Structural Limitations and External Pressures
Small public accounting firms generally operate with limited resources. A small number of staff members are required to handle multiple roles simultaneously, including client services and compliance administration. As a result, client identity verification, risk assessment, and KYC documentation are often conducted superficially.
Regulatory understanding also remains a major challenge. Many small firms lack dedicated compliance units to monitor updates issued by authorities such as PPATK or professional associations. This situation causes delays in adopting new requirements, including beneficial ownership identification and suspicious activity reporting.
Technological limitations further complicate KYC implementation. Investment in digital verification tools and monitoring systems is often considered costly and beyond the financial capacity of small firms. Consequently, KYC procedures rely heavily on manual processes that are inefficient and prone to error.
Client Resistance and Competitive Pressure
Challenges also arise from the client side. Many clients, particularly micro and small business owners, are reluctant to provide complete identity and source-of-funds information, viewing such requests as intrusive or burdensome. Given their fragile business position, small accounting firms often compromise to retain clients.
Industry competition intensifies this problem. Speed of service and low fees are frequently prioritized over comprehensive compliance. In this environment, KYC is perceived as an obstacle rather than a protective mechanism, leading to minimal and inconsistent implementation.
KYC as a Formality Rather Than Protection
The study shows that the interaction between internal constraints and external pressures causes KYC practices in small public accounting firms to become largely ceremonial. Procedures intended to detect and mitigate financial crime risks are reduced to routine administrative tasks without meaningful risk analysis.
According to Sekarningrum, weak compliance is not simply a matter of unwillingness but reflects limited organizational capacity combined with regulatory complexity. Without targeted support, small firms face structural difficulties in meeting compliance standards.
Implications for the Profession and Policymakers
These findings underline the need for a collaborative response. Regulators are encouraged to develop more practical and simplified KYC guidelines tailored to small accounting firms, supported by continuous training and outreach programs. Client education is also essential to ensure that KYC is understood as a shared safeguard rather than an administrative burden.
For the accounting profession, strengthening compliance culture should be positioned as an integral part of audit quality and professional ethics. Affordable technological solutions and improved regulatory literacy are key to transforming KYC from a mere formality into an effective tool for protecting the integrity of accounting services.
Author Profile
Salsabila Nur Aini Sekarningrum, S.Ak., M.Ak.- Politeknik Negeri Batam
Research Source
Sekarningrum, S. N. A. (2026). Barriers to Effective Compliance with Know Your Customer Principle in Small Public Accounting Firms: A Qualitative Study.
International Journal of Business and Applied Economics, Vol. 5 No. 1.
DOI: 10.55927/ijbae.v5i1.553
Official URL: https://nblformosapublisher.org/index.php/ijbae
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