The setting of accounting and auditing standards

By Mekuria Ayele

I read with great interest the articles authored by Ato Tesfaye Mengesha, “Independent Audit Without Independence?” which appeared on the 7,14, and 21 September, 2003 issues of CAPITAL on matters related to Auditing in Ethiopia. My thanks go to him not only for sharing with us his considered views on some of the local issues affecting the auditing profession but also for opening up the forum so that auditors, preparers, users of accounts and other interested groups who so far have been taking up matters rather privately, could be heard in public. My thanks go to CAPITAL as well, for providing the space for this vital issue. The process, I hope, will result in having commonly considered solutions to the problems affecting the professions.
Ato Tesfaye has raised a number of interesting and appropriate questions in his article some of which related to the recent directives issued by the Office of the Federal Auditor General (OFAG) requiring auditors to adopt international audit standards. For reasons better known to OFAG this directive has not been made public, except its circulation to selected entities, and it is highly likely that the majority of interested parties such as preparers of financial statements and users of such statements might remain unaware of its existence for some time to come. By coincidence, however, I enabled myself to be among the blessed few who have knowledge of the directive. It is in relation to this directive that I would like to forward my view.
OFAG is the state organ that is empowered to regulate the accounting and auditing profession of the country. So issuing directives (we have already one dictating the use of IFAC’s audit standards) for the advancement of these professions is something expected from OFAG. Our prayer is that they will have the priorities right and the process correct. Financial audits are primarily based on financial records and statements the recording and preparation of which are governed by generally accepted accounting principles and standards. One of the responsibilities (perhaps the major responsibility) of an auditor is to ensure that the financial statements presented to him for an audit are prepared in accordance with such principles and standards. When talking of international standards one should not assume that they are equally applicable to all business entities in all circumstances. As stated by Ato Tesfaye, they “are attempts to harmonize divergences, in some cases between acceptable accounting treatments.” In addition to this some developed countries such as USA, UK, Canada, etc., have standards of their own which accountants of developing countries are at liberty to use the choice being perhaps dictated by source of education and training. All these go to widen the latitude within which alternative and acceptable accounting treatments may be applied. So the question that emerges distinctly is on which accounting standards are IFAC’s audit standards to be based? Or, are IFAC’s audit standards so flexible that they can have any accounting standards as a basis? Is it not, therefore, appropriate to tackle and resolve the issue of accounting standards to be applied first rather than embarking on auditing standards?
The second issue that I would like to comment upon is the process of setting standards or, more appropriately in our case, ‘choosing standards’. OFAG have decided that international audit standards shall be the audit standards to be adopted in this country. They have made it clear that their decision was influenced by the recommendation/request of EPAAA. Is this really the proper way of setting standards? How were the views of other interested parties accommodated? Or are they simply thought to be worthless, even to be heard, as was the case in the command economy we came out from some years back? How did EPAAA find out that what it recommended to OFAG was the best among existing alternatives? I am not against or in favour of adopting international audit standards. All I am trying to say is how was the choice made, if we had to make one, on such a vital issue having national impact? From Ato Tesfaye’s article, I understand with dismay, and would love to be proven wrong, that leave alone other interested parties or the general public, even members of EPAAA have not been formally consulted. Those of us exposed to some literature on Accounting and Auditing appreciate what it takes to come up with a standard. May be it is not necessary nor do we have the capability to start from the scratch and go the long way others have laboured and sweated in developing and setting standards. We thank them for giving us the menu from which to choose. Admittedly, EPAAA being a professional association should play the leading role in matters affecting the profession for which it stands.
However, the credibility and respect the association would like to deserve come about when it acts in a transparent and professional manner and with due respect to all concerned. By not caring for the views of others it is difficult to win their respect.

OFAG, on the other hand, will not be discharging their national responsibilities by opting to lend their stamp to the views of certain groups or associations on issues of national importance. At least they should devise a system whereby major accounting and auditing issues are brought to the attention of all concerned and to ensure that the resolution to the problems are arrived at through democratic processes.