IFRS adoption marked ‘make or break’ for upcoming capital market

Prudency in companies’ corporate governance deemed crucial as the capital market horizon draws near.
During comprehensive discussions organized by the Addis Ababa Chamber of Commerce and Sectoral Association, Brook Taye, Director General of Capital Market Authority (CMA), underscored that local businesses should have to start implementing the International Financial Reporting Standards (IFRS) that the country officially adopted years ago.
He called on the companies to start using the IFRS as a golden standard for their financial reporting, as it is vital in bringing the capital market to life in Ethiopia.
He told Capital that IFRS is one component that is expected from potential players in the secondary money market, “That is why we are advocating for it.”
According to the stock market practice, there are certain requirements that need to be met by companies who will be listed.

(Photo: Anteneh Aklilu)

“Fundamental analysis would be carried out by a given company that will be listed at the security exchange. For that reason, the financial statement particularly carried out by external auditors is crucial,” the founding Director General of CMA explains, adding, “On the other side, through the secondary markets, potential investors are investing on the prospect of a company looking for additional capital from the stock market. Thus, a golden standard financial statement is critical to understand the company projection.”
“On our side we are working to facilitate a way to give license to external auditors with qualified standards and ample knowledge to understand the system,” he added.
Brook said that corporate governance of companies is integral to the success of the capital market.
There will be certain qualifications that the authority will set for listed companies, besides the IFRS. “So far we have accountancy professionals who are certified from international organizations like ACCA, but they need to have the capital marketunderstanding. As we said prospect is crucial for capital market so experts are expected to have to understand such kind of principles as their core focus area.”
He said that CMA will define the required principles and facilitate capacity building and trainings in collaboration with auditors and accountants for domestic experts to enhance their capability and gain the license required thereof.
“We will learn from each other to develop the market because it is a collective endeavor that would have a big impact to the country,” he added.
The authority is already preparing for massive capacity building programs including providing support for potential brokerage firms, investors, accountants, legal experts and others to be certified in different programs. For corporate governance, the authority said that it will also work with the relevant companies.
“The company can assign external advisors by itself and prepare for the capital market and on the other side we will also develop defined parameters as a guideline for players to work with potential businesses,” he elaborated.

(Photo: Anteneh Aklilu)

“As a profession, we may not have investment bankers but we have many accountants. The only thing required is to maybe boost their capacity. Our role is to not only build the institution but also develop market players together,” Brook said.
Hikmet Abdella, Director General of Accounting and Auditing Board of Ethiopia (AABE), said that there are many good local firms and individuals that can support the upcoming capital market. “With little capacity building we can upgrade many firms to fully support the market,” Hikmet said.
“As the number of companies to be listed in the market will not be many in the initial years, AABE has a legal mandate to screen good firms that can support the market in the short run. We will be working with CMA closely on this matter,” she told Capital.
IFRS in Ethiopia was officially adopted in 2014 through the enactment of proclamation and establishment of Ethiopian Audit Board. However experts assumed that there are a lot of defects in applying the system. Starting from the beginning it lacks preparedness before the enactment of the proclamation that pushes the initial implementation roadmap until next year.
One of the major challenges for the implementation of IFRS is lack of sufficient professionals, particularly chartered accountants that are very limited even compared with peer countries in the region, according to the sector experts.
Tilahun Girma, a finance consultant at I Xcel Financial, Management and IT Consultation Company, a company that is licensed from the Ethiopian Management Institute working on consulting companies on financial and management issues, line up financial systems and also consult on IFRS for organizations, argued that there are gaps regarding undertaking prudent IFRS and corporate governance that he mentioned crucial for the upcoming securities exchange.
“One of the reasons is the lack of experienced and trained man power on the IFRS system and lack of technology,” he told Capital.
Tilahun claimed that the country should be ready with regards to sound corporate governance including clean audit reporting capacity on the way to embark the capital market that is expected hit operation by 2024.
He said that higher education institutions need to provide the training that relate with the new accounting and auditing scheme that the country wants to fully adoption.
He added that one of the challenges was technology, to which companies including big ones are using the cracked software, “I consider that there is lack of awareness about the necessity of IFRS at companies.”
He recommended AABE to provide the technology that other countries like Ethiopia implemented for companies who have limited capacity in terms to invest on the software.
He said that there are very few companies implanting the IFRS, “I have concerns over the matter since it would be a challenge when the capital market gets in to operation.”
“On my understanding, the government shall consider small companies to join the capital market gradually but we have to start the implantation of strong corporate governance including IFRS. Whenever they join the capital market, companies whether small or big should be ready starting from now,” Tilahun added.
Despite concurring that there are challenges in the area, Hikmet argued that it is not the number that matters for serving the market rather the capability of the firms.
“There are good local audit firms who have been serving the Ethiopian economy so far. With no doubt the firms who have good staff and organization structure can also support the market. We have been providing training to all audit firms to make them ready for the service,” the Director General said.
“We have discussed this issue at length in the past few years.Issues like number of professional in the country not brings enough.The first roadmap being very ambitious in terms of time line for adoption etc. But the number priority now is that business leaders have not yet appreciated the importance of compliance or at the very basic level do not understand that the management is responsible for financial report of their company,” she elaborated.
She explained that the IFRS which is now required for implementation for big and midsize companies can be afforded to develop required manpower and place the necessary required infrastructure.

(Photo: Anteneh Aklilu)

“The Financial Reporting Proclamation was enacted eight years ago which is a very longtime to put in place the required manpower and systems, if the owners and managers give attention to this important law of ensuring transparency in the economy. The issue of manpower should not be and cannot be on the agenda now,” she said.
The accounting guru and one of the lead advocates for the implementation of IFRS few years back, who also led on of the leading global auditing institution Ethiopia chapter, further underlined that it should be noted that there are only a handful of firms that serve the global capital markets, Ethiopia cannot be an exception, “We can use this rare opportunity with the coming of the Ethiopia capital market to develop the local accounting and audit profession and related disciplines like actuary and valuation for sustainable growth of the Ethiopia economy.”
“The local capacity we develop in support of the financial system will be useful to the whole economy. This is the objective of the Ethiopian Government’s Homegrown Economic Reform. Not only accounting and audit profession, there is a need to build local capacity to support the planned growth in our economy,” she said, adding, “We need robust capacity building programmes that will serve the public and private sectors .The underlying tone being professionalization in all professions.”

The post IFRS adoption marked ‘make or break’ for upcoming capital market appeared first on Capital Newspaper.

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