Mmegi Online :: Small fish swimming against the tide
Last Updated
Monday 24 September 2018, 15:01 pm.
Small fish swimming against the tide

Following a BusinessWeek article recently revealing that at least a third of the smaller auditing firms in the country were facing collapse, the minnows of the country’s auditing industry are emerging from the shadows. They tell their story to Staff Writer, PAULINE DIKUELO
By Pauline Dikuelo Fri 16 Mar 2018, 12:20 pm (GMT +2)
Mmegi Online :: Small fish swimming against the tide

The smaller auditing firms are the proverbial small fish swimming in a big pond, except this particular pond is crocodile-infested.

The local auditing market is dominated nearly entirely by the Big Four: PwC, KPMG, Deloitte and Ernst & Young, while at least 30% of the 22 small firms are reported to be at risk of collapse.

From the establishment of the local audit sector, the Big Four carved up the market, leveraging on their global prowess, linkages with multi-nationals, brand power and superior product and service offerings.

The Big Four set standards, salaries as well as terms and conditions and to some extent, pricing in the auditing industry.

The Big Four enjoy unfettered dominance in the competition for Public Interest Entities (PIEs), which comprise the cream of the crop in the market and for which an auditing contract would be a lifeline for an auditing minnow.

PIEs include listed companies, all banks, insurance, pension and provident funds and entities that statutorily are required to submit financial results to government. PIEs also include organisations with annual revenues of P300 million and more than 200 employees.

To get anywhere near the action, however, smaller auditing firms say the barriers are set far too high. Auditing firms are required to register with the Botswana Accountancy Oversight Authority (BAOA), which regulates the profession. “Venturing into this industry is not easy as the start-up fees are ridiculously high,” says a founder of a citizen-owned auditing firm.

“We have to part with P18,000 in annual BAOA membership fees and P20 000,00 per month to get the software that is used as well.” By law, all auditors are required to register with the Institute of Internal Auditors and if they wish to audit financial statements, they must be registered with the Botswana Institute of Chartered Accountants. Those auditors wishing to audit PIEs are required to register with the BAOA as well, with steep fines and penalties applied for violations.

The director of the citizen-owned auditing firm speaks on condition of anonymity. Publicly revealing himself, he says, would jeopardise his chances of securing business in an industry where reputation is the currency.

“We are


struggling to attract the same skills as the Big Four. They tend to offer lucrative offers to graduates unlike us.

“They have carved up the market. They are at liberty to do what they want. They get the best skills, making them competitive.

“To make matters worse, BAOA reviews all of us using the same standard despite our inequalities.”

The BAOA conducts its audits every three years to ensure firms are complying with standards. Those found afoul of the rules risk closure.

Even firms that meet all the requirements, secure some level of quality staffing, still find that this is no guarantee of survival in the auditing industry.

“Despite parting with all that investment, we still struggle to attract clients as they mostly prefer the Big Four,” another director at a citizen-owned auditing firm says. “This is major reason many end up closing down. It is the lack of business. You lose staff to both the Big Four and the private sector where they become internal auditors.”

BAOA chief executive officer, Duncan Majinda says he understands the frustrations faced by the minnows in the big pond and notes that these are worse with start-ups.

Part of his advice to the smaller players is that they perhaps should not put their focus on audits, which are the Big Four’s strongest points.

“These tend to be the Big Four’s strongest point. They (smaller firms) should perhaps focus on other services that audit firms offer. “It is unfortunate that they cannot compete with the Big Four’s because they are already established and have the experience,” he says.

According to Majinda, BAOA’s joining fees have not been increased in the last 10 years. In addition, he says there are certain frameworks applied with audit firms are reviewed.

“Smaller firms should come together and conduct joint audits to create names for themselves before competing with the Big Four. “Also, we need affirmative action where Batswana support these small firms and help them establish themselves to breakthrough in the industry.”

For the foreseeable future however, it appears the minnows will continue to struggle for air in a pond, dominated by larger creatures.

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