Rankings report: Singapore
Recession stalks Singapore
Singapore is a tale of two cities – on one hand, it is coping with recession. On the other, it is scrambling to meet the demands of expanding Singaporean companies and foreign investors.
Singapore is a city of contradictions. Recession and the soaring cost of living is putting huge pressure on businesses and citizens, yet the mood is buoyant. High net worth individuals are still choosing to make the city their home, driving a demand for family offices. Foreign investors are still keen to set up shop while Singaporian companies are still expanding internationally. There is a churn of M&A activity amongst accountancy firms and their clients as everyone strives for scale, skills and reach. It is the smaller companies who find themselves struggling most in this post-Covid world, as the cost of doing business gets higher.
There has been an overhaul of tax and auditing to help make Singapore a more attractive environment to investors and to promote itself as a global investment hub. There are several key measures that the Singapore government has introduced or refreshed in recent times over multiple objectives – garnering FDI, improving the quality of Single Family Offices in Singapore with tightened tax incentive conditions, increasing Goods and Services Tax (GST) permanently from 2023 onwards to increase Govt revenue, as well as increasing CPF (pension fund contributions for Singaporeans) to help Singaporeans benefit from increased retirement and pension funding.
The amendments to the Accountants Act 2022 aim to enhance Singapore’s audit regulatory regime and ensure that accounting professionals and firms comply with high standards and ethical requirements. Under this legislative change, the Accounting and Corporate Regulatory Authority (ACRA) now has the authority to conduct statutory quality control inspections (QC inspections) on all public accounting entities for their compliance with professional standards. These QC inspections ensure that public accounting entities have appropriate internal processes and procedures relating to leadership responsibilities for audit quality, ethics and independence, client acceptances, resources (human and technology), quality engagement performance, and monitoring and remediation activities. ACRA has the power to mandate remediation of lapses and impose sanctions on accounting entities when significant lapses are discovered as part of their QC inspection.
Angeline Tan, head of Audit, Crowe Singapore
Like many firms around the world, the biggest challenges faced by local firms in Singapore are the struggle to find skilled staff, fee pressure, and rising operational costs. “The talent crunch issue is a critical challenge faced by the accounting and audit industry and the government has formed an Accountancy Workforce Review Committee to look into ‘shortages emerging in the pipeline of young accountants,’” said Angeline Tan, head of Audit at Crowe Singapore. “The shrinking talent pool has resulted in firms resorting to hiring sprees, raising pay offerings, dangling attractive work incentives, and improving work culture. The task force is looking into how to enhance the attractiveness of the profession, dispel the boring perception often associated with the industry, and persuade more people to take up accountancy. We need to be mindful of the changing aspirations of the current generation of accountants who want more job satisfaction and work-life balance.”
As well as a dearth of Singaporeans willing to train as accountants, Singapore also struggles to attract foreign workers. “Singapore has a strict immigration policy, which can make it hard to recruit,” said Paul Wan, MD of Paul Wan & Co, a Morison Global firm. “The next 12 months will be challenging as Singapore’s economy is predicted to dip into a full-blown recession. This is ironic as Singapore is now the most expensive city in the world with surging residential rentals, car ownership costs, petrol prices and cost of living increases.”
Paul Wan, MD of Paul Wan & Co, a Morison Global firm
It is SMEs who have been hit hardest by the staff shortage, often finding themselves unable to match the deep pockets of bigger firms when it comes to salaries. “SME firms have been hit with a perfect storm,” said Imran Assan, director of MGI Alliance PAC, an MGI Worldwide member firm. “The enrolment in local universities for accountancy degrees has been falling in recent years, and this results in a reduced talent pool. In any case, many local graduates apply to the bigger firms. The SME firms traditionally recruited foreign graduates from neighbouring countries. In recent times, against the backdrop of rising interest rate and inflation, overall costs have skyrocketed especially in housing rental. This serves as a deterrent for foreign graduates.”
The rising cost of doing business has been putting pressure on fees. “The industry has undergone a challenging pandemic period the past few years and the economy is now hit with escalating operating costs and higher borrowing costs,” said Eric Chin, group chief business development officer for InCorp Global Pte. Ltd., a PrimeGlobal member firm. “The industry has been trying to pass the higher cost to clients, though there is a limit to how much cost can be passed.”
Imran Assan, director of MGI Alliance PAC, an MGI Worldwide member firm
Paul Tan, chairman of Nexia Singapore PAC, has found customer demands for corporate services remain high. However, fee pressure has intensified resulting in many Request For Proposals (RFPs) by both existing and potential clients. “Hyperinflation and uneven sectorial recovery in post-Covid are the main reasons for the fee pressure,” he said. “Global economic and geopolitical uncertainty will weigh on managements’ mind. Hyperinflation, rising interest rates and complications by slowing global economies will likely see many, if not most, businesses holding back on expansion plans. Professional service providers, generally recession proof, are expected to face greater fee pressures.”
Like many firms around the world, Angeline Tan sees the only way to thrive in the future is to offer more than compliance driven work. “We have been widening our suite of integrated offerings to cater to the broader needs of our clients,” she said. “Beyond audit and accounting, we are seeing a spike in demand for our sustainability and risk advisory services. As the world transitions to a green economy, we are actively helping our clients navigate their increasingly complex ESG journey.”
Eric Chin, group chief business development officer for InCorp Global Pte. Ltd., a PrimeGlobal member firm
Crowe is one of the two homegrown fund administration service providers. In tandem with Singapore’s growing efforts to increase its influence as a global asset management hub, Crowe has been seeing more queries for fund administration, as well as serving more VCC clients and fund managers. There is an increase in demand from high-net-worth individuals and family offices for its tax planning services. And while recession is stalking Singapore, respondents are confident that there will be plenty of business for accountancy firms in the coming year. According to Eng Kian Lee, managing partner of PKF Singapore, this growth will be driven by a number of factors, including the strong economic outlook for Singapore, the increasing demand for accounting services from businesses and investors, and the continued development of the financial services sector in Singapore.
“I also expect to see some further consolidation or merger activity in the accounting profession in Singapore in the next 12 months. This consolidation is likely to be driven by the same factors that have led to consolidation in recent years,” he said. “In addition, I expect to see continued growth in the demand for sustainability and ESG reporting, data analytics and visualisation, cyber security, and risk management services in the next 12 months.”
Paul Tan, chairman, Nexia Singapore PAC
Singaporean companies are looking more favourably at international expansion as companies in various sectors are looking at new growth opportunities outside of the country. Southeast Asia, North Asia and Europe expansion are the top three destinations, according to Chin. He agrees that there will be a continuing trend of consolidation in the industry – industry players acquiring actively via M&A across various segments of accounting and corporate services. “Global and large regional players are most active in MAs, particularly players in the fund administration space,” he said.
Due to the ease of doing business, Singapore continues to attract start-ups. This has resulted in higher demand for more non-traditional and specialised services, including advisory and valuation. Singapore has made it more attractive for funds and family offices to set up here and has started a new type of entity known as the Variable Capital Company (VCC) to cater to investment funds. “Paradoxically, SME firms continue to see increasing demand for audit services but have to turn away new audit business due to resource shortage, fee pressure and the increasing regulatory oversight,” said Assan.
Patrice Tze, Managing Director, First Island Fiduciary Services Pte. Ltd., a Kreston Global member firm
But one of the biggest areas of new growth for accountancy business will be green, according to Patrice Tze, Managing Director, First Island Fiduciary Services Pte. Ltd., a Kreston Global member firm. “The Singapore Government in 2023 has taken bold steps to tackle climate change under the Singapore Green Plan 2030. The Sustainability Reporting Advisory Committee has recommended mandatory climate reporting for listed and large non-listed companies. Climate Reporting will align closely with climate-related disclosures mandated by the International Sustainability Standards Board. Companies which qualify for climate reporting will be required to obtain external assurance on Greenhouse gas Scope 1 (direct emissions from owned or controlled sources) and Scope 2 (indirect emissions from the generation of purchased energy) emissions. Climate Reporting is expected to commence in 2025 for listed companies, while the mandatory CRDs by large non-listed companies with annual revenue of at least SGD1 billion will start from financial year 2027. A review is recommended in 2027 with a view to mandate reporting by large non-listed companies with annual revenue of at least SGD100 million by around financial year 2030.”
While Singapore has financial troubles, the mood amongst respondents is buoyant. There is money to be made and lots of positive investor activity. However, it is not a level playing field and it remains to be seen how many local SMEs will be left standing in a year.