Accounting and Auditing – Capital Newspaper


Hikmet Abdella was appointed as Director-General to the Accounting and Auditing Board of Ethiopia in November 2019. She is widely known for her work as the founding Country Head of ACCA Ethiopia from 2004 to 2013.
Hikmet sits on The Board of Trustees of The Center for Dialogue, Research and Cooperation (CDRC) which is an independent Ethiopia based non-profit think tank, as well as a member of the Board of Directors on the Ethiopian Red Cross.
In 2022 she took part as one of the 50 members of the Destiny Ethiopia Initiative, to envision scenarios of four possible futures for Ethiopia in 2040. Now she is a member of the Women Caucus within the Ethiopian Inclusive Dialogue (EID), hosted in CDRC. Capital’s Groum Abate sits with Hikmet for an insight of the role and works of the Accounting and Auditing Board of Ethiopia. Excerpts;


Capital: What is the main role of the Accounting and Audit Board of Ethiopia (AABE)?

Hikmet Abdella: This is a very important question as I feel the role of AABE is not very clear in the market.
Ethiopia has no specific reporting framework before establishment of AABE. Most entities prepare their financial statements based on tax laws and/or USA/UK GAAP partly. To alleviate the problem, International Financial Reporting Standards (IFRS) were enacted via Proclamation number 847/2014 as financial reporting framework for Ethiopia. AABE was established by the regulation number 332/2014 with a mission to oversee the accountancy profession in Ethiopia.
AABE is established with the following roles and duties: issue standards and directives relating to financial reporting and auditing and ensure compliance therewith; register and license auditors and authorized accountants; receive and register financial statements of reporting entities; review and monitor the accuracy and fairness of financial statement to enforce compliance with the reporting standards; conduct quality assurance reviews of audit firms to determine whether they have complied with the applicable auditing standards; among others.

Capital: What are the challenges of accounting and auditing practices in Ethiopia?

Hikmet Abdella: To improve the accountancy profession in Ethiopia to the level it reached in some African countries in particular and to the global level in general, much should be done by all the stakeholders. The major challenge is the absence of adequate number of professional accountants in the country. The number of professional accountants is not greater than 600 for a country with over 120 million populations. This has negative impact on the quality of financial statements prepared by reporting entities and on the quality of audit. In addition AABE has limited professional so that it monitors quality of financial statements and assure the quality of audit via reviews.
To overcome the capacity challenge, trainings have been provided both for the reporting entities and auditors. However, in the long run, AABE has been working on a law to establish – Ethiopian Institute of Certified Public Accountants (ETICPA) and will be presented to Cabinet to produce professional accountants locally. As Professional Accountancy Organization (PAO) to be recognized by International Federation of Accountants (IFAC), it is believed that the institute will help to reduce the shortage of professional accountants and play dominant role in improving the quality of financial reports and audit.
In addition, there is lack of professionals in asset valuation and actuary science. The inputs from these professions are paramount for improvement of the quality of financial information. We are working with World Bank to provide trainings as short term solution and discussions are undergoing with stakeholders on how to develop the professions in the country in the long run.

Capital: What are the major milestones that you have delivered since you joined the organization?

Hikmet Abdella: Even though there is much to be done,, we have made some progress so far. The road map for adoption of IFRS is revised and a good number of companies have adopted IFRS. As per the revised roadmap; adoption of full IFRS is up-to June/July 2023 and June/July 2024 for adopters of IFRS for SMEs. Review of Financial statements and audit quality assurance reviews have been started and progressing well, and review findings were communicated to the public to take lesson out of it. Trainings were provided to AABE’s staff and consultants were hired to enhance the capacity of AABE. In collaboration with World Bank; trainings were provided for federal and regional Government owned Enterprises on IFRS. In addition, training on new insurance standard (IFRS 17) to be applied from 1st January 2023 was provided for insurance companies and auditors. Master audit manual was prepared by international consultant for auditors, so that they can customize to their own context and assure the quality of audit.
We are working with regional and continental accounting organizations and support our accountants and auditors to involve in different training, discussion and experience sharing forums. For example we actively work with Pan Africa Federation of Accountants (PAFA) which is established with aim to enhance the quality of professional accountancy services in Africa. In addition Ethiopia has been chosen to be the vice Chair of African Forum for Independent Accounting and Auditing Regulators (AFIAAR).

Capital: What is the purpose of good corporate governance and how are the standards of governance enforced?

Hikmet Abdella: The purpose of good corporate governance practice is to increase investor confidence by giving assurance that companies are both ethically and effectively run. The standards of governance are enforced:

Capital: What is the role of audit Committee in the establishment of good corporate governance?

Hikmet Abdella: The role of the Audit committee is:

  • To increase public confidence in credibility and objectivity of published financial information
  • To assist directors in their responsibilities in respect of financial reporting
  • To strengthen the independent position of company’s external auditors

Composed of individuals who serve on an organization’s board, an audit committee is responsible for ensuring an organization operates in an ethical environment and complies with laws and regulations.
Charged with oversight of financial reporting, risk management and internal controls, audit committees also are responsible for selecting the accounting firms that serve as their organizations’ external auditors as well as for maintaining relationships with their organization’s own internal audit team.
The essential nature of corporate governance and audit committee responsibilities normally be reinforced by low in many countries where Ethiopia currently does not have such enforcement. The luck of such codes is affecting the country in terms of attracting more investors and their confidence to invest for long term.

Capital: What are the impacts of the establishment of Capital Market on the development of accountancy profession?

Hikmet Abdella: The operation of capital market requires quality financial information. We consider this progress as opportunity for the development of accountancy profession. As and Ex-Offico board member of Ethiopian Capital Market Authority, we will work together to prepare professional accountants including auditors for such endeavors. For example, AABE is working with IFC to write Corporate Governance codes which will improve quality of financial reports and audit.
In order to play some role in attract foreign direct investment and for sustainable development, AABE will adopt International Sustainability Standards as issued by International Sustainability Standards Board (ISSB) in the near future. The standards deal with Environmental (e.g. climate), Social and Governance (ESG) disclosures.

Capital: You mentioned that Auditors are reviewed as per its regulatory mandate to monitor the External Auditors work in Ethiopia? What is the process to do so?

Hikmet Abdella: AABE is responsible to review the quality of the work of external auditors in Ethiopia and enhance the quality of financial reporting to protect the public interest. AABE, in its structure has well trained Audit quality Review team responsible to plan and execute the audit quality review as per the international standards for audit.
AABE had developed manuals and procedures for reviewing the work of the auditors. Those manuals are developed based on the requirement of the international standards and are amended when there are changes in the international standards. The standard is used to evaluate the quality of the auditors at the overall firm level and at each engagement level. The former criteria are used to evaluate the auditors in the area of leadership, Ethics, human resource, procedure to acceptance new client, Engagement performance and monitoring the audit firm as a whole. The later criteria are used to evaluate engagement of the auditor on each audit work as selected for the review.
The audit process from audit planning to the audit reporting stages will be reviewed as per each international standard on auditing relevant to sections of the working papers including each financial statement sections. If there are significant deficiencies in the working papers under review, the reviewer is required to summaries those deficiencies with standard template for further discussion with the auditor and other reviewers. Once all deficiencies are discussed and agreed with the auditor, draft report is prepared. The draft report will be sent to the auditor with action plan templet guiding the auditor on the improvement areas. Report will be finalized when the auditor replies the action plans for improvement.
The International standard on quality control (ISQC1) and international standard on auditing (ISA 220) have been used as a criterion for reviewing the quality of auditor’s work. Since 15th December 2022, The International standards are revised and updated by the new versions of international standards on quality management (ISQM 1 and ISQM 2) where there is a significant shift from ‘’quality control’’ to ‘’quality management.’’ AABE is currently working to update its manual with changes in the standards.

Capital: Can you walk me through the process of selecting Audit firms for review?

Hikmet Abdella: Audit firms are selected for quality review based on pre visit assessment questionnaires and available data on the size of the audit firm in terms of number of clients, nature and size of their audit clients and other information available at the time of selection.
The selected audit firms will be allocated into the quarterly plan for each reviewer in AABE. Each reviewer is required to plan the review process and officially agree and confirm dates with the auditor selected for review. The Reviewer communicates clearly all the required information including sample client working papers and audit reports to be ready in advance. The Reviewers required select at least two audit client’s files per audit partners. The selection of audit files considers the legal form of the client, client’s annual revenue, audit fee charged for the audit and other available information to the reviewer. I would like to highlight here that this is the first time since the private audit forms have been established in Ethiopia, that reviews are taking place so you can imagine the positive impact it is having in the market.

Capital: How do you ensure that the audit process remains independent and objective?

Hikmet Abdella: Independence is one of critical essentials to ensure the quality of any audit. In the audit quality review, independence of the auditor is reviewed under ethics section. Requirement of the ethical standards such as independence declaration by each staff and partners will be checked with documentation at the firm level and engagement level. Partners or staff members should not be involved with audits where there is conflict of interest which can impair their independence or objectivity. Auditors are expected to have policies and procedures to maintain their independence and objectivity. They have to adhere the ethical standards to identify and mitigate ethical threats to independence and objectivity. If deficiencies found in the review are related with independence, the outcome of the review will be ‘’unsatisfactory’’ with a follow up investigation by the legal department of AABE.


Source link

What do you think?

Aggregated by Ethiopian News Digest

Leave a Reply

Your email address will not be published. Required fields are marked *

GIPHY App Key not set. Please check settings

Salaale Aanaa Kuyyuu ganda Dhaayee Willincootti torban darbe waraanni mootummaa qe’ee qonnaan bultootaa gubuu jiraattonni OMN’tti himan. – OMN

Trust has been broken in Ethiopia- UN official – Ethio Observer