SMP_Practice_Mgmt_Guide_ Guide To Practice Management

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Guide to Practice

Management for Small-

and 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.

granted to make copies of this work provided that such copies are for use in academic classrooms or for personal

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 ﬁ rm

Module 2: Practice models and networks

Module 3: Building and growing your ﬁ rm

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, pro table, and professional

manner.

IFAC is grateful to its member bodies Consiglio Nazionale dei Dottori Commercialisti e degli Esperti Contabili

and Certi ed 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 sta 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 sta , client relationship

management, and succession planning. As such the Guide will help SMPs operate with greater pro ciency 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

iii

Request for Comments

This is the  rst version of the Guide. We consider the Guide to be of high quality and useful in its present form,

but like any  rst edition, it can be improved. Hence, we are committed to updating the Guide on a regular basis

to ensure it re ects 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 su ciently tailored to the key practice management issues faced

by small- and medium-sized practices?

4. Do you  nd 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 speci c 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

Introduction

Purpose

The Guide aims to assist  rms to practice in a safe, pro table 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 e ciency 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, pro tability, and sustainability of practices; enhance

the expertise, competence, and e ciency 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 sta , certain parts will be

useful to more junior sta and as an introduction to the practices for new sta . It is also considered suitable

as a reference guide meant for everyday use. In addition, SMPs may  nd the Guide helpful when it comes to

providing general business advice to SMEs, likewise professional accountants working in SMEs may  nd it useful.

Finally, students, educators, training providers, researchers, and international development agencies may  nd

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  rm

The essential ingredient for success is for every  rm 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  rm. Successful  rms

can be highly specialized or general, focusing on transaction or compliance services or high-end

advisory services. Successful  rms 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  rm.

Module 2 Practice models and networks

If an accounting  rm is built on a solid foundation of good decision-making, ethical and e cient

processes, and a balanced team of committed leaders, it can be con dent about its long-term future.

Module 2 looks at the structural considerations inherent in owning or running an accounting  rm,

and the various models available. It includes examination of pro t sharing and decision-making

within a  rm and the use of networks to add value and grow pro tability.

Module 3 Building and growing your  rm

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  rm culture.

Module 4 People power: Developing a people strategy

The degree to which your  rm can provide good service and be successful is determined by the

calibre of your sta and your leadership.

Module 4 examines key elements that will play a pivotal role in achieving your  rm’s objectives—people.

This module explores your role as a leader as well as the sta ng issues that have to be addressed as your

 rm grows, including your  rm’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  rms to adopt best practice in respect to their technologies.

Module 5 examines the increasing role technology plays in the success of an accounting  rm.

E ective selection, implementation and management of technologies, as well as training employees

to use these tools, are fundamental to the success of any  rm.

Module 6 Client relationship management

Strong and e ective client relationships are the backbone of a successful accounting  rm. The

relationships accountants have with their clients is fundamental to the value of the accountancy

 rm. Increased competition demands that  rms 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 speci c impact it has on practice life. It provides a

framework for identifying, evaluating, and acting on risks within a  rm. 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

 rm, and their exit strategies from their  rm 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.

vii

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, modi ed,

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 speci c 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.

Module 1:

Planning for your ﬁ rm

MODULE 1: PLANNING FOR YOUR FIRM 3

Contents

1.1 Introduction 5

1.2 To s

ecialize or to

eneralize? Your services strate

1.2.1 S

ecializin

1.2.2 Generalizin

1.3 The need for business

lannin

1.3.1 The strate

lannin

rocess 12

1.3.2 Ste

s in the

rocess 13

ure 1.1 The ei

ht strate

lannin

ste

s 13

1.4 Plannin

for e ective relations with clients and em

ees 18

1.4.1 The challen

es of

enerational diversit

1.4.2 Clients’

erce

tions 19

1.4.3 The “devaluin

” of information b

the internet 19

1.4.4 The challen

es of

reater client mobilit

1.5 Develo

lans for

our  rm’s various functions 20

1.5.1 Service deliver

lan 20

1.5.2 Risk mana

ement and miti

ation

lan 21

1.5.3 Human resources

lan 21

1.5.4 Marketin

and sellin

lan 21

1.5.5 Technolo

lan 23

1.5.6 Administration

lan 23

1.5.7 Finance

lan or bud

et 23

1.5.8 Assessin

when

lans need to chan

e 23

1.6 Buildin

a risk mana

ement mindset into

our  rm 24

1.6.1 Ten ste

s to successful risk mana

ement 24

1.6.2 Minimizin

osure to loss of ke

ersonnel 25

1.6.3 Minimizin

otential

roblems in service deliver

1.7 Im

lementin

ractice manual and s

stems 28

1.8 Usin

benchmarks to drive

erformance and im

rovement 28

1.8.1 External benchmarks 28

1.8.2 Internal benchmarks 29

1.8.3 Other industr

benchmarks 29

1.9 The business of runnin

our  rm 32

1.9.1 The ke

sta

es in runnin

an e ective  rm 32

ure 1.2 The “virtuous circle” of an e cient accountin

 rm 32

1.10 Monitorin

external forces 37

1.10.1 Environmental sustainabilit

1.10.2 International accountin

standards 37

1.10.3 Risin

levels of re

ulation and

rofessional knowled

e 38

1.10.4 Mobilit

of talent 38

1.10.5 Technolo

1.10.6 Anti-mone

-launderin

1.11 Business continuit

: the short-term and lon

-term im

erative 39

1.11.1 Interru

tion to business 39

1.11.2 Continuit

of business: the second

eneration 40

1.12 Conclusion 40

1.13 References, further reading, and IFAC resources 41

endices 43

endix 1.1 A realistic self-assessment checklist 43

endix 1.2 Matters to be included in the

lannin

rocess checklist 45

endix 1.3 Marketin

ram tem

late 47

endix 1.4 Indicative content and sam

le of an o ce manual 48

endix 1.5 Case studies 95

endix 1.6 Strate

ic Plannin

Dia

ram 98

MODULE 1: PLANNING FOR YOUR FIRM 5

1.1 Introduction

There is not necessarily a single direction or a wrong direction for a public accounting  rm. 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  rm to know its own strategy—the path that principals and

employees wish to travel—so that the  rm 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  rm develop. Good management

will keep the  rm 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  rm—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 di er, even among

accounting  rms; “value” as perceived by your clients will depend on the bene ts that you deliver, the feeling of

con dence and dependability that your people engender, and of course the cost to your client.

It has been argued by marketing specialists that  rms 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  rm; 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:

zOverall cost leadership

zDi erentiation

zFocus.

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 pro table. 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 bene t 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  rm which

represents the tough and ongoingchallenge.

Di erentiation

A “Di erentiation” strategy demands that you take a di erent 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 di cult in a typical “market” for accounting services which is typi ed

by many competitors whose strategies might not be easily visible from the outside. “Di erentiation” 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  rm taking this approach, then “di erentiation” is at

work. Once other  rms start to copy your approach and send their sta to their clients’ premises, your marketing

advantage is gone.

A “di erentiation strategy” must be continually reinforced through promotion, and through continual focus on

your di erentiating factor. All the other actions and procedures within your  rm should continually contribute

to or reinforce the di erentiating factor.

Focus

The third possible market strategy revolves around “focus.” For example, your  rm 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 speci c needs and activities of a few sectors and be able to ensure that all

clients bene t from that knowledge—either by not needing a “learning curve” or extensive research, or by

understanding industry-speci c taxation or legal issues faced. If your strategy is based on “focus”, word-of-

mouth referrals or highly targeted promotional strategies become especially powerful; at the same time client

con dentiality becomes paramount in order to prevent inadvertently revealing information.

If “focus” is your key marketing strategy, the market segment must be able to a ord your services otherwise you

risk targeting the  rm’s e orts 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  rms 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 de ne 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  rm. 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 quali ed 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 o er, and the clients for whom you choose to act.

If you are joining an existing  rm, many of the decisions will already have been made. If so, use this material

to identify gaps in your current service o ering. 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  exibility in the

way services are delivered. See Module 5 for details about information technology in your  rm.

Mobile technology—especially telephones and internet-based wireless communications—enables a “virtual o ce”

to be operated. This in turn allows accounting personnel to move seamlessly between the o ce, 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,  rms 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

MODULE 1: PLANNING FOR YOUR FIRM 7

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 high-

level adviser to the partnership as a whole or to the management team; the  rm 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  rm’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  rm’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  rms have a specialist niche position for their service o ering: 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  rms 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  rms are coming under pressure from clients to cover the full range of

commercial issues. So if your current or proposed  rm 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  nancially:

zYou must have highly skilled team members. They might have intellectual knowledge (for example, a deep

and detailed knowledge of a speci c type of tax or  nancial planning or knowledge about a process (such as a

quick, accurate and reliable process for handling income tax returns).

zYou must promote your service within a su ciently large market to generate enough clients. This does not

mean that your o ce must be located in a big city, but you must promote your service to a large number of

potential clients. In this way, the  rm can generate enough revenue to support its costs and deliver pro t to

the  rm owners.

zYou 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 payo 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 e ciency of your

service enables you to charge a lower fee, which in turn allows you to boost the volume of activity and earn

su cient pro t from each unit.

1.2.2 Generalizing

In this situation, your  rm o ers 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.

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  rm can promote, say, an expert on direct tax such as personal income tax or corporation

taxes, an expert in  nancial planning or wealth management services, an expert in business management issues,

and so on. Each person can back up the other personnel in the  rm and create more points of contact with each

client. This approach works very well in medium-sized and larger  rms, but in smaller  rms there are not enough

people to support the load. Very small  rms can  nd it very di cult to keep fully up to date with the many

changes to legislation, making the general  rm approach harder to implement.

The general  rm 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 “di erentiated” 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  rm “client-centric”

Making your  rm and your marketing “client-centric” is the fundamental mindset to adopt. When deciding on the

best possible approach for your own  rm, put yourself in the position of a client, and ask yourself questions such as:

zWhat will be the primary focus of the  rm? This may be tax and compliance work, be a business advisory

services, or perhaps a particular specialty, such as insolvency.

zWhat 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 o ering 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.

zHow many of those services can you provide at present, with the current personnel?

zWill 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 o ce? If, for example, your  rm 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 o ce will give better access to the necessary resources.

zWhat is the most suitable location for your o ce? The choice of location is in itself a statement about your

 rm 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  t-out (the standard of  t-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 o ce located close to those clients, such as a business park or a nearby

suburban area. The  t-out should be of good quality without being ostentatious.

}The location and standard of  t-out will impact your cost structure, which in turn will  ow into your fee

structure, so they should suit the type of client you predominantly attract. Having said that, your  rm 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 o ering refreshments while they are waiting), and so on.

MODULE 1: PLANNING FOR YOUR FIRM 9

zHow 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  rms? Will you leave clients to  nd

their own provider of that service? Or will you employ or train employees or partners to provide that service

in your own  rm? If you can refer the client to a trusted, competent  rm 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.

O ering new services

Each new or additional service o ered by your  rm will demand a certain minimum commitment to it for example:

zA senior person who will gain and maintain the required skills.

zAn 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.

zSome level of technical resource such as subscriptions or access to a specialist provider outside your  rm (see

the earlier material dealing with the various types of networks that can support a  rm or a practitioner).

zPossibly 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

con dence in the ultimate outcome.

zRegular reminders sent to all other employees concerning new services. This could include, for example,

telling the  rm’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 payo for the entire  rm. As a practical guideline, any new service added by a  rm 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 bene t 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

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 bene ts 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):

zAccounts processing and reporting: For statutory or management purposes, lodgment of essential

information to comply with corporations law or similar requirements;

zAudit: statutory/external audit, internal audit or management review;

zBusiness advisory: Business management and pro t improvement, budgeting, cash  ow 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  rm on the stock exchange, succession planning, strategic planning;

zInsolvency and reconstruction: Liquidations, receivership, bankruptcy, restructure, sale or closure of businesses;

zFinancial 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  nance for a client or assisting in the preparation of

applications for  nance;

zTaxation: 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;

zOther 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  nancial 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  rms, implementing

e-commerce applications or principles within the client  rm (and your own!).

Ensuring the  rm has adequate resources

Having identi ed the type of  rm 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 e ciently:

zThe type and number of employees;

zThe skill levels of those employees;

zOngoing professional development and training required;

zInformation resources, manuals, publications, subscriptions;

zSoftware programs;

zSkill support networks that should be developed;

zInfrastructure requirements; and

zImportantly, the amount of capital you will require to achieve your goals.

These resources will need to be included in your overall budget for the  rm, so be conscious of the  nancial

impact of adding each new service. A key principle is to deliver all of your  rm’s core services with resources

available within the  rm. This lets you keep good control over client management and satisfaction as well as

MODULE 1: PLANNING FOR YOUR FIRM 11

quality of work. It also maximizes your return on investments in  rm 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  rm, 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 o er to a clearly-de ned 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

 rms 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  rm, it shows quickly. The

results can include:

zProblems with work–lifestyle;

zLow pro tability and/or poor liquidity;

zPoor e ciency;

zLack of risk management;

zThe absence of necessary quality control;

zHigh employee turnover;

zLoss of clients; or

zLoss 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  rm is straying from its intended path, so you can redirect it once again.

There is a second bene t 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  rm 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:

zDeveloping a competitive strategy;

zA brief statement of the mission, vision and values that underpin the  rm’s reason for existence and its broad

aims (in other words, the  rm’s culture);

zA statement that outlines the technical services the  rm will deliver to achieve its mission and vision (its

products and markets);

zHuman relations—the people and skills required;

zA series of more detailed business plans, which govern the way that each unit or function of the  rm will

contribute to the overall strategic plan (its operations and delivery);

zBudgets, which support the components mentioned above; and

zPolicies 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  rm, and con rm that your business has the resources to achieve your

 nancial 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 re ned

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  rm are the cultural or behavioral philosophies that set the tone for the

 rm’s behavior and that of its personnel. The “vision” is an aspirational statement of what the  rm should look

like. The “mission” outlines the broad strategic goal of the  rm 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  rm. 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 pro-

active, practical accounting services,” or

“I want to be able to a ord to retire by my  ftieth 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  rm 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  rm. Some plans (such as the budget)

might look twelve months ahead; others (such as your sta ng 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

MODULE 1: PLANNING FOR YOUR FIRM 13

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: De ne your strategic objectives

Step 5: De ne 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  rm’s mission statement and objectives?” A good idea that does not  t

the mission and objectives of your  rm could still be pursued by some or all the partners, but outside the  rm.

For example, a client might come to your  rm 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  rm, 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.

Where there are several business partners with di erent views about important challenges facing the  rm, the

planning process must create a single direction that reconciles and coordinates these attitudes.

If a  rm has a second or third o ce 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  rm are likely to share common views

and backgrounds; agreement about  rm 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 o ces in di erent 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:

zWhat do you want?

zWhat are your personal goals?

zWhat do you want to achieve in ten and twenty years’ time?

zWhat 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  rm 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  rm 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:

zPersonal: A lifelong partnership, children, strong group of friends, etc.

zProfessional: 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 quali cations? What

experience do you need?

Know and understand your personal objectives. If your  rm stops you from achieving your personal goals,

you will start to experience personal dissatisfaction with your work. You may resent the time or e ort 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  rm will support your personal, professional, and  nancial 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 signi cant de ciency 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  nd 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.

MODULE 1: PLANNING FOR YOUR FIRM 15

If you remain con dent 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 e ective

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 di cult 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  rm (for example, the range of services provided, professional standards or the approach to pro t

retention in the  rm), 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  rm and its clients.

Step 3: Outline your mission, vision, and values

This is where many texts start their strategic planning process. However, a  rm’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  rm, either on your own or in partnership.

There is no better time to set or in uence the type of  rm than at its commencement.

Firms start with a “Vision”: a concise statement about the overall bene t they expect to deliver to the clients and

other stakeholders who interact with the  rm. The vision statement touches on the impact of the  rm, 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  rm 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  rm, you should examine the  rm’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 de nes the fundamental, unique purpose that sets a company

apart from other  rms of its type and identi es the scope of the company’s operations in terms of products (including

services) o ered and markets served.”

Wheelen & Hunger 2000

The mission statement for your  rm might make reference to:

zThe bene t that you deliver to your clients;

zA brief list of services to be o ered by your  rm;

zA brief description of the clients that you plan to target; or

zA 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  rm will use to govern their approach to issues as they arise in the future.

If the people working in the  rm share a similar approach (or “Values”), then resolving con icts or ethical

dilemmas becomes not only easier but also more predictable. Typical words used in a Values Statement for a

public accounting  rm might include:

zRespect

zCourtesy

zEquality

zResponsiveness

zClient-focus

zInnovation.

Step 4: De ne your strategic objectives

Clearly state several “big picture” targets that  ow 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  rm.

“Objectives are the end results of planned activity. They state what is to be achieved by when and should

be quanti ed if possible. The achievement of corporate objectives should result in the ful lment of a

corporation’s mission.”

Wheelen & Hunger 2000

In an accounting  rm context, your objectives might look like these:

zTo achieve an internally generated fee growth of (XX)% per year for the  rst  ve years of the  rm’s life;

zTo increase net earnings per partner by $(XXXX) per year;

zTo reinvest (XX)% of annual pro ts into capital enhancement of the  rm (for example, equipment for

enhanced productivity, system development or major personal development projects).

Your objectives should not all be  nancial. A pro table 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  nancial performance, but on other indicators for example,

client satisfaction, development of the skills base of the  rm’s team, and expenditure on development of new

products or services.

MODULE 1: PLANNING FOR YOUR FIRM 17

Your objectives will most likely need to address:

zThe training and development of your people;

zThe reputation of your  rm within its prime market area;

zThe quality and relevance of your services; and

zClient 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: De ne strategies for achieving those objectives

Having set some speci c, 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,

 nancial planning and business development advice—will deliver pro ts, 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  nanciers—about the overall direction of the

 rm. 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 ( nancial) 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  rm 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  nance policies that might apply in a start up  rm:

zTo 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  xed assets.

zTo pay a monthly salary of $(XXXX) to the principal/partners in the initial twelve months, then apply the

remaining pro ts towards funding the growing levels of work in progress and debtors of the  rm. The balance

of cash requirement is to be funded via banksources.

zTo grow, via internally generated, organic means of adding clients through the  rm’s own e orts and referrals

from current clients.

If a  rm 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  rm had a di erent set of policies (for example, if the third point

targeted rapid growth in client numbers and fee levels), then a merger with another  rm would certainly be an

option in addition to self-generated growth.

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:

zPrograms: the activities and steps needed;

zBudget: a  nancial summary of costs, and hopefully income too, associated with each program; and

zProcedures: the speci c 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  rm 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 bu er

of $10,000 in the  rm’s check account.” Other KPIs might come from external sources, such as the  nancial

benchmarking provided by specialist research groups, or from  rm support networks. Later in this module is a

list of the important KPIs that a  rm 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:

zFirst, 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.

zSecond, by thinking through some of the potential problems and having undertaken some scenario planning, you

can often sidestep them in the  rst place. One of the bene ts 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, re ning 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 re ect 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  rm’s policies. Instead, you will

spend time improving systems and re ning 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

bene ts to clients. Clearly, dealing e ectively with other people is a core skill in an accounting  rm. 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 di erent aspirations and motivators. For

that reason, e ective 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

MODULE 1: PLANNING FOR YOUR FIRM 19

di erences: 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 e ective communication

with all clients. Generational diversity among employees is addressed more fully in Module 4.

How your employees think di erently 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 di erent times: the danger or austerity which

might be linked to wartime; or the con dence 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  rm are career growth opportunities, paid personal/vacation time and

salary—in that order ... Amulti-faceted generation.”

Dennis 2006

“The  rm has a low attrition rate compared with many of the UK’s top 60 accountancy  rms, at around 10%.”

Perry 2008

“New hires generally last less than two years, and small  rms lose about a tenth of their workforce annually ...

Other recruiters acknowledge they no longer even try to get accountants for small CPA  rms.”

Tarasco & Damato 2006

Employee turnover is a signi cant issue for accounting  rms; this subject, and understanding the employee

mindset, is covered in Module 4.

Core values

A “best practice” approach revolves around utilizing the skills o ered by all personnel in the  rm, 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  rm 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.

zWhat 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.

zAre 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.

zIs it ethical to describe a position or job role inaccurately to a prospective employee? The outcome could well

be that the new employee  nds 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  rm in time and money. The employee might also bear a cost,

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  rm. With

this foundation in place, you can use a variety of incentives or communication methods with employees from

di erent generations. In this way, you can e ectively harness the talent and commitment of all the people

working in your  rm to deliver high quality client services.

1.4.2 Clients’ perceptions

Social and technological changes will simultaneously lead to and re ect changes in client attitudes. You will

no doubt see the impact of this in many aspects of your  rm. Module 5 examines how technology has a ected

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.

zThe rapid adoption of email, particularly when combined with PDF and/or zip technology for locking and

compressing  les or documents accelerated that trend. Now, substantial documents or  les 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 o ce 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.

zPeople 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,  rms need to adopt relevant technology, then learn its features and limitations. Firms require well-

trained 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,

 rms 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  nd free of charge via the internet) and it is applied to the client’s speci c situation. Accountants must

MODULE 1: PLANNING FOR YOUR FIRM 21

consequently focus on value-adding for the client (delivering bene ts not just information), and continually

resell the savings, security or the con dence 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  rm if they are not satis ed 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 ﬁ rm’s various functions

As part of your overall strategic planning, this section details how to develop more detailed plans for the

following functions:

zService delivery;

zRisk management and mitigation;

zPersonnel;

zMarketing and selling;

zTechnology;

zAdministration; and

zFinance, or budget, to integrate the  nancial 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  rm. Just as importantly, it also should

describe how the  rm will handle services it does not o er: whether clients will be referred to another

organization, or whether clients will simply be told to  nd 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  rm.

The plan should describe the  rm’s approach to its systems and procedures. Well documented and current

systems and procedures are essential to the e ective delivery of services. Systems and procedures also specify

minimum (and ideally best practice) technical steps needed to deliver a sound and competent service. Clear, well-

documented 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 in uence the overall professional work

within the  rm without having to directly perform or personally review every action taken byemployees.

Every  rm should have a “champion” to oversee the updates and any expansion of the documents and procedures

used within the  rm. This person must have the authority, supported by the full partnership, to con dently

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 work ow process within the  rm 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 de ned. Whenever these major changes are required, take the

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  rm can become so big that it a ects the whole structure of the organization. In such a case, the

service delivery plan will need to be reviewed and, if necessary, amended to re ect the change.

1.5.2 Risk management and mitigation plan

Refer to Section 1. “Building a risk management mindset into your  rm” for information about developing a risk

management plan. Module 7 contains speci c guidance on risk management strategies within the  rm (Section

7.3) and business continuit

lannin

(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 o ered by the  rm. Accordingly, the personnel plan should attempt to forecast the likely number

and skills base of people required by the  rm over about an eighteen-month period. If the  rm 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  rm to another? If so, is any retraining needed?

What ongoing training is needed to keep people current and e cient? How can the  rm 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  rm will almost certainly need to add other items to this list, according to its needs and the culture of the  rm.

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 identi ed in your strategic plan. The key components

of your marketing plan shouldinclude:

zYour mission statement and the vision for your  rm;

zA brief restatement of your marketing objectives and how they complement your mission statement;

zThe timelines for your marketing program and any milestone events;

zMarketing strategies to be employed both internally and externally; and

zThe 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:

zBuild market awareness of your  rm;

zBuild your brand identity;

zRe ne your client base;

zAcquire new clients; and/or

zGrow your fee base by o ering new services to existing clients.

For many  rms the focus will be on the last two objectives, with the areas of market awareness and brand identity

seen as residual or secondary bene ts. They are clear and measurable outcomes from a series of promotions.

MODULE 1: PLANNING FOR YOUR FIRM 23

zMarketing 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  rm. Typical examples of

external strategies include: Client referrals;

zMemberships of professional or community organizations;

zProfessional network referrals;

zSpeaking engagements;

zHolding functions for clients, members of referral networks, and prospective clients;

zAdvertising and other media;

zSeminars;

zAdvertising in telephone directories;

zArticles and editorials in newsletters;

zWebsite promotion; and

zReferrals through your professional association.

Internal strategies increase your fee base from your existing clients. There are three main ways to achieve this:

zIncreased utilization of your current services by your existing clients;

zIntroduction of new services to your existing client base; and

zIncreased charge rates.

Decide where your emphasis should lie and re ect 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 bene ts 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

bene t. (You can remove and photocopy the template for your use.) Case study 1.2 in Appendix 1.5 illustrates

how a  rm 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.

zInstitute 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

“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.

zTalk to each client as the new service is being delivered, to ensure that they see the bene ts that the  rm 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.

zPlenty 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 speci c service and generate feedback directly.

zEnsure that in any case study the client’s identity and details are disguised and remain con dential.

zIs 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.

zMeasure 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  rm’s work. The  rm has a signi cant commercial exposure if the client leaves for another

 rm. You could end up with too many employees, too much o ce space and too high an overhead structure.

These can quickly bite into pro tability, since some of these costs are di cult to reduce.

1.5.5 Technology plan

Refer to Module 5 for information to consider when developing a technology strategy for your  rm.

1.5.6 Administration plan

Good administration is essential for any  rm—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  rms, which are unlikely to be large enough to a ord a

dedicated “general manager” or equivalent position.

The administration plan needs to address issues which help the  rm to run smoothly by ensuring that relevant

supplies are in place, that purchasing of minor o ce supplies happens in an e cient 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  rm’s trading terms.

As  rms 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

o ce space is allocated and used. The  rm 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 di erent pressure on a  rm’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  rm, or delegated levels of spending) will need to be reviewed. If a small  rm eventually

MODULE 1: PLANNING FOR YOUR FIRM 25

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  rm will have a  nancial consequence, and these are re ected in the

budget or  nancial plan.

Each of the individual plans described above should have their own budget, or the budgetary implications

might be covered in the overall  rm-wide budget. A budget allows a  rm to prioritize its actions and plan for any

problems realistically, in advance. The budget will help you keep these types of pressures under control:

zIt 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.

zIt may impress clients that your  rm operates from luxurious o ces in a prestigious location, but the required

charge-out rates might price your  rm out of its market.

zEmployees 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.

zEmployees might appreciate using the latest electronic gadgets in their daily work, but each application

needs to contribute to the  rm’s e ciency and revenue base.

A budget or  nancial plan imposes commercial discipline around each decision, and imposes controls on day-to-

day activities. It also sets targets that motivate, such as billable hours per person, or a revenue target per person

or per team. Many  rms 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  gure. 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  rm expands and diversi es. In a small  rm, one partner might

take responsibility for preparing a realistic budget, which the other partners will automatically accept and adopt.

Larger  rms 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  rms 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 e ectiveness 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, tra c

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  rm.

Use the skills of individuals e ectively. Partners and senior accounting employees are best used in fee-earning

roles, wherever possible. This generates the revenue can pay the wages of suitably quali ed specialists to

manage the  rm. In comparatively small  rms, partners may be involved in management functions, along with

assistants who perform routine transaction processing. So a managing partner in a small  rm may well have an

administrative assistant or an IT o cer, rather than an administration manager or an IT manager.

1.6 Building a risk management mindset into your ﬁ rm

Some risks, should they eventuate, might only be an annoyance; others could threaten the viability of your  rm,

or cause you to lose all your personal assets. E ective risk management helps you to control, and hopefully

eliminate, each risk or its impact. The most obvious precaution any  rm 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  rm.

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 o er 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  rm. 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 con dence 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 de ciencies in systems. Once a de ciency, weakness, or problem

is identi ed, it should be reported to the  rm 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 o ce.

7. Maintain an adequate spread in your fee base

Everyone has ideas about the ideal client: one who uses a broad range of the  rm’s services, is not fee

resistant and is enjoyable to work for. Your  rm should be built around these clients.

MODULE 1: PLANNING FOR YOUR FIRM 27

Every  rm 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  rm around a

small number of clients; if they should leave for any reason, your  rm 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 in uenced 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  nancial impact of, for example, a

 re sweeping through your o ce or a professional indemnity claim against your  rm. The premiums o er

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  rst 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  les

does not represent an unreasonably large amount of money any more. Frequent back-ups of data must be

made, and a copy kept o site. Periodically, run a recovery test to see what would happen if you needed to

restore or replace a  le server or key piece of equipment.

10. Be fully aware of privacy and client con dentiality guidelines

Finally, professional training puts great store in the need to maintain con dentiality about business

information. Complying with both the spirit and the letter of the various requirements (ethical and/or

legal) for client con dentiality 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  rm depends on several key personnel and key roles. Since the commercial future of your  rm 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 e ective management of the personnel side of

the accounting business.)

This model assumes that there is more than one partner managing the  rm.

1.6.2a Partners and owners

The partners provide leadership at many levels: technical leadership, leadership in the production and

commercial aspects of the  rm’s operation, and shaping the culture and atmosphere within the o ce. The

sudden loss of a partner could cause signi cant disruption to the  rm in each of those areas.

To control any potential risks:

zPay 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 pro t, and to fund the purchase of the deceased partner’s

share of the  rm. Re-assess the level of coverage each year to ensure it is adequate.

zEnsure that all work-related  les and client engagements are su ciently well documented to permit any

other senior person to use those  les and to complete client work with minimal disruption.

zCommit to support the use of standardized work papers, template documents and  ling systems (physical

and electronic). This enables all related documentation pertaining to clients to be stored and retrieved quickly

and e ciently.

zDevelop the skills and knowledge of senior personnel, to develop potential future partners.

zAim to create an e ective  rm culture (see Module 3).

1.6.2b Internal accountant/manager (if employed)

This role handles much of the  nancial resources and record-keeping, potentially exposing partners to:

zLosses or damage due to inadequate skills and/or poor performance;

zFraud; or

zThe impact of delays in reporting or analyzing the  rm’s ongoing pro tability and/or liquidity.

To control any potential risks:

zDecide who will supervise the accountant/manager. Write a detailed job description for this role, which

delegates certain responsibilities to the manager and other speci c responsibilities to the supervising partner.

This ensures that all tasks are allocated to one individual or the other within the management team.

zAcquire a suitable  rm 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 de ne

special or regular reports.

zOne of the partners should counter-sign with the manager all payments on behalf of the  rm (with the

exception of minor purchases paid for via a credit card) another partner should counter-sign payments if the

 rst partner is away from the  rm 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.

zFrom time to time, review aspects of the manager’s work, especially in matters relating to cash handling

and other receipts from clients of the  rm. Perform other reviews on a random basis, at the discretion of the

supervising partner.

zIn the early days of the  rm, review all incoming mail. This ensures that monies received from clients can be

audited and veri ed against their debtor records occasionally. Reviewing mail also allows the supervising

partner to monitor any negative feedback (received in writing) about the  rm’s services.

The manager should:

zRecommend a realistic reporting schedule, covering pro t reporting (and the basis on which pro t is

determined), liquidity reporting, and review of work in progress and debtor ledgers. This ensures prompt

reporting, and if there is an unexpected or unjusti ed delay in reporting the supervising partner can step in to

identify the cause and any impact of that delay.

zKeep 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 e cient

standard of service, and also ensures that the  rm is continually building the broader skills base of its people.

However, this approach could leave the  rm 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:

zDevise screening tests for use in the pre-employment phase. These tests should examine the technical

knowledge of each prospective employee.

MODULE 1: PLANNING FOR YOUR FIRM 29

zAdopt best practice employment processes to check references and quali cations as part of the pre-

employment screening ofapplicants.

zRequire each employee, as a condition of employment, to sign a restraint agreement to restrict some of their

actions should they leave the  rm, such as approaching any of the  rm’s clients or sta to lure them to another

 rm, or making disparaging comments about the  rm, partners or clients. The agreement should be professionally

drafted, and based on reasonable restrictions supported by the appropriate laws and professional regulations.

zProvide a range of support resources for clients, such as visiting their premises, writing newsletters or other

technical brie ng materials, encouraging networking opportunities among clients where applicable and ethical,

and so on. These initiatives enhance the client’s loyalty to the  rm rather than to any individual within it.

zProvide suitable professional development or other skills training, to ensure high technical standards of

service delivery.

zReview 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  rm to give sound professional advice

with minimal professional risk.

To control any potential risks:

zRun internal professional development activities at least monthly to discuss changes in legislation or other

matters impacting on client work.

zAllocate 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.

zConduct an annual  rm review to identify (among other things) any new services the  rm wishes to add; for

example, “The next anticipated addition is likely to be wealth management/ nancial planning services in

approximately two years’ time.”

zForm alliances with other specialist  rms to ensure that clients have their full accounting needs met. For

example, have at least two reputable and competent  rms 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.

zConduct regular quality control reviews of  les to ensure systems are being followed.

1.6.3 Minimizing potential problems in service delivery

Start-up  rms may have limited access to existing procedure documents and work ow templates. This could

leave the  rm exposed to providing incomplete professional advice, especially in its less common services; such

exposure would be detrimental to clients as well as the  rm.

To control any potential risks:

zProvide services through separate legal structures, in order to comply with local regulations concerning limits

on professionalliability.

zIn light of the extensive time required to develop work ows 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.

zA partner should authorize any changes to the template documents to maintain control over the quality and

consistency of the  rm’s work.

zProvide a regular training program to keep the team up to date professionally.

zSource convenient and relevant subscriptions to alert the  rm to changes in legislation and/or regulations.

zUse and regularly update engagement letters for clients.

zPerform internal peer reviews of a small sample of client  les during the year and welcome similar peer

reviews sponsored and/or arranged though the  rm’s professional association.

zHold professional indemnity/malpractice insurance to a minimum value of $(XXXX) (to be determined by the

 rm). Review this amount annually, prior to renewal of the policy.

Module 7 considers risk management strategies in other aspects of  rm management and Module

examines

the risks associated with technology in more depth.

1.7 Implementing a practice manual and systems

A well-run  rm 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 Medium-

Sized 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  rm.

A practice manual ensures that all personnel can quickly access details about the way the  rm 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 e ectiveness 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 sta 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  rm’s systems to fall apart.

Several manuals will be required within a  rm, each with a separate and distinct focus:

zA practice manual or quality control manual, which guides the way that professional work is performed within

the  rm;

zA sta manual or o ce manual, covering the various administrative matters and processes which all

personnel need to know;

zThe 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 o ce manual.

If you are buying an existing  rm 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  rm. If they do

not, then you or senior personnel will need to spend some time upgrading and updating the individual policies

and procedures.

MODULE 1: PLANNING FOR YOUR FIRM 31

If you are starting a  rm from scratch, you will need to document each policy as it emerges. Some of these can

be pre-empted (for example, a range of sta - 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  rst case can be

used to establish the  rm’s policy.

You may  nd that a publishing  rm or even another accounting  rm will sell ready-made manuals. This outlay

can save you considerable time. Even though this type of manual is complete, you might still  nd 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 speci c indicators relevant to your own situation and performance.

Benchmarks can be obtained from several di erent sources.

1.8.1 External benchmarks

An obvious place to  nd benchmarks is from accounting  rms broadly similar to your own. These are known as

external benchmarks. In many countries there are specialist benchmarking projects (some are run consultancy

 rms, while others are run by or sponsored by the national or state-based professional association). These

studies collect information from  rms, then group them according to speci c features (possibly the size of  rm,

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  rms typically achieve for each indicator. The partners or

managers in each  rm can then evaluate their  rm’s result relative to the typical result, and decide whether the

di erence represents a strength, a weakness, or simply a di erence of approach.

Sometimes a small group of  rms exchanges this type of data among themselves. This approach demands that

all the representatives of all the  rms have a great degree of trust in each other: the  rms will reveal sensitive

and con dential 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 de ned criteria for similarity: they might all be, for example,

insolvency  rms, or they might all be  rms with three to  ve partners, located in inner-city o ces.

The strength of external benchmarks is that one  rm might be challenged by the achievements of the others.

For example, a  rm 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- ve days. That  rm might come

to believe that seventy- ve days is as good a result as is possible. However, other  rms might use di erent

techniques or di erent billing arrangements and achieve a thirty-day collection cycle. This type of di erence

should rightfully challenge the “seventy- ve day  rm” 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  rm. By regularly measuring and calculating certain indicators, a  rm can

monitor trends in its own performance. Such an approach allows the  rm to focus on special aspects of its own

performance and take account of certain unique attributes. While this is bene cial, it can lull a  rm into a false

sense of security, as the “debtors” example above suggests. The use of internal benchmarks is most powerful

when it tracks  rm-speci c facts that are not easily or reliably compared withother rms.

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:

zFranchised 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 o er 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 pro tability too. An accountant

would never ask “Would you like an audit with these accounts?,” but the concept of o ering a wider range of

relevant services applies as much to accounting services as to fast food.

zFirms with high  xed-cost components need to continually build occupancy or usage levels as one

technique for boosting pro tability. 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

di erential pricing and/or special o ers to lift utilization at a time of otherwise low demand. Labor cost is a

major  xed-cost item in accounting  rms, so a similar concept might be applied. The  rm might promote a

 rst-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  rm would still be making a

pro t on those additional hours. If the client wishes to undertake a similar project the following year, then

your  rm has the scope to lift the hourly charge-out rate towards your normal level.

zThe key principle here is to look at what other  rms 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

pro tably in your  rm.

There are many examples of this type of cross-industry benchmarking. Remember that benchmarking can occur

at di erent levels. Many benchmarks will be expressed numerically pro t margins, cost structures, write-downs or

sta ng structures can be expressed with numbers. Provided the de nitions 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  rm’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  rm” and possibly even to “best  rm.” The sooner corrective action can be taken, the sooner will pro ts

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

 rm e ciency or pro tability. They are categorized according to whether they can be accessed and compared

e ectively from external benchmarks, or whether they are more suitable as internal benchmarks.

1.8.3a Firm-wide KPIs suitable for external benchmarking

Pro tability

zWages cost as percentage of total revenue;

zOther overheads as percentage of total revenue;

zNet pro t per partner/director;

zWrite-downs as percentage of total production, or per person.

MODULE 1: PLANNING FOR YOUR FIRM 33

Personnel productivity

zRevenue per dollar of salaries (including notional salary of partners/directors);

zFee to wage ratio;

zRevenue yield per productive hour (that is, hours excluding all leave, professional development time, non-

chargeable time, etc.);

zRevenue per person working in the  rm;

zRevenue per fee-earner (that is, excluding employees primarily in support or non-fee-earning roles);

zRevenue per partner;

zProductive hours worked per person per annum;

zProductive hours worked as percentage of available time (that is, excluding holidays, sick and professional

development leave,etc.).

Liquidity

zDays of work in progress unbilled;

zDays of debtors outstanding;

zAsset turnover;

zStructure and supervision:

}Employees per principal/director;

}Support personnel as percentage of total;

}Clients per person;

}Clients per professional (“fee-earner”);

zFees per client.

Other

zGrowth in  rm revenue per annum;

zFees generated from ten largest clients, as percentage of total revenue;

zAverage fee per client;

zGrowth 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  rm

due to a desire to measure the impact of speci c objectives adopted within the  rm.

Internal measurement should cover all of the above indicators, plus assets per person:

zTurnaround time for work;

zPartners’ equity as percentage of total assets;

zDistributed pro t as percentage of total pro t earned;

zGrowth in  rm pro t per annum;

zCurrent ratio;

zDebtors aging;

zWork in progress aging;

zDetailed expenses as percentage of revenue, and/or per person: focus on controllable variable costs, since the

 xed-cost percentages will vary according to the revenue base;

zGoodwill (or change in value of goodwill) based on the  rm’s internal valuation formula;

zRevenue mix as percentage of total revenue (sources of revenue by service);

zRevenue from  rst-year (new) clients as percentage of total revenue;

zNumber 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  rm. 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 e ciency and not just activity. For example, it

would normally be considered more e cient 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  rm. 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  rm overall, because it increases the cost of running the  rm while still

meeting the benchmark.

For each fee-earning division or team

zRevenue per person;

zWrite-downs per person per annum;

zRevenue less direct costs and controllable costs (that is, exclude arbitrary cost allocations or apportionments)

equates to contribution to  rm’s unallocated overheads;

zDirect salary cost (including employee-related on-costs) as percentage of revenue;

zControllable cost as percentage of revenue;

zFee growth per annum, total;

zIncrease in average fee per client;

zGrowth in contribution (that is, the department-related pro t measure) per annum;

zNew clients gained and clients lost during the year;

zPercentage 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 o ered additional services during discussions with the client, or number and percentage of clients

who were migrated to lump-sum, monthly billing);

zTotal work in progress and debtors.

MODULE 1: PLANNING FOR YOUR FIRM 35

For marketing activity

zMarketing outlay per enquiry;

zMarketing outlay per new client gained;

zMarketing hours (by all personnel) as percentage of total available hours,  rm-wide;

zRevenue per marketing hour;

zImprovement in the client satisfaction index based on client surveys.

For administration or  nance unit

zAdministration employees’ hours as percentage of total available hours,  rm-wide;

zRevenue per administration hour;

zOther e ciency indicators, such as percentage payments to creditors that were paid late.

1.9 The business of running your ﬁ rm

1.9.1 The key stages in running an e ective  rm

Figure 1.2 The “virtuous circle” of an e cient accounting  rm

Deliver the

service

Gather

information

Engagement

Letter

Communicate

outcomes

Bill and

collect

Find a

new client

Agree price

and terms

Tailor a

service

The key stages in this process are:

1.9.1a Find a client (later, on-sell to existing clients)

In a start-up  rm, this is especially challenging. You might have brought some clients from your previous

employer’s  rm (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  rm or parcel of fees from another practitioner, you will want to focus on retaining those key clients.

If you are joining an existing  rm, the immediate pressure to  nd 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

the imperative to add more clients who  t your ideal client pro le. 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  rm 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 bene t clients) meets demand (the speci c 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  rm, enable you to deliver further services to bene t 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  rm 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  rm.

Set a price that re ects your cost structure, and delivers a suitable pro t for the time and investment you devote

to the  rm. 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  rm remains commercially viable.

Whether the  rm actually charges by the hour for work performed, or whether the  rm adopts a “package price”

for an agreed bundle of services, achieving this charge-out rate is essential to the economic success of the  rm.

The rate must be high enough to cover all costs, to provide a return on equity invested in the  rm, and to reward

the partners’ time properly.

3. Engagement letter

Most professional associations require a  rm to produce a current and accurate engagement letter that

describes in reasonabledetail:

zThe nature and scope of work to be performed, including limitations;

zThe way in which work outside that scope will be handled and priced;

zThe client’s role in assisting you with source documents or other information;

zYour obligations in terms of professionalism, con dentiality, and completion; and

zThe 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 .

MODULE 1: PLANNING FOR YOUR FIRM 37

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  rm might use some checklists to gather

speci c 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 e cient 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- rm review of work by, for example,

a manager or partner; the use of the  rm’s quality control systems; e ective approaches within the  rm 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  nal outcome

assumes great importance in ensuring that clients are satis ed 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 e ectively? 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 quali cations 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 bene t 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 speci c milestones should trigger the automatic creation of an invoice for the

client. The client should expect this. A  rm might opt for a single invoice on completion, or a progress invoice

determined by time (for example, on the  rst day of the month during May, June, and July, with the  nal  gure

invoiced at completion of the job) or milestone for example, at the commencement of the interim audit work

and at the start of the  nal audit review). Both could lead to a signi cant build-up of work in progress and/or

debtor balances, and tie up considerable working capital as a result.

Many  rms are moving towards  xed-scope,  xed-price engagements that are paid monthly, then charging

separately for any additional work. This model has been shown to smooth the cash  ow for both client and  rm;

it also sees less money tied up in work in progress and debtors.

Some work lends itself to value-billing: your  rm’s fee is governed by the bene t 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 bene t 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 sta 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  rm 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 pro t given away, so these are important adjustments you are sometimes asked or required to make.

“Additionally too many  rms are extremely lax when it comes to  nancial control: lockup is far too high, invoicing is not

done on a timely basis, nobody is speci cally 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 e ective selling of

additional services happens when you and your professional employees listen to comments from clients, then

assess whether an opportunity exists for your  rm 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

 nancial 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 di erences between a regular, ongoing service and a one-o assignment. The former will

deliver sustained revenue: one sale generates bene ts to the  rm for many years and enhances the lifetime

value of that client. The latter will only bene t revenue in the short term; such assignments, however, can be

highly interesting and/or professionally challenging so they should not be ignored. A quality  rm will (among

other things) have a high level of recurring work that underpins each year’s budgeting and work ow planning.

On-selling services requires the wise practitioner to know the  rm’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 pro ts for both.

In Figure 1.2 the e ective selling of additional relevant services puts us back at the start:  nding a client and

tailoring a service.

MODULE 1: PLANNING FOR YOUR FIRM 39

“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 o er 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  rm has to o er. This is often more di cult than it sounds. As  rms 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.

zResearch and produce a master list of high-impact ideas to share with clients, and continually update it.

zAdd a step to your accounts completion programme requiring the accountant in charge to review the list to identify

relevant ideas for the client.

zWrite 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.

zPresent and discuss the report and recommendations at the accounts  nalisation meeting.

zDraw up an action plan containing the recommendations the client may want to implement.

zAsk the client if they want any help implementing the things on their action plan—you will sell additionalservices.

zUse value pricing wherever possible to link the fee to the bene ts you have quanti ed—you will earn higherfees.

zRepeat the process for every client, every year—since that way every client bene ts, not just the favored few—and it

embeds pro-activity into the culture of the  rm.

zWin new clients by putting the o er of a free ‘Key Improvement Possibility Report’ at the heart of your sales and marketing.

zGive your clients and contacts a reason to refer their contacts to you by inviting them to o er 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 e ective 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 bene t

from adopting  rm-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  rm, 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  rm.

Set up your  rm as an e cient 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  rm in many years’ time. Implement a systematized

approach to everything the  rm does. A  rm whose people can work methodically and consistently through the

cycle of services, and then ensure that the  rm controls its pro tability and liquidity along the way, becomes

a valuable business. This makes it easier to sell and probably more valuable than many other  rms. 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  rm can make a serious attempt to act in an environmentally responsible manner. One natural by-product

of minimizing a  rm’s carbon footprint often leads to running a less costly business.

A simple approach is to focus on “redesign,” “reduce,” and then if required, “o set.”

zRedesigning processes can often reduce the amount of resources, saving money for the  rm. 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.

zReduce the volume of resources used in the business. This could involve an energy audit to identify high-

power 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 retro tting your o ce building to reduce energy usage might be warranted if

it can meet a cost-bene t or payback hurdle. Many of these changes will reduce costs without compromising

the quality or e ectiveness of your service.

zOnce you have minimized the  rm’s footprint you can consider whether you wish to purchase carbon o sets

(sometimes referred to as “CO2 compensation”) to counteract or o set the remaining carbon emissions from

your  rm.

There may well be a number of quick, easy decisions that can make a signi cant impact in a short space of time.

Take those decisions  rst, to demonstrate to partners and employees the bene ts from this strategy. Reducing

your carbon footprint can also be a selling point to some clients, and attract employees to work in your  rm.

The next few years will see the environmental responsibility becoming more central in decision-making and

the implementation of a  rm’s plans. This phase will challenge  rms to question assumptions about work and

the way they deliver services. After perhaps  ve years,  rms 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  rm, and can also be used as a promotional factor

to make your  rm more desirable. Take advantage of this situation, and position your  rm 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  rms that do not operate on an international basis.

MODULE 1: PLANNING FOR YOUR FIRM 41

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 multi-

lingual, sta 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 signi cantly 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  rms’ environmental responsibility statements will add further complexity to the preparation, review,

and audit of  nancial statements. Accountants will come to play a signi cant 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  nancial and emotional, on the principal or partners of small  rms.

Give this issue special consideration if you are planning to start or operate a sole principal  rm, as the

professional and technical leadership will have to come from you.

One response could be to aim for a  rm 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  rm’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 e ort 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  rm 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  rm for guidance with secure-payment

products (ranging from the likes of PayPal or equivalents, to trade  nance arranged through a local bank).

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 di erent times and in di erent 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

di culties 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  ow of skills and quali ed people. They do this via reciprocal recognition of the quali cations

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 di erent organizations (for example, exchanging

information between an accounting  rm 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 di erent organizations. However, accountants will need to learn and

implement any applications that can deliver bene ts to clients. Equally, accountants will need to screen

and review the quality of data that they process on behalf of clients. To do this e ectively 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 speci c 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 de nition or threshold for a “large transaction” will di er, 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  rm’s compliance process involve:

zClient 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;

MODULE 1: PLANNING FOR YOUR FIRM 43

zTransaction monitoring, which requires you to review any underlying transactions that involve large volumes of cash;

zReporting, either based on monetary thresholds, or suspicious transactions;

zRecord-keeping, to demonstrate compliance with local regulations and laws;

zPerforming risk assessments within the  rm, to identify high-risk products or activities or potential clients; and

zDeveloping speci c policies for use within the  rm 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 anti-

money-laundering or counter-terrorism funding procedures do not speci cally apply to your  rm.

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  rm from operating for a period of time, due for example to:

zFires,  oods, earthquakes and other natural disasters;

zUnexpected interruptions to power or computing infrastructure; or

zThe severe illness or death of the owner or a key person in the  rm.

These types of catastrophic events are well outside the control of a  rm, yet they impact on your ability to

service your clients. A well-run  rm 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:

zCan you prevent the occurrence? The (limited) answer to this might include regular health checks for key

personnel in the  rm 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.

zHow can you minimize its impact? Minimization might force the principal/partners to either locate the  rm

in a more stable region (that is, away from a  ood-prone or earthquake-prone region), or at least have spare

resources such as computers and/or back-up data  les stored elsewhere. Perhaps the  rm needs to locate

itself in a more robust building.

zWhat 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.

zCan you form links with other  rms? You might identify and create formal links with some non-competing

 rms 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, con dential information relating

to each client base would need to be secured appropriately.

For a sole practitioner, sudden death or severe illness is a particular concern. You might deal with this issue by

locating a  rm 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  rm so that

a bereaved spouse would receive a fair price for the value of the  rm.

1.11.2 Continuity of business: the second generation

If the  rm’s fee base grows over a number of years, the  rm may see a new partner admitted. This could be a

suitably quali ed 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  rm, either (in the case of a

family member) by a reduced level of income from the  rm for a period of time, or (in the case of a former employee)

by payment of a  gure to buy a share in the tangible assets plus the goodwill built up in the  rm by its founder.

The admission of a partner represents a major shift in the way the  rm operates. Suddenly, decisions must

be made jointly. Agreement is necessary between the two (or more) partners. Di erent personalities must be

accommodated. Policies may need to be documented and more formal records might be required in relation

to the management of the  rm (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  rm’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  rm operates. Every  rm requires its own strategic plan, to govern the

direction and speed at which it moves. Every individual section of the  rm needs its own plan to guarantee that

it contributes to the overall result.

A  rm 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  rm.

Like any road map, some indicators are needed to keep the  rm on track. Benchmarks will keep the  rm

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  rm 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  rm; and dismissing them can be a long, time-

consuming 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  nd better colleagues: they won’t want to work with

negative, incompetent or di cult people, either.

MODULE 1: PLANNING FOR YOUR FIRM 45

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 pro table.” 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 Cli s, 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-balanced-

scorecards.html

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.economiae nanza.org/categoria/piani cazione-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  nd 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 1: PLANNING FOR YOUR FIRM 47

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  rm 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 su ciently  exible 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 su cient facts?



Do you prefer to work solo, or be part of a team?

Think about your  nancial resources



Do you have access to some funds to set up or buy into a  rm possibly without drawing a wage or

equivalent for severalmonths?



Are you aware of the major elements involved in running and funding a public  rm: 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  rm generates any revenue?



Would a  nancial institution lend you money for your  rm, 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 e ective marketer or seller of your current employer’s services?



Are you comfortable when describing and quantifying the value or bene ts 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 pro table  rm requires you to generate a certain amount of revenue from each

hour that you spend working for each client. You can’t a ord the luxury of self-doubt. It is essential that

you believe you deliver value and bene t to your client base, otherwise your marketing will have a hollow

feeling about it.

Think about your personality



Are you a con dent person?



Are you willing to work hard to achieve your objectives? At some times, you will need to work long hours to

complete speci c deadline-driven work; if this will frustrate you, then you might need to take a generous

and more costly approach to sta ng the rm.



Are you willing to make sacri ces 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  rm. Each will have their own style and you

will need to utilize the strengths that each person brings to the  rm.



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  rm? Will they permit you the time and

 exibility to work long hours should the need arise?



How will you support yourself and/or your family  nancially, especially in the early days of a start-up  rm?



(Especially for an intending sole practitioner) Do you have a trusted adviser (or a mentor or a coach) with

whom you can discuss a di cult issue?

Financial: Everyone has a view about the importance (or otherwise) of material wealth and a di erent de nition

of a comfortable lifestyle. What is yours?

Speci c things you want to do: What are they, and what is a realistic timeframe in which they could be achieved?

MODULE 1: PLANNING FOR YOUR FIRM 49

Appendix 1.2 Matters to be covered or addressed in the planning process checklist

Legal structure

zSole practitioner or partnership?

zChoice of the particular legal entity: use of speci c legal structures, with their related implications and

bene ts for limitation of legalliability.

Services

zThe range of services to be o ered;

zWhether they will all be o ered in-house, or some handled via referrals;

zThe approach towards the referring of a client elsewhere (for example, do you expect referrals in return?).

Sta ng

zThe long-term mix of principal/partners versus employees;

zSome mention of career path options and criteria for advancement;

zApproaches (both the stated policies and hopefully a consistent culture) towards working hours, holidays,

other leave, and  exibility to accommodate short-term family situations that might a ect a employee;

zFlexibility in permitting work-from-home arrangements;

zReward programs you might wish to implement;

zApproaches to permitting periods of extended leave without pay or study leave etc and

zMethods to be used to attract and retain new personnel.

Systems and procedures

zThe speci c processes which your team will use to deliver services to clients, and the amount of  exibility to

be given to di erentemployees;

zThe sanctions that are applied when a system is ignored or not followed; and

zPrecedents, work papers, and the quality review requirements of your professional association.

Technology

zWill this be developed and implemented by internal personnel (that is, principal/partners and/or employees),

or will it be driven via consultants and contractors?

zSet 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  rm into the future.

Marketing and growth

zSome consideration of the methods to be used to achieve organic growth in client numbers;

zThe approaches to be adopted to make clients aware of the full range of services o ered by the  rm;

zThe importance of marketing within each person’s job description;

zWhether 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

zWhether growth is a key focus of the  rm’s e orts, 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

zAn overall approach to the funding needs of the  rm:

}Contributed capital;

}Retained earnings and

}Dividend/drawings levels;

zA broad approach to the lease versus buy options for purchase of capital equipment;

zThe extent to which the  rm 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

zAllocation of responsibilities for  nancial management, administration, and management of the  rm.

MODULE 1: PLANNING FOR YOUR FIRM 51

Appendix 1.3 Marketing program template

Marketing program

Year

Marketing objective Strategy Responsibility Time frames Cost Results anticipated

Internal

Example 1

To increase fees

by 5%

Introduce ﬁ nancial

planning into practice Carol Taylor

by 31

December $28 000

20 clients at $2500 per

client

External

Example 2

To acquire 5 new

business clients

Quarterly seminar

programs John Smith

by 30

September $14 000

Acquisition of 1-2 clients

per seminar held

Total

Appendix 1.4 Sample Ofﬁ ce Manual

A sample o ce manual follows as an example.

The manual should cover issues such as:

The mission statement and/or objectives

zList of services provided;

zList of speci c target client-types or the principal market segment in which the  rm operates;

zKey operating targets or aspirations for the current  nancial year.

Organizational structure

zMajor teams or functional areas within the  rm, both fee-earning and administrative;

zSenior personnel (at a minimum);

z(Ideally) allocation of all personnel into their work groups or teams;

zKey contact details for the  rm: o ce location(s), mailing address, phone number, fax number, generic email

address, and so on.

Employment conditions

zReporting lines and organization structure;

zFair employment processes covering advertising a vacancy, screening applications, interviewing short-listed

candidates, checking references, creating letters to o er employment, and so on;

zInduction programs for new employees;

zJob descriptions;

zOngoing professional development: in-practice activities, external courses and events,  rm subsidy for

training or professional development, claw-backs of subsidies in event of early departure from the  rm;

zWork hours and performance targets: minimum standards and expectations, overtime,  exible time, and so on;

zDress standards;

zSmoking, alcohol and drug policies;

zPerformance management: sta performance reviews and target-setting for the coming year;

zSalary-setting and review: salary scales if applicable, criteria used in salary reviews, frequency of reviews,

bonuses or incentives;

zFrequency and method of pay;

zNon-salary bene ts provided by the  rm (possibly non-cash bene ts, salary-sacri ce arrangements,

retirement scheme etc.);

zLeave allowances and conditions: holidays, sick leave, long-service leave, bereavement leave, special leave,

unpaid leave, study leave, maternity and paternity leave, and so on;

zGrievance or appeal process;

zTermination of employment: notice required from either the employee or the  rm.

Purchasing of minor requirements

zDelegation limits for proposed spending;

MODULE 1: PLANNING FOR YOUR FIRM 53

zAuthorization of purchases and payments;

zBooking 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;

zCharge-backs to clients for costs incurred during professional work.

Use of the  rm’s equipment

zResources provided within the o ce: computers, software, subscriptions, telephones, internet access, storage,

and so on;

zResources provided for use outside the o ce: portable computers, mobile phones, vehicles;

zReporting and reimbursement by employees for private use of o ce resources.

Performance standards

zThe 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;

zManagement of incoming and outgoing communications: phone, postage, email, fax;

zDocument retention;

zGrievance process for clients;

zGuarantees for professional work;

zPrivacy and con dentiality regarding client information;

zAuthorization or limits on authorizing write-downs, amending fee invoices, or writing o invoiced amounts.

Fair work practices

Some or all of these might be governed by legislation, or by codes of conduct.

zEqual employment opportunity;

zOccupational health and safety or safe workplace: emergency contacts,  re drills;

zAnti-discrimination: for example, on the basis of age, race, religion, sex, sexual preferences;

zHarassment, whether in the form of bullying, sexual harassment, or other

Sample staff ofﬁ ce manual

This is a sample manual only.

The content of this manual should

be customized to reﬂ ect your

individual practice requirements.

SAMPLE STAFF OFFICE MANUAL 55

Table of contents

1 Introduction 1

1.1 General introduction 1

1.2 The Practice’s histor

1.3 The Practices Mission & Vision Statements 1

1.4 The Practice’s ob

ectives 2

1.5 Administrative structure 2

2 Em

ment 3

2.1 Performance of duties 3

2.2 Reimbursement of ex

enses 3

2.3 Travel 3

2.4 Dress and conduct 4

2.5 Pa

roll

rocessin

2.6 Personnel details 4

2.7 Practice Motor Vehicles 4

2.8 Practice Motor Vehicle Insurance and Liabilit

2.9 Mobile tele

hones 6

2.10 Char

e accounts 6

2.11 Personal tele

hone calls 6

2.12 A

riate internet and email usa

e 7

2.13 Lateness for work 7

2.14 Medical examination 7

2.15 Pro

ert

of the Practice 7

2.16 Securit

2.17 Car

arkin

2.18 Annual review 8

2.19 Termination of em

ment 8

2.20 Smoke-free environment 9

2.21

ualit

assurance s

stem 9

2.22 Work for em

ees and famil

2.23 Practice Code of Conduct 9

2.24 S

ecial leave arran

ements 9

2.25 Acce

tance of Gifts and Entertainment Polic

3 Work

lace health and safet

olic

3.1 General Dut

of Care 11

3.2 Safet

rules and re

ulations 11

3.3 Incident re

ort form 12

3.4 Securit

and  re safet

rocedures 13

3.5 Visitors to the Practices O cers 13

3.6 First Aid 13

4 E

ual o

ortunit

discrimination and harassment

olic

4.1 Introduction 14

4.2 Discrimination 14

4.3 What is discrimination? 15

4.4 Work

lace ri

hts 16

4.5 Sexual harassment 16

4.6 Harassment 17

4.7 Conse

uences of breachin

this

olic

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

ainst? 18

5 Professional standards 19

5.1 Code of Conduct 19

5.2 Other Professional Standards 19

ualit

control 20

6.1 Practice

ualit

Control Procedures 20

7 Email and internet

olic

7.1 Introduction 21

7.2 What does this

olic

cover? 21

7.3 Email

rotocol and

uidelines for email use 21

7.4 Internet

rotocol 22

7.5 S

stem

rotocol 22

7.6 Software 23

7.7 Practice’s surveillance

olic

8 Privac

olic

8.1 Pur

ose 24

8.2 Collection of

ersonal information 24

8.3 Privac

Princi

les 24

9 General o ce

rocedures 25

9.1 Tele

hone 25

9.2 Email corres

ondence 26

9.3 Corres

ondence 26

9.4 Filin

(

includin

electronic

)

9.5 Stora

e and dis

osal of documentation 27

SAMPLE STAFF OFFICE MANUAL 57

9.6 Pett

Cash Reimbursements 27

9.7 Sta Facilities 27

9.8 Photoco

iers 27

9.9 Fax machines and other o ce e

ment 27

10 Sta a

raisal

trainin

& develo

ment 28

10.1 Ob

ectives of

erformance a

raisals 28

10.2 How often should

erformance a

raisals be conducted? 28

10.3 Durin

the

erformance a

raisal meetin

10.4 After the

erformance a

raisal meetin

11 Finance

olicies 30

12 General em

rievances 31

12.1 Introduction to

rievances 31

12.2 Procedures for dealin

with em

ee con ict 31

12.3 Procedure for dealin

with em

ee/client con ict 32

13 O ce forms 33

13.1 A

lication for leave 34

13.2 Bank account details 35

13.3 Em

ee a

raisal sheet 36

13.4 Travellin

enses claim form 38

13.5 Overtime sheet 39

13.6 Reimbursement ex

ense form 40

1. Introduction

1.1 General introduction

It is not possible for the Sta O ce Manual (O ce 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 O ce Manual sets out the broad philosophy of the practice and speci c policies that sta members are to

follow. Sta members should familiarize themselves with the policies and procedures contained in this O ce

Manual.

Employees must comply with the O ce 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 speci c bene ts that adherence to the O ce Manual will bring include:

[CUSTOMIZE THE FOLLOWING TEXT TO REFLECT PRACTICE PHILOSOPHY]

For our Practice:

zDe ning the service levels our clients expect our practice to provide

zEnhancing the communication structure

zProviding training for sta members in performing their roles

zEnsuring consistency in the format and substance of working papers

zReducing lost time due to re-work or ine ective and/or ine cient practices

zReducing the risk of litigation

zHighlighting procedural or con icting policies

zResolving problems e ectively

zIncreasing pro tability

For our Clients:

zClear benchmarks of the standard of service they receive

zUnderstanding of the value of the services they receive for our fees

zConsistency in service

To meet the changing environment in which the Practice operates, it will be necessary to amend the O ce

Manual from time to time. The Practice will give sta notice of any substantial changes to the O ce Manual, and

sta will be required to follow the changed policies and procedures.

The contents of the O ce Manual are con dential and should not be disclosed or discussed outside the Practice

without the Practice’s prior consent.

1.2 The Practice’s history

[INSERT DETAILS]

SAMPLE STAFF OFFICE MANUAL 59

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. Sta 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 speci ed in the table below:

Area of administration Person responsible

1. 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

[SPECIFY POSITIONS HERE RATHER THAN

PARTICULAR EMPLOYEES. e.g. “The Staff

Partner,’ ‘The Ofﬁ ce Manager’]

2. Ofﬁ ce

A. Technology:

• Computer System

• Telephone System

• Ofﬁ ce Equipment

B. Consumables:

• Stationery

• Amenities

C. Motor Vehicles

3. Business Development

A. Marketing:

• Advertising

• Public Relations

• Functions

• Circulars

B. Training and Development

4. 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 Ofﬁ ce Manual.

5. Quality Assurance

A. Quality Manager

2. 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 di culty in understanding or performing any aspect of their duties they

should seek assistancefrom:

ztheir direct supervisor;

zif the direct supervisor is not available, another employee with a similar level of authority to the supervisor; or

zif 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 o ered 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 dissatis ed 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.

SAMPLE STAFF OFFICE MANUAL 61

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 O ce

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 be tting 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 re ects 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.

2.7 Practice Motor Vehicles

The Practice may make available to Practice employees, contractors and work experience sta (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:

zbe 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;

zobserve all relevant tra c regulations;

zdrive in a manner which is safe and responsible in respect to themselves, any passengers and the general public;

znot drive or permit the driving of a Practice Motor Vehicle by a person under the in uence 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 in uence of prescription or recreational drugs;

zshow courtesy and consideration to all other road users;

znot authorize or allow any other person to drive the Practice Motor Vehicle without the written authorization

of thePractice;

znot drive or permit the driving of a Practice Motor Vehicle in a careless, reckless or dangerous manner;

zcomply 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

 nes, 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:

za current registration sticker is in place;

ztire pressures are correct;

zwater, oil, battery, and fuel levels are correct; and

zall 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 re ll 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.

SAMPLE STAFF OFFICE MANUAL 63

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  nes, infringements or penalties incurred by Persons

driving Practice Motor Vehicles. The payment of  nes and penalties incurred by Persons will be the responsibility

of the Persons driving the Practice Motor Vehicle at the time the  ne or penalty is incurred. Unless otherwise

noti ed, the  ne 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  ne or penalty was incurred is identi ed.

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:

zdriving a vehicle when the driver has a blood alcohol content in excess of the legal limit;

zdriving a vehicle while not licensed or authorized to drive it;

zdriving a vehicle in an unsafe condition;

zusing the vehicle in a trial, race, test, or contest; or

zdriving a vehicle in breach of tra c 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:

zreport the accident or theft immediately to the Practice so that the insurer (and in the case of theft, the police)

can benoti ed;

znot admit liability for any accident, or make any attempt to settle or compromise any claims;

znot make any statements to the Practice or its insurer which are not truthful and frank;

zprovide 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

zdeliver 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

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:

zthe 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;

zthe employee will use the mobile telephone for business purposes only;

zthe 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;

zit is the employee’s responsibility to ensure the mobile telephone is  tted with a charged battery in working condition;

zit 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

zthe 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:

zprior authorization has been granted to the employee by the Practice;

zan o cial order form has been completed by the employee and approved by the Practice; and

za 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.

SAMPLE STAFF OFFICE MANUAL 65

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 O ce 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:

zwe 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

zyou 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 speci cations 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 speci cations 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.

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 o ce 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 bene ts will be at the Practice’s discretion.

There is an Employee Appraisal Sheet included in the O ce 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.

SAMPLE STAFF OFFICE MANUAL 67

Following termination of employment and upon request, all employees will be issued with a simple statement

of service setting out:

zthe name and address of the employee;

zthe duration and periods of the employee’s employment with the Practice;

zthe position held by the employee at the time of termination, and any other positions held during the

employee’s employment with the Practice;

zthe location at which the employee performed their duties;

za general statement of the tasks and duties performed by the employee for the Practice, and any speci c

responsibilities held; and

zthe contact person at the Practice who is available to con rm 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  rst 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.

A code of conduct should re ect the core values that underpin the way your practice works. These values

normally are a re ection 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 noti cation 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 noti cation. 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 di erence between the employee’s ordinary pay (excluding overtime and other allowances) and the

payment from the court for the  rst 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 o er nor accept any gift or entertainments that might in uence (or appear to in uence)

any work undertaken by the Practice.

SAMPLE STAFF OFFICE MANUAL 69

It is acknowledged that from time to time employees will be o ered gifts or bene ts 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.

3. 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 o cer 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 o cer 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 o cer 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 o cer or their supervisors as soon as possible so that the matter can be

considered and addressed as appropriate.

3.3 Incident report form

INCIDENT REPORT FORM

Date:

Time of incident:

Employee’s name:

Description of incident:

Witnesses to incident:

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:

SAMPLE STAFF OFFICE MANUAL 71

3.4 Security and ﬁ re 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 Ofﬁ cers

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

o ce working area. This is to ensure privacy of other employees and the con dentiality of client  les.

3.6 First Aid

The four main aspects of  rst aid are:

zEmergency treatment

zRecords maintenance

zRedressing of minor injuries

zRecognition and reporting of hazards

First Aid Kits

First aid kits are in INSERT LOCATION] and accompanied by a list of trained  rst aid sta . Trained First Aid Sta

are responsibilities include:

zDispense and control items from the  rst aid kit

zEnsure kit supplies are adequate

zTreat minor wounds and injuries

zDeal with  ts, fainting

zResuscitation

zRecording accident/injury details in accident book provided as part of the  rst aid kit

zArranging further assistance if required

zAdvising 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  rst aid sta maintain currency

in their quali cations and will arrange for additional sta to receive formal  rst aid training.

4. Equal opportunity, discrimination and harassment policy

4.1 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:

zthe 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

zby 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:

zwork performance can su er as a result of these behaviors creating an intimidating and hostile work

environment;

zthe detrimental e ects on work output are seldom limited to one person and are often spread across a section or

work unit;

zservice delivery to clients may subsequently be negatively a ected;

zthe health of people subjected to discriminatory behaviors, harassment and sexual harassment may su er,

resulting in increased sick leave or compensation claims as well as personal duress to the individuals

concerned; and

zsuch 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]

SAMPLE STAFF OFFICE MANUAL 73

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:

zgender

zage

zrace, color, national extraction, social origin, nationality

zimpairment

zphysical disability

zmental, intellectual or psychiatric disability

zmedical record

zcriminal record

zmarital status

zpregnancy

zreligion, religious belief or religious activity

zpolitical opinion, belief or activity

ztrade-union activity

zsexual 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 quali cations 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:

zjudging someone on their political or religious beliefs rather than their work performance;

zusing stereotypes or assumptions to guide decision-making about a person’s career;

zundermining a person’s authority because of their race, gender or sexual preference;

zmaking o ensive jokes or comments about another worker’s racial or ethnic background, gender, sexual

preference, age, disability, or physical appearance; or

zdenying further training to employees on the basis of impairment.

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 e ect of the requirement being imposed will show that some people are disproportionately a ected

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:

zthe bene t of a workplace instrument or order;

zthe ability to make complaints or enquiries in relation to their employment; and

zthe 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 de ned 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. discrimination in the terms and conditions of employment o ered to a prospective employee and

includes threatening to take action, or organizing action.

4.5 Sexual harassment

[CUSTOMIZE TEXT BELOW TO SUIT LOCAL JURISDICTION]

Sexual harassment is unlawful.

SAMPLE STAFF OFFICE MANUAL 75

Sexual harassment is essentially de ned 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 o ensive material.

Sexual harassment will not be tolerated by the Practice under any circumstances.

More speci cally, 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.

o ensive telephone calls or indecent exposure),

and the person engaging in the conduct does so:

a. with the intention of o ending, 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 o ended, humiliated or intimidated by the conduct.

Examples of conduct that could amount to sexual harassment include:

zkissing, attempts at sexual intercourse or overt sexual conduct;

zsexually explicit conversations or references to sexual contact;

zgender based insults, teasing or taunting;

zintrusive questions of a sexual nature;

zproposals of marriage or declarations of love; or

zinnuendos 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 su cient 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.

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 co-

worker or a group of co-workers ofthe person that:

zis unwelcome and unsolicited;

zthe person considers to be o ensive, humiliating or threatening; and

za reasonable person would consider to be o ensive, 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 o ensive 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 unjusti ed criticisms, often about petty, irrelevant or insigni cant matters;

h. humiliating a person through gestures, sarcasm, criticism and insults, often in front of other people;

i. racial sledging; and

j. 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

SAMPLE STAFF OFFICE MANUAL 77

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, con dentially

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:

zYou 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.

zAlternatively, 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.

zEvery complaint will be treated seriously and investigated promptly, con dentially, and impartially.

zDisciplinary 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]

5. Professional standards

5.1 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:

zIntegrity

zObjectivity

zProfessional Competence and Due Care

zCon dentiality

zProfessional 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)

SAMPLE STAFF OFFICE MANUAL 79

6. 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  rm does not

have one in place. This guide provides non-authoritative guidance on applying the redrafted ISQC 1, which

requires  rms 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  rms when developing a system of quality control for audits and reviews of  nancial

information, and other assurance and related service engagement.

7. 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:

zto set out the responsibilities associated with the use of Internet and email via the Practice’s systems, for the

bene t of all who use it; and

zto 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 o ce 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;

SAMPLE STAFF OFFICE MANUAL 81

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 o 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  le; and

d. all email received must be printed and stored on the relevant  le.

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 ‘sur ng’ must only be conducted outside ordinary working hours, unless it is for a speci c 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.

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 di culty 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 con gured for

optimal e ciency, any changes to this con guration may adversely a ect 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

tra c 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;

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

c. monitoring the importing and exporting of any data to or from any Practice computers by any portable

media storage device, for example,  oppy 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.

SAMPLE STAFF OFFICE MANUAL 83

8. Privacy policy

CUSTOMIZE TEXT FOR THIS SECTION TO SUIT LOCAL JURISDICTION]

This policy should relate to personal information held about employees, contractors, work experience sta , 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 de ned 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

noti ed 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:

zNotice Individuals must be informed that their data is being collected and, about how it will be used.

zChoice Individuals must have the ability to opt out of the collection and, forward transfer of the data to third parties.

zOnward Transfer Transfers of data to third parties may only occur to other organizations that follow adequate

data protectionprinciples.

zSecurity Reasonable e orts must be made to prevent loss of collected information.

zData Integrity Data must be relevant to and reliable for the purpose it was collected for.

zAccess Individuals must be able to access information held about them, and correct or delete it if it is

inaccurate.

zEnforcement There must be e ective means of enforcing these rules.

9. General ofﬁ ce 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, e ciently and courteously as possible.

The Practice telephone is to be answered with the name of the  rm and “good morning” or “good afternoon this

is …speaking.”

Where calls are answered by a dedicated receptionist or telephonist, the sta 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 sta member who is not in the Practice the caller will be advised that the person

is “out of the o ce” 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 sta 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 sta 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  rm, 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]

Sta 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 sta member is unavailable. This provides a professional and e cient

business to the client.

Voicemail

[CUSTOMIZE TEXT BELOW IF VOICEMAIL FACILITIES ARE IN USE]

All sta members are responsible for checking and respond to voicemail messages in a timely manner. If you are

out of the o ce for longer periods of time, a speci c voicemail message should be recorded or your telephone

system programmed to re ect your absence. It is important that any voicemail messages be reviewed regularly

and be reset upon your return to the o ce. Where possible the caller should also be provided with a menu

alternative to return to reception for an individual message to be left.

SAMPLE STAFF OFFICE MANUAL 85

Personal calls

Short, local personal telephone calls are permitted. Sta 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. Sta members using mobile

phones should be aware that this may be a distraction to other sta .

Where sta 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  le or storing via an

electronic document management system

All sta members have responsibility to create, keep and retain records in accordance with the Practices policy.

When electronic mail is received or sent the individual sta member should determine whether the message

and any responses should be placed on central  le. As a general principle, a hardcopies of all email messages

concerned with the practice should be  led. Messages of a momentary nature, which are for information only,

e.g. noti cation of changes in the time/venue of a meeting, may generally be deleted.

For internal electronic records, printing and  ling is the responsibility of the message originator. For messages

received from external sources, printing and  ling 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  rst thing in the morning and all documents are opened at the discretion of the

receptionist or nominated sta member. The nominated sta 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 con dential nature should be marked “Private and Con dential” to

ensure it is notopened.

As the mail is opened it is sorted into individual piles:

zInvoices are given to Accounts Payable .

zCheques are given to Accounts Receivable.

z“Junk” Mail (non-records mail, which will be distributed) is distributed to the appropriate o cer.

zThe 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 di erent 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 sta member. Before

distributing it, stamp with the Document Stamp, Doc Number stamp, and date stamp, and in the O cer  eld,

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]

SAMPLE STAFF OFFICE MANUAL 87

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 e cient 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

sta 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:

zdetermining how well employees are doing their jobs;

zcommunicating this information to employees;

zestablishing a plan for performance improvement or development;

zassisting employees to implement this plan, including providing access to training and development tools

asrequired.

Before the performance appraisal meeting

zA performance appraisal requires preparation before the meeting can occur.

zBefore 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.

zPrior to conducting a performance appraisal, employers need to consider the purpose of the appraisal and

have su cient and correct information on hand, for example, copies of previous performance appraisals,

speci c performance criteria, performance against budget statistics, and training and development

undertaken since the last appraisal.

Both employer and employee should also  ll out an appraisal form, with a view to comparing and discussing

these forms with the employee during the appraisal. This will help maximize the bene ts 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 con dential 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 e ective. 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 e ectively?” 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 e orts 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 Sta Appraisal Sheet is included in the O ce 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.

SAMPLE STAFF OFFICE MANUAL 89

11. Finance policies

[CUSTOMIZE THIS SECTION BY INSERTING PRACTICE’S POLICIES AND PROCEDURES]

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 O ce Manual.

12.2 Procedures for dealing with employee conﬂ ict

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 con ict 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 speci cally relates to the supervisor, or if there is a personality con ict. 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 o er suggestions as to how the dispute can

be resolved. For example, a con ict may be resolved by:

zcompromise; or

zseeking an apology from the party complained about; or

zo ering a change of working arrangements, if practicable. 33

SAMPLE STAFF OFFICE MANUAL 91

However, no action should be taken without  rst talking to the aggrieved employee and getting their

agreement.

All stages of the grievance process should be documented and  le notes provided to the parties involved as

appropriate.

Grievance paths beyond the Practice

If the employee with the grievance is not satis ed 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 conﬂ ict

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.

13. Ofﬁ ce forms

[CUSTOMIZE THIS SECTION TO SUIT LOCAL JURISDICTION]

13.1 A

lication for leave

13.2 Bank account details

13.3 Em

ee a

raisal sheet

13.4 Travellin

enses claim form

13.5 Overtime sheet

13.6 Reimbursement ex

ense form

SAMPLE STAFF OFFICE MANUAL 93

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:

13.2 Bank account details

BANK ACCOUNT DETAILS

SURNAME: GIVEN NAMES:

ACCOUNT 1: ACCOUNT 2:

BANK: BANK:

BRANCH: BRANCH:

ADDRESS:

BSB - NO: BSB - NO:

A/C NO: A/C NO:

AMOUNT: $ AMOUNT: $

SAMPLE STAFF OFFICE MANUAL 95

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

12345

PERSONAL

CHARACTERISTICS

Dress

Punctuality

Willing to undertake

professional development

Communication skills

Responsible with

conﬁ dential information

RELATIONSHIPS

Relationships with

supervisors and managerial

employees

Relationships with

co-workers

Relationships with persons

under their control

Relationships with clients

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

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.

SAMPLE STAFF OFFICE MANUAL 97

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

13.5 Overtime sheet

OVERTIME SHEET

Employee’s Name:

DAY DATE START FINISH TOTAL

HOURS

AUTHORIZED

Monday

Tuesday

Wednesday

Thursday

Friday

Saturday

Sunday

TOTAL NUMBER OF HOURS

Authorized:

SAMPLE STAFF OFFICE MANUAL 99

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:

100

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.

zWilliam Lam is thirty-seven years old. He has a commerce degree and has worked for six years in a prominent

accounting  rm. He passed his professional exams three years ago and is a fully  edged 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  rm.

zIndira Shah is thirty-eight years old, and attended the same university as William. She works in the audit

division of the same  rm as William. Indira too is fully quali ed and highly regarded within her current  rm.

zIndira and William have kept in contact through the  rm and also through shared musical interests outside

the  rm, 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  rm together.

SAMPLE STAFF OFFICE MANUAL 101

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 identi cation of the issues facing them and their new  rm.

William’s strengths included his ready insight into quickly seeing the bene t 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-con dence 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  rm, 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 con dence, and so is less likely to generate rapid growth in the audit-based services o ered

by the new  rm. 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  rm 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 e orts of other  rms

in their market area. E ective marketing demands that a  rm stand out as di erent from its competitors. Most

local small  rms 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 speci c range of business clients, as well as audits for government bodies. They decide to rely on

marketing tactics such as:

zA listing in the telephone book, of similar style to other  rms;

zA website with contact details of key personnel, as well as descriptions of improvements or bene ts the  rm

has delivered to clients: brief case studies describing the pro t improvements or other tangible impact on the

businesses, and testimonials from clients about the  rm;

zA brochure with similar content to the website;

zA regular column in the local newspaper, which gives the chance to comment on the impact of current

economic conditions;

zA simple letter focusing on the bene ts the  rm has delivered for clients: small numbers will be mailed each

month to selected clients, in particular areas, who  t the  rm’s “ideal client” pro le; and

zA corporate brand, which is professional yet di erent from the typical accounting  rm, developed by a

professional graphic design  rm.

102

The marketing e ort is aimed at adding new clients in the early years of the  rm’s life. Fee growth of 50% p.a. is

targeted for the  rst three years of the  rm. 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  rm’s personnel.

Some years after developing and implementing this early marketing strategy, when the  rm has several partners

and  ve di erent divisions for delivering its professional service, the marketing plan is extended. More of the

marketing e ort is aimed at highlighting the bene ts that each service has delivered.

The same underlying principles are still used: the focus is on the measurable bene t 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 e ort

and presents a consistent face to prospective clients. The letter focuses on several of the services o ered by the

 rm, to highlight the broad skills base of the  rm.

The  rm now wants to cross-sell its services. Each division obviously has a direct interest in promoting its own

service. However, the real bene t for the  rm comes when every division can tell clients about the bene ts of

relevant services provided by other divisions. The  rm has decided to:

zUse work codes to identify the services that each client currently uses;

zEmpower 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.

zThe cross-selling of speci c 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 speci c divisions but all partners are aware of the

need to cross-sell services where relevant. As a result, the key performance indicators are improving.

SAMPLE STAFF OFFICE MANUAL 103

Vision

What will the ﬁ rm look like when it’s ﬁ nished

SWOT Analysis

Where is the ﬁ rm now and what opportunities are there

Mission

What needs to be done take advantage of the opportunities

Objectives

What strategic objectives should the ﬁ rm pursue

Strategic Plan

Business Plan

Marketing

Strategy

Marketing

Plan

What clients

do you want to

serve

Building a Brand

Promotion

Client management

Service

Strategy

Service

Development

Service offering

Audit, Tax,

Other?

What services/

products will be

offered

Finance

Policies

Finance

Processes

Assets,

Liabilities &

Equity

Revenue

Costs

How will fees be

generated and

growth funded

Personnel

Strategy

HR Plan

Recruit people

Retain people

Succession

Planning

How many and

what type of

people do we

require

Technology

Strategy

Technology

Plan

Hardware

Software

Ofﬁ ce applications

CRM system

What hardware

and software is

required

Change

Strategy

Change

Plan

Change

management

principles

What systems

will to used to

monitor and

respond to

change

Key Performance Indicators “Must be measurable”

Appendix 1.6 Strategic Planning Diagram

Module 2:

Practice models and networks

MODULE 2: PRACTICE MODELS AND NETWORKS 3

Contents

2.1 Introduction 4

2.2 Which

ractice model is ri

ht for

ou? 5

2.2.1 Sole

ractitioner 5

2.2.2 Cost-sharin

arran

ement 6

2.2.3 Partnershi

of e

uals 7

2.2.4 Une

ual

artnershi

2.2.5 The consolidator model 9

2.2.6 Multidisci

linar

 rms 10

2.3 Practice mana

ement 10

2.3.1 Famil

members workin

in the  rm 10

2.3.2 Decision-makin

roaches 11

2.3.3 Issues to consider when structurin

or restructurin

a  rm 12

2.3.4 Partnershi

reements 14

2.3.5 Remuneration and

ro t-sharin

models 15

2.4 Usin

networks to add value 17

2.4.1 Advanta

es and disadvanta

es of network alliances 17

2.4.2 Referral network 17

2.4.3 Professional network 19

2.4.4 Mana

ement su

ort network 20

2.5 The evolvin

 rm and the need for re

ular review 20

2.6 Conclusion 21

2.7 References

further readin

and resources 21

endices 22

endix 2.1 Evaluatin

our

otential

artners checklist 22

endix 2.2 Items to be included in a

artnershi

reement or shareholder a

reement checklist 23

endix 2.3 Establishin

network alliances checklist 25

endix 2.4 Case studies 26

2.1 Introduction

This module looks at a number of structural considerations inherent in owning or running an accounting  rm:

zThe various models available: sole practitioner, partnership, and corporate structures;

zThe major approaches to pro t-sharing and to decision-making within a  rm; and

zThe use of networks to multiply the power of your own advice.

If your  rm is built on a solid foundation of good decision-making, ethical and e cient processes and a balanced

team of committed leaders, it can be con dent about its long-term future.

“Launching your own [accountancy]  rm 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 must-

do 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  rm. One of these will be right for you, in a legal sense and also from a

business management perspective.

When considering the di erent models for accounting  rms, 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-speci c examples. However, the bulk of the discussion will relate

to functional aspects of each  rm model, rather than local legal issues.

For example, even a sole practitioner might be able to operate through several alternative legal structures such as:

zAn individual with no separate legal entity; or

zA sole director company to a ord some degree of asset protection; or

z A service entity that employs some employees and owns some operating assets and that also permits some

pro t-sharing to a non-accounting person (for example, a spouse); or

zA cost-sharing arrangement with similar practitioner(s); or

zSome combination of the above.

A medium-sized or larger  rm might create separate legal entities for speci c parts of their service range, for example:

zAn information technology services entity;

zA  nancial planning or wealth management entity; and

zAudit 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 di erentiate 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.

MODULE 2: PRACTICE MODELS AND NETWORKS 5

2.2.1 Sole practitioner

Many  rms start life with a single principal. Perhaps this accountant has been employed by another  rm and has

decided to go it alone. Perhaps he or she is dissatis ed with life as a partner in a larger  rm 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  rm: fee-generation; development and maintenance of

professional standards and work processes within the  rm; marketing, promotion and selling of services to

current and prospective clients; management of the  rm; and providing funds for its operations.

The sole practitioner need not be the only person working in the  rm, 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  rm. 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  t very closely with your own, especially in the vital  rst few

positions that you  ll. If for example, you plan to grow the  rm’s revenue but hold the ownership of the  rm 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  t.

A sole principal might also use a combination of their own equity plus some external debt to fund the  rm. Yet even in

this situation, it is the sole principal who is entirely responsible for repaying any debts that the  rm might incur.

Potential bene ts of this model include:

zThe simplicity of decision-making. Either the principal makes the decision alone, or takes some advice from

suitably quali ed and/or trusted experts, consultants or employees. The process is relatively quick and

straightforward and free of politicalconsiderations.

zNo pro t-sharing.

zThe sense of direct involvement and control appeals to many people.

Potential drawbacks include:

zThe principal might not have the range of skills or experience to run the entire  rm. 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  eld of accountancy services, the practitioner should refer that work to a suitably quali ed  rm or employee.

zSole practitioners can  nd it very di cult 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 o ered by the sole practitioner, the bigger this problem and the higher the professional risk.

zIf there is only limited professional support within the  rm (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 signi cant health problems.

zProfessional 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.

zThe principal might not have enough money to fund the  rm at a suitable level. Inadequate funding, or

excessive debt, might leave the  rm starved of cash or the necessary level of investment (for example, under-

investing in training or technology might be the unfortunate outcome).

zThe  rm might spend too much of its fees on  xed-cost items (for example, rent, subscriptions,  xed assets,

software licenses, and possibly some employees). This happens because all  rms 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  rms

share the use and cost of a common set of resources. The individual  rms earn their own fees and pay other

discretionary costs individually, plus their share of the common costs.

Potential bene ts of this model include:

zEach  rm retains much of its own  exibility and independence. If a single member of the group needs a

specialist item that member can purchase it alone.

zSometimes  rms who share costs in this way can also complement each other’s skills. One  rm might be a

tax specialist; one might o er audit services; another might have a specialty in wealth-management services.

Those  rms can then cross-refer clients within the group to ensure a well-rounded and relevant service

o ering, without fearing loss of control over the client.

Potential drawbacks include:

zEach  rm might remain relatively small, only o ering a narrow range of services. The  rms 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 rm.

zSome time is required to manage the central ordering and payments and to arrange the cost-sharing invoices

for each  rm. If this role is not shared equally, or if the time is not incorporated in payment made by the other

 rms, then it represents a cost for the  rm doing the group work.

2.2.3 Partnership of equals

“Partnerships can be collegiate,  exible and professionally liberating. While they can also be haphazard, ine cient 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.”

“Di erent leaders tackle this in di erent 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  rm

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 di erent legal options for trading as a partnership, so refer to your local

professional association to identify the range of options open to your  rm in a legal sense. Di erent legal

options carry di erent implications, for example:

zThe extent of personal liability assumed by each partner, especially for the actions of fellow-partners;

zAsset protection; and

MODULE 2: PRACTICE MODELS AND NETWORKS 7

zThe 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  rm 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  rm come to know “the way we do things

here.” Considerable time is needed to develop and re ne your approaches. See Appendix 2.

, 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  rm requires you to pay a sizeable amount to the existing partners to compensate them

for any dilution of their interest in the pro ts of the  rm. Alternatively, your payment might go into the  rm as

working capital. Even though the size of the outlay will vary from one potential  rm to another, it does have the

advantage of ensuring a reasonably predictable level of pro t and/or drawings.

Starting a partnership, on the other hand, might involve a smaller outlay upfront, but the  rm will take longer

to deliver a viable level of pro t (or drawings, salary, etc.). Early pro ts 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  rm, all share equally

in pro ts, 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  rms reach around  ve 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; pro ts might be shared unequally depending on factors such as the length of time a

partner has been in the  rm or the relative performance of each partner; ownership levels can also vary. These

issues will be addressed in more detail below.

Potential bene ts of this model include:

zTwo (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  rm while you have the chance

to take appropriate leave, and vice versa. A partner allows the responsibilities of running the  rm to be shared;

zSimplicity in contributions and pro t sharing;

zThe capacity for individuals to specialize in speci c services, thereby expanding the scope to fully service a

client’s needs; and

zAccess to funds from more than one partner, to provide working capital to the  rm.

Potential drawbacks include:

zAs 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  nancial resources and

requirements will place di erent demands on the  rm’s cash  ows. Such factors will start to play a part in the

way partners relate to each other.

zA 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 di er markedly; the contribution of some individuals to revenue or pro t generation

may vary; even the attitudes towards the amount and intensity of work time might vary. These di erences

have the potential to cause tension among individual partners.

zDecision-making can be slowed by the need to have all partners consulted (and possibly agree) before a

decision is made.

zAll partners are generally bound by the actions of a single principal.

zLegal liability for errors or malpractice can be borne by all partners, depending on the nature of the speci c

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 di erences that  ow from having inequalities in either the ownership, workload and/or pro t-

sharing arrangements.

An unequal partnership can come about for many reasons an older or established principal might take a

di erent approach to a particular issue from a newer or younger partner, or selling partners might have a

di erent approach to the cost of entry and the drawings policy than a buying or incoming partner. In some

cases, the  rm value is so high that an incoming partner cannot a ord to buy a full-parity share, so they buy a

smaller proportion initially, or build up their equity over time by trading o pro ts.

Buying into a  rm requires a large outlay to acquire a share of  rm 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  nancier (or the partner who is selling down their

interest), based on the  rm’s demonstrated cash  ows. 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 di culty. 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

di erence of opinion could in uence 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  rm, 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  nal 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 o for the chance to buy into the  rm 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  rms today are facing challenges to their very structure. A  rm needs to be interesting enough

to compete as a career choice with the other, newer options available to accountants. It also needs to be

pro table enough to meet the requirements of a new breed of professionals.

MODULE 2: PRACTICE MODELS AND NETWORKS 9

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  rst.

2.2.5 The consolidator model

Consolidators amalgamate a series of small businesses into a single, larger one to extract operating e ciencies

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  rm, in order to deliver the savings as quickly as possible.

A listed consolidator  rm has a set of shareholders, which will generally include the partners of the formerly independent

 rm(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  rms

facing a signi cant retirement of partners. By comparison, a newly established or strongly growing  rm will

most likely value its own independence and not be interested in selling to a “consolidator” practice.

Listed consolidators o er several opportunities to the principal in a public  rm:

zA way out for retirement purposes: swapping a  rm for either cash or shares;

zAccess to capital: this is especially important to help fund the technology costs faced by  rms today;

zAccess to improved systems of management;

zAccess to a larger pool of talented people and specialist knowledge (for example, precedents, training and

industry speci c knowledge); and

zA career path for high quality personnel, and a  nancial incentive to participate in the  rm’s success through

shares and/or stockoptions.

On the other hand, they are culturally di erent from an independent accounting  rm:

zJoint decision-making by the partners is often removed;

zA more corporate  avor is introduced into the o ce;

zSta mobility may be seen as a bene t to employees, but clients might not see it the same way;

zOften, restrictions are placed on partners of the acquired  rms to prevent them from selling their shares for a

period of time after their  rm is purchased; and

zThe ultimate value of a  rm 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  rms. In

turn, this is changing some of the culture of accounting  rms.

As a result, the extent and manner in which an individual can make an impact on an o ce is di erent: some

would argue that an individual would have less impact in the o ce of a consolidated  rm.

In the past few years, listed consolidators have experienced vastly di ering performances. Several have ceased

to exist and, in large part, the component  rms or o ces were bought back by their previous partners.

The most successful current “consolidator”  rms tend to be privately owned but acquisitive accountancy

 rms. Larger  rms buy out or merge with smaller practices; sometimes the principals from the “acquired”  rm

remain working in the larger  rms sometimes they do not. The targeted  rms might have special expertise

that is considered valuable to the larger group or they may broaden the geographic reach of the acquiring

 rm. Whether the “consolidator” is a listed company or an unlisted  rm, the principles and justi cation 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  rms

In some countries, a professional association or regulatory body might restrict the sharing of pro ts between its

members and people who are not members of the association. Government legislation or regulation might also

prevent non-quali ed persons sharing in the pro ts of an accounting  rm.

This section outlines how some countries have approached this issue, which permits the accounting  rm to o er

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  nance specialists, or wealth management specialists in some  rms.

Potential bene ts of this model include:

zA clear focus for each separate entity;

zSeparate legal liability for each entity;

zEach entity can develop in its own style;

zThere 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 e ect, the accounting practitioners at the core of the multi-

disciplinary group will have a major in uence 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;

zConsiderable opportunity exists to cross-sell services from one entity to another within the same group; and

zEquity or other funding can come from a wider group of non-accountants.

Potential drawbacks include:

zThis structure does not necessarily ensure that the best businesses are guaranteed access to internal funds

(that is, the equity or cash  ow from across the group), owing to the di erent ownerships of each entity.

zThere 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  rm, contact your professional association for guidance.

2.3 Practice management

2.3.1 Family members working in the  rm

From time to time, members of a sole practitioner or partner’s family might be employed in the accounting  rm

and may eventually come to own the  rm entirely. The idea that an accounting  rm 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.

MODULE 2: PRACTICE MODELS AND NETWORKS 11

This issue of family member employment in a  rm raises special considerations, over and above the normal

commercial issues.

zFirst, it is important for the family member who is employed within the  rm to have a clearly de ned 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.

zSecond, 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  rm, or a senior and highly

skilled sta 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  rm in due time. Retaining the respect of employees is a key objective of the entire process

they must have con dence in the leadership o ered 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  rm, another set of issues arises. At this stage, the  rm faces a number of “second generation issues.”

The newly promoted family member must be given areas of responsibility within the  rm. 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  rm, 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  nancially to the  rm.

Promoting a junior family member to partial ownership of a  rm may impact on the future prospects for

a capable employee, especially if that employee wants to become a part-owner of the  rm one day. Such

employees are an important part of the  rm’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  rm altogether,

a smooth handover of clients becomes necessary. Even at this stage, the senior partner may  nd it di cult

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  rm 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  rm.

The family relationship should not be destroyed or weakened as a result of the involvement of other family

members within an accounting  rm. The guidelines above should help achieve this, but it will require substantial

amounts of goodwill and e ort by all parties involved in the transition from employee to owner to retirement.

Module 8 examines succession planning options in more depth.

2.3.2 Decision-making approaches

In any  rm with more than one principal, decision-making must be considered. The approach to decision-

making will re ect the philosophies of the partners/owners; getting this wrong can cause considerable friction.

In smaller  rms (up to four to  ve 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  rm can slow dramatically because it becomes too hard to reach any kind of agreement.

When  rms reach around  ve 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.

zOne 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 o er a new service, merger with or purchase of another  rm, or possibly the dividend/drawing

policy of the  rm) might require 100% support. Di erentiating 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.

zA 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 e ciently

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  fteen partners, possibly working across one or two

o ce 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  rm, or their actions

might signal that employees need not comply with decisions that they do not like.

When a  rm reaches around twelve to  fteen partners, and especially if it operates from several o ces, it might

reach a point where they employ a general manager, chief executive o cer, or managing partner to guide the

 rm. 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 o cer/general manager would report

regularly to a subset of the partners and less frequently to the full group of partners. The chief executive o cer/

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

e ectively. 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  rm

Some of these issues have legal or  nancial rami cations (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.

MODULE 2: PRACTICE MODELS AND NETWORKS 13

2.3.3a Your strategic plan

The strategic plan adopted within a  rm is likely to shape the legal and organizational structure. For example, if

you invite non-accounting specialists (such as information technology employees or  nancial planners) to own

a portion of their part of the  rm, local ethical rulings might see you create a separate legal entity to deliver that

service, and have a di erent 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 o er accounting services. Those

restrictions maintain some commercial and professional integrity, and might include:

zSeparation 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, tax-

based and advisory work can be delivered through a company, while other services can be o ered through

limited-liability partnerships.

zPro t sharing arrangements: Can pro ts from an accounting  rm be shared with non-accounting-quali ed

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 quali ed partners.

zNon-regulated services provided through a specialist entity: This allows the partners of the accounting  rm to

pro t 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  rm 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 de ned 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:

zSole trader;

zPartnerships: either unlimited liability or in some countries, limited liability partnerships;

zA company or corporate shell;

zA trust; or

zSome combination of the above.

Limited liability partnerships are used by many of the largest accounting  rms 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

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 di er to a greater or lesser extent between countries.

2.3.3d Tax issues

Over the life of your  rm, there may be admissions and/or departures of partners. Each legal structure has

certain bene ts and drawbacks in this scenario.

You might need to consider:

zIncome tax payable on trading pro ts;

zTaxes on distributions drawings or dividends, or on pro ts retained within the entity;

zTaxes linked to share transfers or asset transfers (possibly stamp duty or transfer taxes or even inheritance taxes); and

zCapital gains taxes, should the value of the equities in the  rm 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  rm will be reduced if the wrong structure is selected.

For these reasons, select a structure that does not disadvantage the  rm 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  rms. Where this concession

applies, professional associations generally require a  rm to hold a minimum level of professional indemnity

insurance. This protects clients as well as practitioners, if negligence or malpractice is proved against a  rm.

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  rm and your own ethical standpoint in determining how far to take

advantage of the bene ts o ered by limitedliability.

2.3.3f Other insurance

Every  rm will require a basic level of insurance for professional indemnity, to protect clients; for physical assets,

against theft,  re and so on; and public liability, to safeguard employees and visitors who might be injured while

at the  rm’s premises.

Other types of insurance cover can contribute towards the  rm’s overall risk management strategy. They include:

zIncome replacement insurance: Especially in smaller  rms, the sole practitioner is a signi cant 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  owing, or it could

replace the drawings or salary that the sole practitioner would have taken.

zPrivate health insurance: This funds all or part of the health-related costs incurred during an illness.

zA life insurance policy or key person policy, taken on the life of each partner: This pays a lump sum bene t if

a partner dies. The bene t might be paid to the  rm, for additional employees or a locum partner or to cover

other increased costs incurred. It can be a powerful and  exible approach to succession planning, especially

in a smaller  rm. 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  rm. The value

of each policy is linked to the value of a share of the  rm, so this policy needs to be updated and reviewed

regularly to ensure that adequate amounts of cover are in place.

zBusiness expenses or continuity insurance. This pays additional costs that  ow from a severe disruption of

business (possibly data loss, or  re,  ood, or storm damage to the  rm’s premises).

MODULE 2: PRACTICE MODELS AND NETWORKS 15

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  rm must perform its own assessment of the various risks, and

decide whether an insurance policy is a good-value risk-mitigation strategy.

The bene ts include peace of mind as well as a greater capacity to cope with the  nancial impact, should some

disruption a ect the rm.

Liability and insurance within a  rm is examined in depth in Module 7

2.3.3g Access to  nance

If a  rm 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  rm

unless another party provides a guarantee for security.

However, where a  rm 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  rms especially, it becomes easier to raise  nancing through a company/corporate entity than through

a partnership. The  nancier 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, di erent 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 su cient 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  rm and should be

widely supported by the partners.

2.3.4 Partnership agreements

Once you have at least one partner in your  rm, 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  rm’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 A

endix 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.

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  rm.

2.3.5 Remuneration and pro t-sharing models

As it grows and develops, your  rm will probably appoint more partners with a range of personalities, skills,

interests and work ethics. The larger the partner base, the more signi cant these di erences could become.

Growing your  rm 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  rm,

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 e ciently. 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 Di erent attitudes at di erent times

In a sole practitioner structure, pro t-sharing is easy: it’s all yours! You decide how much to draw out for personal

requirements, and how much to reinvest within the  rm for working capital and/or capital assets.

You might consider sharing some pro t, if you have fee-earning employees who contribute substantially to

the  rm’s success. This verges on salary administration but it would be aimed at providing incentives for key

employees to stay at your  rm 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  rm, and share equally in the pro ts.

As the partnership base expands further (perhaps to around  ve to six partners), the di erences 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

e orts are not adequately rewarded, or that “I’m doing more for the  rm than some of my partners.”

This is when pro t-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  rm: either situation weakens the fabric of the partnership.

2.3.5b Some factors to consider

Planning and introducing a di erential pro t-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  rms), 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 pro t-sharing system must fairly reward and motivate each partner, reinforcing that they are better o

staying within the current partnership than striking out alone. In shaping an alternative system, the following

questions arise.

zAre you rewarding presence at the o ce; 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  rm or its

operating results?

MODULE 2: PRACTICE MODELS AND NETWORKS 17

zSome 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.

zSome 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  rm need?

Many  rms now avoid owning assets within the  rm itself. For example,  rms will lease equipment or rent their

premises, rather than buying those assets outright. If a  rm 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  rm.

Therefore, how much pro t must you retain in the  rm, and how much can be paid out?

2.3.5e How frequently are the pro ts distributed?

Every  rm must utilize its partners and employees to maximum e ect, especially given that many  rms are

facing shortages of quali ed 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 di erent parts of the  rm, while continuing to deliver

genuine bene t to the individual as well as the  rm.

Any incentive structure, whether for partners or employees, needs to encourage the right actions in the right

directions, consistent with the  rm’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

 rm-wide pro t. This has the bene t of total transparency: each partner can work on speci c aspects of their

performance (the ones that are rewarded by the model) to increase their share of the available pro t.

Alternatively, some partners may believe that fundamental di erences justify a more subjective approach

(for example, “Your department is more pro table/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 pro t or just some part? The  rm might allocate all its pro t on the basis of

performance criteria, or it might decide to divide its pro t into several distinct pools, for example:

zA regular amount per person, to reward a solid performance (this might be an equal amount per person, or it

could be a di erential  gure to re ect the role, the fee-load or the seniority); and/or

zA percentage return on investment in the  rm; and/or

zA performance-based (using either an arbitrary or a discretionary set of rules, at the  rm’s choice).

As you can see, many features can be incorporated into a di erential pro t-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

 rm’s objectives.

Changing the pro t-sharing model is one of the most sensitive decisions a  rm 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  gures, or perhaps the last two years’ results) before  nally accepting it. This lets all partners see

the practical impact of the new approach: “Who are the winners or losers?” “How will I personally be a ected?”

Each person can judge its suitability.

If a  rm has an under-performing partner(s), a di erential pro t-sharing system can help highlight the size of the

problem. It shows all partners how much pro t the under-performer earns compared to others. However, the

pro t-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 sta member:

zThey should be formally advised that aspects of performance are currently not suitable;

zThey should be given guidelines and/or targets and timeframes for improvement;

zThey should be given technical and/or mentoring support during the rehabilitation phase; and

zIf 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 di erential pro t-sharing model is that it must be seen to give fair rewards

to the best performers in the  rm, while also delivering a suitable remuneration for the important e orts of the

solid performers within the partnership.

The legal structure utilized by your  rm will determine how pro ts are allocated (for example, is it a drawing

from a partnership or a dividend from a corporation but should not a ect the basis of arriving at the various

pro t shares.

In Appendix 2.4, Case study 2.4 illustrates how a small  rm can arrange their pro t-sharing to begin with then

alter pro t allocation as the  rm takes on more partners.

2.4 Using networks to add value

This section examines several types of network that a  rm 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 bene t. Here we will look at three

di erent types of network that an accounting  rm could use:

zA referral network;

zA network to assist in delivery of professional services; and

zA network to bene t the management of the  rm.

2.4.1 Advantages and disadvantages of network alliances

Advantages

zYou can concentrate on your core services and leave others to focus on the technical requirements of their service.

zNetworks are  exible, as you don’t incur the  xed costs of setting up that equivalent service. You don’t have

commitments to additional employees in your  rm.

zThe other owner worries about having the resources to cope with the volume of transactions they fund their

business and you fund yours.

zNetworks can be changed quickly: if a better provider arrives on the scene, you can quickly start to refer work

to that newprovider.

Disadvantages

zA network rarely guarantees the same degree of control as o ering a service yourself: you rely on other

people to implement that particular service.

MODULE 2: PRACTICE MODELS AND NETWORKS 19

zIf 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  rms, and so on. The trade-o 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  rm.

2.4.2 Referral network

A referral network exists when several  rms agree to refer or introduce potential clients to the other(s) if the

referring  rm cannot provide a particular service required by a client. For example:

zLegal;

zMarketing;

zInsurance;

zWealth management or  nancial planning;

zComputer consulting;

zBookkeeping;

zReal estate agencies;

zValuations of land and/or businesses;

zArchitects, engineers or surveyors; or

zFinance providers.

A referral network is generally built on a series of one-to-one arrangements, for example:

zA local legal  rm referring clients who have recently purchased or started a business and who need a public

accounting  rm;

zA real estate agent referring the purchaser of a business to the accounting  rm; or

zSenior employees in a  nancial institution referring clients who need more help than their current  rm can

deliver. This might come about when a business owner seeks  nance for a loan and the  nancier requires

more detailed cash  ow or pro t forecasts.

You might prefer to o er a full range of services through your  rm, or you might use networks to con dently

refer clients to specialists. Either approach requires an investment of time and possibly money. To illustrate:

zYour  rm 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 quali cations and registrations. While

this happens, they cannot be a fully functioning fee-earner. Once the new service is o ered, it will take some

time for the new service to become self-sustaining.

zYour  rm may buy or merge with a quali ed provider. This takes considerable time and investment to locate,

screen, purchase then integrate the new business into your own.

zEven when you refer a client to a separate  rm, best practice demands that you keep in contact with your

mutual client and with the other  rm.

zThe  nal alternative is less palatable: Watch your full-service competitors take away your clients! This too has a cost.

Whichever option you take has  nancial consequences. Be guided at all times by the best interests of your client:

zWould the client be better o if I o ered the service in house?

zWould the service be better?

zWould the cost to the client be lower?

zWould the return to your  rm be higher?

zWould there be enough activity to make a viable business within your own  rm from this service?

zAre the training requirement(s) and/or professional risk too high for this to be o ered in-house?

Decide whether your relationship is with another practitioner, such as a trusted representative from each

business, or with the organization itself. This a ects 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  rm.

Key points to consider

zDo 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.

zWhich criteria will be used to add or to remove an organization from your panel or list? Do you need to

formally advise a  rm or a key contact from time to time that it is on your panel, or will you presume that the

 rm or contact is aware?

zAre there legislative or ethical considerations—such as privacy or con dentiality—that must be addressed

before clients can be referred?

zWill special conditions or bene ts (such as special pricing or free initial consultations) be o ered 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

o ered by the other organization. If you refer a client to another  rm and the client receives incorrect advice

or poor service that re ects poorly on your own  rm. 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 di erent  rms? In an “earned exclusivity” arrangement, a  rm o ers 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 con dent that a better-than-average deal has been negotiated for

high service standards. The  rm 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  exibility if a  rm merger or sale comes

up. By keeping the arrangement  exible, you can move quickly if a major structural change in your own  rm 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

MODULE 2: PRACTICE MODELS AND NETWORKS 21

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 2.5in Appendix 2.4 which illustrates what needs to be taken into account when a  rm decides

how it will manage referrals.

2.4.3 Professional network

A referral network (as described above) can also operate among accounting  rms. A specialized part of the

client’s needs (for example, audit or wealth planning) might be performed by a suitably skilled  rm. Or a service

might be required in a location you cannot service.

Examples might include referring a specialist tax problem to a  rm skilled in that area. The client’s problem is resolved

with considerable expertise by the specialist, while the referring  rm 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  rm 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  rms located in other countries. The practice raises questions of client con dentiality and the extent

of disclosure. The same questions also apply with any referral of con dential client information outside the

home  rm. For these reasons, partners should have a well-considered and well-documented set of criteria and

procedures when they subcontract professional work to other  rms.

With any referral, a high-quality service is important to all three parties:

zThe referring  rm can have its relationship with the client tarnished if the other  rm fails to provide good

advice or good service;

zThe receiving  rm might not gain a long-term client if they do not provide good service; and most importantly

zThe client loses out if the advice is not good in a professional or technical sense.

Mid-tier or large  rms might o er a fee-for-service arrangement to other  rms. This could include access to

the mid-tier  rm’s professional employees, possibly at concessional charge-out rates. Or it could gain access

to employee training programs, avoiding the need for the smaller  rm to develop its own training packages. It

could even o er  rm 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  rm.

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  rm 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 quali cations of individual members.

Look at the bene ts that professional network may deliver, especially if you are a sole practitioner it could

provide an important and cost-e ective level of protection.

Section 290 of the IESBA Code provides a de nition of network  rms. A  rm is deemed to be part of a network

if it is part of a larger structure aimed at cooperation and pro t 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 signi cant part of professionalresources.

2.4.4 Management support network

The third type of network deals in  rm management information. At its simplest, it could involve bulk-buying

some services, to gain savings that would not otherwise be available to individual  rms.

Your  rm might join a network of accounting  rms. The members of these a liations often share management

insights, so that all  rms in the group can bene t from best practice developed by any one member. Or perhaps

the cost-sharing allows highly renowned speakers or consultants to address speci c management issues of

common interest.

Some of those groups run their own inter- rm 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  rm would spend individually.

So what is the best practice standard for forming network alliances?

zStrike up  exible arrangements with high-quality providers.

zNegotiate 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.

zKeep 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.

zBe prepared to o er reciprocal arrangements to  rms that refer new clients or potential clients to your  rm.

See Appendix 2.3 for a checklist on establishing network alliances.

2.5 The evolving ﬁ rm and the need for regular review

In time, your  rm 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  rm. This will usually be a

gradual change, unless there is a major event such as merging with or buying another  rm.

It is important to take periodic snapshots of your  rm to reveal the nature and extent of changes. This is the

purpose of an annual retreat meeting for partners: to look at the  rm’s services, skills, strengths and weaknesses.

Only a realistic review of the  rm as it is today will enable you to keep it headed in the strategic direction. If

certain decisions have taken the  rm away from its strategic path, then either the  rm can be steered back onto

the right path, or the strategy must be amended to re ect the newdirection.

Sometimes the key personnel of the  rm can perform this review more than capably. They know the  rm

intimately, they are competent business analysts, and they know the challenges currently facing the profession.

On other occasions (such as in a larger  rm, or one where there are signi cant 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 speci c, agreed-upon direction.

Case study 2.6 Appendix 2

in illustrates how a  rm can manage it’s direction, through organizing or

reorganizing the way it is structured.

MODULE 2: PRACTICE MODELS AND NETWORKS 23

2.6 Conclusion

This module has discussed:

zThe various types of  rm you can create or join: sole practice, alliance, partnership of some type, or a

corporate  rm structure.

zThe alternative approaches to decision-making within a  rm, so that decisions can be made in a transparent,

e cient and business-like manner.

zThe need for structure or decision-making styles to evolve as the  rm grows and develops.

zSome practical checklists and tools.

Keep considering your own suitability to the life of a partner in an accountancy  rm: 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 e ciency.” CA Magazine May 2008.

http://www.camagazine.com/archives/print-edition/2008/may/regulars/camagazine4981.aspx

Rosenhek, Stephen. “Making it  t.” CA Magazine August 2008.

http://www.camagazine.com/archives/print-edition/2008/aug/regulars/camagazine4583.aspx

Rosenhek, Stephen. “The groundwork comes  rst.” CA Magazine October 2008.

http://www.camagazine.com/archives/print-edition/2008/oct/regulars/camagazine4341.aspx

(Italian)

Video: http://www.economiae nanza.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

To  nd 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 2: PRACTICE MODELS AND NETWORKS 25

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 quali cations 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 signi cant di erences of opinion, either to prepare for inevitable

disagreements, or to determine a way of handling those issues? Are we compatible?



Will we share pro ts equally, or on some di erential 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  rm’s work and cash  ow?



Where will we practice?



Can we  nd suitable o ces at a suitable price?



What employees will we need initially?



What licenses and approvals will we need to have: professional quali cations 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  rm, stationery and letterhead, o ce 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  rm? What will  nance our living costs in the early

months? Do we both have the resources or the reserves to equally fund our commitments?



Can I/we a ord 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 signi cant di erences of opinion, to either prepare for the inevitable

disagreements, or to determine a way of handling those issues? Are we compatible?



Will we share pro ts equally, or on some di erential basis?



What is the age pro le 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  rm? What assurances

do I need? What protections or “letters of comfort” do I need to obtain from the existing partners?



Check the  rm’s professional indemnity insurance policy and terms, and any claims history that the  rm may have.



Is the  rm’s current client pro le of good enough quality?



What role will each partner play in the new  rm?



What price is being asked for a share of the  rm? What am I buying? What return can I expect from the  rm?

Can I live comfortably and still service the buy-in arrangement?



Can I/we a ord this?

MODULE 2: PRACTICE MODELS AND NETWORKS 27

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

Aim of the  rm



The range of services to be delivered;



Target client types;



Geographic location of the  rm; and



Number of o ces.

Ownership and pro t sharing



Clear statement about the percentage of net assets to which each partner is entitled on dissolution or wind-up.



Pro t-sharing arrangements (these could be equal or based on di erential 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 pro t 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 pro ts will be, for example, paid out as soon as the cash

balance permits, or whether pro t retention will be the preference. It could specify that a certain percentage

of accounting pro t should be retained to fund working capital (for example, similar to the payout policy

that can be speci ed by a corporation listed on a stock exchange). It is largely a statement of intent, but

should set the tone for the  rm’s approach to drawings.

A debt policy



Is interest payable on partners’ loan accounts? This could outline the types of debt  nance 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:

zHolidays or recreation leave;

zSick leave;

zProfessional development leave;

zCompassionate leave;

zUnpaid leave;

zTime in lieu leave if some partners work substantially more hours per year than most others; and

zSabbatical leave or long service leave.

Insurance



Presume that normal insurance the  rm takes out such as for o ce 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  rm automatically for all partners, or taken by individuals at their option?



Will the cost be borne as a normal  rm operating cost, or will it be charged as a drawing to each partner?

Motor vehicles policy



Will the  rm 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  rm?



What rate is payable for genuine,  rm-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  rm 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 di cult issue to handle in a large partnership where

many di erent roles may need to be covered. In that case, a clear job description for each partner can be

used to recognize di erent 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  rm that will be o ered to the incoming partner?



Will new partners enjoy full pro t share immediately, or some form of lock-step entry over several years?



How is goodwill of the entire  rm 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  nal price of a share.



Is there a compulsory retirement age?



What payment terms are o ered on the way in or out? Will existing partners provide vendor  nance and if

so, how are the termsstructured?

MODULE 2: PRACTICE MODELS AND NETWORKS 29



What happens if a partner has to exit for unsatisfactory performance? Is a di erent 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  rm? How will

the valuation bea ected?



Will the  rm 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  rm?

Handling matters not covered in the agreement

zFrom 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  nalized;

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 nalized).

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 speci c, 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  rm.



Buying group: for example, discounts on commonly used items such as stationery.



Specialist service: for example, a  nancial planning research service, or provision of fully licensed support.

How much might these bene ts be worth to your  rm in a year?



In direct cost savings;



In time savings;



In comfort, con dence and security; and



In study time.

What fee is sought for the package?



Initial.



Ongoing.



Is the bene t greater than the cost?



Is the service provider su ciently focused on providing support to you and other  rms like yours or is it a

sideline activity for them?



Is there any bene t 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?



Does your involvement with the group prevent or restrict you from any of the following?

zDoing certain work;

zTaking on certain clients; or

zPromoting your  rm or your services.



Can you talk to existing members about their degree of satisfaction with the following?

zThe service;

zThe value for money; and

zThe people who create, or deliver, the service.

MODULE 2: PRACTICE MODELS AND NETWORKS 31

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  rm, 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-e ective.

Because they are not “buying fees” or another  rm, they do not need quali ed accounting employees initially.

William and Indira will each have su cient time available to promote the  rm as well as perform the work they

generate. This situation is likely to grow more di cult to juggle by the end of the  rst year of trading, but it is

manageable until then. The implication is that they will require some administrative assistance for the  rst 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  rm 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:

zOur  rm sees all our people as an important part of our success. We all contribute to the bene ts that clients

will derive from our services. We will involve our people in the full operation of our  rm, and provide regular

updates as to our plans, our progress and our  nancial performance. (William and Indira took some time to

reconcile their personal views about that statement. William was keen to have full disclosure of the  rm’s

 nancial results to all employees, but Indira was a little less willing. They discussed this di erence in approach

and  nally adopted a “middle-ground” approach, which discloses some actual results as numbers, and other

results as trend lines rather than speci c numbers.)

zWe 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.

zWe 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  rm.

All personnel will be expected to commit to maintaining con dentiality over information and to respecting

our  rm’s right to continue serving our clients. All personnel will be asked to guarantee those performance

standards, using a legally enforceable and reasonable contract.

zWe 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.

zWe 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 quali cations, in

a way that re ects the impact of that training on our  rm.

zOur remuneration policies will include incentive schemes relevant to the roles individuals play.

Indira and William anticipate that this statement will make their  rm 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  rm.

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  rm began, Indira agreed with the way that the  rm was expected to be funded, and was willing

to leave more undrawn pro t in the  rm initially. This approach would ensure that both partners had equal

investment in the  rm 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  rm too. They documented these agreements as

the starting point of their partnershipagreement.

Some years later, the  rm has grown considerably. Each time a new partner was added to the  rm, 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  rm.

For the  rst 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  rm

decided to use an independent consultant to talk to the incoming partner as well as to the existing partners.

Because the  rm was becoming progressively larger, there was slightly less  exibility about the  nancial

arrangements for the admission of a new partner. Instead of allowing di erential levels of equity or lower

drawings to equalize the equity, the “existing” partners agreed to provide vendor- nance 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  rm’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  rm’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  rm; 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 signi cant 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.

MODULE 2: PRACTICE MODELS AND NETWORKS 33

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  rm. They see some merit

in initially sharing pro ts equally, but are also keen to structure a longer-term arrangement that will reward a

larger group of partners for visible contribution to the  rm. 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  rm’s life they decide

to allocate pro ts as follows:

zThe key accounting policies are listed and agreed, so that both partners know how pro t will be calculated.

zThe interest paid to William (on his higher capital contribution to the  rm) over the  rst two years will be

treated as an expense of the  rm and will be paid before pro t is struck.

zThe  rst 80% of available pro t will be shared equally between William and Indira.

zOf the remaining available pro t 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.

zThe  nal 10% of pro t will be shared in proportion to the dollar value of fees (net of write-downs and bad

debts,) which each partner generates personally.

zThe dividend/drawings policy will see a  xed amount paid to each partner each month (expected to

represent about half the targeted net pro t for the year). Other lump sum distributions will be paid quarterly,

subject to availability of cash within the  rm.

This arrangement will exist on a trial basis for the initial two years of the  rm’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 pro t-sharing could be

approached in a new, tightly owned  rm. It is NOT to be interpreted as best practice in pro t-sharing

arrangements. The partners of each  rm must tailor the pro t-sharing and drawings policies to suit the unique

circumstances of their own  rm.

Several years later, William and Indira are part of a much larger partnership. Their initial approach to pro t

allocation worked well for a long period. The  rm now has a full-time managing partner who earns no

professional fees at all. There is also a general manager who runs the  rm 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  rm’s growth and pro ts. 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 pro tability of the  rm over the last  ve years.

During the course of several partners’ meetings, the partnership decides to change the pro t-sharing formula:

zFrom the start of the current  nancial year, 60% (previously 80%) of available pro t will be shared equally

among all partners.

zTwenty per cent of pro t will be shared in proportion to the value of  rst-year fees generated by new clients

introduced by eachpartner.

zAll other allocations will remain as they are.

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 pro t. They accept this because they bene t from the

total pro t pool rising faster due to the new clients introduced. The partner who felt underpaid still feels he

could earn more by splitting from the  rm. However, he sees the bene t 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 bene t to the  rm 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 o ering for the  rst 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 o er management advisory services such as in-house  nancial 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-pro t  rms. 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  rm and possibly require more travel out of their local region,

should they be appointed to audit far- ung 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  rm chooses not to take on, wealth management, insolvency and

reconstruction, and  nance broking.

For each referred service, William and Indira develop a list of approved providers, so that they can o er clients

a choice from among top-quality  rms. Related to this, William and Indira have at least half-yearly meetings

with the other  rms, 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  rms the authority to discuss con dential information

pertinent to the client’s a airs. William and Indira anticipate that such strong links among the network member

 rms will encourage the other  rms to refer accounting clients to the  rm; 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  le, following each of these review

meetings among the networkmembers.

Several years later, the  rm decides to add a new service, involving corporate rescue, insolvency and

reconstruction. The partners believe that the skills required for this work  ow naturally from the extensive

business advisory services they deliver, and the in-house  nancial 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  rm.

The partnership as a whole has developed a business plan for the new service. The plan estimates the impact on

both pro tability and cash  ow over the next three years. The short-term loss of pro t is expected to be repaid

within two years of the commencement of the new service. The  rm has already made key referrers aware of its

plans, especially the local banks.

MODULE 2: PRACTICE MODELS AND NETWORKS 35

Launching this new service in-house requires that the  rm stop referring this type of work to their previous

referral-partner. The two  rms 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  rm and the need for regular review”) in Module 2.

As  rms 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  rm,

reorganizing the professional teams will necessarily lead to a di erent organizational structure to support them.

Indira and William regularly examine the way that their  rm is structured. Over time, it has changed.

When the  rm 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 sta 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

su cient 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  rm added a  nancial planning (wealth management) service, this required a further rethink of

structure and personnel. The service was very popular, and pro table, and it saw a rapid increase in employees.

The  nancial 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  ne-tuning was required.

Module 3:

Building and growing your ﬁ rm

MODULE 3: BUILDING AND GROWING YOUR FIRM 3

Contents

3.1 Introduction 4

3.2 Develo

a business

lan for

our  rm 5

3.2.1 A sim

le business

lan outline 5

3.2.2 SWOT anal

sis 5

3.2.3 The or

anization chart 6

3.3 Assessin

rowth re

uirements and develo

rowth strate

3.3.1 Bene ts of

rowth

and sustainabilit

Table 3.1 Levels of fee

rowth 9

3.3.2 Should I

row

and if so

how much? 9

3.3.3 Internal

rowth strate

ies 10

Table 3.2 Identif

which clients use which services 11

3.3.4 External

rowth strate

ies 13

3.4 Strate

ies for co

with increased re

ulation and com

etition 17

3.4.1 Increased re

ulation 17

3.4.2 Increased com

etition 18

3.5 Creatin

ood culture for

our  rm 18

3.5.1 Buildin

roductive culture 19

Case stud

: Firm culture 34

3.6 Identif

tar

et clients and new service o

ortunities 19

Table 3.3 Assessin

ros

ective clients 20

3.7 Buildin

a brand

marketin

and

romotion 21

3.7.1 Buildin

a brand 21

Table 3.4 Brandin

checklist 22

3.7.2 Marketin

and

romotion 22

3.8 Puttin

our

lans into o

eration 24

3.8.1 The im

ortance of im

lementation 24

3.8.2 How to im

lement

our

lan 24

Table 3.5 Im

lementin

a marketin

lan 25

3.9 Financial mana

ement 25

3.9.1 The ca

acit

bud

et 25

Table 3.6 Tar

et billin

s calculator 26

3.9.2 The  nancial bud

et 26

Table 3.7 An exam

le format for a  nancial bud

et 27

3.9.3 The cash  ow forecast 28

Table 3.8 An exam

le format for a cash  ow forecast 28

3.10 Conclusion 30

3.11 References

further readin

and IFAC Resources 30

endices 32

endix 3.1 Relationshi

mana

ement action

lan 42

endix 3.2 Case studies 32

endix 3.3 Summar

Income Statement Bud

et 35

endix 3.4 Balance Sheet Bud

et 37

endix 3.5 Gross Revenue Anal

sis Worksheet 39

MODULE 3: BUILDING AND GROWING YOUR FIRM 5

3.1 Introduction

This module looks at planning and developing your  rm, 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  rm. The module concludes by considering

aspects of  nancial management.

3.2 Developing a business plan for your ﬁ rm

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  rm now?

b. Where is it going?

c. How will it get there?

The most important is (b). The answer to this question identi es the key objectives of the  rm. Its signi cance

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 de ne

where your  rm is going and what it will look like when you get there.

You then need to set about answering (c), which identi es 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 e ective.

3.2.1 A simple business plan outline

Your business plan identi es the objectives, key strategies and indicators of success aimed at consolidating and

growing your  rm and its services.

zExecutive summary: Write this last. It’s just a page or two of highlights.

zCompany description: This includes legal establishment, history, start-up plans, and a summary of “where the  rm is now.”

zKey objectives: Describe the key objectives of the business: a clear statement of “where the  rm is going.”

zService description: Describe what services you’re o ering. Focus on client bene ts, and how you can satisfy

their needs.

zMarket analysis: You need to know your market, client needs, where they are and how to reach them.

zStrategy and implementation: Be speci c. Include management responsibilities with dates and budgets. Make

sure you can trackresults.

zManagement team: Describe the organization and the key management team members. Include an

organization chart with key areas of operation.

zFinancial analysis: Make sure to include, at the very least, your projected pro t and loss and cash  ow tables.

3.2.2 SWOT analysis

One of the most e ective 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  rm, these words prompt

thoughts and discussion. The analysis typically highlights strategies and actions that are necessary for your  rm

to achieve its objectives.

The  rm 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 e ect.

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  rm as a workplace and what it is good at

doing. Continually monitor your  rm’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  rm moves into new areas.

Threats

It is critical to understand the threats facing your  rm. 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  rm to run e ectively. It identi es the key

areas the  rm will operate in, and properly implemented will lead to a clear allocation of responsibilities. This will

lead to accountability, which has a major in uence on whether or not the  rm 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 speci c strategies to be identi ed. These areas are as

follows:

zMarketing;

zOperations/administration;

zFinance;

zHuman resources;

zTechnology; and

zFuture planning.

Marketing

zExternal

MODULE 3: BUILDING AND GROWING YOUR FIRM 7

zAdvertising and sponsorship

zNetworking and events

zWebsite and referrals

zMarketing collateral

zInternal

zIncrease services utilized by existing clients

zO er new services to existing clients

zIncrease charge-out rates

Operations

zCompliance

zAudit

zTaxation

zFinancial reporting

zPension planning

zWealth creation/ nancial planning

zSpecialized services

zBusiness valuations

zDue diligence

zManagement reporting

zBusiness consulting

zSuccession planning

zO ce administration

Finance

zMonthly  nancial statements

zBudget and cash  ow forecast

zRevenue per full-time equivalent

zCapacity calculation

zCompliance requirements

zAccounts receivable

zAccounts payable

zPayroll

zBank facilities and funding arrangements

zInsurance requirements

zFacilities and resources

Human resources

zCompetency and training

zCulture

zSta ng requirements, current and future

zOccupational health and safety

zAnti-discrimination

zSexual harassment and workplace bullying

zSafety and emergency procedures

Technology

zTechnology strategy of  rm

zTechnology requirements, current and future

Future planning

zBusiness plan

zMarketing plan

zOperations plan

zSWOT analysis

These are the key areas the organization chart. The size of your  rm will determine how many of these can be

dealt with and what resources can be allocated to them. Larger  rms will be able to address all areas, while

smaller  rms should deal with the areas they deem most important to their situations.

When the key areas of the  rm are identi ed, 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  rm. A fully functioning organization chart

with clear reporting lines, and clear goals, will assist your  rm to grow and achieve its business plan objectives.

In Appendix 3.2, Case study 3.1 illustrates how a  rm 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 re ect on your  rm’s

objectives. The plan should make clear what the growth objectives are for the  rm, and should clearly identify

fee and pro t targets.

It is important to note that the focus must be on pro table growth, not just growth for growth’s sake. Many

 rms fall into the trap of chasing new fees in order to reach growth targets, yet the new fees are not pro table!

This will actually damage the  rm and its  nancial sustainability. It is di cult to support any argument that

encourages unpro table fee growth for small to medium  rms.

There may be certain occasions where a “loss leader” strategy is appropriate, but this needs to  t within an

overall marketing and pricing strategy. This is covered in more detail in Section 3.7.

MODULE 3: BUILDING AND GROWING YOUR FIRM 9

3.3.1 Bene ts of growth, and sustainability

There are a number of reasons you may be aiming to grow as a  rm, such as to:

zImprove your ability to attract and service clients;

zReplace clients lost due to natural attrition or retirement;

zRetain sta as the  rm provides a greater variety of work;

zMaximize return on investment on  xed overheads, such as rent and technology;

zProvide a more varied workplace; and

zHit critical mass, to meet  xed overheads and pro t 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  rm pro tability.

Fee growth can come from a range of areas including:

zAcquisition of new clients;

zGreater level of utilization of your services by existing clients;

zIntroduction of new services; and

zIncrease in your fee rates.

Table 3.1 Levels of fee growth

Annual rate of fee growth Impact

Up to 5% Should manage inﬂ ation 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 ﬁ rm 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.

able 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  rm 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  rm management. The secret is to work towards growth rates that are both

manageable and sustainable for your  rm.

3.3.2 Should the  rm grow, and if so, by how much?

The discussion so far has been on the importance of growth to your business plan. However, your  rm needs to

take into account practical factors such as:

zPhysical constraints of current premises, such as  oor space, sta parking, etc.;

zInfrastructure requirements, such as technology, o ce requirements, etc.;

zBudget requirements to fund marketing, advertising and promotional activities;

zFunding costs for new sta until they are billing and productive; and

zImpact 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:

zYou are operating at full capacity now;

zGrowth is not in line with your business objectives;

zGrowth may cause con ict with work–life balance objectives;

zThere is no desire for the increased stress associated with growth;

zCurrent fees and pro tability are sustainable and comfortable;

zThe practitioner is not concerned with the future of the  rm, or its future value;

zThere is concern that increased growth will mean the practitioner spends less time with longer-term clients

who have been loyal to the  rm;

zThere are physical limitations and practical constraints on the ability of the  rm to handle and manage

growth, such as size of o ce premises, with no alternatives available;

zThe  rm may have recently gone through a period of strong growth and is now seeking to consolidate and

settle; and

zThe age or health of the practitioner.

Very few  rms manage their growth on a consistent and sustainable basis. It is more likely to come in  ts and

starts, followed by some settling, then resurgence. It is also a reality that some  rms 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:

zWhat does the  rm’s business plan say?

zWhat is the current resource capacity position?

zCan the  rm grow without any loss in quality?

zDoes the  rm have adequate sta ng to manage growth?

zWill growth improve the  rm and add to its value?

zIf the  rm is planning to grow, by how much?

In answering these questions you are re ecting on three critical issues:

zIs growth part of the  rm’s overall strategy?

zIs the  rm well positioned to grow?

zWhat 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  rm can manage the growth, and whether

growth will add value to your  rm.

MODULE 3: BUILDING AND GROWING YOUR FIRM 11

Once you have identi ed that growth is indeed part of your strategy, make sure that your  rm 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,  rms grow, then rush around trying to put resources in place. The best way to

grow e ectively is to identify your resource requirements and then put them in place to support your growth.

Obviously this will require budget considerations to  nancially 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  rm.

There are a number of options within these two types of growth, which are discussed below.

3.3.3 Internal growth strategies

The  rst 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:

zIncrease the use of your existing services by your existing clients;

zIntroduce a new service to your existing clients; or

zIncrease your  rm’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  rst need to understand which

clients are using which services at this current point in time. Refer to

able 3.2.

Table 3.2 Identifying which clients use which services

Step Action Completed

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

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

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

4 Complete this for all clients (or client segment).

5 Once complete, review the worksheet.

6 The “unmarked” clients represent opportunities to whom you can market

additional existing services.

7 Determine an appropriate marketing strategy for these clients, with actions and

timeframes allocated.

8 Implement the plan.

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.

Only suggest services that of bene t to the client. If you select wisely, present the additional service in a

context that will bene t 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  rm.

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  rm

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  rm have been positive, then they are highly likely to take up new

services you o er them.

In fact, not only are they likely candidates, but your existing clients should be your  rst 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  nal o ering.

Preparation work

Some  rms 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 sta 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:

zSit 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 o ering.

zDiscuss other service areas that might be of interest to you and your team. Examples might include

bookkeeping services, budgets and cash  ow (if not already consistently provided), succession planning,

business consulting, business valuations, franchise specialization, due diligence, business coaching, payroll

service, debtors follow-up and collection,  nancial planning or  nance broking.

zOnce you have identi ed 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.

zUndertake additional training as required.

zDecide on the new service o ering.

zDecide on the point or pricing model to be used.

zDetermine what marketing collateral will be required to promote the service.

zPrepare supporting materials, work papers and any required information.

zDiscuss the new service o ering with one or two clients with whom you have a close relationship, and who

are supportive of your e orts to introduce new services.

zMeet with these clients and run through the new service on a trial basis.

zTake feedback and implement any changes that may be required.

zReview the listing of all your existing clients.

MODULE 3: BUILDING AND GROWING YOUR FIRM 13

zIdentify which clients, or client segment, to target for the new service o ering.

zDetermine the appropriate marketing strategy for these clients, with actions and timeframes allocated.

zImplement the plan.

3.3.3c Increase your  rm’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 di cult 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 in ation. Those  rms seeking to increase rates over and

above the in ation 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 di cult 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 di erential charge out rates for di erent types of services and

perceived value. If you do not already do so, identify the di erent types of work you and your sta do. Consider

whether it is appropriate to charge di erential rates for these di erent types of work. When you work through

this issue it usually becomes clear which areas of work can be charged at di erential rates.

Airlines worked this out long ago. They have  rst class, business class and economy sections. Each section

provides di erent levels of service, and the prices for each section di er markedly. Yet the passengers all get to

the same destination. It’s the level of service they receive on the journey that makes the di erence.

The same thinking can be applied to your practice. Some of your clients will appreciate, and pay for,  rst class

service. Others will prefer the economy rate. The point is you have the opportunity to be  exible in your thinking

and creative in your delivery. You can provide the level of service your clients want and appreciate. Di erential

charge out rates may be quite appropriate for these levels of service your  rm provides.

Bundle services

Another way to increase your  rm’s e ective charge-out rate is to bundle services together. This way the

individual fee for each service is not separately identi ed 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 o er 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 pro ts, and therefore achieve growth,

is to work deliberately on increasing the  rm’s recovery rate. Essentially this means a reduction in write-o s.

The best way to do this is to improve the productivity management of the  rm, and it is outside the scope of this

module. However, in brief, the key is to hold weekly productivity meetings with sta to check on the work ow

through the o ce, 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 work ow through the o ce, meaning more e cient completion and invoicing

of jobs. This then leads to improved pro tability per job, and increased pro tability for the  rmoverall.

3.3.4 External growth strategies

External growth is all about acquiring new clients for the  rm. 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  rm can develop a

growth plan.

The real power comes when a number of strategies are used simultaneously. This harnesses the momentum of

your marketing e orts, and is more likely to bring attention to your  rm.

Most businesses in the market already have an accountant. In the majority of cases that means in order to grow

your  rm, you will need to win clients away from other  rms. And in order to do that, you must o er them a

compelling reason to change.

External growth strategies for professional services  rms include:

zAdvertising;

zSeminars;

zSponsorship;

zNewsletters (email/printed);

zPublic relations, writing articles and editorials;

zEvents, client functions, cocktail parties;

zTelephone directories and prospect database lists;

zTelemarketing;

zFirm promotion through marketing materials;

zMail-out of promotional brochure;

zLea et letterbox drop;

zWebsites, links and search-engine optimization; and

zTeam members: encourage to refer.

Other strategies for growth include:

zNetworking;

zReferrals; and

zAcquisitions 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:

MODULE 3: BUILDING AND GROWING YOUR FIRM 15

zTarget 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 speci c.

zClient need: You must identify the client want or need that your service will satisfy.

zClient bene t: You must make it abundantly clear how your service will bene t the client. You must appeal to

their self-interest, What’s in it for them?

zA unique bene t: It is better to focus on one particular bene t than to use a broad-brush approach, which

dilutes the impact and confuses the message.

zCredibility and sincerity: The advertisement must ring true and convey professional credibility and sincerity.

You must avoid wild, exaggerated or unsubstantiated claims.

zThe headline: It must capture the attention of the reader and encourage them to read on.

zCall 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.

zClarity 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?

zChoice 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 e ective form of marketing. A number of formats can be used:

zRun your own seminars, and be the keynote speaker. This gives you a reason to advertise and promote yourself

and the  rm, and the role of keynote speaker allows you to be seen as the “expert” on your chosen topic.

zRun your own seminar, but use a guest speaker. This gives you a reason to advertise and promote yourself and

the  rm. 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.

zSpeak at seminars hosted by others. You need to get yourself on the speakers’ list. It gives you the chance to

promote yourself and  rm, 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  rm’snewsletter.

3.3.4c Networking

“Word of mouth” is often regarded as one of the best forms of marketing and is e ectively 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.

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  rst time there are

at least three things you can talk about:

zThe 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.

zThemselves: 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.

zYou: 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 bene ts 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 o , 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  rm—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 in uence,” these contacts include bank managers, lawyers and people in

complementary businesses such as  nancial planning or  nance 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 di erent bank manager every Wednesday in a

month; the next month they may meet with a di erent lawyer each Wednesday. The following month it might

be  nancial planners or  nance 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  exibility 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:

zBe 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  rm. It helps if it’s something that makes you a bit

di erent, to stand out from the crowd.

MODULE 3: BUILDING AND GROWING YOUR FIRM 17

zRemember 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.

zIt’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  rm.

zLimit 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 di cult to convey, and

re ect 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  rm may consider a merger and acquisition strategy over organic growth as a

way of growing the  rm. These reasons include:

zSynergies: The combined  rm can often reduce its  xed costs by removing duplicate departments or

operations, thereby increasing pro t margins;

zCross-selling: The ability to cross-sell specialized services from each  rm to clients of the other; and

zEconomies of scale: The combined larger  rm may bene t from purchasing economies due to increased order

size and associated bulk-buying discounts. Also, where large volumes of speci c services are processed, it’s

possible to maximize the investment in sta training and technology.

The typical forms of merger and acquisition activity will be discussed brie y below.

3.3.4f Purchasing a parcel of fees

This is where a separate and identi able parcel of fees is purchased from a vendor. The purchaser should

undertake some form of due diligence on the fees to be satis ed 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  nal 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  rm

A merger is two  rms combining to make one larger  rm. It works best when the two  rms are of similar

size; otherwise it tends to be more of a takeover. The equity in the combined  rm is typically based on the

proportionate value of the fees going in. Key issues that typically arise tend to follow from the mix of  rm

cultures, work ow patterns, technology and leadership styles.

3.3.4h Buying out another  rm

One  rm buys out the other  rm, usually in the form of payments made to the principal or partners of the

vendor  rm. There is often a time requirement the vendor(s) are required to stay on to facilitate the handover of

clients and settle sta into the new  rm. The vendors typically agree to restraints of trade, where they agree not

to start a new  rm in competition with the purchaser within a certain distance and within a certain timeframe, or

join another  rm.

3.3.4i Headhunting a partner of another  rm, who brings or attracts own clients

Individual partners already working in  rms are identi ed and approached to leave their  rm and join another  rm.

There is usually some reason they are identi ed, 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  rm and join a new  rm. This incentive is

usually  nancial; 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 identi ed and approached to join another

 rm. The key di erence 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  rms. Smaller  rms (typically sole practitioners) are targeted by large

 rms to “tuck in” to the larger  rm. The large  rm o ers to look after the back o ce administrative tasks of the

smaller  rm, which frees up the practitioner to focus on servicing his or her clients. The smaller  rm accesses

the infrastructure and support of the larger  rm and the larger  rm gains a highly motivated new partner. The

clients of the smaller  rm become part of the client base of the larger  rm, and the principal becomes a partner

in the larger  rm.

3.3.4l A liating

Independently owned  rms join together under one banner and present themselves to the market as a single

 rm. There are a number of bene ts for each  rm, including:

zAppearing bigger than each individual  rm is seperate from the group;

zDeveloping and sharing knowledge, systems and intellectual property with other  rms in the group;

zServicing larger clients with a need for multiple o ce locations;

zAttracting and retaining sta due to increased opportunities;

zBene ting from economies of scale in training, purchasing, conferences and so on; and

zAccess to  nancial and other resources.

As you can see, there is a wide range of strategies with which to grow your  rm. 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:

zYour marketing objective;

zYour marketing strategies;

zYour team members (who will be responsible for action); and

zThe timeframes within which they will be working.

Putting your plan into operation is discussed later in this module (Section 3.8 ).

3.4 Strategies for coping with increased regulation and competition

3.4.1 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.

MODULE 3: BUILDING AND GROWING YOUR FIRM 19

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sta .

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  rms 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

sta as one of the bene ts provided by the  rm to employees.

Other in-house training strategies include online learning, where the information is webcast or downloaded to

the sta 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:

zUtilize your professional association: Most professional associations have technical departments that write

technical brie ng 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.

zForm alliances with specialists: A  rm can build close relationships with other professionals who have

specialist technical knowledge in certain areas. These professionals can be called on to assist with speci c

client matters as they arise. Typically the specialist invoices the  rm for work done. The  rm then can choose,

either to pass the fee on to the client, or absorb it in the fee they eventually charge the client.

zJoin professional networks: A number of external professional networks operate commercially. They are

typically operated and resourced by accounting  rms, which use them as marketing vehicles. The information

these networks provide is usually of high standard, and is internally generated. It is essentially a broader-

based approach to the alliance with specialists model discussedabove.

zBuild “buddy networks”: Smaller  rms 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 e ective strategy, but all participants need to contribute fairly equally, otherwise those contributing

can feel they are carrying the group.

zJoin business associations: Business associations can provide information and support in other business-

related 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  rms 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  rms. More and more,  rms see competitionfrom:

zOverseas;

zLarge public companies and institutions; and

zNonprofessionals.

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  rm 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  rm:

zHow will you cope with your clients’ increasing requirements?

zWhat if they outgrow you?

zWhat will that mean  nancially for your  rm?

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

 rm 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 ﬁ rm

A good workplace culture means you and your team enjoy coming to work every morning. Most people

overlook the fact that each  rm 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 bene ts for the employees and the  rm

including:

zHigher levels of commitment;

zLower intentions to leave;

zHigher levels of job satisfaction; and

zLower 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  rm. 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 de ciencies that cause negative attitudes. These could include favoritism, lack of recognition

or di erent sets of standards for di erent employees.

Those who get the best from their teams inspire a positive workplace culture. Some positive in uences include:

zFair and equal treatment of all employees;

MODULE 3: BUILDING AND GROWING YOUR FIRM 21

zOpen and honest communication;

zAchievements recognized and rewarded;

zClear goals set out;

zRegular training;

zOpen management style;

zRegular feedback; and

zEqual opportunities for all employees.

So take the challenge and look to build a positive workplace culture in your  rm. The results will support your initiative,

and you will enjoy work so much more. (Case study 3.3 in Appendix 3.2 speci cally 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  rm’s life, many  rms take on nearly all clients as the need for building the client base is

most important. However, as your  rm matures, you can be more selective about those you work with.

As you plan your growth strategies, you will be looking for growth that:

zComes from a type of work you specialize in, or prefer doing;

zProduces a superior level of pro tability;

zComes from a preferred type of client; and

zIs suited to your  rm and team mix.

Mature  rms should be working toward re ning 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 pro tability,

higher levels of work satisfaction, lower levels of stress and pressure, and the ability to increase your level of

specialization.

Can you identify your  rm’s target client? Of course, there is no correct answer. Di erent  rms will have target

clients with di erentcharacteristics.

The questions in

able 3.3 are useful when deciding on whether to accept clients into the  rm. Accountants

typically assess clients by their pro tability potential to their  rm. However, there are other non nancial criteria

that should also be applied.

Table 3.3 Assessing prospective clients

Question Answer/Comment

1. Do we like working with them?

2. Do they respect us, our opinions, our work and our

team?

3. Do they represent a risk to our business?

4. Can we relate to them?

5. Do they relate well to us and our team?

6. Will they utilize a number of our services?

7. Will they pay their bills on time?

8. Will they work cooperatively with us when required?

9. Do they cause us stress?

10. Will it be a cultural good ﬁ t?

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

ﬁ rm?

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.

Here are some of the ways you might identify your target clients:

zBusiness sector: for example, public companies, small business, not for pro t organizations, investors;

zIndustry sector: for example, farmers, manufacturers, medical practitioners, retailers and franchisees;

zSize of business: for example, revenue of greater than $2 million, or sta levels of greater than ten employees,

orsubcontractors;

zMinimum fee level: for example, minimum fee level to the  rm of $2000 per annum; or

zServices 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  rm

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  rm who do not  t your target client pro le. 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

MODULE 3: BUILDING AND GROWING YOUR FIRM 23

of work and fee levels. This spread can provide you with the scope for development of your team and newly

quali ed accountants. This applies to both areas of work complexity and building client service experience.

Once you have identi ed your target client, your marketing should work toward building the pro le of your  rm

within those target client communities.

3.7 Building a brand, marketing and promotion

3.7.1 Building a brand

Branding is an important area of marketing. To make your marketing as e ective 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  rm, 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 in uence 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:

zBring your market to you;

zDrive down the cost of acquisition of new clients;

zOpen up business opportunities based on market perceptions;

zReinforce the con dence and comfort levels of your existing client base; and

zBuild the value of your goodwill.

Your brand is the message about your  rm that you want to send to the market. It pervades all areas of your  rm,

and goes beyond your logo and letterhead. It covers the services you o er, the way you deal with clients, the

image of the  rm you want to convey. It becomes the banner that you market, and sits over all the services you

o er. Branding includes your communication, your presentations and your style.

Speci cally, 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 sta ,

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  nancial 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.

Once you have resolved your brand identity, you need to ensure you have absolute consistency in your brand message.

Everything within your  rm, and all the material that comes out of your  rm, 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

2. Letterhead, business cards, compliments slips, fonts

3. The reports we present to clients

4. The way we speak and engage with clients

5. The way we speak and engage with our team

6. Our ofﬁ ce premises

7. Our answering machine

8. Our emails and salutations

9. 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 signi cantly add to the growth of a  rm. However,

marketing is undergoing rapid change, with new technologies altering how  rms connect with their clients.

The aim of marketing is to acquire, retain and satisfy clients. Without their clients, accounting  rms don’t exist!

Companies that are most successful have seven key characteristics:

zA good understanding of their clients;

zStrongly de ned markets;

zThe ability to motivate employees to produce high quality for clients;

zAn emphasis on the business to serve and satisfy clients;

zA strong brand focus;

zThe ability to respond to client needs and drive new innovations; and

zThe ability to attract and retain clients.

Marketing needs to cover all aspects of the  rm. A  rm with a marketing focus will concentrate on:

zClient orientation (attention to the needs of the client);

MODULE 3: BUILDING AND GROWING YOUR FIRM 25

zSustainable competitive advantage (di erentiate the  rm from the competition); and

zLong-term pro t (a client-orientated company balancing the e orts to satisfy clients with the need to

generate pro t over the longterm).

Traditionally marketing activities were commonly referred to as the 4 Ps and were “ rm-centric”/inward-looking:

zProduct;

zPrice;

zPromotion; and

zPlace.

However, the emphasis is now changing toward a “client-centric”/outward-looking focus:

zClient solution (the “product” or service);

zClient cost (the price);

zConvenience (the place);

zCommunication (the promotion and ongoing engagement).

Di erentiation

What is it that makes your  rm di erent? 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 in uenced by di erences between your  rm and your competitors than by similarities.

Why do you buy from the businesses you buy from? Are you in uenced 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

di erentiate 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  rm di erent from the other  rms in your area? If there is no di erence, you may

struggle to secure this client. You are merely one of many  rms o ering similar services, with quality standards,

price and delivery.

Having a point of di erence helps you stand out from other accounting  rms in your area, at least in the minds

of your clients. But this is not necessarily an easy task. After all,  rms 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  rms also pride themselves on their professionalism, con dentiality, communication style

and the personalities of the principals and their team. So how do you make your  rm di erent?

Di erentiation can be achieved in a number of ways, such as through:

zThe range of services you provide;

zThe depth of specialization you have in a particular area;

zThe way in which provide services;

zYour accessibility;

zYour price and your pricing structure;

zThe appearance and feel of your o ces;

zThe way in which you package your work; and

zThe network that you can connect your clients into.

You can probably add to this list. Yet most  rms spend very little time seeking to di erentiate 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 di erentiation 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  nancial 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 pro tably.”

z“We package our fees into an agreed  xed fee, covering all of our work, you can pay us, spreading the cost

over the entire year.”

z“Our contacts include high-quality legal,  nance, 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  rm and identify its point of di erence. Notice that they do not

focus on the quality of the work, or the price. In reality, it is very di cult for a client to recognize a di erence 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 di erentiate. Price competition requires a volume market to be pro table and typically the delivery of

professional services is not an area of high-volume transactions.

Di erentiation is likely best achieved through your service o ering. 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 di erentiation.

3.8 Putting your plans into operation

3.8.1 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 e ort 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  rms undertake their planning sessions at the beginning of the year, or  nancial 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  rm. As momentum builds, the easiest things to

MODULE 3: BUILDING AND GROWING YOUR FIRM 27

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 identi ed 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  rm. 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.

able 3.5 shows how to successfully implement your marketing plan.

Table 3.5 Implementing a marketing plan

Suggestion Comment

1. 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

2. Make sure your objectives

are achievable.

Set them so they are reasonable and practical.

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

get started.

3. 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 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.

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

5. Allow an adequate budget. An inadequate budget can frustrate the fulﬁ llment process or lessen the

enthusiasm of those involved.

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

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.

8. 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.

9. Allow for change. If a program or strategy does not appear to be working, accept the fact, be

prepared to adapt and change.

10. Keep the momentum. 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 di cult—especially for sole practitioners.

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  ow forecast

Cash Flow Forecast for year 200X/0Y

Jul Aug Sep Oct Nov Dec Jan Feb Mar Apr May Jun Total

Trading Income

Cash Inﬂ ows*

Cash received from clients

Other cash receipts

Total Cash Received

Cash Outﬂ ows

(details below)

Surplus/(Deﬁ cit)

Cumulative Position

(add to prior month)

Jul Aug Sep Oct Nov Dec Jan Feb Mar Apr May Jun Total

* Cash inﬂ ows when the

cash is actually received

from invoices raised

previously

Cash Outﬂ ows

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

MODULE 3: BUILDING AND GROWING YOUR FIRM 29

3.9 Financial management

Elements of  nancial management for a growing  rm relate to three key areas: capacity budget,  nancial budget

and cash  ow forecast. Each is brie y discussed below.

3.9.1 The capacity budget

This is an estimate of the potential income be generated for the  rm if all available hours were billed. There are a

number of factors to consider including:

zAdditional sta joining the  rm;

zSalary increases;

zAvailable hours;

zTime o for study leave and training; and

zIncrease in charge-out rates.

For a typical professional accountant, the available hours would be calculated as in

able 3.6.

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

Table 3.6 Target billings calculator

Criteria Weeks

Weeks in year 52

Annual leave (4)

Public holidays (2)

Sick leave (1)

Training (1)

Available weeks 44

Hours worked per week 37.5

Available hours per year 1,650

Expected productivity 80%

Target billable hours 1,320 hours

Charge-out rate per hour $150 per hour

Target billings $198,000

This target billings calculation should be applied across the  rm for all productive sta . The total target of all

billings is referred to as the capacity budget for the  rm.

Please note this is only an example of a billings calculator tool. You should amend the  gures to suit your local

environment to be as relevant as possible.

3.9.2 The  nancial budget

The  nancial budget uses the capacity budget as expected income, and also incorporates the budgeted

operating expenses of the  rm. An example format is shown in

able 3.7.

MODULE 3: BUILDING AND GROWING YOUR FIRM 31

Table 3.7 An example format for a  nancial budget

Budget 200X/0Y

Actual Position Budget Forecast

200W/0X 200X/0Y 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 Proﬁ t

Expenses

Accounting fees

Bank ﬁ nance, 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

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 Proﬁ t

3.9.3 The cash  ow forecast

The cash  ow forecast utilizes the information in the  nancial budget to anticipate when the timing of the cash

associated with the income and expenses will a ect the bank account balance. An example format is shown in

the attached worksheet (

able 3.8 ).Table 3.8 An example format for a cash  ow forecast

Cash Flow Forecast for year 200X/0Y

Jul Aug Sep Oct Nov Dec Jan Feb Mar Apr May Jun Total

Trading Income

Cash Inﬂ ows*

Cash received from clients

Other cash receipts

Total Cash Received

Cash Outﬂ ows

(details below)

Surplus/(Deﬁ cit)

Cumulative Position

(add to prior month)

Jul Aug Sep Oct Nov Dec Jan Feb Mar Apr May Jun Total

* Cash inﬂ ows when the

cash is actually received

from invoices raised

previously

Cash Outﬂ ows

Disbursements

Accounting fees

MODULE 3: BUILDING AND GROWING YOUR FIRM 33

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

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

3.10 Conclusion

The business of building and growing a  rm, 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  rm’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  rm. You need know

your  rm is capable of ful lling the expectations you set in the market in regard to your o ering.

3.11 References, further reading, and IFAC resources

Further reading

Buckingham, Marcus and, Co man, Curt. First, break all the rules : what the worlds greatest managers do

di erently. London: Simon and Schuster, 1999.

Mascherpa, Vittorio. Managing Zen. Verona : Positive Press, 2004.

AICPA Journal of Accountancy Practice Management – Sta ng articles –

http://www.journalofaccountancy.com/Search/Results.aspx?Topic=PracticeManagement%7cSta ng

(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’o ce 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  nd 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 4.1 Functional leadership checklist

Task 9Team 9Individual 9

As a leader, you:

• Agree team goals with your

partners/board;

• Are clear on your authority

and delegations;

• Understand what you and the

team are accountable for;

• Have a team plan to achieve

agreed goals;

• Take time to plan and set

priorities;

• Are clear about what each

task is and what it entails;

• Know how the success of

each task will be measured;

• Assess the resources and

skills required;

• Delegate work effectively;

• Distribute workload fairly and

appropriately;

• Monitor and evaluate

performance; and

• Model high standards of

behavior.

As a leader, you:

• Explain goals to your team

and agree on priorities;

• Let team members know

what you expect (outcomes

and standards);

• Encourage team involvement

in decision-making;

• Seek suggestions and input

from the team;

• Keep the team informed of

any changes and how this

affects the team;

• Spend time on “team

maintenance”;

• Make sure team members

observe health and safety

principles;

• Model appreciation of

diversity;

• Apply rules and standards

equitably;

• Deal promptly with team

conﬂ ict;

• Represent your team

positively to your manager;

and

• Build a positive team climate

by being present and

involved.

As a leader, you:

• Ensure each individual knows

their job role and how it ﬁ ts

into the “bigger picture”;

• Gain agreement from

employees on tasks, priorities

and standards;

• Provide the equipment,

resources and information

needed;

• Get to know each employee

(strengths, weaknesses

and potential);

• Use delegation as a

development tool;

• Coach, train and develop

individuals;

• Build a strong working

relationship with each

individual;

• Give frequent, constructive

feedback;

• Recognize and reward good

work;

• Deal promptly and fairly with

individual concerns; and

• Understand what motivates

each individual and use this

knowledge wisely.

MODULE 4: PEOPLE POWER: DEVELOPING A PEOPLE STRATEGY 45

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 ﬁ rm 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 ﬁ ve (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 ﬁ nal review work done by team. • Ensure accurate and timely completion of jobs by team.

Monthly Trial Balance • Attend to queries and ﬁ nal 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.

• Prepare working papers for tax returns for individuals

and businesses.

• Prepare draft ﬁ nancial statements.

• Prepare income tax returns.

• Attend to queries and ﬁ nal review work done by team.

• Attend to client queries and communication.

• Ensure work papers, checklists and internal processes

have been completed accurately and in a timely manner.

• Ensure accurate and timely completion of jobs by team.

• Ensure client satisfaction.

• Ensure compliance with tax laws and regulations.

• Ensure timely lodgements of all jobs with regulators.

VAT compliance • Review VAT reconciliations, based on computer

records against client records.

• Prepare VAT returns.

• Work papers and checklists completed accurately and in

a timely manner.

Management of Team

Performance

• Clearly explain to team members their role,

accountabilities, and support provided by practice.

• 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.

• All team members are clear on what is expected of them

and where to obtain resources/support.

• All members of team are completing work to a high

standard on time.

• Team members provide positive feedback that they enjoy

working in the team, and for the ﬁ rm.

• 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,  rm manager, other accountants and support employees.

Supervise accounting team

Skills and Knowledge (Competencies)

Essential Desirable

• Sound accounting and taxation skills and knowledge

• Sound computer literacy: ability to navigate around a computer and

access email, internet

• Medium level understanding of Microsoft suite of products

• Sound understanding of accounting software programs

• Ability to supervise team

• Eye for detail and accuracy

• Sound understanding of the accounting industry

Personal Attributes

Essential Desirable

• Good communication skills, both written and oral, and in particular a

professional and pleasant phone manner

• 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

• Positive, proactive demeanor

Education, Training and Development

Essential Desirable

• Degree in accounting or business

• Five years’ minimum experience in professional accounting ﬁ rm

• Sound understanding of income tax and VAT provisions together with

other statutory regulations and requirements

MODULE 4: PEOPLE POWER: DEVELOPING A PEOPLE STRATEGY 47

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 ﬁ rm 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.

Monthly Trial Balance • Review reconciliation of bank accounts, sales and

purchase ledgers.

• Calculate and post end of month entries for depreciation,

provisions, accruals and prepayments.

• Completed accurately and in a timely manner.

Taxation • Finalize of end of year trial balance, including all

adjustments, end of year entries for depreciation,

provisions, accruals and prepayments.

• Prepare working papers for tax returns for individuals

and businesses.

• Prepare draft ﬁ nancial statements.

• Prepare income tax returns.

• Work papers and checklists completed accurately and in

a timely manner.

VAT compliance • Review VAT reconciliations, based on computer

records against client records.

• Prepare VAT returns.

• Work papers and checklists completed accurately and in

a timely manner.

Management of Team

Performance

• Clearly explain to junior accountants answering to

you their roles, accountabilities, and support provided

by practice.

• 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.

• All team members are clear on what is expected of them

and where to obtain resources/support.

• All members of team are completing work to a high

standard on time.

• Team members provide positive feedback that they enjoy

working in the team, and for the ﬁ rm.

• 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, team manager, other accountants and support employees.

Supervise junior accountant.

Skills and Knowledge (Competencies)

Essential Desirable

• Sound bookkeeping and accounting skills

• Sound computer literacy: ability to navigate around a computer and

access email, internet

• Medium level understanding of Microsoft suite of products

• Sound understanding of Accounting Software programs

• Eye for detail and accuracy

• Sound understanding of the accounting industry

• Ability to supervise junior and support employees

Personal Attributes

Essential Desirable

• Good communication skills, both written and oral, and in particular a

professional and pleasant phone manner

• 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

• Positive, proactive demeanor

Education, Training and Development

Essential Desirable

• Degree in accounting or business

• Two to three years’ minimum experience in professional accounting

ﬁ rm or commercial environment

• Understanding of basic income tax and VAT provisions

• Training or experience in income tax and VAT

MODULE 4: PEOPLE POWER: DEVELOPING A PEOPLE STRATEGY 49

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 ﬁ rm 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 Performance Measure

Bookkeeping • Data entry of bank details, income and expenses. • 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.

• Accuracy and completeness.

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.

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

Supervise junior accountant.

Skills and Knowledge (Competencies)

Essential Desirable

• Basic bookkeeping and accounting skills

• Reasonable computer literacy i.e ability to navigate around a

computer and access email, internet

• Basic/medium level understanding of Microsoft suite of products

• Basic level of understanding of accounting software programs

• Eye for detail and accuracy

• Basic understanding of the accounting industry

Personal Attributes

Essential Desirable

• Good communication skills, both written and oral

• Ability to work as a member of a team

• Initiative

• Willingness to learn

• Attention to detail

• Businesslike personal presentation

• Positive, proactive demeanor

Education, Training and Development

Essential Desirable

• Degree in accounting or business, or approved certiﬁ cate

in accounting

• Training or experience in income tax and VAT

MODULE 4: PEOPLE POWER: DEVELOPING A PEOPLE STRATEGY 51

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

in how to undergo

an effective

performance

appraisal process.

Direct

supervisor

Team

Performance

Maintain

positive team

culture.

Take part in

workshop on how

to develop a high-

performing team.

Direct

supervisor

Taxation Remain

current on tax

legislation.

Attend professional

association update

programs.

Direct

supervisor

Taxation Remain

current on any

changes to tax

compliance

requirements.

Read up-to-date

materials and

journals.

Direct

supervisor

Appendix 4.6: Performance agreement Covers the period_____/_____/_____to_____/_____/_____

For__________________________________________________________________________________________

_____(person’s name)

Senior Accountant/Manager (Example)

(Fill out the  rst 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,  lling 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 Major Activities Performance Measure

Meets Requirement

(Can be Yes / No,

or % degree of

meeting)

What is required

to maintain

or improve

performance?

Accounting Attend to queries and ﬁ nal

review work done by team.

Ensure accurate and timely

completion of jobs by

team.

Yes, 80% of time 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 ﬁ nal

review work done by team.

Ensure accurate and timely

completion of jobs by

team.

Yes Nil

Taxation Finalize end of year trial

balance, including all

adjustments, end of year

entries for depreciation,

provisions, accruals, and

prepayments.

Prepare working papers for

tax returns for individuals and

businesses.

Prepare draft ﬁ nancial

statements.

Prepare income tax returns.

Attend to queries, and ﬁ nal

review work done by team.

Attend to client queries and

communication.

Ensure work papers,

checklists, and internal

processes have been

completed accurately and

in a timely manner.

Ensure accurate and timely

completion of jobs by

team.

Ensure client satisfaction.

Ensure compliance with

tax laws and regulations.

Ensure timely lodgements

of all jobs with regulators.

Yes, 60%

Calculations in

working papers

using outdated tax

legislation.

Clients

commenting that

there is a three-

day turnaround

on responding to

their queries.

Update tax

legislation

knowledge.

Respond to

client queries the

same day.

MODULE 4: PEOPLE POWER: DEVELOPING A PEOPLE STRATEGY 53

Key Result

Area Major Activities Performance Measure

Meets Requirement

(Can be Yes / No,

or % degree of

meeting)

What is required

to maintain

or improve

performance?

VAT

compliance

Review VAT reconciliations,

based on computer records

against client records.

Prepare VAT returns.

Work papers and

checklists completed

accurately and in a timely

manner.

Yes Continue to read

up-to-date and

journal material.

Management

of team

performance

Clearly explain to team

members their role,

accountabilities, and support

provided by the ﬁ rm.

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.

All team members are clear

on what is expected of

them and where to obtain

resources/support.

All members of team are

completing work to a high

standard on time.

Team members provide

positive feedback that they

enjoy working in the team,

and for the ﬁ rm.

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.

Strong

dissatisfaction

expressed by some

team members,

with two employees

leaving in last

twelve months.

Learn how to build

a high-performing

team.

Learn how to

conduct a formal

performance

appraisal process,

including providing

effective feedback.

Supervisor signature and Date ___________________________________ ____/____/____/

Employee signature and Date ___________________________________ ____/____/____/

Module 5:

Technology and e-business

MODULE 5: TECHNOLOGY AND E-BUSINESS 3

Contents

5.1 Introduction 6

5.2 Software and hardware o

tions 7

5.2.1 Choosin

a hardware/o

eratin

stem

latform 7

5.2.2 Terminal Services/Citrix (thin client computing) versus traditional local area network

(PC

based or fat client computing) 7

5.2.3 Software o

tions 9

5.2.4 Communications 18

5.2.5 Document mana

ement

work ow and scannin

5.2.6 Inte

rated suites 22

5.2.7 Software and hardware selection 23

5.2.8 Other hardware/infrastructure considerations 25

5.3 Maximizin

our current software and hardware ca

abilities 28

5.3.1 A

lication cham

ions 28

5.3.2 T

5.3.3 Multi-screen workstations 28

5.3.4 Client concerns 28

5.3.5 Email overload 28

5.3.6 Personal di

ital assistants

(

PDAs

Smart

hones

BlackBerries

)

5.4 New and emer

technolo

(

includin

Web 2.0

)

5.4.1 Hosted a

lications 30

5.4.2 Social networkin

/online communities 30

5.4.3 Wikis—collaborative knowled

e 31

5.4.4 Multimedia

video sharin

and

ames

latforms 31

5.4.5 Blo

s 31

5.4.6 Communications technolo

ies 31

5.4.7 Freeware 32

5.5 Introducin

erless o ce 32

5.5.1 Overcomin

factors that work a

ainst the

erless o ce 32

5.5.2 Potential issues with re

ulators and courts 34

5.6 Ex

lorin

the role of knowled

e mana

ement s

stems in business 35

5.6.1 Creatin

com

etitive advanta

e with

our  rm’s knowled

e 35

5.6.2 Usin

technolo

to  lter information in search of knowled

e 35

ure 5.1 Ke

com

onents in information mana

ement 35

5.6.3 The rise of RSS

wikis

blo

s and social networkin

as Web 2.0 36

ure 5.2 Gartner Grou

technolo

e c

cle 2007 36

ure 5.3 Gartner Grou

technolo

e c

cle 2008 36

ure 5.4 Ke

concerns related to knowled

e mana

ement 37

ure 5.5 Interlockin

functions of knowled

e mana

ement technolo

5.6.4 Pre

arin

for knowled

e centric information s

stems 38

ure 5.6 Considerations in knowled

e mana

ement 39

5.6.5 Ex

lorin

document and content mana

ement 40

5.6.6 Understandin

document mana

ement: an accountin

 rm context 40

5.7 Establishin

knowled

e and information re

ositor

uirements 41

5.7.1 Establishin

uirements for

our  rm 41

5.7.2 Establishin

when

ou need a document mana

ement solution 41

ure 5.7 An inte

rative overview of IDCM and KMS for accountin

 rms 42

ure 5.8 Document and work ow

rocess 42

5.8 Technolo

to deliver e cient document mana

ement 44

5.8.1 Technolo

considerations for document mana

ement solutions 44

5.8.2 Client

ortals and deliverin

information in a secure collaborative environment 45

5.8.3 Movin

to a “less

er”  rm 45

5.9 Introducin

an e-business strate

5.9.1 The client

ortal 47

5.9.2 Hosted a

lications 47

5.9.3 Product/service sales 47

5.9.4 Client en

ement 48

5.9.5 Client communications 48

5.9.6 Recruitment 48

5.9.7 Multimedia 48

5.9.8 Calculators 48

5.9.9 Other

ossibilities 48

5.10 The role of the virtual o ce and workin

remotel

5.10.1 Outsourcin

/insourcin

(

also known as resourcin

5.10.2 Mobile workin

5.11 The emer

ence of the

lobal re

ortin

stem 51

5.11.1 Data collection and re

ortin

5.11.2 Data consum

tion and anal

sis 51

5.12 Business continuit

and disaster recover

strate

ies 52

5.12.1 Back-u

5.12.2 Maintenance

lans and technical su

ort 53

5.12.3 Insurance 54

MODULE 5: TECHNOLOGY AND E-BUSINESS 5

5.12.4 Redundanc

in hardware con

uration 54

5.12.5 Uninterru

table

ower su

5.12.6 Peo

le and documentation 54

5.12.7 Policies 54

5.13 Develo

a technolo

strate

5.13.1 Sna

shot of current

osition 56

5.13.2 U

date knowled

e and summarize o

ortunities 56

5.13.3 Ali

nment with  rm strate

5.13.4 Summarize the

ects 57

5.14 Conclusion 58

ces,

r r

ead

IFA

esou

ces

endices 61

endix 5.1 Firm mana

ement evaluation 61

endix 5.2 Website/internet/extranet software evaluation 78

endix 5.3 Document mana

ement/work ow evaluation 81

endix 5.4 The work

lace of tomorrow 84

5.1 Introduction

In the 21st century, small to medium-sized accountancy  rms rely heavily on technology to provide e cient,

cost-e ective, high-quality and pro table services for their clients. E ective selection, implementation and

management of technologies, as well as training employees to use these tools, are fundamental to the success

of any  rm.

In most jurisdictions since the 1970s, there has been an increasing number of suppliers have are focused

on information technology and solutions for accountancy  rms. 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  rms.

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,  rm pro tability has not signi cantly 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  rm has made

in systems and processes.

Practitioners must ensure that they commit su cient resources to the selection and implementation of their

 rm’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  rm to change to alternative systems—once in place, core systems are not

changed for many years. Accordingly, failure to acquire and e ectively implement the best possible system for

the  rm can have signi cant long-term impact.

5.2 Software and hardware options

5.2.1 Choosing a hardware/operating system platform

In establishing a technology platform for their  rms, 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  rm 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 noncerti ed platform when problems arise.

Yours is an accounting  rm, 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  rms, a platform

based around Intel and Microsoft is the proven, low-risk option that will be supported by every software

MODULE 5: TECHNOLOGY AND E-BUSINESS 7

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 di culties.

Consider these two important factors when selecting a hardware/operating system platform:

zIs the platform recommended by your  rm’s preferred software supplier/s?

zIs 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  rm 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  le server that allows users to share

resources such as printers, email and  les. All the applications are installed on the PC. This means that for an

o ce 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

zSoftware 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.

zAll peripherals (webcams, USB, printers, and scanners) are supported, as again these devices would have been

primarily designed for the traditional PC environment.

zA large number of IT support organizations are familiar with and can support this environment.

Disadvantages

zAs 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-e ective for smaller

organizations.

zRemote access is di cult 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.

zSupporting multiple o ces and/or mobile users who may wish to share data is di cult and may require

workarounds such as emailing  les backwards and forwards.

5.2.2b Thin client advantages and disadvantages

Advantages

zApplication management is easier. Applications are installed on the server/s rather than on individual PCs.

zRemote users (other o ces, 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.

zThe 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

zNot 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 e ort. Others only provide limited support.

Accordingly, it is often more di cult 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  rm ensures that all software they require is certi ed 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.

zNot 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.

zOptimizing Terminal Services/Citrix is more complex. Fewer people have su cient in-depth knowledge of

these environments. Specialist skills are required. Often it can be a hidden tweak to the con guration makes

all the di erence in systemperformance.

zPrinting 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.

zSupport 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.

zThe 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.

zApplications can be quite basic. To optimize the terminal server performance, usually applications are

con gured 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  rms

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.

MODULE 5: TECHNOLOGY AND E-BUSINESS 9

Factors driving the decision include:

zSoftware supplier support for the environment;

zThe need for multi-locations and/or remote access;

zThe ability to source skilled IT professionals to support the environment;

zWhether critical peripherals will operate;

zThe number and complexity of applications where a thin client environment makes it easier to manage

installations and updates;

zThe e ect on team members of the more austere computing environment generally delivered in the thin

client world; and

zCost di erences over the life of the system.

Care also needs to be taken with software licensing to ensure that su cient 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

di cult to  nd. Potential cost savings can be quickly disappear when problems arise. Unless your  rm 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  rm’s software is the combination of generic business software with specialty applications targeting the tasks

undertaken in an accounting  rm. Often specialty suppliers have integrated specialized applications with the

leading generic business applications to increase e ciency 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  rms. 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  rms 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,  rms 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.

zVirus protection protects your system from attack by software code that can do anything from displaying

annoying messages to erasing  les and disks.

zMalware/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.

zAnti-spam software protects email inboxes from being clogged by unwanted broadcasted email.

zAnti-phishing software protects users visiting websites that are designed to trap user information which can

then be used for fraudulent purposes.

zFirewalls are software (and also hardware) designed to protect your system from attack from people accessing

the  rm’s systems via its external communication links.

All are mandatory for any well-managed system. The cost of an attack can be signi cant, involving loss of data,

fraud, and the signi cant 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, con guration 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 e ectively

protected. Ensuring that these updates are correctly implemented is essential.

5.2.3c Back-up

Back-up is covered in Section 5.12.Every  rm must ensure that adequate on-site and o -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  rm. This software is designed to improve productivity in performing everyday tasks.

Microsoft O ce (www.o ce.microsoft.com) dominates this category; the products are feature rich and have the

following distinct advantages:

zAlmost all team members are familiar with the software, thereby reducing training costs.

zFiles can be sent to external parties with con dence that they can be easily read and/or edited. (It is better to

convert the  le to Adobe PDF format if the intention is for the information to be read but not edited.)

zMany third party software applications integrate with Microsoft O ce, which improves the productivity from

both the third party application and Microsoft O ce itself. Integration of all the Microsoft O ce 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  ows, 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:

zUnintentional formatting where numbers are formatted as text;

zFormulas being overwritten by numbers;

zIncorrect formulas; and

zIncorrect 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.

MODULE 5: TECHNOLOGY AND E-BUSINESS 11

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 e ect 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 signi cant, consideration could be given to

engaging a specialist consulting  rm 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 e ciently. An ongoing focus on training to ensure the e cient 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  rms invest the time to explore this functionality to

improve practice performance.

Competitors to Microsoft O ce include:

zOpenO ce.org, which is the leading open source o ce 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  les

from other common o ce software packages. It can be downloaded and used completely at no charge for

any purpose.

zGoogle 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 o ine.

The bene t of Google’s approach is that the documents are stored on the web. The applications have been

built for collaboration. Sharing, allowing people at di erent locations to edit documents at the same time,

is simple. Where only basic functionality is required, this provides a cost-e ective means of collaboration,

regardless of location.

OpenO ce.org and Google Docs can import and export  les to/from each other and Microsoft O ce, although

care should be taken with important documents using rich Microsoft O ce functionalities.

While the zero cost associated with OpenO ce.Org and Google Docs is attractive, this needs to be balanced

against the advantages of Microsoft O ce’s applications. Integration with  rm software may be a key

productivity bene t that should not beoverlooked.

5.2.3e Firm management software

Firm management software is the underlying database application. Every  rm, except perhaps the smallest solo

operators, needs a  rm management system to manage the business. The system is the source of basic data on

clients and team members.

For most  rms 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  rm 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  rm management client database.

Depending upon the system, reports and graphical representations are available which can highlight:

zProductivity of team members;

zPro tability of individual jobs, clients, or work types; and

zBilling 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  rms it is possible, depending upon the size of the  rm and the services required,

for the server to provide the SQL Server platform along with other services, such as  le and print or email. A key

bene t 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  rm management systems also manage the throughput of jobs in the  rm (often called work ow). 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  rm. Some work ow

systems also provide capacity planning to assist in determining the resources needed to complete the predicted

workload for a year or month.

Some  rm 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 bene t, your  rm needs to ensure that all interactions are captured. Many

 rms struggle to establish such a culture.

Some  rm 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 pro table work.

A signi cant challenge for small  rms 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  rms have similar requirements; however, as a rule, small to medium-sized  rms should

look for systems that:

zAre easy to implement and learn: you cannot a ord the time and cost of complex implementations; and

zHave less complex functionality: larger  rms generally require greater  exibility in how a system is con gured

so it can more closely match their operations. Usually, the greater the  exibility, the greater the complexity.

For most small to medium-sized  rms it is more e cient to trade o this  exibility for greater simplicity.

However, you may need to adjust your processes to match the functionality of the software.

endix 5.1 is a checklist of possible functionalities in  rm management software to assist you in your

softwareselection.

MODULE 5: TECHNOLOGY AND E-BUSINESS 13

5.2.3f Compliance services

Accountants use these products to produce  nancial statements, tax returns, and other documents required

by regulators, generally designed speci cally for the country or region. Categories of compliance software are

outlined below.

5.2.3g Accounts production software

This software produces  nancial statements that comply with the regulations and accounting standards

applicable in the  rm’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  rms, it can be a challenge to learn how to use these report

writers to make changes e ciently 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 e ciently import client data and produce

 nancial statements.

Some products facilitate e cient write-up work when it is not e ective for the client to maintain a dedicated

computerized accounting system. Often, these products have interfaces to assist in e cient downloading and

processing of bank statement data. Functionalities such as coding memorization build e ciency since all similar

transactions can be coded from a single entry.

In some places, small owner-operated private companies have signi cantly reduced the need to comply fully

with accounting standards. Some  rms 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 di erent 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 e cient 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 di erent 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.

zWeb-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.

zWeb-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 noti ed when certain conditions arise.

The XBRL initiative (www.xbrl.org) discussed in Section 5.11 has signi cant potential to increase the e ciency

and accuracy of data between systems and to banks, regulators and other users of  nancial 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:

zIs capable of producing  nancial statements that comply with the jurisdiction’s requirements;

zIs easy to edit the  nancial statements;

zIs able to produce graphs and other reports to enable clients’ greater understanding;

zRequires an asset ledger;

zIs compatible with clients’ accounting systems and will e ciently share data with clients; and

zRequires 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’ speci cations. 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  le 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  rms to meet speci c  ling deadlines.

Purchasing tax return preparation software from the same supplier as the  rm 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  rm management.

Some systems are increasing their use of the internet to deliver further bene ts to  rms 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 e ciency and accuracy of tax preparation systems.

When considering tax preparation software, ask:

zIs the system appropriate for the relevant jurisdictions?

zIs the system integrated to your  rm’s management system, to eliminate duplication of client data?

zDoes your  rm need software to assist in managing its deadlines with the regulators and to track the status of

documents?

MODULE 5: TECHNOLOGY AND E-BUSINESS 15

zCan the system produce documents e ciently? A  rm whose client base consists of a large number of small

returns will need greater e ciency than a  rm whose client base is a smaller number of larger clients.

zDoes 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  rm 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  rm management system.

In some jurisdictions, regulators provide web-based applications to facilitate noti cation of changes online,

thereby reducing the needs for company statutory records software.

When considering statutory records software, ask:

zDoes the regulator provide a web-based interface that allows e cient processing of changes in particulars,

thereby eliminating the need for statutory records software?

zIs the system appropriate for the relevant jurisdictions?

zIn the system integrated to your  rm’s management system, to eliminate duplication of client data?

zDoes the supplier have a good track record in shipping up-to-date, reliable software in a timely fashion?

zAre 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 a ect product

reliability and timeliness of updates. Integration with  rm management software eliminates duplication of data.

Some systems incorporate data feeds from banks, stockbrokers, stock exchanges, managed funds and others

for a signi cant reduction in both data entry and errors. Many  rms use these systems to maintain investment

ledgers for other entities that hold investments, such as estates, charities or individuals.

The system provides a signi cant lift in e ciency 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:

zDoes your  rm have su cient business in this area to justify the investment in the software, implementation,

and training?

zIs there su cient legislative complexity to justify the investment, or can accounts production software handle

the requirements?

zIs the system designed for your jurisdiction?

zDoes 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-o is generally maintained.

Some systems contain sophisticated functionality to assist in assessing risks, materiality and  nancial ratio calculations.

Some audit applications are integrated to  rm 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 di cult 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 signi cant e ciencies.

When considering audit automation software, ask:

zDo you have su cient audit business to justify the investment?

zDo the template programs match the type of client audited and the audit standards of your  rm?

zDoes your  rm have team members who will be able to implement, customize and manage the software?

zDoes 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:

zGenerate transaction samples for review by audit team members;

zHighlight unusual transactions for detailed review; and

zUnlock unforeseen trends in the data.

This software can signi cantly improve the e ciency 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:

zDoes the  rm have su cient business in audit or forensic accounting to justify the investment required to

e ectively implement the software?

zDoes the software have the capability to import accounting data from the  rm’s key clients’ accounting systems?

zWill the system generate statistical samples that comply with the auditing standards of the  rm/jurisdiction?

MODULE 5: TECHNOLOGY AND E-BUSINESS 17

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  rms.

When considering specialist insolvency management software, ask:

zDoes your  rm have su cient insolvency business to justify the investment required?

zDoes it meet the legislative and court requirements of the relevant jurisdictions?

5.2.3n Advisory services software

All small to medium-sized  rms endeavor to provide additional advisory services to assist clients in improving

their businesses or to ensure that they are e ectively 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  nancial indicators and use graphics to emphasize key points.

When considering enhanced reporting software, ask:

zCan the system easily import data from your clients’ small business accounting software?

zWill your clients interpret the reports easily?

zWill the reports create a positive image of your  rm?

zCan 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 non nancial information as well as  nancial data. Some systems

are industry-speci c and provide detailed benchmarks in areas such as sales and pro tability of individual

product lines. Others are more general and aim to provide benchmarks that follow the  nancial statements for

the business.

A key consideration is whether the benchmarking system has su cient 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 classi cations are critical. Two businesses in a similar industry

grouping may be signi cantly di erent—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 re ect the speci c business of the client, as the results may be misleading.

When considering benchmarking software, ask:

zAre benchmarks available for the industries applicable for your  rm’s clients?

zAre sample sizes large enough to produce e ective benchmarks?

zAre the benchmarks applicable to the client’s business?

zIs it easy to extract the required data and create benchmarks?

zAre reports easy to understand?

5.2.3q Budgeting

Many  rms do not use budgeting software and relying on Microsoft Excel for budget preparation. But, using

electronic spreadsheet software is prone to error due to:

zUser-created formulas that are incorrect;

zData being entered into incorrect rows or columns. Numerical information can sometimes be entered as text;

zNew information requiring reformatting of rows and/or columns; and

zProfessional reports that have to be manually created. It is a complex exercise to create a spreadsheet that

accurately produces a budgeted cash  ow, pro t 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  nance 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 in ows 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 signi cantly reduced when

compared with electronic spreadsheets or manual calculations.

When considering budgeting software, ask:

zDo the calculations take account of the relevant taxation and other regulations into account?

zCan the system import data from clients’ and/or your  rm’s accounting system?

zCan budgets be prepared for the years and periods required? Is the functionality  exible to meet the needs of

each client?

zAre the reports produced easy to interpret?

5.2.3r Scenario planning

This helps clients to understand what the key drivers of their businesses. Generally,  nancial information

is imported or entered from the client’s  nancial statements. The system then permits key drivers for the

business to be modi ed so that the  nancial e ect of the change can be observed. Many products also

provide “work back” capabilities where the desired  nancial result is entered and the system highlights the

changes required to the key drivers in order to achieve the desired  nancial result. Most products highlight

key  nancial ratios which further assist clients in understanding the importance of regular reporting and

monitoring of critical  nancial indicators.

Many reports are produced such as break-even analysis reporting or key performance indicators and ratios.

In some jurisdictions,  nancial institutions use this software to assess the creditworthiness of businesses. These

products can also help  rms assist their clients in business planning, loan applications, and business valuations.

When considering scenario-planning software, ask:

MODULE 5: TECHNOLOGY AND E-BUSINESS 19

zCan the system import data from clients’ and/or your  rm’s accounting system?

zDo the calculations take account of the relevant taxation and other regulations?

zCan multiple scenarios be prepared and stored for individual periods and can years and period applicable to

clients beestablished?

zAre 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

di erent 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:

zAre the templates applicable to the relevant jurisdictions?

zAre the templates applicable to the client’s business?

zAre the templates of high quality?

zIs the plan generated of high quality?

5.2.3t Business valuations

This software incorporates models to help accounting  rms 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 a ordability 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:

zAre the tax calculations in the software appropriate to the jurisdictions?

zAre the questionnaires or other industry-speci c issues addressed by your clients’ software?

zWill your clients understand the reports?

5.2.3u Tax planning

This kind of software is used to assist clients in understanding the  nancial e ects 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:

zAre the taxation models applicable to the jurisdiction?

zDoes it provide frequent and accurate updates to ensure that legislative change is incorporated on a timely basis?

zIs the quality and clarity of reporting high enough?

5.2.3v Wealth management tools

Many  rms provide wealth management/ nancial planning services, including risk products (such as income

protection and life insurance) and  nance. Generally these services are highly regulated. Most often, products

are tailored for a speci c jurisdiction to ensure compliance with the regulations, and include:

zProducts to gather information, generate  nancial plans and model scenarios;

zProducts to monitor client investment portfolios; and

zPlatforms, generally online, to assist  rms in accessing  nance and other  nancial services products.

As the highly regulated nature of the wealth management industry means that the products could di er

substantially across jurisdictions, the fundamental issue for any  rm 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  exibility in work arrangements. More and more, team

members are working from home, away from clients and even from di erent cities and countries. The success of

a  rm today is more dependent than ever before on the judicious deployment of communications technologies.

5.2.4a Firm websites and extranets

Many  rms now have a website. Most provide an overview of the  rm’s services and people, and give some

information for potential recruits.

To date, few  rms 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 speci c 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  rms providing access to creditors, or  rms generally providing

contact with to other advisers such as  nancial planners, law  rms 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  nancial 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  rm’s website extranet. Other  rms have created opportunities

for clients to pay their fees online or book appointments. As accounting software moves online,  rms 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 di cult to maintain and update and your  rm is locked in with the web developer for

ongoing maintenance and support.

Other  rms have used templated website solutions developed for accounting  rms. 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  rm’s website may not

look notably di erent from others using the same template. However, some providers engage web designers to

ensure that each  rm’s website has a signi cantly di erent look, even though the functionality is the same.

Your  rm 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.

MODULE 5: TECHNOLOGY AND E-BUSINESS 21

For most  rms, your website’s prominence in search engine results is not necessarily critical, since it is unlikely

you will win any signi cant 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 speci c 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  rm would be wise to explore the websites of other accountants regularly, and review the functionality provided.

endix 5.2 contains a checklist of the functionalities that may be available in  rm websites to assist

practitioners in their softwareselection.

5.2.4b Intranet management systems

Your  rm’s intranet facilitates internal communication. It is the internal equivalent of your  rm’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  rms struggle to maintain these. A dedicated team member should ensure that the

library is maintained.

Include an online version of the  rm’s manual, containing checklists, standard letters, standard work papers, and

other precedent documents, to ensure that quality is maintained and to enable e cient production. Many  rms

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  rm has designed to

maintain quality and e ciency. Many suppliers of  rm 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  rm’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 e ciency.

A key aspect of the  rm’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  rms, knowledge management systems fail. Underlying technology is only a small part of any successful

knowledge management system. The most important element is  rm culture and training, to ensure that everyone

in the organization is committed to capturing that key data. Team members need to be encouraged to:

zCapture details of client interactions;

zRecord information about a client that may assist others who may work with that client in the future;

zCapture past reports, advice and other information that may assist others on similar assignments in the future;

zMake suggestions to improve existing precedents and checklists; and

zStore (with relevant keywords) research material, newspaper articles and other information that may assist

others in the future.

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  rm intranet functionality.

Appendix 5.2 contains a checklist of the functionalities that may be available in  rm 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 o ce. 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  rms can develop their own online, interactive training

materials. However, the cost of licensing these platforms and developing the training programs makes these

platforms una ordable for smaller  rms.

5.2.5 Document management, work ow, and scanning

In recent years, many  rms have moved to improve e ciency 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  rm’s management systems.

5.2.5a Document management

This is the electronic storage of your  rm’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:

zThe ability to  lter and sort the document store based on sophisticated criteria: Many systems enable  rms to

store user-de nable 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.

zAccess 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  rms, 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 e ective access control can  rms consider abandoning paper

and rely fully on their document management system.

zCheck 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.

zVersioning: 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  rms; however, most accounting  rms do not see the value in maintaining multiple versions of the

same document.

zAudit history: Some systems maintain a record of document changes. This can be helpful to ascertain who has made

changes and when.

MODULE 5: TECHNOLOGY AND E-BUSINESS 23

zFull 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.

zMulti-o ce synchronization: Some systems provide the capability to synchronize data between o ces.

This enables each o ce 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  rm-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  nd 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

pro ling (creation of user-de nable 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 e cient.

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 signi cantly impaired as the system grows. Even for smaller

 rms, the document management store can quickly grow to a large size. This is less important as disk storage and back-

up 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 signi cant change in  rm operations. To be e ective, everyone in

your  rm must use the system. This requires changes to personal work practices, which often can be di cult to

achieve. Signi cant time and e ort should be put into implementation.

You need to ensure that team members have the technology platform that optimizes their use of the system. The

 rst 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 di cult to change for the average computer user. Accordingly, most

 rms will create PDF versions of  nancial 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  le, 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  le in the

order that your  rm would like the client to review them.

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

e cient storage of PDF documents.

5.2.5c Document work ow

Document work ow is not yet incorporated into most document management systems. It is a di erent concept

from job work ow which is discussed at 5.2.3 under  rm management software. Document work ow is the

integration of tasks and queries with documents. Many  rms use ad hoc systems that record tasks and “to do” lists.

A system that incorporates document work ow 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 speci cally. The

tasks/queries list is highlighted and for each task or query, the document it relates to is connected. This greatly

increases the e ciency 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 o ce’s version of a Post-It note on a paper document.

5.2.5d Scanning

In most  rms, a signi cant volume of paper is still received from clients, regulators, and other parties. If a

document management system has been implemented, scanning enables e cient electronic storage of these

paper documents.

In some  rms hardcopies of work paper  les are still preferred, as  le review is considered more e cient with

paper (however, see comments above regarding multi-screen workstations in the document management

section). In these  rms the work paper  le is often scanned upon job completion, and the paper  le 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-de ned 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.

MODULE 5: TECHNOLOGY AND E-BUSINESS 25

5.2.6 Integrated suites

Often, suppliers provide an integrated suite incorporating many of a  rm’s applications. These suites will include

 rm management, accounts production, tax preparation, company statutory records, intranet and document

management functionalities. The bene t of the integrated suite is the sharing of data between applications.

For instance, a change of address in  rm 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  rm-wide reporting so that data from multiple applications can be incorporated

on a single report. For example, useful insights may occur from including  rm 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  rms 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  rm.

5.2.7a Choosing a product

Does the product  t within your  rm’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 bene ts that could have proceeded from better

options. Without a plan, your  rm may buy what the supplier wants to sell not what your  rm really needs. Your

plan needs to consider possible future software acquisitions as well as the software you need now.

With a plan, your  rm is able to  lter supplier o erings and concentrate on those that are immediately

important. Find out what bene ts a product will bring to your  rm before you accept any o er 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 signi cant and prevent  rms changing software regularly. In purchasing software, your  rm is

establishing a long-term relationship with thesupplier.

You need to be con dent that the supplier will continue to improve the product to leverage technology

developments and increase  rm e ciency, pro tability 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  rm understands new products and enhancements

in development.

Issues to consider when choosing a supplier:

zThe 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?

zIts track record. Has it met promises and been consistent with its vision, or has it been constantly changing? A

poor track record reduces con dence that current roadmaps and visions will be achieved.

zThe supplier’s success and pro tability. A lack of pro tability can a ect the quality of product support and

future development. Inthe worst case, the supplier could disappear, bringing potentially catastrophic

disruption to your  rm.

zIts investment in research and development.

zThe personnel the supplier has dedicated to the product and whether this has changed signi cantly in the

past three years. A signi cant drop in headcount would indicate potential loss of clients or a scaling back of

further productdevelopment.

zHow 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 e ective products and services.

5.2.7c Underlying technologies

Your  rm’s technology is used to deliver quality and pro table services. Technology should be proven and

reliable. You cannot a ord non-standard or unproven solutions that, if they fail, will disrupt your operations and

incur signi cant 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 e ective 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 certi cation 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 O ce can be a prerequisite for some

applications. You need to understand the requirements and versions of theseapplications.

Consider product scalability. Your  rm 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 con gurations to ensure

e ective 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 di erent 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  t

When considering a product, ask the suppliers for details of the number of its users, the size of the  ve

largest users and the size of the  ve smallest users. This will indicate whether  rms 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.

MODULE 5: TECHNOLOGY AND E-BUSINESS 27

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  rm is expected to commit to the product’s implementation. Also ask for a  rm timeline for

the product’s implementation.

The  rm also needs to devote su cient 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:

zThat 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.

zThat the new applications are fully reviewed to ensure that these processes will maximize the e ciency and

pro tability achievable by the  rm.

zThat adequate training is conducted to ensure that all team members are pro cient in using the systems.

zThat 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 o er 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

o ce 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.

5.2.7k Cost

Suppliers are often expert in concealing the overall product cost. Suppliers can price products di erently, which

makes comparison di cult. It is important to understand all of the costs associated with the product:

zThe upfront cost to acquire the software;

zThe ongoing software maintenance cost: the services included in maintenance should be outlined;

zThe cost of future enhancements, if not included in maintenance;

zThe cost of hardware and related infrastructure and any additional software required;

zThe cost of implementation and training;

zThe cost of internal resources that will need to be dedicated to implementation, training and ongoing internal

support; and

zThe 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  ow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:

zHas the software met their expectations?

zWhat additional enhancements do they think the product needs?

zDid the supplier meet their promises?

zWhat is the quality of training?

zWhat has been the quality and responsiveness of support?

zHow often and for what reasons do they need to contact support?

Ask also for references for the proposed implementation consultant. Ask the referees:

zDid the consultant understand your  rm’s needs?

zDid the consultant have deep knowledge of the product?

zWas the implementation a success? If not, why not?

zHow could the implementation have been improved?

zWas the consultant responsive and accessible?

zDid the consultant ful ll all promises made?

5.2.8 Other hardware/infrastructure considerations

Most small to medium-sized  rms 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  rms, 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  rms on Microsoft’s server, database and workstation operating

MODULE 5: TECHNOLOGY AND E-BUSINESS 29

systems, Microsoft’s certi cation of a support organization provides reassurance that they have a strong

understanding of those technologies. Other suppliers with similar certi cations 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

di cult 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 signi cantly slower than cabled connections, and are not recommended as

a  rm-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 signi cant disruption and loss of

productivity. Additional expenditure to gain greater assurance of server reliability is a prudent investment.

Many  rms 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 a ected should

a failure occur.

It is important to con gure 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 a ected.

5.2.8d Laptops

Laptops are portable and therefore can improve productivity; however, there are extra complications, particularly

involving security. Often, important client and  rm data are stored on these machines. Laptops need to be

e ectively 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  rm’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  rm’s infrastructure to attack when the laptop is

reconnected inside your  rm.

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  rms. Key considerations are:

zDoes the  rm have su cient printing and scanning resources to ensure that team members do not waste

time waiting for print jobs, or to use the device?

zIs colour printing a requirement? Some  rms 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.

zIs privacy a requirement? If so, small printers in individual o ces may be necessary but overall the larger,

faster general o ce printers will be more cost e ective and e cient.

zCan 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  rm or team.

Departmental technologies have the bene t that the  rm can a ord to invest more and acquire devices that are

signi cantly 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  rm provide insu cient 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, su cient centralized resources should be provided.

On the other hand, desktop printers encourage printing and therefore can work against a  rm’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 ine cient 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  rms (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 su cient battery life

to enable a technician to arrive to shut these systems down if power has not been restored.

5.2.8g Energy e ciency

As concerns about the environment and the cost of energy continue to grow, there is an increased focus on the

energy e ciency of technology used by the  rm. Many hardware manufacturers are developing equipment that

can operate on low power and can switch o 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 e cient power supplies and processors.

MODULE 5: TECHNOLOGY AND E-BUSINESS 31

Moving to a lower-paper environment can also achieve signi cant energy savings, ranging from using less paper

to a reduced usage ofprinters.

Firms should also consider implementing energy e ciency policies such as switching o workstations and other

equipment overnight and on weekends.

5.2.8h Security

Your  rm must implement e ective security to control access to its infrastructure and applications. As almost

all  rms now maintain permanent connections to the internet, the risk of unauthorized access is signi cant.

Firewalls, either hardware or software-based, should be implemented; this limits the tra c with permission to

access your  rm’s infrastructure.

Team members must have individual username/password combinations. Passwords should not be given to

others and should be changed regularly. Team member pro les should control their access to applications and

data. Some workstations, particularly laptops, are now incorporating biometrics such as  ngerprint recognition

to further enhance security.

Some  rms 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  rm policies and culture rather than a heavy-

handed blocking of sites.

With myriad data storage devices such as USB drives and portable hard drives, it is almost impossible to fully

protect your  rm’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  rm’s premises.

5.2.8i System audits

Many  rms conduct regular system audits. This involves inviting a suitably quali ed technical support

organization to audit your  rm’s infrastructure. During the audit, the organization reviews the con guration of

servers, back-ups, and other hardware; tests system security; and looks for issues that may a ect the system’s

performance and reliability.

5.2.8j Software licensing

It is critical that all  rms understand and comply with the laws regulating software licensing. While smaller

 rms may be tempted to reduce cost by copying software onto multiple machines there are signi cant legal

rami cations to this, including sti penalties and criminal prosecutions.

The Business Software Alliance (BSA) is an international organization representing leading software developers

in sixty- ve 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  ght

software piracy. They have also been very successful in prosecuting companies for software piracy.

Every  rm should maintain a register that contains an inventory of all software used by the  rm, 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  rms 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  rms in the

management of their software licenses.

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  rm pro tability.

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:

zLearn 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

signi cant additional functionalities.

zTrain: 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.

zInnovate: As the champion unlocks application capabilities, they can recommend ways to use the application

to transform your  rm’s processes for improving productivity or client service.

This process is not sophisticated, but has gradual and signi cant 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 signi cant e ect 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  rms 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 e ective when large slabs of text are being prepared. For many accountants

this is not pertinent.

5.3.3 Multi-screen workstations

Dual screens can signi cantly increase productivity. Often, team members need to work on multiple applications

at the same time: for example, producing  nancial statements while also editing the associated work papers.

Using dual screens signi cantly increases productivity and reduces the need for paper to be printed. Some  rms

use a larger single screen and split the screen to achieve a similar e ect (using products such as Splitview www.

splitview.com). Dual screens are more e ective as they avoid the need to resizeapplications. Dual screens can be

more di cult to implement in a thin client environment; however, it is possible to achieve similar results.

Some  rms 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 di cult to implement, as most

video cards only support two monitors and the addition of a second video card can create con icts. Inexpensive

USB-based video drivers allow the third screen to be connected. The only downside is that the video refresh rate

is signi cantly slower, although it is usually quite satisfactory for general business applications.

MODULE 5: TECHNOLOGY AND E-BUSINESS 33

5.3.4 Client concerns

Many  rms are reluctant to signi cantly 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  rm 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 signi cantly 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 signi cantly a ect 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.

zInboxes 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  le messages based on preset criteria.

zInstall e ective spam  lters to remove any junk mail.

zConsider a  rm 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.

zCreate 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 o ce. 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 o ce 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 a ected.

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 o ce ergonomics. Positive changes to be

considered include:

zPausing periodically during repetitive tasks;

zChanging visual focus every hour;

zEnsuring that chairs are high enough elbows should be slightly higher than the keyboard;

zUsing footrests if feet are not  at on the  oor when sitting;

zEnsuring adequate clearance for legs under desks;

zBetter placement of keyboard and screens;

zUsing document holders;

zImproving lighting;

zUsing telephone headsets to enable hands-free phone calls while working at computer workstations; and

zUsing anti-glare  lters 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  rms 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.

zThe 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.

zThe hosting company hosts the data, and has responsibility for security and back-up. Security is much higher

than the measures small businesses can usually a ord. 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 di erent city).

Some concerns exist with hosted applications. Hosting companies generally don’t accept liability for any security

breach. This concern is mitigated by the signi cant 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.

zHosted accounting applications may overcome problems such as ine cient transfer of information and

amendments. Since the application is online, the accountant and their client can access the same data at the

MODULE 5: TECHNOLOGY AND E-BUSINESS 35

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.

zSome 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 year-

end work, accountants could mark for the client’s attention entries that appear to be incorrectly processed.

zHosted 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.

zHosted 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

su ers. 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 pro les 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  nd a trusted individual or company

with sought-after skills. Some  rms 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 (de ned 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 simpli ed 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  rms have created wikis, but wikis could improve productivity by allowing people to share

knowledge building document precedents, de ning processes recording technical knowledge. It is unclear

whether wikis will deliver these bene ts and whether the loss of productivity to maintain the wikis will be justi ed.

5.4.4 Multimedia, video sharing and games platforms

For over  fty 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  les.

Accountancy  rms often use multimedia in web-based video training for their team members.

It is only a matter of time before multimedia a ects the way small and medium-sized  rms engage with their

clients. Many  rms have incorporated graphical presentations to help clients understand their  nancial 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  rms 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 in uence of the internet (and technology change generally) is the revolution in communications

technology. In less than twenty years, communications have been transformed, with signi cantly lower costs and

widespread all-pervasive availability. The downside has been the expectation of an instant response. This needs

careful management in  rms 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 su er 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 di erent 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.

MODULE 5: TECHNOLOGY AND E-BUSINESS 37

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 O ce

have already been mentioned.

Take care when considering freeware for any critical  rm 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 ofﬁ ce

The paperless o ce 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 e ort to achieve maximum productivity.

zPrinters have become fast and reliable. It is often faster to print a document than to retrieve a paper  le.

zDesks 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.

zNavigating through a paper  le can be signi cantly faster than paging through, for example, a large PDF.

zPaper 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 o ce will never become a reality? Technology is providing solutions that

mean working with electronic documents is signi cantly easier than paper.

Paper has long had its drawbacks. It is expensive and time-consuming to back up, and is highly vulnerable to

 re,  ood 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 o ce 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 bene ts.

5.5.1 Overcoming factors that work against the paperless o ce

Technology developments that can overcome the disadvantages of electronic documents include:

zMulti-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  rms

have moved to two or three screens on team members’ desks, and have reported signi cant productivity

increases and less need to print paper documents.

zInexpensive, 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.

zContinued increases in processing speed, which will make navigation through even the largest electronic

documents fast ande cient.

zImprovements 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.

zSoftware improvements, which will facilitate e cient 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 e ciently. So, even with the technological solutions the challenge of weaning

people o 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

 rms, not only is investment required in technologies, but considerable e ort 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  rms are not burdened by needing to change current work

practices, processes and attitudes. However, existing  rms can achieve success with the right commitment to

implementing the necessary changes:

zFirm leaders must fully support the move, and be willing to spend the time and e ort 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  rms are unable to achieve this level of commitment and

generally these  rms will be unable to achieve any signi cant success.

zAppoint a “champion” (already discussed in Section 5.3.1) to drive the implementation in the  rm. 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 on-

screen completion. This can include:

zPopulation of document data (such as client names and addresses) from other systems;

zAutomated document creation from standard paragraphs so that customized documents to meet a particular

circumstance can be quickly generated;

zUse of radio buttons, check boxes and drop-down lists on documents to enable fast completion; and

zUse 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  rm-wide

implementation occurs.

Replacing accounting and audit work papers has proved a stumbling block. Many  rms have experimented with

Microsoft Excel Workbooks. However, most  rms lack the skills and/or are unwilling to invest su cient time to

build template sheets that are e cient to complete. Few have created solutions that elegantly cater to query

management and sign-o . Work paper solutions can be purchased in some jurisdictions; however, many of

these lack the sophisticated functionalities required to facilitate e cient onscreen completion and review. The

functionality of these third party applications is improving and may be the source of signi cant productivity

improvements in the future.

You will need to implement a document management system that will enable your  rm to unlock the key

bene ts that electronic documents deliver. See Section 5.2.5.

The internet is enabling document collaboration. For many, this is a di cult 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-

MODULE 5: TECHNOLOGY AND E-BUSINESS 39

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:

zYour  rm builds a forecast for a client. The client could view the spreadsheet from their o ce. 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 e ect of those changes. In this way discussions could occur with clients in

di erent locations: suburbs, cities, states or countries.

zAn 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 e ectively together.

Scanning is also a critical component of a move to a less paper environment. Scanning systems are emerging

that can automatically  le documents by utilizing OCR (optical character recognition) technologies. These

“read” information on the document to enable the system to  le 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  rms merely embed a digital image

of a signature into the document. Should this approach be taken,  rms should build in safeguards to ensure that

the digital signature  les 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  le.)

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  ngerprints 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 bene ts in having

all documents available online; however, the cost of imaging prior-year  les is considerable. The reality is that

the requirement to access prior-year records is rapidly diminishing. Most  rms 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  rms 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  rms may  nd

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  rms 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 di cult to alter.

Di culties can arise when di erent authorities require documents secured in di erent ways or in di erent

formats. This can result in the  rm having to maintain multiple applications to create and secure documents for

di erent regulators.

TIFF (tagged image  le format) is often regarded as a format that is di cult to alter. However, many  rms prefer

to use PDF (portable document format) because to it:

zIs universally compatible ( les can be read with the free Adobe Reader software);

zIs generally smaller than TIFF  les (and therefore more quickly transferable);

zGenerally presents better onscreen, and when printed;

zMaintains the orientation for each page (whereas in TIFF  les, the orientation is set by the  rst page);

zCan be password protected and/or protected by electronic signatures to maintain integrity; and

zCan 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 signi cant 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 Exploring the role of knowledge management systems in business

5.6.1 Creating competitive advantage with your  rm’s knowledge

Information is competitive advantage, whether it is the capacity to deliver services more e ciently, 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 know-

how 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 clari es the role of knowledge within a dynamic knowledge lifecycle, citing

its  uidity 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 e ciency with the introduction of knowledge management systems (KMS), whereas

organizations that do so less frequently and e ciently 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 bene cial. The key challenge is to manage the transition to an organization that promotes knowledgesharing.

MODULE 5: TECHNOLOGY AND E-BUSINESS 41

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  ltering through the

millions of results returned from a common stringsearch.

5.6.2 Using technology to  lter 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

Information

Culture

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.

Figure 5.2 Gartner Group technology hype cycle 2007

Technology

Trigger

Peak of

Inflated

Expectations

Years to mainstream adoption:

less than 2 years 2 to 5 years 5 to 10 years more than 10 years

obsolete

before plateau

Trough of

Disillusionment Slope of Enlightenment Plateau of

Productivity

As of July 2007

Enterprise Instant Messaging

Presence

Taxonomy

Web Conferencing

Enterprise Portals

E-Learning Suites

Semantic Web

Corporate Blogging

Wikis

Office Products

Open-Source

RSS Enterprise

Instant Messaging Federation

Folksonomies

Web 2.0 Workplace Technologies

Podcasting

Office Open XML File Formats

Virtual Environments/

Virtual Worlds

visibility

time

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

Unified Communications

and Collaboration

Workplace-Enhanced

Business Applications

Ubiquitous

Collaboration

Portable

Personality

Open Document Format for

Office Applications (OpenDocument)

Social Network

Analysis

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

As of July 2008

Corporate Blogging

Idea Management

Social Network Analysis

Wikis

Years to mainstream adoption:

less than 2 years 2 to 5 years 5 to 10 years more than 10 years

obsolete

before plateau

Technology

Trigger

Peak of

Inflated

Expectations

Trough of

Disillusionment Slope of Enlightenment Plateau of

Productivity

visibility

Green IT

Social Computing Platforms

Video Telepresence

Solid-State Drives

Public Virtual Worlds

Web 2.0

Basic Web Services

Location-Aware Applications

SOA

Tablet PC

Electronic Paper

Microblogging

3-D Printing

Cloud Computing

Surface Computers

Augmented Reality

Mobile Robots

Behavioral Economics

Service-Oriented

Business Applications

Virtual Assistants

RFID (Case/Pallet)

Context Delivery Architecture

Erasable Paper Printing Systems

time

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://o ce.microsoft.com/en-us/sharepointserver/

HA101087481033.aspx) looking for someone with such a specialization.

MODULE 5: TECHNOLOGY AND E-BUSINESS 43

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 de nes it, “page rank”).

Technologies such as Microsoft SharePoint (http://o ce.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  nd commonality between what they are

seeking and what has already been de ned 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

zBuilding the date repository and retrieval system to avoid information overload

zManagement, consistency and accuracy of data

zPrivacy and e ective utilization of correct information

zChange management implications

zKnowledge transfer from individuals and business units (departments)

zKnowledge custodians and moderators

zWarehousing vast arrays of data and infrastructure requirements

zTechnologies to leverage informations retrieval

zInformation privacy and security, especially sensitive corporate know-how

Information

Technology

Management

Figure 5.5 Interlocking functions of knowledge management technology

Database /

Database

Management

Browsing and Retrieval Communication

& Messaging

Enterprise Systems

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  rms, more procedural document systems can link process, information, and knowledge. Software

systems can be crafted to assist in work ow management, ensuring that, as a work document moves through

the de ned 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 work ow 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 de ned 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 e ciency gains.

5.6.4a Key considerations when implementing KMS in your business

David Maister (1993) con rmed that the work that you do will dictate the structure of your  rm. Timbrell (2008)

hypothesized on the need for businesses to focus on the process of converting “expertise to e ciency” and the

structures that underlie the modern  rm. Understanding where your  rm can gain from e ciency should be the

starting point for documenting the requirements of a knowledge management system for your  rm.

MODULE 5: TECHNOLOGY AND E-BUSINESS 45

Figure 5.6 Considerations in knowledge management

High Diagnosis Intensive

Highly Customized

High Client Risk

Few quali es Vendors

Low Leverage

High Fees

High Execution Intensive

Programmatic

Low Client Risk

Many quali ed Vendors

High Leverage

High Fees Sensitivity

Expertise Experience E ciency

Adapted from: Timbrell 2008; BusinessFitness 2008

Only processes that can e ectively cross the information chasm should ever be considered for knowledge

transfer. Knowledge that cannot be easily applied to create e ciency, or that requires too many conditional

outcomes, may lead to ine cient or incorrect outcomes requiring rework and thereby becoming ine cient.

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 e ective 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.

5.6.4c Why even the best laid plans fail at adoption: will cultural readiness derail the e ectiveness and relevance

of your  rm’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  rm systems.

KMS can deliver an overload of information. The duty of an e ective KMS strategy is to provide a  lter for

relevant, timely information. Systems that learn or comprehend speci c 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 e ectively 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  gures 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 o ce 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  rm context

Integrative document and content management (IDCM) in accounting  rms has been de ned as “The de nition,

development, andimplementation of information systems to support the overall document life-cycle and

MODULE 5: TECHNOLOGY AND E-BUSINESS 47

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 O ce 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 di erent (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 de ned in a universally acceptable way, delivering information as required

without the need for multiple di erent forms (and online portals). In a utopian environment, such reporting

frameworks can create e ciencies through pre- lling data labels on reports that have cross-divisional reporting

requirements (such as to state and federal government).

These initiatives highlight the need for accounting  rms to establish IDCM strategies, to leverage e ciencies

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 de nes more de nitive benchmarks

for accounting  rms of America through the annual report “AAA for benchmarking paperless o ce practices,” to

assess the e orts made by accounting  rms in moving to a more streamlined work ow and process automation

(Kepczyk, 2008).

Digital documentation includes:

zDigital o ce documents;

zEmail;

zPhysical o ce documents;

zDrawings and technical documents;

zDocument images;

zDocument indexing, such as OCR and barcode;

zBusiness processes using automated capturing technology and work ow management; and

zReporting 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  rms, such as:

zPractice management systems;

zKnowledge portals; and

zGovernment and compliance systems (for statutory reporting).

5.7 Establishing knowledge and information repository requirements

5.7.1 Establishing requirements for your  rm

Understanding which systems can add value to your business ensures that your  rm will accept in a cultural

sense those chosen. It will also ensure that positive outcomes proceed from implementing them. However,  rms

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) identi ed twenty-two phrases that indicate a degenerative information state within

an accounting  rm. 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 di cult to follow-up on communication.

c. The client  le appears to be missing some documents.

d. Where would (he/she) have saved that  le?

e. I’ll get the  le and get back to you.

f. It’s so tedious to  nd 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  fteen-minute lapse in

productivity (per day, duetotechnology) across a two partner  rm can equate to several thousands of dollars

in lost productivity (PRO.ACTIVE Technology Audit for Accounting Practices, see http://simpleitaudit.proactive-

solutions.com.au/).

MODULE 5: TECHNOLOGY AND E-BUSINESS 49

Figure 5.7 An integrative overview of IDCM and KMS for accounting  rms

Integrative Document, Content and Knowledge Management

Knowledge and Content

Repositories

Knowledge

Transfer

Enterprise

Knowledge Portal

Client Record

Management Email

Collaboration

Tools

Corporate

“Yellow-Pages”

Client Portal Wiki’s Blogs

Policies and

Procedures

HR Guidelines Enterprise

Schedules and

Calculations

Working

Documents

Enterprise

Portals

Internet

Delivered

Resources

Governance &

Accountability

Procedural

Check Lists

Letters and

Templates

Consolidated

Data Services

Practice Applications

Work ow Management

Desktop Applications

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 work ow 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 work ow process

Knowledge

zExpert de ned process

zDe nition of outcomes

zScope of delivery

Information

zProcedural checklists

zWork instruction

zDelivery requirements

Work ow

zManaged work ow

zReview process procedure

zStandardised preparation and completion

Delivered outcome

zFinished work item

zDelivered, 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 de ned 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

implementing such systems. These steps can be unilaterally applied to an accounting  rm when considering

the functional and cost bene ts for an IDCM. Shown below is an adapted version (Asprey & Middleton, 2003) of

these steps that shows how these guidelines apply to an accounting  rm:

1. Preliminary investigation to identify resources, de ne boundaries, and establish housekeeping functions and

associated issues.

This is one of the clear imperatives before selecting technology, or systems based on functional speci cation.

Questions such as“What does our business need from an IDCM?” should be considered before “What are the

functions of [speci c] 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 identi cation, risk assessment and development of a

business classi cation scheme.

This is often neglected under the pretense that the software will do as the  rm requires. Every business has

di ering requirements, based on existing processes, whether manual or otherwise.

3. Identi cation 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 land ll, 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 de ned 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.

MODULE 5: TECHNOLOGY AND E-BUSINESS 51

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 de ning 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

identi cation 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 e ciency and success of the overall objectives.

5.8 Technology to deliver efﬁ cient 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 speci c

technology considerations when reviewing document management requirements. Software vendors di er

in each region, so to provide a reviewor feature comparison between each software vendor would not be

practical, or bene cial, as features and key bene ts frequently change.

Strategy for technology that delivers e ciencies from IDCM systems

What an information system should deliver was clearly articulated in Jenson’s (2002) work on information and

knowledge clari cation in the workplace. It is de ned in cultural principles that can drive a successful change in

information management, including:

zClarity: My manager organizes and shares information in ways that help me work smarter and faster.

zNavigation: In my workplace, it is easy for me to  nd whomever or whatever I need to work smart enough, fast

enough.

zFul llment 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.

zUsability: In my workplace, corporate-built content (such as IT training and support) is easy to use.

zSpeed: In my workplace, that same corporate-built content gets me what I need, as fast as I need it.

zTime: My  rm is respectful of my time and attention, and is focused on using it wisely and e ectively.

It’s not hard to understand the reasons why businesses are considering IDCM systems, when studies have

identi ed considerations in the document lifecycle such as:

zIt costs $20 to  le a document, $120 to  nd a mis led document and $220 to reproduce a lost document.

zThe average document is photocopied nineteen times.

zProfessionals 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 de ned with a cookie-cutter approach; several

individual considerations need to be taken into account (see Mancini et al., 2009). The foremost requirement,

however, is commitment from all stakeholders, including the rank and  le. 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  rms’ e ciencies,

Smith (2009) noted that  rms with the highest productivity and pro t per partner were those that produced

invoices in draft format, engaging the client prior to preparation of “ nal” documentation, further minimizing

rework post- nalization. Client portals allow for engagement of clients through this process, with automated

work ow triggering noti cation 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 bene cial in work ow management:

zProhibition: Limitations of some jurisdictions when sending personal information, such as [Tax  le Number/SS

Number/IRS Number] over email is prohibited.

zDocument 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.

zDocument 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”  rm

E ciencies from moving to electronic  ling systems include reduction of paper usage, a smaller physical

footprint for archives, simpli ed electronic review processes and many other cost-e ective processes. Some

technology considerations are fundamental to a  rm’s overall ability to successfully move to a less paper (or

“paperless”)environment.

5.8.3a Technology solutions

1. Multiple screens

Much of the e ciency relates to the ability to  nd, 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 e ciency 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 e ciencies gained, further demonstrating the  scal value of such an upgrade.

MODULE 5: TECHNOLOGY AND E-BUSINESS 53

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  les shared by your  rm.

zPrinting: will this be allowed by the end recipient, or will it require a password in order to enable this feature?

zSelecting text: where text can be selected, it can be copied or exported to other document formats.

zSelecting images and objects: this allows for content to be copied or extracted.

zDigital 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  nancial statementpreparation).

Consider automated processes for converting documents (by scripting and automated software processes) to ensure

that documents intended for use outside the organizational  rewalls 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  rms 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:

zAutomated saving of client correspondence into IDCM systems;

zGeneration of general correspondence (cover letters, noti cation and summaries);

zAccessing and merging common data  elds such as address details; and

zAbility 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  les), 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:

zAuto pro ling document when created, saving directly into the IDCM solution under the relevant client/work task;

zCommon documents in template form, with integrated merge capabilities; and

zAbility for such documents to be created, inserting the objects that permit data to be populated by the

automated mergeprocesses.

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  ling system, and scanning the resultant (manual) work papers into an IDCM does

not constitute an electronic process. In order for an accounting  rm to capitalize on a truly electronic (and

paperless) initiative:

zAll steps in the process must be paperless;

zThere must be electronic linking of documents to a central “index” page, allowing reviewers to access the

back-up (or background documentation);

zThe process must capture who has prepared, completed and reviewed steps as part of the process; and

zThe process must be de ned 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 e ciency gained from

an electronic solution.

5.9 Introducing an e-business strategy

Few small and medium-sized  rms have an e-business strategy other than using email communications.

Research has shown that the most common reason clients access a  rm’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  rm is the client portal. The portal provides a secure space on

your  rm’s website that clients can securely access. The portal would facilitate e cient and secure transfer of

information between your  rm and its clients. Email is inherently not secure. It can be secured, but it is still

ine cient. A client portal has a signi cantly 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  rm to access. Similarly, your  rm can

upload completed documents for clients’ access. However, the portal can add further value to clients by

become the repository for all clients’  nancial and legal documents. The client would then have a single source

from which to access tax documents,  nancial 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  rm 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  rm’s fee. Your  rm 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

 rms o er clients the opportunity to book meetings online or book attendance at a client seminar or event.

MODULE 5: TECHNOLOGY AND E-BUSINESS 55

Firm extranet

A  rm extranet is a secure part of the  rm’s website that can be accessed (with username and password) by

clients, banks, solicitors and other business partners.

The  rm 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  rms, banks, other accountants and

other third parties. Insolvency  rms 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  rms will o er 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  rms have incorporated online shops on their websites to sell accounting and other software. Other  rms

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  rms are experimenting with online questionnaires to unlock the issues that concern clients. Your  rm

can use the results to frame the products and services you o er, to ensure services are relevant and adding

the most value. However, this may not be as e ective as face-to-face discussions with clients to discover their

personal needs and objectives. Meetings in person may be better enable the  rm to further develop personal

relationships with clients and to more closely tailor services to meet their needs.

Some  rms implement web-based client survey systems, such as www.surveymonkey.com, as an e cient way to

gather feedback on service delivery.

5.9.5 Client communications

Many  rms have moved their newsletters online. Many web-based services include templates that enable non-IT

professionals tocreate newsletters. Many also allow your  rm 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  rm to

target additional service o erings.

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 di erences

in each jurisdiction.

Articles can contain links to relevant areas of your  rm’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  rm’s website is often the  rst place potential recruits visit to obtain more information about the  rm.

As such, it is critical that your  rm provides career information that satisfy the information needs of new and

prospective employees. Information regarding your  rm’s training programs, education assistance, leave

policies, and  exibility 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  rm should

provide videos or podcasts of client testimonials or of current employees highlighting the positive aspects of

their career in your  rm. You can use these cheaply, using services such as www.youtube.com to host videos.

5.9.8 Calculators

Some  rms have included simple calculators on their website to let clients calculate a variety of  nancial issues,

including tax payable, social security payments, loan repayments or retirement, payouts. This enhances the value

of the  rm’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:

zAccessing information about the status of work with projected completion dates;

zClient reminders of key dates and appointments with email and/or SMS reminders;

zFacilities to enable clients to perform credit checks on their customers; and

zRegistration 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 ofﬁ ce 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 o ces to stay

connected to the  rm 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  rms have created “thin client” environments (see Section 5.2.2)

which enable all team members to access

your  rm’s systems and work as though they are located in the o ce, regardless of actual location. Document

management systems are critical to enable access for all client  les.

Some  rms 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-e ective communication

for remote areas.

The past twenty years have seen signi cant changes: the number of women in the accounting profession has

increased and many employees seek opportunities to work  exible hours or work from home (“remote working”).

MODULE 5: TECHNOLOGY AND E-BUSINESS 57

Many  rms remain reluctant to permit signi cant 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  rms 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  rm

can refuse remote working if it does not appear to be e ective.

Another consideration is the e ect on  rm 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  rms require their remote workers to visit the  rm regularly, and to participate in training and

other  rm 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-e ective communication. VoIP can also

facilitate participation in training sessions.

Some  rms 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-e ective for every  rm. 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  rm 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,  rms have looked to developing countries.

Two modes of operation have generally been used:

zRemote workers access your  rm’s systems using “thin client” technology (see Section 5.2.). They connect

to your  rm’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  les and post queries. Some  rms

outsource the entire assignment while others outsource individual tasks.

zSource  les 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,  nancial statements, and taxation

documents. Final documents are then sent to your  rm in PDF format often data are returned to your  rm for

importing into your  rm’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 speci c 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 di cult to rectify.

zTo 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.

zOther 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 bene ts to practitioners:

zAccess to labor that is scarce in the source country.

zSavings, not just from labor costs, but also from ancillary costs such as training, technology and o ce space.

zManagement of peak workloads—in many countries the tax season is compacted into a few months. This

either means that your  rm needs to recruit more team members, which is di cult since all  rms face the

same issue, or service levels drop.

zImprove turnaround time performance—these third party providers are focused on implementing highly

e cient processes. They are not distracted by the need for client engagement and other day-to-day issues

that reduce productivity in most  rms.

zHigher and more consistent quality of output—delivered by their singular focus on the implementation of

the most e cient, high-quality and reliable systems and processes. E cient processing is their only product,

unlike  rms who have a wider relationship with their clients.

zFreeing team members from compilation work so that emphasis can be placed on higher value business

improvement work. Some  rms, however, have expressed concern that this can result in a loss of skills within

their own  rm.

Many resourcing providers have implemented sophisticated internet-based work ow systems to assist in the

management of the assignment. Many of these systems provide information to  rms regarding the status of

work and estimated delivery dates and to manage queries and other communications between your  rm and

the third party provider.

Some  rms have created their own o ces 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  rms 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  rm may not possess the required skills.

Some providers price their services at an hourly rate basis. Others quote a price for di erent 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:

zTheir track record in providing a quality, reliable, and timely service;

zTheir system security;

zThe training given to their team members;

zTheir supervision and review processes; and

zPricing models.

An ancillary bene t is that using third party resource providers drives the  rm to adopt document management

and other paperless technologies. Other  rms have seen the e ciency of the systems adopted by third party

providers and have adopted them internally.

MODULE 5: TECHNOLOGY AND E-BUSINESS 59

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’ o ces. Working from client’s o ces has the potential to

increase e ciency as it can facilitate faster resolution of queries.

Some  rms 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  nancial data to concentrate on analysis of  nancial 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 di erent computer

applications. It is a language for the electronic communication of business and  nancial data and provides major

bene ts in the preparation, analysis and communication of business information. It also o ers cost savings,

greater e ciency and improved accuracy and reliability to all those involved in supplying or using  nancial data.

The XBRL website (www.xbrl.org) explains: “Instead of treating  nancial 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 pro t 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  nancial data, reduces the chance of error and permits

automatic checking of information.”

The bene ts of XBRL can be summarized as follows.

5.11.1 Data collection and reporting

By using XBRL, companies and other producers of  nancial data and business reports can automate the

processes of data collection. For example, data from di erent company divisions with di erent accounting

systems can be assembled quickly, cheaply and e ciently if the sources of information have been upgraded

to XBRL. Once data is gathered in XBRL, di erent types of reports using varying subsets of the data can be

produced with minimum e ort. A company  nance division, for example, could quickly and reliably generate

internal management reports,  nancial statements for publication, and tax and other regulatory  lings, 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 bene t by standardizing and simplifying their assembling and  ling 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

e ort can switch to higher, more value-added aspects of analysis, review, reporting and decision-making. In

this way, investment analysts can save e ort, 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

government departments can assemble, validate, and review data much more e ciently 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  nancial 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

 nancial 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  nancial statement element and

con rm 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 signi cant 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  rms will need to monitor XBRL activity in their jurisdictions. As banks, regulators and

other users of  nancialinformation move to adopt XBRL, small to medium-sized  rms 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 e ective business continuity and disaster recovery system can be catastrophic. Fires,

equipment failure, data theft by disgruntled team members, and hackers can create serious recti cation costs

and/or loss of productivity.

Your  rm needs an e ective risk management plan. While, it may not need to be a long and complex document

small and medium-sized  rms, it should cater to the following systems issues.

5.12.1 Back-up

Firms need to back up systems e ectively backed up, so that the systems and data can be recovered in the event

of a system failure. There are di erent types of back-up:

zBare metal back-ups: these back up everything possible on the server, including device drivers and other low-

level con gurations, so that a server can be restored exactly as it was con gured.

zFull system back-ups: these back up all server operating systems, application software, and data but often

may not back up key server con guration information.

zData back-ups: only back up data, not operating systems or application data.

If only data back-ups are maintained, the time, cost, and e ort to restore systems signi cantly increases. As full

system back-ups are signi cantly larger than data only back-ups, some  rms perform data back-ups daily, and

full system back-ups only weekly or monthly. Should any signi cant change occur to the con guration 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 speci c  les.

MODULE 5: TECHNOLOGY AND E-BUSINESS 61

5.12.1a Back-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 o set 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 di erent alignment. For this reason, it is

important that regular tests are performed to ensure that data can be read from back-up tapes.

Many  rms 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 di erential 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 back-

up services for  rms. 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  rms maintain a separate back-up for each day of the week. This allows a  le or system to be restored

for any day (in case a  le is deleted). Most  rms 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  rms hold a yearly back-up forever.

In this way, it should be possible to restore a  le 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  ve 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 o site in case of  re 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  les are backed up

and can be restored. For small and medium-sized  rms with limited IT knowledge, only well-known brand back-

up software should be considered. As a general rule, use the software recommended by your  rm’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  le types while the  le is in use. Accordingly, it is important that the back-up logs

are reviewed daily to assess whether any failures have occurred.

5.12.1e Trial restores

The most e ective test of a back-up is to attempt to restore a  le. Procedures should be adopted that ensure

that a trial restore occurs at least monthly to ensure back-ups are working e ectively.

5.12.2 Maintenance plans and technical support

Maintenance contracts should be maintained with hardware suppliers so that hardware failures can be quickly

recti ed. 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  rms, 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  rms that

reply on maintenance contracts, your  rm should ensure that the support organization maintains an adequate

supply of spare parts.

The quality of your  rm’s external IT support organization is critical to correct implementation and support.

Issues that need to be considered in selecting an appropriate organization include:

zTheir knowledge and experience with your  rm’s hardware and operating system con guration;

zTheir knowledge and experience with your  rm’s application software;

zCerti cations held with major hardware and software companies, which provides assurance as to the

competency of the people in the organization;

zThe number of people within the organization with the required knowledge to support the system. Reliance on a

single individual can result in signi cant delays and cost should that individual be unavailable for any reason; and

zTheir 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 con guration

Server con guration 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.

zSome  rms use RAID 1. This provides for disk mirroring a second disk maintains a copy of the  rst so that,

should the  rst disk fail, the second disk can continue. The downside is that the second disk must have the

same capacity as the  rst disk.

zMany  rms 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  rm to hold a stock of commonly needed replacement parts. Some  rms

with multiple servers have ensured that all servers are con gured in a similar way should a critical server fail, a

less critical server may be switched over temporarily to take the critical server role.

MODULE 5: TECHNOLOGY AND E-BUSINESS 63

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  rm 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 con guration 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.

5.12.7a System use policy

This policy generally outlines the rules by which your  rm’s IT systems can be used. Issues to be considered in

this policy include:

zUse of passwords, including the need for passwords to be changed regularly and a prohibition of providing

passwords to other team members or third parties;

zProhibition of copying  rm data and removing from the o ce without approval;

zThe physical security of equipment;

zUse of the system during business hours for your  rm’s business only; and

zRules for the private use of the system, if allowed, outside o ce hours.

5.12.7b Email use policy

Issues to be considered in this policy include:

zProhibiting the use of personal email accounts for business matters;

zResponsibility to check email regularly;

zResponsibility to organize and  le email;

zUse of professional standards and courtesy in messages;

zProhibiting email use for unlawful purposes (copyright infringement, obscenity, slander, fraud, computer

tampering, etc.);

zProhibiting email use outside your  rm’s policies;

zProhibiting sending large attachments;

zProhibiting opening email attachments from unknown sources (as they may contain malicious software);

zProhibiting accessing email accounts of other individuals;

zProhibiting sharing email account passwords;

zProhibiting excessive personal use of your  rm’s email;

zNoti cation that the  rm will monitor email; and

zReporting of misuse.

5.12.7c Internet use policy

The issues to be considered in this policy include:

zLimiting internet use to business purposes;

zNoti cation of the ability of your  rm to track internet usage;

zProhibiting access to sites that are o ensive to a person’s gender, sexuality, religion, nationality or politics;

zOther prohibited sites (some  rms prohibit sites that can a ect productivity);

zEnsuring that downloads only occur from a safe and reputable website;

zProhibiting downloading executable (program)  les, as they may contain malicious software as well as pirated

music, movies or software;

zProhibiting providing the users’ business email address to limit the likelihood of SPAM; and

zConsequences of violation.

5.12.7d Remote access policy

Issues to be considered in this policy include:

zApprovals required for external access;

zReimbursement of external access costs;

zSecurity procedures (including disclosure of passwords, third party use of system, disconnection from other

networks while accessing your  rm’s systems, use of  rewalls and installation of appropriate software to

protect the remote system from malicious attack);

zPhysical security of  rm supplied equipment such as laptops;

zReporting of any possible breach of security, unauthorized access or disclosure of your  rm’s data;

zAgreement that your  rm can monitor the activities of the external user to identify unusual patterns of usage

or other activities that may appear suspicious; and

zConsequences of noncompliance.

5.13 Developing a technology strategy

Few small to medium-sized  rms 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  rm or not allocating

su cient 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  rm’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  rm’s current technologies and summarize:

zHardware deployed—Include all hardware, noting main speci cations, age and maintenance plans and

recommendations for upgrade or replacement.

zSoftware deployed—Include all software applications, noting versions and maintenance plans.

MODULE 5: TECHNOLOGY AND E-BUSINESS 65

zTechnology management structure—The internal and external resources used to maintain your  rm’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.

zExpenditures—All costs including internal labor costs.

zOutstanding projects—Highlight the resources required, timelines to achieve successful completion and any

barriers to completion.

zStrengths and weaknesses—Your  rm’s technology achievements, and areas where your  rm has struggled,

highlighting the reasons behind the positive and negative results.

zDesired 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  rm technologies can be di cult. 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 bene ts new technologies can bring to your  rm. This section of the plan should summarize new

developments in hardware and software and their potential bene ts. 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  rm strategy

Ensure that the technology plan is aligned with the overall strategic plan for the  rm. Growth targets, numbers

of o ces, services o erings, and standards will all drive the technologies that your  rm needs to deploy.

In addition, your  rm may seek to harness technology developments to improve its e ciency, client service, or

pro tability. This could include remote access, document management and scanning, multi-screens, or website

improvements. Set a ”light on the hill“ for your  rm to aim to achieve in a three-year timeframe.

Summarize your  rm’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  rm’s requirements driven by growth in the business. Larger

 rms require systems that assist in the management of work ow, 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 o erings that are more aligned with the needs of small and medium-sized  rms

with simpli ed functionality, less reporting, and less  exibility. As  rms grow, these restrictions can hamper practice

performance, requiring  rms to consider the acquisition of systems more suited to the needs of larger  rms.

5.13.4 Summarize the projects

Having established your  rm’s strategic technology objectives, the next step is to determine the projects that

required to achieve the desired outcomes. Develop a plan and justi cation for each project, including:

zThe bene ts of the project;

zThe tasks required to complete the project;

zResources required;

zHardware/infrastructure acquisition costs;

zSoftware acquisition costs;

zImplementation and training costs (including internal labor costs);

zOngoing maintenance, training and associated costs;

zThe best person in the organization to drive the project;

zThe key milestones to be tracked to ensure that project overruns are discovered early and quickly recti ed;

zWhether the project is dependent upon other projects, so that it cannot be started until part or all of another

project is completed;and

zHow long the project will take.

5.13.4a Prioritize 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  rm’s growth, number of o ces, 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  rms fail to adequately resource the implementation of new systems, resulting in delays, poor

implementations, and the potential bene ts 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  nancial burden too great? Will it be

di cult to deploy su cient resources to ensure successful project implementations? You may need to  ne-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:

zWho within your  rm has the authority to approve the plan?

zWhat approvals are required for expenditure that is in the budget and for unplanned expenditures?

zHow will project status be monitored and managed?

zWho 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  rm will review and, where appropriate,

adopt improvements to applications.

MODULE 5: TECHNOLOGY AND E-BUSINESS 67

By developing a detailed technology plan and budget,  rms position themselves to harness technology

developments and deliver optimum outcomes to the  rm and its clients.

5.14 Conclusion

To sum up this vital component of a modern accounting  rm, here are the main points you must consider:

zDevelop a strategic plan and budget for your practice technologies.

zImplementation and training are the key to successful use of technologies.

zEnsure that a system selection process is followed and not overly in uenced by suppliers.

zThe Internet is transforming how  rms today are interacting with clients.

zFirm websites are critical components in servicing clients and in positioning the  rm for recruitment.

zFirms must ensure adequate technical support for e cient and reliable systems.

zStick to mainstream hardware and applications that are in wide use so the  rm can have con dence that the

applications and systems will deliver desired outcomes.

zPractice management, accounts production (and audit) and tax software, together with word processing and

spreadsheet software are the key production platforms that underpin the e ciency of most  rms. Hardware

platforms should be implemented that e ciently and reliably support these applications.

zDocument management and knowledge management applications have the potential to deliver signi cant

improvements in client service and e ciency in the future.

zHosted solutions/cloud computing solutions are emerging that have the potential to enable small and

medium-sized  rms to operate with lower infrastructure investment and system management costs.

zAdequate attention and resources should be dedicated to risk management to prevent catastrophic failures.

Technology is a key component of success in any  rm in today’s world (see the case study in A

endix 5) It is

critical that practitioners stay up to date on the solutions available and the bene ts these technologies can

deliver. It is equally important to dedicate su cient resources to ensure that any solutions that are deployed

are properly implemented and maintained. To succeed,  rms 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.

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 O ce 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  t.” 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, Je . “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  ts”. 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 O ce Best Practices Survey 2008.”

At http://www.itpna.com/Vision/2008/20081220AAA2009BenchmarkingPaperlessO ce.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 bene ts. 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/how-

much-info-2003http://www2.sims.berkeley.edu/research/projects/how-much-info

MODULE 5: TECHNOLOGY AND E-BUSINESS 69

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-before-

its-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)

O ers free material covering IT as well as  rm management. It runs technology circles: groups of  fteen or so

 rms that join to discuss management of technology within an accounting  rm. They communicate throughout

the year via an online community. Each  rm is represented by the partner or shareholder responsible for

technology and the chief technology person on sta .

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 Work ow—Paperless O ce, Automation, Scanning

http://www.itpna.com/Vision/2007/20070420CCHStatusofthePAPERLESSO ce.htm

Research report on the status of American Practitioners moving to PaperLess o ce 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  nance 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  nd 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 5: TECHNOLOGY AND E-BUSINESS 71

Appendices

Appendix 5.1 Firm management evaluation

Product:____________________________ Evaluation Date:______________________________

Importance to Firm

(0=Not required,

1=low requirement,

5=high requirement)

Rating

(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

Conﬁ gurable security

Customization allowed

Auto Alerts: email trigger on certain

condition

Integrated General ledger and accounts

payable

Budgeting

Integration with Microsoft Ofﬁ ce

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 deﬁ nable reporting ﬁ elds for a

client

Multiple addresses

Engagements / Matters / Jobs

Importance to Firm

(0=Not required,

1=low requirement,

5=high requirement)

Rating

(0=Function does not exist,

1=exists but poor

implementation,

5=exists and excellent

implementation Comments

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 ﬁ elds

User deﬁ nable reporting ﬁ elds for an

engagement

Deﬁ ne 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

Deﬁ ne multiple responsibilities at

engagement level

Record expected fee

Record agreed fee

Limit billing to agreed fee

Engagement Budgeting

Function

Engagement description ﬁ eld

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

MODULE 5: TECHNOLOGY AND E-BUSINESS 73

Importance to Firm

(0=Not required,

1=low requirement,

5=high requirement)

Rating

(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 Conﬁ gurable

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 ﬁ eld

Restrict use of client / engagements to

speciﬁ c staff members or groups

Notify the employee that budget for the

engagement has been used

Importance to Firm

(0=Not required,

1=low requirement,

5=high requirement)

Rating

(0=Function does not exist,

1=exists but poor

implementation,

5=exists and excellent

implementation Comments

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, ofﬁ ce)

Estimate hours to complete job / phase

/ task / activity

Reporting

Printing timesheets

User-deﬁ ned 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 ﬁ rm standard and expected to

bill time values

Time in Lieu

View Leave balances

Timesheet by Recording period total

Units, Hours, and Decimals

User deﬁ ned time units entire system

User deﬁ ned time units (per user)

User deﬁ ned 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

MODULE 5: TECHNOLOGY AND E-BUSINESS 75

Importance to Firm

(0=Not required,

1=low requirement,

5=high requirement)

Rating

(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

speciﬁ c employees

Multiple levels of expense report

approvals e.g. employee, team, ofﬁ ce

Enter business rules such as

reasonableness of expense amounts

e.g. meals > $200, airfare > $1,000

Prior period adjustments

Interface / integration

Importance to Firm

(0=Not required,

1=low requirement,

5=high requirement)

Rating

(0=Function does not exist,

1=exists but poor

implementation,

5=exists and excellent

implementation Comments

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 ﬁ rst

Bill speciﬁ c WIP items

MODULE 5: TECHNOLOGY AND E-BUSINESS 77

Importance to Firm

(0=Not required,

1=low requirement,

5=high requirement)

Rating

(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 deﬁ ned triggers /

schedules)

Client speciﬁ c: 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

Importance to Firm

(0=Not required,

1=low requirement,

5=high requirement)

Rating

(0=Function does not exist,

1=exists but poor

implementation,

5=exists and excellent

implementation Comments

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 ﬁ nal 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 ﬁ eld

Billing arrangements ﬁ eld

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 ofﬁ ce,

team, job, account manager etc

MODULE 5: TECHNOLOGY AND E-BUSINESS 79

Importance to Firm

(0=Not required,

1=low requirement,

5=high requirement)

Rating

(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 speciﬁ c 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 deﬁ ned allocation of receipt

monies (i.e. allocate to GST then

disbursement)

Retain open items indeﬁ nitely

Importance to Firm

(0=Not required,

1=low requirement,

5=high requirement)

Rating

(0=Function does not exist,

1=exists but poor

implementation,

5=exists and excellent

implementation Comments

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

Deﬁ ne 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 ﬁ le

Print to spreadsheet

MODULE 5: TECHNOLOGY AND E-BUSINESS 81

Importance to Firm

(0=Not required,

1=low requirement,

5=high requirement)

Rating

(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 / modiﬁ able

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-deﬁ ned back ofﬁ ce reports

User deﬁ ned reports

Graphical reporting such as bar and pie

charts

On-line reports can be sorted by

any ﬁ eld

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, ofﬂ oad 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-deﬁ ned contact types

Multiple addresses

Multiple telephone numbers

Importance to Firm

(0=Not required,

1=low requirement,

5=high requirement)

Rating

(0=Function does not exist,

1=exists but poor

implementation,

5=exists and excellent

implementation Comments

Addresses formatted for local

requirements

Search on name or any part of name

Search on beginning of name only

User deﬁ ned relationships

Duplication management

Create clients from contacts

Track name changes

Freeform notes facility per contact

Event logging

Alias facility

Data security at ﬁ eld 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 ﬁ les–user speciﬁ ed

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

Deﬁ ne a rate per employee that

is applied as the standard when

registering time

Deﬁ ne a rate per position / group

Deﬁ ne additional rates per

employee that can be applied

when registering time

MODULE 5: TECHNOLOGY AND E-BUSINESS 83

Importance to Firm

(0=Not required,

1=low requirement,

5=high requirement)

Rating

(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 ofﬁ ce 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-deﬁ nable tasks

User-deﬁ nable 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 ﬁ nancial 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

classiﬁ cation and or employee,

across jobs by engagement

controller/manager/branch

Capture actual time from timesheets

Importance to Firm

(0=Not required,

1=low requirement,

5=high requirement)

Rating

(0=Function does not exist,

1=exists but poor

implementation,

5=exists and excellent

implementation Comments

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 notiﬁ cation to individuals

entering data into the schedules

that their input creates a conﬂ ict in

the schedule

Integration to general ledger

Function

Interface available

Account selections – user deﬁ ned

Journal deﬁ nitions – user deﬁ ned

Choice to print report and journalise

manually

Export ﬁ le available

Allocate multiple cost centres per fee

Accounts Payable

Function

Function Available

Desktop facilities

Function

MODULE 5: TECHNOLOGY AND E-BUSINESS 85

Importance to Firm

(0=Not required,

1=low requirement,

5=high requirement)

Rating

(0=Function does not exist,

1=exists but poor

implementation,

5=exists and excellent

implementation Comments

Integration to

Microsoft Ofﬁ ce/Outlook

Off Line Capabilities (remote)

Function

Timesheets & Expenses

Billing

Master ﬁ le 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, ofﬁ ce, Division, Unit etc)

Bulk update of responsibilities. for

example when partner/manager leaves

the ﬁ rm.

Detailed cost centre reporting

Multiple debtors ledgers

Multi-entity, multi-level budgeting

Internal Integrity checks

Online manual

Online help

User-deﬁ nable On line help

Numeric ﬁ eld size

Retain history data

Generate a to do list

Modiﬁ ed screen formats, menus,

parameters, and ﬁ les are automatically

applied to new releases

System comes supplied with a test

environment and database

Importance to Firm

(0=Not required,

1=low requirement,

5=high requirement)

Rating

(0=Function does not exist,

1=exists but poor

implementation,

5=exists and excellent

implementation Comments

Module security levels are automatically

applied to new releases

Capability for Web browser, internet

and intranet front ofﬁ ce processing

Desktop Faxing

Archive data

Retain static data history

(e.g. client maintenance)

Architectural queries

Function

Program ﬁ le sizes

(Including Manuals and Help)

Maximum data ﬁ le 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-deﬁ ned lists

Scalability

Function

Robustness of multi-site support

Proven for large data volumes

MODULE 5: TECHNOLOGY AND E-BUSINESS 87

Importance to Firm

(0=Not required,

1=low requirement,

5=high requirement)

Rating

(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 ﬁ nancial stability

User Groups

Pricing

Customer input into development

Conversion from other products

Other functionality required

Comments:

Appendix 5.2 Website / intranet / Extranet Software Evaluation

Product:____________________________ Evaluation Date:______________________________

Importance to Firm

(0=Not required,

1=low requirement,

5=high requirement)

Rating

(0=Function does not exist,

1=exists but poor

implementation,

5=exists and excellent

implementation Comments

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 deﬁ ned forms can be included

Job board (employment opportunities)

Event registrations

Intranet

News area

Web Links

User deﬁ ned Favourites (links to websites

documents or other data)

History

(recently accessed documents or pages)

Provides views of ﬁ rm management and

other ﬁ rm applications data

Provides access to best ﬁ rm precedents

and procedures

MODULE 5: TECHNOLOGY AND E-BUSINESS 89

Importance to Firm

(0=Not required,

1=low requirement,

5=high requirement)

Rating

(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 notiﬁ cation to clients or ﬁ rm

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 ﬁ le 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

Importance to Firm

(0=Not required,

1=low requirement,

5=high requirement)

Rating

(0=Function does not exist,

1=exists but poor

implementation,

5=exists and excellent

implementation Comments

Largest customer

Support provided

Implementation Services Provided

Training provided

Client satisfaction survey results

Reference sites

Server requirements

Workstation requirements

Provider ﬁ nancial viability

User Groups

Pricing

Customer input into development

Conversion from other products

Comments:

MODULE 5: TECHNOLOGY AND E-BUSINESS 91

Appendix 5.3 Document Management / Workﬂ ow Evaluation

Product:____________________________ Evaluation Date:______________________________

Importance to Firm

(0=Not required,

1=low requirement,

5=high requirement)

Rating

(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 Ofﬁ ce and Outlook

Clients/engagements integrated with

ﬁ rm management

Integration with ﬁ rm 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 deﬁ nable views of document lists

Store documents by client

Store documents by engagement

Store documents by ﬁ le 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 deﬁ nable attributes to documents

View documents by user deﬁ nable attributes

Review notes on documents

General comments on documents

Workﬂ ow

Track queries on documents

Assign documents to staff members

Assign tasks to documents

Importance to Firm

(0=Not required,

1=low requirement,

5=high requirement)

Rating

(0=Function does not exist,

1=exists but poor

implementation,

5=exists and excellent

implementation Comments

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 ﬁ rm 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 notiﬁ cation 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 ﬁ rm-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

ofﬁ ces

Best ﬁ rm procedures provided, linked to best

practice documents

MODULE 5: TECHNOLOGY AND E-BUSINESS 93

Importance to Firm

(0=Not required,

1=low requirement,

5=high requirement)

Rating

(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 ﬁ lters 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 ﬁ nancial viability

User Groups

Pricing

Customer input into development

Conversion from other products

Comments:

Appendix 5.4 Case study 5.1 The workplace of tomorrow

William and Indira, who are just setting up their  rm, 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 e cient manner

resulting in a highly pro table business.

William and Indira understand that they have a distinct advantage over existing  rms who have established

systems and processes. Firms that are long established would  nd it di cult to adopt new systems and

processes, since people in those  rms 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  rm. Word processing, spreadsheets, and

presentation software will be necessary. Microsoft O ce 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 O ce.

Ideally the  rm would prefer to adopt cloud computing to reduce its infrastructure and management costs.

However, not all of the  rm’s requirements are available as cloud computing applications. Accordingly, the  rm

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  rst 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 e ciency, 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  rm. They

plan to review various providers who may provide compilation services for the  rm, to enable the partners to

concentrate on advisory work.

A key consideration will be to recommend to the  rm’s small business clients that they adopt a hosted

accounting application which would enable the  rm 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 e cient manipulation of electronic

documents. A  rm 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 e ectively at clients’ premises and at home. They

plan to provide their team with laptops equipped with mobile broadband connections.

The  rm’s website will be a vital platform for the  rm. 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 e ectively implemented and managed and ensure that all

risks are properly considered andmitigated.

Module 6:

Client relationship management

MODULE 6: CLIENT RELATIONSHIP MANAGEMENT 3

Contents

6.1 Introduction 5

6.2 Knowin

our client 6

6.2.1 Client

uestionnaire 6

Table 6.1 Sam

le client

uestionnaire: Business 7

Table 6.2 Sam

le client

uestionnaire: Famil

Grou

6.3 Reviewin

our client base 8

6.3.1 Client classi cation 8

Table 6.3 Client base classi cation criteria 9

Table 6.4 Client classi cation exercise 9

6.3.2 Bene ts of client classi cation 10

6.4 Measurin

and exceedin

client ex

ectations 10

6.4.1 What do clients want? 10

Table 6.5 What clients want 11

6.4.2 Measurin

client ex

ectations 11

Table 6.6 Ste

s to measure and exceed client ex

ectations 11

6.4.3 Exceedin

client ex

ectations 11

ure 6.1 Sam

le sales

h 12

ure 6.2 Sam

le balance sheet 13

6.4.4 Internal versus external strate

ies 15

Table 6.7 Sam

lan for re

ular client contact 15

Table 6.8 Client relationshi

mana

ement action

lan 16

6.5 Benchmarkin

service levels 16

6.5.1 Benchmarks 16

Table 6.9 Benchmarkin

client relationshi

mana

ement 17

6.6 Embracin

ortunities for enhanced relationshi

s 18

6.6.1 Usin

anal

sis 18

Table 6.10 Ga

anal

sis model 19

Table 6.11 Existin

client–service matrix 19

6.6.2 Summar

: maximizin

ortunities 20

Table 6.12 Maximizin

the o

ortunities from an enhanced client relationshi

6.7 Develo

strate

ies to

rovide a full ran

e of

ualit

services 20

Table 6.13 Ste

s to develo

a full ran

e of services 20

6.7.1 Identif

the services re

uired in the market

lace 21

Table 6.14 Services checklist 21

Table 6.15 Related services checklist 21

Table 6.16 Internal

uestionnaire 22

6.8 Strate

ies for

rovidin

a full ran

e of

ualit

services: mer

ers

networkin

referrals 22

Table 6.17 Formin

an alliance 22

Table 6.18 Tar

et list of

ossible alliances 22

6.8.1 Common concerns with referrals or introductions 23

Table 6.19 Discoverin

our

otential referral

artner’s attitudes 23

6.8.2 Mer

ers 23

6.8.3 Cherr

ickin

6.8.4 Alliances 24

6.8.5 Referrals 24

Table 6.20 Sam

lan to deliver a full ran

e of

ualit

services 25

6.9 Invoicin

and collection 25

6.9.1 Credit control 25

6.9.2 Collection techni

ues 25

6.9.3 Some fundamental rules 26

6.9.4 Wh

clients don’t

6.10 Con ict resolution and arbitration services 27

6.10.1 Five si

ns of risin

con ict 27

6.10.2 Dealin

with con ict 28

6.11 Endin

a client relationshi

6.12 Conclusion 30

6.13 References

further readin

and IFAC resources 31

endices 32

endix 6.1 Case studies 32

MODULE 6: CLIENT RELATIONSHIP MANAGEMENT 5

6.1 Introduction

The relationship accountants have with their clients is fundamental to the value of the accountancy  rm.

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  rm and the client intend to continue to deal with each other.

z“Relationship” implies that the association between client and  rm is more than a simple transaction, or a

one-o purchase of a service. It is often the case that the client shares private or con dential information with

the  rm, and hence a level of trust is established. Both the client and the  rm 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  rm 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 a airs. 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:

zBuilds a closer relationship;

zStrengthens your position as their “trusted business adviser”;

zMeans that price becomes less of an issue;

zIncreases client loyalty, which means clients will be less interested in approaches from competitors;

zIncreases client retention, and therefore pro tability;

zIncreases sta satisfaction, as they also build relationships with clients;

zIncreases e ciencies: your  rm and its clients know each other’s systems and methods; and

zTends to be more professionally satisfying.

This module provides assistance to those who realize the bene ts of deepening the relationship with their

clients and are looking for ways to do it.

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.

able 6.1 is an example of a client questionnaire. Two questionnaires are provided, one with a business

focus, the other with a family focus (

able 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 o cialmanner.

MODULE 6: CLIENT RELATIONSHIP MANAGEMENT 7

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,

ﬁ ve 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.)?

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, ﬁ ve 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  rms deal with numbers, laws and regulations, it is the relationships the client has with the  rm that

will bring them back to you, year after year. This adds the real value to your  rm.

The reality for most  rms 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 di ers from client to

client. People run each business, and people are di erent wherever you go.

It is important to understand how your clients interact with your  rm and just what the client relationship is

based on. One e ective way to do this is to classify your clients. This allows you to see which clients have a

strong relationship with your  rm, and which do not. It also allows you see where resources should be allocated

and if there are any areas which requiring special attention.

MODULE 6: CLIENT RELATIONSHIP MANAGEMENT 9

6.3.1 Client classi cation

There are many ways to classify clients. Questions you could ask include:

zHow much time does the client spend with our  rm?

zWhat is our return on investment with this client?

zWhat contribution margin do they make?

zWhat hourly contribution margin do they make?

zClient contribution as % of total?

zHow many of our services do they currently utilize?

zDo they pay our bills on time?

zDo they dispute or argue over fees?

zDo we make good recovery on their fees?

zDo they respect our advice?

zCan we add value to their business?

zDo we enjoy working with them?

Firms that go to the e ort to rank their clients often do so this on the basis of the fees the clients pay. This is  ne

as one indicator; however, it is important to remember that you deal with clients on many levels and some “non-

monetary” criteria should also be used.

ables 6.2 and 6.3show how client bases might be classi ed according to di erent criteria.

Table 6.3 Client base classi cation criteria

A+ A B C D “Up and comer”

Spends $20,000

or more per year

Utilizes ﬁ ve or

more of our

services

Monthly payment

arrangement

Respects our

advice

Values our

services

We enjoy dealing

with them

Spends $10,000–

$20,000 per year

Utilizes four

to ﬁ ve of our

services

Monthly payment

arrangement

Respects our

advice

Values our

services

We enjoy dealing

with them

Spends $5000–

$10,000 per year

Utilizes three

to four of our

services

Monthly payment

arrangement

Respects our

advice

Values our

services

We enjoy dealing

with them

Spends $2000–

$5000 per year

Utilizes two to

three of our

services

Monthly payment

arrangement

Respects our

advice

Values our

services

We enjoy dealing

with them

Spends $2000 or

less per year

Utilizes only one

to two of our

services

No monthly

payment

arrangements

Minimal scope

for advice, but

does appreciate

our services

We enjoy dealing

with them

Enthusiastic client

of ﬁ rm

Potential to utilize

three or more of

our services

Will do monthly

payment

arrangement

when ready

Respects our

advice

Values our

services

We enjoy dealing

with them

Table 6.4 Client classi cation exercise

Action Completed/Comment

1. Determine the criteria on which you will classify your clients.

2. If this includes ﬁ nancial information, ensure that this information is

available.

3. Determine the coding system you will use (for example, A+, A, B,

C, etc.).

4. Access a listing of all clients of the ﬁ rm. (This works best in

electronic format.)

5. Allocate a classiﬁ cation code against each client.

6. Sort client list according to code.

7. Review list for anomalies.

8. Make list available to all employees for review and comment.

9. Determine appropriate strategies to maximize use and value of

this information.

6.3.2 Bene ts of client classi cation

A number of bene ts may be gained from the process of client classi cation.

6.3.2a Demographics

Classi cation allows the  rm to discern:

zWhich clients are utilizing which services;

zThe popularity of certain services;

zThe resources and training required to support these services;

zThe opportunities to up-sell and cross-sell additional services; and

zThose clients who utilize most services in the  rm.

It is important to share this information with all the employees in the  rm so that they know where clients sit

in the  rm 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 classi cation may also allow the  rm to consider special pricing arrangements. These may apply in

di erent 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  rm, 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  rm could o er 10% o fees on the additional service in the  rst year of use.

MODULE 6: CLIENT RELATIONSHIP MANAGEMENT 11

In addition to preferential pricing, the  rm could also consider di erent pricing structures that may apply to

di erent service levels, or to di erent 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 classi cation. 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  rm 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  rm during the lifetime of the mutual relationship. Also make an estimate of how

many other clients they are likely to refer to your  rm, and what the value of those clients will be to the  rm. This

will then provide the  rm 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 classi cation of clients can be used.

It then becomes important to determine the appropriate strategies the  rm 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  rst 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

1. Accessibility “Be available for me, whenever, wherever.”

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

3. Timeliness “Be in the present, stay current with me, not focused on

the past.”

4. Comprehensible advice “Relate to me in ways I can understand.”

5. Client choice and control “Give me options, let me choose.”

6. 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 speci cs 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 a ord and wish to pay. From a client-

management perspective this means there may be no need to over-service clients.

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

1. Know what your client’s expectations are.

2. Quantify your client’s expectations.

3. 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 identi ed in your  rst meeting with them. Use the client questionnaire in

able 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 e ective 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  nancial indicators to their clients. KPIs based on the Pro t 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 sta ’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 sta member

the responsibility of setting up your accounting software to produce the ratios and the sentences that go with

them automatically.

MODULE 6: CLIENT RELATIONSHIP MANAGEMENT 13

This is a simple example of how to engage with client, while at the same time improving sta 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  gures and  nancial situations. However, most clients are not

like that. So it is important that  rms 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  rms present their client’s

 nancial information in this form. It is certainly one of the most cost-e ective methods of impressing your

clients and giving them something of real value.

Figure 6.1 Sample sales graph

160000

140000

120000

100000

80000

60000

40000

20000

Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec

2009 2010

Consider the other information that your clients would appreciate seeing in graph format, such as:

zSales versus last year’s sales;

zSales versus budget;

zSales versus gross pro t;

zWages versus sales; or

zSales versus net pro t.

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.

Figure 6.2 Sample balance sheet

Assets

Liabilities

Net worth

There are other bene ts to producing graphical information.

zIt typically generates additional interest within the  rm, as the results are so easy to see, and arouses sta curiosity.

zStandard formats can be preset on your computer system and can be produced with the press of a button.

zGeneration Y is highly computer literate and can usually produce graphs with ease.

zThe image and perception of professionalism are enhanced.

6.4.3e Other services

A number of accounting  rms 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  rm could incorporate

some of these services could be incorporated in your  rm, in addition to traditional tax and accounting services.

zAnnual planning session: Meet with client each year to map or update the strategic direction of the client’s business.

zDevelop action plan: Assist in completing the action plan to achieve the goals identi ed. This includes

identifying the necessary follow-up steps, and allocating responsibilities for tasks and deadlines.

zImplement and update the action plan: Ensure the plan is fully implemented, with regular follow-up,

mentoring and coaching.

zGoals and objectives: Identify and establish the goals and objectives of the business, and together determine

how to get there.

zOrganization 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.

zSite visits: Regularly spend time in the client’s business to physically assess the continued sustainability and

development of thebusiness.

zMonthly meetings: Meet with the directors on a monthly basis to discuss the  nancial performance, growth

and development of the business.

zManagement accounts and KPIs: Review the business’s performance against the budget. Also review the KPIs

and relevant  nancial and non nancial information relating to the performance of the business.

zAnnual budget: Prepare and review.

zAnnual cash  ow forecast: Prepare and review.

zSales pipeline: Regularly review.

MODULE 6: CLIENT RELATIONSHIP MANAGEMENT 15

zAccounts receivable: Review and track accounts receivable monthly. Consider the impact on the cash  ow

forecast and bring any concerns to the attention of the directors.

zAccounts payable: Review and track monthly. Check against the annual budget allocation, and consider the

impact against the cash  ow forecast.

zKey performance indicators (KPIs): Identify the speci c KPIs for the business that are to be regularly reported on.

zFinance and funding: Review the  nance and funding arrangements that are in place to ensure that the most

appropriate and cost-e ective forms of  nance are being utilized.

zBank 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.

zBank security: This discussion will be linked to a review of the security the bank holds to support the  nance

structure. These meetings should coincide with a monthly management meeting.

zCorporate structure: Review and consider the corporate structure through which the business operates, to

ensure it continues to re ect the client’s intentions for the business.

zAsset protection: Link to the review of corporate structure a consideration of asset protection measures that

are in place.

zInvestment plans: Review and discuss the client’s investment and development plans, in light of taxation and

investment bene ts.

zSuccession: 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.

zEstate: Con dentially discuss and consider the legal wills of the client and the client’s intentions in regard to

their estate planning, from a  nancial and taxation perspective.

zInsurance coverage: Review insurance cover in place to ensure it is appropriate for the current and ongoing

needs of the client.

zInsurance 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.

zSta salaries and bonus structures: Review and discuss sta salaries and bonus structures annually.

zRisk assessment: Conduct a formal risk assessment of the client’s business annually to ensure key areas of risk

are identi ed. Also ensure appropriate risk mitigation strategies are identi ed and recommended.

zPro tability analysis: Conduct client pro tability analysis and product pro tability analysis to ensure that the

clients and product lines that your client deals with are pro table. If not, review their continuation.

zKey clients: Meet your client’s key clients to discuss their  nancial terms and arrangements. Gain an

understanding of their dealings with and expectations of the client’s business.

zKey suppliers: Meet with the client’s key suppliers to discuss their  nancial 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 o erings, you should be aware of ethical considerations and any local restrictions that may apply in

your jurisdiction.

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  nancial 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 e ect 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:

zWhom should we invite: clients, prospects, referrers, alliance partners?

zWhat should we invite them to: what are their interests?

zWhere is the event, or function: how do we get clients there?

zWhen 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

able 6.7.

Table 6.7 Sample plan for regular client contact

Who What Where When

1. ABC Ltd Cirque du Soleil City March

2. CBC Bank Lunch Local restaurant May

3. Lew & Wing Theatre: Les Miserables North Shore May

4. Sokya & Epstein Football: client is keen supporter of Wests football club Football stadium July

5. Maria M Tulip festival: client is plant breeder and horticulturalist Regional September

6. Lawyers Co Breakfast meeting to discuss referral and alliance prospects City October

7. Frontline Races Race Club November

8. IT Partners Golf day Muiﬁ eld June

9. Abbott & Co Sailing afternoon Harbour April

10. Damien W Leadership seminar Central January

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  rm. Include members of your team. This will deepen the relationship they have with the  rm

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

able 6.8 as an example of the format to use as a planning tool.

MODULE 6: CLIENT RELATIONSHIP MANAGEMENT 17

Table 6.8 Client relationship management action plan

Client Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec

6.5 Benchmarking service levels

6.5.1 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  rm. Determine your own benchmarks. Then track your

actual  rm performance against these benchmarks regularly (see

able 6.9 ).

Table 6.9 Benchmarking client relationship management

Client relationship management key indicators

People

Stafﬁ ng Number of full-time equivalents

(FTEs)

Number of employees

Client-facing staff Number of FTEs (with client-

facing responsibilities)

Percentage of total stafﬁ ng

Number of FTEs with client-facing responsibilities

Client-facing staff as percentage of total staff

We want this to increase as we improve our client

relationship culture

Revenue per FTE Firm’s billings divided by number

of FTEs

Indicates revenue per FTE

Firm’s aim is to increase this over time

Networking Meetings

attended

Number of meetings attended Indicates intention of team to proactively market the

ﬁ r m

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 ofﬁ ce 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

Proﬁ tability

Net income percentage Net income as percentage of

total ﬁ rm’s billings

Indicates proﬁ tability of ﬁ rm

Indicator of capacity of ﬁ rm to reinvest in people and

client services

Labor as percentage of

revenue

Labor costs as percentage of

total ﬁ rm’s billings

Shows employment costs as percentage of billings

Indicates if too many non-productive staff

Services

MODULE 6: CLIENT RELATIONSHIP MANAGEMENT 19

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

Emphasis to be on increasing the services utilized by

each client

Number (per annum) of new

services introduced by ﬁ rm

during year

Indicates new services introduced throughout year

Emphasis on continuing to introduce new services to

clients

Positions ﬁ rm as innovative and creative

We may deliver service, or it may come from an alliance

partner

Revenue ($ per annum) from

new services introduced by ﬁ rm

during year

Indicates revenue value of new services introduced

Important to separately identify

Speciﬁ c costs can be allocated against revenue to

determine gross proﬁ t 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 non-

charged 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

Emphasis is to increase this until target levels of service

utilization are reached

Client Service

Client Ratings Excellent (%)

Satisfactory (%)

Unsatisfactory (%)

Measure client satisfaction with regular surveys

Provides feedback on ﬁ rm performance and client

perception

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

Client relationship management key indicators

Client Referrals Number of referrals Number of new clients referred to the ﬁ rm

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  rm, 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 classi cation model (see Section 6.3.1 ). You will recall that your goal is to move your clients

from their current classi cation 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

able 6.10 ; how to use it is shown below.

Table 6.10 Gap analysis model

Services

Existing New

Existing

Clients

34New

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.

able 6.11 gives examples of the services

used by di erent clients of an accounting rm.

MODULE 6: CLIENT RELATIONSHIP MANAGEMENT 21

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 Finance

1ABC Ltd X X X

2SCK Chin Pty Ltd X X X

3Smith & West X X X

4Impala & Co X X X

5Lawyers Co X X X

6Frontline X X X

7Hanif Partners X X X

8Laurence Yuen X X X

9Jersey Co X X

10 San Marco 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 satis ed with

your  rm’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

able 6.12.

Table 6.12 Maximizing the opportunities from an enhanced client relationship

Opportunity Action required

1 Be clear on the direction you wish your ﬁ rm to take. This should be clearly stated in your business plan.

2 Be speciﬁ c about which services you will offer your clients.

3 Have a good understanding of how the services will be delivered, and how they will be priced.

4 Undertake a gap analysis on your client base.

5 Identify the additional services you can market to your existing clients.

6 Set a plan for how and when you will approach your clients.

7 Have marketing material available at all times, which outlines the beneﬁ ts 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

able 6.13).

Table 6.13 Steps to developing a full range of services

Action By Whom By When

1. Determine what your market considers the full range of services to be.

2. Identify those services your ﬁ rm currently provides.

3. Decide which additional services your ﬁ rm would like to develop capability in.

4. Determine which services you will refer to other ﬁ rms.

As a result of the information gained, your  rm can decide which services it will continue to provide, which

services it will develop, and which services it will refer to other  rms.

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

able 6.14 to determine the level of interest for each service suggested.

Table 6.14 Services checklist

Service

Do you use this

service now?

Would you expect to

use in future? Comment

1. Audit and assurance

2. Taxation advice

3. Financial statements

4. Management accounting

5. Tax return preparation

6. Regulatory compliance

7. Company secretarial

8. VAT preparation and compilation

9. Business valuations and due

diligence

10. Financial planning

MODULE 6: CLIENT RELATIONSHIP MANAGEMENT 23

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 ﬁ nance

15. Risk management and asset

protection

16. Finance broking and mortgage

lending

17. Succession planning

18. Wealth management and

coaching

able 6.15 lists related services that accounting  rms 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

Do you use this

service now?

Would you expect to

use i future? Comment

1. Information technology provider

2. Residential real estate agent

3. Commercial real estate agent

4. Finance broker

5. Taxation specialist

6. Stockbroker

7. Personal risk insurance agent

8. Lawyer

9. Banker

10. General insurance broker

11. Human resources provider

12. Utilities

13. Stationery and ofﬁ ce consumables

These questions work well when asked in a formal and structured way. Most accounting  rms don’t ask many

questions to better their understanding of their clients’ requirements. You can di erentiate yourself in the

market by asking questions like these, and gaining an understanding of what your clients really want. Your  rm

must then decide if it will provide the service, develop the capability, or refer clients on to other  rms.

Consider using the questionnaire shown in

able 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 o er these services will be

subject to local restrictions and ethical considerations.

Table 6.16 Internal questionnaire

Question Reply/Comment

1. What services do our clients need?

2. What is the best way to ﬁ nd out?

(for example, questionnaire, focus group, etc.)

3. Can we provide these services? If so, which ones?

4. If not, which services can we develop?

5. What resources and training will be required if we

choose to develop the competency in-house?

6 Which services should we refer to another ﬁ rm? (See

next section.)

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

The exercises above demonstrate to many  rms that they need help to provide a full range of services. Some

 rms may wish to form an alliance with another  rm.

able 6.17 shows the questions to ask.

Table 6.17 Forming an alliance

Question Reply/Comment

1. Whom should we align with?

2. How will we assess their competence and capabilities?

3. What structure should our alliance or referral

arrangements take, if any?

4. What quality assurance processes will we have in

place, to ensure our partners provide quality service?

5. Should there be any ﬁ nancial arrangements to

consider?

6 Which services should we refer to another ﬁ rm? (See

next section.)

In deciding which organization to ally with, the starting point is for the  rm to assess the services they are likely

to refer to other  rms. The  rm should then consider the likely contenders (see examples shown in

able 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 PK April 15

Stockbroker Gecko & Assoc Alliance Lunch PK & GG May 31

Audit and assurance Smith & Co Referral Meet to discuss PK June 25

Business Coach Maximus Consulting Potential merger Due diligence Third-party ﬁ rm October 15

MODULE 6: CLIENT RELATIONSHIP MANAGEMENT 25

6.8.1 Common concerns with referrals or introductions

A number of concerns arise when clients of one  rm are introduced and referred to another  rm. These include

concerns that the referred  rm will:

zNot give the client a good, professional experience;

zNot provide service at the standard that the client and referring  rm would expect;

zDisappoint or upset the client; or

zDestabilize the relationship the client has with the referring  rm.

These concerns all stem from the fact that most  rms strenuously protect their client relationships they have

with their clients. Most  rms will do all they can to retain their clients, and enjoy a long and healthy relationship.

Prior to the commencement of any referrals, each  rm involved is advised to do a “mini due diligence” on each

other. This will allow the  rms to con rm 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.

able 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 Reply/Comment

1. Describe how you and your ﬁ rm will deal with any

clients we may refer to you.

2. Describe the attitude you and your ﬁ rm have toward client

service.

3. How will you ensure that our clients will have a good

professional experience with your ﬁ rm?

4. Describe the level of client service you and your ﬁ rm

provide.

5. What assurances can you give that you will not upset

the client, or destabilize the relationship we have with

them?

6 Which services should we refer to another ﬁ rm? (See

next section.)

This type of discussion will allow each  rm to better understand each other’s service standards. It will also allow

each  rm 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  rms join together to form one new  rm. 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. Di ering work cultures often raise questions about:

zWork ethics;

zWork–life balance;

zWork practices;

zBlending of personalities;

zHuman resources;

zDi erent expectations;

zTechnology;

zBilling and debt collection practices;

zPro tability variations; and

zTwo becomes one.

There are also a number of advantages and disadvantages to consider.

Advantages

zEach  rm brings its unique strengths to the combined  rm, thereby making more services available to all.

zThere are economies of scale: a more e cient team, can usually do more work.

zThere is a reduction in duplication of e ort and certain sta ng roles.

Disadvantages

zA merger is an extreme position to take if you are simply providing one or two additional services.

zThe issues arising from the merger might cause signi cant distraction to the business. This may have a

negative impact on pro tability, work ow and the overall client experience.

6.8.3 Cherry picking

Rather than merging two  rms, it may be possible for one  rm to “cherry pick”, or “headhunt” a partner or senior

manager from another  rm who has specialist skills the  rm needs.

The specialist may have a small team of workers who may also join the new  rm. Essentially, this allows the  rm

to create a new division and provide a broader range of services.

Advantages

zSimplicity of approach.

zUsually only minimal disruption.

Disadvantages

zIt could be an expensive exercise to attract the right person.

zIt will be an expensive exercise if it doesn’t work out.

6.8.4 Alliances

When two or more  rms, or specialists within  rms, work together on client matters on a project-by-project basis

this is an alliance.

Advantages

zEach party retains its individual identity and structure.

zThere is a combined focus on the joint objective of satisfying the clients’ requirements.

zIt allows each party to bring their specialist skills to the table, for the overall bene t of the client.

MODULE 6: CLIENT RELATIONSHIP MANAGEMENT 27

zThe fee on the assignment is usually split on the basis of contribution to the project.

Disadvantages

zThere is potential di culty with sharing resources on occasion.

zNo centralized administration.

zThere is potential for con ict, as one party typically needs to take the lead role.

6.8.5 Referrals

One  rm refers work to another  rm (see

able 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  rms to refer work as the need arises.

In some arrangements, referral fees are paid between the  rms, usually in some proportion to the value of the

fee on the project. Others have no referral fees, as the referring  rm is simply concerned about the client matter

getting resolved by the most suitableperson.

Advantages

zThey are  exible in structure.

zThey are  exible in  nancial arrangement.

zThe arrangement allows each  rm to stay focused on its area of specialization.

zEach party retains its own independence.

Disadvantages

zThe referring  rm has no control over the work performance of the referred-to  rm.

zLow-standard work by the referred-to  rm may re ect badly on referring  rm.

zThe referring  rm must trust in the ability of the referred-to  rm.

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

Whom By When

Taxation Taxation Not applicable N/A

Audit Referral to audit ﬁ rm Develop relationship

with professional

colleagues who provide

audit services

PK March 31

Company secretarial Company

secretarial

Not applicable N/A

Business valuations

and due diligence

Referral to specialist

ﬁ r m

Find appropriate ﬁ rm.

Check with professional

colleagues for reputable

ﬁ r m

PK June 25

Services required by

Clients and/or Market

Services we

currently provide

Strategy for delivery

of service we do not

currently provide Action required

Whom By When

Liquidation Referral to specialist

ﬁ r m

Contact previous

colleagues

PK ASAP

Succession planning Referral then possible

merger

Have lunch with Brian

to discuss

PK and

October

6.9 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 e ective approach.

zDevelop a credit policy. Write a clear and concise credit policy that applies to all clients.

zConsider  exible arrangements for your larger clients.

zSpecify clear terms: make your clients fully aware of your terms and conditions.

zImplement the policy: train your employees on the policy and how to enforce it.

zScreen 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.

zExplain your credit terms and expectations clearly from the outset.

zMake sure your clients understand them.

zQuantify your fees in advance where possible (it usually is).

zProvide payment alternatives.

zFollow up debts systematically and frequently.

zReplace the aging classi cation of your debtors instead of “Current, 30 Days, 60 Days, 90 Days, 90+ Days”, use

only “Due Now” and “Overdue.”

zCommence follow-up early.

zMake it easy for your clients to pay.

zAn e ective 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

zInvoice by email rather than post: it is faster and provides you with online records.

zInvoice as close as possible to the time you deliver the service.

zStart the follow-up process early.

MODULE 6: CLIENT RELATIONSHIP MANAGEMENT 29

zDon’t wait to follow up. When the account is overdue start reminding the client that payment is expected.

zAlways be courteous and professional.

zCollections should be a process, not a punishment.

zMost clients are honest and will pay if they know they have to.

zA series of gentle, non-confrontational reminders will get most clients to pay.

zBe persistent and consistent.

zConsider the bene ts of o ering 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  rm’s requirements.

One of the secrets of e ective 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 work ow

process to invoicing, and then to any follow-up.

Early identi cation 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  ush the issues out and it is far easier to

resolve a complaint when the matter is still fresh.

Waiting ninety days to  nd out a problem exists signi cantly 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 con rm the client’s intent.

If they are in real trouble, it is important to  nd 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

The best approach is to start early and be di cult 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 di cult 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  rm. Each  rm 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 Conﬂ ict 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  rm. 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 con ict

In order to begin to resolve con ict, there needs to be an awareness that con ict is happening or is about to

happen. You need to be sensitive to the signs of con ict. There are  ve levels of escalating seriousness in a

typical con ict 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  rst step in clarifying any issue. It may be di cult 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  nd this awkward, and decide to let the moment pass, and let the passage of time heal any

small wounds.

MODULE 6: CLIENT RELATIONSHIP MANAGEMENT 31

3. Misunderstanding

In situations where there are di erent expectations between your client and your  rm, 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  rm.

As a result, you start to pay close attention to things that con rm what you had already started to believe about

the other person, or the about situation. This then becomes a “self-ful lling prophecy” as you see more and more

instances con rming 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  nd it di cult 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  rm 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 signi cant consequences for a  rm, depending on the actions the client or the  rm 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 di cult for a  rm if the client takes legal action against the  rm, and reports the  rm to their

professional body.

6.10.2 Dealing with con ict

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!

zKeep yourself calm in the present moment.

zBreathe deeply to compose yourself.

zMaintain your composure; be receptive.

zKeep track of your emotions, reactions and body language.

zConsider how you are coming across to the other person.

2. Let your position go

zDon’t be defensive.

zRespect the other person’s need to express how he or she feels.

zMove aside from your position for now.

zBe prepared to be  exible, and consider options.

zAsk, “What would it take to solve this issue?”

3. Focus on the other person

zListen actively and re ect feelings and the meaning he or she has expressed.

zListen so that people can and will talk.

zAre you really listening? Is that clear?

zAcknowledge the importance of the other person’s issues and concerns.

4. Seek clarity

zCheck, clarify and con rm by asking open and re ective questions.

zHonestly explore problems, e ects and possible causes.

zLook for opportunities in what you are hearing.

zWhat would they like? What would they not like?

zSee the problem in a broader context. Are people seeing the whole picture, or just their own point of view?

5. State your position

zExplain how it is for you, using statements which clearly state your position.

zStay in tune with your values, principles and objectives.

zExpress your own needs and concerns assertively, but not aggressively.

zAttack the problem, not the person. Speak so that people will listen.

zBe 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.

zWhat are the best possible options to meet both parties’ needs?

zIdentify areas of “common ground” and build from there.

zWhat will help achieve solutions that are mutually satisfying?

zWould more time or information help?

zIdentify and work on the issues causing the “blockages.”

zIf possible, work together for change, or you may agree to disagree.

zBe creative look for possibilities. What’s the most positive outcome you can both achieve?

zGet commitment and agreement on the next steps.

7. Maintain the relationship

zReview progress and follow up.

zTake time to maintain and strengthen the relationship.

As you can see, con ict 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 con ict, 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-classi cation exercise, you will be a good position to assess the client base of your

 rm. One of the outcomes of this process may be that you decide to end some client relationships. It may be

MODULE 6: CLIENT RELATIONSHIP MANAGEMENT 33

that they no longer  t the pro le of your  rm, or that after considering a number of factors you have decided

your  rm should no longer deal with them. Whatever the reason, you have come to a signi cant 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:

zSending a letter stating that you are no longer available to act on the client’s behalf;

zIncreasing fees until the client leaves;

zReferring the client to another accounting  rm;

zSelling the client; or

zMeeting with the client and talking it over.

Each of these is discussed brie y 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

 rm has had with the client over the years. This will determine how much detail the  rm 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  rm has become too expensive and make the decision to leave.

There are a number of problems with this strategy.

zThe 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!).

zThe 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.

zThe 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.

zThey 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  rm is

providing, and the relationship improves.

6.11c Referring to another  rm

This is quite a popular method. Firms with di erent specializations or skills may refer clients between

themselves. The referring  rm may have realized that the relationship with the client is not working, yet thinks

it might work with another  rm. The referral can take place in writing, face-to-face, or over the phone. The  rm

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.

6.11d Selling the client

It may be possible to bundle a number of clients together and sell them to another  rm 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  rm 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 e ective client relationships are the backbone of your  rm. 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

con ict, good client relationship skills can help you to achieve a positive outcome.

MODULE 6: CLIENT RELATIONSHIP MANAGEMENT 35

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  nd 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 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 o ering.

The  rst area they reviewed was the presentation of clients’  nancial statements. They agreed with the idea that

graphs should be included in all reports prepared for their clients. They discussed this with their sta and the

sta also agreed it would add an extra element to their  nancial 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 o ce computer system which meant they were then available for entire the sta

to use. Manu trained the sta how to update the “Masters” with the relevant client information and save them as

separate client  les.

Once the training was complete, Indira sent a memo to all sta instructing them to complete a set of graphs

with all year-end  nancial 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. Sta were instructed to prepare these graphs each time they ran a  nal 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  nancial

information theyreceived.

An unintended bene t arose for William and Indira’s  rm after they started producing the graphs with the

 nancial statements. There was an increase in the level of inquiry from new clients who had heard about the

graphs being produced by the  rm, they also wanted graphs with their  nancial 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  nancial

year. He decided he would restrict the Planning Session to just his top  ve 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

zIdentify the key objectives for the business

zIdentify three goals to be achieved this year

MODULE 6: CLIENT RELATIONSHIP MANAGEMENT 37

zIdentify the most pressing issue to be addressed urgently

zIdentify the key milestones

zSWOT analysis

zIdenti cation of client’s strategic plan

zReview organization chart

}Allocate responsibilities

}Identify accountabilities

zBudget and cash  ow: set date for completion and review

zOther business

zSet 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 o er 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 7:

Risk management

MODULE 7: RISK MANAGEMENT

Contents

7. 1 Introduction 4

7.2 Professionalism and ethics within the  rm 5

7.2.1 The Code of Ethics for Professional Accountants 5

7.2.2 Fundamental

rinci

les of the IESBA Code 5

7.2.3 Ethics threats 6

7.2.4 Safe

uards 7

7.2.5 Ethics threats and

ossible safe

uards 9

7.3 Risk mana

ement within the  rm 11

7.3.1 Identif

risk within an accountin

 rm 11

7.3.2 Examinin

internal risk 14

7.3.3 External risk 16

7.3.4 Develo

a risk framework for

our  rm 16

7.3.5 Ado

tin

risk miti

ation strate

ies 18

7.4 Client en

ement 20

7.4.1 The en

ement

rocess 20

7.4.2 Review and re-en

ement 22

7.4.3 Reviewin

oin

ements 23

7.4.4 Mana

the disen

ement

rocess 23

7.5

ualit

control

rocesses within an accountin

 rm 24

7.5.1 Ob

ective of

ualit

control 24

7.5.2 Bene ts of an e ective

ualit

control s

stem 24

7.5.3 General

rinci

les of

ualit

control 24

7.5.4

ualit

control elements 25

7.6 Business continuit

lannin

and disaster recover

ure 7.2 Business Continuit

Plannin

Process 32

7.6.1 Prevention—Risk Mana

ement Plan 33

7.6.2 Pre

aredness—Business Im

act Anal

sis 34

7.6.3 Res

onse—Incident Res

onse Plannin

7.6.4 Recover

7.6.5 Death or inca

acit

ractitioner 44

7.7 Liabilit

and insurance within

our  rm 47

7.8 Conclusion 49

7.9 References

further readin

and IFAC resources 50

endices 51

endix 7.1 Leadershi

res

onsibilities for

ualit

within a  rm 51

Appendix 7.2 Circumstances and relationships requiring noti cation

(

to en

ement

artners in the case of assurance en

ements

)

endix 7.3 Annual inde

endence con rmation 53

endix 7.4 New client acce

tance checklist 54

endix 7.5 Client En

ement Procedures: Chan

es in Professional A

ointments 55

endix 7.6 Risk Mana

ement Checklists 56

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 speci c impact on life in an accounting  rm. It is important in terms of protecting

the assets,  nances and operations of the  rm 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  rm.

Establish a risk management “culture” in the  rm. A risk management culture emphasizes at all levels of your

 rm the importance of managing risk as part of each sta member’s daily activities at all levels of the  rm. The

goal of creating a risk management culture is to create a situation where partners and sta instinctively look for

risks and consider their impacts when making e ective operational decisions. The essence of a risk management

culture is that it is not geographically dependent, or speci c 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  rm. 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  rm emphasising the important role

they play in assisting practitioners manage their risk in the day to day working of the  rm. 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  rm and reviews the types of

insurance that are most relevant to it.

7.2 Professionalism and ethics within the ﬁ rm

This section provides background and information regarding ethical issues for small to medium-sized  rms. It

discusses the nature and impact of di erent 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  rms 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 di erences 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  rm.

MODULE 7: RISK MANAGEMENT

Secondly, it identi es ethical risks and assists in evaluating the signi cance 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  ve 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  rst principle because it is the foundation on which professional

behavior is built. It should also be the foundation stone on which your  rm is built. Integrity should pervade

all areas of your  rm. 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  nance within your  rm. 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 in uenced 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 sta should

possess the knowledge and relevant skill to ensure competent professional service.

This also means your  rm 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 sta act responsibly in accordance with the

requirements of the assignment. You and your sta 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: Con dentiality

Keep all client and  rm information con dential. Do not disclose any client information outside the  rm 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 con dential.

There are limited exceptions to the principle of con dentiality. 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.

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 de nition 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  rm. This can apply to a broad range of areas but essentially applies to the very heart of

the  rm. For a  rm to be a professional entity, it must exhibit professional behavior.

It also applies externally for the  rm, in how the  rm deals with all external parties. In all of these dealings, the

 rm 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  ve types of ethics threats identi ed 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  nancial or other interest may

inappropriately in uence 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  rm, 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  ve ethics threats could

occur together. This may place the practitioner and their  rm 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 identi ed 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.

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Table 7.1 Examples of threats  rms may face

Types of threats Examples

Self-interest Direct ﬁ nancial interest in client, including loans or other signiﬁ cant 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 signiﬁ cant 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.

Conﬂ ict 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 signiﬁ cant error from a previous professional service performed by the same ﬁ rm.

Self-review A ﬁ rm issuing an assurance report on the effectiveness of a system after designing or

implementing the system.

A ﬁ rm 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 ﬁ rm.

A member of the engagement team being or having recently been a director or ofﬁ cer of

the client, or employed in an executive position by the client (with direct inﬂ uence 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 ofﬁ cer of a client or with an employee

who is in a position of inﬂ uence over the subject matter of the engagement (applies to any

member of the engagement team).

A former engagement partner of the ﬁ rm being a director or ofﬁ cer of the client, or an

employee with direct and signiﬁ cant inﬂ uence over the subject matter of the assurance

engagement.

Accepting gifts or preferential treatment, unless the value is clearly insigniﬁ cant.

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 ﬁ rm if

the ﬁ rm 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 ﬁ rm that a planned promotion will not occur unless the

accountant agrees with an audit client’s inappropriate accounting treatment.

7.2.4 Safeguards

Identifying threats is an important  rst 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  rm. The ethics threats may not be eliminated altogether, but they may be

reduced to an acceptable level.

There are di erent types of safeguards. The profession, legislation or regulation can create safeguards, or they

can be developed within the  rm’s environment.

The safeguards created by the profession, legislation or regulation include:

zProper education and training and experience requirements for entry into the profession;

zContinuing professional development requirements;

zCorporate governance legislations;

zProfessional standards and guidelines;

zProfessional or regulatory monitoring and disciplinary procedures; and

zExternal 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  rm to deter unethical behavior. This may take the form

of e ective and well-communicated complaint systems, which enable sta 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 con ict

resolution process may be required. This process will involve:

zMaking sure all the relevant facts are obtained;

zIdentifying the ethical issues involved;

zIdentifying the fundamental principles signi cant to the circumstances concerned;

zEstablishing internal procedures to ensure fair hearing; and

zIdentifying the possible alternative courses of action and  nding the best possible outcome.

You must document all relevant information and the rationale involved in reaching a resolution. Where a

signi cant con ict cannot be resolved, consider obtaining professional advice from your relevant professional

body, or from legal advisers.

Firm-wide work environment safeguards include:

zFirm leadership, which emphasizes compliance and ethics;

zQuality control and review policies for all client engagements;

zPolicies and procedures that ensure all relationships or interests are disclosed;

zDocumented policies regarding the identi cation of threats and the application of safeguards to eliminate or

reduce the threats to an acceptable level;

zDocumented internal policies and procedures requiring compliance with the fundamental principles;

zPolicies and procedures to monitor and manage the reliance on revenue received from a single client;

zUsing di erent partners and teams with separate reporting lines for the provision of non-assurance services

to an assuranceclient;

MODULE 7: RISK MANAGEMENT

zPolicies and procedures that will prohibit individuals who are not members of the engagement team from

inappropriately in uencing the outcome of the engagement;

zTimely communication of a  rm’s policies and procedures and any changes therein, to all partners and

professional employees, and appropriate training and education on such policies and procedures;

zAdvising partners and professional employees and related entities from which independence is required;

zA disciplinary mechanism to promote and uphold compliance with policies and procedures; and

zEncouraging and empowering employees to communicate to senior employees within the  rm any ethical

issue that concernsthem.

Safeguards that are engagement-speci c include:

zHaving a professional accountant who was not involved with the non-assurance service review the non-

assurance workperformed;

zHaving a professional accountant who was not a member of the assurance team review the assurance work

performed;

zConsulting an independent third party such as a committee of independent directors, a professional

regulatory body or another professional accountant;

zRotating senior assurance team personnel;

zDiscussing ethical issues with those in charge of client governance;

zDisclosing the nature of services provided and the extent of fees raised to those charged with governance of

the client; and

zInvolving another  rm to perform or re-perform part of the engagement.

Safeguards within the client’s systems include:

zPersons other than management ratifying the appointment of an independent  rm to perform an

engagement;

zThe client having competent employees with experience and seniority to make managerial decisions;

zInternal procedures to ensure objective decisions and choices in commissioning non-assurance

engagements; and

zProper corporate governance structure with appropriate oversight and communications regarding the  rm’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.

Table 7.2 Likely threats and possible safeguards

Professional appointment (Section 210 of the Code)

Stage Likely threats Possible safeguards

Client acceptance Questionable management conduct (for

example, involvement with illegal activities,

money laundering, dishonesty or questionable

ﬁ nancial reporting practices)

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

out engagement

Reliance on improper or inadequate advice

Acquire appropriate understanding of the

nature and complexity of the business.

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 sufﬁ cient 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

Request to perform complementary or

additional professional work to the existing

work of another professional accountant where

there is a lack of or incomplete information

The professional appointment is constrained

by an issue of conﬁ dentiality or prohibition by

legal regulation in obtaining information

Contact the existing accountant before

acceptance.

Ascertain the reasons behind change.

Request information on any facts that in

the opinion of the existing accountant, the

proposed accountant needs to be aware of.

Request the disclosure of information through

the client from the existing accountant.

Discuss with the client in order to obtain

conﬁ dential information from existing

accountant.

Inquire of third parties or background

investigations of senior management or those

charged with governance of the client.

MODULE 7: RISK MANAGEMENT 11

Conﬂ icts of interest (Section 220 of the

Code)

Likely threats (business relationships) Possible safeguards

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 conﬂ ict or in dispute with

each other in relation to the matter in

question

Notify client of the ﬁ rm’s business interest that may present a conﬂ ict 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 conﬂ ict 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 conﬁ dentiality;

• The use of conﬁ dentiality agreements signed by employees and

partners of the ﬁ rm; 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 ﬁ rm to

act for another party in respect a matter

giving rise to a conﬂ ict of interest

• Discontinue acting for one or more parties in the matter giving rise to

the conﬂ ict of interest.

Conﬂ icts of interest (Section 230 of the

Code)

Likely threats (business relationships) Possible safeguards

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

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.

Assign appropriate time and qualiﬁ ed employees to the task.

Contingency fees: a threat to objectivity,

especially on non-assurance engagement

Provide advance written engagement with the client regarding the basis

of remuneration.

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.

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) Possible safeguards

Marketing services, achievements or

products that are inconsistent with the

professional behavior expected of a

professional accountant

Do not make exaggerated claims for services offered, qualiﬁ cations 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 Possible safeguards

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

Consider, based on a reasonable and informed third party, weighing all

speciﬁ c 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 Possible safeguards

Holding client’s assets or being entrusted

with money belonging to other parties

may pose a self-interest threat to

professional behavior and objectivity

Keep such assets separate from personal or ﬁ rm 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 Possible safeguards

Having interests in, or personal or

business relationships with, a client or

its directors, ofﬁ cers, or employees may

pose a familiarity threat to objectivity

Withdraw from the engagement team.

Institute supervisory procedures.

Terminate the ﬁ nancial or business relationship giving rise to the threat.

Discuss the issue with higher levels of management within the ﬁ rm.

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.

MODULE 7: RISK MANAGEMENT 13

7.3 Risk management within the ﬁ rm

7.3.1 Identifying risk within an accounting  rm

Risk management is an area of life within a  rm that has increased in importance over the last few years. There

are a number of reasons it is essential for a  rm to have a risk management program in place, including:

zTo protect the assets,  nances and  rm operations;

zTo contribute to satisfactory legal compliance, corporate governance and due diligence;

zTo improve the services o ered by the  rm;

zTo protect the reputation, credibility and status of the  rm; and

zTo enhance con dence in the  rm.

Implementing a risk management program provides many bene ts to accounting  rms. These include:

zMore e ective strategic planning in their  rms;

zBetter cost control through better work ows and client evaluation and engagement processes;

zIncreased pro tability through better client and job controls;

zReduced risks of litigation as a consequence of better processes and contingency plans;

zIncreased knowledge and understanding of exposure to risk;

zA systematic, well informed and thorough method of decision-making;

zLess disruption and less rework through better understanding of process by all sta in the  rm; and

zSets the scene for continual improvement within a  rm.

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  rm;

b. Consider the environment within which the  rm 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  rm’s risks on a continuing basis; and

b. Identify high and low risks.

4. Treat and manage risks

a. Develop strategies to manage the identi ed risk.

5. Communicate and consult

a. Communicate and consult with all parts of the  rm, 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 identi ed and the measures designed to reduce the impact of these major risks.

After completing this risk review, where an area of the  rm has been identi ed as posing a high risk, you need to:

zEvaluate your ability to reduce the risk in terms of existing procedures;

zAdjust or reconsider that area and its development;

zRetrain or employ personnel to meet any sta ng weaknesses;

zReview the engagement with clients in that area of your  rm; and

zApply risk management procedures.

It is also important that you consider risk management procedures such as:

zClarity on the terms of the engagement;

zAdvising the clients on the risks involved;

zObtaining adequate insurance and controlling claims once they have occurred;

zMaintaining accurate and contemporaneous documentation;

zEnsuring timeliness of action and diary systems;

zOnly practicing in those areas where there is su cient expertise; and

zImplementing 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  rm.

1. Establish the context

The risk management process requires the practitioner to consider matters such as those set out in

able 7.3 belo

Table 7.3 Matters to consider in terms of context

What outcomes does the ﬁ rm want to achieve?

What is the environment in which the ﬁ rm 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 de ning the relationship between the  rm and its environment, including all stakeholders, identi cation is

made of the practice’s strengths, weaknesses, opportunities and threats.

This “strategic” plan will include  nancial, operational, competitive, political (public image and perception),

social, cultural and legal aspects of the  rm.

MODULE 7: RISK MANAGEMENT 15

2. Identifying risks

Once the context has been established, the potential risk factors or threats, and the existing risk controls of the

 rm need to be identi ed. Potential risks in a  rm 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  rm’s risks on a continuing basis. Risk evaluation takes into

account the following

(see

able 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.

Beneﬁ ts 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

able 7.5 below

Table 7.5 Assessing level of risk

Consideration Comment/Action Date completed

1. The ﬁ rm’s existing and anticipated areas of practice

2. The composition, experience and expertise of the ﬁ rm

3. The management and internal control procedures of

the ﬁ rm

4. The likelihood of being sued and the potential ambit of

any claim

5. The process to assess new and existing clients

MODULE 7: RISK MANAGEMENT

Other approaches which may be used to analyze identi ed risks include checklists, judgments based on

experience and records,  ow 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, semi-

quantitative 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  rm 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 sta

The practitioner should consider whether employees see the  rm as a short-term employment option or a long-

term opportunity.

The risk lies in the perception of the  rm as a short-term employer, high sta turnover could result in disruption

to the practice, and generate the expense of  nding and training new sta who won’t deliver a return to the  rm

if they also leave after a short time.

The practitioner should also consider whether there are employees in the  rm who are critical to its success. If an

employee is critical to the  rm’s success, billings and pro ts may su er if that employee leaves the  rm, sets up a

practice in competition, or goes to work for a competitor.

The practitioner also needs to consider whether sta face occupational health and safety risks. If sta members

work in an unsafe environment, the  rm is at risk for  nes and penalties and, the absenteeism, injury or even the

death of an employee.

Risk mitigation strategies for these types of risks include:

zImplementing selection procedures that increase the probability of  nding the right sta for the  rm, those

who take a longer-termview;

zPutting in place con dentiality agreements and/or reasonable restraint of trade agreements signed by key

sta , or all sta whereappropriate;

zImplementing a robust performance development system for communicating performance expectations and

goals, monitoring performance and setting remuneration;

zProviding ongoing training and cross-training for sta , consistent with the needs of the  rm;

zAllocating several people to ful ll key tasks and provide back-up in the event of illness or sudden departure;

zRotating employees through various functions of the practice to familiarize them with other areas of the  rm;

zImplementing suitable occupational health and safety policies to minimize risks;

zUsing equity interests, pro t-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

zReviewing the period of notice required of sta who resign. Be careful with this as it could have unintended

legal consequences, depending on your local regulations.

MODULE 7: RISK MANAGEMENT 17

7.3.2b Risks posed by the business premises and its location

The practitioner needs to consider how dependent the  rm is on its current location.

If the  rm depends signi cantly on where it is located to generate billings, a move to premises away from the

location may cause disruption by a ecting customer, sta and supplier access. Another risk is that, in the event

of a  re,  ood 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,  ve 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:

zIdentifying a number of suitable alternative premises which would suit customers, suppliers and sta ;

zWhere the premises suit the business’s long-term needs, consider securing a long-term lease or right of  rst

option when the lease expires; and

zManaging 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  rm is to a threat to its reputation or

goodwill. For example, what would happen if the  rm 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  rm and possibly also cause longer-term damage to its goodwill and reputation.

Risk mitigation strategies would include:

zIncorporating robust review processes and quality assurance systems to avoid a situation that may damage

the  rm’s reputation;

zInvesting in research and development and keeping up-to-date with technological advances; and

zCompulsory training and development programs for sta .

7.3.2d Risks posed by information technology

The important issue to consider here is the extent to which the  rm relies on information technology (IT). The

level of risk created by using IT increases as the  rm becomes more reliant on it.

The obvious risk is that if the  rm 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:

zIT service delivery: do all the software applications (including spreadsheets) work as intended? Are they all accurate?

zIT solution delivery: do you try to integrate IT solutions into daily work processes, so that the  rm runs more

e ciently andpredictably?

zIT bene t 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

MODULE 7: RISK MANAGEMENT

Risk mitigation strategies include:

zProtecting laptops and desktops;

zKeeping data safe by performing back-ups and storing those back-ups o -site;

zUsing the internet safely;

zProtecting networks;

zProtecting servers;

zSecuring the line of business applications;

zEnsuring appropriate IT support is available within an acceptable timeframe;

zHaving an uninterrupted power supply unit; and

zConducting appropriate IT training for sta .

7.3.3 External risk

7.3.3a Risks posed by customers

An important matter for the practitioner to consider is whether the  rm 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  rm relies on a small number of major clients, pro t and cash  ow may be a ected in the

short term if one of them stops yielding revenue.

Risk mitigation strategies include:

zLocking in major clients through long-term service contracts, regularly visiting them, or continually asking

their views about the  rm’s services;

zSpreading the risk by developing smaller, existing customers so they become larger customers;

zSeeking new, pro table customers; and

zFinding lower-cost ways of servicing the less pro table customers.

7.3.3b Risks posed by competitors

Virtually every business has competitors. However, if competitors—both current and potential—pose a

signi cant threat to the practice, then the viability of the  rm is at risk. The practitioner needs to consider

whether their competitors pose a threat.

Risk management strategies include:

zContinuing to build on relationships with clients and the local community (providing great service as a way of

combatingcompetitors!);

zResearching industry trends, and adopting new services, or ways of delivering those services;

zInvesting in the development of new services; and

zContinually monitoring competitors, including the prices they charge.

7.3.4. Developing a risk framework for your  rm

When assessing your  rm for sources of risk, you should consider the following areas:

zIntegrity

zServices o ered

zMarketing and communication

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zSta and human resources issues

zInformation and resource management

zRegulatory obligations and intervention

zIT issues and security

zManagement collapse (succession planning)

zAcceptance and continuance of clients

zCash  ow management.

Figure 7.1 shows these in diagram form.

Figure 7.1 Sources of risk for an accountancy  rm

Each of these areas should be considered as you develop your  rm’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:

zIntegrity

zServices o ered

zMarketing and communication

zSta and human resources

zInformation and resource management

zRegulatory obligations

zInformation technology and security

Management

Collapse

(Principal

Succession)

Services

O ered

Regulatory

Intervention

Marketing &

Communication

Cash  ow

Issues

Problems

Information

Management

Sta & HR

Issues

Acceptance &

Continuance

of Clients

PUBLIC

PRACTICE

Integrity

zManagement collapse and succession planning

zAcceptance or continuance of clients

zCash  ow management.

Note that these checklists are suggested as a guide only and should be amended to suit the speci c needs of

your  rm.

7.3.5 Adopting risk mitigation strategies

Strategies need to be developed to manage the risks you identify in your  rm. Options can be selected from any

of the following:

zAccept

zAvoid

zTransfer (in part or full)

zReduce likelihood

zReduce consequences; and

zRetain 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:

zCurrent levels of risk exposure

zBene ts arising from actions/controls

zThe duration of time to implement actions

zAvailable 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 con nes. 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  rm is identi ed as posing a high risk, the  rm should follow actions suggested in

able 7.

below:

MODULE 7: RISK MANAGEMENT

Table 7.6 Strategies to manage risk

a. Evaluate its ability to reduce the risk in terms of existing procedures;

b. Adjust or reconsider that area of the ﬁ rm and its development;

c. Retrain or employ personnel to meet any stafﬁ ng weaknesses;

d. Review the engagement with clients in that area of the ﬁ rm; and

e. 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

 rm. Theseinclude:

1. The engagement letter

zCon rms acceptance of the appointment;

zOutlines the objective, scope and extent of the engagement;

zHighlights the extent of the member’s responsibilities to the client;

zDe nes the client’s responsibilities;

zManages the “client expectation gap”, i.e. matching the services expected by the client with the services delivered;

zCon nes the extent of exposure by:

}specifying limitations on the work to be undertaken;

}con ning 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

zSets the fees applicable to the engagement.

A letter of engagement is an essential document in any  rm and bene ts 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 sta provides be noted in a  le/diary system or by con rmation

letter or report to the client. The information that should be included is:

zDate

zTime

zContent of conversation/advice

zNotation to whom it was made

zSignature (if applicable).

4. Timeliness of action and diary systems

File notes will have the dual e ect of:

zAssisting with the recollection of events if there is litigation many years later; and

zBeing tendered in Court as evidence that a conversation actually occurred (subject to authenticity of

documentation beingestablished).

5. Practice in areas where there is su cient expertise

Each sta member should recognize his or her own limitations. If the sta member forms the view that there is

insu cient 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  rm’s client mix is recommended with a view to considering increasing the proportion of clients

requiring lower riskadvice.

ztype of business conducted by the client:

zongoing work or one-o engagement

ze ect 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  rm 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  rm 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 e ective.

Monitoring should comprise:

zMonitoring existing risks

zIdentifying new risks

zIdentifying any trouble spots

zEvaluating the e ectiveness 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

 nancing 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.

MODULE 7: RISK MANAGEMENT

9. Record-keeping

All policies and procedures should be in writing. Records should be maintained documenting the assessment process

carried out, the major risks identi ed 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 sta member.

7.4 Client engagement

7.4.1 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, con dentiality 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 speci cally 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 con rms 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, lea et 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  rm to consider include:

Purpose: The engagement document should explain that its purpose is to set out and con rm 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:

zProcedures to be performed will be limited exclusively to those related to the engagement;

zNeither an audit nor a review will be conducted and, accordingly, no assurance will be expressed (if

applicable); and

zUnless 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:

zTime periods covered by the engagement;

zPeriod of appointment and time schedules;

zReferences to any legislation and professional standards that may be relevant to the engagement;

zClient operations or procedures to be included in the engagement;

zDetails of information to be provided by the client;

zAny limitations on the conduct of the engagement; and

zOther matters considered necessary or appropriate.

Engagement output: Details of reports or other anticipated outputs, including:

zExpected timing;

zIntended use and distribution of reports; and

zNature 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:

zthe practitioner, including reference to relevant con dentiality requirements and the impact of them on the

quality review program of the relevant professional body to which the practitioner belongs;

zthe client, noting the fact that the client is responsible for the completeness and accuracy of information

supplied to the practitioner; and

zany 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,  xed 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  rm

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.

Con rmation by the client: Request for a response from the client con rming its understanding of the terms of

engagement as outlined in the engagement document. It is preferable for this con rmation of client acceptance

to be obtained in a written form.

MODULE 7: RISK MANAGEMENT

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 satis ed with the service they are currently receiving. This also provides the client with the opportunity to

o er feedback, if needed, on how the accounting  rm 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  rm should establish policies and procedures for the acceptance and continuance of client

relationships and speci c engagements. These should be designed to provide reasonable assurance that the

 rm will only undertake or continue relationships and engagements where it:

zHas considered the integrity of the client and does not have information that would lead it to conclude that

the client lacksintegrity;

zIs competent to perform the engagement and has the capabilities, time and resources to do so; and

zCan comply with ethical requirements.

The  rm 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 identi ed, and the  rm decides to accept or

continue the client relationship or a speci c engagement, it should document how the issues were resolved.

With regard to the integrity of a client, matters which the  rm should consider include, for example:

zThe identity and business reputation of the client’s principal owners, key management, related parties and

those charged with itsgovernance.

zThe nature of the client’s operations, including its business practices.

zInformation 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.

zWhether the client is aggressively concerned with maintaining the  rm’s fees at as low a level as possible.

zIndications of an inappropriate limitation in the scope of work.

zIndications that the client might be involved in money laundering or other criminal activities.

zThe reasons for the proposed appointment of the  rm and non-reappointment of the previous  rm.

Module 3 of this guide discussed the process a  rm should undertake when assessing prospective clients

and whether they would represent a good  t for the  rm. The process of client review also gives the  rm 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  rm:

Table 7.7 Reviewing clients of the  rm

Question Answer/Comment

1. Do the management and staff of the ﬁ rm like working

with the client?

2. Does the client respect the ﬁ rm, its opinion, its work

and its management and staff?

3. Does the client represent a risk to the ﬁ rm?

4. Do the ﬁ rm’s management and staff relate to the

client?

5. Does the client relate well to the ﬁ rm and the ﬁ rm’s

team?

6. Does the client utilize a number of the ﬁ rm’s

services?

7. Does the client pay bills on time?

8. Does the client work cooperatively with the ﬁ rm when

required?

9. Does the client cause the ﬁ rm’s management and

staff stress?

10. Is there a good ﬁ t culturally?

11. Does the ﬁ rm add value to the client’s business?

12. Does the client add value to the ﬁ rm?

13. Is the ﬁ rm proud to introduce the client as such?

14. Is the client proud to introduce the ﬁ rm as its

accountants?

15. Does the client observe ethical business principles?

16. Has the client asked the ﬁ rm to compromise the

practice’s ethical values?

17. Are there other ways of servicing this client?

7.4.3 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 a ect this decision:

zAny indication that the client misunderstands the objectives and scope of the engagement;

zAny signi cant changes in the terms of the engagement;

zA recent change of client management or ownership;

zA signi cant change in the nature or size of the client’s business; or

zLegal requirements.

Any of these factors may cause the practitioner to consider issuing a new or revised engagement letter.

MODULE 7: RISK MANAGEMENT

7.4.4 Managing the disengagement process

It is a fact of life in an accounting  rm 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  rm.

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  rm 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  rm. If you approach it with the right attitude, you may discover a systemic

problem in your  rm that needs to beaddressed.

The  rm 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:

zDiscussing with the appropriate level of the client’s management and those charged with its governance

regarding the appropriate action that the  rm might take based on the relevant facts and circumstances.

zIf the  rm 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.

zConsidering whether there is a professional, regulatory or legal requirement for the  rm to remain in place,

or for the  rm 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.

zDocumenting signi cant issues, consultations, conclusions and the basis for the conclusions.

7.5 Quality control processes within an accounting ﬁ rm

7.5.1 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  rm and its objectives, the services provided, the delivery of those

services, the quality of the work, the processes and policies adopted and the sta and management.

A system of quality control essentially consists of policies designed to achieve the objectives of the  rm and

procedures necessary to implement and monitor compliance with those policies. Professional accounting  rms

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:

zInternational 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;

zInternational Standard on Auditing (ISA) 220 Quality Control for an Audit of Financial Statements issued by

the IAASB; and

zCode of Ethics for Professional Accountants issued by the IESBA.

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 Bene ts of an e ective quality control system

An e ective 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

bene ts o ered by an e ective quality control system include:

zEnhanced reputation and brand value in the marketplace;

zEnhanced risk management;

zImproved client relationships;

zImproved recruitment and retention of employees; and

zImproved e ciencies 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

 rm can have reasonable assurance that:

zThe  rm and its personnel comply with professional standards and regulatory and legal requirements; and

zReports issued by the  rm, 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:

zLeadership responsibilities for quality within the  rm;

zEthical requirements;

zAcceptance and continuance of client relationships and speci c engagements;

zHuman resources;

zEngagement performance; and

zMonitoring.

The quality control policies and procedures are to be documented and communicated to all sta . 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 sta member has a personal responsibility for quality and is

expected to comply with the  rm’s policies andprocedures.

The  rm should also recognize the importance of obtaining feedback on its quality control system from sta

encouraging communication of sta views or concerns on quality control matters.

The nature of the policies and procedures developed by individual  rms will depend on various factors, such

as the size and operating characteristics of the  rm. They do not need to be complex, or time-consuming

to be e ective, but it is important for  rms to establish policies and procedures that are both relevant and

proportionate to the size of their practice.

MODULE 7: RISK MANAGEMENT

7.5.4 Quality control elements

7.5.4a Leadership responsibilities for quality within the  rm

Your  rm 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 signi cantly in uence the culture of the  rm. Promoting a quality-oriented culture

depends on clear and consistent actions and messages from all sta . Such deeds and attitudes encourage a culture

that recognizes and rewards high quality work. Training seminars, formal or informal meetings, mission statements,

newsletters, or brie ng memoranda may communicate this message. It can be incorporated in the  rm’s internal

documentation and training materials. It can also be included in sta appraisals in a way that supports and

reinforces the  rm’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  rm is to establish policies and procedures designed to provide it with reasonable assurance that the  rm

and its sta comply with relevant ethical requirements.

The relevant ethical requirements are based on the fundamental principles contained in the professional

standards which include:

zIntegrity;

zObjectivity;

zProfessional competence and due care;

zCon dentiality; and

zProfessional behavior.

In order to comply with these ethical requirements, the  rm 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 con icts of interest between your  rm and your

clients. The trust and con dence of clients is crucial to any ongoing professional relationship and avoiding

real, potential or perceived con icts of interest builds trust. Included at Appendix 7.2 is a form to assist in this

assessment.

The  rm’s policies and procedures addressing these ethical requirements must be communicated to all sta

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 sta changes, client acquisitions or structural changes such as mergers.

Compliance with the ethical principles that apply to all areas of a professional accounting  rm require:

zAll personnel to adhere to the relevant ethical requirements;

zThe establishment of procedures to communicate independence requirements to  rm sta and, where

applicable, others subject to them;

zThe 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

zAt least annually, written con rmation of compliance with the  rm’s policies and procedures on

independence from all  rm personnel required to be independent by relevant requirements (see

Appendix 7.3 for an example form).

zFor 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  rm is to establish policies and procedures for the acceptance and continuance of client relationships

and speci c engagements. These are designed to provide the  rm with reasonable assurance that it will only

undertake or continue relationships and engagements where it:

zHas considered the integrity of the client and does not have information that would lead it to conclude that

the client lacksintegrity;

zIs competent to perform the engagement and has the capabilities, time and resources to do so;

zCan comply with legal and ethical requirements; and

zHas 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:

zThe identity and business reputation of the client’s principal owners, key management, related parties and

those charged with itsgovernance;

zThe nature of the client’s operations, including its business practices;

zThe attitude of the client towards such matters as aggressive interpretation of accounting standards and the

internal controlenvironment;

zWhether the client is aggressively concerned with maintaining the  rm’s fees at as low level as possible;

zIndications of any inappropriate limitation in the scope of work;

zIndications of involvement in money laundering or other criminal activities; and

zThe reasons for the proposed appointment of the  rm and non-reappointment of the previous  rm.

Other factors to consider include:

zRelevant industry knowledge and experience within your  rm;

zSta ng resources necessary to complete the engagement; and

zActual or perceived con icts 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 signi cant changes in the client’s

operations, business environment, or their key personnel are identi ed and documented, where appropriate.

These changes may a ect 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.

MODULE 7: RISK MANAGEMENT

7.5.4d Human resources

The  rm is to establish policies and procedures designed to provide it with reasonable assurance that it has

su cient 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  rm to issue reports that are appropriate in thecircumstances.

These policies and procedures are to address the following personnel issues:

zRecruitment;

zPerformance evaluation;

zCapabilities;

zCompetence;

zCareer development;

zPromotion;

zCompensation; and

zThe estimation of personnel needs.

Compliance with this element of quality control requires:

zRecruitment of sta of integrity with the capacity to develop the capabilities and competence to perform the

 rm’s work;

zIdentifying the capabilities and competencies possessed by personnel;

zAssigning personnel based on the knowledge, skills, and abilities required in the circumstances and the

nature and extent of supervision needed;

zHaving personnel participate in general and industry-speci c continuing professional education and

professional development activities; and

zSelecting for advancement only those individuals who have the quali cations necessary to ful l the

responsibilities they will be called on to assume.

The  rm’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  rm is to:

zMake sta aware of the  rm’s expectations regarding performance and ethical principles;

zProvide sta with evaluation of, and counseling on, performance, progress and career development; and

zHelp sta 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  rm will in uence the structure of its performance evaluation process. Smaller

 rms, in particular, may employ less formal methods of evaluating the performance of their sta .

1. Recruitment and retention

The recruitment and retention strategy of the  rm should include policies and procedures which cover:

zPosition interview and evaluation procedures;

zMaintaining current job descriptions for all positions;

zOrientation of new personnel; and

zOngoing 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 con dent you have the necessary

skills, knowledge and experience to competently complete the work. Sta should be assigned after taking into

account the nature and complexity of the engagement and the sta ’s capabilities and competencies.

7.5.4e Engagement performance

The  rm 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  rm to issue reports that are appropriate in the circumstances.

Through its policies and procedures, the  rm 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 speci c guidance materials where

relevant. Matters addressed include the following:

zHow individual sta members are briefed on the engagement to obtain an understanding of the objectives of

their work;

zProcesses for complying with applicable engagement standards;

zProcesses of engagement supervision, sta training and coaching;

zMethods of reviewing the work performed, the signi cant judgments made and the form of report being issued;

zAppropriate documentation of the work performed and of the timing and extent of the review; and

zProcesses to keep all policies and procedures current.

It is important that all members of sta 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 sta

to clearly understand the objectives of the assigned work.

Supervision includes the following:

zTracking the progress of the engagement;

zConsidering the capabilities and competence of sta members, whether they have su cient 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;

zAddressing signi cant issues arising during the engagement, considering their signi cance and modifying

the planned approach appropriately; and

zIdentifying matters for consultation or consideration by more experienced sta during the engagement.

Responsibilities for review are determined on the basis that more experienced sta review work performed by

less experienced sta . Reviewers need to consider whether:

zThe work has been performed in accordance with professional standards and regulatory and legal

requirements;

zSigni cant matters have been raised for further consideration;

MODULE 7: RISK MANAGEMENT

zAppropriate consultations have taken place and the resulting conclusions have been documented and

implemented;

zThere is a need to revise the nature, timing and extent of work performed;

zThe work performed supports the conclusions reached and is appropriately documented;

zThe evidence obtained is su cient and appropriate to support the report; and

zThe 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, di cult, or contentious issues. In these cases it is necessary that:

zSu cient and appropriate resources are available to enable appropriate consultation to take place;

zThe nature, scope, and conclusions of such consultations be documented; and

zThe 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  rm needs to establish and maintain policies to:

zPlan all engagements to meet professional, regulatory and legal requirements;

zPerform work and issue reports and other communications that meet professional, regulatory, and the  rm’s

requirements;

zRequire that work performed by other team members be reviewed by quali ed engagement team members,

which may include the engagement partner, on a timely basis;

zRequire that di erences of opinion be dealt with and resolved and documented;

zRequire that all engagements are evaluated against the criteria for determining whether an engagement

quality control review should be performed;

zEstablish procedures addressing the nature, timing, extent, and documentation of the engagement quality

control review; and

zEstablish criteria for the eligibility of engagement quality control reviewers.

7.5.4f Completion of the assembly of  nal engagement  les

The  rm is to also establish policies and procedures for sta to complete the assembly of  nal engagement  les

on a timely basis after the engagement and relevant reports have been  nalized.

7.5.4g Con dentiality, safe custody, integrity, accessibility and retrievability of engagement documentation

The  rm shall also establish policies and procedures designed to maintain the con dentiality, safe custody,

integrity, accessibility and retrievability of documentation used for the engagement.

Relevant ethical requirements require sta to maintain at all times the con dentiality of information contained

in engagement documentation, unless speci c client authority has been given to disclose information, or there

is a legal or professional duty to do so. Speci c laws or regulations may impose additional obligations on sta to

maintain client con dentiality, 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

deleted without the  rm’s knowledge, or if it could be permanently lost or damaged. Accordingly, the  rm is to

design and implement appropriate controls for engagement documentationto:

zEnable the determination of when and by whom the engagement documentation was created, changed or

reviewed;

zProtect the integrity of the information at all stages of the engagement, especially when the information is

shared within sta or transmitted to other parties via the internet;

zPrevent unauthorized changes to the engagement documentation; and

zAllow access to the engagement documentation by sta and other authorized parties as necessary to

properly discharge their responsibilities.

7.5.4h Retention of engagement documentation

The  rm is to establish policies and procedures for the retention of engagement documentation for a period

su cient to meet the needs of the practice or as required by law or regulation.

The needs of the  rm to retain engagement documentation, and the period of such retention, will vary with

the nature of the engagement and the circumstances of the  rm, for example, whether the engagement

documentation is needed to provide a record of matters of continuing signi cance to future engagements.

The retention period may also depend on other factors, such as whether local law or regulation prescribes

speci c retention periods for certain types of engagements, or whether there are generally accepted retention

periods in the jurisdiction in the absence of speci c legal or regulatory requirements. In the speci c 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  rm may ordinarily adopt for retention of engagement documentation include

those that:

zEnable 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;

zProvide, where necessary, a record of changes made to the engagement documentation after the

engagement  les have been completed; and

zEnable authorized external parties to access and review speci c engagement documentation for quality

control or other purposes.

The  rm is also to ensure that the quality control system remains relevant and operates e ectively by

monitoring and updating the system on a regular basis. It is important to maintain policies and procedures and

keep them current to re ect changes in professional standards and regulatory and legal requirements.

7.5.4i Monitoring

The  rm 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 e ectively, and complied

with in practice. Such policies and procedures are to include an ongoing consideration and evaluation of the  rm’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:

zAdherence by the  rm to professional standards and regulatory and legal requirements;

zWhether the quality control system has been appropriately designed and e ectively implemented; and

zWhether the  rm’s quality control policies and procedures have been appropriately applied, so that

engagement outputs that are issued by the  rm are appropriate in the circumstances.

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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  ndings, and the

communication of those  ndings.

It is important that the responsibility for the monitoring process be assigned to the practitioner or to partners

with su cient and appropriate experience and authority to assume the responsibility.

Monitoring procedures consist of the following:

1. Assessing the  rm’s compliance with its quality control policies and procedures

zReview selected administrative and personnel records pertaining to the quality control elements;

zReview engagement working papers, reports, and clients’  nancial statements;

zDiscuss with the  rm’s personnel;

zSummarize the  ndings from the monitoring procedures at least annually, and consider the systemic causes

of  ndings that indicate that improvements are needed; and

zDetermine any corrective actions to be taken or improvements to be made with respect to the speci c

engagements reviewed or the  rm’s quality control policies and procedures.

2. Communicating results of monitoring

zCommunicate the identi ed  ndings to appropriate management personnel within the  rm;

zCommunicate at least annually, to relevant engagement partners and other appropriate personnel,

de ciencies noted as a result of the monitoring process and recommend for appropriate remedial action; and

zCommunicate the results of the monitoring of the  rm’s quality control system process to relevant  rm

personnel at least annually.

3. Evaluation of quality control system

zAppropriate  rm management personnel are then to consider the  ndings. They should also determine any

actions that may be necessary, including any modi cations required to the quality control system, and see

that these are implemented on a timely basis;

zAssess:

}The appropriateness of the  rm’s guidance materials and any practice aids;

}New developments in professional standards and regulatory and legal requirements and how they are

re ected in the  rm’s policies and procedures;

}Compliance with policies and procedures on independence;

}The e ectiveness of continuing professional development, including training;

}Decisions related to acceptance and continuance of client relationships and speci c engagements; and

}Sta ’s understanding of the quality control policies and procedures and their implementation.

4. Appropriate complaints handling

The  rm is to establish policies and procedures designed to provide it with reasonable assurance that it deals

appropriately with:

zComplaints and allegations that the work performed by the  rm fails to comply with professional standards

and regulatory and legal requirements; and

zAllegations of noncompliance with the  rm’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  rm. Sta , clients or other third parties, may make complaints or allegations.

As part of this process, the  rm is to establish clearly de ned channels for sta to raise any concerns, in a manner

that enables them to come forward without fear of reprisals.

The  rm is then to ensure documentation of the complaints and allegations and the responses to them

including:

zComplaints and allegations that the work performed by the  rm fails to comply with professional standards

and regulatory and legal requirements;

zAllegations of noncompliance with the  rm’s system of quality control; and,

zDe ciencies in the design or operation of the  rm’s quality control policies and procedures, or noncompliance

with the  rm’s system of quality control by sta .

5. Documentation

The  rm 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:

zThe size of the  rm and the number of o ces; and

zThe nature and complexity of the  rm’s practice and organization.

The  rm is to retain this documentation for a period of time su cient to permit those performing monitoring

procedures to evaluate the  rm’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 e ective 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  rm 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.

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Figure 7.2 Business Continuity Planning Process

2. Prevention

Prevention is all about risk management planning. This is where the likelihood and/or e ects of risk associated

with an incident are identi ed and managed. The key elements of the risk management processes are

implemented at this stage, with threats identi ed 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 brie y 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

 rm that may be adversely a ected by any disruptions are identi ed 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 re ect the changing needs of your  rm.

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 speci c requirements

and needs of your  rm.

6. Key items the plan should include:

zDistribution 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 o -site location.

zReferences and related documents: Make a list of all the documents that have a bearing on your Business

Continuity Plan.

zTable of contents: A table of contents should be included at the beginning of the plan.

Prevention

(Risk Management Plan)

Response

(Incident Response Plan)

Recovery

(Recovery Plan) Preparedness

(Business Impact Analysis)

zObjectives 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:

zUndertake a risk management assessment of our  rm;

zDe ne and prioritize our critical practice functions;

zDetail our immediate response to a critical incident;

zDetail strategies and actions to be taken to enable our  rm to continue operating; and

zReview and update this plan on a regular basis.

7.6.1 Prevention—Risk Management Plan

You need to manage the risks to your  rm by identifying and analyzing the things that may have an adverse

e ect 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  rst

establishing the Risk Management Plan. Once established, the management and maintenance of the plan

can be delegated to another responsible sta member.

2. Identify the risks. Review the checklists provided in

ection 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 sta other areas of risk within

your  rm.

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 identi ed threat were to eventuate.

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Table 7.8 Risk assessment table

Risk Assessment Table Date

Key:

VH: Very High

H: High

M: Moderate

L: Low

Risk Description

Likelihood

Impact

Priority

Preventative Action Contingency Plans

Interruption

to process

for producing

ﬁ nancial

statements

LHH

Back-up copy of data maintained at all times

Laptop computers to have current software

loaded

Off-site storage of all computer

programs and client data

Client does not

pay their account MMM

Regular follow-up with debtors and review of

aged listing

Debt collection processes and

contact details in place

The questions to ask yourself and your team are:

zWhat could go wrong?

zWhat could cause an impact?

zHow serious would that impact be?

zWhat is the likelihood of this occurring?

zCan 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  rm

that may be adversely a ected by any disruptions are identi ed and prioritized.

1. Business Impact Analysis

Practitioners should undertake a Business Impact Analysis as part of the  rm’s Business Continuity Plan. To

prepare this you use the information in your Risk Management Plan to assess the identi ed risks and impacts

relating to the  rm’s critical activities and determine the basic recovery requirements.

Critical activities are those primary business functions that must continue in order to support your  rm.

You need to identify:

zYour  rm’s critical activities;

zThe impact on your  rm in the event of a disruption; and

zHow long your  rm 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  nancial loss.

The following questions will help you and your team determine these critical activities for your  rm (see

Table 7.9 below):

Table 7.9 Critical activities checklist

No. Question Comment

1. List the activities which must be performed to ensure your ﬁ rm

continues to operate effectively:

Financial statements production

2. For each activity listed above, complete the following:

Activity Name:

Activity Description:

Financial statements production

Preparation of ﬁ nancial statements

3. What is the loss to the ﬁ rm if this activity could not be provided?

Loss of revenue:

Increased costs:

Stafﬁ ng impact:

Service delivery:

Fines or penalties due to missed deadlines:

Legal liability, public harm, personal damage:

Loss of goodwill, public image:

Comments:

$10,000 per week

N/A

Staff will need to be reduced

No ﬁ nancial statements can be prepared

until production resumes

Possible/minimal

Unlikely

Will occur if unable to meet client deadlines

Current work in progress of 3 weeks work

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No. Question Comment/(Example)

4. What is the maximum amount of time this activity could be

unavailable (either 100% or partial) before the losses would occur?

Hours:______________

Days:_______________

Weeks:_____________

Months:_____________

Comments:

Hours:______________

Days:_______________

Weeks:____2–3______

Months:_____________

If ﬁ nancial statements are not produced within

2–3 weeks the ﬁ rm is likely to come under

signiﬁ cant pressure from clients, with potential

loss of revenue and also losses of clients

5. Does this activity rely on any outside or third party service for its

successful completion?

No:

Yes:

If yes, select:

Sole supplier:

Major supplier:

Many alternate suppliers:

No, all production is done in-house

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 ﬁ rm?

Comments:

1. MOST IMPORTANT!! CRITICAL!!

Preparation of ﬁ nancial statements is the

primary activity of the ﬁ rm. The ﬁ rm is

therefore dependent on this activity

7. 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

able 7.10 , using the example data shown above:

Table 7.10 Business Impact Analysis

Critical

Practice

Activity Description Priority Impact of Loss

RTO (critical period

before losses

occur)

Financial

statement

production

Preparation

of ﬁ nancial

statements for

clients

High Billings reduced by up to $10,000 per week

Some staff may need to be laid off

No ﬁ nancial statements can be prepared until

production resumes

Possible ﬁ nes due to late lodgement with

regulators

Likely loss to goodwill if unable to meet client

deadlines

The ﬁ rm is likely to come under signiﬁ cant pressure

from clients, with potential loss of revenue and

also losses of clients if ﬁ nancial statements are not

produced within 2–3 weeks

2–3 weeks

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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  rm for a timely response to major or critical

incidents and reduce the impact of those incidents on your practice operations as identi ed in your risk

assessment. It also prepares key personnel to provide and coordinate an e ective response to ensure minimal

disruption to the  rm’s operations in the event of emergency.

able 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?

• Identiﬁ ed 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 speciﬁ c roles and responsibilities?

• Identiﬁ ed any damage?

• Identiﬁ ed critical activities that have been disrupted?

• Contacted key stakeholders?

• Understood and complied with any regulatory or compliance

requirements?

• Initiated media/public relations response?

7.6.3b Evacuation procedures

You need to have appropriate evacuation procedures that cater to both sta and visitors. These procedures

should be stored in a place accessible to all sta .

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:

zStart with a  oor plan of the site;

zClearly identify the location of emergency exits;

zDevelop strategies for providing assistance to persons with disabilities;

zMake sure that everyone knows what to do if evacuation is necessary;

zSelect and indicate a meeting place away from the site; and

zTest 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 o -site or alternatively stored safely and

securely o -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

zBusiness Continuity Plan—your plan to recover your  rm in the event of a critical incident.

zList 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.

zLists of customer and supplier details.

zContact details for emergency services.

zContact details for utility companies.

zBuilding site plan (this could help in a salvage e ort), including location of gas, electricity and water shut-o points.

zEvacuation plan.

zLatest stock and equipment inventory.

zInsurance company details.

zFinancial and banking information.

zEngineering plans and drawings.

zLocal authority contact details.

zHeaded stationery and company seals and documents.

2. Equipment

zComputer back-up tapes/disks/USB memory sticks or  ash drives.

zSpare keys/security codes.

zTorch and spare batteries.

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zHazard and cordon tape.

zMessage pads.

zMarker pens (for temporary signs).

zGeneral stationery (pens, paper, etc).

zMobile telephone with credit available, plus charger.

zDust and toxic fume masks.

zDisposable camera (useful for recording evidence in an insurance claim).

3. Notes

zMake sure this pack is stored safely and securely on-site or o -site (in another location).

zEnsure items in the pack are checked regularly, kept up-to-date, and function.

zRemember that cash/credit cards may be needed for emergency expenditure.

This list is not exhaustive, and you should customize it to suit your own  rm’s situation.

7.6.3d Roles and responsibilities

able 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 sta members and assign back-up sta as

appropriate.

The sta 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  rm’s needs and structure.

Table 7.12 Roles and responsibilities list

Role Designated Staff Member Alternate

Team Leader Name: Brenton Peters

Contact Details:

0400 113 224

Name: John Johnston

Contact Details:

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 Ofﬁ cer for distribution

• Keep staff apprised of any changes to situation.

Role Designated Staff Member Alternate

Title Name:

Contact Details:

Name:

Contact Details:

Emergency responsibilities:

Role Designated Staff Member Alternate

Title Name:

Contact Details:

Name:

Contact Details:

Emergency responsibilities:

7.6.3e Key contact sheet

1. Contact list—internal

Use

able 7.13 to document your sta emergency contact details.

Table 7.13 Sta emergency contact details

Person Contact number Email Responsibilities

Brenton Peters 0400 113 224 Brenton.peters@accounts.com Team Leader

John Johnston 0400 234 445 John.johnston@accounts.com Alternate team leader

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2. Contact list—external

Use

able 7.14 to document your sta 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

able 7.15 to document your sta 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 BP

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 modi ed according to the degree of

loss to your  rm. The recovery processincludes:

zDeveloping strategies to recover your  rm’s activities in the quickest possible time;

zIdentifying resources required to recover your operations;

zDocumenting your previously identi ed RTOs; and

zListing the people who have responsibility for each task and the expected completion date.

Table 7.16 Recovery Plan

Critical

Business

Activities

Preventative/ Recovery

Actions

Resource Requirements/

Outcomes

Recovery

Time

Objective Responsibility Completed

Production

services—

halted

Reassess ﬁ nancial position of

ﬁ rm including cash ﬂ ows due

to loss of revenue to meet

minimal overheads

Minimize overheads, review

expenses, and develop plan

of action to reduce ﬁ xed

overheads include reduction

of casual and permanent staff

hours

Source alternative temporary

equipment to continue

production

Diversify service range of

offerings to clients

Put aside cash reserves to

cover costs

Reduce costs where able

Research new service

offerings

Identify alternative

equipment providers

2 weeks Practitioner 00/00/X0

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  rm

back to full operation. You will need to customize this list to include information speci c to your  rm.

Table 7.17 Incident recovery checklist

INCIDENT RESPONSE Check X ACTIONS TAKEN

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 ﬁ nancial position?

• Contacted your insurance broker/company?

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INCIDENT RESPONSE Check X ACTIONS TAKEN

• Developed ﬁ nancial goals and timeframes for recovery?

• Kept staff and other key stakeholders informed?

• Identiﬁ ed information requirements and sourced the information?

• Set priorities and recovery options?

• Updated the Recovery Plan?

• Documented lessons learned from your individual, team and ﬁ rm

recovery?

• What is the current ﬁ nancial position of your business?

• Have you determined how much cash your business has

currently available by creating a cash ﬂ ow 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, ﬁ nances, 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 ﬂ ow and proﬁ t and loss forecasts?

• Do you intend to fund the reopening of your ﬁ rm from the ﬁ rm

itself or from other sources?

• Where the business has existing debt ﬁ nancing arrangements,

have these been reviewed to ensure that the ﬁ nance facility and

structure ﬁ ts the new needs of the ﬁ rm?

• What existing lines of credit does the ﬁ rm have access to and can

these lines of credit be accessed to fund the reopening of the ﬁ rm?

• Given the potential changed market conditions, are your ﬁ rm’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 ﬁ rm, such as changes

that may restrict access?

• Is the size of your premises too large or too small given the future

potential of your ﬁ rm?

• Do you still have the plant and equipment your ﬁ rm needs to restart?

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 re ect any

changes inside or outside the  rm.

The following points may help:

zA training schedule must be prepared for all people who may be involved in an emergency at the site.

zPay attention to sta changes. Incorporate an overview of the plan in new sta induction procedures.

zIt is best to use sta titles rather than names.

zIf you change your  rm’s structure or suppliers and contractors this must be amended in your plan.

zAfter 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

able 7.18 below.

Table 7.18 Review of Recovery Plan

Update/Review date Reason for review Changes made

7.6.5 Death or incapacity of practitioner

Another key area of risk for the  rm 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  rm 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

able 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 e ective running and operation of the  rm. 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  nance arrangements;

MODULE 7: RISK MANAGEMENT 51

vi. Lawyer’s name and contact details;

vii. Intellectual property residing within or developed by the  rm; and

viii. Recommendations for ongoing management of the  rm.

2. Maintain adequate insurance

a. It is important to maintain adequate insurance to cover the practitioner and also the  rm.

b. If the practitioner has partners, it is prudent to ensure that the  rm has adequate insurance to cover each

partner and to provide the funds to pay out the estate for the partner’s share of the  rm 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

zpartnership/shareholder insurance

}This provides for payment to the survivors of the partner

zbusiness 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  rm, 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  rm.

zEnsure legally drawn buy/sell agreement has been prepared; and

zCon rm 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.

zWould they be prepared to continue with their  nancial arrangements or would they call up their

debt?

zDoes the business have su cient  nancial reserves to cover this situation?

5. Ensure adequate training of sta

a. Appropriate training should be provided to sta in the key areas of management and the operation of

the  rm 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  rm that a procedures manual has been prepared which fully

documents the procedures, processes and operations of the practice.

b. This lets the  rm 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  rm, by reducing reliance on the practitioner.

7. Ensure job descriptions are completed

a. It is important that job descriptions have been completed for all roles within the  rm and that each sta

member is clear on the tasks they are to perform.

8. Undertake regular sta appraisals

a. Regular sta appraisals allow sta to stay informed of their progress and development within the  rm

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 sta 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  rm, 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 a ect any other business relationship that the  rm has.

MODULE 7: RISK MANAGEMENT 53

Table 7.19 Checklist of risk mitigation strategies

Risk Questions to ask

1. Document sensitive ﬁ rm

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 ﬁ nance arrangements;

6. Lawyer’s name and contact details;

7. Intellectual property residing within or developed by the ﬁ rm;

8. Recommendations for ongoing management of the ﬁ rm.

2. Maintain adequate insurance Is the following insurance held:

1. Key man Insurance?

2. Partnership/shareholder insurance?

3. Business equity insurance?

3. “Buy/sell agreement” 1. Has a legally drawn buy/sell agreement been prepared?

2. Has this been reconciled with the partnership/shareholder insurance?

4. Bankers and suppliers 1. Are they prepared to continue with their ﬁ nancial arrangements or would

they call up their debt?

2. Does the ﬁ rm have sufﬁ cient ﬁ nancial reserves to cover this situation?

5. Staff training 1. Have staff been trained in management and the operation of the ﬁ rm?

6. Procedures manual 1. Has a Procedures Manual been prepared?

2. Is it maintained and kept current?

7. Job descriptions 2. Have job descriptions been prepared?

8. Staff appraisals 1. Are regular staff appraisals held?

2. What is their format?

9. Partnership issues 1. If there are partners within the ﬁ rm, have they clariﬁ ed 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 ﬁ rm has?

2. Can anything be done about this?

7.7 Liability and insurance within your ﬁ rm

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 signi cant impact on their  rm. 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 di erent 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 con dence in your broker’s ability

to know your profession, understand your risk pro le 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 a ect the coverage

you have for your activities. Where possible, you should obtain written con rmation of the coverage provided

for the areas of work you are doing. Examples of these activities, subject to jurisdictional regulations, include:

zAudit work;

zInvestment advice;

zPension planning;

zEldercare services;

zMortgage/ nance broking;

zInsolvency;

zMergers and acquisitions;

MODULE 7: RISK MANAGEMENT 55

zBuying or selling businesses;

zMigration;

zWork for deceased estates; and

zInsurance 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 pro le 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 speci ed 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 a ect 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  rms or business

Check whether your policy covers you for claims made in connection with a previous  rm or other business.

5. Extensions to standard coverage

Extensions likely to be available include:

zLibel and slander;

zLoss of documents;

zDishonesty;

zFidelity;

zOutgoing and/or incoming partners; and

zInquiry 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 o ered.

6. Run-o coverage

Run-o is a term used by the insurance industry to describe how a  rm will reduce (or “run-o ”) 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  rm closed).

Professional indemnity insurance is underwritten on a “claims made” basis. A  rm is therefore only covered

against claims that may be made against it, for work it performed while operating, for as long as that  rm

maintains insurance protection.

Run-o coverage can only be provided to a  rm that is no longer operating. Such a  rm may be closed because

the partner(s) has retired or following the sale of the business to another  rm.

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  rm’s partners feel

satis ed 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  rm. However, be aware that di erent

insurances and requirements may apply in your local jurisdiction. This information is provided for guidance

purposes only.

1. Business interruption or loss of pro t insurance

This type of insurance covers the  rm for interruption due to damage to property by  re or other insured perils.

The coverage should ensure that ongoing expenses are met and that anticipated net pro t is maintained

through a provision of cash  ow.

2. Building and contents insurance

This insurance should cover the building premises of the  rm, 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  nancial risk of being found liable

to a third party for death or injury, loss or damage of property, or economic loss resulting from the  rm or

practitioner’s negligence.

4. Key person insurance

This type of insurance should help cover the loss of a key member of sta .

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

MODULE 7: RISK MANAGEMENT 57

This insurance should protect the  rm 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 speci c policy.

7.8 Conclusion

This module has discussed the issue of risk management and the speci c impact it has on accounting  rm life. It

has provided a framework for identifying, evaluating and acting on risks you identi ed within your  rm.

It also discussed the ethical issues you must be aware of in a  rm 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  rm’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  nished with a discussion on liability and insurance within your  rm 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  rm and look for ways to reduce or eliminate those areas where their risk

is at an unacceptable level.

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/knowledge-

practice-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.economiae nanza.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  nd 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/

MODULE 7: RISK MANAGEMENT

Appendices

Appendix 7.1 Leadership responsibilities for quality within a ﬁ rm

ISQC 1 Paragraphs 18 and 19

In compliance with ISQC 1, the  rm recognizes the importance of promoting an internal culture that recognizes

quality as essential in performing engagements. Ultimate responsibility for the  rm’s system of quality control

has been accepted by the partner(s)/principal/managing board of partners and as such the  rm 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  rm’s system of quality

control to:

(insert name/s) ______________________________________________________

who has/have su cient 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 _________________________

Appendix 7.2 Circumstances and relationships requiring notiﬁ cation (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

o cer needs to be noti ed so that appropriate action can be taken. Such relationships/associations include:

zEmployment of family or friends by the client;

zFuture or recent employment with client serving as o cer, director or company secretary of client;

zClose business relationship with client;

zFinancial interest in the client;

zHaving loans and or guarantees to or from the client;

zReceiving a gift, bene t or hospitality from the client; and

zAny other association that may compromise integrity and objectivity.

Upon noti cation, 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 identi ed 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 Sta Independence

List and brie y explain the nature of all matters that to the best of your knowledge and belief might a ect

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

MODULE 7: RISK MANAGEMENT

Appendix 7.3 Annual independence conﬁ rmation

Instructions

Alll team members, including partners, should complete this form to assess their compliance with the  rm’s

independence policies and procedures. It should be completed:

zBy new employees as part of the orientation process

zAt each annual employee performance review

zBy partners annually.

Name of employee ……………………………………………………………………………

Yes No

Do you have a direct or indirect material ﬁ nancial interest in a client or its subsidiaries/

afﬁ liates?

Do you have a ﬁ nancial interest in any major competitors, investors in or afﬁ liates of a

client?

Do you have any outside business relationships with a client or an ofﬁ cer, director or

principal shareholder having the objective of ﬁ nancial 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,

ofﬁ cer or in any capacity equivalent to a member of management or an employee?

Do you serve as a director, trustee, ofﬁ cer 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  rm, 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.

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 signiﬁ cant threats to

independence?

Fee level/collection issues?

Consideration of client screening questions?

Genuine reason for leaving previous accountant?

Any conﬂ icts 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 sta Y / N

Prepared by …………………………………………….. Date ……..............

Partner review ………………………………………….. Date ……..............

Adapted from: Institute of Chartered Accountants in Australia, Quality Control Guide. 2nd edition March 2009.

MODULE 7: RISK MANAGEMENT

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

conﬁ dence, 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 speciﬁ c 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 ofﬁ ce.

8. Type the individual’s name and company name into Google.

Investigate any unusual hits or reports of illegal or unethical behavior.

Appendix 7.6 Risk management checklists

Identifying potential risks in a  rm

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 ﬁ nancial 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 sufﬁ cient time for the acceptance process to be completed?

How do you evaluate retention of clients from time to time?

How do you address any conﬂ ict 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 conﬁ dentiality?

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?

MODULE 7: RISK MANAGEMENT

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 ﬁ rm?

Are other professionals covered by liability capping schemes?

How are you engaging subcontractors/agents/consultants and how are you indemniﬁ ed 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, qualiﬁ cations, 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 deﬁ ned and

communicated?

Integrity

Questions to consider:

Integrity checklist

No. Question Comment Date completed

1. Do you review client ﬁ les?

2. How often do you review each client’s ﬁ les?

3. Do you have operational notes in client ﬁ les

(e.g. software, postal preferences, etc)?

4. Do you have criteria for new clients and for

client retention?

Are they documented?

5. Do you use an engagement letter?

To whom are they sent and how often?

6. Does your ﬁ rm use checklists?

Is there a central list of these?

Who uses the checklists in the ofﬁ ce?

How often are they updated and by whom?

7. Do you have documented procedures such as

manuals, standard letters, etc?

If so, where are they kept?

8. Who in the ﬁ rm 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 o ered checklist

No. Question Comment Date completed

1. Do you know what services your ﬁ rm offers?

Is there a centralized list available for clients and

staff?

2. Do you offer services that you are not qualiﬁ ed

to offer?

3. Do you ensure that the services you offer are

well known to the clients in the form of an

engagement letter?

4. Are the staff members allocated to clients’ work

capable and trained in the relevant area?

5. Are the services right for your ﬁ rm’s proﬁ le and

resources?

MODULE 7: RISK MANAGEMENT

No. Question Comment Date completed

6. Do you have the resources to meet delivery of

the services to be performed?

7. Do you have a referral network and how do you

ensure quality control for referral?

8. Do you outsource any part of your work and do

you ensure quality control (e.g. bookkeeping,

auditing, etc)?

Marketing and communication

Questions to consider:

Marketing and communication checklist

No. Question Comment Date completed

1. Do you have a marketing and/or strategic plan

suitable for your ﬁ rm (big or small)?

If so, how is this monitored and appraised for

any risks?

2. Is this plan documented and communicated to any

or all of your staff?

If so, how is this done?

If not, why not?

3. Every ﬁ rm has a culture. Have you identiﬁ ed

your ﬁ rm’s culture?

If so, are your staff aware of it?

4. Do your clients understand the culture of

the ﬁ rm and, if not, do you see the need for

communicating it to them?

5. Have you considered your competition in your

marketing plan?

Staff and Human Resources issues

Questions to consider:

Sta and Human Resources checklist

No. Question Comment Date completed

1. Do you have staff and have you identiﬁ ed each of

their roles?

2. 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.

3. Have you considered your staff’s security and

personal safety?

4. Do you have an occupational health & safety

policy?

Is it enforced and practiced?

No. Question Comment Date completed

5. Does your ﬁ rm have a complaint resolution

policy?

6. Do you have a staff induction procedure?

7. How do you monitor staff performance?

When is this done, and how often?

8. How are staff trained and updated on important

ofﬁ ce and regulatory changes?

9. 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 qualiﬁ ed to give the advice to the

clients?

Information and resource management

Questions to consider:

Information and resource management checklist

No. Question Comment Date completed

1. Identify/describe any electronic medium you use

to communicate with government regulators, or

any other government body you interact with.

2. Identify how you take reasonable care when

advising clients and interacting with the various

legislative requirements.

3. How to you keep up-to-date with all the latest

changes that may affect your ﬁ rm and that of

your clients?

How do you keep your staff informed?

4. What steps do you take to ensure that you are

not professionally negligent?

5. 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?

6. Do you know what your obligations are with

regard to professionalism?

MODULE 7: RISK MANAGEMENT

No. Question Comment Date completed

7. Do you and your staff comply with continuing

professional development requirements?

How do you keep up-to-date?

How is this monitored?

Regulatory obligations

Questions to consider:

Regulatory obligations checklist

No. Question Comment Date completed

1. What is your procedure for ﬁ ling of your ﬁ rm’s

forms with all government and regulatory

bodies?

2. Do you have a client list?

Do you know what role you play for each client?

3. Do you monitor your client list according to the

ﬁ ling and reporting program?

4. In regard to workﬂ ow for your ﬁ rm, 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?

5. Do you communicate with your clients regarding

their ﬁ ling and reporting obligations, and your

work ﬂ ow?

6. Do you measure your ﬁ ling and

reporting performance?

How do you do this?

7. Do you identify any risks associated with late

ﬁ ling and penalties?

Do you communicate with your clients once any

risks are identiﬁ ed?

Information technology and security

Questions to consider:

Information technology and security checklist

No. Question Comment Date completed

1. How secure is your hardware, software, and any

information that is stored electronically?

2. Is all your software licensed?

If not, have you considered the risks to your

ﬁ rm?

3. How do you guard your ﬁ rm against pirating/

copying of your software?

4. 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 ﬁ rm?

Where is this process documented?

5. 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 ﬁ rewall?

Do you have anti-spam software?

6. 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?

7. Do you have immediate assistance or technical

specialists on hand, or easily available, if you

suffer computer or software failure?

MODULE 7: RISK MANAGEMENT

Management collapse—succession planning

Questions to consider:

Management collapse—succession planning checklist

No. Question Comment Date completed

1. Who is the principal/main partner of the ﬁ rm?

Does the same person have the responsibility of

ofﬁ ce management?

If not, who has that responsibility?

2. Is there anyone else in the ﬁ rm who can

manage this responsibility in the event that the

primary person being unable to?

3. What back-up arrangements are in place if the

principal person is unable to carry on?

4. If you are a sole trader, have you considered

what possibilities could put you out of action for

an extended period of time?

5. Do you have any plans for when your staff are

sick for extended periods of time?

6. Do you have contingency plans for your ﬁ rm in

the case of ﬁ re, ﬂ ood or other disaster?

7. 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 ﬁ rm 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 Comment Date completed

1. How often do you review your clients and

whether they meet your acceptance criteria?

2. Do you evaluate retention of clients from time to

time?

3. Do you note any client disputes that could

potentially lead to a professional indemnity

issue?

Do you then inform your insurance company?

4. Have you ensured that your objectivity and

integrity are not jeopardized?

5. How are you maintaining client conﬁ dentiality?

Cash ﬂ ow management

Questions to consider:

Cash  ow management checklist

No. Question Comment Date completed

1. Do you have a credit management policy?

Who is responsible for this in your ﬁ rm?

2. Do you have contingency plans to cover you in

a deﬁ cit cash ﬂ ow position?

3. Do you have sufﬁ cient working capital to sustain

your ﬁ rm, now and in the future?

4. Is your business trading in a solvent position?

Module 8:

Succession planning

MODULE 8: SUCCESSION PLANNING 3

Contents

8.1 Introduction 5

8.2 Succession

lannin

for the sole

ractitioner 6

8.3 Develo

our succession

lan 7

8.3.1 Understandin

our  rm 7

Table 8.1 Understandin

ou and

our  rm better 7

8.3.2 Your future

urchaser 7

Table 8.2 Purchaser considerations 8

8.3.3 Succession

lan 9

8.4 Selectin

our succession o

tion 10

Table 8.3 Issues to consider when selectin

our succession o

tion 10

8.5 Firm valuation and

ricin

8.5.1 Value ma

di er from

rice 11

8.5.2 Valuation methods 11

8.5.3 Ca

italization of future maintainable earnin

s 11

8.5.4 Rule of thumb 13

8.5.5 Net book value 13

8.6 O

tions for

artnershi

consolidations

mer

ers and ac

uisitions 14

8.6.1 Thinkin

about shared ownershi

Table 8.4 Self-assessment

uestionnaire for those considerin

artnershi

consolidation or mer

er 14

8.6.2 Partnershi

/mer

er 15

8.6.3 Consolidation 15

8.7 Sale of  rm

fee

arcel or

ressive sell-down 17

8.7.1 Sale of  rm 17

8.7.2 Sale of fee

arcel 18

8.7.3 Pro

ressive sell-down 18

8.8 Develo

internal succession

lans 20

8.8.1 Internal succession 20

8.8.2 Admission of new

artners 20

8.8.3 Bu

out b

existin

artners 21

8.9 Exit considerations 22

8.9.1 Taxation im

lications 22

8.9.2 Constraints of trade 22

8.9.3 Lifest

le chan

es 22

8.9.4 Com

liance issues 22

8.10 Conclusion 23

8.11 References

further readin

and IFAC resources 24

endices 26

endix 8.1 Partnershi

/mer

er checklist 26

endix 8.2 Consolidation checklist 27

endix 8.3 Sale of  rm checklist 28

endix 8.4 Sale of fee

arcel checklist 29

endix 8.5 Pro

ressive sell-down checklist 30

endix 8.6 Internal succession checklist 31

endix 8.7 Admission of new

artners checklist 32

endix 8.8 Bu

out b

existin

artners checklist 33

endix 8.9 Com

liance issues checklist 34

endix 8.10 Case stud

MODULE 8: SUCCESSION PLANNING 5

8.1 Introduction

As professional accountants grow older their thoughts inevitably turn to their exit—not only from the  rm, but

from practicing accountancy altogether. As they consider their departure from business life, they wonder if the

 rm 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  rm 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 sta .

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:

zThe aging of the profession;

zTrouble attracting and retaining sta ;

zCompliance and regulatory pressures;

zTime pressures on sole practitioners; and

zClient requirements at a high level, which means practitioners have little time to focus on their succession

plan requirements.

In addition, most accounting  rms are one to two partner  rms. 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  nd this

di cult, 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  rm 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  rm?” The answer is usually, “Yes but the answer to the question, “How much?”

depends on a number of factors.”

8.3.1 Understanding your  rm

One of the best ways to enhance the value you realize on exit is to plan for it in a structured manner.

able 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.

Table 8.1 Understanding you and your  rm better

Question Response/Action

1. What options do I have?

2. What needs to be done to make it all happen?

3. What would I like to see happen to my clients?

4. What would I like to see happen to my staff?

5. What restraints of trade will I ﬁ nd acceptable?

6. When should I start talking to potential purchasers/

partners?

7. How much do I think my ﬁ rm is worth?

8. How much is my ﬁ rm really worth?

9. 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 ﬁ rm 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 proﬁ table is my ﬁ rm?

15. What systems, procedures and processes do I need

to put in place to enhance the performance of my

ﬁ rm?

16. Would my ﬁ rm represent a worthwhile investment to

someone else?

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  rm 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 satis ed:

zIs this a good investment?

zWill it provide me with a good return on my investment?

zDoes it represent good value?

The  rst step in succession planning is to get your  rm “succession-ready.” The best way is to consider the

questions a potential purchaser or future partner will ask. You should then develop your  rm 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

able 8.2.

MODULE 8: SUCCESSION PLANNING 7

Table 8.2 Purchaser considerations

Area Level Analysis Response

Fees History of fee levels What have fees been over the last one, three, and ﬁ ve

years?

Calculate and assess growth over these years.

Maintainability of fees Will fees be maintained?

What evidence exists to support this?

Impact of non-

recurring fees

Identify non-recurring fees.

Assess impact on expected future maintainable fees.

Proﬁ tability History of proﬁ ts Identify proﬁ ts over last one, three, and ﬁ ve years.

Maintainability of

proﬁ ts

Will proﬁ t levels be maintained?

What impact will the succession event have on proﬁ ts?

Impact of non-

recurring fees on

proﬁ ts

Identify non-recurring proﬁ t component.

Assess as to impact on recurring proﬁ t.

”Add backs” of non-

operating expenses

Identify non-business expenses.

Add back to proﬁ t to assess proﬁ tability from a

business perspective.

Items may include excessive wages to owner, travel

and accommodation, utilities.

Assess normalized proﬁ t 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.

Area Level Analysis Response

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.

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 ﬁ rm.

Dependency 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.

Staff Quality of existing staff Assess for competence and ability.

Assess qualiﬁ cations 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 ﬁ ve

clients as percent of

fee base

Identify top ﬁ ve 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 ﬁ rm.

MODULE 8: SUCCESSION PLANNING 9

8.3.3 Succession plan

Whichever succession option you choose your  rm may need to improve its  nancial position to be a more

attractive investment option for potential purchasers.

There are typically a number of key areas in which a  rm can improve and which will have a positive impact on

 nancial performance. It is important that these improvements have been implemented and are ingrained in

the  rm before it goes up for sale.

Key areas for  rm assessment include:

zRevenues;

zPro tability;

zLiquidity;

zDebtor control;

zWork in progress control; and

zGrowth.

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  nal settlement amount. There are three to choose from.

zThe  rst 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.

zThe second is selling o the  rm, whether in total, or selling a fee parcel at a time, or on a progressive sell-

down basis. These options are considered in Section 8.7.

zThe 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

able 8.3 shows, a number of issues

apply to each.

Table 8.3 Issues to consider when selecting your succession option

Issue Comment Response

1. Planning Set date for completion.

Discuss with key stakeholders.

Identify checklists to complete.

2. Taxation Consider tax implications of alternative

options.

Identify any reorganization of entity

structures required.

Put in place new structures within

timeframe requirements.

3. Funding Consider funding requirements for your exit.

Organize ﬁ nancial arrangements as

required.

Introduce topic of funding early in

discussions with potential purchasers to

ensure capacity.

4. Exit Consider full impact of your exit from the

ﬁ rm.

Consider strategies to ensure minimal

disruption to ongoing ﬁ rm performance.

Implement strategies to ensure effective

handover on your ﬁ nal exit.

MODULE 8: SUCCESSION PLANNING 11

8.5 Valuation methodologies

8.5.1 Introduction

The valuation of your  rm 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 de nition of the actual valuation. The technical de nition 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 di erent from the amount which is  nally 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  rms 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  rm

is in at the time of sale, the internal systems and procedures, the level and capability of sta , or the  nancial

position of either the vendor or purchaser.

Value is usually a function of pro tability 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 bene ts 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  rm, 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  rm, which highlights

the need to start the succession process early.

8.5.2 Valuation methods

The traditional methods used in business valuation include:

zCapitalization 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,

zRule of thumb, or industry method;

}value is based on an “industry standard” applied to each  rm, with the value expressed in terms of a multiplier, or

cents in the dollar.

zNet book value;

}value is simply based on the net book value of the assets of the  rm.

zDiscounted cash  ow

}value is based on estimated future cash  ows discounted to give their present values, where the discount

rate used re ects the risk of the expected future.

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  rms.

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  gure that can be applied universally as each situation will

be di erent. 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  rm will generate on a maintainable basis into

the future. Earnings from the recent past are taken as a guide. Traditional accounting  rms 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 identi ed 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:

zThe current “risk free” rate of return available in the market, usually the government bond rate;

zBank interest rates;

zPrice earnings ratios of publicly listed shares;

zAbility to re-sell the  rm, supply of ready buyers;

zIndustry and business risks;

zLength of time the  rm has been operating;

zImpact of technology on the  rm;

zWhere the  rm is in its business lifecycle;

zDependency on clients, sta , or practitioner;

zImpact of any regulation changes; and

zComparative rate used in comparative  rm sales.

The starting point is the risk-free rate, which is then adjusted according to consideration of factors in uencing

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.

MODULE 8: SUCCESSION PLANNING 13

8.5.3b Discounted cash  ow

Discounted cash  ow is a valuation approach determines what someone is willing to pay today in order to

receive the anticipated cash  ow in future years. Essentially it means converting future earnings into today’s

money. The future cash  ows are discounted in order to express their present values to properly determine the

value of the investment under consideration.

The discounted cash  ow or DCF approach describes a method of valuing an investment using the concepts of the

time value of money. All future cash  ows are estimated and discounted to give their present values. The discount

rate used is generally the appropriate weighted average cost of capital that re ects the risk of the expected future

cash  ows. The discount rate re ects two things:

zThe time value of money. Investors would rather have cash immediately than have to wait therefore, they

must be compensated by paying for the delay.

zThe risk premium. This re ects the extra return investors demand because they want to be compensated for

the risk that the cash  ow might not materialize after all.

The DCF for the purchase of an accounting  rm 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  rms may apply a certain level of cents in the dollar to their gross fees. This valuation

method is popular for smaller  rms, where other factors a ect 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  rms 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  rm 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 pro t 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

 rm 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  rm is asset

rich but earnings poor.

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 di erent 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 pro t. Rules relating to partnerships include

joint ownership, participation in gross returns, sharing of pro ts 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  rms and “consolidates” them into one larger entity, seeking

to achieve operating e ciencies 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 o cer and management team.

3. Merger

Two  rms combine to make one larger  rm. It works best when the two  rms are of similar size; otherwise

it tends to be more of a takeover. The equity of each partner in the combined  rm 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 di erent from issues relating to the sale of a  rm, 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  rm 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  rm is distinctly di erent 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

able 8.4.

MODULE 8: SUCCESSION PLANNING 15

Table 8.4 Self-assessment questionnaire for those considering partnership, consolidation or merger

Question Response/Comment

1. Do I really want to share decision-making, control and proﬁ ts

with other people?

2. What am I really getting myself involved in?

3. Do I want to share ownership of the ﬁ rm?

4. Does the upside of shared ownership outweigh the downside?

5. Can I trust my partners?

6. Will they work as hard as I do?

7. How much money will I make?

8. Will I make more in the new structure, or less?

9. What are the key reasons I am doing this?

10. Have I considered the advantages and disadvantages of each

option? What are they?

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  rst 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  rm.

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  rm, unless prior agreement has been reached

among the partners.

There are a number of advantages and disadvantages of partnerships and mergers.

Advantages

zExpected economies of scale;

zBroadening of experience and skill base within  rm;

zPotential broadening of services o ered to the market;

zCost savings proceeding from reduction in duplication of resources;

zBroadening of knowledge pool from which  rm can draw internally; and

zLarger pool of resources from which  rm can pay out exiting partner.

Disadvantages

zChallenges of aligning  rm cultures;

zPractitioners’ sense of loss of control;

zDiscomfort with shared decision-making and pro t sharing; and

zLack of enjoyment in working with partners after merger takes e ect, 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  rm. 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

signi cant time, e ort 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 pro ts and facilitate a smooth transition of clients, as otherwise this will

have a negative impact on share value, and hence the  rm’s future value.

There are a number of advantages and disadvantages to the consolidation model.

Advantages

zReady market of investors to buy shares after escrow period;

zLarger  rm infrastructure of consolidator that can bene t and assist the practitioner;

zStructured training and development program;

zCareer path for sta of practitioner; and

zLarge knowledge pool from which the practitioner can draw.

Disadvantages

zChallenges of aligning  rm cultures;

zPractitioners may feel sense of loss of status, autonomy and control; and

zPractitioner 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  rm 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  rm to

start getting succession-ready.

MODULE 8: SUCCESSION PLANNING 17

8.7 Sale of ﬁ rm, fee parcel or progressive sell-down

8.7.1 Sale of  rm

Sale of  rm is the most common succession option. This is where the whole  rm is sold to a new purchaser.

Potential purchasers who consider the purchase of an existing  rm an attractive option include:

zFirst-time entrants to public practice;

zEmployees from another public  rm looking to go into business on their own;

zAn employee or employees from your own  rm;

zAnother  rm of smaller or similar size looking to increase their critical mass and achieve economies of scale; and

zA larger  rm looking to increase its fee base, and/or looking for geographic presence.

In a sale to an existing sta member, it is likely that, they will continue to operate the  rm 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  rm and the new owners do not wish to disturb you.

A larger  rm 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 sta 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

able 8.2, earlier in this

module. You should ensure your  rm 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  rm has advantages and disadvantages for the vendor.

Advantages

zOngoing commitment to  rm ceases once handover period and agreed obligations are met;

zOnce the money is banked, the transaction is over, and the vendor’s involvement ends;

zThere is a certain amount of professional satisfaction for the vendor in knowing that they ran a business of

su cient value to be saleable; and

zSense of  nality knowing the transaction is complete.

Disadvantages

zOnce sale is complete and professional involvement ceases, it may take some time for vendor to adjust; and

Appendix 8.3 (Sale of  rm 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  rm 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 a number of improvements you can implement immediately in

your  rm 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  rm, 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:

zFirst-time entrants to public practice;

zAn employee or employees from your own  rm;

zAn employee or employees from another public  rm, looking to go into business on their own; and

zAnother  rm 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

zCan select which clients to parcel and sell o ;

zCan continue with  rm, albeit on a lesser scale;

zMay allow for specialization, by selling o clients outside areas of key interest; and

zMay also allow vendor to reduce other costs as resources required to service remaining clients may not be as great.

Disadvantages

zMay lose professional relationship with those clients included in parcel which is sold o ; and

zSome 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  rm 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  rm. 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:

zNew entrant to public practice, who want to take the incremental approach to equity ownership, as their

con dence and knowledge increase;

MODULE 8: SUCCESSION PLANNING 19

zExisting sta members, who take on greater equity as their con dence increases, and as their borrowing

capacity allows; and

zAnother  rm, 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:

zVendor still involved, but conscious that their reign is coming to an end;

zNew partners with lesser equity may want certain things to change, but the senior partner still controls the

votes; and

zVendor partner may have run the  rm 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

zVendor continues to remain involved in  rm;

zAllows purchaser to take up equity in incremental steps; and

zExisting partners may take up additional equity on progressive basis.

Disadvantages

zCan be an emotional time as vendor partner comes to terms with their pending departure; and

zAs 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  rm 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 sta 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  rm 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:

zInternal succession;

zIntroduction of new partners; and

zBuyout by existing partners.

8.8.1 Internal succession

The main focus of internal succession is assisting senior sta in progressing to partnership. It is most e ective

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  rm have the following four attributes:

zFirm growth su cient to allow for another partner;

zRecruitment of willing and capable sta ;

zDevelopment program for managers and senior sta ; and

zFirm 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  rm, and the client base.

Advantages

zIncoming partners have familiarity with  rm culture and client base;

zSta and internal systems and procedures are well known;

zAn existing business model is operational and already in place; and

zThere is minimal disruption to existing clients, sta and internal arrangements, systems and procedures.

Disadvantages

zGaining respect in new position from long-term sta ; and

zIncoming partner may have limited exposure to other accounting  rms.

endix 8. (Internal succession checklist) provides a useful framework when considering these issues.

Objective for vendor

Your objective as vendor is to make your  rm 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  rm 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  rm. The idea is to  nd 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 identi ed 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.

MODULE 8: SUCCESSION PLANNING 21

Advantages

zAn existing business model is operational and already in place; and

zThere is minimal disruption to existing clients, sta and internal arrangements, systems and procedures.

Disadvantages

zIssues may arise with assimilation of new partner into existing  rm culture; and

zSome 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  rm 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  rm 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  rst o ered the opportunity to take up the available shares in proportion

to their existing shareholding. If there are still shares remaining after this o er, 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

zThis is an internal negotiation, and has no impact on those outside the existing partnership;

zIt provides certainty of position to all partners if the partnership agreement has taken this option into

consideration;

zThere is minimal disruption to existing clients, sta and internal arrangements, systems and procedures; and

zAn existing business model is operational and already in place.

Disadvantages

zMay cause  nancial stress to existing partners; and

zOngoing reduction in total number of partners in  rm, unless new partners are admitted.

ppen

(Buyout by existing partners checklist) provides a useful framework when considering these issues.

Objective for vendor

Your objective as vendor is to make your  rm 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  rm 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  rm. 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  rm 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 a airs 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  rm. 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  rm. 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 di cult aspect of succession is the dramatic lifestyle changes that occur after leaving a  rm.

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.

MODULE 8: SUCCESSION PLANNING 23

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  rm 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  nd 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  rm” as you did to life in the  rm. 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

 nally 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  nally leave your  rm, 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 signi cant occasions in your practice life, it is of great importance that you plan for it

very carefully. This  nal chapter sets out the options that are available to you and suggests ways to organise your

path towards retirement from the  rm.

The various  rm 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  rm. 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  rm is in good hands

and will continue as a pro table entity.

8.11 References, further reading, and IFAC resources

SMP_Practice_Mgmt_Guide_ Guide To Practice Management

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