Within a year, the government will compel private limited companies to adopt the International Financial Reporting System (IFRS), a set of accounting standards that provide a common global language for business activities.
The companies are expected to fully adopt the system and prepare their next fiscal year’s financial report reflecting IFRS. As part of the process, the Accounting & Finance Board of Ethiopia has begun registering companies. At the beginning of this month, companies were told to include the certificate of registration when they file their next taxes with the Ethiopian Revenues & Customs Authority.
The requirement for IFRS compliance is meeting two of four parameters: an annual income of one million Birr or more; liabilities of one million Birr and above; employ greater than 100 people; recording a net capital, excluding shareholder equity, of one million Birr and more.
The registration is intended to enable companies to realise the know-how of the benefits and challenges of implementing the standards, make themselves ready for its implementation, identify which standard is relevant for the company and train and create awareness among employees and management. It also aims at informing the companies to allocate the necessary budget for training, technological inputs, consultancy work and hiring experts in asset revaluation, according to the board.
“As the deadline is approaching, the private limited companies should start the journey of implementing the system,” said Abebe Shiferaw, director of communications at the Board.
It was in 2014 that the government issued a financial proclamation, a move followed by the founding of the Accounting & Audit Board of Ethiopia. The 12-member Board is chaired by Abraham Tekeste (PhD), minister of Finance & Economic Cooperation, and has been given a mandate to transform the financial reporting system of the nation.
IFRS is the latest financial reporting system adopted by over 135 countries. Aside from the benefit of adopting a uniform international standard, it will make it possible for companies to tap into the global financial markets. The Commercial Bank of Ethiopia is the first entity to adopt the system ahead of the deadline by hiring KPMG Consulting to implement the system by investing approximately 16 million Br in the endeavor.
The board established a schedule of implementation according to their threshold and the degree of their public interest. The plan was divided into three phases: banks, insurance firms, financial institutions and public enterprises fall under the first phase with a compliance deadline set for July 2017; the second phase requires charities and civil society organisations to adopt the system by July 2018; and a July 2019 deadline has been set for small and medium enterprises, as well as private limited companies.
After implementing the system, the original financial report of the companies, prepared by their respective accountants, will be submitted to the board for approval. The board will approve the reports checking all preparation of the statements and the external auditor’s comment of approval. Lastly, the report will be filed with the board, and every interested party will be able to access it from the board.
The system will have valuable merit for the business community, according to Melaku Azezew, president of the Ethiopian Chamber of Commerce & Sectoral Association.
“The financial statement of the companies in the country is not uniform and transparent,” he said, “and it was not suitable to international financial institutions.”
Yohannes Woldegebriel, a tax law expert, also applauds the initiative to fully implement the system, stating some strains in Generally Accepted Accounting Principles (GAP), the existing reporting system.
“There were disagreements during audits,” he said, “and the new system will ease the burden of the taxpayers.”
But he has concerns with the current capacity of the board.
“I do not think the board has sufficient human resources to process and approve the reports from the companies in the stated time,” he told Fortune.
Abebe believes that the board has been making preparations to equip its capacity.
“With some technical challenges as a whole, we built our capacity to accommodate all the companies,” said Abebe.