HONG KONG'S ARMY of small accountancy firms is being urged to prepare for the fallout from tight new measures regulating the profession following a spate of corporate scandals. For multinational clients, the so-called Big Four firms along with second-tier partnerships are immediately obliged to comply with demanding new auditing standards under the Sarbanes-Oxley Act in the United States. Most of the remainder of Hong Kong's 1,100 accountancy firms, known as small and medium practitioners, or SMPs, are only one-man bands serving their small to medium-sized enterprise (SME) equivalents in business. Repercussions in the profession are a result of pressure on the Big Four, and small operators cannot avoid them, warns the Association of Chartered Certified Accountants (ACCA). ACCA, which represents about half of Hong Kong's 25,000 accountants, said local SMPs faced risks and challenges in the coming era that could not be overlooked. Opportunities would arise for new business, said Rosanna Choi, co-chairman of ACCA's SME subcommittee. The extra workload demanded by new international rules had forced the Big Four firms to raise fees by a reported 8 per cent, and in some cases even more. 'There is a limit to how many more accountants they can hire for the extra work, so they are starting to screen out smaller clients instead,' Ms Choi said. She said this process would mean more work would go to smaller firms. 'The SMPs have been receiving more inquiries from listed company clients recently.' But just as in general business, 95 per cent of Hong Kong's small accountancy outfits had just one or two partners, so they are hardly likely to appeal to this emerging corporate market. 'To capitalise on the new demand, they will have to upgrade, which will mean finding more staff and raising salaries to attract more qualified and experienced accountants,' Ms Choi said. But a severe shortage of accountants in Hong Kong as a result of recruitment drives by the Big Four means the SMPs might be forced to look for talent elsewhere in the region. Ms Choi insisted that SMPs could not afford to ignore the potential for new business because they could soon lose their bread-and-butter livelihoods. Most depend on auditing for small businesses, since Hong Kong regulations insist that every company, no matter how small, produces accounts with tax returns. But Ms Choi warned: 'The global trend is to waive the necessity for small firms to produce audited accounts, and Hong Kong is also moving in that direction.' Government consultations are already under way over the issue but, Ms Choi said, with so many small accountancy practices depending on the business, change might take a few years. 'There are a lot of livelihoods at stake. But this area of business will dry up eventually,' she said. In place of auditing for small enterprises, Ms Choi believes SMPs should follow another global trend and focus more on business advisory services. 'When some SMEs become exempted from audits, SMPs could provide quality business advice instead, opening up a new area to replace standard accounting.' She said the accounting profession globally was moving into business consulting. 'In Europe, most professional accountants are now already business advisers rather than auditors.' Advice could range from strengthening organisations by reviewing internal controls to fund-raising and flotation assistance, pricing strategy and more sophisticated operations such as e-trading and product development. 'Trained experts are needed in all these areas but a more sophisticated range of skill sets is required of accountants,' Ms Choi said. For this reason, ACCA has embarked on a number of training and business advisory initiatives. The SME subcommittee aims to be a bridge between SMEs and SMPs. The opening of the China market - with the prospect of mainland firms entering the Hong Kong market at competitive rates - presents yet another challenge for small accountancy firms. 'There are still discrepancies between the two systems, so convergence has a long time to go. But in time it will happen,' Ms Choi said. 'On the face of it, the opening of China seems like an opportunity, but there is also risk.' To face the challenges, Ms Choi is convinced that mergers and acquisitions among small accountancy firms are inevitable.