By Gobeze Dessalegn, FCCA
Preface
It was a pleasure participating in the 1st National Accounting Day Conference at Sky Light Hotel on Friday 11th February 2022, co-organized by Accounting and Auditing Board of Ethiopia (AABE) and ACCA Ethiopia office. More than 500 accounting and auditing professionals from multitude of sectors and government organs participated. It has brought together so many professionals not only to discuss on variety of burning accounting issues, but also to socialize and meet long forgotten friends.
Among issues discussed at the Conference by different panel groups include:
State of the Accounting Profession in Africa;
Regulation of the Accounting Profession in Ethiopia;
Professional Accountants as Business Partners in Ethiopia- Sharing Experience; and
Building Trust and Ethics in the Accounting profession.
The contribution and comments of the participants were also worth noting. Despite of all these, my mind started reeling away, thinking and re-thinking that something crucial and, which I think is, the primary problem of the accounting profession was left unsaid/unmentioned; the issue of users of Audited Financial Statements (AFSs); the fact that we do not really have users who read, understand, and rely on the AFS to make informed business decisions.
As per IFRS Conceptual Framework, primary users of financial statements are existing and potential investors and lenders; providers of equity and/or loan finances. Others who use financial statements, including management, employees, regulators, governments organs (including tax authorities) are classified as secondary users. The problem in Ethiopia is that we do not practically have both categories of users.
Readers of this article, particularly those out of the accounting profession might, probably rightly, wonder what I’m talking about. In a country where thousands and thousands of accountants are crunching numbers every day and thousands of reports are issued every year (most audited by external auditors), I understand if they are perplexed.
The Primary Users
Most local private businesses are family owned and the owners are either not capable or not genuinely interested in reading and using the financial reports. Foreign direct investments (FDIs), though no much problem in the capability sector, are not much better in the interest field. Even global NGOs directly and officially propagate minimizing audit fees rather than getting more reliable financial reports.
Providers of loan finance in Ethiopia, the banks, provide loan, almost 100%, on collateral bases. For business borrowers, just for the sake of formality, they ask for audited reports. Then, it boils down to whether the loan is supported by worthy collateral. An engineer/surveyor is sent to the site to estimate value of the collateral and decide on the loan provision.
The Secondary Users
Respective staff of the reporting entities do not have either interest in or access to the financial reports.
Managements of the reporting entities, those who actually use, are more interested in the management and cost accounting reports, those produced for internal consumption, than AFSs.
Revenue Authority is supposed to be the major user of AFSs. It is true that it requires the AFSs to be filed, then sends its own tax auditors to go through the records of the tax filers to produce tax assessment reports. The audit reports of even the most respected audit firms are practically disregarded.
The former regulator of the profession, Office of the Federal Auditor General (OFAG), was not receiving and reviewing the reports produced by the authorized accountants and auditors it regulates. The current regulator, Accounting and Auditing Board of Ethiopia (AABE), requires almost all reporting entities to file their AFSs annually. Given the huge number of reporting entities and limited number of its staff, I can fairly say that it’s not yet in a position to review even a representative sample of the filed reports.
Hence, no practical use. These all boil down to the fact that if there are no users of AFS in the real sense, no matter how many accountants & auditors crunch numbers every day, whether we talk all days about accounting and auditing standards, professional ethics and regulation in Ethiopia, I doubt if we can move the profession an iota of step forward.
What for if managements, regulators, lenders and taxing authorities just file the reports irrespective of who prepared and/or audited them; if investors are not interested in improving investment decisions? Why should we be surprised if a sole practitioner, as one panelist said, issue 100 audit reports in 3 months, disregarding all ethical and regulatory requirements? What would AABE do in this case? Cancel the license? No guarantee that he/she will not be replaced by a worse practitioner with new license. Why did many of us looked down to the ground when one participant commented that audits (normally involving many teams and processes) are performed with fees of 5,000 and 10,000 ETB, despite of the sky-rocketing inflation?
In this regard, let me share to the readers a personal story. I had a client and we begun the audit at fee of ETB 15,000. Every year, he comes and complains about his business not doing well. The fee started dwindling until we reached 9,000 after 3 or 4 years when, after pocketing the agreement, he smiled and said to me ‘hey, does this mean you are going to audit for me freely after few years?’ I smiled back, as it was supposed to be a joke, but my stomach was churning like hell. That was one of turning points in my professional career.
Conclusion
Although issue of users of AFSs, I believe, is the major challenges of the accounting profession in Ethiopia, particularly for those in external audit service, the fact of the matter is that I don’t have solution to suggest. I only hope that time will resolve it and it will not be too long. I hope that new generation of investors beyond the usual kiosk/family shop owners will come and evaluate their investments, existing & potential, from long-term perspective considering the investees financial performance, position and cash flows. I hope that our bankers will appreciate the past financial results and future business potential of borrowers, rather than running after the physical buildings and machines. I hope that time will come when Revenue Authorities identify, evaluate and accredit potential external auditors and rely on their reports. Then, only then, we may see light on the horizon.

Gobeze Dessalegn, FCCA, is Director at HST