2014

International Journal of Business, Economics and Law, Vol. 4, Issue 1 (June)

ISSN 2289-1552

ACCOUNTANCY SERVICE REQUIREMENTS OF MICRO, SMALL, AND MEDIUM

ENTERPRISES IN THE PHILIPPINES
Rufo R. Mendoza
Asian Institute of Management, Makati City, Philippines
Email: [email protected]

ABSTRACT

This study surveyed micro, small, and medium enterprises (MSMEs) to determine the type of accountancy services they require
from individual CPAs or firms of CPAs who are engaged in public accountancy practice. The service requirements were
deduced from the type of services the respondent SMEs currently outsource to these practising CPAs. The study found out that
the service required by most respondents is taxation service and the least is internal audit. MSMEs also require consulting,
accounting, and independent audit. Certain business profiles of the MSMEs like asset size, nature of business, form of business
organization, and employment size were found related in varying degrees to the services that they require. Micro and small
enterprises differ to a certain extent from the medium enterprises as they require fewer and simpler services. The practical
implication of the findings of the study from the point of view of the practising CPAs is that micro and small enterprises
represent a relatively small market. On the other hand, it can be inferred that these enterprises signify market challenges for the
practising CPAs. Thus, this calls for appropriate strategic move on the part of the practising CPAs in terms of service
development and marketing.

Keywords: accountancy service, MSMEs, service outsourcing, business profile

INTRODUCTION

Micro, small, and medium enterprises (MSMEs) perform multiple roles in the country and its economy. The Department of
Trade and Industry (DTI) in the Philippines cited that MSMEs contribute to the generation of employment and income, both in
rural and urban areas. The MSME sector has played a crucial role in the development of the Philippine economy through
industrialization and development of rural areas; decentralization of industries; use of indigenous resources; creation of backward
and forward linkages with existing industries; and improvement of entrepreneurial activities. More importantly, the sector
provides the economy with a continuous supply of ideas, skills, and innovations necessary to promote competition and the
efficient allocation of scarce resources.

Berry (2007, p.1) cited that small and medium enterprises (SMEs) are important to almost all economies in the world, especially
to those in developing countries and, within that broad category, especially to those with major employment and income
distribution challenges. The SME sector is the backbone of the economy in high-income countries, but as stated by Bouri, et.al.
(2011, p.7) the sector is less developed in low-income countries. The Organisation for Economic Cooperation and Development
(OECD, 2005) believed that encouraging entrepreneurship and facilitating the rapid growth of innovative SMEs are effective
means of creating jobs, increasing productivity, and alleviating poverty.

The growth in the number of MSMEs has remained steady over the years. The OECD SME and Entrepreneurship Outlook -
2005 Edition reported that more than 95% of enterprises in the OECD area are SMEs. These enterprises account for almost 60%
of private sector employment, make a large contribution to innovation, and support regional development and social cohesion. In
the Philippines, there are 820,255 business enterprises as of 2011 count. Of these, 99.6% (816,759) are MSMEs and the
remaining 0.4% (3,496) are large enterprises. Of the total number of MSMEs, 91.0% (743,250) are micro enterprises, 8.6%
(70,222) are small enterprises, and 0.4% (3,287) are medium enterprises (DTI, 2014). Leano (2006, p.5) expressed that the
Philippine government has been anticipating globally competitive SMEs in the new industrial economic environment. These are
SMEs that have acquired distinctive competencies from harnessing efficient technologies and establishing strategic relationships
with partners, market forces, suppliers, and even competitor producers.

While the varying roles of MSMEs cannot be discounted, a number of challenges on the sustainable development of the sector
remain among nations. For instance, the implementation of policies that could facilitate the rapid growth of these enterprises is
typically slow in a number of industrialized and developing countries alike. In addition, Lundström (2009, p.8) stated that the
world is globalized and so is the world for entrepreneurs. Hence, global changes would affect the SMEs in different types of
economies both on a national and regional perspective.

At the enterprise level, Tlhomola, et. al. (2010, p.25) cited that some factors contributing to failures of MSMEs include tax
burden, lack of collateral for security in bank loans, unwillingness of the banks to grant loans, business asset utilization, and
expense management. Indeed, the MSMEs are vulnerable to a lot of internal and external barriers. Hence, they need to be
capacitated and be informed about the myriad of functions that they need to perform, primarily those in the aspect of managing
their financial resources. This concurs the statement of Chandra (n.d., p.29) that apart from governmental support the MSMEs
need an expansion of their network to seek support from the financial sector: bankers, financiers, domestic and foreign investors,
and venture capitalists.

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Clearly, one prevalent challenge faced by MSMEs is the optimum use of financial resources necessary to survive in a
competitive environment. This entails generating meaningful financial information needed internally and by both shareholders
and creditors. Indeed, corporate governance principles assert that enterprise management has the responsibility to come up with
periodic financial statements that are fairly presented to provide reliable information to various types of users. In addition, the
MSMEs need to comply with government regulations on financial reporting, taxation, employees’ compensation, and the like. To
achieve these requirements, the MSMEs either utilize their own accounting or finance units or contract out the services to
professionals such as public accountancy firms and/or individual Certified Public Accountants (CPAs). A relatively large number
of MSMEs have remained unaware of their own needs in the aspect of accounting and financial management and the
professional services that CPAs can offer to them along these areas. Thus, it is necessary to document and probe the services
which the MSMEs require from public accountancy firms and individual CPAs who are in a position to provide them with a
wide array of services covered by the accountancy profession.

OBJECTIVES OF THE STUDY

This study was focused on the accountancy services that the MSMEs commonly require from the public accountancy firms
and/or individual CPA in public practice. Specifically, it sought answers to the following questions: (1) What is the business
profile of the respondent MSMEs in terms of the (a) asset size; (b) nature of business; (c) form of business organization; and (d)
employment size? (2) What are the accountancy services which the respondent MSMEs commonly require from public
accountancy firms and/or independent CPAs? (3) Is there a relationship between the business profile of the respondent MSMEs
and the accountancy service requirements? and (4) Are there significant differences in the type of accountancy services that
respondent MSMEs generally require when the respondents are grouped according to their business profile?

AREAS OF ACCOUNTANCY PRACTICE

Accountancy is defined by the Oxford English Dictionary as “the profession or business of an accountant.” It refers to the
discipline or branch of study dealing with the duties of an accountant. Said duties include accounting, auditing, and tax services.
Mendoza (2012, p.30) cited that the work of accountants has recently expanded to include certain finance-related areas of
management consulting. The scope of work of accountants has more or less uniform global classifications, although country or
domestic practices vary to some extent. In the United Nations Statistical Division (2014), the Central Product Classification for
goods and services has two service categories that correspond directly to the functions of an accountant: accounting, auditing and
bookkeeping services (covered under Group 862) and taxation services (Group 863). In addition, Group 865 pertains to
management consulting services where accountants can get involved in a sub-class called financial management consulting
services (Subclass 86502).

In the Philippines, the practice of accountancy is governed by Republic Act (RA) No. 9298 titled “Philippine Accountancy Act
of 2004.” The said law limits the practice of accountancy to CPAs who have current license to practice. The scope of practice
covers four major areas: commerce and industry, education or academe, government, and public practice. In the first three areas,
the CPA is employed by a specific entity or organization that serves as the employer of the CPA. Public accountancy is quite
different as it entails the provision of professional services to the public by a CPA who charges the client a fee as monetary
remuneration for the services. A CPA in public practice may provide service in his/her individual capacity, a partner or a staff
member in a public accountancy firm, also known as auditing firm.

The type and magnitude of services rendered by a CPA in public accountancy vary to a large extent depending on the service
capacity, size of the practice, type of client, and geographical area. Understandably, public accountancy firms generally provide
broader services than the individual practitioner. As a matter of fact, players in the public accountancy practice are categorized
into big firms, medium practitioners, and small practitioners. The big firms cater their services to large entities, primarily those
corporations with multinational operations and are publicly listed in the stock exchange.

On the other hand, the small and medium practitioners provide their service package to the MSMEs. Clearly, it is imperative that
the service requirements of the MSMEs should be within the scope of service packages that the small and medium practitioners
offer. In the same vein, the service offering of the small and medium practitioners should match the services which the MSMEs
require. Thus, in the area of public accountancy practice, a parallel demand and supply situation should exist between the
MSMEs as clients and the CPA practitioners.

RESEARCH FRAMEWORK AND METHODOLOGY

Operational Framework. This research is anchored on the attributes of accountancy as a profession and the services rendered
by professional accountants to the MSMEs. It describes the business profile of the respondents (as independent variable) in four
attributes: asset size, nature of business, form of business organization, and employment size. The research also identifies and
describes the accountancy services (as dependent variable) that are commonly required by the MSMEs from public accountancy
firms or individual CPAs.

Research Hypothesis. The study has the following hypotheses:

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Hypothesis 1: There is no significant relationship between the business profile of the respondent MSMEs and the accountancy
service requirements.

Hypothesis 2: There is no significant difference in the type of accountancy services that respondent MSMEs generally require
when the respondents are grouped according to their business profile.

Methods of Data-Gathering and Analysis. The study surveyed 100 respondent-businesses in the CALABARZON Region in
the Philippines, with their service requirements from public accountancy firms or individual CPAs based on the services that
they currently outsource as the focus. The survey was supplemented by an interview of key informants. Data were analysed
using percentages, ranks, chi-square test of independence, and one-way analysis of variance.

This research was conducted in five provinces, namely: Cavite, Laguna, Batangas, Rizal, and Quezon, where the acronym
CALABARZON was derived. It is more popularly known as the Southern Tagalog Region, the second largest contributor to the
national gross domestic product. Due to its proximity to Metropolitan Manila, the country’s national capital region, a large
amount of urbanization has taken place over the years in the CALABARZON Region. Of the 816,759 MSMEs in the
Philippines, 122,562 (or 15%) are in CALABARZON, making it second to Metro Manila with 211,974 or 26% of the total
number of MSMEs (DTI 2014).

RESULTS OF THE STUDY

The findings of the study are presented in four parts: (1) business profile of respondents; (2) accountancy service requirements;
(c) relationship of business profile and accountancy service requirements; and (d) tests of differences in the responses of the
MSMEs.

Business Profile of Respondents. The study covered the business profile of the respondent MSMEs in terms of (a) asset size;
(b) nature of business; (c) form of business organization; and (d) employment size (Table 1).

Table 1: Business Profile of the Respondent MSMEs

Asset Size (in Philippine pesos) Frequencies Percentage

Micro (P3 million and below) 44 44
Small (P3,000,001 to P15 million) 28 28
Medium (P15,000,001 to P100 million) 28 28
Total 100 100
Nature of Business Frequencies Percentage
Trading and Distribution 38 38
Services 37 37
Manufacturing 20 20
Agriculture 3 3
Real Estate Developer 2 2
Total 100 100
Form of Organization Frequencies Percentage
Single Proprietorship 65 65
Corporation 32 32
Cooperative 2 2
Partnership 1 1
Total 100 100
Number of Employees Frequencies Percentage
Micro (1-9) 41 41
Small (10-99) 46 46
Medium (100 – 199) 13 13
Total 100 100

Grouped according to asset size, 44% of the 100 respondents have assets of up to P3,000,000; 28% have assets from P3,000,001
to P15,000,000 and the remaining 28% have assets from P15,000,001 to P100,000,000. In terms of the nature of business, the
study revealed that 38% of the 100 respondents are engaged in trading and distribution, 37% in services, 20% in manufacturing,
3% in agriculture and only 2% in real estate. Majority (65%) of the 100 respondents are owned by single proprietors, 32% are
corporations, while a minority (3%) are cooperatives and partnerships. When grouped according to employment size, the study
found out that 46% of the 100 respondents provide work for 10 to 99 employees, 41% provide work for 1 to 9 employees, and
13% provide work for 100 to 199 employees.

Accountancy Service Requirements. Overall, 92% of the respondent MSMEs require tax services from public accountancy
firms or independent CPAs (Table 2). It appears that of the five service areas in accountancy, taxation is the most prevalent and
in-demand service among the MSMEs. More than half of the respondents require consulting services (58%) and independent

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audit services (55%). A relatively large percentage (44%) also requires general accounting services while only 21% need internal
audit services.

Table 2: Accountancy Service Requirements of Respondent MSMEs

Percentage
Accountancy Services Rank
(n=100)
Tax services 92 1
Consulting services 58 2
Independent audit services 55 3
General accounting services 44 4
Internal audit services 21 5

Tax Services. Specifically, 90% outsource the preparation of annual tax returns to the public accountancy firms or individual
CPAs while 84% avail assistance for tax computations and preparation of monthly and quarterly tax reports (Table 3). These
were followed by 78% and 73% for the filing of tax returns and assistance in tax cases and settlements, respectively. Only
around one-third of them avail of tax planning and tax education and information services.

Table 3: Tax Service Requirements of Respondent MSMEs

Percentage
Type of Tax Services Rank
(n=100)
Preparation of annual tax returns and other tax reports 90 1
Assistance to tax computations 84 2
Preparation of monthly and quarterly tax reports 84 3
Filing of tax returns 78 4
Assistance in tax cases and settlements 73 5
Tax planning 37 6
Tax education and information 35 7

Based on interview with key informants, it appears that the tax services required by the respondents generally entail compliance
to tax regulations, primarily the submission of tax returns on a periodic basis. Understandably, the task of preparing the tax
returns also entails determining the right amount of taxes and taking into account the various measures of tax exemptions and/or
exceptions. The taxes commonly paid include income tax, percentage tax, value-added tax, and withholding taxes on
compensation and similar transactions.

Interviews conducted showed that key informants have one common notion that seeking the help of the public accountancy firms
and/or individual CPAs is primarily due to their desire to protect their business from faulty tax computations and avoid penalties.
In essence, tapping the professional accountants is a measure that the MSMEs adopt to ensure that they comply with government
regulations.

The survey revealed that (a) services related to tax matters are generally separated from purely accounting functions and (b) the
respondents generally outsource tax services. On the separation of taxation services from accounting services, Williams, et. al.
(2010, p.6) viewed the preparation of income tax returns as a specialized field within accounting. This is so because tax returns
are based on financial accounting information to a large extent, although the information is often adjusted or reorganized to
conform to income tax reporting requirements. However, they also opined that entities should comply with specialized legal
requirements relevant to their responsibility to pay the appropriate amount of taxes. As such, tax services are generally separated
from general or financial accounting. Such an arrangement agrees with the perspective of Anthony, et.al. (2011, p.5) that tax
accounting rules differ from financial accounting rules. Thus, entities must keep separate tax accounting records for tax purposes
in those areas where they have elected to use different accounting rules for tax accounting and general or financial accounting.

Consulting Services. The most availed consulting service is that of business establishment, organization, and registration (56%).
Only 10% avail of consulting services regarding business expansion or branching out and 7% consult regarding share capital
transactions and making investment decisions. Very few availed of services related to business problems on liquidity,
profitability, etc.; business valuation, dissolution or liquidation; risk management; employee hiring, promotion and selection;
preparation of project feasibility studies; business process design and improvement. The study also found out that the
respondents are not vent into services dealing with mergers and consolidation; employee benefit plans; cost analysis; and capital
expenditures evaluation.

The survey revealed that the respondents have sought the services of professional accountants to assist them in establishing,
organizing, and registering their businesses. In the interview conducted, it appears that new entities, primarily the corporations,
prefer to have an independent professional do the tasks related to incorporation and secure permits from the government agencies
during the formation stage. The services of the consultants extend up to the aspect of determining the appropriate capital
structure, finding the sources of funds, and preparing business plans.

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Table 4: Consulting Service Requirements of Respondent MSMEs

Percentage
Type of Consulting Services Rank
(n=100)
Business establishment, organization, and registration 56 1
Business expansion or branching out 10 2
Share capital transactions 7 3-4
Assistance in making investment decisions 7 3-4
Business problems on liquidity, profitability, etc. 6 5
Business valuation, dissolution or liquidation 4 6
Risk management 3 7
Employee hiring, promotion and selection 2 8-10
Preparation of project feasibility studies 2 8-10
Business process design and improvement 2 8-10
Mergers and consolidation 0
Employee benefit plans 0
Cost analysis 0
Capital expenditures evaluation 0

While the nature of consulting services required by the MSMEs fall within the scope of accountancy services, it is far from those
rendered by big auditing firms. Mendoza (2013, p.142) cited that the consulting service portfolio of large public accountancy
firms (also known as the Big Four) entails helping organizations in planning, growing, and structuring their respective businesses
to address key issues such as strategy, technology, and change management. These firms work closely with the clients to
improve business performance, drive shareholder value, and create a competitive and sustainable advantage. Big firms also help
their clients execute enterprise-wide performance information initiatives, including transformation of strategies into reality.
Cabrera (2010, p.20) pointed out that the most sought-after types of consultancy work include business planning, information
systems, business process improvement, marketing research, new product development, exporting and international market
development, and the like. It appears that a wide disparity exists in the requirements of the MSMEs and the large corporations.
This also implies that CPAs providing services to MSMEs have competency requirements that are far different from those in the
large accountancy firms.

Independent Audit Services. The survey revealed that 55% of the respondents avail the services of professional accountants to
perform independent audit, also known as external audit. The Association of Chartered Certified Accountants (ACCA) indicated
that “the objective of an external audit is to enable the auditor to express an opinion on whether the financial statements are
prepared, in all material respects, in accordance with an applicable financial reporting framework” (ACCA, 2012, p.4). Porter,
et.al. (2008, p.7) specified that probably the best known and most frequently performed external audits are statutory audits of
financial statements of companies and public sector entities.

Based on the interviews conducted, most MSMEs engage CPAs to perform independent audit, primarily to comply with
government regulations, specifically the National Internal Revenue Code. Such code, implemented by the Bureau of Internal
Revenue requires “corporations, companies, partnerships or persons whose gross quarterly sales, earnings, receipts or output
exceed P150,000 to have their books of accounts audited and examined yearly by independent CPA and their income tax returns
accompanied with a duly accomplished Account Information Form.” This form is supposed to contain, among others,
information lifted from certified balance sheets, profit and loss statements, schedules listing income-producing properties and the
corresponding income therefrom, and other relevant statements. A number of respondents whose business is in the form of sole
proprietorship also avail of the standard optional deductions in computing tax obligations. Doing so exempts them from filing
audited financial statements.

Some key informants also put value to independent audit services for loan applications with banks and in securing credit line
with suppliers. The respondents whose form of organization is a cooperative cited that independent audit is also required by the
Cooperative Development Authority, the government body that regulates cooperatives in the country. For the corporations, the
Securities and Exchange Commission requires the submission of audited financial statements. The interview also revealed that
corporations rely on the external audit for the reliability of financial information that they disseminate to shareholders,
particularly during the annual shareholders meeting.

General Accounting Services. Of the respondents requiring general accounting (also known as financial accounting) services,
26% avail monthly preparation of interim financial statements, 16% outsource the recording of transactions in specialized
journals and general ledgers while 14% avail services for account reconciliation and preparation of documents for government
remittances. The study also found out that only a small percentage of the respondents need services related to the preparation of
account schedules; recording of transactions in subsidiary ledgers; preparation of tax remittance documents; quarterly
preparation of interim financial statements; profitability analysis; sales or revenue analysis; problem account analysis; bank
reconciliation; cost or expense analysis; and weekly preparation of interim financial statements.

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Table 5: General Accounting Service Requirements of Respondent MSMEs

Percentage
Type of General Accounting Services Rank
(n=100)
Monthly preparation of interim financial statements 26.0 1
Recording of transactions in specialized journals 16.0 2-3
Recording of transactions in general ledgers 16.0 2-3
Doing account reconciliation 14.0 4-5
Preparation of remittance documents to government 14.0 4-5
Preparation of account schedules 11.0 6
Recording of transactions in subsidiary ledgers 10.0 7-8
Preparation of tax remittance documents 10.0 7-8
Quarterly preparation of interim financial statements 9.0 9-10
Doing profitability analysis 9.0 9-10
Doing sales or revenue analysis 8.0 11-13
Doing problem account analysis 8.0 11-13
Doing bank reconciliation 8.0 11-13
Preparing cost or expense analysis 3.0 14
Weekly preparation of interim financial statements 1.0 15

The key informants described two modes of performing general accounting among MSMEs: in-house accounting and
outsourcing. Usually, the micro enterprises have their accounting services outsourced, that is, the whole accounting process is
undertaken by an outside professional since transactions are very minimal and hiring employees on a full-time basis may not be
logical. A number of them also outsource the recording process to a bookkeeper and engage a CPA to do the financial statements
and related analytical works. On the other hand, the medium-sized enterprises have a specific unit that performs accounting and
financial works. A number of the medium-sized enterprises also have internal audit that reviews the work of the accounting
department.

Essentially, the general accounting function covers the whole accounting cycle. It is mostly captured in an accounting system
which every enterprise, regardless of size, should aspire to put in place. As cited by Cabrera and Ocampo (2013, p. 60) all
business entities have an accounting system, ranging from the very simple such as using the checkbooks to the very complex
involving the use of networked computers. Cabrera and Ocampo (2013, p. 60) also stated that an accounting system is “the
means by which a company records and stores the financial and managerial information from its transactions or economic events
so that it can retrieve and report the information in an accounting statement.”

Key informants from corporations have recognized the value of accounting functions as they enabled the generation of financial
reports which the shareholders needed. This impression concurs with Kieso, et.al. (2011, p.8) that capital providers or investors
are the primary user group of the financial statements as they have the most critical and immediate need for information coming
from the financial statements. Williams, et.al. (2010, p. 5) asserted that financial accounting is “designed primarily to assist
investors and creditors in deciding where to place their scarce investment resources.” In fact, such decisions are important to
society because they determine which companies and industries will receive the financial resources necessary for growth. The
study ascertained that some analytical works on revenue, cost, profitability, and problem accounts are usually done by the
persons who perform accounting works, hence, not much of them are outsourced to external parties.

Internal Audit Services. The study revealed that 16% of the respondents outsource financial audit, 15% outsource operations
audit, 5% outsource compliance audit while only 2% outsource fraud audit. In an interview with key informants, it was noted
that many MSMEs are not keen into outsourcing internal audit for various reasons. For a relatively large number of micro and
small enterprises, internal audit is not treated as a key business activity because (a) of the smallness of their operations; (b) most
of the owners also work in the business; and (c) the level of decentralization does not allow much powers and authorities to the
lower echelon of the management structure. For the medium enterprises, internal audit has been integrated in the organizational
structure as a vital function, hence, a number of them hire internal auditors as full-time employees.

The type of internal audit that the MSMEs perform varies largely. Yet most internal audits fall under four categories mentioned
in Table 6. Financial audit (also called financial statement audit) performed by internal auditors deals mostly with processes and
systems that cover the different aspects of recording transactions and reporting financial information. Leung, et. al. (2004, p. 36)
underscored that this type of audit involves “obtaining and evaluating evidence about an entity’s financial affairs so as to
establish the degree of correspondence between certain assertions and the established criteria.” Arens, et.al. (2006, p. 15)
declared that “as businesses increase in complexity, it is no longer sufficient for auditors to focus narrowly on accounting
transactions.” An integrated approach to auditing considers both the risk of errors and operating controls intended to prevent
errors. Increasingly, this integrated approach incorporates a strategic perspective of the business entity.

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Table 6: Internal Audit Service Requirements of Respondent MSMEs

Percentage
Type of Internal Audit Services Rank
(n=100)
Financial 16.0 1
Operations 15.0 2
Compliance 5.0 3
Fraud 2.0 4

The operations audit which the medium-sized enterprises perform evaluates the efficiency and effectiveness of any part of the
business operating procedures and methods. Arens, et.al. (2006, p.14) cited that at the end of an operational audit, management
normally expects recommendations for improving operations. They further stated that operational audit is not limited to
accounting and should include the evaluation of organizational structure, computer operations, production methods, marketing,
and any other area in which the auditor is qualified. In essence, Arens, et.al. (2006, p. 14) declared that operational auditing is
more like management consulting than what is generally regarded as auditing. This agrees with the statement of Leung, et.al.
(2004, p. 36) that this type of audit activity may also be called as performance audit, value for money audit, or management
audit.

Compliance audit involves obtaining and evaluating evidence to determine whether certain financial or operating activities of an
entity conform to specified conditions, rules or regulations (Leung, et.al., 2004, p. 36). On the other hand, fraud audit is a
meticulous review of financial transactions when fraud is suspected. Some companies do them as a precaution---to prevent fraud
from happening and to catch it before the offender goes a long way.

Relationship of Business Profile and Accountancy Service Requirements. To find out whether a statistically significant
association exists between the respondent’s business profile and the accountancy service requirements, the chi-square test of
independence was used. The results of the test provide answers to Hypothesis 1 posted earlier. The study found out that all of the
four attributes of business profile are significantly related to one or more types of accountancy services, although the number of
established relationship differs (Table 7).

Table 7. Summary of the Results of the Chi-Square Test of Independence (Relationship)

Form of Business
Accountancy Services Asset Size Nature of Business Employment Size
Organization
Not Not Significantly Not
Tax Services
Related Related Related* related
Chi-square test statistic 1.1273998 2.434157 4.820352 3.263175
Probability value 0.528877 0.2961 0.028126<0.05 0.195619<0.05
Critical value, df=2 5.991 5.991 3.841 5.991
Not Not Not Not
Consulting Services
related Related related Related
Chi-square test statistic 0.118355 0.05709 2.734069 2.26945
Probability value 0.94254 0.971858 0.098229 0.321511
Critical value, df=2 5.991 5.991 3.841 5.991
Independent Audit Not Significantly Significantly Significantly
Services related Related** Related** Related**
Chi-square test statistic 2.029221 11.61391 21.2031 14.09173
Probability value 0.362544 0.003007<0.005 0.00000413<0.001 0.00871<0.005
Critical value, df=2 5.991 5.991 3.841 5.991
General Accounting Not Not Significantly Significantly
Services related Related Related** Related*
Chi-square test statistic 0.989838 2.565374 22.24148 9.989268
Probability value 0.60962 0.277291 0.0000024<0.001 0.006774<0.05
Critical value, df=2 5.991 5.991 3.841 5.991
Significantly Significantly Significantly Significantly
Internal Audit Services
Related** related* Related** Related*
Chi-square test statistic 12.93065 7.837923 37.86628 10.14118
Probability value 0.001556<0.005 0.019862<0.05 7.58x10-10 <0.001 0.006279<0.05
Critical value, df=2 5.991 5.991 3.841 5.991
**relationship is significant at p-value less than 0.005
*relationship is significant at p-value less than 0.05

Test of Differences. This part answers the question “Are there significant differences in the type of accountancy services that are
currently outsourced when the respondents are grouped according to their business profile?” To test whether significant
differences exist, a one-way analysis of variance was performed.

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Table 8 shows the means and standard deviations of the five outsourced accountancy services when the respondents were
grouped according to business profile: asset size, nature of business, form of business organization, and employment size. The
study found out that there is no sufficient evidence that there is a significant difference in the required accountancy services
when the respondents are grouped according to asset size, nature of business, and form of organization. However, the study
found out that there is a sufficient evidence that there is a significant difference in the accounting services when the respondents
are grouped according to employment size.

Asset Size. When the respondents are grouped according to total assets, the computed value of the F-ratio statistic is 2.717 with
an associated probability value of 0.071 which is greater than 0.05. Thus, there is no sufficient evidence that there is a
significant difference in the outsourced accountancy services when the respondents are grouped according to total assets. When
the services were detailed into 46 subsets of service, Table 9 shows that the computed value of the F-ratio statistic is 0.414 with
an associated probability value of 0.662 which is greater than 0.05. In the same vein as above, the study shows that there is no
sufficient evidence that there is a significant difference in all outsourced accounting services when the respondents are grouped
according to total assets. Thus, the respondent SMEs do not differ in the type of accountancy services that they commonly
require whether they are categorized as micro, small, and medium.

Table 8. Test of Differences in Accountancy Services When Grouped According to Business Profile

Asset Size (in Philippine pesos) N Mean SD

Micro (P3 million and below) 44 0.4053 0.154
Small (P3,000,001 to P15 million) 28 0.5060 0.195
Medium (P15,000,001 to P100 million) 28 0.4643 0.210
Computed F (dfN=2, dfD = 97) 2.717
Probability value 0.071
Nature of Business N Mean SD
Manufacturing* 20 0.2000 0.089
Agriculture 3 0.1812 0.045
Trading and Distribution 38 0.2243 0.096
Real Estate Developer (mean difference
of -0.21304 is significant at 0.05 level) 2 0.4130 0.184
Services 37 0.2162 0.103
Computed F (dfN=4, dfD = 95) 2.296
Probability value 0.065
Form of Business Organization N Mean SD
Sole Proprietorship 20 0.202 0.0848
Partnership 1 0.217
Corporation 38 0.235 0.126
Cooperative 2 0.207 0.769
Computed value of F (dfN = 3, dfD = 96) 0.783
Probability value 0.506
Number of Employees N Mean SD
Micro (1-9) 41 0.4106 0.1585
Small (10-99) 46 0.5036 0.1842
Medium (100 – 199) 13 0.3590 0.1906
Computed F (dfN=2, dfD = 97) 4.4944
Probability value 0.009

Table 9. Test of Differences in All Subsets of Accountancy Services When Grouped According to Asset Size

Asset Size (in Philippine pesos) N Mean SD

Micro (P3 million and below) 44 0.1957 0.0880
Small (P3,000,001 to P15 million) 28 0.2158 0.0961
Medium (P15,000,001 to P100 million) 28 0.2073 0.9962
Computed F (dfN=2, dfD = 97) 0.414
Probability value 0.662

Nature of Business. In testing the differences when the respondents are grouped according to the nature of business, all the
subsets of accountancy services were used. The data were transformed into relative percentages by dividing the number of
services by the total number of possible accountancy services. Table 8 shows that the computed value of the F-ratio statistic is
2.296 with an associated probability value of 0.065 which is greater than 0.05. Thus, it can be inferred that there is no sufficient
evidence that there is a significant difference in all outsourced accounting services when the respondents are grouped according
to nature of business. Multiple comparisons test reveals that the mean difference in outsourced accounting services between
manufacturing and real estate respondents, -0.21304, is significant at 0.05 level.

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Form of Business Organization. Results from the test show that the computed value is 0.783 with an associated probability
value of 0.506 which is greater than 0.05. There is no sufficient evidence that there is a significant difference in all outsourced
accounting services when the respondents are grouped according to form of organization.

Employment Size. The computed value of the F-ratio statistic is 4.4944 with an associated probability value of 0.009 which is
less than 0.05. There is a sufficient evidence that there is a significant difference in the outsourced accounting services when
the respondents are grouped according to number of employees. The post hoc analysis or multiple comparison in Table 10
shows that the mean of accountancy services of small businesses (with 10 to 99 employees) is significantly greater than those of
micro businesses (with 1 to 9 employees), in a mean difference of 0.0931, and medium businesses (with 100 to 999 employees),
with mean difference of 0.1447.

Table 10. Multiple Comparisons (Mean Differences) in Outsourced Accounting Services Among Respondents Grouped
According to Number of Employees

Number of Employees Number of Employees Mean Difference

Small (10-99) -0.0931*
Micro (1-9) Medium (100 – 199) 0.0516
Micro (1-9) 0.0931*
Small (10-99) Medium (100 – 199) 0.1447*
Micro (1-9) -0.0516
Medium (100 – 199) Small (10-99) -0.1447*
*mean difference is significant at 0.05 level

When all the 46 subsets of accountancy services were used, Table 11 shows that the computed value of the F-ratio statistic is
0.053 with an associated probability value of 0.949 which is greater than 0.05. Thus, it implies that there is no sufficient
evidence that there is a significant difference in all outsourced accounting services when the respondents are grouped according
to number of employees.

Table 11. Test of Differences in Outsourced Accounting Services When Grouped According to Number of Employees

Number of employees n Mean SD

Micro (1 – 9) 41 0.209 0.106
Small (10 – 99) 46 0.216 0.106
Medium (100 – 999) 13 0.218 0.051
Computed F (dfN=2, dfD = 97) 0.053
Probability value 0.949

CONCLUSIONS AND RECOMMENDATIONS

The study confirms that the MSMEs undertake different services that are within the sphere of the accountancy profession. The
study also found out that the MSMEs contract out some of these services to CPAs who are engaged in the practice of public
accountancy. The extent by which the SMEs outsource the services varies according to the type of service. The study confirms
that taxation service is the most commonly outsourced while internal audit is the least. Nonetheless, outsourcing applied in
varying extent in consulting, independent audit, and accounting. In essence, MSMEs require these services from the practising
CPAs who serve as external providers of services.

The study also shows that micro and small enterprises differ from medium enterprises in terms of the level of complexity of
accountancy services; the former having simpler ways of doing their tasks and are not vent into exploring the other relatively
complex methods and processes. The business profile attributes of the MSMEs, specifically asset size, nature of business, form
of business organizations, and employment have something to do with the type and extent of services they undertake and
outsource to practising CPAs.

The practical implication of these findings from the point of view of the practising CPAs is that MSMEs, with particular
reference to micro and small enterprises, may represent a relatively small market for public accountancy practice. At the same
time, limited types of services are demanded by these enterprises. On the other hand, the fact that these enterprises have yet to
outsource other types of services could signify market challenges for the practising CPAs. Hence, the combination of service
development and marketing could be the appropriate strategic move for the practising CPAs.

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