Rankings report – PERU

New Peru government to set tone for accounting industry growth

Recovery from Covid is going to be slow for Peru. A period of high inflation is forecast for a country that saw iGDP plummet to a 21-year low in 2020. While there is growth across most sectors, the business community is waiting to see how a new government will navigate the country through the next 18 months. Che Golden reports


ovid triggered a recession in Peru, pushing GDP off a cliff after 21 years of continuous growth. Accountancy firms are reorganising their services as clients adapt to the post-Covid world and demand more value-add from their business partners.

“This has led to a dramatic decrease in demand for professional services and it is unlikely the business environment will improve until mid-2022,” says Florentino Urbizagástegui Pacheco, partner at Urbizagástegui and Associates, a Nexia member firm. “This situation is having a negative impact on staff retention due to the high labour costs for keeping a permanent worker, which amount to 43%.”

Angel Saco, partner at Ramirez, Saco and Associates, an MGI member firm

Recessions can lead to opportunities, however, as pointed out by Angel Saco, partner at Ramirez, Saco and Associates, an MGI member firm. “There has been an increase in the outsourcing of accounting, tax and payroll services, and that is an opportunity for firms like ours,” he says. However, the flip side of the coin is that now there is strong competition in the market, in which the added value or additional services that firms must offer to clients are a determining factor for companies when choosing a service provider.”

While Saco has seen the supply of accountancy professionals increase, he has concerns about the skills that are on offer. “We find their expertise and quality is not uniform, so our recruitment, selection and retention processes have become more exhaustive and demanding.”

The shift away from audit means accountancy firms are more attractive to potential staff. “People used to want to work at a company instead of an auditing firm,” says Luis Miguel Pierrend Castillo, managing partner of BDO Peru. “Now, thanks to remote working, more people are applying for audit and BSO (Business Services and Outsourcing) work. We are doing our audit recruitment process next month and we need to hire around 25 people and around the same number for BSO. Our retention in BSO is around 70%, which is a problem. In audit, we retain around 90%.”

Patricia Rocha, senior manager at TPA advisors, a PrimeGlobal member

Hiring across the board is down, though. Renzo Medina Vassallo, principal consultant at Roncal, D’Angelo and Associates, a member of Crowe Global, predicts a weak hiring rate of -2% in the services sector in general. While firms may have no problem filling vacancies now, the current depression in hiring will have a knock-on effect.

“It is clear that every year, fewer people are choosing to enter the accounting profession,” says Victor Requena, partner at Requena, Rodriguez and Associates, an Allinial Group member. “This will have a higher impact in the years ahead. It is important that accounting firms continue to go to universities and schools to promote the profession and look for potential staff.”

Fees have also been affected, with many firms having to lower them to retain clients and win new business. “Demand for accounting services and financial auditing has decreased in some sectors,” says Martin Quevedo Malca, quality control partner, Kreston. “Some sectors such as retail, laboratories, and clinics did not suffer. However, the other sectors where we have a presence did have problems - in several cases, we lost customers and in others, we had to lower our fees.”

Malca says Kreston Peru has had to look at reorganising its offerings to stay competitive. “The financial audit service is no longer the main income of audit firms and it is the accounting outsourcing, payroll and consulting related to accounting that is bringing in revenue,” he says. “We are preparing strategies to reorient ourselves to offer accounting consulting and basic issues of limited reviews - reviews that go hand in hand with much lower fees than an ordinary financial audit. Business process outsourcing is another area we are focusing on.”

Luis Gutiérrez Rios, partner at MGI Gutiérrez Ríos and associates

Internal financial pressure is forcing clients to consider partnering with accountancy firms they might never have considered before. “The pressure to maintain or lower audit fees has led a significant number of companies that were traditionally served by large service firms to turn to medium-sized firms whose administrative and cost structure allow them to be more competitive,” says Salco.

Patricia Rocha, senior manager at TPA advisors, a PrimeGlobal member, advises accountancy firms to look for a particular type of client. “It should be noted that those companies that are permanently reinventing themselves are the ones that request accounting services to keep their information up to date, learn about new reactive programmes, accounting and tax management in order to avoid possible contingencies,” she says.

However, finding new clients does not have to be all about re-inventing yourself. Not every sector suffered in the pandemic and it accelerated Peru’s digital economy.

Luis Gutiérrez Rios, partner at MGI Gutiérrez Ríos and associates, has seen growth in recent months in specific sectors. “Fishing, manufacturing, construction, telecommunications, and finance and insurance sectors have weathered the pandemic well,” he says. “Professional services to these sectors have not been so adversely affected.”

Pacheco feels that Covid has been a milestone in Peru’s digital economy. “Before the pandemic, only 1.5% (about 65,800) of companies sold through the e-commerce channel in Peru,” he says. “After the pandemic, the number of companies that entered e-commerce quadrupled and by the end of 2020, 5% (more than 260,000) were selling online.”

“There are still around five million companies that do not sell through that channel yet, because there is still much to be done regarding digital transformation of companies, which means the industry has a lot of space to keep growing this year and in the coming years.”

Martin Quevedo Malca, quality control partner, Kreston

Digitisation of their own organisations is something companies must prioritise and not just to realise cost savings. Requena warns that in a pandemic, internal controls sometimes slip and this can create opportunities for irregular acts and, in some cases, fraud. Based on this situation, forensic and cybersecurity and IT consultancy services are showing an increase in demand.

Salco also sees a growing demand for company and brand valuation services. Accounting-financial, tax and labour due diligence services have been more dynamic due to business restructuring, mergers and acquisitions of various companies, while the outsourcing of accounting, tax and payroll services has grown in the last 18 months.

All this tentative growth will have to be managed carefully in the short term as higher than expected levels of inflation will further depress the economy. “The expectation of the Central Reserve Bank of Peru (BCRP) is that inflation for 2021 is outside the target range of 1%-3%,” says Rocha. “However, a fall is expected for mid-2022, with a return to the target range for December that same year. For the remainder of 2021 and 2022, a recovery in economic activity is projected, given the recovery of our main trading partners and the rise in terms of trade favourable to our country.”

“Regarding the financial sector, an abrupt outflow of foreign capital would generate upward pressure on the exchange rate and, consequently, higher expected inflation. For this reason, it is necessary for the country's political authorities to normalise their actions and provide calm to economic agents, to promote trust, with the legal, political and economic stability necessary for investments.”

Renzo Medina Vassallo, principal consultant at Roncal, D’Angelo and Associates, a member of Crowe Global

Peru has recently installed a new government after a protracted election process that saw a run-off between the two main candidates and a delay in inauguration amid accusations of electoral fraud. As a result, the administration has barely settled in and the Peruvian business community waits to see how it will be affected by the new regime.

“Considering the political profile of the president and new government, the adequate management of the economy, with no significant changes in rules of ‘doing business’ will contribute to maintain a relative stability in the market and confidence of investors, local and foreign, to maintain their interests in the country,” says Requena. “Otherwise, the impact could be negative for the business sector. We will have to wait and see – I am optimistic but recognise a level of risk.’

Vassallo thinks that Peru will pull itself out of the doldrums. “Taking into account the current political and economic situation, it is difficult to tell what the future projections would be in the commercial sector, including the accounting industry,” he says. “However, due to the flexibility of social distancing measures and the speed of the national vaccination campaign against Covid, it is likely that the commercial activity of all sectors of Peru will continue the growth that has been registered so far.”

Regardless of the political upheaval, changes to accountancy regulations have been going on in the background. In the last quarter of 2020, the Accounting Regulatory Council (CNC) made official the International Financial Reporting Standards for Small and Medium-sized Entities in order for them to be applied by companies and entities that do not have public accountability and publish general purpose financial statements for external users.

The General Directorate of Public Accounting, approved in the second quarter of 2021 the International Accounting Standards for the Public Sector, issued by the International Public Sector Accounting Standards Board of the International Federation of Accountants, whose latest version in Spanish corresponds to the 2020 Edition.

“In terms of IFRS, there is still a large group of private companies that have not adopted it,” says Requena. “The process is slow, but the trend is positive. In terms of audits, the revised ISA regarding independent auditor report is not yet in force. However, the Peruvian SEC, which regulates and supervises public entities, is requesting that listed companies file their 2021 financial statements including an audit report based on the corresponding revised ISA - this will be clear in 2022 Q1 at the time of filing.”