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www.InternationalAccountingBulletin.comAugust 2014 Issue 540

The influence of politics on the profession

● US Senate divided on accrual accounting ● The OECD’s Base Erosion and Profit Shifting Action Plan

● Accountancy key to opening up Cuban economy ● Mexico and India surveys

The issue of politics

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Editorial Advisory BoardKevin McGrath, Crowe Horwath International CEOKevin Arnold, Nexia International CEOGeoff Barnes, Baker Tilly International president and CEOGraeme Gordon, Praxity executive directorStephen Jacobs, INPACT International presidentJon Lisby, Kreston International executive directorJames Mendelssohn, MSI Global Alliance, chairmanChristian Mouillon, EY global vice-chair, assuranceEd Nusbaum, Grant Thornton International CEOMichael Reiss von Filski, Geneva Group International CEOLiza Robbins, Morison International CEOMartin van Roekel, BDO International CEOJean Stephens, RSM International CEORobert Tautges, HLB International CEOPauline Wallace, PwC head of public policy and regulatory affairs

NEWS 02-04

CONTENTS

■ US Senate divided on accrual accounting for tax purposes

■ BDO heads towards $1bn mark on the back of 2014 growth figures

The issue of politics

EDITOR’S LETTERInternational Accounting Bulletin

FEATURES 05-10

COUNTRY SURVEYS 11-20

O5-07:BEPS ACTION PLAN

At the eve of the first deadline for action from the OECD’s Base Erosion and Profit Shifting Action Plan, hesitation in the business world and scepticism among critics are calling the mission into question. How the plan performs in this first test will likely determine its ultimate success, reports Isabella Grotto

11-16: MEXICO

Despite pressure from a new tax regime, expected reforms in the energy and telecoms sectors offer hope for domestic and international investment, reports Gundi Jeffrey reports

O8-10: CUBA

A new law aimed at luring foreign investment into Cuba may bring unprecedented opportunities for the accountancy profession, but pose further questions about how a communist economy can coexist with the rules of the free market. Carlos Martin Tornero investigates

17-20: INDIA

A newly elected government, extensive regulatory changes planned for the next four years and the economy picking up are the ingredients fuelling the return of optimism in the Indian market. Vincent Huck reports

Politics is not discussed deeply often enough in International Accounting Bulletin, despite every country survey we publish or trend we analyse having a political angle to the story. Politics’ effect on the profession isn’t to be underestimated and while government oversight and direction can often assist the profession and aid its accountability, often politics can slow down and hinder the pro-fession.

After a lot of discussion and very, very slow change – take the Company’s Act which was pending for years – India now has a fresh start with a majority government for the first time in 30 years, under the leader-ship of Narendra Modi, whose job govern-ing a nation of over a billion isn’t easy, but, nevertheless, sweeping changes for the better are expected from his administration.

With the election over, there’s increased optimism among the profession as firm leaders tell IAB reporter Vincent Huck of rumours that the government is already looking at reducing the compliance burden imposed by the Companies Act. Who gov-erns, and how, the country with the second-highest number of inhabitants is vital and the profession feels this might be the long-awaited breath of fresh air for India and the push towards a better society. To examine the change in politics and other trends in the profession read the full article on pages 17 to 20.

Another country with an election buzz is the US and with President Obama into his second term new candidates are starting to emerge on both sides in the campaign for victory in 2016 – and their views on some of the key business issues are going to be very relevant to many in the profession.

An important issue in the run-up to Elec-

tion Day will no doubt be the candidates’ views on tax, especially linked to large US corporates and their tax bill, or the lack of it. Tackling tax avoidance has been a G20 resolution and this month Isabella Grotto closely examines the Organisation for Eco-nomic Co-operation and Development’s Base Erosion and Profit Shifting action plan which, if and when actioned, is likely to change current tax planning practices sig-nificantly, as well as potentially change the economic landscape of certain low corporate tax economies.

Tax experts speaking to the IAB do ques-tion the prospect of change, especially if political will were to waver in countries such as the US. Until more is known the profes-sion and tax advisors within firms remain caught between the rules and public percep-tion, which has, for the time being, moved the debate from a legal ground to a moral one. Read more on pages 5 to 7.

Lastly, but perhaps most affected by poli-tics, is Cuba and its profession, which Carlos Martin Tornero closely examines this month covering its prospect for business develop-ment by accounting networks and associa-tions. After half a century of communist rule and, as far as IAB can gauge, with a single foreign-educated CPA in the country, there’s little profession to be talked about, but as Fidel Castro has long since passed the reins to younger brother Raúl, and with this year seeing the Foreign Investment Act intro-duced, the profession might just have to come out of the shadows and surf that small wave of change. Read the article in full on pages 8 to 10. London.

Ana [email protected]

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NEWS International Accounting BulletinROUND-UP

LinkedIn Group World Accounting Intelligence

Twitter WAI_News

Facebook page World Accounting Intelligence

Join our online community

IAB ONLINE – AUGUSTTop 5 articlesEY makes global executive

appointments

Singaporean law firm joins PwC

Many in US Senate oppose accrual

accounting for tax purposes

Cuba eyes opening up accountancy

market and profession

KPMG US acquires AXIA Workday

Consulting Practice

Most retweeted articleFTSE 350 audit tenders set to

double in 2014: PwC UK

Read in 164 countriesUK 31%

US 12%

Malaysia 8%

Singapore 8%

Hong Kong 5%

Rest of the world 36%

GLOBAL

EY makes global executive appointmentsEY has appointed Uschi Schreiber

as global vice-chair for markets

and chair of the global accounts

committee. The role sits within the

network’s most senior management

body, according to EY. Prior to her

new role Schreiber was EY’s global

sector leader for its government

and public service practice from

2010 to 2014. The appointment

makes Schreiber the fourth woman

on the global management team.

George Atalla, who joins the

firm from Booze & Co, is to succeed

Schreiber in the role of global sector

leader for its government and public

service practice. Atalla’s previous

role was vice-president at Booz &

Co, where he led its government

and public sector practice across

the Middle East and Africa regions.

Booze & Co was acquired by PwC

earlier this year and rebranded as

Strategy&.

EY has also appointed Jay Nibbe

as global vice-chair – tax, leading

more than 35,000 tax professionals

around the world. Nibbe chairs EY’s

tax executive committee and is also

a member of EY’s global executive,

the organisation’s highest

management body.

UK

FTSE 350 audit tenders set to double in 2014: PwC UKAmong the UK FTSE 350 there could

be as many as 56 audit tenders in

2014, compared to 30 tenders in

2013 and 18 in 2012, according to

PwC UK data.

The data indicates that as many

as one in seven FTSE 350 companies

could put their audit contract out to

tender this year. As of 8 July,

17 companies had completed

tenders this year, 14 tenders

had kicked off and seven more

companies had put out notifications

that they are considering tenders,

according to the Big Four firm.

“There are 18 other companies

expected to review their audit

arrangements,” PwC said.

PwC UK said these numbers

indicate that companies are taking

action before the EU rules on

mandatory rotation require them

to change auditors, as well as in

response to the Financial Reporting

Council’s “comply or explain” ten-

year tendering regime becoming

active on 1 October 2012.

PwC UK head of assurance James

Chalmers said: “Now that there is

greater clarity on the implications

of the EU rules, companies are able

to make decisions on when to tender

at a time that makes most sense for

their particular circumstances. For

some, that means going early, for

others it means going later, but –

crucially – the choice is still theirs

to make.”

UK

FRC to investigate Grant Thornton UKThe UK Financial Reporting

Council (FRC) is to pursue an

investigation of Grant Thornton

UK’s preparation, approval and

audit of the financial statements

of AssetCo, a management and

resources provider to the fire and

emergency services in the Middle

East. The FRC will look at Grant

Thornton UK’s audits of AssetCo for

the years ending 31 March 2008 to

31 March 2010.

A Grant Thornton UK

spokesperson said: “I can confirm

we have received a letter from

the Financial Reporting Council

informing us of its decision to

commence an investigation, and we

will, of course, fully cooperate in

this matter.”<

NEWS ROUND-UP

MOVERS & SHAKERS

Deloitte US chief executive officer

Joe Echevarria is to retire this

month to pursue work in public

service. Elected in 2011, Echevarria

will leave nine months before the

end of his four-year mandate and

will not be standing in the coming

term. Echevarria has worked

for Deloitte since 1978. Active

over the past few months within

organisations such as the Fix the

Debt campaign and the senior

executive association Business

Roundtables, Echevarria said in

a statement he had “determined

that this is the right time in my life

to pursue my passion for public

service.”

Deloitte US has appointed

current chief operating officer

Frank Friedman as interim chief

executive.

DFK International has appointed

Demetris Demetriou as the

association’s global president.

Demetriou takes on the role in

his 20th year of being part of DFK

International as co-founder of

audit and accounting firm DFK

Demetriou Trapezaris, based in

Nicosia, Cyprus. He is the first

member from Cyprus to be made

president of DFK International.

MSI Global Alliance has appointed

Timothy Wilson as its chief

executive officer. Wilson was

formerly director of membership

at Abbeyfield, an international

care home provider, where he

helped support more than 200

independent care homes. Before

joining Abbeyfield, Wilson served

in the armed forces for 28 years,

leaving with the rank of colonel.

His army career included tours

in Bosnia, Cyprus and Northern

Ireland and heading a 900-soldier

task force in Iraq.

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NEWSInternational Accounting Bulletin ANALYSIS

US

US Senate divided on accrual accounting for tax purposes

Nearly half of US Senators, 46 out of a 100, have signed a letter to the chairman and rank-ing member of the Senate Finance Committee opposing a switch to accrual accounting for tax purposes.

The letter responds to the proposals of the Cost Recovery and Accounting Discussion Draft published by the US Senate Finance Committee in November 2013, which forms part of a broader tax reform under consid-eration by the US Congress.

The discussion draft suggest that all busi-nesses with average annual revenues of $10m or less will be allowed to choose to adopt either a cash or accrual accounting method, while businesses with average annual rev-enues of more than $10m will be required to adopt accrual accounting.

The Senators’ letter stated: “As the Finance Committee develops its comprehensive tax reform package, we ask that you consider the negative impact that this proposal would have on the professional services sectors as

well as farming and ranching businesses. Requiring more businesses to use the accrual method of accounting would create unneces-sary complexity in the tax law and substan-tially increase compliance costs.”

In addition to the substantial cost of changing accounting systems, businesses would also be burdened by having to pay tax on income before it is actually received, the Senators argue. In their letter, they take the examples of professional services businesses, which include CPA firms, which must pay their employees and fixed operating expens-es regardless of when their clients pay them.

They also took the example of farms and ranches which they say would face additional complications because under accrual account-ing “growing crops and raising livestock are considered production activities that would have to be accumulated as inventory and deducted when the commodity is sold”.

The Senators wrote that in both the case of professional services businesses and farms

and ranches, the acceleration of the business’ tax liability combined with the inability to match revenues with expenses would force businesses to borrow money to meet their tax liability.“The basic tenet of taxation is ‘ability to

pay’,” they wrote. “Forcing businesses to rec-ognise income before they receive payment violates this basic tenet.”

A spokesperson from the American Institute of Certified Public Accountants (AICPA) said: “The AICPA’s view is that any tax reform should meet two tests: simplicity and fairness. The accrual requirement fails on both counts. It is under consideration only because it would allow the government to collect revenue from affected businesses sooner – although it would put those busi-nesses at a serious economic disadvantage by doing so.”

The US Senate Finance Committee was not available for comment at the time of publication.<

PwC Singapore has entered a tie-up with local law firm Camford Law, which will see the business join PwC global network as an independent member firm. Services provided will include corporate and commercial restructurings, entity governance and compliance, and mergers and acquisitions.

PwC said the new addition means that globally there are now more than 2,400 lawyers in 80 countries in the PwC network.

Baker Tilly International has added

Tokyo-based firm Nihombashi

Corporation to its network.

Founded in 1952, Nihombashi

Corporation provides audit services

through 12 partners and 40 staff.

Geneva Group International (GGI) has added member firms Walker Davey and Blackmore Virtue & Owens in New Zealand.

GGI also added German firm FACT Wirtschaftsprüfungsgesellschaft to its association. FACT was founded in 2007 and is based in Kassel. The firm offers tax, audit and accounting services in German, English and French through five partners and 46 staff.

Nexia International has added

Georgian firm Nexia TA to its network.

Nexia TA, based in the capital Tbilisi,

is the network’s first firm in Georgia.

It provides audit, accounting, tax,

consulting and valuation services

through two partners and eight staff.

RSM International has added three correspondent firms in Benin, Cameroon and Burkina Faso. The new firms, Cameroun Audit Conseil (Cameroon, with an office in Congo), Canal Audit SARL (Benin), and Seccapi SARL (Burkina Faso) have increased RSM’s presence in Africa

by 25%, according to the network.

BDO UK has acquired the UK team of

US-based business strategy company

MorganFranklin Consulting. The

eight-person team, led by former

managing director Hans Christian

Iverson, will become a part of BDO

Consulting’s financial management

and technology branch.

BKR International has added Xinjiang Fangxia CPAs, a Chinese professional services firm based in Urumqi, as a member. Offering audit, tax and other professional services, Xinjiang Fangxia CPAs was founded in 2004 and has six partners and 39 members of staff.

KPMG US has acquired the Workday

Consulting Practice from AXIA

Consulting, the technology and

business consulting provider.

According to KPMG, the move

will strengthen its business

transformation support capabilities

through its alliance with Workday, an

enterprise cloud application provider

for both finance and human capital

management.

HLB International’s Greek member firm HLB Hellas has expanded into the city of Thessaloniki in Northern Greece . The new office will offer accounting, business advisory, payroll and consulting services.

Reanda International has expanded

its representation into Taiwan

by adding Reanda M Y Wu & Co

to its network. The Taiwanese

firm was founded in 2000 and is

headquartered in Taipeh with a

branch office in Taichung. The firm

is managed by four partners and

provides audit, tax, consulting and

financial advisory services through a

total staff of 21.

FirmMovements

IAB 540v2.indd 3 22/08/2014 13:46:17


NEWS ANALYSIS

BDO US has announced a 22%, $150m increase in its annual rev-enue to 30 June 2014, with fee income totalling $833m. BDO US

chief executive Wayne Berson tells IAB the firm has its sights firmly set on reaching the $1bn mark in annual revenues.

The firm’s advisory services performed particularly well, marking a 23% increase in revenue, while tax and assurance fol-lowed at 22.7% and 21%, respectively.

The results show growth has doubled since 2013, when BDO US’s reported rev-enue increase was 11%, totalling $683m.

Among the firm’s service lines, BDO’s assurance services provide the lion’s share of the firm’s business at 58% and are worth $483.2m. Tax services represent the second-largest service line at 32% and $266.6m, while advisory counts for 10%, weighing in at $83.2m.

Overall growth was fuelled in equal parts by service-demand driven organic growth (11%) and successful expansion strategy (11%), explains Berson.

Alongside a general trend towards recov-ery in the economy, increasing demand for succession strategies has provided fertile ground for the firm’s inorganic growth in the US.

“When you look at the number of accounting firms in the US you have rough-ly 45,000 firms and of those firms roughly 2,000 have more than 25 people, so there are not a lot of firms that are large firms,” Berson explains.

“When you take those 2,000 firms and you look at the ages of the partner group, you’ll find that about 60% of those part-ners are over the age of 50 and the majority of those firms don’t have succession plans.”

As such, he says: “The opportunity is to create a win-win situation where you have a firm that doesn’t have a succession plan, that needs to do something to sustain the firm, and BDO is looking for opportunities to grow in certain markets, so if there’s a

firm in a market that we’re interested in growing in, it’s a win-win situation: they come in to us, they can thrive in our envi-ronment and we benefit from bringing in additional talent.”

This expansion strategy, exemplified over the past two years, has garnered sig-nificant attention within the industry and is praised by Berson for contributing to the firm’s overall growth surge.

He says: “If you look at the US in the calendar year 2013, there were 93 deals with accounting firms in calendar 2013

and we did five. We’ve done nine since I took over as chief executive in 2012. No other top-100 firm did more than two, so we are doing more deals than anyone else.”

According to Berson, the upsurge is not solely attributable to an aggressive expan-sion strategy: “We are seeing a tremendous amount of interest from the firms; they’re calling us. It’s not only us going to the firm; we’re getting them approaching us.”

Moreover, he adds, a changing regula-tory environment has increased opportuni-ties in sectors such as health care: “There is a tremendous amount of opportunity in the health care industry.

Regulation has changed and created opportunities for all of us and what we try to do is position ourselves in the right way so we’re there to take advantage of oppor-tunities.”

With possibilities for investment finally on the rise, and an eye set on sustainable growth, BDO is also looking to reinvest some of these profits into the business itself, says Berson. “What we’re trying to do is look for the long-term sustainability of our firms and look at the opportuni-

ties,” he says. “So looking at geography, where we need

to be in the country, looking at industries that have potential for future growth, what we’re trying to do is plough some of the profits back into the firm, as opposed to taking everything out.”

People and future goalsWhile remaining optimistic about the firm’s prospects, Berson recognises multi-ple challenges facing BDO over the coming years. Among them, the biggest challenge

is posed by human resources. “I would say number one would be people – getting the right people in place,” he says. “We’re growing, so we’re looking for more talent all of the time, and then I would say it’s picking out the best opportunity.”

Looking to the future, however, there’s one particular goal Berson has his sights set on: “I would like to see us over a bil-lion dollars, I think that’s a key statistic to get to.”

“I don’t think bigger is always better,” he adds. “But in this situation I do believe there’s a certain level of respect that comes from being over a billion dollars.

“When you look at BDO internationally we are the fifth-largest network. There is a substantial gap between five and six, but not in the US. We want to get bigger in the US. Currently in the US we’re number seven, but we’re making inroads.”

And with projections for next year including “probably about 8-9% growth” and “an acquisition or two”, Berson’s $1bn goal looks well within reach. “We’re looking forward to the next year,” he con-cludes. “It could be good.” <

BDO US heads towards $1bn revenue mark on the back of 2014 growth figuresBDO US chief executive Wayne Berson tells International Accounting Bulletin about the drivers of the firm’s 22% revenue increase and the future opportunities and challenges in the market.

“When you look at the number of accounting firms in the US you have roughly 45,000 firms and of those firms roughly 2,000 have more than 25 people, so there are not a lot of firms that are large firms,”Wayne Berson, BDO

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FEATUREInternational Accounting Bulletin TAX

The hangover from the economic cri-sis is still gripping the world’s major financial centres. Double-dip reces-sions, struggling employment fig-

ures, stunted growth and low employment still blight the economic landscape of the world’s largest financial systems.

Similarly, the public opinion backlash against murky corporate practice remains virulent, with the recent spate of big- business tax scandals serving only to fan the flames of taxpayer fury.

Such sentiments are widely credited to be behind the strict deadline the Organisation for Economic Co-operation and Develop-ment (OECD) has been given to start show-casing the fruits of its 15-point action plan for the counteraction of Base Erosion and Profit Shifting (BEPS). Published in July 2013, the first outputs are scheduled for next month and exactly how much progress has been made will be considered a strong indi-cation of the fate of the rest of the project, set for completion by the end of 2015.

Many in the industry are thus looking

to the September developments with bated breath. Next month’s actions’ success in their aim of bringing greater clarity, enforcing stricter regulations and, in general, heralding meaningful change, will determine to a great extent the confidence in, and support for, the action plan throughout next year’s crucial time frame.

With the nature and the scope of the changes’ impacts to an extent still unclear, businesses have pronounced themselves in turn sceptical and wary. While most are dragging their feet, some are reportedly “jumping the gun” in an attempt to outrun the confusion they believe will follow the action plan’s implementation.

In other circles, some remain critical of measures they see as too lenient towards a system they believe to be inherently flawed – one that should be hollowed out and rebuilt, rather than patched up and further built upon. Meanwhile, others question whether political support for the plan will last the duration of its implementation, amid realisations that a waning in the

commitment of governments such as the US’s might well be fatal to the entire policy.

However, the OECD’s plan remains an ambitious, well-intentioned project, intent on shining a l ight on a vital aspect of trade too long overlooked and correcting imbalances that have a massive impact on the world economy. Despite the uncertainties that remain around its implementation and eventual success, there remains a general consensus around the need to address the issue of tax discrepancies across jurisdictions.

International standardsInstitute of Chartered Accountants of England and Wales (ICAEW) tax faculty head Frank Haskew describes the OECD’s efforts as an attempt to introduce “a set of rules that countries can sign up to”, which could provide “international standards” for taxation, and despite the criticism that has been levelled by some, he adds: “You have to start somewhere”.

Grant Thornton International global

Fair corporate tax regime faces uphill taskAt the eve of the first deadline for action from the OECD’s Base Erosion and Profit Shifting Action Plan, hesitation in the business world and scepticism among critics are calling the mission into question. How the plan performs in this first test will likely determine its ultimate success, reports Isabella Grotto

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FEATURE International Accounting BulletinTAX

head of tax Francesca Lagerberg agrees. “The whole idea behind it,” she explains, “was how to address the long-ongoing issue about how do you deal with the fact that tax operates so differently in so many different jurisdictions and the general perception that it was possible for multinationals, corporates and people in general to go around the world and find lower tax jurisdictions.

“So it is driven by a sense of fairness and proportionality. There’s some good strong rationale for what the OECD is really trying to achieve.”

Moreover, she adds: “The OECD is the go-to organisation to try and deal with these large international tax changes, because even though not every country belongs to the OECD, it’s obviously hugely influential with the larger countries, but also has great credibility in this area.”

However, she adds: “They have given themselves an enormous challenge – a hugely complex project to deliver in a really short timescale.”

Haskew agrees the OECD and the international community “has to be the right place to start”, and praises the fact that rules have been introduced incrementally. However, in terms of the effect such changes will have on the international tax system in general, he cautions that the action plan is unlikely to succeed in entirely ridding the international trade system of the tax strategies it seeks to combat.

Ultimately the deciding factor remains the individual’s attitude to risk, he warns. There will always be a demand for tax-evasion strategies. Those who have “an appetite for risk” will continue to seek them out and are likely to continue to find advisors willing to assist them in doing so.

Limitations of the planDespite recognising the Action Plan’s potential to be “a comprehensive reform of international tax, closing off the opportunities for tax arbitrage and tax avoidance”, as well as “providing companies with a clearer set of rules”, Tax Justice Network senior advisor Professor Sol Picciotto says his organisation was hoping for a far further reaching reform.

“From our point of view the OECD, although they do seem determined to have a very extensive reform, are not really re-thinking the basis of the system, which is

what we think is necessary,” Picciotto says.He explains: “The basic problem is that

the international tax rules were designed 80 years ago, a period when international inves tment was ma in ly por t fol io -investment. Since then multinational companies, integrated companies have developed and they operate, really, as unitary firms, but the rules are still based on the assumption that you’ve got an investor in one country and a business in a different country.

According to Picciotto, not only does this system allow for the existence of loopholes, but it “actively encourages companies to set up separate entities, because the principle is that each entity in each country should be treated separately.

“What we say is that they should really

change that basic principle, instead of trying to treat a multinational company as if it was separate entities in different countries. It should treat it as a unitary entity.”

Lagerberg at Grant Thornton disagrees: “[The OECD] have been very open and transparent about where they could go with this,” she says. “These are pretty significant changes they are looking to put forward, and rather than rip everything up and start again, they want to try and build on the things they think are working pretty well at the moment.”

Ethics and auditsDespite disagreements around their scope, the changes the regulation will introduce are nonetheless widely acknowledged as significant, with accountants and

How likely is a unitary principle in the future?

While it may appear radical to some, the Action Plan proposed by the OECD to tackle BEPS appears woefully insufficient to the coalition of researchers and activists who make up the Tax Justice Network.

Tax Justice Network senior advisor Professor Sol Picciotto speaks to IAB about how likely it is that the OECD will introduce the desired, far more extensive changes pushed for by the network.

What approach does the Tax Justice Network advocate for the OECD?We’ve urged them to adopt what we call a unitary principle, to treat companies as a uni-tary entity and to allocate the profit, or apportion the profit, according to the activity in each country, but they say that would be too drastic a change and they want to stick to the existing ‘separate entity’ principle, but we think that would just be a patch-up, really.

A unitary approach wouldn’t require countries to align their rates of corporate tax. They would simply apportion the profits according to the real activity, and then each country could levy whatever rate of tax it wanted. Some people think in fact the effect of a shift to a unitary approach might lead to a reduction in corporate tax rates, but that would be a legitimate trade-off to a country to decide. At the moment what’s happening is that some countries are poaching tax base illegitimately from other countries. And they’re allowed to do that and encouraged to do that by the separate entity principle.

To what extent will the OECD Action Plan address imbalances in the international tax system?We hope the OECD will stop a lot of those gaps, so that the poaching of tax base will gradually be phased out. The problem we see in the OECD’s refusal to accept the unitary principle is that their proposals will be very complicated and might lead to a number of new opportunities for avoidance. So we think a more comprehensive approach would be simpler to administer.

The Action Plan doesn’t do much to simplify the existing system?No it probably won’t simplify [the existing system]. We’re still hopeful that once they look at the issue of deductibility perhaps they will decide that doing it on a consolidated basis would be a better approach. But we’ll have to see and certainly there’s a lot of resistance in the tax advisory profession to that kind of comprehensive approach, because they are so wedded to the existing system.”

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FEATUREInternational Accounting Bulletin TAX

advisors likely to see their profession among the most affected.

“The bigger picture for the professional services firm is: as these rules begin to develop, how do you help your clients work out what to do next?” says Lagerberg.

“A lot of international organisations, a lot of international corporates, have set up their structures on the basis of existing rules They had defined goals, defined objectives, they knew how the rules worked, but the rules are going to change,” she explains.

“So the whole piece at the moment is how you make sure that a client is kept abreast of the changes that may happen, but doesn't jump the gun by doing something before the rule changes are really fixed and you know where you’re going.”

More generally, she adds, it’s important for advisors to be “aligned to the fact that the world is moving on and that in international taxation most of the existing rules will be tweaked, if that comes in all its first guises.”

With the focus shifting increasingly onto corporate social responsibility, Haskew at the ICAEW adds: “Reputations are at risk. Tax is becoming a bigger issue in the boardroom. People want to know what tax policies are in place, what systems are in place, and what the risks are.”

As such, he adds, there’s an increasing pressure on the e th ica l s tandards maintained by those involved in assisting decision-makers in the industry, a pressure compounded by regulation such as that proposed by the OECD.

“There will be a greater pressure placed on ethics”, says Haskew. Lagerberg agrees: “I think it does raise the bar, in the sense that you have a lot of things happening in this particular area which are very driven by government standing back and saying ‘is this right, is this appropriate?’

“When you aren’t just looking at the hard law, but you’re looking at how you’re perceived in the public arena, that’s quite a brave new world,” she adds. “I think that’s something that has come through very strongly in the whole ‘Starbucks, Amazon, Google’ debate.”

Various impactsAs far as the overall effects of the action plan’s policies go, the impact looks likely to vary greatly between countries, industries and even business sizes.

In par t icu lar, low corporate tax economies are likely to feel the brunt of a crackdown on what have been described as “aggressive” tax policies.

Picciotto says: “I think obviously they would be affected. I think they would have to change their model if there are some significant changes made.

“Basing your economy on basically poaching other people’s – the ‘beggar thy neighbour’ approach – offering facilities which give you a small benefit but then harm a lot of other countries, isn’t actually very constructive in the longer run.”

However, determining whether a country is engaging in harmful tax practices can be complex in itself. Picciotto highlights the case of Ireland, a jurisdiction well-known for its low corporate tax rate: “Ireland, for example, does have some legitimate bases for attracting real investment and it has got some real investment.”

He explains: “It’s perfectly legitimate for Ireland to have a low rate of corporate tax, that's fine. I think what’s harmful about Ireland, or Luxembourg or Switzerland for that matter, is if they offer tax preferences which essentially poach other countries’ tax base.”

Dramatic effectLagerberg agrees the measures , i f implemented , wi l l impact on such economies. “That’s probably going to be the most dramatic effect,” she explains. “If you are a very low tax jurisdiction, is it going to mean you have to make some significant changes so that there’s a level playing field for all? All the detail of how that’s going to work isn’t clear yet.”

“We still don’t know exactly how this is all going to work,” she cautions, but adds that the policies are almost certain to introduce challenges for some governments.

Among businesses, smaller corporate entities are likely to suffer more if they are required to modify substantially their approach to taxation. Lagerberg explains: “In some ways the larger the corporate, the easier it might be for them to deal with [the changes].”

She says there is some apprehension among “the more traditional businesses that are big enough to be dealing with some complex issues, but not so big that they have a huge army of people that can help with such issues.

“They’re the ones who are quite concerned about this, because they say: ‘Well I can see why it’s happening, I can understand what’s going on, but where’s this going to go? What’s it going to mean for me? How am I going to cope with it?’”

Some answersDespite the current uncertainty, observers in the industry are expecting some answers to be delivered next month. Lagerberg says: “When we see how the G20 are taking to the initial proposal, I think that’s quite a good stage because we’ll get a good idea of which direction it’s heading in.”

Haskew warns: “If countries don’t comply, the international taxation system does risk going back to square one.” In particular, he says: “A lot depends on the US’s stance”. If the US government were to withdraw its support it could spell doom for the OECD’s action plan.

One thing is certain, political pressures and drivers are among the most important indicators observers in the industry will be looking out for next month.

“All change provides opportunities,” says Lagerberg, and the coming ones are no exception. “For an advisor it is an opportunity to really help clients navigate their way through the various complexities that are going to come.

Hopef u l ly i t w i l l un rave l some complexities too and provide greater transparency,” she adds. “One of the potential upsides of all of this is that if things work the way they could work you could get a lot of countries operating in a far more consistent way.”

A downside for professional services, conversely, is provided by “the difficulty of the unknown”, explains Lagerberg. “You know things will change, but how far, how much...you don’t want to be putting somebody into another stretcher that doesn’t work.”

In particular, she says: “You know that there’s going to be quite a heavy impact, particularly in those mid-sized multinationals, because they have fewer resources, fewer capabilities to deal with these things. So giving them the best advice to help them with that is challenging.”

For the time being, though paved with good intentions, the road to consistency appears just as clouded to businesses as to their advisors. <

IAB 540v2.indd 7 22/08/2014 13:46:18


FEATURE International Accounting BulletinCUBA

The intellectual author of the Cuban revolution was José Martí, said Fidel Castro representing himself at his trial for the assault on the Moncada

Barracks on 26 July 1953.This first, but faulty, armed strike

against President Fulgencio Batista’s rule, who had regained power through a coup a year before, unfolded into a six-year long revolution which transformed Cuba into a communist country.

In his four-hour-long defence speech, Castro quoted not only freedom fighters such as Martin Luther King or José Martí, the “apostle” of Cuba’s independence from former Spanish colonial rulers, but delved into history and quoted philosophers and intellectuals such as Saint Thomas Aquinas, Jean-Jacques Rousseau or the US Found-ing Fathers, who signed the Declaration of Independence.

“Condemn me. It does not matter. His-tory will absolve me,” he concluded in his defence statement. Castro served a prison sentence for some years until he was freed in an amnesty and exiled to Mexico, where he reorganised the armed revolution.

Fol lowing the unsuccessfu l CIA- sponsored attempt to stop the Cuban rev-olution in 1961, the Bay of Pigs invasion, Castro officially proclaimed Cuba a social-ist nation and said: “The revolution has no time for elections.”

He certainly kept himself very busy throughout his half century in charge, as well as preoccupying his northern neigh-bours. The US imposed an ongoing econom-ic embargo and put Cuba on the same foot-ing as Syria, Iran and Sudan, considering the country a “state sponsor of terrorism”.But winds of change are blowing through Castro’s Cuba, led since 2006 by young-er brother Raúl. The country is gradu-ally reforming its economic model and in March passed a new Foreign Investment Act intended to lure capital from abroad, improving a previous Act from 1995.

Russia might have already succumbed to the siren call of the new law, as Canada and other countries did some time ago. In June, Sherritt, a Canadian energy company renewed its production-sharing contracts for oil and gas with the Cuban government.

In July Russian President Vladimir Putin kicked off a Latin American tour with a visit to the island announcing a closer rela-tionship with Cuba and help from Russian oil company Rosneft to explore its offshore reserves. The Russian government, once its strategic partner during the Cold War years, announced ahead of Putin’s tour that it would write off 90% of Cuba’s $35bn debt, with the remaining sum to be reinvested in the island in the next 10 years.

Similarly China’s president Xi Jinping also stopped over in Cuba to reaffirm their

commercial relationship in July. China is Cuba’s second main trading partner, after Venezuela.

But the US is discretely glimpsing into its backyard to see how the situation evolves. In May the US Chamber of Commerce sent a delegation of corporate leaders led by its president Thomas Donohue. With Dono-hue travelled Marcel Smits, the CFO of the biggest US private company, Cargill Cor-poration. The trip was authorised by the US Treasury Department. The aim of the delegation was to develop a better under-standing of the country’s current economic environment and the state of its private sec-tor, according to the Chamber.

“We want to learn more about these reforms, determine if they have brought about real and lasting changes, and find ways to encourage Cuba’s budding pri-vate sector,” Donohue said before leaving for the island.

Nascent professional services marketThose economic reforms could be boosted by the new law, which proposes three types of direct investment vehicles: joint ventures, companies with 100% of foreign capital, and international economic association agreements. The latter doesn’t create a new entity and notably features a special type for professional services.

The law says those agreements “shall be

Accountancy profession could be key to opening up Cuban economyA new law aimed at luring foreign investment into Cuba may bring unprecedented opportunities for the accountancy profession, but pose further questions about how a communist economy can coexist with the rules of the free market. Carlos Martin Tornero investigates

IAB 540v2.indd 8 22/08/2014 13:46:21

FEATUREInternational Accounting Bulletin


CUBA

signed with foreign companies of interna-tional renown” to provide joint auditing, accounting advice, valuation and corporate finance among other services.

“We’re looking for alliances with interna-tional firms, particularly associations with which we can partner and jointly render services here,” says CONAS audit director Juan Carlos Vázquez Ávila.

CONAS is one of the five national audit firms currently operating in Cuba. CONAS renders audit services through a separate arm, to differentiate auditing from the other services the firms offers, such as consulting, Vázquez Ávila says. Its portfolio of clients features many of those foreign investors that have already entered the market in Cuba, such as Sherritt.

“We audit joint ventures or foreign com-panies here using IFRS,” Vázquez Ávila adds. “They have to do it not just for tax purposes, but also to provide their inves-tors with independent audit reports, which allow them to take informed decisions. Then our audit opinion is used for prepar-ing consolidated financial statements within the parent company,” he says.

The law also grants an eight-year corpo-rate tax exemption and further tax benefits.

“There’s still some misunderstand-ing about the level of security the law is intended to offer foreign investors. We’re not saying this is a tax heaven, but during those eight years the company can recoup the investment and thereafter pay lower taxes – around 15% corporate tax, whereas for Cuban enterprises it stands at 35%,” Vázquez Ávila says.

Industry momentumFor Vázquez Ávila, the economic reforms are bringing momentum to the professional services industry in Cuba. Asked if there are any international networks or associa-tions with which talks to enter the market in Cuba are more advanced, he says: “A number of alliances and associations came here to assess CONAS’s potential to render consulting services. These are yet ongo-ing discussions, but hopefully in the near future we could make public strategic alli-ances reached with some of the firms that appear in your magazines [International Accounting Bulletin and The Accountant].”

Asked if that would include any Big Four firm Vázquez Ávila says: “CONAS has already worked with almost all the Big

Four in the past, including Arthur Andersen when they were the Big Five. That coopera-tion involved a number of technical tasks pertaining to the audit work of their clients’ parent company with subsidiaries in Cuba.”

But the Cuban foreign investment law says those international economic associa-tion agreements will enter into force once they are recorded in a public business regis-try, although the information is not publicly available with regard to foreign companies and joint ventures.

“Our partners and potential allies ask us for discretion because the US embargo has far-reaching tentacles,” says Vázquez Ávila. “The blockade chases everyone who approaches Cuba to do business. This make things a bit more complicated. Therefore those who have interests in the US or use the dollar as the currency of payment need to be very careful. To enter into Cuba they might need a subsidiary with no direct rela-tionship with the US.”

Recalling the repercussions of the recent visit paid by the US Chamber of Com-merce president, he adds: “I think there is mounting pressure on Obama to lift this 50-plus-year embargo.”

At the Asociación Nacional de Econo-mistas y Contadores de Cuba (ANEC), or National Association of Cuban Economists and Accountants, president Danilo Guzmán believes US businessmen are missing a huge opportunity.

“With this new law Cuba is taking steps to open up to the outside world and creat-ing the conditions for businesses to work without difficulties,” Guzmán says. “Many European, Latin American and Asian busi-nessmen have approached Cuba and are applying for permits to operate in the spe-cial economic development zone of Mariel.”

The success of the friendly investment framework set up by the new law will cer-tainly be closely related to the future of the recently expanded Mariel port, 50 kilome-tres from Cuba’s capital Havana.

In late 2010, Brazilian conglomerate Ode-brecht started the project, which according to the company includes an international terminal with the capacity to move one million containers annually. The work also involved improving the county’s road and railways infrastructure.

Odebrecht said in a statement that the cost of the project was $957m, of which $682m was financed by the Brazilian

Development Bank (BNDES). There’s also an agreement in place between the BNDES and the Cuban government whereby $802m should be spent on buying Brazilian goods and services.

A Singaporean company, PSA Interna-tional, won the tender to manage the inter-national container terminal. On top of that the Mariel zone offers further exemptions on customs and other taxes, according to the Cuban government.

One of the other five firms that offer audit services in Cuba is CANEC, which is asso-ciated with the national professional body ANEC. Guzmán also confirms there are international professional services firms interested in entering Cuba’s market with which there are ongoing talks. Spanish asso-ciation Antea is one of them, says Guzmán.

Antea chairman Antoni Gómez says he would indeed be interested in an agree-ment whereby a Cuban firm could become a member of the international association.

TrainingGómez says Antea could also devote an extra effort to training staff. He explains that when Auren (a Spanish international network and founding member of Antea) became a member of the Forum of Firms in 2013, it was an early adopter of the Interna-tional Standards on Auditing (ISAs) within their own staff and members firms. Based on its own experience, Gómez says Antea has the expertise to help manage the process of adopting international standards, includ-ing a wealth of filmed training courses on ISAs and IFRS, which would ease an even-tual training of Cuban staff.

“Having a correspondent in Cuba would be useful not only for our clients but for the foreign clients of Cuban accounting firms, who can be served more efficiently,” Gómez says. “But this would be dependent upon higher levels of foreign investment in Cuba.”

A pioneer in Cuba is the network HLB International, which as early as 1997 set foot on the island. HLB International’s member firm, Interaudit, is one of the five national firms that can conduct audit work and is led by Elvira Armada Trabas, who’s also a professor of audit at the University of La Habana. Interaudit has exactly the same status as all HLB International’s members around the world and receives work from other members of the interna-tional network, for example Venezuela. As

IAB 540v2.indd 9 22/08/2014 13:46:22

COUNTRY SURVEY International Accounting Bulletin


CUBA

the international network is a member of the Forum of Firms, Interaudit had to pass a quality assurance review to join, and be reviewed regularly.

“It has always been important for us to have a presence in Cuba,” says HLB International chief executive Rob Tautges. “It seems that the economy is going to open up at some point and I believe it’s good to be there when this happens.”

Big Four firm KPMG Dutch Caribbean confirms it has had an office in Cuba since 2007, although it wasn’t available for fur-ther comments at the time this publica-tion went to press.

ScepticismThere are still many who question the potential of the new law to build a robust enough framework to attract investor’s confidence in Cuba, and in particular the ability of the government to adapt to the dynamics of free market.

From Miami, international association Abacus Worldwide’s member firm Alberni Caballero & Company partner, Nestor Caballero, expresses his doubts about doing business with the Cuban government and says the foreign investment law still leaves a lot of unanswered questions.

“There was an existing law from 1995; they’ve just made this one a little bit friend-lier to foreign investment,” Caballero says. “But it poses the same risks as the old one, for example the government freezing assets. The first thing the communist regime did was to take all properties. They can change the law at any time. There are probably other places less risky to invest in.”

Caballero also casts doubts about the independence that Cuban accountants may enjoy when practising their profession.

“Yes, there are accountants in Cuba, but I don’t see how they can freely give an independent opinion without having to fear some type of repercussion. All accountants are basically government functionaries; they work for the state. To serve as a pub-lic accountant you have to be independent from your client. Until there is freedom I don’t think any accountant can really do their job,” Caballero argues.

Another point of concern for Caballero is that the law is discriminatory towards Cuban entrepreneurs as it doesn’t give them the same privileges granted to foreign investors. The law does not make clear if

self-employed Cubans could be an active player in the proposed foreign investment framework. He also mentions further con-cerns pointed out in a report prepared by a Miami-based organisation called the Foun-dation for Human Rights in Cuba.

The report claims the new foreign invest-ment law perpetuates alleged breaches of international labour conventions, in areas such as freedom of association or collec-tive bargaining.

“As an ironic paradox, the Cuban regime exercises its absolute power over the work-ing class with the complicity of foreign capitalists. It is a peaceful, disciplined and educated group of workers where strikes are unheard of. A trouble-free workplace is without doubt an important incentive to invest in socialist Cuba,” the report wryly states. For other sceptics of the law, dispute resolutions and the legal system remain additional thorny issues. The international business community has been closely fol-lowing the case of Canadian businessman Cy Tokmakjian, head of the transportation company Tokmakjian Group which has operated in Cuba for 22 years.

As a result of an anti-corruption inves-tigation Tokmakjian, 74, was arrested in 2011 and imprisoned since then. Last June at the trial Cuba’s attorney general charged him and several Cuban officials with charg-es of bribery, capital flight and tax evasion. Tokmakjian faces a 15-year prison sentence and $91m in damages, although assets worth that amount have already been seized during the investigation.

Searching for informationBut what is really known about the state of the profession in Cuba? From the round of interviews and various sources con-sulted for this report it turns out that the Cuban accountancy profession seems to be the great unknown.

The International Federation of Account-ants says it doesn’t have information avail-able on the country. Similarly, the Interna-tional Accounting Standards Board (IASB) lacks a jurisdictional profile on its website.

A spokesperson for the IASB, however, says those profiles are updated over time and didn’t discount having one for Cuba published at some point in the future.

The only global accountancy body with members in Cuba is the Association of Chartered Certified Accountants (ACCA),

which has just one member. However this one sole ACCA member doesn’t work as an accountant at present and therefore declined to comment on this report.

Despite this lack of knowledge about the Cuban accountancy profession, it can be argued that the leadership of skilful accountants would become a critical factor in making the Foreign Investment Act a suc-cess, implementing the reforms proposed by the government, and ultimately driving the liberalisation of the Cuban economy.

In that regard International Accounting Bulletin asked the World Bank if there is any capacity building project on the island. A spokesperson said that because Cuba is not a member, there are no projects or a dedicated country study programme there.

As for the global accounting profes-sional bodies, Cuba is also a stranger. The US Institute of Management Accountants (IMA) chief executive Jeff Thomson says IMA doesn’t have any contact or rela-tionship with Cuba.

“Interestingly enough, one of the very first IMA international chapters was estab-lished in Cuba before all the events in the sixties,” Thomson says. “The IMA has taken the policy that we can’t directly serve members in any country that’s embargoed. And the reason for that is because the pro-fession should rise above politics.”

Thomson continues: “If things continue to loosen up, some would argue that Can-ada and Cuba have a level of relations, so why not the US.

“But the bottom line is that if Cuba is going to evolve from a planned economy to a more competitive economy, my bet is they are going to need infrastructure. And an important part of that infrastructure is accounting and finance.”

Accounting, as the oldest and most uni-versal business language, may serve as a bridge of hope and understanding between the two sides of this story. <

■ CUBA’S TOP FIVE TRADING PARTNERS

Exports Imports

Canada 17.7% Venezuela 38.3%

China 16.9% China 10.8%

Venezuela 12.5% Spain 8.9%

Netherlands 9% Brazil 5.2%

Spain 5.9% *USA 4.3%

Source: CIA 2012 Factbook; (*)Despite the US embargo

IAB 540v2.indd 10 22/08/2014 13:46:23

COUNTRY SURVEYInternational Accounting Bulletin SOUTH KOREA


COUNTRY SURVEYInternational Accounting Bulletin MEXICO

Profession finds growth in adversityDespite pressure from a new tax regime, expected reforms in the energy and telecoms sectors offer hope for domestic and international investment, reports Gundi Jeffrey

Mex ico’s e conomy s t rugg led throughout 2013 and the first months of 2014, with GDP growth decelerating to 1.3% in 2013 and

forecast to remain weak at 2.4% in 2014. Despite the sluggish economy, many of the country’s accounting firms reported double-digit growth, once again finding opportu-nities in adversity. Meanwhile, new presi-dent Enrique Peña Nieto has introduced a slate of reforms to put the country back on steadier economic feet. But some of his reforms – such as his much touted tax pack-age – seemed to backfire, at least initially.

“The Mexican government has driven reforms aimed at altering tax regimes and practices that have historically been criti-cized for not promoting Mexican growth,” says Guillermo García-Naranjo, chief executive of KPMG Mexico. But he cites concern among business leaders surround-ing this reform, as a recent KPMG Mexico survey found that 97% of directors felt it had not met their expectations.

Crowe Horwath Mexico’s managing partner Pablo Mendoza explains that the government had expected this reform would be a revenue generator and reduce tax avoidance. “Unfortunately, after six months of existence, the expected results have not yet come,” he says.

“One of the biggest concerns for for-eign investment is the sudden increase of

the overall tax cost for doing business in Mexico. The repeal of all the tax incentives for manufacturing industry, as well as the restriction for many business deductions has had an impact on foreign investors. Mexico is no longer a preferred investment destina-tion when the tax costs are compared.”

Deloitte’s chief executive Francisco Pérez believes that, although fiscal reform is likely to have a positive impact on the Mexican economy in the long run “as it offers the potential to shift the economy to a new growth path, some measures may have an unduly strong impact [by adding a heavier tax burden] on small and medium-sized businesses and the middle class, particularly since the reform does not focus as much as it should toward reducing the informal economy.” Carlos Brito, managing partner of Enterprise Worldwide Mexico, believes the reform has both positive and negative aspects. “The main benefit should be the additional resources for the government to create investments, welfare and job oppor-tunities – the reform was aimed to increase tax collections initially by 13.2% in 2013,” says Brito. On the other hand, he feels high-er taxes will affect the sales of certain prod-ucts that have now become taxable, such as sugary drinks, junk food and pet food. Moreover, the increase in VAT, from 11% to 16% in the state that borders the US will also affect the consumption of goods and

■ MEXICO

At a glanceREVENUE

Most revenue: Deloitte, MXN 4,378.4mLeast revenue: EuraAudit Inter. MXN 8.3mHighest growth: Integra Inter., 64%Lowest growth: Alliot Group, -41%

STAFF

Largest workforce: Deloitte, 5,304Smallest workforce: EuraAudit Inter., 18Most partners: Deloitte, 261Most offices: UC&CS Global, 106

ECONOMIC INDICATORS

National GDP: MXN 9.8trNational GDP growth: 3.4%GDP per capita (PPP): 15,932Inflation (CPI): 3.7%Current Account Balance: -1% of GDPUnemployment rate: 4.8%Population: 116m

IAB SURVERY INDICATORS

Revenue per employee: MXN 625,361.6Staff density: 1 accountant per 4,160 ppl

Notes: Totals apply to IAB surveyed data only, this includes firms that belong to global networks and associations

Source: International Accounting Bulletin, IMF

IAB 540v2.indd 11 22/08/2014 13:46:26



MEXICO

services in the region.“The reform has imposed controls on

small business taxpayers, in terms of both higher taxes and controls such as the new mandatory electronic invoicing required from all suppliers, which should provide, over the short and medium term, more transparency about their operations,” he says. “On the negative side, the informal economy continues to flourish through ille-gal activities like music or films piracy.” The government has done nothing to curb these activities, he adds.

Baker Tilly Mexico’s general director Eduardo Ojeda fears the removal of some business deductions, such as certain labour expenses, will affect productivity, and a new tax on dividends is highly unpopular, but welcomes that other taxes have been eliminated, such as the IETU, a flat tax on business, and the IDE, a tax on cash bank deposits.

And Fernando Holguin, a partner at

CASADICT, finds there’s a silver lining to all of these tax changes. “This year should offer a lot of opportunities to accountants in terms of tax planning for clients, and help-ing them with appropriate internal controls and the preparation of new information for the tax authorities, such as a new receipt for payroll payments.”

EY Mexico chief executive Francisco Álvarez del Campo agrees. “We plan to help our clients understand all the changes in this tax reform and how the changes will affect their business,” he says. “The reform has both positive and negative aspects to it, but with our experience, we can help them comply and take advantage from the differ-ent benefits it does offer.”

One part of the tax reform eliminates entirely the Dictamen Fiscal, the statutory tax audit report that attested to the accu-racy of what companies had to pay in taxes. This audit was repealed for certain compa-nies some years ago and is now being abol-

ished for everyone, although larger compa-nies with revenues exceeding 100m pesos ($7.65m) can continue to have it prepared if they wish.

Mauricio Brizuela, as of 1 August the new managing partner of Salles, Sainz – Grant Thornton, believes this move will have no significant effect on his firm, “since the great majority of our clients are companies that are regulated by corporate governance and will continue to be audited for tax pur-poses, notwithstanding the disappearance of that binding obligation.”

While the Big Four also agree that this initiative won’t affect their operations, some of the smaller firms are incensed. Baker Tilly’s Ojeda says: “It’s hard to believe that the Mexican tax authorities have decided to dispense with the work done by public accountants – at no cost to the authorities – through the elimination of this report, which shows the calculation and payment of taxes. Now, their own legal, fiscal and

■ MEXICO

NETWORKS – FEE DATA

Rank NameFee income

(MXNm)Growth

rate

Fee split (%)

Year-endAudit &

AccountingTax

servicesManagement

consultingCorporate

finance

Corporate recovery/

Insolvency Litigation

support Other

1 Deloitte* 4,378.4 1% 51 29 14 6 - - - May-13

2 PwC*(e) 4,345.6 17% - - - - - - - May-13

3 KPMG* (e) 2,724.9 9% - - - - - - - Sep-13

4 EY (e) 2,627.2 3% 43 40 14 3 - - - Jun-14

5 Grant Thornton International* 429.1 6% 73 27 - - - - - Jul-13

6 Moore Stephens International* 378.0 14% 71 18 7 - - - 4 Dec-14

7 RSM International* 344.1 10% 80 16 3 - - - 1 Dec-13

8 Crowe Horwath International* 327.6 4% 59 33 1 3 - 3 1 Dec-13

9Enterprise Worldwide International*

290.3 11% 33 28 2 2 1 4 30 Dec-13

10 BDO* 269.0 4% 80 15 4 1 - - - Dec-13

11 Kreston International* 239.5 0% 47 26 10 3 1 - 14 Oct-13

12 Russell Bedford International* 221.9 11% 49 27 7 - - 2 15 Dec-13

13 Baker Tilly International* 216.7 8% 55 19 13 - - - 13 Dec-13

14 PKF International* 140.0 0% 64 27 5 - - - 4 Jun-13

15 HLB International* 118.0 7% 75 20 5 - - - - Dec-13

16 Nexia International* 110.0 –6% 53 38 3 - - 5 2 Jun-13

17 Mazars* 102.0 7% 90 6 4 - - - - Aug-13

18 MXGA – México Global Alliance* 81.1 14% 52 24 5 - - 1 18 Dec-13

19 AUREN* 60.2 21% 60 5 23 - 11 - 1 Dec-13

20 SMS Latinoamérica* 39.0 4% 75 15 10 - - - - Dec-13

Total revenue/growth 17,442.6 7%

Notes: (e) IAB estimates. Made on the basis of staff growth informtion provided to the IAB. *Disclaimer = Only data from the named member firm or the exclusive member firms within a network/association is included. Data relating to correspondent and non-exclusive member firms is not included.

Source: International Accounting Bulletin

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COUNTRY SURVEYInternational Accounting Bulletin


MEXICO

administrative departments will have to grow to do the extra work they will now have to do.”

Moore Stephens Marcelo de los Santos y Cia, on the other hand, feels this, too is an opportunity. According to Marcelo de los Santos, the firm’s managing partner: “We are offering our clients a new service – we will check their information before it is sent to the tax authorities.”

Although BDO Mexico’s managing part-ner Gabriel Llamas expects the loss of this work to reduce revenues for the audit and assurance division, he notes that his firm “will focus on its excellent relationships with clients, who are always aware of the requirements arising from the reforms adopted in the country, to develop new busi-ness and service lines.”

And CASADICT’s Holguin points out companies now have to prepare a “long” tax return that has to include most of the information formerly contained in the tax report. He says: “Companies have to pre-pare such information and, yet, in most cases, they are not trained to do this, so for sure they will contact their account-ant for assistance in the preparation of this information.”

Other initiatives currently being dis-

cussed in Congress and those that have already been approved include education, energy and telecommunications reform. Each of these structural reforms, says KPMG’s García-Naranjo, “aims to make the country more competitive and promote Mexico’s economic growth and develop-ment.”

President Peña Nieto has indicated that both the energy sector and telecommuni-cations sector are about to be opened up to domestic and international investment, and García-Naranjo believes this will help boost growth. “In short, Mexico’s econom-ic expectations are positive in all respects,” he says. “Our greatest challenge is to make these constitutional reforms materialise through secondary laws and regulations that truly address the issues of transpar-ency and corruption, which are fundamen-tal in gaining the trust of investors.”With all the changes on the way, the firms have invested in strengthening their advisory services to meet the new needs of their clients. Deloitte’s service offerings, says Pérez, “consider client size and organi-sational structure and are customised to recognise clients’ specific needs and risks. We have strengthened talent attraction within the public sector industry, sustain-

ability, regulation and enterprise risk ser-vices, and new partners have been admitted within consulting, enterprise risk services and the legal area as well.”

Carlos Méndez, chief executive of PwC Mexico, says that “being able to enhance the consulting practice within PwC allowed us to offer the highest value possible to our clients and stakeholders.” He acknowledg-es that the assurance practice faces a very tough competitive market, with severe pric-ing issues, and grew only about 7%. But, for financial year 2013, the consulting practice growth rate was around 17%. “This contin-ued growth in advisory revenues is driven by the increasing strength of the PwC brand in the area of strategy consulting and imple-mentation.” Also, the tax practice enjoyed a successful year, “not only advising our cli-ents on what they can and can’t do, but also ensuring that they’re in compliance with the laws and regulations that have been put in place.”

Crowe Horwath’s Mendoza says his firm launched its Japan Desk, led by a Japanese professional, during the first quarter of 2013, because “our most important source of new clients is Japanese investment in Mexico, especially a large concentration from the automobile industry.” The firm

■ MEXICO

ASSOCIATIONS – FEE DATA

Rank Fee income

(MXNm)Growth

rate

Fee split (%)

Year-endAudit &

AccountingTax

servicesManagement

consultingCorporate

finance

Corporate recovery/


support Other

1 UC&CS Global* 359.0 13% 72 17 11 - - - - Dec-13

2 DFK International* 252.9 10% 51 12 6 1 1 3 27 Dec-12

3 PrimeGlobal* 173.9 –9% 64 22 6 1 1 3 3 May-14

4 Morison International* 109.9 16% 60 30 5 - - 1 4 Dec-13

5 Praxity* 102.0 7% 90 6 4 - - - - N/A

6 MGI* 74.5 –2% - - - - - - - Jun-13

7 ANTEA* 69.2 21% 62 5 23 - 10 - - Dec-13

8 AGN International* 59.2 –3% 68 26 - - - - 7 Dec-13

9 MSI Global Alliance* 56.6 51% 70 23 - - - - 7 Dec-13

10 GMN International* 50.6 –5% 48 28 20 3 1 - - Sep-13

11 Integra International* 43.2 64% 60 25 15 - - - - Mar-14

12 BKR International* 39.2 1% 80 20 - - - - - Jun-13

13 Alliott Group* 8.8 –41% - - - - - - - Dec-13

14 EuraAudit International* 8.3 –14% 35 28 37 - - - - Dec-13

Total revenue/growth 1,407.2 8%

Notes:. *Disclaimer = Only data from the named member firm or the exclusive member firms within a network/association is included. Data relating to correspondent and non-exclusive member firms is not included.Source: International Accounting Bulletin.

IAB 540v2.indd 13 22/08/2014 13:46:26



MEXICO

also developed new practice areas in risk and corporate finance “due to high client demand”.

Álvarez del Campo notes that EY has been increasing the visibility of its trans-action advisory services (TAS), which is reflected in their growth over the past two years. He says: “The addition of services around our Capital Agenda initiative – help-ing clients with their capital strategies – and integration of new members allows EY to be seen as the most integrated TAS provided in the market.” In addition, he plans to focus on some new players in industries such as oil and gas, and energy and utilities, that are sure to follow in the wake of the Mexican reforms.

Moore Stephens’ De los Santos says his firm’s IT services are growing, improving the firm’s bottom line significantly, due to “the demand generated by the new electron-ic invoicing requirements” of the revamped

tax legislation.To expand and develop their consulting

and advisory services, many of the Mexi-can firms have gone to market and acquired new partners and associates with special skills. Enterprise Worldwide merged with the Mexico City firm of Despacho Flores y Associados, specialists in payroll outsourc-ing, which has now become a key line of business for Brito’s firm; while Moore Ste-phens was joined by Corposer/SIA Conta-dores Públicos from León, Guanajuato, to expand its reach in that area. Meanwhile, BDO Mexico has just opened a new office in the border town of Tijuana and Crowe Horwath Mexico expanded into San Luis Potosi and Cordoba, Veracruz.

PwC Mexico announced the global acquisition of Booz & Company, which PwC renamed Strategy&. “This integra-tion reflects the strength Booz & Compa-ny brings to the PwC network in terms of

strategic consulting,” says Méndez. “Strat-egy& will provide deeper knowledge to the current strategic practice of PwC, offering integrated consulting services, from the development of a strategy to its practical execution.”

KPMG Mexico strengthened its actuarial offerings by acquiring Técnica Actuarial to help clients meet new challenges imposed by changes in both local and international reg-ulations. The firm also beefed up its tax and legal practices by acquiring the tax consul-tancy and legal-tax services firm Ortiz Sosa Ysusi y Cía S.C. And, in response to new demands in the Bajio region, KPMG, too, opened an office in Leon. “This is another step in our growth strategy,” says García-Naranjo. “This addition gives us 18 strate-gically located offices in the cities that have the most impact on the domestic economy.”

Despite good top and bottom-line growth, several firms mentioned the

■ MEXICO

NETWORKS – STAFF DATA

Rank Name

Total staff Growth rate

Partners Professional staff Administrative staff Offices

2013 2012 2013 2012 2013 2012 2013 2012 2013 2012

1 Deloitte* 5,304 5,260 1% 261 223 4,128 4,121 915 916 21 21

2 PwC* 4,003 3,425 17% - 191 - 2,388 - 683 - 21

3 EY* 2,851 2,773 3% 146 137 2,077 2,055 628 581 22 22

4 KPMG* 2,690 2,476 9% 152 139 2,101 1,933 437 404 17 17

5 Moore Stephens International* 1,288 1,262 2% 54 46 1,077 1,085 157 131 21 18

6 RSM International* 913 915 0% 59 60 707 714 147 141 32 32

7 Crowe Horwath International* 840 880 –5% 57 52 692 727 91 101 25 25

8 Grant Thornton International* 811 712 14% 42 38 667 578 102 96 11 11

9 Kreston International* 796 799 0% 52 50 641 640 103 109 29 34

10 Baker Tilly International* 641 601 7% 84 78 446 427 111 96 22 20

11 Russell Bedford International* 532 491 8% 51 44 410 387 73 60 17 15

12 BDO* 499 534 –7% 31 27 407 445 61 62 6 5

13 PKF International* 455 631 –28% 35 42 341 498 79 91 9 12

14 Enterprise Worldwide International*

406 410 –1% 37 38 317 326 52 46 13 13

15 HLB International* 398 398 0% 42 42 309 309 47 47 20 20

16 Nexia International* 307 314 –2% 20 24 247 250 40 40 9 9

17 MXGA – Mexico Global Alliance* 227 211 8% 16 16 178 163 33 32 11 11

18 Mazars* 226 237 –5% 20 20 165 172 41 45 8 8

19 AUREN* 201 157 28% 18 17 170 128 13 12 10 9

20 SMS Latinoamérica* 72 70 3% 8 8 51 49 13 13 3 3

Totals 23,460 22,556 4% 1,185 1,292 15,131 17,395 3,143 3,706 306 326

Notes: *Disclaimer = Only data from the named member firm or the exclusive member firms within a network/association is included. Data relating to correspondent and non-exclusive member firms is not includedSource: International Accounting Bulletin

IAB 540v2.indd 14 22/08/2014 13:46:27



MEXICO

pressure on fees, especially in the slow-growing audit and assurance area. Accord-ing to García-Naranjo, the economic crisis of 2008 and the subsequent reduced eco-nomic growth in the region “resulted in many companies implementing cost-cutting programmes, and audit costs were no excep-tion. It is relatively common to find compa-

nies that have not approved fee increases for several years and, in some cases, reduced fees have even been requested, despite significant increases in operations and the effects of inflation. This scenario has resulted in increased challenges in meeting expected growth in the audit market. As such, we have found firms using a reduced

fee strategy to win new audit work.”Brizuela at Grant Thornton points to

“increasingly more frequent cases in Mexico where we have observed that our competi-tors have lowered the level of fees offered to clients at amounts frankly ridiculous that might not even cover the costs of the servic-es. This practice affects us as a firm, and we

■ MEXICO

ASSOCIATIONS – STAFF DATA

Rank Name

Total staff Growth rate (%)


2013 2012 2013 2012 2013 2012 2013 2012 2013 2012

1 UC&CS Global* 1,661 1,817 –9% 142 137 1,227 1,351 292 329 106 112

2 DFK International* 533 501 6% 37 35 427 401 69 65 28 27

3 PrimeGlobal* 353 412 –14% 21 26 293 331 39 55 12 13

4 MGI* 297 262 13% 20 21 201 165 76 76 14 16

5 GMN International* 291 203 43% 12 12 257 168 22 23 9 3

6 Morison International* 253 222 14% 12 12 199 168 42 42 8 8

7 ANTEA* 228 181 26% 21 19 191 147 16 15 12 11

8 Praxity* 226 237 –5% 20 20 165 172 41 45 8 8

9 MSI Global Alliance* 165 86 92% 14 7 106 61 45 18 3 2

10 AGN International* 164 174 –6% 9 9 130 140 25 25 2 2

11 Integra International* 152 107 42% 10 6 130 83 8 18 8 7

12 BKR International* 61 61 0% 6 6 55 55 - - 3 3

13 Alliott Group* 30 31 –3% 2 2 24 26 4 3 1 1

14 EuraAudit International* 18 18 0% 4 4 9 9 5 5 1 2

Totals 4,432 4,312 3% 330 316 3,414 3,277 684 719 215 215

Notes: *Disclaimer = Only data from the named member firm or the exclusive member firms within a network/association is included. Data relating to correspondent and non-exclusive member firms is not included.Source: International Accounting Bulletin

■ MEXICO

FIRM MOVEMENTS

NETWORK/ASSOCIATION FIRM ADDITIONS, MERGERS & ACQUISITIONS

AUREN Added: TDS, now rebranded to Auren (Aguascalientes)

BDO New office: Tijuana

DFK International Added: Cachón Villaseñor Consultores (Puebla)

Enterprise Worldwide International Merger: Despacho Flores y Cia (Mexico City)

GMN International Added: Ocana Ocana y Cia (San Luis Potosi)

Integra International Added: Salgado Contadores (Guadalajara)

Moore Stephens International Limited Added: Servicios Integrales de Auditoria (Leon)

MSI Global Alliance Added: Lores Budiño y Cia (Mexico City)

Mazars Merger: GMV Asociados (Mexicali)

Alliance: CPR Consultores, in Guadalajara, will be converted into a direct Mazars office, via merger, in fy 2013-2014.

Russell Bedford International Added: Organización Descom, SC (Veracruz), VGE Contadores y Asesores Fiscales, SC (Cd. Juárez, Chihuahua).

UC&CS Global Added: Administración Contable y Prácticas Corporativas (México City) Hidalgo Yustis Malagòn y Asociados (México City), TSV (Mexico City), Escobar Consulting & Associates (Mexico City and Monterrey), Leix JM (Mexico City), Pérez Colín Avilés Vásquez (Mexico City), FERNANDEZ (México City).

Lost: Apaez Melchor Otero y Cia (Mexico City), Hernández Tapia Auditores (Mexico City), Ikeda Vega y Asociados (Mexico City), Desarrollo Profesional de Sonora (Hermosillo, Sonora), Hernández Galvàn y Asociados (San Luis Potosi, SLP), PSC Y Asociados (Cancùn, Quintana Roo).

IAB 540v2.indd 15 22/08/2014 13:46:27



are sometimes not successful in the presen-tation of some proposals.” Grant Thornton Mexico, he stresses, believes that “for the level of service to our clients to be adequate, the fees must allow for the participation of sufficient professional, well-trained and well-motivated personnel. Consequently, our firm will not assume those practices.”

This is a worldwide issue, notes De los Santos at Moore Stephens. “There’s so much competition that, sometimes, you have to lower your fees to get the job.”

BDO’s Llamas adds that, although there’s a great deal of client pressure to lower fees, it has pushed his firm to become more efficient, to make better use of technology to streamline work processes and develop better professional practices.

Another recurring pressure that forces firms to do more with less has been around for years: finding enough professional talent to do the work, although the larger firms are feeling the pinch less than the smaller firms. Because of their size, they have the ability to offer more versatile and dynamic career paths and help their staff achieve a better work-life balance. Several have been recognised as a great place to work or a “best place to launch your career”. PwC Mexico, for example, has implemented a series of initiatives to boost diversity and inclusion, such as promoting flexible work and hours schemes, working at home, and reduced working hours for those who need this, says Méndez.

However, fewer students are choosing

accounting as a career and the ones that do often head off to industry after putting in some time at public accounting firms. “It’s getting harder to recruit students who want to work hard and develop themselves as public accountants,” says Baker Tilly’s Ojeda, “especially in the audit area.”

Losing staff remains a key issue, Brito at Enterprise Worldwide Mexico points out, “since high staff turnover affects both our internal organisation and our day-to-day work with clients. Efforts have been madwe towards integration activities, good communication and motivation incentives. However, and especially with the young tal-ent, working at the Big Four is still perceived as a step forward in their careers. Ironically, Big Four staff at supervisory and manage-ment levels have joined our firm looking for a more balanced life/work situation, which compensates for not having higher wages.”

As the economy returns to more sustaina-ble levels, Mexico’s accountants are looking ahead with some optimism. Deloitte’s Pérez says the main thing is “to respond quickly and efficiently to market trends on fiscal, energy and telecommunications reform, along with any other business issues that concern our clients.”

If the energy reform receives approval in Congress, says Álvarez del Campo, oil and gas could be one of the top growing industries in Mexico, “and we can expect to receive a lot of foreign investment in our country, which should open up a lot of growth opportunities for the profession.”

For García-Naranjo, “globalisation pre-sents a challenge to our business, as we have to strike a balance between having a glob-ally consistent brand, foundations and prac-tices, and being locally adaptable, accessible and relevant. In addition, with the increase in cloud-based digital solutions, data explo-sion and new technologies, the traditional ways of operating are being replaced by new and evolving business models. The use of mobile devices, applications and technolo-gies continues to accelerate, and even domi-nate, thus enabling us to connect with our customers, employees and other stakehold-ers in new, innovative ways.”

Méndez sees a broader challenge ahead – restoring society’s trust in government and institutions. “Today, that trust is at an all-time low and we have an important role to play in bringing back trust in the markets.”<

MEXICO

■ MEXICO

Top 25 firms: fee data

Rank Fee income (MXNm) Growth rate

1 Deloitte* 4,378.4 1%

2 PwC* (e) 4,345.6 17%

3 KPMG* (e) 2,724.9 9%

4 EY (e) 2,627.2 3%

5 Salles, Sainz Grant Thornton 429.1 6%

6 Gossler (1) 327.6 4%

7 RSM Bogarin 344.1 10%

8 CASADICT (2) 305.0 7%

9 BHR Enterprise Worldwide Mexico 290.3 11%

10 BDO Castillo Miranda y Compañía 269.0 4%

11 Russell Bedford México 221.9 11%

12 Baker Tilly Mexico 216.7 8%

13 PKF Mexico 140.0 –0.28%

14 Grupo KMC Contadores Públicos (3) 109.9 16%

15 Moore Stephens Marcelo de los Santos y Cia 104.7 3.10%

16 Mazars (4) 102.0 7%

17 Mexico Global Alliance (5) 81.8 15%

18 De la Paz Costemalle (6) 76.8 0%

19 Traust Accounting and Legal Firm (7) 75.0 -6%

20 Kreston CSM 73.5 8%

21 Rivero & Olivares (7) 69.4 2%

22 Solloa, Tello de Meneses y Cia (8) 68.4 –8%

23 Cajal Sen Azcune y Cia (9) 65.0 30

24 AUREN (10) 60.2 20%

25 UC&CS ADVISORS 30.9 30%

Notes: (1) Glosser is a member firm of Crowe Horwath International. (2) CASADICT is an indepent firm (3) Grupo KMC Contadores Públicos is a member firm of Morison International. (4) Mazars is a member firm of Praxity. (5) Mexico Global Alliance is an independent member firm of the Plante Moran Alliance (6) De la Paz Costemalle is a member firm of DFK international. (7) Traust Accounting and Legal Firm, and Rivero & Olivares are member firms of PrimeGlobal. (8) Solloa, Tello de Meneses y Cia is a member firm of Nexia. (9) Cajal Sen Azcune y Cia is a member firm of UC&CS Global. (10) Auren is a member firm of Antea.

Source: International Accounting Bulletin and Expansion

IAB 540v2.indd 16 22/08/2014 13:46:28

International Accounting Bulletin


COUNTRY SURVEYINDIA

At the beginning there was chaos. When Brahma, the Hindu god of creation, wondered how to bring order to the disorder, Devi, his

female counterpart replied: “With knowl-edge”. This is how Saraswati, the Hindu goddess of knowledge, music, arts and wisdom was born.

Saraswati gave Brahma the power to see beyond the chaos and under her influence the universe acquired a structure and things took shape: the gods became celestial bodies, demons had their own world and humans walked on earth.

Many millennia later, far from the mythol-ogy, India is undergoing a brand new shift from disorder to order. A series of reforms expected to be implemented in the next four years are bringing structure to a corporate world which has thus far dealt with an archaic and complex environment.

“If you look at the five-year block from 2013 to 2018 we have seen and will continue to see the most significant legislative changes in India’s corporate space,” says Baker Tilly Singhi partner Nikkhil Singhi. “The entire Companies Act as well as the entire income tax code and indirect tax system have been cast aside and fresh regulations have been proposed.”

Regulatory revolutionThe first step of this extraordinary regula-tory revolution happened on 1 April 2014, when the new Companies Act which had been approved by parliament the previous year, came into effect. The new Act intro-duced a series of measures including 10-year

mandatory audit rotation with the first cycle of rotation expected to take place in 2017.

BDO India managing partner Milind Kothari says: “Obviously we are upbeat for the opportunities from audit rotation as we should benefit from it very significantly.” He believes BDO will take advantage of the rotation by attracting clients from the small-er firms as well as the Big Four. “We will win clients on both sides,” he says.

Audit rotation will put firms to the test and the rule of the survival of the fittest will apply, according to Kothari. “For firms that are willing to invest, brand, and up their quality level it will be an excellent opportu-nity,” he says. “And firms which have been laid back in their approach, which have relied on their existing audit clients may face severe challenges because they are going to lose large clients.”

Beyond audit, the Companies Act will also provide advisory work opportunities for accounting firms, as SGCO & Co Chartered Accountants, a Kreston International mem-ber firm, partner Sunil Goyal explains: “The Companies Act prohibits non-audit services to audit clients, so there’s good scope for our firm to win advisory assignments with firms audited by the Big Four.”

Internal financial controlsThe new Act also place greater responsibili-ties on companies’ boards as they are now required to put in place internal financial controls. HLB member firm Khimji Kunverji & Co partner Nilesh Vikamsey comments: “The Companies Act is going to impact the way companies are run and it will increase

advisory work in risk management, risk mitigation, and internal financial control.”

However despite seeing opportunities coming out of the Companies Act, firm lead-ers are conscious of the challenges they face due to the difficulty in complying and getting used to the new rules.

“Rotation raises some issues because it takes a few years for auditors to get used to processes especially in large companies,” says Singhi at Baker Tilly Singhi.

“Even though firms will cope with it, the first few years may bring some challenges in terms of audit quality.”

At HLB, Vikamsey agrees that managing the change from known clients to new cli-ents will be a challenge for some firms. But compliance and its cost will also prove to be difficult for some firms, according to him.

“The Companies Act is very difficult to comply with. It puts a lot of responsibil-ity on the auditor and at the same time it’s extremely impractical to be 100% compli-ant,” Goyal at Kreston says.

India’s new government, which was elect-ed in May, has already hinted that it will look at amending the Act to ease the com-pliance regarding certain provisions. “As stands now, more than half of the Indian companies are not compliant with key pro-visions including loans and related third-party transactions,” Singhi explains. “The new government will be looking again at various provisions and even though there might be some relaxation on certain items I don’t think anything conceptual-ly will change.”

The change of government has brought

An era of fundamental transformationA newly elected government, extensive regulatory changes planned for the next four years and the economy picking up are the ingredients fuelling the return of optimism in the Indian market. Vincent Huck reports

IAB 540v2.indd 17 22/08/2014 13:46:29



INDIA

FEE TABLE

NameFee income

(INRm)Growth

rate

Fee split (%)

Year-endAudit &

AccountingTax

servicesManagement

consultingCorporate

finance

Corporate recovery/


support Other

NETWORKS

Nexia International* 881.4 –9% 48 27 14 - - - 11 Jun-13

Mazars* 502.2 2% 64 21 8 7 - - - Aug-13

Kreston International* 354.2 58% 53 30 8 2 - - 7 Oct-13

PKF International* 312.2 6% 64 6 15 6 - - 9 Mar-14

ECOVIS International* 31.5 17% 24 13 28 5 - 3 27 Mar-14

ASSOCIATIONS

DFK International* 1,195.7 -12% 24 6 19 6 - - 48 Dec-13

Integra International* 841.0 5% 60 25 15 - - - - Mar-14

HLB International* 580.1 10% 77 18 4 - - - 1 Mar-14

PrimeGlobal* 445.7 2% 67 17 8 2 - 4 2 May-14

Praxity* 525.0 5% 64 21 8 6 - - 1 N/A

MSI Global Alliance* 231.7 –26% 72 11 3 - - 3 11 Dec-13

Morison International* 217.0 12% 54 12 1 1 - - 32 Mar-13

INPACT* 138.1 5% 54 26 6 1 1 1 11 Dec-13

GMN International* 134.2 60% 35 23 19 - - 3 20 Sep-13

AGN International* 146.3 –26% 45 29 - - - - 26 Oct-13

KS International* 99.6 3% 50 37 11 - - - 2 Mar-14

IAPA* 51.4 9% - - - - - - - Mar-14

EuraAudit International* 16.2 2% 37 20 4 - - - 39 Mar-14

Total 6,703.4 0%

Notes: *Disclaimer = Only data from the named member firm or the exclusive member firms within a network/association is included. Data relating to correspondent and non-exclusive member firms is not included. Due to local rules and regulation on internationally branded firms only some networks decided to participate in the survey with their data. Source: International Accounting Bulletin

optimism back to the market according to interviewed firm leaders, as Deepti Ahuja, a partner at Nexia International member firm SKP Group, describes: “Both the regulatory and government changes bring optimism and opportunities in India. With the new government the spirit of Indian companies is slightly better.”

Optimism returnsWhile India enjoyed steady growth in the noughties culminating in 2008, just before the financial crisis, with GDP growth of 9.3%, at the turn of the decade an economic slowdown cast a shadow over the market. In 2012 India registered GPD growth of 6.2% which dropped to 5% in 2013 and 4.7% in 2014. Many blame the former government for this downturn.

“Because of government inaction and poli-cy paralysis, the investment climate was very bad in the last few years,” Vikamsey at HLB says. “The former government was not tak-ing major actions to foster industrial growth.

In fact the measures it took contributed to the economic slowdown of the country.”

However Vikamsey, like many of his compatriots, is optimistic about the new government. First, he says, the fact that the new Prime Minister, Narendra Modi, has a very good track record in running the state of Gujarat for the past 12 years is a good assurance. Gujarat is one of the best states in India in which to do business, accord-ing to Vikamsey.

“The problems are deep rooted. The previ-ous government has created such a big mess it will take some time to solve,” he says. “So the new government will have to tackle one problem after another, but we’re hopeful despite the fact that we know it will take time to improve.”

Transfer pricingDespite Vikamsey’s acerbic criticism, India’s previous government left at least one posi-tive legacy in the form of a reform in transfer pricing. Last year, India introduced domestic

transfer pricing legislation which set rules for Indian companies having transactions across state borders.

“Companies within India which have transactions with their Indian subsidiaries have to undergo a transfer pricing audit,” Singhi explains. “This has brought a lot of opportunities.”

Ahuja at Nexia and Vikamsey both agree that mandatory transfer pricing for domestic companies has generated an increase of reve-nues in tax services for their respective firms.

However in the coming year, interviewed firm leaders expect more tax reforms to come from the newly elected government. The most significant reforms expected are the introduction of the goods and services tax (GST) and a new direct tax code.

The new direct tax code will replace the Income-Tax Act which was enacted in 1961 and will change tax rates and levies to create a more efficient tax system in India.

The GST Bill was first introduced in 2008 by former Prime Minister Manmohan Singh,

IAB 540v2.indd 18 22/08/2014 13:46:29



INDIA

■ INDIA

STAFF DATA

Rank Name

Total staff Growth rate


2013 2012 2013 2012 2013 2012 2013 2012 2013 2012

NETWORKS

- Kreston International* 924 580 59% 75 58 705 439 144 83 30 14

- Nexia International* 813 487 67% 33 35 500 389 280 63 11 11

- Baker Tilly International* 635 653 –3% 20 18 525 545 90 90 8 8

- Mazars* 607 553 10% 16 14 - - - - 8 8

- PKF International* 547 578 –5% 20 18 507 528 20 32 6 6

- ECOVIS International* 54 47 15% 14 11 32 28 8 8 12 11

ASSOCIATIONS

- DFK International* 1,310 1,458 -10% 31 36 1,151 1,298 128 124 11 15

- HLB International 918 895 3% 78 69 582 580 251 246 18 16

- PrimeGlobal* 814 941 –13% 83 93 506 616 225 232 37 42

- Praxity* 693 662 5% 30 - - - - - - -

- AGN International* 347 341 2% 35 31 265 276 47 34 8 11

- Morison International* 335 336 0% 18 18 289 291 28 27 6 6

- INPACT* 323 368 –12% 23 29 277 312 23 27 13 15

- GMN International* 246 210 17% 17 17 201 172 28 21 5 6

- MSI Global Alliance* 235 205 15% 24 21 145 138 66 46 5 5

- KS International* 215 212 1% 20 20 161 159 34 33 4 4

- IAPA* 173 152 14% 20 19 54 49 99 84 3 3

- Integra International* 145 75 93% 15 8 110 55 20 7 3 2

- EuraAudit International* 45 45 0% 7 7 35 35 3 3 2 2

Totals 9,379 8,798 7% 579 522 6,052 5,910 1,494 1,160 190 185

Notes: *Disclaimer = Only data from the named member firm or the exclusive member firms within a network/association is included. Data relating to correspondent and non-exclusive member firms is not included. Due to local rules and regulation on internationally branded firms only some networks decided to participate in the survey with their data. Source: International Accounting Bulletin

Source: International Accounting Bulletin

but political rivalry has delayed it becom-ing law. However in his budget speech last month Minister of Finance Arun Jaitley said: “The debate whether to introduce a GST must now come to an end. We have discussed the issue for the past many years. Some states have been apprehensive about surrendering their taxation jurisdiction; oth-ers want to be adequately compensated.”

He continued saying he was hopeful to find a solution in the course of this year to approve the legislative scheme which would enable the introduction of GST. “This will streamline the tax administration, avoid har-assment of business and result in higher rev-enue collection both for the Centre [federal government] and the states,” he concluded.

Missed deadlinesIt would not the first time the Indian gov-ernment has set out deadlines for the intro-duction of GST, only to fail to meet them

later on. But BDO’s Kothari is confident that this time the law will be passed: “Because of the fact that the government has a major-ity in the house it should happen sooner than expected,” he says.

The introduction of the GST would be a landmark in India’s economy as it would be the first step towards the creation of a single internal market. So far the country’s econo-my has been divided by dozens of state taxes on commerce, increasing corruption risks.

Companies trading in different Indian states have to comply with a border tax, local sales tax, central service tax, federal excise, central sales tax and a plethora of other taxes that vary according to the states and sectors of industry.

“In my view the GST will be a game changer as far as the country is concerned,” Vikamsey says. “In India today there is a parallel economy so goods and services go untaxed. The GST will address this issue

and as tax revenues will go up the parallel economy will go down.”

Interviewed firm leaders expect both the GST and the new direct tax code to boost their tax service line revenues as the demand for tax advisory work from their clients will increase. It’s especially true for foreign businesses that will need to under-stand the impact of the new regulations on their activity when entering the country, according to Ahuja.

Audit fees increaseIn audit the past year has been stable accord-ing to interviewed firm leaders. They report between 10% and 15% growth in this ser-vice line in their latest available financial year figures. And while they have seen their audit fee increase, they say it didn’t trans-late into their financial results because of various factors.

“Even if our audit fees increase, because

IAB 540v2.indd 19 22/08/2014 13:46:30



INDIA

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of strong inflation it’s not felt,” Ahuja says.Similarly Vikamsey says that there is fee

pressure in India, but it hasn’t resulted in a reduction of the fees. To the contrary he says audit fees have increased in the past few years, but because of the economic slow-down he blames the Big Four for offering to cut down audit fees and creating some pres-sure on fees in the market.

“The fee pressure in India is slightly dif-ferent from the pressure experienced in the rest of the world,” Kothari explains. “As Indian firms strive for quality, there is pres-sure on the fee because the costs of perform-ing an audit are going up, the time spent on audit is going up, and the fees are not going up as quickly.”

Singhi agrees that the fee pressure in India is less than in the west. “India is still a growing market and as such audit fees tend to grow,” he says. “Maybe not at the pace auditors want them to grow, but with the new Companies Act and the rise in risk and responsibility I think the fees will continue to grow despite tough competition.” While interviewed firm leaders say they recorded a “good year” for advisory servic-es, they believe they will witness a shift in the kind of services in demand due to a renewed optimism in the market.

“Because businesses had to cut down their costs due to the economic slowdown we had a fair amount of work in business restructur-ing,” Goyal says. “But with the new govern-ment coming in there is a good momentum in the market and corporate finance and M&A should start to pick up.”

As the economic recovery intensifies Vikamsey expects “a huge pick up in the M&A activities”. But according to him the economic recovery will also bring a fresh challenge for accounting firms.

“During the economic slowdown there was no issue finding good-quality people. But as the economy starts looking up again there will be a fight for good-quality tal-ent,” he explains.

With a population of 1.25bn India is the second-most populous country in the world and houses around 17% of the world’s population. In this immensity, the balance between quantity and quality is a challenge to achieve. Goyal explains: “It’s true we have a huge population, but it makes it difficult and costly to find good talent for the right job. With quantitative hiring you can do anything, but if you go for quality hiring it can be a nightmare.”

As firm leaders prepare their firms for the regulatory changes while keeping an eye on the latest economic developments, there’s a sense in the interviews carried out by International Accounting Bulletin that India is a dormant volcano waiting to rum-ble into life again.

There are no doubts in interviewed firm leaders’ minds that the years ahead will be marked by growth and opportunities as they describe “exciting times ahead” and “extremely good 10 years ahead”. And, as India’s internal market picks up, they hope to see more investment coming from outside India to fuel the economic growth.

“With the government and investment cli-mate changing we expect new entrepreneur-ial projects to pick up in India,” Vikamsey concludes. “It might be six months to one year away, but we anticipate a lot of foreign investment coming into the country.”

Hopefully by that time Europe will have become more stable, he continues. “Because if the backyard of Western companies stabi-lises they will start to invest more in other markets and India is a market of choice.” <

■ INDIA

FIRM MOVEMENTS

NETWORKS/ASSOCIATIONS FIRM ADDITIONS, MERGERS & ACQUISITIONS

AGN International Added: GMJ & Co (Mumbai), Laxminiwas Neeth (Hyderabad)

Lost: Arora & Bansal (Delhi), Dass Gupta & Associates (New Delhi and three other offices)

Baker Tilly International Merger: Corporate Finance Advisors (Mumbai)

DFK International Lost: Ubix (Kolkata) and DGSM (Ahemabad )

GMN International Added: Nisar & Kumar (Mumbai, Maharashtra)

HLB International Added: Fadnis & Gupte (Indore)

INPACT Asia Pacific Lost: N.N.Das & Co. (Kolkata)

Integra International Added: GSA Associates (New Delhi)

Praxity Added: Seshachalam & Co (Hyderabad)

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IAB 540v2.indd 20 22/08/2014 13:46:34

WealthInsight provides detailed data and insightful analysis on the world’s High Net Worth Individuals (HNWIs) and wealth sector. With decades of experience providing business information, WealthInsight helps organisations make informed decisions and win new business.

AAt WealthInsight’s core is our proprietary HNWI Database of the world’s wealthiest individuals. Around this database we have built a number of valuable research based products and services that make WealthInsight much more than just a rich contact list.

We work with and provide solutions for: Wealth Managers Private Banks Family Offices Technology Providers Professional Services – Consultants, Accountants, Lawyers, Real Estate Professionals Fund Managers, Asset Managers, Venture Capitalists Non-profits and Educational Institutions

For more information contact us at [email protected]: +44 (0)207 406 6553

Connect to Wealth Through Intelligence

About WealthInsight

IAB 540v2.indd 21 22/08/2014 13:46:35

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