Ethiopia aims for IFRS for medium and large enterprises

A panel is working on a proposed bill, to be called the “Financial Report Proclamation of Ethiopia”. If it is approved by Parliament, the bill will bring fundamental changes to Ethiopia’s financial reporting system by requiring compliance with international financial reporting standards (IFRS). It will apply to any company with assets worth Birr 2 million ($116,800), turnover of more than Birr 5 mn ($ 292,000), or at least 10 employees, which will then be categorised as a “public interest entity” and obliged to follow IFRS in their financial reporting.
According to a report in Addis Fortune newspaper, 4 experts are working on the draft. They are Botu Sintayehu and Brehanu Tadesse (legal experts from the Ministry of Finance and Economic Development), Munir Ahmed (instructor at the Civil Service College) and Amaha Bogale (public prosecutor for the Ministry of Justice).
The bill could be presented to Parliament in the next fiscal year (starting July).Penalties could include fines and imprisonment. Currently there is no legal requirement for compliance with accounting and auditing standards, but some laws do require the acceptance of general accounting principles and auditing standards.
The draft was inspired by similar bills in Mauritius, South Africa, and the United Kingdom (UK) that follow the common law legal system. Ethiopia uses a “continental” legal system and the panel categorised which laws to include in the proclamation and which to make directives.
Fewer details are given about board of directors, in terms of the draft. The Prime Minister will appoint the chairperson who is accountable to the Prime Minister and mandated to regulate whether the reporting system of the company complies with the standards. The board of directors will comprise 9 representative members from the government, the private sector, and industry and the chairperson and deputy chair positions should be filled by public auditors. The Prime Minister is empowered by the bill to determine the benefits of employees, including that of the CEO, before approval by board. The board members will serve for 6 years and could be re-elected after a 6-year absence.
Hikmet Abdella, country manager of the Association of Chartered Certified Accountants (ACCA) is reported as saying that adopting IFRS will make it easier for investors and businesses to evaluate the financial performances of organisations with which they might do business or invest in: “The standardised auditing system will enable the Ethiopian Revenues and Customs Authority (ERCA) to rely on external auditor’s reports for their tax collection. It will also afford banks the confidence to grant loans based on the financial statements of a company.”
Some experts who spoke to Fortune speculate that the bill would be expensive for small companies and generally challenging to implement.
The panel is set to have a fourth meeting during which the English provisions will be translated into Amharic, claimed sources.

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