Discretionary advisory services in the local scenario : past, present and future

Abstract

Purpose: The primary objective of this study is to obtain an in-depth understanding of the discretionary advisory services (DAS) market and determine the effectiveness of accountants in such an advisory capacity. This study aims to explore these central themes in the context of the past, present and the future. Design: A thorough literature review serving as the foundation of the study was initially conducted. In fulfilling the objectives of this dissertation, it was necessary to adopt a qualitative approach. This involved eleven in-depth semi-structured interviews with advisory professionals within the key local audit firms which were subsequently thematically analysed. Findings: Malta’s development into a financial sector and the level of continuous economic growth experienced have driven the substantial development of the local DAS offering. The strongest identified service lines were corporate finance, valuations and transaction strategy, while the least developed were actuarial services, climate change and sustainability services. DAS are demanded across all economic cycles due to their dynamic, extensive and valueadding nature. Key local audit firms recognise DAS as a significant revenue generator offering high profit margins, an opportunity at developing client relationships and possessing significant growth potential to be pursued via horizontal expansion or specialisation. A number of strategic considerations must be addressed with the introduction of the EU legislation to reform the statutory audit market and in line with the mature local audit market. The pursuit of fulfilling this growth is limited by the shortage in the labour supply. Human capital is crucial in the provision of DAS and multiple professionals have the capacity to be capable advisors. Accountants need to broaden their view point, possess strong business acumen, develop specialisations and soft skills to maximise their importance as value-adding professionals. Conclusions: Key local audit firms are perfectly positioned providers of DAS as the joint provision of audit and non-audit services allows these firms to benefit from knowledge spill overs and economies of scale, and to engage in strategic pricing competition across the two markets. The arising independence considerations can be managed effectively. A significant investment is made in developing competent advisors. The definition of the accounting profession will inevitably broaden to address market demand and ensure the value-adding capacity. Alternative DAS providers in the form of non-audit advisory firms may enter the market. Value: This research provides extensive insight into the dynamic nature of the growing DAS market and the evolving role of the accountancy profession from the provision traditional services to acting in a more advisory capacity.