The name is the game

Depending on what benchmark is used, Laya Mananghaya & Co. is either the third or fourth largest auditing firm in the country today. It is third in terms of revenues and fourth in terms of number of staff.

"We would be happy being number one in terms of service," said Laya Mananghaya chairman Jaime Laya. "We want to be known for our good professional reputation. We have lost clients and we have turned down potential clients because we did not want to compromise our accounting standards."

Laya Mananghaya is currently a member of KPMG International, one of the world’s "Big 6" auditing firms. That global tie-up has added to the company’s bottom line. An example is the company’s Japan Business Practice Unit, a partnership with Asahi & Co. A fellow KPMG member and the largest auditing firm in Japan, Asahi is the auditing firm of 20% of Japan-based parent companies with subsidiaries in the Philippines.

"Each country has different audit practices. In the case of multinational companies, this is further complicated by the need to consolidate financial statements. We provide the local support–call it a cushion– needed by our clients in Japan. They feel more comfortable doing business through us," said the unit’s executive director Yoshiaki Endo.

Growth

Laya & Mananghaya had a less than auspicious start in 1986.

"Nobody wanted to touch it because of my connections with the previous administration," said Laya, who served as Education Secretary and as Central Bank Governor under President Marcos. "There was a long period of build up before the firm began to grow dramatically with the entry in 1998 of Mario Mananghaya."

Like other players in the industry, Laya Mananghaya’s growth has depended on the number of its partners, who bring into the firm their own clients.

"The problem with growing too fast is there may be more clients than competent partners available. Timeliness or the ability to respond quickly and the quality of service may suffer with bigness," said tax and corporate services principal Francisco Tagao.

Last year, accountancy/auditing provided a huge chunk of the firm’s revenues , largely due to the voluntary assessment program of the Bureau of Internal Revenue. The firm also offers tax and legal services, management consultancy, and other professional services.

"This is not inconsistent with corporate governance. As auditor, the firm will know the finances of the company so it would be fairly simple to design other non-accounting services. If the company goes elsewhere, it would be more expensive because the new firm will have to start from scratch," said Laya.

The learning curve (and the additional cost that goes with it) is also an issue in allowing foreign certified public accountants to practice in the country. Reciprocity or allowing Filipino CPAs to practice in another country is another issue.

"I see more local firms accepting foreign partners but I don’t see more mergers among local firms. It boil down to who will be boss and the valuation of assets of the merging firms. There is also the issue of career progression for the staff of the two merging firms," said Laya.

Trends

In the short term, big auditing firms like Laya & Mananghaya are expected to generate additional business as the BIR’s computerization program begins to reconcile the value-added returns of corporations in an effort to catch tax evaders.

The industry is also preparing companies for 2005, the deadline set by the Philippines to adopt International Accounting Standards. Right now, the country doesn’t have standards that correspond to 15 IAS provisions.

"Compliance with IAS will obviously affect the presentation of the financial statements of many Philippine companies," said Laya.

For example, the IAS requires the immediate recognition of all foreign gains or losses rather than the Philippine practice of deferring the gain or loss until settlement and, possibly capitalizing losses related to assets.

"This IAS provision could lead to significant changes in the financial picture of Philippine companies with foreign exchange liabilities, particularly asset-heavy public utility companies since they have substantial fixed assets funded by foreign borrowings. They are also subject to specialized public utility accounting and regulatory rules and are able to cover the additional cost through automatic rate adjustments," said Laya.

In the long haul, Laya Mananghaya is banking on its people to give the quality of service expected by its clients.

"The secret to this business is to recruit, train, and retain the best. The clients will follow," said Laya.