New Financial Reporting Mandate Triggers Anxiety Among Banks, Businesses

Dec 8 , 2025. By NAHOM AYELE ( FORTUNE STAFF WRITER )

A decade-old law is finally being enforced, and with it, the corporate credit market is entering uncertain terrain. The Accounting & Auditing Board of Ethiopia’s (AABE) directive requiring corporate borrowers to submit Board-approved financial statements before securing bank loans represents a major compliance shift, one that is being met with guarded optimism and deep anxiety in the domestic corporate sector.

On November 24, 2025, Fikadu Agonafer, the acting director of the Board, informed all commercial banks of the new rule. Companies that want to use their financial statements for borrowing purposes should now secure the Board’s approval of their balance sheet statements. While the directive is seen as an attempt to enforce a law passed over a decade ago, it has prompted concern among banks, borrowers, and industry leaders who fear the Board may lack the resources to handle the surge in filings and that the new requirement could disrupt the flow of credit to the private sector.

The Board was granted this authority under a Financial Reporting law passed 10 years ago, which required all reporting entities, defined as businesses other than public bodies and micro enterprises, to submit their financial statements to the Board.

“The law clearly requires these companies to submit their reports,” Fikadu told Fortune, “but it was not enforced until now. Many companies didn't submit their financial statements.”

According to Fekadu, the regulatory push comes amid a rise in malpractices, with companies allegedly presenting contradictory accounts to different authorities.

“There is a practice of reporting profitability to banks while reporting bankruptcy to the Ministry of Revenue," he said. "This has been a common practice in the industry, and it's unacceptable.”

The Board is pushing for a single, unified financial report used for both loan applications and tax purposes. Fekadu insisted that “the law has been in place” for a long time, with repeated notices and ample time for financial institutions to prepare.

According to Kindye Mekuriaw, a lecturer at Admas University College and a banker at Lion Bank, “conflicting financial statements have been common in the past,” which is why banks have relied on collateral, rather than financial statements, when lending. He called this practice “problematic” because it ties up funds and imposes costs on banks. Kindye said that banks often fail to achieve expected returns due to inaccurate statements, leading to bad loans and increased credit risk. He hopes that the Board’s new approach could resolve these issues, but he also doubts about the Board’s readiness, staff qualifications, and ability to provide quality service.

Kindye warned that “the system could become a breeding ground for corruption if loopholes are exploited,” and stated that “measures should be taken to enable people to use the service efficiently, without long queues.”

Fekadu argued that not much has changed over the years, and the reporting culture has not improved.

"The Board must begin enforcing the law now so that the system can finally change,” he told Fortune.

However, he warned banks to comply and assured that “debtors will not face difficulties in accessing services as long as banks apply the directive correctly.”

Under the new regime, banks are forbidden from accepting financial statements that have not been filed with the Board. Companies required to file complete International Financial Reporting Standards (IFRS) reports are those with annual revenue above 300 million Br and more than 200 employees, while those that should comply with IFRS for SMEs are firms with at least 50 employees and annual revenue between 50 million and 300 million Br. Entities that fall outside these thresholds, as well as public and micro enterprises, are not required to file IFRS-compliant statements to obtain loans.

Nonetheless, Fikadu insisted that these businesses should voluntarily adopt IFRS.

"The Board will be responsible for approving this report,” Fekadu told Fortune.

Companies required to comply with IFRS and seeking bank loans should file their statements with the Board and secure a stamp of approval, which banks are required to use as the sole reference when lending. The Board's drive to enforce the law has drawn praise from some members of the accounting profession.

“It's long overdue,” said Tilahun Girma, an auditor and country manager at PKF Global, a London-based accounting firm enlisting 21,000 professionals in 150 countries. He commended the Board for finally “going by the book” and companies had been given “sufficient time" to prepare, train their staff, and upgrade their technology. He argued that the "only way" to improve the reporting culture is through strict enforcement.

“The rule should have been implemented years earlier," he told Fortune. "Unless institutions are forced to follow the law, the problem will not be solved, and the culture will not change.”

However, Tilahun also acknowledged a persistent weakness, claiming that most companies “don't see finance as the brain of their business.”

"They don't invest in strong financial systems or hire trained and experienced professionals," he said. "Instead, they choose unqualified people for critical financial positions.”

Tilahun criticised the neglect he sees among many companies.

"These aren't merely private companies but also public-interest companies that operate with public resources," he said. "These companies must follow the law, pay taxes correctly, and get loans based on accurate performance.”

The Ethiopian Professional Association of Accountants & Auditors (EPAAA) was established in 1972 to promote the development of accounting and auditing professionals. One of the oldest civic groups in the country, it has garnered over 1,400 members, over 90pc of whom are certified accountants, with auditors and associate members comprising the rest of the roster, and is registered under and accredited by the Board.

Its leaders voiced their support for the Board's latest move, characterising its strict enforcement as “a long-awaited decision welcomed by the professionals.”

However, its senior leaders, who spoke on condition of anonymity, observed that confusion had emerged as some banks began demanding that all debtors file their statements with the Board, regardless of whether the law required it.

“This misunderstanding is a concern the Board needs to address,” one leader told Fortune.“If eligible businesses are denied loans due to confusion, this could push some into bankruptcy.”

Many business owners, unfamiliar with IFRS reporting, could also face hefty costs if banks demand three years of statements for performance assessment. Preparing such reports requires hiring auditors and sometimes advisory firms, with expenses that are often steep. The shortage of IFRS experts led Association leaders to warn that the sudden enforcement could strain the few available professionals and result in lower-quality outputs. Without a proper rollout, they cautioned, the system could become vulnerable to corruption.

Fikadu, the acting director, conceded that some confusion has surfaced among the banks over which companies are required to file statements. He disclosed that the Board had sent letters to clarify the rules.

Bankers acknowledged the merits of the policy but voiced reservations about implementation. According to Demissew Kassa, secretary general of the Ethiopian Bankers Association (EBA), commercial banks “support the enforcement of the rule” but have “serious questions about the Board’s capacity.”

Demissew argued that if corporate borrowers were required to maintain accurate financial statements and these were reviewed by the Board, banks could finally rely on the numbers in their lending decisions, reducing risk and non-performing loans (NPLs), a positive development for the industry. But he warned that the new process “could disrupt banks’ credit operations.” He questioned how quickly the Board could review the filings, fearing that loan approvals could become “long, slow, and heavily bureaucratic.”

Fikadu rejected these anxieties, attempting to reassure doubters about the Board’s capabilities. He disclosed that a dedicated department has been established to handle the work and ensure there would be no delays. According to Fikadu, the Board is not required to review every statement, asserting that “banks should trust the auditors because the Board is a regulator of auditors, not a reviewer of each financial report.”

He sees the Board’s role as receiving and registering all financial statements, not as guaranteeing their quality. If a company is a public-interest entity, the Board may review its statement, a process that takes longer. It will take criminal action against auditors who violate the law, including revoking licenses. The Board recently reviewed the work of 120 audit firms, identified several shortcomings, and provided feedback and corrective measures. It revoked the license of one audit firm for allegedly failing to act ethically.

“The Board’s current task is only to file the financial statements and stamp them, which takes no more than five minutes,” he said.

Tadesse Hatiya, CEO of Sidama Bank, echoed these concerns. He has frequently criticised the practice of companies submitting different financial statements to banks and tax authorities.

“Many debtors claim to be very profitable and to have large stocks in storage, but during bank visits, the situation is often the opposite,” he said. “The Board’s supervision will help banks obtain accurate financial statements and issue loans based on authentic information.”

Tadesse argued that banks could build healthier loan portfolios if they depended on statements filed with the Board, but warned that implementation could be disruptive. Many companies may struggle to prepare IFRS-based reports and submit them for approval, particularly given the limited number of professionals with IFRS skills available in the country. He also questioned the Board’s capacity and accessibility.

“How will debtors in regional states submit their statements if the Board doesn't have regional branches?” he asked. “Requiring debtors to travel to Addis Abeba would not be fair.”

Fekadu disclosed that the Board is working to expand accessibility by opening regional branches and investing in technology.

“For now, institutions operating in the regional states will have to come to Addis Abeba in person to file their statements,” he said.

However, Tadesse contended that the Board’s mandate should involve more than stamping documents.

“Simply telling banks, ‘Bring me the file, I will stamp it, then you can lend,’ is not enough,” he said. “If the Board stamps statements without review, it will not solve the underlying problem.”

He pointed out that stamp fraud is not uncommon, with some auditors even selling stamps. The Board, he insisted, “must ask the audit firms whether they actually conducted the audit before accepting the statements.

"Otherwise, the system won't achieve its intended purpose,” he told Fortune.

Corporate debtors have also voiced unease about the new requirement. Tamiru Birhanu, general manager of Alo Coffee Plc, is worried that immediate enforcement “would particularly affect businesses.”

“If companies are denied loans under the new rule, they could face bankruptcy,” Tamiru warned, advocating for a grace period to allow time for compliance.

PUBLISHED ON Dec 08,2025 [ VOL 26 , NO 1337]