional satisfaction
than previous situation.
Appendix 8.1 (Partnership/merger checklist) provides a useful framework to work with as you consider these
issues.
One of the key issues to remember when considering a partnership or merger is the need for compatibility
between the partners of the new firm. The ability of partners to work together in a harmonious and productive
manner cannot be underestimated. Many mergers never materialize because at the end of long talks the
partners discover they are not meant for each other, or believe they could not work together. Even though
significant time, effort and resources may have been spent on the process up to this point, it is an important
conclusion to reach and may well save much grief in the future.
8.6.3

Consolidation

From a succession perspective, the consolidation model is very attractive. This is particularly the case where
the consolidator is a publicly listed company. It is often a win-win situation: the practitioner wins by having a
ready market of investors to purchase shares after the escrow period. The consolidator wins by ensuring the
practitioner stays motivated to generate profits and facilitate a smooth transition of clients, as otherwise this will
have a negative impact on share value, and hence the firm’s future value.
There are a number of advantages and disadvantages to the consolidation model.
Advantages
z Ready market of investors to buy shares after escrow period;
z Larger firm infrastructure of consolidator that can benefit and assist the practitioner;
z Structured training and development program;
z Career path for staff of practitioner; and
z Large knowledge pool from which the practitioner can draw.
Disadvantages
z Challenges of aligning firm cultures;
z Practitioners may feel sense of loss of status, autonomy and control; and
z Practitioner may be uncomfortable with regular performance checks.
Appendix 8.2 (Consolidation checklist) provides a useful framework to work with as you consider the issues
involved.
Objective for vendor
Your objective as a vendor is to make your firm as attractive an investment as possible. Do all you can to
ensure you maximize the return you get for the investment you have made over the years. This will also let you
maximize the return available to the purchaser.
Action plan
As you review the above list, you may think of improvements you can implement immediately in your firm to
start getting succession-ready.

8.7
8.7.1

Sale of firm, fee parcel or progressive sell-down
Sale of firm

Sale of firm is the most common succession option. This is where the whole firm is sold to a new purchaser.
Potential purchasers who consider the purchase of an existing firm an attractive option include:
z First-time entrants to public practice;
z Employees from another public firm looking to go into business on their own;
z An employee or employees from your own firm;
z Another firm of smaller or similar size looking to increase their critical mass and achieve economies of scale; and
z A larger firm looking to increase its fee base, and/or looking for geographic presence.
In a sale to an existing staff member, it is likely that, they will continue to operate the firm in much the same way
initially, with only minor changes. Other improvements are likely to be introduced on a staged, progressive basis,
particularly if you are still involved in the firm and the new owners do not wish to disturb you.
A larger firm is unlikely to seek your infrastructure or systems. It is more likely they want your client base and
recurring income stream. They will probably also be interested in your staff who will have client relationships
and institutional knowledge and history.
As part of their due diligence, most purchasers will consider issues such as those raised in Table 8.2, earlier in this
module. You should ensure your firm has been developed in such a way as to give strong, positive answers to
these types of questions.
Typically the purchaser wants the business assets, not the existing business structure. This includes plant,
equipment and goodwill. The debtors, work in progress and creditors are usually retained by the vendor.
The sale of a firm has advantages and disadvantages for the vendor.
Advantages
z Ongoing commitment to firm ceases once handover period and agreed obligations are met;
z Once the money is banked, the transaction is over, and the vendor’s involvement ends;
z There is a certain amount of professional satisfaction for the vendor in knowing that they ran a business of
sufficient value to be saleable; and
z Sense of finality knowing the transaction is complete.
Disadvantages
z Once sale is complete and professional involvement ceases, it may take some time for vendor to adjust; and
Appendix 8.3 (Sale of firm checklist) provides a useful framework to work with as you consider these issues.
Objective for vendor
Your objective as a vendor is to make your firm as attractive an investment as possible. Do all you can to ensure
you maximize the return you get for the investment you have made over the years. This will also ensure you
maximize the return available to the purchaser.

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Action plan
As you review the above list, you may think of a number of improvements you can implement immediately in
your firm to start getting succession-ready.
8.7.2

Sale of fee parcel

The sale of a fee parcel is more straightforward than the sale of a firm, as the fee parcel is the asset being
purchased. There are typically no other assets sold or transferred at this time.
There are a number of potential purchasers who consider the purchase of a parcel of fees an attractive option:
z First-time entrants to public practice;
z An employee or employees from your own firm;
z An employee or employees from another public firm, looking to go into business on their own; and
z Another firm looking to increase their critical mass and achieve economies of scale.
The sale of a parcel of fees has advantages and disadvantages for the vendor. These include:
Advantages
z Can select which clients to parcel and sell off ;
z Can continue with firm, albeit on a lesser scale;
z May allow for specialization, by selling off clients outside areas of key interest; and
z May also allow vendor to reduce other costs as resources required to service remaining clients may not be as great.
Disadvantages
z May lose professional relationship with those clients included in parcel which is sold off ; and
z Some clients may not wish to move to another accountant, which reduces the sale price accordingly.
Appendix 8.4 (Sale of fee parcel checklist) provides a useful framework when you are considering these issues.
Objective for vendor
Your objective as a vendor is to make your parcel of fees as attractive an investment as possible. Do all you
can to ensure you maximize the return you get for the investment you have made over the years. This will also
ensure you maximize the return available to the purchaser.
Action plan
As you review the above list, you may think of improvements you can implement immediately in your firm to
and help you get succession-ready.
8.7.3

Progressive sell-down

This is where the vendor progressively sells down a percentage of his or her equity in the firm. This means that
during the time of sell-down there is a partnership in place, even if it is limited to the period of the sell-down.
This option is of interest to vendor practitioners who do not wish to abruptly cease their professional careers,
and who may wish to withdraw progressively, from active service.
There are a number of potential purchasers who are typically interested in this option:
z New entrant to public practice, who want to take the incremental approach to equity ownership, as their
confidence and knowledge increase;

z Existing staff members, who take on greater equity as their confidence increases, and as their borrowing
capacity allows; and
z Another firm, who wishes the vendor partner to stay on for an extended period to assist with client transition
and handover.
Finance considerations may also be a factor.
This can be one of the most delicate and sensitive succession options, as the purchaser and vendor will need to
work together for the period of sell-down. It is in the best interests of both parties to make it work; however, it
can be an emotionally charged time.
Issues typically include:
z Vendor still involved, but conscious that their reign is coming to an end;
z New partners with lesser equity may want certain things to change, but the senior partner still controls the
votes; and
z Vendor partner may have run the firm as a sole trader for many years, and struggles with dealing with new partners.
The progressive sell-down has advantages and disadvantages for the vendor.
Advantages
z Vendor continues to remain involved in firm;
z Allows purchaser to take up equity in incremental steps; and
z Existing partners may take up additional equity on progressive basis.
Disadvantages
z Can be an emotional time as vendor partner comes to terms with their pending departure; and
z As sell-down period may take years, all parties must ensure they can work together for the time required.
Appendix 8.5 (Progressive sell-down checklist) provides a useful framework when you are considering these
issues.
Objective for vendor
Your objective as vendor is to make your firm as attractive an investment as possible. Do all you can to ensure
you maximize the return you get for the investment you have made over the years. This will also ensure you
maximize the return available to the purchaser.
Vendors are often concerned that the interests of their clients and staff will be taken care of. This should be
discussed fully with potential purchasers.
Action plan
As you review the above list, you may think of improvements you can implement immediately in your firm to
help you get succession-ready.
8.8

Developing internal succession plans

As discussed in Module 4, the third pathway of succession planning focuses on internal options:
z Internal succession;
z Introduction of new partners; and

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z Buyout by existing partners.
8.8.1

Internal succession

The main focus of internal succession is assisting senior staff in progressing to partnership. It is most effective
when there is a deliberate strategy in place and the objective is clearly communicated.
From a succession perspective, it manages the retirement of partners through the appointment of new partners.
To be successful, it requires that the firm have the following four attributes:
z Firm growth sufficient to allow for another partner;
z Recruitment of willing and capable staff ;
z Development program for managers and senior staff ; and
z Firm performance that is attractive for aspiring partners.
Such a process allows for succession to be handled in a managed way, and provides for the progressive
handover of control of the firm, and the client base.
Advantages
z Incoming partners have familiarity with firm culture and client base;
z Staff and internal systems and procedures are well known;
z An existing business model is operational and already in place; and
z There is minimal disruption to existing clients, staff and internal arrangements, systems and procedures.
Disadvantages
z Gaining respect in new position from long-term staff ; and
z Incoming partner may have limited exposure to other accounting firms.
Appendix 8. (Internal succession checklist) provides a useful framework when considering these issues.
Objective for vendor
Your objective as vendor is to make your firm as attractive an investment as possible. Do all you can to ensure you
maximize the return you get for the investment you have made over the years. This will also ensure you maximize
the return available to the purchaser.
Action plan
As you review the above list, you may think of improvements you can implement immediately in your firm help
you get succession-ready.
8.8.2

Admission of new partners

This applies where an existing partnership is already in place. The exit of one partner will still leave one or more
partners at the firm. The idea is to find a replacement partner for the retiring partner, sourced externally from
business practice or commerce.
There are a number of risks associated with this strategy mostly to do with managing the transition of the
retiring partner while dealing with the introduction of an incoming partner. Once the prospective new partner
has been identified and agreement has been reached, there is a higher success rate when the incoming partner
commences twelve months prior to the exit of the retiring partner.

Advantages
z An existing business model is operational and already in place; and
z There is minimal disruption to existing clients, staff and internal arrangements, systems and procedures.
Disadvantages
z Issues may arise with assimilation of new partner into existing firm culture; and
z Some of the existing partners may have wanted to take up equity.
Appendix 8.7 (Admission of new partners checklist) provides a useful framework when considering these
issues.
Objective for vendor
Your objective as vendor is to make your firm as attractive an investment as possible. Do all you can to ensure
you maximize the return you get for the investment you have made over the years. This will also ensure you
maximize the return available to the purchaser.
Action plan
As you review the above list, you may think of improvements you can implement immediately in your firm to
help you get succession-ready.
8.8.3

Buyout by existing partners

This succession option allows for the buyout of the retiring partners by the existing and remaining partners.
The remaining partners take up the shares of the retiring partner under pre-emptive rights, or under separate
arrangements made between the individual partners.
Normally, existing shareholders are first offered the opportunity to take up the available shares in proportion
to their existing shareholding. If there are still shares remaining after this offer, then it is left to individual
negotiations between partners.
The partnership or shareholders’ agreement would normally outline the process to be followed. It should also
contain the valuation model and methodology to be used.
Advantages
z This is an internal negotiation, and has no impact on those outside the existing partnership;
z It provides certainty of position to all partners if the partnership agreement has taken this option into
consideration;
z There is minimal disruption to existing clients, staff and internal arrangements, systems and procedures; and
z An existing business model is operational and already in place.
Disadvantages
z May cause financial stress to existing partners; and
z Ongoing reduction in total number of partners in firm, unless new partners are admitted.
Appendix 8.8 (Buyout by existing partners checklist) provides a useful framework when considering these issues.

MODULE 8: SUCCESSION PLANNING

Objective for vendor
Your objective as vendor is to make your firm as attractive an investment as possible. Do all you can to ensure
you maximize the return you get for the investment you have made over the years. This will also ensure you
maximize the return available to the purchaser.
Action plan
As you review the above list, you may think of improvements you can implement immediately in your firm to
help you get succession-ready.
8.9

Exit considerations

Whichever option for succession you have decided on, the day will come when you leave your firm. Such an
event will undoubtedly carry with it many mixed feelings. However, you will have planned for it, and will be
ready to move on.
There are a number of issues you should consider before the big day occurs.
8.9.1

Taxation implications

Subject to your country’s laws or professional regulations, your exit from your firm is likely to have several taxation
consequences. For this, your last big transaction, do everything in your power to minimize the taxation impact.
Ensure that you have arranged your affairs in such a manner as to allow you to take the most advantage from
the rules in place. This may involve the establishment of alternative structures. It may also require you to operate
in a certain manner for a prescribed period of time. Be aware of the laws and professional regulations that
govern these transactions, and strive to maximize your advantage.
8.9.2

Constraints of trade

You will almost certainly be required to sign some form of constraint of trade when you exit your firm. This is a
very common business practice. The purpose is to provide some level of certainty to the purchaser that their
investment is secure.
Constraints of trade usually cover a number of key areas. They typically apply for a prescribed period of time
during which you are restrained from setting up a similar business to the one you have just left. They also
typically apply to a geographical distance from your previous firm. These contracts are enforceable by law if they
are considered to be in line with reasonable business practice.
If the constraints are considered to be excessive they can be challenged in court. The basic principle is that a
restraint of trade cannot prevent you from earning a living from your skills and training. Constraints that are
overbearing or enforce too much restriction will likely be considered extreme and therefore unenforceable.
8.9.3

Lifestyle changes

Perhaps the most difficult aspect of succession is the dramatic lifestyle changes that occur after leaving a firm.
Many people have worked long hours for many years. Many have foregone holidays and weekends in order to
work on client matters. Work has given them meaning in life, stature in their communities, and a feeling of being
wanted and needed. Many practitioners know that if it weren’t for them, their clients would be in all sorts of
trouble with the regulators.
And then it all stops.

The phone stops ringing, the clients stop hassling, the emails go quiet. Your former clients no longer ring you for
advice, because they now deal with your successor. Most of the issues are handled and your firm seems to be able
to continue quite well without you.
You would be entitled to feel slightly upset that the world did not crash without you at the helm!
Unfortunately, many practitioners fail to move on and find new interests. They live in the past, reliving their glory
days. This is not a healthy strategy.
It is important that you give as much thought to “life after firm” as you did to life in the firm. This will let you move
on to the next stages of your life in full mind and spirit able to enjoy every moment. Take the time before your
exit to think of other interests you might like to explore. What are the things you always wanted to do? You might
finally have the chance to do them.
If you give this serious thought before your exit, you will be well placed to make the most of all the opportunities
that come your way.
8.9.4

Compliance issues

When you finally leave your firm, there will undoubtedly be a range of compliance issues that need to be
attended to. Appendix 8.9 (Compliance issues checklist) provides some guidance as to the areas you may need
to attend to.
8.10 Conclusion
This module has covered many of the areas you should consider when making your succession plan. As it is
likely to be one of the most significant occasions in your practice life, it is of great importance that you plan for it
very carefully. This final chapter sets out the options that are available to you and suggests ways to organise your
path towards retirement from the firm.
The various firm valuation methodologies are discussed, together with a consideration of internal and external
strategies to think about. The Appendices provide a number of checklists that can be used according to the
succession option you decide on, to help you take all the relevant issues into account.
The module ends with a discussion of steps to be considered as part of your eventual exit from the firm. If these
steps are followed, they should ensure that the succession plan is well developed and in place and that you, as
a retiring practitioner, can look forward to a busy and interesting time knowing that your firm is in good hands
and will continue as a profitable entity.

MODULE 8: SUCCESSION PLANNING

8.11 References, further reading, and IFAC resources
Further Reading
Bower, Joseph L. “Solve the succession crisis by growing inside-outside leaders.” Harvard Business Review.
85, 2007. http://www.ivey.uwo.ca/alumni/INTOUCH/casestudy/Winter2009/HBR%20Solve%20the%20
Succession%20Crisis.pdf
Burrage Thomas F. and, Hoekstra, Chad. “Make the most of the buy-sell agreements. These complex contracts
solve many problems.” Journal of Accountancy October 2004.
http://www.journalofaccountancy.com/Issues/2004/Oct/MakeTheMostOfBuySellAgreements.htm
Cingoranelli, Dominic. “A 2009 tuneup for your firm’s succession planning.” Journal of Accountancy March 2009.
http://www.journalofaccountancy.com/Issues/2009/Mar/TuneupYourFirmsSuccessionPlanning.htm
Dennis, Anita. “Succession-planning do’s and don’ts: who will take over when you’re ready to retire? If you don’t
know, it’s time to decide.” Journal of Accountancy February 2005.
http://www.journalofaccountancy.com/Issues/2005/Feb/SuccessionPlanningDosAndDonts.htm
O’Sullivan, Bernie. Estate & Business Succession Planning: A Practical and Strategic Guide for Accountants,
Financial Planners, and Lawyers. Sydney:Taxation Institute of Australia, 2009.
Reeb, William L. “Nothing succeeds like succession: the basis of a firm’s value is its vigor as a going concern.”
Journal of Accountancy July 2005.
http://www.journalofaccountancy.com/Issues/2005/Jul/NothingSucceedsLikeSuccession.htm
Rothwell William J. Effective Succession Planning: Ensuring Leadership Continuity And Building Talent From
Within. New York: AMACOM, 2005.
Sinkin, Joel. “Price equals value plus terms. When a firm changes hands, a satisfying deal for both buyer and
seller is in the trade-off details.” Journal of Accountancy December 2004.
http://www.journalofaccountancy.com/Issues/2004/Dec/PriceEqualsValuePlusTerms.htm
Sinkin, Joel and, Putney, Terrence. “Mergers and acquisitions of CPA firms, Understanding the roadblocks to
successful deals (Part 1 of 2).” Journal of Accountancy March 2009.
http://www.journalofaccountancy.com/Issues/2009/Mar/MergersAcquisitionsofCPAFirms.htm
Sinkin, Joel and, Putney, Terrence. “Keeping it together, plan the transition to retain staff and clients (Part 2 of 2).”
Journal of Accountancy April 2009.
http://www.journalofaccountancy.com/Issues/2009/Apr/20081182.htm
Sinkin, Joel and, Putney, Terrence. “Two-stage deals.” Journal of Accountancy March 2006.
http://www.journalofaccountancy.com/Issues/2006/Mar/TwoStageDeals.htm
Sinkin, Joel and, Putney, Terrence. “Untying the knot: Planning for a de-merger. A well drafted agreement eases
the pain if a CPA firm merger goes sour.” Journal of Accountancy October 2007.
http://www.journalofaccountancy.com/Issues/2007/Oct/UntyingTheKnotPlanningForADeMerger.htm
Telberg, Rich. “Have a fallback plan. Take a lesson from the boy scouts and “be prepared”. Journal of Accountancy
September 2003.
http://www.journalofaccountancy.com/Issues/2003/Sep/HaveAFallbackPlan.htm
AICPA Journal of Accountancy Practice Management – Technology articles –
http://www.journalofaccountancy.com/Search/Results.aspx?Topic=Technology%7cPracticeManagement

(German)
Englert, Joachim “Bewertung von kleinen und mittelständischen Steuerberaterkanzleien und
Wirtschaftsprüfungsgesellschaften –Branchentypische Preis- und erfolgsorientierte Wertfindungsmethoden“,
Unternehmensbewertung & Management 6 (2005):
166 – 174.
Wehmeier, Wolfgang. Praxisbewertung: Wert- und Preistreiber“ Die Steuerberatung 1(2008): 19 – 35.
http://www.stbverband-berlin-bb.de/stbvbbb.de/Verweisseiten/08-02-13-Praxisbewertung
Wollny, Paul and, Wollny, Paul Manfred. Unternehmens – und Praxisübertragungen. Herne, Berlin: Verlag Neue
Wirtschafts-Briefe, 2005.
(Italian)
Multimedia training course “Professionista 24”, n. 17 La successione generazionale e lo studio a gestione
familiare. Milano: Il Sole 24 ore, 2009.
Multimedia training course “Professionista 24”, n. 18 Valutazioni, fusioni, acquisizioni e liquidazioni degli studi
professionali. Milano: Il Sole 24 ore, 2009.
Video: http://www.economiaefinanza.org/categoria/passaggio-generazionale
IFAC resources
IFAC publications http://web.ifac.org/publications
IFAC SMP Committee publications http://web.ifac.org/publications/small-and-medium-practices-committee
To find the most up-to-date listing of other useful resources relating to this module, please visit the Resources
section of theInternational Center for Small and Medium Practices at http://www.ifac.org/SMP/index.
php#Resources, especially the ‘relevant links’ at http://www.ifac.org/SMP/relevant_links.php
To search the websites of IFAC member bodies and other relevant websites for other useful resources relating
to this module, please visit the IFACnet search engine located on the home page of the International Center for
Small and Medium Practices at http://www.ifac.org/SMP/
To discuss issues relating to this module with practitioners from around the world, please visit the IFAC SMP/SME
Discussion Board at http://web.ifac.org/forum/SMP/1

MODULE 8: SUCCESSION PLANNING

Appendices
Appendix 8.1 Partnership/merger checklist
Issue
1.

All parties to sign confidentiality agreement.

List terms and conditions required on merger.

Agree on new entity structure.

Agree on management, dispute resolution, exit provisions, valuation formula, and capital
investment.

Agree on services to be provided.

Agree on decision-making process.

Determine process for deciding on managing partner.

Develop partnership/shareholders agreement.

Determine partners’ remuneration.

10.

Determine partners’ access to profits.

11.

Agree on charge-out rates.

12.

Agree on target client profile.

13.

Agree on process for any existing clients outside of new client profile.

14.

Determine time period allowed and scope of due diligence on each other’s firm.

15.

Agree on valuation of each firm’s interest at time of initial merger.

16.

Determine valuation formula and process on partner exit.

17.

Agree on location and number of offices to be maintained.

18.

Assess office and storage requirements.

19.

Agree on organization chart, partner responsibilities and staff structure.

20.

Agree on quality control, systems and procedures to be used.

21.

Determine computer hardware and software platforms to be used, including accounting, tax
and firm management database.

22.

Determine employment terms for all staff and review salary levels for equality.

23.

Consider any staff redundancies.

24.

Determine working capital requirements and funding for the firm.

25.

Agree on firm bankers.

26.

Agree on firm lawyers.

27.

Agree on professional indemnity insurer and level coverage required.

28.

Agree on firm name.

29.

Provide access to historic information on client base, fees by client and fees by service
range for due diligence purposes.

30.

Agree as to whether pre-merger debtors and creditors are to be combined in new firm, or
collected separately post-merger.

31.

Agree as to whether work in progress of the firms is to be billed out prior to merger.

32.

Instruct solicitor to commence drafting merger agreement or partner/shareholder agreements.

33.

Professional bodies to be advised on new entity and new registration.

34.

Develop merger plan and timetable.

Response Date

Issue
35.

Allocate partnership/merger responsibilities.

36.

Determine communications strategy and plan.

37.

Determine strategy to advise clients.

38.

Issue new employment agreements for all staff.

39.

Agree on human resources policies and firms.

40.

Transfer or assign existing commitments, leases etc., to new entity.

41.

Agree on timing of changeover.

Response

Date

Appendix 8.2 Consolidation checklist
Issue
1.

All parties to sign confidentiality agreement.

List terms and conditions required on sale.

Is vendor prepared to sign restrictive covenant on final exit?

Is vendor prepared to accept period of escrow restricting sale of shares for a
given time period?

Set your asking price. Be prepared to justify and validate this figure.
Ensure you have applied sound valuation techniques and methodology.

Identify the systems and procedures that are in place, complete
documentation as required and confirm with staff they work as intended.

Consider time period you are prepared to allow purchaser for due diligence.

Consider period of time you are prepared to assist with handover, client
transition and training, subject to escrow period.

Make available historic information on client base, fees by client and fees by
service range.

Response

Date

10. New employment agreements will need to be issued for all staff, likely to be
prepared by consolidator.
11. Determine if responsibility for debtors and creditors pre-consolidation will
be vendor’s, or included in sale terms.
12. Determine if work in progress is to be billed out prior to settlement.
13. Transfer or assign existing commitments, leases etc., to purchaser. This may
include rent of premises, photocopier, hardware and software licenses.
14. Determine communications strategy and plan.
15. Decide on appropriate strategy to advise clients and staff.
16. Ensure client notes and files are complete and fully documented.
17. Ensure no client matters are unresolved.
18. Determine timeframe for entire process to be completed.
19. Remember, your final payout is likely to be linked to the successful
retention of clients by the purchaser. It is in your interest to do all you can
to ensure a successful transition.

MODULE 8: SUCCESSION PLANNING

Appendix 8.3 Sale of firm checklist
Issue
1.

All parties to sign confidentiality agreement.

List terms and conditions required on sale.

Is vendor prepared to sign restrictive covenant?

Is vendor prepared to accept part of settlement as contingent on future
revenue performance of the firm?

Is vendor prepared to accept clawback provisions, subject to agreement?

Set your asking price. Be prepared to justify and validate this figure.
Ensure you have applied sound valuation techniques and methodology.

Identify the systems and procedures that are in place, complete
documentation as required and confirm with staff they work as intended.

Consider time period you are prepared to allow purchaser for due
diligence.

Consider period of time you are prepared to assist with handover, client
transition and training.

10. Do you expect payment for your time involved with handover, client
transition and training?
11. Make available historic information on client base, fees by client and fees
by service range.
12. Issue new employment agreements for all staff.
13. Determine if responsibility for debtors and creditors will be vendor’s, or if it
will be included in sale terms.
14. Determine if work in progress is to be billed out prior to settlement.
15. Transfer or assign existing commitments, leases etc., to purchaser. This may
include rent of premises, photocopier, hardware and software licenses.
16. Instruct solicitor to commence drafting sale contract.
17. Determine best method of marketing the firm for sale.
18. Develop sale of firm plan and timetable.
19. Determine communications strategy and plan.
20. Decide on appropriate strategy to advise clients and staff.
21. Ensure client notes and files are complete and fully documented.
22. Ensure no client matters are unresolved.
23. Determine timeframe for entire process to be completed.
24. Remember, your final payout is likely to be linked to the successful
retention of clients by the purchaser. It is in your interest to do all you can
to ensure a successful transition.

Response

Date

Appendix 8.4 Sale of fee parcel checklist
Issue
1.

All parties to sign confidentiality agreement.

List terms and conditions required on sale.

Is vendor prepared to sign restrictive covenant?

Is vendor prepared to accept part of settlement as contingent on future
revenue of the fee parcel?

Is vendor prepared to accept clawback provisions, subject to agreement?

Set your asking price. Be prepared to justify and validate this figure.
Ensure you have applied sound valuation techniques and methodology.

Consider time period you are prepared to allow purchaser for due diligence.

Consider period of time you are prepared to assist with handover, client
transition and training.

Do you expect payment for your time involved with handover, client
transition and training?

Response

Date

10. Make available historic information on client base, fees by client and fees by
service range.
11. Instruct solicitor to commence drafting sale contract.
12. Determine best method of marketing the firm for sale, consider firm broker.
13. Develop sale of parcel of fee plan and timetable.
14. Decide on appropriate strategy to advise clients and staff.
15. Ensure relevant client notes, work papers and files are fully documented
and completely handed over.
16. Ensure no client matters are unresolved.
17. Determine timeframe for entire process to be completed.
18. Remember, your final payout is likely to be linked to the successful
retention of clients by the purchaser. It is in your interest to do all you can
to ensure a successful transition.

MODULE 8: SUCCESSION PLANNING

Appendix 8.5 Progressive sell-down checklist
Issue
1.

All parties to sign confidentiality agreement.

List terms and conditions required on sale.

Is vendor prepared to sign restrictive covenant?

Is vendor prepared to accept part of settlement as contingent on future
revenue performance of the firm?

Is vendor prepared to accept clawback provisions, subject to agreement?

Agree price up front. Vendor may need to justify and validate this figure.

Identify the systems and procedures that are in place, complete
documentation as required and confirm with staff they work as intended.

Consider time period you are prepared to allow purchaser for due
diligence.

Make available historic information on client base, fees by client and fees
by service range.

10.

Determine if work in progress is to be billed out prior to settlement.

11.

Instruct solicitor to commence drafting sale contract.

12.

Develop sale of firm plan and timetable.

13.

Determine communications strategy and plan.

14.

Decide on appropriate strategy to advise clients and staff.

15.

Determine timeframe for entire process to be completed.

16.

Remember, your final payout is likely to be linked to the successful
retention of clients by the purchaser. It is in your interest to do all you can
to ensure a successful transition.

Response

Date

Appendix 8.6 Internal succession checklist
Issue
1.

All parties to sign confidentiality agreement.

List terms and conditions required on sale and transition of firm equity.

Is vendor prepared to sign restrictive covenant?

Is vendor prepared to accept part of settlement as contingent on future
revenue performance of the firm?

Is vendor prepared to accept clawback provisions, subject to agreement?

Set your asking price. Be prepared to justify and validate this figure.
Ensure you have applied sound valuation techniques and methodology.

Consider time period you are prepared to allow incoming partner for due
diligence.

Consider period of time you are prepared to assist with handover, client
transition, and training.

Consider financial arrangements between incoming partner and retiring
partner.

10.

Make available historic information on client base, fees by client and fees
by service range.

11.

Determine terms for dealing with work in progress.

12.

Instruct solicitor to commence drafting sale contract and adjustment to
partnership/shareholder agreement.

13.

Update registrations with authorities, professional bodies and professional
indemnity insurers for new partnership.

14.

Check transfer or assignment of existing commitments, leases etc.,
to newly constituted partnership. This may include: rent of premises,
photocopier, hardware and software licenses.

15.

Develop internal succession plan and timetable.

16.

Decide on appropriate strategy to advise clients and staff.

17.

Determine optimal timeframe for entire process to be completed.

18.

Remember, your final payout is likely to be linked to the successful
retention of clients by the new partnership. It is in your interest to do all
you can to ensure a successful transition.

MODULE 8: SUCCESSION PLANNING

Response

Date

Appendix 8.7 Admission of new partners checklist
Issue
1.

All parties to sign confidentiality agreement.

List terms and conditions required on sale and transition of firm equity.

Existing partners to agree to sale of retiring partner’s equity to incoming
partner.

Identify requirements of continuing partners in regard to new partner
selection.

Incoming partner to agree to existing partnership/shareholder agreement.

All partners to agree on remuneration and access to profits for incoming
partner.

Review and as appropriate re-allocate clients among partners.

Determine role of new partner within firm.

Is vendor prepared to sign restrictive covenant?

10.

Is vendor prepared to accept part of settlement as contingent on future
revenue performance of the firm?

11.

Is vendor prepared to accept clawback provisions, subject to agreement?

12.

Set your asking price. Be prepared to justify and validate this figure.
Ensure you have applied sound valuation techniques and methodology.

13.

Consider time period you are prepared to allow incoming partner for due
diligence.

14.

Consider period of time you are prepared to assist with handover, client
transition and training.

15.

Consider financial arrangements between incoming partner and retiring
partner.

16.

Make available historic information on client base, fees by client and fees
by service range.

17.

Determine working capital requirements.

18.

Instruct solicitor to commence drafting sale contract and adjustment to
partnership/shareholder agreement.

19.

Update registrations with authorities, professional bodies and professional
indemnity insurers for new partnership.

20.

Check transfer or assignment of existing commitments, leases etc.,
to newly constituted partnership. This may include rent of premises,
photocopier, hardware and software licenses.

21.

Develop transition timetable.

22.

Decide on appropriate strategy to advise clients and staff.

23.

Determine optimal timeframe for entire process to be completed.

24.

Remember, your final payout is likely to be linked to the successful
retention of clients by the new partnership. It is in your interest to do all
you can to ensure a successful transition.

Response

Date

Appendix 8.8 Buyout by existing partners checklist
Issue
1.

All parties to sign confidentiality agreement.

List terms and conditions required on sale and transition of firm equity.

Review exit terms under existing partnership/shareholder agreement.

Review existing partnership/shareholder agreement for buyout protocol
and procedure. If silent, gain agreement with partners as to process.

Review and re-allocate as appropriate clients among partners.

Is vendor prepared to sign restrictive covenant?

Is vendor prepared to accept part of settlement as contingent on future
revenue performance of the firm?

Is vendor prepared to accept clawback provisions, subject to agreement?

Set your asking price. Be prepared to justify and validate this figure.
Ensure you have applied sound valuation techniques and methodology.

10.

Consider period of time you are prepared to assist with handover, client
transition, and training.

11.

Consider ongoing consulting arrangements.

12.

Instruct solicitor to commence drafting sale and transfer contracts, and
adjustment to partnership/shareholder agreement.

13.

Update registrations with authorities, professional bodies, and professional
indemnity insurers for new partnership.

14.

Check transfer or assignment of existing commitments, leases etc., to newly
constituted partnership. This may include rent of premises, photocopier,
hardware and software licenses.

15.

Develop transition timetable.

16.

Decide on appropriate strategy to advise clients and staff.

17.

Determine optimal timeframe for entire process to be completed.

18.

Remember, your final payout is likely to be linked to the successful
retention of clients by the new partnership. It is in your interest to do all
you can to ensure a successful transition.

MODULE 8: SUCCESSION PLANNING

Response

Date

Appendix 8.9 Compliance issues checklist
Issue
Statutory
1.

Are you required to deregister from any taxation registrations or
obligations?

If so, are there any adjustment events that need to be reported?

Are you required to issue any final notifications or payment summaries to
former employees?

Ensure you complete all payments on behalf of former employees as
required by your local regulators.

Cancel any policies or registrations that are in your name, if not transferred
across to your previous firm.
Contractual

Ensure all directors’ and secretaries’ resignations have been completed and
lodged, as required.

Withdraw and remove any relevant guarantees, particularly in regard
to bank facilities, lease arrangements, or any other areas relating to the
business.

Ensure payouts are made for those financial obligations which you are
responsible.

Ensure leases or hire purchase agreements are transferred on any
equipment being transferred.

Ensure you perform handover, client transition and training as per
contractual obligations to your purchaser.

Ensure you abide by any restraint of trade obligations as per contractual
obligations to your purchaser.
Housekeeping

Advise firm bankers and confirm your exit from the firm.

Advise professional indemnity insurers and confirm your exit from the firm.

Establish professional indemnity run-off insurance as appropriate.

Advise firm insurance brokers and confirm your exit from the firm.

Ensure your obligations cease in regard to business and property
insurance.

Ensure you have copies of all relevant partnership/shareholder
agreements.

Ensure you have copies of all documents reflecting your resignation as
director/secretary and your withdrawal from personal guarantees.

Advise creditors and confirm your exit from the firm.

Advise your professional body and confirm your exit from the firm.

10.

Ensure responsibility for all utilities has been transferred.

11.

Issue final invoices to clients for work completed up until settlement, in
accordance with sale agreement.

12.

Subject to jurisdiction, consider arrangements for voluntary pension plans
and compulsory pension schemes.

Response/

Date

Appendix 8.10 Case Study
Case study 8.1
This case study relates to Section 8.6.2 , “Partnership/Merger.”
William and Indira had recently met another accountant, Manu (see Case study 6.1) Manu is an employee not a
potential partner at an accounting conference. Over the following months they got to know each other better
and started discussing the opportunity of working together. William and Indira had been practicing together
as partners for a number of years and found that the arrangement suited their needs. They had learned to work
together well and respected each other’s strengths and weaknesses.
They had also become used to the structure they had adopted regarding the firm’s running and management.
Each of them was responsible for their own billing targets and they also had separate responsibilities for
managing the firm. This was based around the organization chart for the firm.
They had also developed a regular routine for management meetings to run the operational aspects of the
business. These meetings were held each Monday morning with the full staff and the priorities for the week for
each staff member were identified and noted. William and Indira also met once a month at a partners meeting,
at which they discussed higher level reporting and strategy.
Manu, on the other hand, was a sole practitioner, and had begun to feel the pressures of running a firm on his own.
He had done this for a number of years starting with just a handful of clients. Over time he had built the firm up,
and now had three staff members covering accounting and administrative functions. He was attracted to William
and Indira’s firm, not only because it was successful, but because it was well managed and had a good culture.
When the three of them got together to discuss a potential merger, William introduced a checklist he suggested
they work through as it covered many of the issues relevant to merger discussions. The key issues identified were:
1. Share of profits
They agreed to split profits according to their proportionate interest in the partnership and would only draw on
funds when their cash flow position allowed.
2. Admitting or terminating partners/directors
All agreed that the basis for admitting or terminating partners would be an essential element of any
arrangement. They agreed to all contribute their thoughts on this important matter and discuss it fully next time
they met.
3. Frequency and timing of partners meetings
William and Indira were keen to continue with their regular monthly partners meeting and Manu agreed that
the meeting was an important management tool. This was one area where Manu felt particularly disadvantaged
as a sole practitioner as there was no one at his level he could discuss important issues with.
4. Expectations of a partner within the firm and managing outside interests and obligations
Discussion around this point included the roles and responsibilities assigned to each partner, productivity levels
(e.g. billing hours) expected from each partner and any non-chargeable work allowed for voluntary activities
during work hours, such as professional bodies, pro bono work, and charity work.
5. Drawing policy and loan accounts
They all felt it was important to have a policy about the timing and formula for drawings as well for dealing with
any loan accounts of any individual partners. Again, this would be discussed at their next meeting.

MODULE 8: SUCCESSION PLANNING

6. Determining goodwill calculations on entry and exit
They all agreed that it was extremely important to establish a formula for the valuation of goodwill. They felt
that when a new partner is either admitted or retired, each party should have a clear understanding of how
much consideration they may expect to
pay/receive, and the bases for such a calculation was arrived at. They all felt this would add more certainty to
their situation.
7. Restraint requirements and notice period on retirement
They agreed that restraints should be imposed if a partner was to leave but were conscious that any restraint
requirements must be enforceable and would not invalidate the whole agreement. They recognized this as a
complex area and agreed to seek separate legal advice on the matter.
8. Leave entitlements
They all agreed there should be no confusion or ambiguity about their leave entitlements which would include
annual, special, sick, long service, carer’s or maternity leave. Indira was asked to draft a policy which they could
all consider at their next meeting.
Manu was pleased with the progress of discussions and was looking forward to becoming part of a larger team,
while William and Indira each had mixed feelings about the possible merger. William was secretly pleased that
he would have another partner to discuss matters with as he felt superior to Indira and was seeking her counsel
less frequently. However, he felt that Manu was quite aggressive and was not sure if Manu’s style would suit the
culture of the firm.
On the other hand, even though she outwardly appeared to be in favor of the merger, Indira was quite anxious
about having another partner. She felt that her working arrangement with William suited her well, and that
having another party involved might change the dynamics of their working arrangement. She also doubted
whether Manu would work as hard as she did, even though he would want his equal share of profits. Indira
decided she would wait until after the next meeting with Manu to see how she felt and would then discuss her
concerns with William.

Glossary of terms

Some of these terms are used in the modules. Their definitions appear below.
Accrual accounting
Attempts to answer questions about performance by considering all the assets and liabilities of the business
after the period of operation.
Advertising
Communication to the public of information about the services or skills provided by accountancy firms with a
view to procuring professional business.
Annual report
A document issued by an entity, ordinarily on an annual basis, which includes its financial statements together
with the auditor’s report.
Auditing/assurance
Auditing/assurance refers to the examination, verification and evaluation of financial or managerial processes,
systems or outcomes in organizations. It includes an independent report on their credibility and operational
effectiveness. Auditing also refers to the management of the auditing function.
Bad debt
A debt that will not be paid and is written off (removed from the books).
Big Four
Traditionally, the four largest firms in the world. They are: PricewaterhouseCoopers; Deloitte & Touche; Ernst &
Young; and KPMG.
Business valuation
Refers to the process by which a supportable opinion is derived about the worth of a business or individual
assets or liabilities.
Cash accounting
Recognizes transactions only when a cash payment or cash receipt is made.
Certified Public Accountant (CPA)
A credential conferred by a state or similar governmental jurisdiction that authorized the holder to practice as a
certified public accountant in that jurisdiction.
Chargeable hours
Chargeable hours are public accountant-supervised hours normally chargeable to clients, excluding time spent
on work of a routine clerical nature.
Chart of accounts
Structure of the ledger system—basically, a map of the locations available for storage of transaction details.
Clawback provisions
Provisions in contracts that limit or reverse payments made when specific criteria are not met. They are
calculated against a predetermined formula, and typically relate to the purchase of fees, or a practice.

Clients
Those individuals, firms, entities or organizations to whom services are provided by an accountant with respect
to engagements of either a recurring or demand nature.
Close family
A parent, child, or sibling, who is not an immediate family member.
Corporate governance
System by which the directors and officers of an organization are required to carry out their accountabilities and
responsibilities for ensuring that effective management systems, including financial monitoring and control
systems, have been put in place to protect assets, earning and capacity and the reputation of the organization.
Customer Relationship Management (CRM)
A business management system that involves all aspects of interaction an organization has with its customer,
client or member, including all marketing, communications, sales and service-related activities.
Database
A collection of data that is shared and used by a number of different users for different purposes.
Depreciation
Depreciation is the expense resulting from spreading the cost of an asset across its useful life.
The “cost” of a long-life asset used during the period of operation.
Direct financial interest
A financial interest:
z Owned directly by and under the control of an individual or entity (including those managed on a
discretionary basis by others); or
z Beneficially owned through a collective investment vehicle, estate, trust or other intermediary over which the
individual or entity has control.
Directors
Those charged with the governance of an entity, regardless of their title, which may vary from jurisdiction to
jurisdiction.
Disclosure
The material matters relating to the form, arrangement, and content of financial statements that are “disclosed”
during the presentation of financial statements in accordance with generally accepted accounting principles.
Double entry bookkeeping
Reflects the double impact of any transaction on the accounting equation, such that the equation always balances.
Doubtful debt
A debt that is expected to become a bad debt, but might still be collected.
Engagement
An agreement, whether written or otherwise, between an accountant and a client relating to the provision of
services. Consultations with a prospective client prior to such agreement are not part of an engagement.
GLOSSARY OF TERMS

Environmental matters
z Initiatives to prevent, abate, or remedy damage to the environment, or to deal with conservation of
renewable and nonrenewable resources (such initiatives may be required by environmental laws and
regulations or by contract, or they may be undertaken voluntarily);
z Consequences of violating environmental laws and regulations;
z Consequences of environmental damage done to others or to natural resources; and
z Consequences of vicarious liability imposed by law (for example, liability for damages caused by previous owners).
Equity
The residual of assets less liabilities available to owners.
Expenses
Expenditures of money in order to earn revenues.
External audit
An audit performed by an external auditor.
External auditor
Distinguishes an external auditor from an internal auditor.
Fair value
The amount for which an asset could be exchanged, or a liability settled, between knowledgeable, willing
parties in an arm’s-length transaction.
Financial interest
An interest in an equity or other security, debenture, loan or other debt instrument of an entity, including rights
and obligations to acquire such an interest and derivatives directly related to such interest.
Financial planning
Financial planning is the process of providing comprehensive assistance and support to meet a client’s financial
needs and goals in rapidly changing regulatory environments.
Financial statements
The presentation of financial data, including accompanying notes derived from accounting records and
intended to communicate an entity’s economic resources or obligations at a point in time, or the changes
therein for a period of time, in accordance with a comprehensive basis of accounting.
Firewall
A combination of hardware and software that protects a WAN, LAN or PC from unauthorized access through the
internet and from the introduction of unauthorized or harmful software, data or other material in electronic form.
Firm
z A sole practitioner, partnership, corporation or other entity of professional accountants;
z An entity that controls such parties through ownership, management or other means; or
z An entity controlled by such parties through ownership, management or other means.

Forecast
Prospective financial information prepared on the basis of assumptions as to future events that management
expects to take place and the actions management expects to take as of the date the information is prepared
(best-estimate assumptions).
Fraud
An intentional act by one or more individuals among management, those charged with governance, employees,
or third parties, involving the use of deception to obtain an unjust or illegal advantage. Two types of intentional
misstatement are relevant to the auditor: those resulting from fraudulent financial reporting and from
misappropriation of assets (See also Fraudulent financial reporting and Misappropriation of assets).
Fraudulent financial reporting
Intentional preparation of misleading financial statements—such as distorted records, falsified transactions or
misused accounting principles.
General IT controls
Policies and procedures that relate to many applications and support the effective functioning of application
controls by helping to ensure the continued proper operation of information systems. Include controls over
data center and network operations; system software acquisition, change and maintenance; access security; and
application system acquisition, development, and maintenance.
Governance
The role of persons entrusted with the supervision, control and direction of an entity. They ordinarily are
accountable for ensuring that the entity achieves its objectives, financial reporting, and reporting to interested
parties. Includes management only when it performs such functions.
Government business enterprises
Businesses that operate within the public sector ordinarily to meet a political or social interest objective. They
are ordinarily required to operate commercially, that is, to make profits or to recoup, through user charges, a
substantial proportion of their operating costs.
Immediate family
A spouse or domestic partner, child, child of a domestic partner, sibling, sibling of a domestic partner, brother in
law, sister in law, parent, parent of a spouse or a domestic partner.
Indirect financial interest
A financial interest beneficially owned through a collective investment vehicle, estate, trust, or other
intermediary over which the individual or entity has no control.
Industry standards
Benchmarks for financial or non-financial information that provide important contextual data for any financial analysis.
Internal control
The process designed and effected by those charged with governance, management and other personnel
to provide reasonable assurance about the achievement of the entity’s objectives with regard to reliability
of financial reporting, effectiveness and efficiency of operations and compliance with applicable laws and
regulations. Internal control consists of the following components:

GLOSSARY OF TERMS

z The control environment;
z The entity’s risk assessment process;
z The information system, including the related business processes, relevant to financial reporting, and
communication;
z Control activities; and
z Monitoring of controls.
IT
IT (information technology) encompasses the needs of professional accounting users for efficient and effective
systems. It involves hardware and software to support operations, information systems and management
processes. It includes the skills required to apply those products and processes to the tasks of information
production and information system development, design, management, control and evaluation. This area also
encompasses project management activities.
IT environment
Policies and procedures that the entity implements and the IT infrastructure (hardware, operating systems, etc.)
and application software that it uses to support business operations and achieve business strategies.
Journal
Traditionally the first part of the accounting system at which a transaction is entered (either manually or
electronically) into the accounting system.
Key performance indicator (KPI)
Benchmark measurement based on objectives, targets and defined industry standards.
Knowledge management
The process of connecting people to people and people to information to create competitive advantage.
Ledger
The storage device that separates the transactions into their different categories and stores them in locations
called accounts.
Liabilities
The debts of the business, representing a present obligation to dispose of economic benefits to another entity
or person.
Liquidity
A measure of the ability to generate cash to meet financial obligations as they fall due.
Listed entity
An entity whose shares, stock or debt are quoted or listed on a recognized stock exchange, or are marketed
under the regulations of a recognized stock exchange or other equivalent body.
Local area network (LAN)
A communications network that serves users within a confined geographical area. LANs were developed to
facilitate the exchange and sharing of resources within an organization, including data, software, storage, printers

and telecommunications equipment. They allow for decentralized computing. The basic components of a LAN are
transmission media and software, user terminals and shared peripherals.
Management
Comprises officers and others who also perform senior managerial functions. Management includes those
charged with governance only in those instances when they perform such functions.
Managerial employee
An employee who acts in a managerial capacity within the structure of the firm, including providing oversight,
in the provision of services to clients.
Member
A member of a professional body that has adopted the Code of Ethics for Professional Accountants issued by
IESBA as applicable to their membership, as defined by that professional body.
Misappropriation of assets
Intentional, illegal use of the property or funds of another person for one’s own use, particularly by a public
official or a person who has a fiduciary duty.
Mission
A formal document that states the aims of a company or organization.
Noncompliance
Refers to acts of omission or commission by the entity being audited, either intentional or unintentional that are
contrary to the prevailing laws or regulations.
Operational risk
Risk that deficiencies in information systems or internal controls will result in unexpected loss. This risk is
associated with human error, system failures and inadequate procedures and controls.
Partner
Any individual with authority to bind the firm with respect to the performance of an engagement.
Personnel
Partners and staff.
Portlet
Integrative component embedded into a portal page, delivering information from other business systems.
Practice sale
The sale of the entire practice to a new purchaser.
Practitioner
A professional accountant.

GLOSSARY OF TERMS

Profession
A profession is an occupation that typically requires a bachelor’s degree from a university, and in most cases
a period of postgraduate study. Professions are normally self-regulating, with members adhering to a code of
ethics and discipline.
Professional accountant
An individual who has met the academic, professional and practical experience criteria established by a
recognized professional accounting body for the awarding of that body’s professional credential. Further, this
person continues to meet all the criteria for remaining a member in good standing in that body.
Professional conduct
Professional conduct is anchored in ethics, the explicit reflection on moral beliefs and practices. All professionals
are guided by codes of conduct embodying the ethical principles that govern their performance and behavior.
Professional services
Services requiring accountancy or related skills performed by a professional accountant including accounting,
auditing, taxation, management consulting and financial management services.
Professional standards
IAASB engagement standards, as defined in the IAASB’s “Preface to the International Standards on Quality
Control, Auditing, Assurance and Related Services,” and relevant ethical requirements, which ordinarily comprise
Parts A and B of the Code of Ethics for Professional Accountants issued by IESBA, and relevant national ethical
requirements.
Progressive sell down
The practitioner progressively sells off percentages of their equity in their firm over time.
Public entity
An entity whose securities are publicly traded, either on a stock exchange or on the over-the-counter market.
Public sector
Includes national governments, regional governments (for example, state, provincial, territorial), local
governments (for example, city or town) and related governmental entities (for example, agencies, boards,
commissions and enterprises).
Quality control
Quality control refers to the organization’s systems and processes employed to ensure that its output or product
consistently meets specifications.
Reciprocal agreement
Two-way arrangement by which organizations agree to use each other’s resources.
Related entity
a. An entity that has direct or indirect control over the client provided the client is material to such entity;
b. An entity with a direct financial interest in the client, provided that such entity has significant influence over
the client and the interest in the client is material to such entity;

c. An entity over which the client has direct or indirect control;
d. An entity in which the client, or an entity related to the client under (c) above, has a direct financial interest
that gives it significant influence over such entity and the interest is material to the client and its related entity
in (c); and
e. An entity which is under common control with the client (hereinafter a “sister entity”), provided the sister
entity and the client are both material to the entity that controls both the client and sister entity.
Restrictive covenant
A specific type of covenant in which one party agrees to be restricted by a contract. The most common type
involves a former partner or employee restricted from working in his or her field for a specific time and within a
specified area after leaving the practice.
Risk
Chance of something happening, measured in terms of impact and probability.
Risk management
Establishment of culture, processes and structures to manage potential opportunities and adverse effects.
Sale agreement
The legal agreement between the purchaser and vendor outlining the terms and arrangements of the sale.
Sale of fee parcel
The sale of specific and separately identified fees of a firm which are grouped or “parcelled” together, creating a
separate asset which can be sold to a new purchaser.
Small- and medium-sized accounting practices/firms (SMP)
Accounting practices/firms that exhibit the following characteristics: its clients are mostly small and medium-sized
entities (SMEs); external sources are used to supplement limited in-house technical resources; and it employs a
limited number of professional staff. What constitutes an SMP will vary from one jurisdiction to another.
Strategy
Vision and direction for an organization, involving setting of mission statements and identifying markets and
objectives so that the mission of the organization can be achieved.
Values
The accepted principles or standards of a person or a group.
Vision
A formal statement that expresses the aspirations and goals of a company or organization.
Wide area network (WAN)
A communications network that transmits information across an expanded area such as between plant sites,
cities and nations. WANs allow for online access to applications from remote terminals. Several LANs can be
interconnected in a WAN.

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