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July 31, 2008updated 29 Apr 2022 9:04am

Fortunes rise for Singapore’s mid-tier

Mid-tier accounting firms have recently begun to emerge from the shadow of their larger rivals in Singapore. Baker Tilly TeoFoongWongLCLoong managing partner Foong Daw Ching speaks to Asia correspondent David Hayes about new opportunities in the island state.

Rising audit fees have started to motivate a number of Big Four clients to transfer their business to mid-tier accounting firms in Singapore. Baker Tilly International Singapore member firm TeoFoongWongLCLoong (TFWLCL) is one firm to benefit from this recent market shift.

“Some clients previously going to Big Four firms come to us now while some other existing Big Four clients are realising that mid-tier accounting firms can serve their corporate needs,” notes Foong Daw Ching, the firm’s managing partner. “Big Four means having few firms to select from and clients want a larger pool of competing auditors. Cost is a factor as Big Four fees may not be acceptable to small listed companies.”

Big Four clients reviewing their audit service arrangements and moving to mid-tier firms are mainly companies listed on Singapore’s stock exchange, according to Foong. In addition, local subsidiaries of foreign-owned companies sometimes move to Baker Tilly if their parent company transfers to Baker Tilly in their home country.

“There is greater awareness of mid-tier firm capability. Singaporean businessmen are aware that the mid-tier can handle large annual assignments. It’s a good base to get more business,” Ching says, adding that Baker Tilly TFWLCL is among the top eight firms. “Big Four clients transferring include those from the construction sector. We had three such transfers from January to April this year. In most cases they come to us as we are well known in the market.”

A good marriage

Baker Tilly TFWLCL has been a member of several international accounting groups during the past two decades. During the 1990s, the firm was a member of Nexia International and then joined Mazars for three years. After parting company with Mazars, the firm spent a year without any affiliation before eventually joining Baker Tilly.

“We linked up with Baker Tilly three years ago. Baker Tilly was not well known in this market when we became a member firm,” Ching recalls. “They looked at our operations and size. It is a good marriage. The kind of clients we have and our partner connections means that people get to know each other quickly. Our client aim for Baker Tilly is not inward referrals, which are a bonus, but Singapore clients expanding overseas; so we have good people to look after them. That aim has proven to be correct. But our service also must be up to standard for Baker Tilly inward referral clients.”

The firm’s Singaporean clients expanding overseas include companies with operations in China, Hong Kong, the US, Eastern Europe and Southeast Asia.

“We can serve outbound clients from Singapore. There is no need for us to have a Singapore desk in Baker Tilly’s China offices, for example, but we can use Baker Tilly’s China partners. The Baker Tilly International member firm in China has an Australian in its Beijing office to co-ordinate work,” Ching explains.

Growing overseas investment by Singaporean companies comes on the back of domestic growth and a bright future outlook. After successfully navigating earlier economic difficulties as labour intensive electronics manufacturing moved out to lower cost production centres, including China, Singapore has reinvented itself as a knowledge-based high-tech manufacturing centre and regional logistics hub. This has created new employment opportunities and a base for other government development initiatives, including the expanding financial services sector.

“Singapore’s first quarter economic growth was better than we expected and overall GDP growth of

Baker Tilly Singapore’s managing partner, Foong Daw Ching
Baker Tilly Singapore’s managing partner, Foong Daw Ching

4.5 percent to 6 percent is expected this year. All sectors are pushing the economy, including biomedical activities, financial services and construction,” Ching observes. “The US recession effect depends on how deep it becomes. If it is prolonged it will affect us here, but Asia is quite resilient with two giants – China and India – plus emerging Vietnam giving confidence.”

Government efforts to reposition and strengthen the economy by focusing on higher value service industries and advanced manufacturing are encouraging more companies to establish regional and global operations in Singapore. The changing economic base has generated a substantial growth in work for Big Four and mid-tier accounting firms, many of which plan to expand their qualified workforce.

Outsourcing growth

Audit is the main service line at Baker Tilly TFWLCL, accounting for 55 percent of client revenues. Tax work, including tax advisory, represents 14 percent. Internal audit and risk assessment services generate 7 percent of annual revenue while outsourced services, including corporate secretarial, accounting payroll, liquidations and insolvency, represents a further 15 percent. Litigation support accounts for the remaining 9 percent of revenue. “Internal audit work is growing. We started this service line three years ago because of more awareness of the code of governance in Singapore,” Ching remarks. “Also, Big Four firms cannot do internal audit for clients. Internal audit is not mandatory but highly recommended by the stock exchange commission.

“The audit committee of listed companies wants this internal audit done. Clients outsource internal audit due to their shortage of professional staff and because CPA firms have the expertise. In most cases internal audit is required twice a year. If we can get the staff, internal audit will become 10 percent of our revenue within two years.

He continues: “Audit work will grow but not as fast and will remain at a 55 percent share of our total revenue. Tax work will maintain its share or grow 1 percent or 2 percent.”

Advisory services, which represent 22 percent of the fee split, are growing as more foreign companies set up operations in Singapore and more inward referrals are received from Baker Tilly International. Further expansion of advisory services will depend on staffing and continued economic growth.

Meanwhile, accounting standards are changing in Singapore and will create additional work for the accounting profession.

“International Accounting Standards and US GAAP convergence is happening and will change our work,” Foong notes. “Singapore has fully adopted IFRS. There is an exemption for the small firm audit which started several years ago. Our work is scrutinised by the Accounting and Corporate Regulatory Authority. Scrutiny through practice monitoring review is to ensure that we are monitored for standards. We review everything.”

Recruitment drive

As the volume of work is expected to expand in the future, Baker Tilly is working hard to broaden its number of professionals, recruiting local accounting graduates and hiring more senior staff locally or from abroad.

Two universities run accounting degree courses – the Singapore National University produces about 200 accounting graduates a year, while Nanyang University produces 600 to 700 accounting graduates. Other sources of accounting graduates are the ACCA and CPA Australia along with returning graduates from foreign universities.

Baker Tilly has 185 staff in Singapore, including nine partners and 130 CPAs of which 40 percent are trainees. Staffing is an issue for all accounting firms in Singapore, and to ensure its professional team is sufficient to service clients’ needs Baker Tilly employs CPAs from a variety of countries in Asia. “We are actively recruiting, not to replace staff, but to expand. In fact, with limited qualified people available in the market we have to go to Malaysia, the Philippines, Indonesia and China for staff, including Chinese nationals studying here in Singapore,” Ching says.

“We have quite a lot of Malaysians working here. About 40 percent of our staff is foreign, either with employment passes or permanent residents. Other accounting firms will tell you the same. Malaysian accountants want to work here. Also, Malaysian and Chinese students study here and then want to stay to work.”

Attention to staff working conditions and professional development are necessary to retain a loyal staff base. The rise of China as an economic force and the fact that many Singaporeans trace their ancestry to the Chinese mainland has introduced new opportunities for junior and more senior accounting staff in recent years. A growing number of newly qualified accountants are interested in working in China where opportunities for bilingual overseas trained accountants are growing quickly.

“We are quite good at staff retention. I am quite happy so far. Junior staff stay with us for over a year after qualifying and more senior staff stay for two years upwards,” Ching remarks. “Many leave as they are head-hunted by local companies looking for a chief financial officer for China as our CPAs speak Mandarin Chinese and English. We look after our staff and their welfare. We expose them to large clients. Also, they travel outside Singapore for client meetings. We offer very good training and overseas assignments.”

Importing talent

Baker Tilly has established an international secondment system to allow accountants throughout the international network to gain experience working at Baker Tilly member firm offices in several countries. Ching notes that the firm is looking at using the secondment system to reward and develop promising staff but due to the practice’s current workload has not yet taken advantage of the overseas secondment opportunities that are available.

“We have received inward secondments of one to two months from Malaysia. We are planning to receive two secondments from Shanghai and are expecting two more from the United States for three to six months,” Ching says. “Inward secondments are to gain different working experience and different culture. More people would like to come to Asia. The idea is that these better staff are getting training for future promotion.”

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