May 14 , 2022

The federal agency responsible for audit standards and practices is set to resume financial report evaluations next year after a year-long regulatory capacity building program funded by the World Bank.

The project began in January last year with 450,000 pounds sterling financial support. It plans to see the Board's capacity to appraise financial statements submitted by auditing firms and businesses enhanced. The Board, chaired by Eyob Tekalegn (PhD), state minister for Finance, has the mandate to launch official inquiries and take measures that could lead to disciplinary actions. It is also tasked with issuing certificates for accounting and auditing firms.

Established in 2015, the Board is tasked with regulating and enforcing the compliance of International Financial Reporting Standards (IFRS) at public institutions. IFRS is an international financial reporting standard for business and makes a company's accounts acceptable worldwide. Ethiopia is moving towards IFRS at a snail's pace. Although the initial deadline for IFRS implementation was two years ago, slow progress has led the Board to postpone it to 2024.

Corporates, including banks, insurance firms, and state-owned enterprises (SOEs) with annual revenues of more than 300 million Br, must comply with IFRS. Two companies adopted the IFRS in 2016/17, including the state-owned Commercial Bank of Ethiopia (CBE). Last year, over 1,000 corporates fully implemented IFRS and submitted financial reports to the Board. However, some of the financial reports randomly selected were below standard.

“The assessment indicated gaps in the preparation of financial reports,” said Abebe Tekeste, the board's communications director.

All share companies must seek the Board's certifications before submitting audit reports to the Ministry of Revenues for tax filing. Although the board authenticates the reports, it does not review whether they are prepared to comply with IFRS standards.

"The Board accepts financial reports as a formality," said Desalegn Fissehatsion, director of finance and treasury at Berhan Bank.

This has been standard practice since Parliament legislated a proclamation in 2015, giving the Board the power to conduct appraisals of financial reports filed with it. The legislation came a year after a law that compels close to 18,000 private companies, state-owned enterprises and public institutions to comply with IFRS.

Hikmet Abdella has been serving as the Board's director-general since 2020. She was head of the Association of Chartered Certified Accountants (ACCA) in Ethiopia, a London based organisation hired by the World Bank for the capacity building program. It also developed standards, checklists, and best practice guidelines.

Financial and audit reports are prepared to comply with tax laws, says Yodit Kassa, country manager of the ACCA.

“The implementation of international reporting standards has been inconsistent,” she told Fortune.

With 564 certified members under its wing, ACCA-Ethiopia has over 1,000 trainees.

Many businesses in Ethiopia continue to use Generally Accepted Accounting Principles (GAAP) to prepare financial reports. However, there are inconsistencies when using rules and standards. Yodit observed that some businesses use the standards of the Financial Reporting Council of the UK, while others opt for rules applied by US-based companies.

“There needs to be a uniform reporting system," she said.

Attempts at the implementation of IFRS in public enterprises have also been problematic.

"The success rate is inadequate,” said Abebe.

The Ministry of Finance is responsible for reviewing and auditing state-owned enterprises. Officials say the Board is ready to begin reviewing audit reports by state-owned enterprises prepared in compliance with IFRS standards. Practitioners applaud the move. However, they doubt its expediency given the size of the project.

“It's a huge undertaking that requires the involvement of professionals, which is not sufficiently available with the Board,” said Tensae Nebiye, a managing partner of Tinsae & Zelalem (TZ) Audit Partnership, established last year. The partners have 15 years of experience in auditing.

There are 150 chartered auditors and 500 qualified accountants in Ethiopia.

The Board will establish the "Institute of Certified Public Accountants" to alleviate the shortage, Abebe disclosed. A draft regulation was forwarded to the Ministry of Justice last week.

“A much larger budget is necessary to realise the program," said Desalegn of Berhan Bank.

The Board has a 42.7 million Br budget this year.

PUBLISHED ON May 14,2022 [ VOL 23 , NO 1150]

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