Ernst & Young’s Singapore member firm is a cornerstone of the
network’s Far East Area Practice.
Despite the recession and fierce competition, David Hayes reports
the firm is confident about
growth in Singapore’s ‘very opportunistic’ market

Singapore’s economy has experienced an unprecedented contraction
during the past 15 months as exports, tourism and the financial
sector have suffered from the impact of the global slump. Faced
with the worst recession since independence 44 years ago,
Singaporeans are hoping the worst may soon be over as several other
Asian countries report early signs of recovery.

The Ministry of Trade and Industry’s recent
announcement that GDP jumped by an annualised, seasonally adjusted
20.4 percent in the three months to June compared with the previous
quarter means Singapore’s economy grew for the first time in a
year. It also represents a significant improvement from the 12.2
percent contraction in the first quarter of this year. The
second-quarter 2009 results still represent a 3.5 percent
contraction compared with the corresponding quarter last year.

The government is forecasting GDP to shrink
between 4-6 percent this year.

Singapore’s economic downturn has affected the
local accounting market, with many firms experiencing a slowdown in
parts of their business during the past year. While focused on
managing the current market situation, most leading practices are
preparing for an expected upswing in business in this highly
competitive market once the economy begins to bounce back.

“Singapore is one of the most severely
impacted economies in the region as it is an open economy reliant
on exports and service orientated, and so very exposed,” says
Harsha Basnayake.

Basnayake is Ernst and Young Singapore’s
(E&Y) market leader for transaction advisory services and the
practice leader for valuation and business modelling in the Far

“Clients are impacted so we feel it too,”
Basnayake explains. “Our transaction advisory business is more
impacted by the economy and the effect on discretional spending.
Assurance business is stable because we have a strong audit base,
but we are focused on growing and diversifying our various
non-assurance businesses and expect the market to grow.

“One advantage that we have in Singapore is
our long history here and our strong audit base. This has given a
lot of stability to our business. We have a large tax business as

E&Y hopes for a quick turnaround for its
transaction advisory business. It anticipates an upturn by the end
of this year and foresees good prospects. Whether this optimism is
rewarded will depend on how quickly banks expand their lending
activities and how quickly companies change their pessimistic
economic outlook.

“The transaction market died down after the
Lehman Brothers collapse in September 2008. For four years
previously the transaction market had been high with private equity
and corporate players showing high volumes of transactions. We
handled a number of IPOs,” Basnayake notes.

“The IPO market has died down along with many
other capital market activities and is unlikely to grow until there
are signs of an economic turnaround. This obviously impacts
transaction advisory business – activity will be low unless the
capital and debt markets return. We have seen some pick up
recently. If local and foreign banks are willing to lend there will
be more activity.

“It is a cautious lending environment.
Activity levels are down. Previously, we did a lot of private
equity work. Then there was nothing from last September until
April. It shows the scale of the economic slow down but things are
picking up again.”

Although business activities and investment
have slowed, financial difficulties facing some clients have
resulted in increased demand for certain specialist services.

“Areas where there is more work include
company restructuring and fraud investigation – typical services
when markets are distressed,” Basnayake remarks. “Pockets of
business are impacted while others are unchanged and some are
surging; but overall we see a downslide.”

Regional leadership

E&Y Singapore is one of the
firms integrated into a single E&Y Far East Area organisation.
The Far East Area comprises 16 countries and territories that
operate as a single integrated business.

E&Y Singapore traces its history back 120
years and its predecessor firms helped pioneer the development of
the accounting profession in Singapore, Basnayake says. As the firm
is a developed practice, it plays an important role in E&Y’s
regional area practice.

This is reflected in the number of Singapore
partners involved in the management of the Far East organisation,
including E&Y Singapore executive chairman Ong Yew Huat, who is
chief operating officer for the Far East Area, and E&Y
Singapore country managing partner Steven Phan, who is the
Association of South East Asian Nations’ sub-area managing

E&Y Singapore’s prominence in the Far East
Area regional practice also reflects Singapore’s importance as an
international business and finance centre.

“Singapore is a very important accounting
market,” Basnayake comments. “Economically, it is a powerhouse.
About 7,000 multi-nationals are headquartered in Singapore,
including those in banking and finance, oil and gas,
pharmaceuticals and high-end manufacturing.”

For many accounting networks, like E&Y,
the Singapore presence is a key practice in Southeast Asia and the
wider region.

Efforts to develop Singapore as a global
business and financial services hub have also impacted on the
accounting services market. The government and other agencies,
including the Stock Exchange Commission, constantly push for
improvements in corporate governance and transparency in financial
reporting to create the confidence necessary to attract
multinational corporations and international financial services
companies to set up regional headquarters in Singapore.

Singapore’s development as an international
business and finance centre has led to higher expectations of
service levels and quality among accounting firm clients.

“Local firms and foreign companies coming to
us want to see the same services as they find in the rest of the
world. Local companies are maturing and want to see more accounting
services here in Singapore,” Basnayake says. “During the past two
years there has been a lot of locally generated risk and advisory
work in Singapore.”

The changing economic base has generated a
substantial growth in work for accounting firms, creating demand
for more qualified accountants to cope with the rising volume of
work as Singapore’s economic base continues to expand.

Fierce competition

Although demand for accounting
services has grown in recent years, Singapore’s accounting market
remains highly competitive. Mid-tier firms report growing interest
in their services from Big Four clients looking to cut costs.

“Singapore’s accounting market is large enough
for mid-tier and Big Four firms to operate. I don’t see us losing
ground,” Basnayake observes. “Some cost-conscious clients switch to
mid-tier firms but give it time. Again the issue is service quality
and the depth of what Big Four firms can provide, especially when
the client operates across borders.”

Fees have become of greater concern to clients
during the past year as the economic downturn has forced all
businesses to review their cost base. Audit clients in particular
are looking at new strategies to lower the fees they pay.

“Our clients are more cost conscious but want
Big Four service. So pricing is more challenging and fee
competition among the Big Four is very competitive,” Basnayake
says. “There is pressure to bring down fees, especially for audit.
We have to be realistic and see how we can add to value.”

Basnayake calls the current market “very

“Tenders are being put out to see if companies
can bring down their costs, especially for audit. They are testing
the market. We need to provide service in an efficient way without
compromising quality,” Basnayake adds.

Audit represents about 45 percent of E&Y
Singapore’s total revenue. Tax accounts for about 30 percent of
revenue. Advisory services – combining transaction advisory, risk
advisory and business advisory – represent the remaining 25

The firm hopes advisory work will reach 30
percent of revenue in three years time. E&Y Singapore does not
publish details of its revenue. Fee income is believed to have been
up slightly for the year ended June 2009.

Basnayake says that while assurance and tax
are traditional services, advisory is a recent investment for the
firm. E&Y Singapore believes there will be natural evolution of
demand for advisory services as Singapore’s business sector
continues to mature and diversify, creating a greater focus on
corporate governance, risk and transaction-related issues.

“Within advisory we are investing in risk
advisory and business advisory, particularly business advisory,”
Basnayake says.

“In transaction advisory we want to see more
market share. In risk advisory we see more activity around fraud
and governance, particularly in this distressed environment. In
transaction advisory we hope that restructuring work will

Meanwhile, Singapore’s future economic
development path will ensure that E&Y Singapore remains a
leading practice within the Far East Area in future. Government
plans for the island republic to expand as an international
business and finance centre mean that Big Four and mid-tier
accounting firms will need to offer a level of service on par with
the client services offered in other leading international business

“The Singapore economy is going to remain
innovative and focused. Through every economic cycle Singapore’s
policy makers here are sharp and make sure the country is capable
of bouncing back,” Basnayake comments.

“E&Y and other accounting practices must
remain cutting edge so we can attract the human talent to deliver
the services that customers require. We have to figure out ways to
incentivise staff. For E&Y, after our regional integration, we
can provide greater mobility opportunities for our talented

Looking abroad

The financial crisis has eased
staffing pressure for Ernst & Young Singapore, particularly for
its advisory businesses.

The firm employs 2,300 professional staff
including almost 100 partners. CPA recruitment is an ongoing issue
for E&Y and other large practices in Singapore where the number
of local qualified accountants is insufficient to meet the
profession’s demands.

E&Y recruits 200 to 300 graduate qualified
accountants each year, who require three years’ experience to gain
CPA accreditation.

“Managing people and finding skill sets is a
challenge. Since the economy turned down, natural attrition has
slowed, which is a relief,” says Harsha Basnayake, the firm’s
market leader for transaction advisory services.

“We continue to recruit senior assurance and
advisory staff. It is tough to get resources for all of our
advisory businesses.”

“Trainee numbers this year will be lower than
the last two years as attrition is down.”

With insufficient local accountants available,
E&Y Singapore employs overseas staff from India, Europe,
Malaysia and the Philippines. These include secondments and direct
hires. Most direct hire international CPAs are from Malaysia and
India. European staff mostly come on secondments.

“It is no problem to hire European CPAs as
Singapore is an easy environment, comfortable to live in and we
have been able to keep salary expectations steady. We offer
acceptable local packages to foreign staff,” Basnayake says.

Staffing has been a particular issue for
E&Y Singapore in terms of building its transaction advisory
practice. The firm started building transaction advisory services
four years ago and has faced difficulties hiring talented staff for
the past two years. The situation has eased recently as the global
economic downturn has resulted in better applications being

“During the past two years it has been
difficult to find talent. But since the economic crisis the number
and quality of CVs has improved,” Basnayake remarks. “People who
did not look at us two years ago are looking as they see us as
being more stable. Previously they were going for financial
services and banking jobs.

“High quality people want to join accounting
and our local package is sufficient to attract European
accountants. There is no need for us to offer expatriate packages.
Besides, Singapore is a global city with exciting career