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tl;tassey University libr N ary ew Z I d ea an & Pacific Col/ec4-: - on 
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THE SMALL BUSINESS EXPERT ADVICE GAP z;7.00 
AND THE ROLE OF PUBLIC ACCOUNT ANTS 
A thesis presented in partial 
fulfilment of the requirements 
for the degree of 
Doctor in Philosophy 
In 
Accountancy 
at Massey University 
ALAN FERGUSON CAMERON 
1992 
ABSTRACT 
Small business allegedly has a shortfall in accounting and related business 
expertise. Public accountants have been criticised for not adequately meeting 
this need thus creating a small business expert advice gap. The implication of 
this criticism, if true, is that public accountants are not performing the role 
expected of them by society. 
Commentators have referred to various barriers which prevent public accountants 
from meeting small business needs for their services. However, there has been 
little attempt to structure these factors into a consistent conceptual framework. 
This thesis develops and tests such a conceptual framework as a necessary 
prerequisite towards narrowing such a gap. A large-scale survey of small firms, 
public accountants and third parties was undertaken in New Zealand in 199 1  to 
explore the role of public accountants in relation to small business and the 
factors inhibiting the discharge of that role. It was found that the main role 
expected of public accountants is to provide compliance services, give 
accounting-related advice, be concerned for clients ' financial health and actively 
seek out client problems (which was not, however, generally perceived to be 
actually carried out in practice). An expectation gap was found between 
expected roles and actual roles except for the provision of compliance services. 
Of the twenty-eight factors postulated as causing a small business expert advice 
gap, thirteen factors were perceived as causing a gap, ten factors were not 
perceived as causing a gap and opinion was divided on the remaining five 
factors. The main gap factor is the small business wish to use only the 
minimum of public accountants ' compliance services. This is attributed mainly 
to cost-constraints on the part of small business rather than a perceived lack of 
public accountant competence to supply other services. The main gap factor 
attributable to public accountants is their lack of communication skills. On the 
question of fees, public accountants regard their fees as being reasonable, but 
small business and third parties regard them as being unreasonable. Further 
analysis revealed that whereas compliance services are regarded as cost­
beneficial, opinion is divided as to the cost-effectiveness of business advisory 
services. Compliance services are perceived as being of high quality but many 
business advisory services as being of lower quality. This indicates a 
performance gap in the area of public accountants ' business advisory services.  
A perception gap is indicated by the fact that public accountants , small business 
and third parties have significantly different opinions concerning the role of 
public accountants, the quality of their services, and the factors causing an expert 
advice gap. Public accountants generally take a more favourable view of their 
own role and performance than do small business and third parties. 
To narrow the small business expert advice gap, public accountants are 
recommended to adopt a more proactive approach, upgrade their communication 
skills, improve the quality and the cost-effectiveness of their business advisory 
services and reduce fees. 
ii 
ACKNOWLEDGEMENTS 
I wish to thank my supervisors Professor Philip Dewe, of the Department of 
Human Resource Management, Associate Professor Martin Devlin, of the 
Department of Management Systems, of Massey University, for the guidance, 
encouragement and patience that made the completion of this thesis such a 
valuable learning experience. 
I am indebted also to Professor Philip Gendall and Mr Zane Cairns, both of the 
Department of Marketing, for assistance with the questionnaire and the data 
analysis respectively and to Dr Kay Faulkner, of the Department of Economics 
for useful comments on the penultimate draft of the thesis .  Thanks are also 
extended to colleagues in the Division of Accountancy for their helpful 
suggestions and to Kay LeQuesne, Ruth Brodie and Sharryn Brickley for 
assistance in typing and layout. 
Thanks are also extended to the Coopers and Lybrand Peter Barr Fellowship, 
administered by the New Zealand Society of Accountants, for providing research 
funding which made the large-scale questionnaire survey possible and to the 
1 100 small business, public accounting and third party respondents who gave of 
their valuable time to indicate their opinions and provide comments without 
which this project would have been impossible . 
Finally, but not least of all, special thanks go to my wife and daughter for 
invaluable support. 
1 . 1  
1 .2 
1 .3 
1 .4 
1 .5 
1 .6 
2. 1 
2.2 
2.3 
2.4 
2.5 
2.6 
2.7 
2.8 
2.9 
2. 10  
T ABLE OF CONTENTS 
Chapter 1 
Overview of the Research Project 
Significance of the study 
Aim 
Objectives 
Scope and definitions 
Limitations 
Summary 
Chapter 2 
Small Business and Its Need for the Expertise of External 
Accountants 
Introduction 
Defining small business 
The significance of owner-management to small business 
The special problems of small business 
The small business need for advice from external experts 
The areas where expert advice is needed 
Causes of small business failure 
The crucial importance of financial management to small business 
Factors determining small business advice needs 
Summary and conclusions 
III 
1 
1 
3 
3 
5 
6 
7 
9 
9 
10  
1 2  
1 3  
14 
1 6  
1 7  
1 8  
19  
19  
3. 1 
3.2 
3.3 
3.4 
3.5 
3.6 
Chapter 3 
The Role of Professional Accountants in Relation to Small 
Business Clients 
Introduction 
The theory of role 
The role of professions 
The role ·of the accounting profession 
Professional accountants in public practice 
Services supplied by public· accountants to small business 
3.7 Compliance services and business (or management) advisory 
services 
3 . 8  
3 .9 
3 . 1 0  
3. 1 1  
4. 1 
4.2 
4.3 
4.4 
4.5 
Changes to public accountants ' services caused by computerisation 
Need for re-evaluation of the role of the accounting profession 
Small business ability to pay for public accountants ' services 
Summary and conclusions 
Chapter 4 
Evidence of a Gap between Small Business Advice Needs and 
Public Accountants '  Expert Services 
Introduction 
The concept of a small business expert advice gap in relation to 
public accountants 
Public accountants criticised for small business failure 
Public accountants not meeting small business needs for business 
advisory services 
Summary and conclusions 
lV 
21  
2 1  
22 
24 
28 
3 1  
33 
35 
43 
45 
48 
5 1  
53 
53 
54 
60 
6 1  
62 
v 
Table of Contents contd . . .  
Chapter 5 
Development of a Conceptual Framework to Explain a Small 
Business Expert Advice Gap in Relation to Public Accountants 64 
5. 1 
5.2 
5.3 
5.4 
5.5 
6. 1 
Introduction 
Expert advice gap: causal factors attributable to small business 
Expert advice gap: causal factors attributable to public accountants 
Analysis of the small business expert advice gap 
Summary and conclusions 
Chapter 6 
Literature-based Support for the Expert Advice Gap: Factors 
Attributable to Small Business 
Introduction 
6.2 Small business does not recognise its need for public accountants ' 
services 
6.3 Small business is unaware of the range of services offered by public 
accountants 
6.4 Small business is not adequately educated or trained to make full use 
of public accountants ' services 
6.5 Small business chooses not to make full use of public accountants ' 
services 
6.6 Small business owner-managers lack interpersonal skills in dealing 
with public accountants 
6.7 
6.8 
Small business cannot afford public accountants ' fees 
Small business mistakenly perceives public accountants ' services to 
be not cost-beneficial 
6.9 Small business has difficulty communicating with public 
accountants 
64 
67 
68 
72 
73 
75 
75 
77 
78 
80 
80 
8 1  
82 
83 
84 
Table of Contents contd . . .  
6. 10  Lack of time prevents small business from making greater use of 
public accountants ' services 
6. 1 1  Small business mistakenly perceives that public accountants are not 
competent to supply services of a satisfactory quality and/or 
quantity 
6. 1 2  Small business mistakenly perceives public accountants to be a threat 
to their independence 
6. 1 3  Small business seeks advice from public accountants when it is too 
late to solve the problem 
6. 14  Advice given by  public accountants i s  not implemented by  small 
business 
6. 15  Summary and conclusions 
Chapter 7 
Literature-based Support for an Expert Advice Gap: Factors 
VI 
84 
85 
85 
85 
86 
87 
Attributed to Public Accountants 89 
7 . 1  
7.2 
Introduction 
Public accountants are unaware of the small business need for their 
services 
7.3 Public accountants do not make small business sufficiently aware of 
their services 
7.4 Public accountants are not adequately educated or trained to provide 
business advisory services to small business 
7.5 
7.6 
7.7 
7 .8  
Public accountants choose not to make their expertise available to 
small business 
Public accountants lack proactive interpersonal skills in dealing with 
small business 
Public accountants overcharge small business for their services 
Public accountants ' services are not cost-beneficial to small 
business 
89 
90 
92 
94 
96 
96 
98 
99 
Vll 
Table of Contents contd . . .  
7 .9 Public accountants do not communicate in language understandable 
to small business clients 100 
7. 10  Lack of time prevents public accountants from serving small business 
to a greater extent 104 
7 . 1 1  Public accountants do not provide the range of services needed by 
small business 104 
7. 1 2  Public accountants do not provide the quality of services needed by 
small business 1 06 
7 . 1 3  Professional standards and guidelines relating to accountants ' expert 
advisory services are inadequate 1 07 
7 . 14  Lack of empirical research i n  New Zealand on  the interface between 
public accountants and small business 109 
7 . 1 5  Summary and conclusions 1 10 
Chapter 8 
Empirical Research Methodology 1 1 1  
8. 1 Introduction 1 1 1  
8.2 Principal objectives of the empirical research 1 12 
8 .3 Selection of the population to be sampled 1 12 
8.4 Sample of small business owner-managers 1 1 3 
8 .5 Sample of chartered accountants in public practice 1 15 
8 .6 Sample of third parties 1 15 
8.7 Selection of the mail questionnaire data collection method 1 1 8 
8 .8  Data to be collected: questionnaire design 1 19 
8 .8. 1 The small business questionnaire 1 20 
8 .8.2 The public accountant questionnaire 123 
8 .8.3 The third parties questionnaire 1 25 
8.9 Pilot study 128  
8. 10  Despatch, follow-up and return of questionnaires 129 
8 . 1 1  Response rates 1 29 
Table of Contents contd . . .  
8 . 12  
8 . 1 3  
8 . 14  
Statistical analysis of data 
Content analysis of respondent comments 
Summary 
Chapter 9 
Descriptive Analysis of the Small Business, Public Accountants 
viii 
1 3 1  
133  
1 35 
and Third Parties Sample Groups 1 37 
9. 1 
9.2 
9.3 
9.4 
9.5 
1 0. 1 
10.2 
Introduction 
Descriptive analysis - small business sample group 
Descriptive analysis - public accountants sample group 
Descriptive analysis - third parties sample group 
Summary and conclusions 
Chapter 1 0  
Statistical Analysis o f  the Role o f  Public Accountants in Relation 
to Small Business 
Introduction 
Method of obtaining perceptions of role-sender groups 
10.3 Method of determining the existence and location of significant 
differences between the three groups of role-senders 
1 0.4 Method of determining the existence of significant differences 
between the major sub-groups within the three groups of role­
senders 
1 0.5 
10.6 
Role of public accountants - analysis and interpretation of data 
Summary and conclusions 
1 37 
1 37 
144 
1 52 
153  
156  
156  
157 
158  
158  
159 
174 
Table of Contents contd . . .  
1 1 . 1  
1 1 .2 
1 1 .3 
1 1 .4 
1 1 .5 
1 1 .6 
Chapter 1 1  
Content Analysis of the Role of Public Accountants in Relation 
to Small Business 
Introduction 
Content analysis of respondent comments 
Public accountants actively seek out small business problems 
Public accountants wait for small business clients to state problems 
Pul5l.ic accountants as providers of compliance services 
Public accountants ' concern for clients ' financial health 
1 1 .7 Public accountants as members of the small business management 
team 
1 1 .8  Public accountants as agents of the Inland Revenue Department 
1 1 .9 Public accountants as providers of accountancy training to small 
business 
1 1 . 10 Public accountants as providers of accounting-related business 
advisory services 
1 1 . 1 1  Public accountants as advisors on general business matters 
1 1 . 12 Public accountants as providers of non-accounting business advisory 
services 
1 1 . 1 3  
1 1 . 1 4 
12. 1  
12.2 
12.3 
12.4 
Public accountants as counsellors to small business clients 
Summary and conclusions 
Chapter 12  
Statistical Analysis of  the Small Business Expert Advice Gap in  
Relation to  Public Accountants 
Introduction 
The range of services offered by public accountants 
Public accountants ' services used by small business 
The quality of public accountants' services 
IX 
177 
177 
179 
1 8 1  
1 84 
1 87 
190 
192 
193 
194 
195 
196 
196 
197 
198 
201 
201 
201 
204 
207 
Table of Contents contd . . .  
12.5 
12 .6 
12.7 
1 3. 1  
13.2 
1 3 .3  
1 3.4 
1 3.5  
1 3.6 
1 3 .7 
1 3.8 
1 3 .9 
1 3 . 10 
1 3 . 1 1  
1 3 . 1 2  
13.13 
1 3 . 14 
1 3 . 1 5  
1 3 . 1 6  
13.17 
1 3 . 1 8  
13.19 
Public accountants as business advisors 
The small business expert advice gap 
Summary and conclusions 
Chapter 1 3  
Content Analysis of the Small Business Expert Advice Gap i n  
Relation to Public Accountants 
Introduction 
Content analysis of respondent comments 
Public accountants' fees 
Quality of public accountants' business advisory services 
Range of public accountants ' business advisory services 
Public accountants ' communication skills 
Balance of tax compliance and business advisory services work 
Public accountants' interpersonal skills 
Non-use of business advisory services caused by lack of funds 
Public accountants do not adequately market their business advisory 
services 
Only minimal use of public accountants' services wanted 
Quality of public accountants' compliance services 
Public accountants should concentrate on business advisory services 
to a greater extent 
The cost-benefit of public accountants ' business advisory services 
The willingness of public accountants to supply business advisory 
services 
Public accountants ' training in business advisory services 
The threat of public accountants to small business independence 
The cost-benefit of public accountants ' compliance services 
The provision of non-accounting business advisory services by public 
accountants 
x 
2 16  
224 
242 
248 
248 
248 
249 
255 
258 
262 
265 
268 
270 
27 1 
274 
276 
277 
278 
279 
28 1 
282 
283 
284 
Table of Contents contd . . .  
1 3 .20 Small business lacks the time to organise the use of public 
accountants ' services 
13 .21  
1 3 .22 
The ability of small business to utilise business advisory services 
The implementation of advice received by small business 
1 3.23 The recognition by public accountants of the small business need for 
business advisory services 
1 3. 24 
1 3.25 
14. 1 
14.2 
14.3 
14.4 
14.5 
14.6 
14.7 
Remaining expert advice gap factors 
Summary and conclusions 
Chapter 14 
Content Analysis of General Issues Relating to the Interface 
Between Public Accountants and Small Business Clients. 
Introduction 
Content analysis of respondents ' comments relating to general 
issues 
The interdependence of public accountants and small business 
clients 
Public accounting practice issues affecting small business clients 
The variability of public accountants ' competence 
Potential legal liability for wrongful advice 
Public accountants should provide only compliance services 
14 .8 Public accountants should provide both compliance and business 
advisory services 
14.9 The reasons for small business clients retaining their public 
Xl 
285 
285 
286 
287 
288 
289 
292 
292 
292 
293 
295 
297 
299 
300 
302 
accountants 303 
14. 10  Factors causing small business clients to change their public accountants 305 
14. 1 1  Final points 307 
14. 1 2  Summary and conclusion 308 
xu 
Table of Contents contd . . .  
Chapter 15 
Summary and Conclusions 3 10 
15 . 1 Introduction 3 10 
1 5.2 Summary of the research study 3 10 
1 5.3  Unique features of  the research study 3 14  
15 .4 Main findings of the research study 3 15 
15 .5  Implications for practice 325 
15 .6- Identification of future research areas 327 
1 5 .7 Concluding remarks 328 
Appendices 330 
A Summary of Research Objectives 330 
B Questionnaires 332 
Public accountant questionnaire 333 
Small business questionnaire 344 
Third party questionnaire 355 
References 364 
xiii 
TABLE OF FIGURES 
Figure 
1 The gap between small business needs and public accountants' 
servIces 55 
2 Main potential causes of the small business expert advice gap in 
relation to public accountants 66 
3 Summary of factors causing an expert advice gap 7 1  
4 Composition of third parties sample group 1 16 
5 Calculation of usable response rates 1 30 
6 Small business respondents by industrial sector 1 37 
7 Age of small business owner-managers 1 38 
8 Number of years in self-employment 1 39 
9 Number of employees 140 
10 Sales turnover 141  
1 1  Stage of development of the business 141  
12  Frequency of financial statement preparation 142 
1 3  Type of accounting system 143 
14 Means of responses relating to sources of help for small business 
owner-managers 143 
15 Size of accounting practice 145 
16  Number of partners per accounting practice 145 
17  Number of staff per accounting practice 146 
1 8  Number of small business clients per accounting practice 147 
19 Small business clients per partner 147 
20 Analysis of accounting practice fees from all clients 148 
2 1  Analysis of fees derived from small business clients 149 
22 Name for business advisory services section 150 
23 Main difficulty in supplying compliance services 1 5 1  
24 Main difficulty in supplying business advisory services 152 
Table of Figures Contd . . .  
25 Means of survey group responses regarding the actual role of public 
accountants 
26 Kruskal-Wallis test to identify the existence of significant differences 
between survey group responses regarding the actual role of public 
accountants 
27 Scheffe test to identify the location of significant differences between 
survey group responses regarding the actual role of public 
accountants 
28 Kruskal-Wallis test to identify the existence of significant differences 
in responses between major sub-groups within each survey group 
regarding the actual role of public accountants 
29 
30 
Means of survey group responses regarding the expected role of 
public accountants 
Kruskal-Wallis test to identify the existence of significant differences 
between survey group responses regarding the expected role of public 
accountants 
3 1  Scheffe test to identify the location of significant differences between 
survey group responses regarding the expected role of public 
accountants 
32 Kruskal-Wallis test to identify the existence of significant differences 
in responses between major sub-groups within each survey group 
XIV 
1 60 
163 
1 64 
166 
1 67 
170 
1 7 1  
regarding the expected role of public accountants 172 
33 Paired sample t test with respect to the actual and expected role of 
public accountants in relation to small business clients 
34 Analysis of respondent comments 
35 Content analysis of comments relating to the role of public 
accountants 
36 Frequency of responses: services provided by public accountants and 
used by small business 
37 Comparison of services provided by local and national/international 
accounting services 
173 
178 
1 80 
202 
206 
Table of Figures Contd . . .  
38 Means of survey group responses regarding the quality of public 
accountants' services 
39 Means of responses regarding quality of public accountants services -
comparison of local and national/international practices 
40 Kruskal-Wallis test to identify the existence of significant differences 
between survey group responses regarding the quality of public 
accountants ' services 
4 1  Scheffe test to identify the location of significant differences between 
survey group responses regarding the quality of public accountant 's  
services 
42 Kruskal-Wallis test to identify significant differences in response 
between major sub-groups within each survey group regarding the 
quality of public accountant's services 
43 Frequency of survey group responses regarding the main strengths of 
public accountants as business advisors 
44 Frequency of survey group responses regarding the main weaknesses 
of public accountants as business advisors 
45 
46 
Frequency of survey group responses regarding small business 
expectations of public accountants as business advisors 
Kruskal-Wallis test to identify the existence of differences between 
survey group responses regarding public accountants as business 
advisors 
47 Scheffe test to identify the location of differences between survey 
48 
group responses regarding public accountants as business advisors 
Kruskal-Wallis test to identify significant differences in responses 
between major sub-groups within each survey group regarding public 
accountants as business advisors 
49 Means of survey group responses regarding the small business expert 
advice gap in relation to public accountants 
xv 
208 
2 10  
2 1 1 
2 1 3  
2 1 4  
217  
2 19  
22 1 
222 
223 
224 
225 
I ' 
Table of Figures Contd . . .  
50 Kruskal-Wallis test to identify the existence of significant differences 
between survey group responses regarding the small business expert 
advice gap 
5 1  Scheffe test to identify the location of significant differences in 
survey group responses regarding the small business expert advice 
gap 
52 Kruskal-Wallis test to identify significant differences in responses 
between major sub-groups within each survey group regarding the 
small business expert advice gap 
53 Factor analysis of  expert advice gap issues 
54 Content analysis of comments relating to the small business expert 
advice gap 
55 Content analysis of comments relating to general issues 
XVI 
230 
233 
236 
240 
250 
294