The Philippines accounting firm,
Sycip, Gorres, Velayo & Co, has been in the middle of a debate
about national protectionist laws ever since Ernst & Young
formed its East Asia practice. Asian correspondent David Hayes investigates and profiles
the nation’s largest firm and talks to partner, Wilson
Tan.

Sycip, Gorres, Velayo & Co (SGV) has been in the headlines this
year over an internal dispute about whether the firm’s membership
of Ernst & Young (E&Y) contravenes the Philippines
Constitution, which bans foreign accountants and lawyers from
practising in the country.

Although SGV’s management says the firm is
fully compliant with Philippines law and the Securities Exchange
Commission (SEC) has not disputed the firm’s assertion, the issue
of SGV’s membership of E&Y is still being resolved.

SGV’s internal dispute recently received
national media coverage when the firm announced that 14 partners,
including vice-chairman Roman Felipe Reyes, were leaving after
refusing to sign the “integral agreement” that E&Y had asked
SGV to commit to as a condition of remaining a member of the Big
Four firm.

The 14 partners said the proposed agreement
with E&Y would effectively make them “dummies” in violation of
the Anti-Dummy Law. The Anti-Dummy Law punishes the evasion of laws
on the nationalisation of certain rights, franchises or
privileges.

The departure of 14 out of 84 partners came
two weeks after former managing partner David Belangue left SGV for
the same reason. The exit package that the departing partners left
with includes a one-year “no compete” clause prohibiting them from
joining another audit firm during that period.

“The partners who left had a difference of
opinion. We have not violated the Philippines Constitution,
according to our lawyers,” says SGV partner Wilson Tan, who is head
of SGV’s IFRS desk and the firm’s industry and market sector
leader.

“In our agreement with E&Y, anything that
violates Philippines local law is inoperable. We have all local
partners at SGV. No foreign national is allowed to sit the
Philippines CPA exam.

“The 14 partners left as they thought there
was a risk of contravening the Anti-Dummy Law, but 80 percent of
the partners believe our lawyers that there is no risk. There was a
difference of opinion. It is a shame it came to that.”

Back to the drawing board

Following the highly publicised
departures and subsequent discussions with E&Y, SGV is drawing
up an operating model for the firm’s membership of the global
network that is compliant with local legal requirements.

“We will put on paper our local practices. The
Securities Exchange Commission acknowledges our global affiliation
with E&Y otherwise they would have questioned us,” Tan points
out.

“We are a member firm of E&Y that is
locally controlled with no foreign partners. The operating model
that we follow now will be finalised and that is a local practice
with local partners.

“We want this issue closed and not to come
back in a few years. E&Y will not do anything in the
Philippines that will violate local laws. They have said that would
be inoperative.”

While SGV’s internal dispute has made headline
news, other leading accounting practices in the Philippines are
thought to be affected by issues surrounding their membership of
international accounting networks, including Isla Lipana & Co,
which is a member of PricewaterhouseCoopers.

In fact, SGV’s internal dispute is not the
only development that is keeping accountancy in the news. The
Association of Southeast Asian Nations (ASEAN), of which the
Philippines is a member, recently announced plans to introduce a
mutual recognition agreement (MRA) that would allow accountants,
doctors and dentists who are citizens of an ASEAN country to
practice their professions in other ASEAN member countries.

Given the constitutional ban on foreign
accountants and lawyers practicing in the Philippines, the
government is expected to become involved in MRA negotiations.
However, any move to change the law banning foreign accountants
from practicing in the Philippines is likely to be linked to the
parallel ban on foreign lawyers. With less than a year to go before
presidential elections, the MRA issue is one the government is
unlikely to take on in a hurry.

The ASEAN MRA proposal is designed to
facilitate the flow of professional expertise among ASEAN
countries. For some countries, such as the Philippines, which
supplies accountants to the Middle East and other regions, the MRA
proposal represents a new opportunity to export professional
accounting skills.

“The ASEAN MRA opens an opportunity to send
people to other markets. Theoretically, we can accept other
accountants coming here, maybe in special areas that we do not have
staff for here,” Tan says. “It depends if there is a market here
for those skills. We are affiliated with E&Y. If we need help
we can call on them.”

SGV seconds a number of staff to other E&Y
country offices in the Far East.

“We are part of E&Y Far East. Our managing
partner is part of the E&Y Far East Board,” Tan notes. “We want
to partner more with E&Y. Opportunities include sending people
out from here on secondment. We can send IFRS trained staff to
E&Y offices. Growth is in our regional play.

“We have staff in E&Y Thailand and we will
send staff to the E&Y Kuala Lumpur office. Our staff like
secondments. We are being asked to help E&Y offices in
Indonesia, Malaysia and Thailand with IFRS because of our
expertise.”

SGV is looking to expand the pool of staff
that can be seconded to other E&Y offices. Opportunities for
seconding staff are expected to include China in future.

“We are targeting Mandarin Chinese speakers
who are proficient in English. We have good IT specialists and we
are good in audit,” Tan says. “We overhire staff here as E&Y
regionally needs people from us. That is why we continue to hire
staff to have a buffer reserve. Before this economic crisis started
we targeted 75 to 100 people to work around the region at senior
associate level. These are single people in their mid to late
20s.

“Other E&Y offices want accountants from
the Philippines. Most secondments are in the Far East because of
IFRS. Also, there are some risk advisory secondments.”Sycip, Gorres, Velayo & Co

One reason that SGV is developing its
secondment programme is to retain staff who otherwise might leave
the practice to seek accounting positions overseas. While
relatively few qualified staff leave to join other accounting
firms, a substantial proportion of those leaving take positions in
the commercial and industrial sector. Others leave to work
abroad.

Because of its size, SGV operates the largest
Big Four recruitment programme in the Philippines. The firm hired
400 newly qualified CPAs in 2008 and is looking to recruit about
300 to 400 newly qualified CPAs this year.

“Usually we hire 300 to 500 new staff a year.
Normally we have a fast turnover but not this year because of the
economy,” Tan comments.

FIRM PROFILE
Leader of the
pack

Sycip, Gorres, Velayo & Co (SGV)
is the largest accounting firm in the Philippines with 2,300
professional staff, including 72 partners, of which 38 are audit
partners. The firm employs about 1,750 CPAs in total, including
1,500 in audit.

Headquartered in the Makati financial district
in Manila, SGV has eight offices in the Philippines. About 90
percent of all staff are based in Manila on the main island of
Luzon.

Two other offices cover the north and south of
Luzon, two offices cover the central Visayas region while three
offices cover the major cities of southern Mindanao Island.

Audit accounts for the majority of the SGV’s
fee split (see pie chart), although the firm is attempting
to move into more advisory work.

SGV audits 78 of the top 100 corporations in
the Philippines and about 500 of the country’s top 1,000 companies.
Clients include Metrobank, the largest private bank in the
Philippines and Meralco, the country’s largest private power
company, which supplies Manila and the surrounding area.

Established 63 years ago, SGV’s former
partners include former ministers of finance and trade. The
currently governor of the Philippines Central Bank, Amando M
Tetangco, is a former SGV partner, as is the chairman of the
Financial Reports Standards Council.

REGULATION
Move towards global
standards provides a silver lining

New accounting regulations and the adoption of IFRS have generated
a significant proportion of accounting firms’ increased work load
in recent years, as the Philippines’ economy has adjusted to a
number of structural changes.