Beijing – October 28, 2009 – IFAC Small and Medium Practices Forum IFAC Small and Medium Practices Forum 2009 Beijing – October 28, 2009 Giancarlo Attolini IFAC SMP Committee Member, CNDCEC SMPs Adapting to the Economic Turbulence and Laying Foundations for Sustainable Growth

Beijing – October 28, 2009 – IFAC Small and Medium Practices Forum Impact of Economic Crisis Italy About 6 months later than USA Stock market has not recovered yet from big crash Property prices down, construction sector paralyzed The worst is still to come GDP still decreasing Q2 decrease bigger than Euro area (6% vs 4.8%) Industrial production -18.3% Unemployment rising Q2: still less that Euro area (7.2% vs 9.6%), strong State intervention Downturn will probably continue until mid-2010

Beijing – October 28, 2009 – IFAC Small and Medium Practices Forum Impact of Economic Crisis Italian SMEs SMEs are more than 95% of Italian enterprises Biggest share of GDP Big credit crunch Lending to SMEs has decreased Italian banks are very conservative and tightly overseen  not a single bank failed or needed State intervention  still very afraid to lend (restarting now) SMEs are more resilient in times of crisis Quicker to adapt to changing circumstances Job losses are mainly in big companies State welfare support has helped most SMPs keep their skilled workforce

Beijing – October 28, 2009 – IFAC Small and Medium Practices Forum Impact of Economic Crisis Italian SMPs 110,000 accounting and auditing professionals in Italy (pop. 60 million) More than 95% work in SMPs SMPs are the closest allies of SMEs SMEs suffering credit crunch are not paying bills Price competition on low-value added services gets tougher SMPs are SMEs, after all Big professional practices have started to lay off workers (most in big legal practices) Professional services are not covered by State wages integration scheme SMPs in weaker areas starting to suffer

Beijing – October 28, 2009 – IFAC Small and Medium Practices Forum Adapting to changing times Italian SMPs Italian SMPs are allowed to offer a big variety of services: Accounting, Auditing Tax compliance, Tax litigation Valuation services Management consulting services Legal advice (excluding litigation) Arbitration and conciliation Judicial services Bankruptcy and insolvency etc.

Beijing – October 28, 2009 – IFAC Small and Medium Practices Forum Adapting to changing times Italian SMPs Pay close attention to credit collection and creditworthyness This is the biggest short-term risk Adapt your service offer to a changing market Financial management is a must, both for SMPs and SMEs SMEs need help in improving cash budgeting and putting tighter financial management in place SMEs need help in accessing credit and getting banks to lend (e.g.: State loan guarantee fund) Consulting for restructuring and reorganizing

Beijing – October 28, 2009 – IFAC Small and Medium Practices Forum Building a sustainable structure Italian SMPs Move towards higher value added services e.g., Move away from basic tax compliance Skim your customer base Dump problem clients, slow payers, low-margin Concentrate on higher-margin business Keep your costs under control Plan for no growth or negative growth Resize cost structure accordingly

Beijing – October 28, 2009 – IFAC Small and Medium Practices Forum CNDCEC Helping SMPs Constantly working to expand areas of work for members: Transfer of company shares, new law passed Insolvency procedures: Courts may outsource to accountants most of the forced sale process Arbitration and conciliation services (new law draft: alternative dispute resolution compulsory before recourse to Civil Court) Big CPD effort on company restructuring, financing, bankrupcty procedures and “Chapter 11” reorganization

Beijing – October 28, 2009 – IFAC Small and Medium Practices Forum CNDCEC Assurance services Assurance Big effort to translate and implement ISAs Most worried of effect that ISAs will have on competitiveness of SMPs in the audit market (EU Commission says SMPs are likely to have cost disadvantage)  Need to further adapt standards to SMEs and SMPs

Beijing – October 28, 2009 – IFAC Small and Medium Practices Forum CNDCEC Alternative assurance services Alternative assurance Working very hard to defend and strengthen the role of Collegio Sindacale (the Italian way to alternative assurance) Collegio sindacale new law due out this week should increase the number of companies subject to collegio sindacale supervision A unique form of on-going assurance, based on a close, long-standing relationship and deep knowledge of the client by independent auditors who take part in all board meetings and follow closely every step of the company Companies with a collegio sindacale have a failure rate of 40% less than those without

Beijing – October 28, 2009 – IFAC Small and Medium Practices Forum I am a Partner in an SMP … and that’s my real job! A real SMP 3 partners (2 accountants/auditors, 1 lawyer, all worked in SMEs before starting a practice) 9 professional staff, 4 office/secretarial workers Always had revenue growth in the higher two-digits Based in one of Italy’s economically strongest areas Focusing on the needs of Enterprises Merger & Acquisitions Full range of legal services in company and commercial law Valuation services Strategic and management consulting Tax consulting and planning Auditing Tax and accounting compliance

Beijing – October 28, 2009 – IFAC Small and Medium Practices Forum How to cope with the crisis … in a real SMP Changing things fast Set 0% growth budget for 2009: will likely grow 5% Set 0% growth budget for 2010: keeping costs down Cut costs very early, before crisis hit: 3 office staff outplaced with clients/banks before end of 2008 (human resources very scarce at that time) Decided to terminate a few clients, with no regrets; in two cases decided to collect credits forcibly to terminate relationship (all low-margin) Decided to extend credit to “good”clients in financial distress Significant increase in fixed pay for all staff at mid 2009  need to motivate and reward

Beijing – October 28, 2009 – IFAC Small and Medium Practices Forum Working for Sustainable Growth … In a real SMP Reacting quickly to market-driven demand and environmental changes Big growth in 2009 in financial management consulting Looking for bright new law and accounting graduates for first-time jobs as supplies gets much more abundant: ideal time to build new capacity for the future Most professional staff went through financial management and restructuring courses Brains is all we have to sell! Profitability still unchanged in 2009, let’s hope for 2010

Beijing – October 28, 2009 – IFAC Small and Medium Practices Forum Thank you Giancarlo Attolini Member, IFAC SMP Committee