Fortune News | Jun 05,2021
The Ethiopian Accounting & Auditing Board (AABE) has laid bare a sector struggling with the contradictions of ambition and reality. The Board’s audit quality review, years in the making and now halfway through examining the country's 228 certified firms, has surfaced a wave of systemic noncompliance with International Standards on Auditing (ISA), triggering notices, suspensions, and industry-wide introspection.
What began as a technical compliance exercise is quickly becoming a test of the authorities' resolve to elevate trust in its financial reporting ecosystem. The Board’s review, supported by the World Bank, has been positioned as a foundational reform in the country’s capital market ambitions.
According to Fikadu Agonafer, general director at the Board, the methodology involves reviewing a sample of files, consisting of two files for sole proprietorships and four for partnerships, and expanding the sample if issues are identified.
But the tension it has unleashed lays bare the fragility of a profession asked to leap before it learns to walk.
Those following the sector find the initial findings are sobering. A majority of firms reviewed so far failed to meet basic international standards. Abebe Shiferaw, Secretariat, Office of the Director General, minced no words in acknowledging widespread gaps, but insisted the AABE’s goal is constructive, anchored in quality improvement, not sanctions.
“Not applying even a paragraph of the standard,” Abebe said, “can tip a review toward unsatisfactory.”
However, many in the profession claim the rules are being applied with a rigidity unsuited to the domestic context. Small and mid-sized firms, often lacking technical depth and financial cushion, insist the ISA framework, designed for high-capacity and well-governed entities, is misaligned with the domestic business landscape.
Critics of the review process point to the disconnect between ISA’s procedural rigour and the informal, cost-conscious business culture that dominates the private sector.
“Clients don’t demand quality," said Yonas Admasu, founder of a young audit firm three years in the sector. "They want speed and discounts. When we quote fair fees, they walk.”
Yonas's point finds resonance across the sector. The Board’s push for international compliance, while many agree, is laudable, but it comes at a time when undercapitalised firms with poor internal controls, reliance on tampered accounting software, and limited awareness of the value of credible audits dominate the domestic economy. Numerous audits are requested for tax filings or bank loans, not for strategic financial planning.
Add to this the glut of firms chasing limited demand, often undercutting each other with “low-balling”, and the result is a race to the bottom in audit quality.
Others view the Board’s effort, launched formally in 2022 after four years of groundwork, as not without merit. It has already established a tribunal for serious breaches, and created an appeals panel under the Ministry of Finance, offering firms due process. State Minister for the Fiscal Affairs Sector, Habtamu Menesha, confirmed the panel’s mandate to resolve disputes within 60 days.
“The panel’s mandate is to provide firms with an independent review mechanism if they disagree with sanctions or decisions issued by the Board,” Habtamu told Fortune.
The panel’s recent established by the former State Minister of Finance, Eyob Tekalegn (PhD) was prompted by the first-ever formal appeal lodged by a firm.
However, even with checks and balances, resistance remains unavoidable. Some firms view the review as punitive, especially in cases where documentation, rather than audit substance, becomes the basis for sanctions. Others view the Board’s role as overly aspirational, pushing for international standards without first establishing a professional pipeline or addressing local structural weaknesses, such as a scarcity of qualified auditors, client apathy, and the absence of standardised audit fees.
TensaeNebiye, a partner at TZ Audit Partnership, with a postgraduate degree in accounting and finance, blamed the disproportionate burden placed on small firms.
“The standards require documentation that’s hard to maintain in practice," he told Fortune. "And with few qualified auditors, the workload is simply unmanageable.”
Still, the Board’s emphasis on mentorship is winning some cautious praise. Its officials urge that notices and training materials, not suspensions, have been the dominant outcomes thus far. For many, the reform is seen as a necessary, and overdue, shift.
“The same fear existed with IFRS a decade ago,” said Yohannes Negatu, president of the Ethiopian Accountants & Auditors Association. “Today it’s business as usual. ISA will follow the same path.”
The challenge is not the standards themselves, Yohannes insisted, but the economic ecosystem that undervalues them. Most businesses are privately held and family-run entities that neither rely on financial transparency for governance nor reward audit quality with premium fees. That diminishes the perceived value of ISA-compliant audits, and discourages firms from investing in the tools and talent to deliver them.
The audit reform process underway is a reflection of the broader aspirations of a fledgling capital market, sluggish foreign investor interest, and the slow but steady adoption of international financial norms. But as with many policy initiatives, experts say success depends not only on decree, but on design.
Experts like Abraham Gebreamlak, an ACCA member with 17 years of auditing experience, argue that unless firms are allowed to charge sustainable fees and partner with larger and international players, ISA compliance will remain performative rather than substantive.
“Without addressing the issue of the fee, quality will always be compromised," he said. "Every firm wants more clients by offering lower fees, but that leaves no resources for technology, staff training, or compliance with ISA. The cost burden is too high for local firms.”
That tension between idealism and pragmatism will likely define the next phase of AABE's audit reform. For now, the Board has made its intent clear to build trust, enforce standards, and transform a profession that has long operated in a regulatory shadow.
But the cost of credibility, both financial and political, may yet prove higher than expected.
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