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August 27, 2009

Guigard interview: Under construction

The Italian accounting profession is beset by a series of challenges according to Johannes Guigard. The industry veteran tells Carolyn Canham about a critical pensions dilemma and shares his thoughts on a lack of leadership at the national level.

The global financial crisis is affecting the accounting profession in many jurisdictions but Italy is feeling it worse than most. A survey of Italian firms by the International Accounting Bulletin in April this year found the economic downturn was affecting the revenue of firms. The survey revealed market growth of just 3 percent, the worst result for Italian firms in at least five years. The growth was also the lowest among any markets the publication had surveyed over the previous 12 months and considerably less than the 14 percent increase in combined revenue reported in the 2007 Italy survey.

The profession has not been helped by the performance of Italy’s economy. The GDP contracted by 1 percent in 2008. The International Monetary Fund predicts a 5.1 percent contraction in 2009 and 0.1 percent contraction in 2010.

One factor that could be exacerbating the effects of this downturn on the profession is an oversupply of qualified accountants. Italy has more than 100,000 professional accountants in a population of 60 million.

In comparison, according to The Accountant data there are about 30,000 professional accountants in Germany, which has a population of 82 million; France has about 18,000 professional accountants and a population of 65 million.

The UK has a far higher concentration of professional accountants than Italy, let alone the other European countries, with a population of 62 million and more than 200,000 members of the five chartered accountant bodies (not counting those based overseas and those who are retired or honorary).

Fierce competition

The combination of a glut of professionals and the recession means there is not enough work for accountants and industry veteran Johannes Guigard says competition is fierce.

Guigard is a member of the Milan chapter of Italy’s National Institute of Accountants (Consiglio Nazionale dei Dottori Commercialisti ed Esperti Contabili – CNDCEC). He is also a member of the European Financial Reporting Advisory Group SMP working group, chairs the Federation of European Accountants (Fédération des Experts Comptables Européens – FEE) company law task force and sits on the United Nations Conference on Trade and Development Intergovernmental Working Group on International Standards of Accounting and Reporting.

Guigard says the fierce competition is amplified by the fact that there are too many micro-practices.

“The practice is normally me and my wife, me and my brother, me and my son – that’s it,” he says. “There are just two of us plus maybe 3 to 5 people working for us. As you are mainly a boutique, when clients start to become fewer or start asking for fewer services, what can you do? Not much.”

It is a difficult problem to rectify, Guigard explains, as everyone wants to remain as boutique practices.

“It is very difficult to say ‘let’s merge, let’s pull together, let’s buy a building of 10 floors, maybe put the payroll men on the first floor, the budgetary controllers on the second floor, the accountants on the third floor, it is impossible, simply impossible,” he adds.

Stiff competition

On top of the challenge created by this inflexibility is the fierce competition from the Big Four, law firms and payroll service providers.

Guigard says the divide between the Big Four and the rest in Italy is more extreme than anywhere else in Europe.

According to International Accounting Bulletin data, the average annual revenue of Big Four firms in Italy is 10 times the revenue of the largest mid-tier firm, Mazars. In comparison, the average revenue of Big Four firms in Germany is six times that of the largest mid-tier firm, BDO; the average revenue of Big Four firms in France is less than three times more than the largest mid-tier firm, Mazars; and the average revenue of Big Four firms in the UK is five times that of the largest mid-tier firm, Grant Thornton.

“[The other Italian firms] don’t really have much in common with the Big Four,” Guigard says. “The Big Four have a big structure, they have a big perfectly working system, they have big profits and of course they have the best clients because when anyone from outside Italy opens up an office in Italy they employ one of the Big Four.”

There is also significant competition from law firms.

“In the past 10 years law firms have grown in importance in Italy because of firms coming from abroad, all the big international names opened in Italy – in Milan and Rome,” Guigard says. “There are also some very good Italian law firms and law firms in Italy can have 50, 60, maybe 100 lawyers, while it is very difficult to find any accounting firm that has more than 20 people.”

On top of the Big Four and the law firms, there is competition from payroll service providers. Guigard says there is a payroll service association and theoretically service providers need to be qualified, but it is difficult to set boundaries for what non-professionals can and can not do.

“We have non-qualified competition from people coming, for instance, from the public offices, people working in the receiver office for instance,” Guigard says. “So now [professional accountants] are suffering.”

Combining institutes

It is mandatory for Italian accountants to be members of Italy’s national professional body, the CNDCEC.

The CNDCEC formed officially on 1 January last year when the two original professional bodies, the Consiglio Nazionale Dottori Commercialisti (CNDC) and the Consiglio Nazionale dei Ragionieri (CNR) merged. The law permitting the merger was passed in 2005 and the entire process, from start to finish, took about 10 years, Guigard says.

There were some very good reasons for the two institutes to merge, including the fact that activities performed by members were “more or less the same”, Guigard explains. But there was one major stumbling block: the dwindling numbers of ragionieri and the repercussions this will likely have on pension funds.

The ragionieri were the members of the former CNR. Before entering the profession they were required to obtain a high school diploma. This changed about 10 years ago when the Italian university system came in line with new European norms. This meant the prospective ragionieri had to complete a three-year university degree.

Members of the former CNDC are called dottori commercialisti. Before entering the profession they need to complete five-year university degrees. Once they enter the profession they must practice for three years before they are fully qualified.

Guigard says the changes made to the ragionieri prerequisites led to far fewer people entering that stream of the profession – preferring instead to work towards becoming dottori commercialisti.

Falling ragionieri enrolments led to the profession fearing for the future of their pension plans. The pensions of professionals in Italy, for example accountants, lawyers, architects and engineers, are paid through profession pension funds. Contributions are made by individuals during their careers and they can begin receiving a pension when they are 65-years-old.

“The problem is… in 30 years time there will not be money enough to pay the pensions to the ragionieri who retire as there would be not any more newcomers, but a lot of pensions to be paid out,” Guigard explains.

The pensions factor was key in merger discussions and Guigard says it remains a hot topic today as the funds remain separate. The ragionieri would prefer a merged pension fund, but many dottori commercialisti are unhappy with the thought that in 20 to 30 years young dottori commercialisti will be paying the pensions of the old ragionieri.

In Guigard’s opinion, the reasonably new CNDCEC is not doing nearly enough to help its members battle the challenging times.

Sitting below the national institute are about 140 local chapters that are based on Court of Justice jurisdictions. Each chapter is independent and has elections every five years. They must, however, follow the rules set out by the national institute.

“But the national institute is not working much, I must say,” Guigard comments.

A lack of direction at national level leads to problems addressing issues affecting members.

“Some things you can do at local level,” Guigard says. “For instance if in your region there are some important issues then of course it is the local members who must tackle the problem of finding a solution. But if the things are at a higher level, such as international affairs, there must be something coming from the national institute. It is difficult.”

Italy is not as attuned to the international profession as it should be, Guigard says. For example, there is a lack of international events and thought leadership.

“We need to go international but if we really want to go international we need somebody doing something to push it,” he says.

Guigard says that although the Italian institute is represented on bodies such as the FEE, there is little evidence of this back in Italy.

“If you are working in the FEE and you produce a paper, it would be interesting if this paper was posted on the Italian institute website so that people know we have produced something, but that is not the case,” he says.

The profession also needs to become involved in public policy. For example Guigard says there is currently no input when the state is passing a budget.

“That is something we should be doing but of course that needs to be organised,” he says. “[National institute board members] should be promoting the profession. They should be lobbying to put the profession at the centre of the economic decisions and working on the international basis… They should also have national working parties working on matters such as tax and IFRS.”

The national institute is run by a board of 21 people. The figure combines the 11 national board members at both the CNDC and the CNR, cut to 21 to allow a majority. Members are elected every three years. However, because of the merger, the board that was elected in 2008 will stay in power until the end of 2012 to foster stability during the transition period. Guigard says historically there was a good system for electing the board.

“In the past there was competition between the individuals, it was possible for anybody to put forward his name for a position on the national board. He just developed a plan and proposals and travelled around Italy trying to obtain support from the local institutes, who vote for the national institute members.”

Now the system is different. Guigard says candidates must now form parties that together build political campaigns. The local institutes then vote for the group as a whole. In the most recent election there were two such groups.

The last election was also split between the dottori commercialisti and the ragionieri. In the future the two professions will be combined and the same group will represent everyone.

Seeing the positives

Despite the challenges facing the profession, Guigard remains optimistic. For example, he says accounting is still an attractive option for students.

“It is clear that if you go for a degree in economics it will be easy for you to get a job,” he says. “In any case we have a large number of dottori commercialisti so we can’t complain that there are not enough.”

He is also hopeful that the profession will be able to solve the issue of the pension funds and work towards consolidating firms.

“Putting people together and trying to come out with bigger accounting firms instead of having these individuals who have their own practice will make us stronger and more competitive,” he explains.

“I see that now the situation is a little bit different for everybody, but there is not a big crisis, people are not saying ‘we don’t know how to survive’. So after all the profession is still working well, it is well respected, probably we should be stronger in the control of the national board, but these are political issues.” 


Population: 60 million

Labour force: 25 million

Labour force by occupation: Services 65 percent, industry 31 percent, agriculture 4 percent

GDP growth 2008: -1 percent

GDP projected growth 2009: -5.1 percent

Market value of publicly traded shares: $1.07 trillion (2007)

Source: CIA World Fact Book

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