Small and Medium-Sized Accounting Practices (SMPs): Explaining Financial Performance based on Human Capital and Organisational Resources

Abstract

Small- and medium-sized accounting practices (SMPs) offer clients – small and medium-sized entities – support to comply with statutory services (financial statements, tax file preparation) and provide customised business advice. This paper investigates differences in SMP’s financial performance. A survey was sent to Belgian heads of SMPs, asking about personal characteristics regarding education and experience (representing human capital resources), firm size, service types provided, cooperation, and communication (representing organisational capital resources). The findings show that additional specialisation degrees, more experience, and more continuing professional development are linked with higher sales per employee. However, the advantage of additional specialisation degrees diminishes as experience increases. Cooperating with other service providers and using the phone as preferred communication method were also linked to higher financial performance. Finally, male-headed SMPs had higher sales per employee than female-headed ones. Female accountants focused more on their educational role, spending more time explaining the figures to clients.

Keywords:

• SMEs
• small and medium-sized accounting firms
• financial performance
• experience
• gender

JEL Classification:

• M21
• M40

Disclosure Statement

No potential conflict of interest was reported by the author(s).

Notes

1 All the SMPs in the sample are unlisted companies. The Big 4 accounting firms and their subsidiaries are not included in the dataset on which the analysis was performed.

2 The Belgian definition (at the time of the study) is applied, which states that no more than one of the three criteria can exceed the threshold, that is, 50 employees, 7.3 million euros in total revenue, and 3.65 million euros in total assets.

3 Adding a dummy variable to the regression outputs to include possible institution effects of BIBF and IAB did not impact the results. IAB members are slightly larger firms and spend less time delivering statutory services, which is a consequence of the additional services they are allowed to provide (the so-called exceptional mandates).

4 Belgian law allows companies to partially deduct the VAT related to company car costs. However, the VAT is only deductible to the extent to which the car is used for professional purposes, with a maximum deduction of 50%. There are a few ways to calculate the professional use of a car. One is to register the driving trips related to professional use and to personal use. This is one example of additional information that the SME needs to provide to the SMP in this case, to correctly calculate the VAT deduction.

5 The survey is available upon request.

6 This system produces both an income statement and a balance sheet.

7 This system produces only an income statement, typically used by very small businesses.

8 In Belgium, different predefined formats exist for companies (depending on their size), where, in the reduced format, the sales figures should not be disclosed but is replaced by the net profit margin (sales minus some categories of expenditures). To avoid the diffusion between sales and the net profit margin, the sales figure was included in the survey.

9 All degrees not issued by a university or university college are considered to be in the first category.

10 Chang et al. (2011) used 51 accounting firms, Døving and Gooderham (2008) 254, Collins-Dodd et al. (2004) 160, and Whiting et al. (2015) 302.