south african profession battles mandatory rotationey global forensic technology and discovery...

www.InternationalAccountingBulletin.comJune 2017 Issue 574

● Reforms let Djibouti punch above its weight ● All you need to know about blockchain

● Uganda: accounting opportunities in the Pearl of Africa ● Rankings: Egypt and Kenya

Regulatory storm

South African profession battles mandatory rotation

News archive:Looking back to

2007

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At International Accounting Bulletin we do admit to a preference for the underdog, but regardless of where one stands on mandatory audit firm rotation, one can only admire the determination and persistence of the Indepen-dent Regulatory Board for Auditors (IRBA), the South African audit regulator.

This publication and our sister publication The Accountant have followed, with varying degrees of assiduity, IRBA’s quest for better and stronger regulation in South Africa since 2013, when its CEO, Bernard Agulhas, visited London and the UK Financial Reporting Council look-ing for inspiration.

As the reform comes closer, which will make IRBA the regulator for the whole of the profes-sion and introduce new regulatory requirements such as mandatory audit firm rotation, pressure is mounting on IRBA. As Stephanie Wix reports, IRBA has few friends and supporters within the profession (pages 9 to 12).

We will not pretend here to know what is best. And maybe there is insufficient evidence to show that firm rotation does much for raising quality and competition, as has been argued time and time again. Maybe long audit tenures do con-tribute to building valuable knowledge, which in turn contributes to audit quality.

But in an age where reputations are as vola-

tile as election polls, it is simply not acceptable for an audit firm to be the auditor of the same company for 70 years or more. Let’s be honest. Familiarity where there is money involved does indeed affect independence. But let’s assume for a minute that it doesn’t, still, the perception of independence is as important as independence itself. Moreover, there is no evidence that man-datory firm rotation contributes to a drop in quality. Italy, after all, has been dealing with it for over 40 years.

Finally, there doesn’t seem to be any malice in IRBA’s activities – as has sometimes been sug-gested off the record – only the recognition that regulators and regulated entities don’t see the issues at hand from the same angle, and that, ultimately, regulation should steer accounting firms towards respecting their public interest obligations.

The regulatory changes are not yet in place, and the current political and economic situa-tion in South Africa might mean further delays, but hopefully IRBA will be able to maintain its course in the face of adversity, as it has been doing remarkably for the last few years.

Vincent [email protected]

In praise of regulatory courage

CONTENTS

NEWS 02

FEATURES 03-05

RANKINGS: EGYPT & KENYA 14-17

COUNTRY SURVEYS: UGANDA & SOUTH AFRICA 06-13

NEWS International Accounting Bulletin

2 y June 2017 www.InternationalAccountingBulletin.com

BIG FOUR

McLaren drops KPMG to start Deloitte romanceMcLaren Applied Technologies has announced a new

partnership with Deloitte, putting an end to its work

with KPMG seven years before the due date.

In 2014, KPMG and McLaren’s technological arm

formed a strategic alliance to integrate the technology

provider’s predictive analytics into the Big Four firm’s

audit and advisory services. The strategic alliance

was supposed to run for 10 years, but after only three

years, McLaren Applied Technologies has announced it

has jumped ship to competitor Deloitte.

A KPMG spokesperson said: “Our alliance with

McLaren has been very successful and achieved its

objectives. Together we have developed predictive

analytics tools unmatched anywhere else in the

market, which allow KPMG to offer enhanced audit

and advisory services to our clients. KPMG will now

continue the development of these in house and will

be unveiling an additional audit tool later in the year.

Now that the development of these tools is complete,

we have taken the mutual decision with McLaren to end

our formal alliance. We intend to continue to work with

McLaren on a range of client engagements across 2017

and beyond.”

However, with McLaren and Deloitte now working

together, questions can be raised as to how long

KPMG’s tools can remain “unmatched anywhere else

in the market”. Indeed, McLaren Applied Technologies

said in a statement that its partnership with Deloitte

will focus on developing data-driven business products.

“These will draw on McLaren’s engineering,

sensor, simulation and analytics experience, f irst

developed and proven in the ultra-competitive world

of motorsport, coupled with Deloitte’s digital and

analytics experience of delivering large consulting

projects globally,” the statement read.

As part of the partnership, McLaren and Deloitte

aim to hire 150 staff and for their London-based joint

headquarters, which is planned to open in 2018.

Deloitte vice chairman and senior consulting

partner Mike Dobby said the partnership will open a

number of opportunities in particular for the firm’s

consulting business.

CYBER

Ransomware gives professionals opportunity to prove their worth as ‘trusted advisors’

The recent WannaCry Ransomware cyber-attack

plagued companies in 150 countries by holding data

for ransom and the accountancy profession was quick

to react and advise businesses.

The WannaCry malware that locked computers until

a fee was paid was not only a business data threat,

but also a threat to life, with the most high-profile

victim being the UK’s National Health Service.

Digital extortion has been around since 2005, but

the most recent attackers have developed cryptware,

which encrypts your files using a private key that only

they possess. WannaCry had a countdown clock and

stated that all data would be deleted unless a pay-

ment was received.

PwC cybersecurity partner Marin Ivezic said that

some clients worked around the clock to restore

systems and install software updates. He added that

the attack forced some more mature clients to aban-

don their usual cautious testing of patches and do

unscheduled downtime and urgent patching, which

caused some inconvenience.

Deloitte Cyber Intelligence Centre associate direc-

tor Paul Orffer told Engineering News Online that

companies often saw paying a ransom as the easy

way out. He advised: “The only way to recover from

this is to do a complete reinstall and restoration of

an affected company’s data, while simultaneously

containing the malware.”

Orffer warned that even if a company receives

the decryption key, these can also be a backdoor to

a re-encryption, therefore companies need to be

more vigilant. Ransomware attacks should be tackled

through a triangle of people-process-technology to

look at it in its entirety rather than only focusing on

the technological aspect and blaming technology

alone as the cause of the problem, he said.

EY global forensic technology and discovery ser-

vices leader David Remnitz said: “Even after the data

is restored, companies sometimes face allegations

that sensitive personnel-related or other business

information has been compromised. Third parties

and other stakeholders may require the company to

demonstrate forensically that data was accessed, but

not stolen.”

KPMG Italy Advisory senior manager in informa-

tion risk management Andrea Zapparoli Manzoni told

Reuters: “This particular Ransomware contained a

vulnerability called Eternal Blue, which was developed

in USA intelligence circles and was then stolen. That

gives you an idea about why the level of risk was par-

ticularly high. The aim wasn’t to hit any specific coun-

try, but to strike as widely as possible to make money.”

The first targets are hospitals, according to

Manzoni, as they are vulnerable and simply cannot

afford to lose their data. BDO head of international

cybersecurity Shahryar Shaghaghi agreed that every

industry can be threatened, but especially healthcare

organisations as their vulnerable security systems are

relatively easy to penetrate.

The current severity of cyber threat is high and

should be addressed at board level, and sufficient

resources should be allocated to protect, detect,

respond and recover, according to BDO. Companies

do invest in security technology, but this is being

undermined by different attack methods, meaning

traditional protection methods are no longer enough.

AUTOMATION

Making Tax Digital tops the Accountex agendaLegislation for Making Tax Digital (MTD) was

removed last month from the Finance Bill 2017, yet it

topped the agenda of the sixth Accountex event and

professionals remain aware that it is still on schedule

to arrive by 2020.

Held in London in the first week of May, Accoun-

tex brought together accounting professionals and

accounting technology companies to tackle issues

such as: MTD, Brexit, apprenticeships, cybersecurity,

decision making, risk management, business value,

investment, artificial intelligence, robotics, regula-

tion guides, automated accounting systems, digital

transformation and moving to the cloud.

MTD has been on the minds of the accountancy

professionals in the UK since its conception in 2016.

It has raised a lot of concerns over the changes

required to adhere to the new system, which HMRC

intends to implement by 2020. Businesses will be

required to keep digital records and tax adjustments

to income and expenditure, and to submit quarterly

updates as well as a year-end declaration for income

tax and VAT.

In a survey by FreeAgent of 300 accountants,

which was displayed at their exhibition stand, the

results found that 98.5% of accountants think that

their clients are not prepared for MTD, and that many

accountants do not feel like they have enough infor-

mation themselves to prepare their practice.

Speaking to International Accounting Bulletin, a lot

of delegates said they found the focus on MTD useful.

However, some accountants lamented that other top-

ics had been given less attention. “I was surprised to

see so much at Accountex focused on Making Tax Digi-

tal this year, as there isn’t any information we haven’t

heard already,” a delegate said.

One of Accountex’s theatres was entirely dedicated

to MTD, with specific seminars across both days of

the conference. In one of those seminars, Chartered

Institute of Taxation (CIOT) head of tax technical

team Richard Wild warned the audience that MTD

had not been scrapped or shelved and that the pilot

will continue but will be delayed, although with no

change to the 2020 deadline.

Many accounting software companies were present

at the event, including the largest three: Xero, Sage

and Intuit QuickBooks. But large and small alike

were keen to showcase how their software packages

specifically created for MTD, or other automated solu-

tions such as tax calculators, accountant directories,

bookkeeping and payroll, could help accountants.

With heightened interest from the profession in

digital solutions driven by regulatory compliance

requirements, and a proliferation of service provid-

ers, the competition among software providers prom-

ises to be fierce in the years to come.<

FEATUREInternational Accounting Bulletin


What the Republic of Djibouti lacks in size it makes up for in its geographical location. With 23,200km2, Djibouti is the 47th

largest African country out of 54. But out of all the small African nations, Djibouti’s loca-tion is probably the most strategic. At the northern tip of the Horn of Africa, it is located at the back of the Gulf of Aden and at the southern border of the Red Sea, mak-ing it a prime location for maritime routes. Indeed, Djibouti is near one the world’s busi-est shipping lanes and can control access to the Red Sea and the Indian Ocean.

Djibouti is also the principal maritime port for imports and exports for Africa’s second most populous country, Ethiopia.

Ramiss Houmed, president of the Djibou-tian institute for auditors (CNCC-D), says: “We have a free zone, which is successful only because of its proximity with the huge landlocked market of Ethiopia, and this brings a lot of audit mandates.”

There are about 200 businesses in this free zone and, in order to renew their licences, they have to go through an audit, Houmed, who is also the founder of HLB Djibouti, explains.

“We have a lot of Chinese investments, especially in the harbour, which bring a lot of Chinese subcontractors, and we also have a lot of Turkish investments bringing Turk-ish subcontractors,” he continues. “They are here for a short period of time and they want to minimise their costs, so they outsource tax and accounting services to focus on the oper-ations and avoid compliance risks.”

While this looks like an ideal scenario for the accountancy profession, in practice there is a catch: CNCC-D only has 17 members, and the Djiboutian institute for accountants has never really seen the light of the day since it was established by law in 1984.

“The law of 1984, which officially regu-lates accounting, was a good law for the time, but it was never applied, so much so that no one remembers or can agree as to when the last time was that the list of quali-fied accountants was published,” Houmed says. “The audit profession was launched through a decree in 1997, but it wasn’t a fin-ished product: it regulates how you become a member, internal rules for the institute, sanctions and disciplines for auditors, but the audit profession was not defined.”

This was dangerous for the profession, he

says, because auditors could be criticised for everything and anything, as no one was clear as to what their role was.

Additionally, because the law was never implemented the revenue authority doesn’t officially ask businesses to go through firms for their tax affairs, Houmed continues. With a lack of professionals and a profes-sion that is not well known, the market environment finds alternative solutions. These include the banks asking for mortgag-es or more guarantees, meaning the ultimate loser is always the business community, he says.

“The revenue authority, for example, offers flat rate tax so that no financial information has to be disclosed,” Houmed continues.

Therefore, when he was elected president of the CNCC-D in 2014, Houmed and his team decided to bring about reform. They met with the World Bank and the Délégation Internationale pour l’Audit et la Compta-bilité (DIPAC), which acts as a department of international affairs shared by the French accountancy body (CSOEC) and the French auditing body (CNCC).

But at the time the World Bank said it had no funds and that it would have to wait for a year. After follow ups and lobbying, Djibouti was finally eligible for a special fund called FIRST.

This fund is a donation administrated directly by the World Bank, which can only be attributed once to a country and one of the conditions of attribution is that the pro-ject has to be completed within a year.

The terms of reference for the project were concluded in January 2017, and shortly after the French institute won the public tender to be the consultant on the project.

The CNCC-D had voiced to the World Bank that its preferred choice of consultant was the French institute, Houmed says.

“Djibouti is a small country, and when a freelance consultant comes in he/she can easily meet a minister or a cabinet member,” he explains. “You can end up with a final-ised project that makes someone happy, but that is not up to the standards expected. So to avoid this scenario I had asked that the French institute be the consultant, know-ing that it had the know-how and expertise in place.”

The consultant’s mandate started in April 2017 and is expected to result in a new law

in October 2017, which will put in place a new institute hosting both auditors and accountants. The law will also regulate the transition period, the condition of member-ship, and the standards that will be used.

“We will then need additional funding to complete this framework law with other regulations to set the internal rules and the continuous professional development. In other words, the life of the profession will need to be set through another decree,” Houmed says. “However, we tried to kill two birds with one stone and integrated our membership application with IFAC in the project by making sure that the regulation follows IFAC’s statement of membership obligations.”

A national qualification is not in the pipe-line and come October the new institute will open its doors to all qualifications. Houmed says that at the moment the Djiboutian pro-fession doesn’t have the structure to put in place its own qualification and, at the same time, because the profession is not well known in Djibouti it can’t guarantee a yearly quota of students, which is a deterrent for a global professional accountancy body to set up a presence.

“The new institute will be halfway between the French and the English model,” Houmed concedes. “We tried to customise a model that fits with Djibouti”

So while the new institute will accept as members qualified accountants, regardless of whether they work in practice or in indus-try, it will keep the French elitist stance with only qualified accountant as members, leav-ing out accounting technicians.

This goes against a current project led by the International Federation of Francophone Accountants and Auditors, which aims to reform the profession in Francophone Afri-ca by opening up the professional bodies to accounting technicians.

Asked why Djibouti decided against it, Houmed says: “The reason why people are behind this project is that investors and pub-lic powers demand the highest competen-cies… so we wanted to focus on excellence and bring a label of quality to investors and other stakeholders. There will be a transi-tion period where the current technicians will be able to join [the institute], but in the future new entrants will have to go through the diploma.”<

By Vincent Huck

Djibouti’s reform heralds new hopes

The digital future is upon us and get-ting acquainted with new technolo-gies can’t be postponed. To facilitate the task, on the 25 April, ACCA and

EY organised an event in Brussels to help accountants and financial services profes-sionals understand the risks and opportuni-ties of blockchain and distributed ledgers. Experts and decision-makers shared their views on the future of these technologies and talked about the initiatives being taken to create a regulatory framework that will allow new services to evolve, while consider-ing the risks involved.A blockchain is a decentralised database, known as a distributed ledger, on which transactions are recorded and time stamped on a block. Blocks of transactions are linked to each other via an algorithm called a hash and create a chain, hence the name block-chain. An encrypted and synchronised copy of this record is held by all users and this is what makes this system so secure. Any-one wanting to access the blockchain would have to access all the computers of the users simultaneously in order to succeed.

Cora van Nieuwenhuizen, MEP and Euro-pean Parliament rapporteur on FinTech, has been working on blockchain and other tech-nologies extensively during the last year.

“Blockchain connects different sectors with each other in smart contracts; it forc-es actors to change their old practices, for example in the post-trading value chain. We’re talking about custodians, PCPs and central security depositories that might become redundant in the future. Blockchain also faces concerns over cybersecurity and transparency,” she explained.

Demystifying blockchainEven though an increasing number of peo-

ple are aware of the characteristics and pos-sibilities of blockchain technology, a lot of misconceptions still remain, Van Nieuwen-huizen said.

The blockchain is always discussed in con-

nection to Bitcoin and to the illegal uses that have been made of it, she added.

“The debate is often flawed because many people do not know the difference between a public blockchain, like the ones used by Bit-coin or Ethereum, and a permission block-chain, on which actors need permission to join,” she explained. “Permission often means a departure from anonymity, which takes a lot of the concerns away, but it also means that permission blockchains can be tailor-made, and potentially used for a high variety of use cases”.

Siân Jones, founder of the European Digital Currency & Blockchain Technology Forum, agreed that incorrect or incomplete information still hinders the conversation. “The first myth is that this stuff is all about Bitcoin, it’s all about payments, it’s all about virtual currencies, and it’s all about finance. Well, it’s about all of those things, but it’s certainly not all about those things,” she said. However, there are visible signs of improvement, according to Jones.

“Blockchain and distributed ledger are not necessarily the same thing; there are some

nuances. I think these days most people are happy to use the words synonymously and to exchange them freely, but there are some interesting differences and these are starting to emerge,” Jones continued.

Leading the banking revolutionAfter the financial crisis, blockchain tech-

nology emerged and rapidly rose in popular-ity due to the discontent with central author-ity that was felt by society, according to Eva Kaili, MEP and chair of the European Parlia-ment’s Scientific Foresight Unit (STOA).

Taxpayers had to carry the burden of the crisis and tried to regain control, she argued before adding: “Citizens managed to create a solution that would make politicians and bankers… not very useful anymore.”

Transaction fees valuing €130bn have already been lost in the European Union due to the growing disintermediation, she claimed.

This, in Kaili’s opinion, makes a future without banks more and more likely. A wide-spread adoption of blockchains, e-wallets and smart contracts, however, will translate into a world with a greater use of financial services, she thinks.

Banks should embrace the technology and use it to regain the trust of citizens, she con-tinues, in order to maintain a leading role in the economic system.

Mathias Bucher, founder and CEO of Blockchain-Innovation.com and Blockchain Technology and Investment Strategies lec-turer at the Lucerne University of Applied Sciences and Arts, agreed that these tech-nologies will trigger meaningful changes in the banking and financial industry, though he does not think banks will become extinct.

By 2025, Bucher estimates, blockchains will have gained the trust of consumers and it will be possible to use them for global operations. “We will make our economic transactions in different ways, but I don’t think this will remove the banks from the equation,” Bucher said.

FEATURE International Accounting BulletinBLOCKCHAIN

The myths and realities of blockchain

Blockchain has become a buzzword in financial services, although it remains a mystery to most people and, disturbingly, that includes regulators. An event held in Brussels looked at debunking the myth surrounding this technology and examined the regulatory challenges facing the European Union. Laura Fiorini reports


“The first myth is that this stuff is all about Bitcoin, it’s all about

payments, it’s all about virtual currencies, and it’s all about finance. Well, it’s about all of those things, but it’s

certainly not all about those things.”

Siân Jones, founder of the European Digital

Currency & Blockchain Technology Forum

Functional roles will be retained by the big institutions and these roles, in Bucher’s opinion, are where banks will reinvent them-selves. “Let’s say a medium-sized company needs credit, and uses a blockchain to raise this cash. Who will give you the information about the credit-worthiness of this compa-ny,” he asked.

In Bucher’s opinion, permission block-chains will be an intermediate step in bank-ing countries, whereas three years will be sufficient to solve the current issues of the blockchain through freer experimentation in non-banking countries.

Towards blockchain certifiers“We’re probably going to be looking at a

world where [there will be] hundreds, thou-sands, hundreds of thousands, maybe mil-lions of blockchains in different industries with different places of use,” Jones said. “The good news is that we do not need to know too much about how the technology works. Most people will be blissfully igno-rant about the fact that a blockchain or a distributed ledger is being used for some function or other.”

Jones then joked: “Most of what goes on is a bit like what goes on under my car bon-net. I have no idea other that there is a thing called an internal combustion engine in there and I try never to open that.”

Picking up on this analogy, Andrew Hobbs, EMEIA regulatory and public policy leader at EY, remarked that though detailed knowledge of the engine does not do much for a driver’s ability behind the wheel, yearly vehicle inspections are performed to verify that the engine works.

“So I wonder if there’s a role for someone else to understand how the blockchain works and who would be best placed to do that,” he asked.

Jones said that she didn’t know whether there would be blockchains stamped with a verification to say they met specific crite-ria, but she believes there will be a level of accreditation once the standards emerge.

Blockchain certifiers might be a profes-sional category in the future, she said, though standards may take a while to be defined.

Most European regulators are, in fact, in no rush to regulate, though some differences emerged during the debate.

“From a [EU] Commission perspective, we are curious and excited by the potential that distributed ledger technology can deliver in

terms of improved and efficient processes, more competition, and reduced costs for the end consumer,” Tobias Mackie, member of the FinTech Task Force of DG FISMA of the European Commission, said. “This is early days for the Commission and other regu-lators, even if blockchain has been around for some time and maybe many of you have been working on blockchain applications for a number of years.”

Van Nieuwenhuizen also thinks it is not yet time for targeted regulation and is eager to let the market experiment and find the most beneficial uses of this technology.

“Some suggested standardisation work can already start, but it is too early I think, as many participants are still taking time to identify possible use cases,” she said.

EU’s approach to blockchainThe European institutions are making sure

they take an active part in this debate. On the 23 March, the European Commission pub-lished a consultation about FinTech.

“In that document we made it clear that our goal is to create an enabling environ-ment, where innovative FinTech products and solutions take off at a brisk pace all over the EU, while ensuring financial stability, financial integrity and safety for consumers,” Van Nieuwenhuizen said, confirming the open attitude of the European institutions to this technology.

Mackie also described the numerous opportunities for discussion that the Euro-pean Commission is trying to create: “We are reaching out to external stakeholders, setting up meetings and organising seminars to learn

first-hand about the latest developments and use cases.”

After the consultation responses have been received and analysed, then the Commission will decide on a course of action. Mackie also announced the creation of a cross-DG Finan-cial Technology taskforce. Kaili, contrary to her colleagues, expressed the need to at least start laying some ground rules in order to ensure consumer protection.

Rules and an increased financial and digi-tal literacy will encourage consumers as well as SMEs to take advantage of the possibili-ties of blockchain and cryptocurrencies, she hopes.

STOA has asked the Industry, Research and Energy Committee of the European Commission to start working on legislation, Kaili said.

“We’re going to have some rules and we are going to have a verified application for blockchain, but it also means that we will try to help it and not stop it,” she continued, adding that her objective is to protect the blockchain from the pressure of the banking industry lobby.

Adam Farkas, executive director of the European Banking Authority, is also worried by a possible imbalance and warns against bank protectionism.

“We regulators and policy makers need to take a very analytical, measured and propor-tionate approach, and not overdo it, but also keep up with the pace of what technology is bringing to the financial system to ensure stability. After all, this is what accountability is in the European system,” he said.

However, some useful steps towards regu-lation have been taken elsewhere, Jones said. “The International Standards Organisations set up a technical committee last October, TC 307, on distributive ledger technology.” TC 307’s objective is to work on definitions, architecture and taxonomy.

Europe needs to look past the economic crisis, and kick all fears aside to make room for new ventures, Van Nieuwenhuizen warned before saying provocatively: “No guts, no glory.”

Israel, the United States of America and several African countries are investing sub-stantially in blockchain and related technolo-gies, it is time for Europe to make a move, Van Nieuwenhuizen concluded, before adding: “If we do not act fast, Europe will lag hopelessly behind. We have to move forward.”<

FEATUREInternational Accounting Bulletin BLOCKCHAIN


“[The EC’s] goal is to create an enabling environment where innovative FinTech

products and solutions take off at a brisk pace

all over the EU, while ensuring financial stability, financial

integrity and safety for consumers.”

Cora van Nieuwenhuizen, MEP

COUNTRY SURVEY International Accounting BulletinUGANDA

After years of political, economic and social unrest, Uganda has managed to find some stability under Yow-eri Museveni’s ongoing presidential

tenure, which started in 1986. Museveni managed to stabilise the economy through currency reform, raising producer prices on export crops, increasing the price of petro-leum products, and improving civil service wages. This resulted in a slowing of inflation and encouraged foreign investment. Despite being a landlocked country, Uganda

benefits from rich natural resources, includ-ing fertile soils, regular rainfall, small depos-its of copper, gold and other minerals, as well as recently discovered oil. However, Uganda’s economy remains predominantly agricultural with limited industrialisation.

Nevertheless, financial services are a dynamic sector of activity in Uganda, offer-ing plenty of opportunities for accounting firms to explore. In particular, an increased focus on quality and standards combined with more stringent compliance require-

ments and the recognition of the account-ancy profession’s added value in recent years have been factors allowing firms to grow.

Crowe Horwath AIA advisory consult-ant Richard Okia says: “There is a lot of potential in Uganda, as the clients in various industries are starting to appreciate the need for accountants as advisors.”

There is also an increased strictness com-ing from the government in terms of compli-ance, he continues. “So many organisations are trying to be compliant in terms of pay-

■ ROSC 2014 – EXTENT TO WHICH UGANDA HAS ACTED ON THE WORLD BANK’S RECOMMENDATIONS

Policy recommendations Status By James Musabe (these answers are his personal opinions)

PIEs, SMEs and Micro-sized Entities should be clearly defined and given legal backing through regulations.

In progress

PIEs are getting defined through the up-coming ‘New Auditors report’ and this is backed by the ICPAU guidelines. The guidelines have remote legal backing through the Accountants Act 2013, which mandate the ICPAU to issue regulations. PIEs, SMEs and Micro-sized Entities definitions still lack the quantitative part, which is paramount to avoid “swing around” by preparers of these financial statements.

Introduce the concept of audit exemption while requiring all medium-to-large companies’ financial statements to be prepared and audited by a member of ICPAU.

No

I have not had any discussion of this matter.While I agree to audit exemption, there should be another form of check and balance, for example requiring that all exempted entity financial statements be reviewed by a practising member of the ICPAU and an independent review report be issued.

Require all companies registered under the Companies Act 2012 to file financial statements with the Uganda Registration Services Bureau.

No

Still not a requirement in the Company Law.I do not think it is advisable that all private companies should be required to do so. The Uganda Registration Services Bureau has its own administrative failures and has even failed to comprehensively deal with the few public entities. Drawing from the concept of the audit exemption, I would recommend only the PIEs and large private companies be required to file financial statements with the Uganda Registration Services Bureau.

The adopted financial reporting framework for each State Enterprise should be aligned to the nature of its operations. •Those in profit-oriented business should comply with IFRS •Those in not-for-profit oriented business should comply with IPSAS

No Selectively applied and subject to the entity management decision. This need to be legalised for all entities in the respective classifications.


Uganda: a pearl in the rough

Uganda’s nickname, the Pearl of Africa, was first coined by Winston Churchill decades ago, but it has endured and the country is still referred to as such today. Benefiting from 30 years of stability and an increasingly recognised accountancy profession, accounting firms are tackling the pervasive challenges and finding avenues for growth. Vincent Huck reports

COUNTRY SURVEYInternational Accounting Bulletin UGANDA


Creating a financial reporting law, eg a Financial Reporting Act, which will prescribe the financial reporting framework for the different reporting entities (PIEs, SMEs and Micro-entities).

No

In my opinion the law is not necessary. ICPAU has the mandate to regulate accountancy in Uganda and that should involve financial reporting.ICPAU should just authoritatively decide and advise the government on who should apply the IFRS, IFRS for SMEs, IPSAS. The New Financial Reporting Act will just add to the many unimplemented laws, regulations and guidelines, which is a burden for the preparers, practitioners.I do not agree with the proposed framework because they do not include other sectors such as the not-for-profit entities that are not state owned. What, when, why and how should they report remains unanswered even though these entities are numberous in Uganda and represent a big sector of activity.

ICPAU should collaborate with Ministry of Finance Planning and Economic Development (MoFPED), and tertiary education providers, to introduce training in Public Sector Subjects.

YesPublic sector has been covered in some sections of the ICPAU materials, specific seminars and now a public sector qualification is under discussion. It might even have been rolled out already.

Further strengthen collaboration between ICPAU, NCHE and tertiary education providers to improve the relevance and quality of accountancy graduates.

Yes ICPAU has some form of collaboration and degree accreditation with some universities.

ICPAU should mandate the requirement for compulsory practical training as part of the qualification process for its membership.

In progress

I have participated in drafting some of the process documents when I was a member of the technical committee and the sub technical committee in practice. It is still in progress.

Consideration should be given to introducing internships as part of degree qualifications in accountancy. Yes Most degrees now have this internship requirements.

Further strengthen ICPAU to enable it to meet its wide responsibilities.• Continue building strong capacity

In progress

It is in progress but in my view, there is now a need to open internally for more formal criticism. Not everyone will be a “rubber stamp” and those that bring the “devil’s eye” - meaning criticising the ICPAU’s ways of doing things - may actually be good messengers.

ICPAU should collaborate with other stakeholders to enable it fulfil IFAC statements of membership obligations.

In progress

In progress and much has actually been achieved, particularly in education and practice quality management.

ICPAU should ensure its members maintain a very high level of professional competence, integrity, ethical behaviour and regard for quality in whatever they do.•ICPAU should ensure its quality assurance reviews and CPD achieve the intended objectives of enhancing quality and technical competence.

In progress

I could say Yes, but I personally believe that professional competence, integrity, ethical behaviour and regard for quality in whatever one does should be a living concept worth continuous improvement. Therefore, I stand by “in progress”, although much has actually been achieved, particularly in education and practice quality management, as stated above. More can still be done.

ing their taxes on time, having their books in order and having them audited.”

JP Magson (DFK International) partner James Musabe confirms that the local mar-ket is growing, in particular audit and finan-cial advisory. While Uganda adopted IFRS in 1999, it was not implemented until very recently, he explains. Now that it is being implemented, businesses need to catch up and therefore activity is growing, he says.

Musabe says that the audit service line in particular has been performing well because the 2013 Accountants Act mandated that audit must be done by a certified public accountant. While the larger companies are serviced by the Big Four, like anywhere else, Musabe says that small and medium prac-tices (SMPs) such as his still get audit work from large companies.

With oil being only recently discovered, the oil sector is at an early stage of development,

he explains. “Many companies are arriving and starting operations, but they don’t start big, so we [the SMPs] have the opportunity [to service those companies].”

However, fee pressure is a challenge, Mus-abe warns. While increased regulation and compliance requirements tend to drive costs up, clients naturally want to reduce fees and this results in tremendous fee pressure.

Another issue he says is that some in the market cut corners, doing substandard audit work for untraceable cash transactions, ulti-mately to the detriment of the profession.

Bookkeeping and advisoryIncreased regulatory compliance and

growth in the audit has opened up oppor-tunities in other service lines, Okia says. “Bookkeeping is one such growing area, as businesses are trying to get their books in order so that they are ready when the audit

need arises.”Equally he says companies are more aware

of the need to prevent risks and this drives up the demand for advisory services. “The key areas in advisory are internal audit and check and controls to ensure that the busi-ness is protected.”

Musabe says that while advisory is grow-ing, Ugandan companies only see it as a service to use when there is an issue, “not knowing that through appropriate financial advisory you can avoid the problems in the first place”.

Regulatory changesAsked about upcoming changes in regula-

tions, both Musabe and Okia point at the area of tax.

“The revenue authority is coming up with auxiliaries that will ensure that all firms that will be handling tax will be registered and


COUNTRY SURVEY International Accounting BulletinUGANDA



Stakeholders should make a sovereign decision on how the accountancy profession should be regulated in Uganda. The overriding objective to be kept in mind is the need to ensure independence of the regulator and protection of the public interest.• If ICPAU continues to be the regulator: the Quality Assurance Board should be appropriately constituted to ensure it is independent and that it is seen to be so. • ICPAU will have to set out clearly how it is going to address this issue.• If it decides to set up a separate independent oversight body, it will need to be set up by the law and aim to be a member of IFIAR.

In progress

The establishement of a Quality Assurance Board is provided for in the Accountants Act 2013. ICPAU and the government now just need to organise their respective houses.Then let the Quality Assurance Board be the member of IFIAR.

ICPAU as adviser to the government should engage the MoFPED and the Ministry of Trade with regards to accountancy practitioners licences. ICPAU should be the only authority with the legal mandate to issue practising licences to accountants and auditors in thecountry.

No We actually pay double and ICPAU is dormant on this. A clear sign that it has no interest in supporting and advocating for the practitioners.

ICPAU should adopt the IESBA Code of Ethics for Professional Accountants. Yes As members of ICPAU we are required to comply with the IESBA Code of Ethics

for Professional Accountants

PICPAU should continue leading the current initiatives aimed at improving awareness of new standards, and changes in existing standards and their implementation (including the various SMP Tool Kits published by the IFAC SMP Committee).

Yes Much has been achieved here. These documents are also available on the ICPAU website.

All regulators should be further strengthened to improve their capacity to identify non-compliance with financial reporting requirements.• They should enter into a memorandum of understanding with ICPAU covering all areas of common interest in financial reporting.• These should cover responsibility with regards to compliance with the statutory reporting requirements and international standards and codes.

No I have no privy of proof of any work in progress or accomplishments in this section.

Strengthen the Uganda Registration Services Bureau.• It should have capacity to identify and follow up on companies that have not filed annual returns. • It should also check filed financial statements for compliance with the Companies Act disclosure requirements.

No I have no privy of proof of any work in progress or accomplishments in this section.

ICPAU should continue collaborating with MoFPED to successfully implement IPSAS. No I have no privy of proof of any work in progress or accomplishments in this

section.

certified to do that,” Okia says. “In the past different people would have been able to fill in those tax returns, but now they are try-ing to streamline it and make sure that all the firms that are consulting or being used as consultants are actually authorised to do those activities.”

Musabe, on the other hand, points at a regional initiative. “There is something in the pipeline at the East African Community level whereby they are trying to come up with a tax avoidance law that will affect all the countries that are part of the economic zone, meaning that we as tax advisors will be affected if we advise clients on loopholes in the laws that can be used to reduce the tax.”

Musabe also points at internal changes within the revenue authority that have had an impact. According to him, the revenue authority used to hire its staff straight out of university, but now it employs qualified accountants, which help makes tax compli-ance more stringent, and reduces any possi-

ble loopholes.

StaffingUganda has not been spared by the global

trend branded as “war on talent”, but both Okia and Musabe recognise the efforts made by the Institute of CPA Uganda (ICPAU) to raise the profile of the profession within the country.

“The institute has encouraged many stu-dents to take on the CPA qualification.[ICPAU] is going into schools and publicising [the profession], and there are many people coming out now as CPAs,” Okia says.

This has made staffing easier for firms, Musabe adds, although challenges remain as the profession is still not very well known. According to Musabe, if we were to ask 100 people in the street if they know about the profession and what a professional account-ant does, only 30 would know.

“This is why the services are affected because they don’t appreciate the differ-

ence between qualified and non-qualified accountants,” Musabe continues. “Thank-fully, the profession is becoming increasingly popular because of the visits to universities and schools to offer career guidance, and we as members of the institute are encouraged to talk to young people.”

Despite the current economic slowdown, both Musabe and Okia are confident about the future, especially when looking at region-al opportunities and the East African Com-munity’s increasingly successful integration.

There is little doubt, however, that Ugan-da’s future economic successes, which will in turn impact on opportunities and challenges for accounting firms, will largely depend on what happens in the political arena. President Museveni has been in power for 31 years, but he is 72 years old and when the leadership transition happens, its nature will go a long way in defining the country’s future.<

COUNTRY SURVEYInternational Accounting Bulletin SOUTH AFRICA


South Africa has held the number one position for the global auditing pro-fession for seven years, according to the World Economic Forum. It also

has one of the top banking systems in the world and a financial services sector in the top three.Regional director for RSM Africa, Clive Betty, says: “We might not be a first-world country, but our auditing profession is top notch, our standards are high and we are highly regulated, almost overly regulated.”

However, recent months have accumu-lated pressure on the auditing and account-ancy profession. The regulator for the audit profession in South Africa is the Independ-ent Regulatory Board for Auditors (IRBA), which falls under the National Treasury to protect public interest. IRBA is recognised as a Competent Authority for auditing under the EU Commission regulations and par-ticipates in international forums such as the International Forum of Independent Audit Regulators (IFIAR), International Auditing and Assurance Standards Board (IAASB) and International Accounting Education Standards Board (IAESB).

On the other hand, currently the South African accounting profession is less regu-lated in South Africa although there are several local qualifications to practice as an accountant.

The World Bank recommended in its 2013 ROSC report that there should be a single regulator for the profession that covers the accounting side as well as auditing.

The majority of professionals from both audit and accounting firms that spoke to International Accounting Bulletin were in favour of IRBA becoming the sole regulator. Yet concerns have been raised about whether IRBA has the capacity to regulate all audit-ing and accounting professionals.

Colin Timmis, head of accounting at Xero

South Africa, says: “It is doubtful that many of the smaller bodies would agree to IRBA being the main regulator, with over regula-tion and lack of independence as possibly valid concerns.”

But not all share this opinion. With an accountancy profession fragmented because of too many professional bodies, some like Marco Patrizi, partner at Tuffias Sandberg and director on the African Morison KSi board, believe IRBA could be a driver for enhanced quality. “Some of these other bodies offer accounting services, so liter-ally anyone can start calling themselves an accounting firm, but, in essence, the quality is undesirable. IRBA will hopefully become the main regulator and enhance audit qual-ity, but also accounting, tax and auxiliary services too,” he says.

Falling out with JSEUp until recently, the Johannesburg Stock

Exchange (JSE) had an accreditation process very closely aligned to the IRBA review pro-cess, yet in the last couple of months they have de-linked. Mark Stewart, CEO of BDO South Africa, reveals that the reason may be that IRBA’s findings were not in line with the JSE’s expected requirements. The JSE has released a draft of its requirements, but it is not effective as yet.

Currently, the JSE requires a satisfactory letter from IRBA for accreditation, Yvonne Kgoedi from SizweNtsalubaGobodo (SNG) a member firm of Morison KSi, explains. But now the proposed JSE requirements say 1,500 public interest entities must be audited, which is unattainable for someone new to the profession. A new entrant must exclude JSE or public interest work because they will not get it, Patrizi adds.

Mazars South Africa partner Ewald Van Heerden says: “Due to this disagreement, the JSE has decided to change its listing require-

ments and make the accreditation process reliant on the internal monitoring processes. That significant change puts a lot of empha-sis on internal monitoring; some firms may benefit, but others might have to restructure their system.”

The 2016 IRBA report revealed a 27% increase in unsatisfactory reports for large firm inspections, such as the Big Four. The reason for this, according to Kgoedi, is because IRBA has improved its inspec-tion quality and become more stringent. “Although the Big Four firms see themselves as the superior auditor, we are all applying the same standards,” she says.

Each year the IRBA summarises the find-ings of its inspection process in its Inspec-tions Reports, and the 2015/16 report was released in March 2017. IRBA says that the findings, such as the 27% increase in unsat-isfactory reports, were in line with the global inspections survey results issued by the Inde-pendent Forum of Audit Regulators (IFIAR), also released in March 2017.

As IRBA will become the regulator of the profession as a whole rather than just audi-tors, interviewed firm leaders believe that it will have to adopt different standards for dif-ferent levels of service. Audit is an assurance-based service to maintain the confidence of the people and public protection; however, not all of the services require that level of assurance and people might welcome a regu-lation that is less stringent, Kgoedi explains.

Patrizi adds that IRBA can’t be expected to bring accounting and tax services regulation to the same level as audit; it’s not meant to be on the same tier. “What is important is not who the regulator is, but how [the profes-sion] gets regulated,” he says.

IRBA issued in December 2015 that all auditors’ reports on Annual Financial State-ments had to disclose the number of years that the audit firm/sole practitioner has been

South African regulator faces storm of criticisms over mandatory firm rotation

The South African regulator is edging closer to finalising a reform that started two years ago, but the prospect of the introduction of mandatory firm rotation has inflamed passions in the rainbow nation, Stephanie Wix reports


the auditor of the entity (audit tenure). This was followed by the announcement of plans to introduce mandatory audit firm rotation (MAFR), and the implementation procedure is currently being formulated.

Since this announcement, there has been an outcry in the profession from both audit professionals and clients, with the majority appearing to be against it. All the interviewed firm leaders shared the view that doing an audit increases familiarity with the client and the knowledge of their business, which does not affect the auditors’ independence, but drives quality.

MAFR is set to kick in on 1 April 2023, with the required rotation every 10 years, pending the conclusion of the current public comment process. It hasn’t been legislated yet but it is on the cards and those affected by it say that there should be a wider consultation before it gets implemented.

Similar to the debate that took place in the European Union, the South African regulator is arguing that with long audit tenure, inde-pendence is affected by familiarity. The firms disagree, arguing that with long audit tenure comes valuable specialised knowledge and the clients fear increased costs.

“We are not in favour of it at all,” Betty says. “It won’t improve independence and it will be costly for clients to bring in a different firm than the one they have had for years. The new firm would have a higher fee for the extra work to learn about their business.”

Firms have also questioned the rationale behind MAFR, claiming that there doesn’t appear to be any research done by the regu-lator to suggest that it would improve audit quality or auditor independence. Addition-ally, they argue that to introduce MAFR will remove the responsibility of the independent audit committees sitting on the boards of the JSE-listed companies.

At the second parliamentary hearing into MAFR on 10 March 2017, IRBA CEO Bernard Agulhas stressed that “academic research does not inform regulation; inspec-tion findings do”. Agulhas also stated that IRBA’s view of the lack of independence and declining audit quality is very different to the “narrow view of firms and clients”.

On the findings, he said: “Clients and audit firms cannot see the same issues with regards to declining quality and lack of independence that the IRBA as the audit regulator does. We have a far broader view of the profession and the audit engagements, as a result of our

inspections process, complaints and investi-gations, and fines paid by auditors to settle disciplinary cases. Of course, the information that we gather is confidential and therefore cannot always be publicly shared.”

While many interviewed firm leaders have argued that MAFR will result in a greater concentration of work among the larger audit firms, rather than fair distribution throughout the profession, Hilton Saven, Mazars South Africa CEO, states that it has been quite successful in other countries, aligning a broader range of firms to enhance their resources and capabilities, but he remains doubtful that it can improve quality and minimise risk.

Global drift to MAFRIndeed, IRBAs plans, however controver-

sial they might be for South African pro-fessionals, fall into a global move towards MAFR. The European Union’s audit regime came into effect on 17 June 2016 and intro-duced MAFR.

In September 2016, the Mauritius parlia-ment adopted amendments that will require MAFR for listed companies and banks, with limits set at seven years. Meanwhile, in the same month, the Central Bank of Kenya moved to introduce three-year term limits for external auditors of the banking sector.

In excess of 30 IFIAR member countries had or will implement MAFR following the EU directive. This excludes non-IFIAR mar-kets such as Kenya, Nigeria and others in Africa, which have already implemented the measure.

“Not many of the listed clients are in favour of the rotation,” Stewart says. “This is because of the resources that firms require to service particular clients and the knowl-edge that goes with servicing multinational clients. I don’t think it would be an improve-ment to the profession.”

IRBA introduced a consultation paper on 25 October 2016 for MAFR, with the dead-line for comment on 20 January 2017. The issue went to parliament where the stand-ing finance committee invited the parties to make a presentation in two sessions in Febru-ary and in March.

Subsequent to that, IRBA issued statements in March/April on independence and trans-formation, but transformation had nothing to do with MAFR prior to that, according to Kgoedi. Patrizi adds that there has been an extensive amount of public comment, with

very little for it and a lot against it. “There are a lot of comments that need to be taken into account before it can be acceptable if it is going to be effective at all,” Kgoedi adds.

Timmis comments that there has been strong opposition to MAFR from bodies including SAICA and the King Committee. “One can understand both sides of the argu-ment, but some studies have shown that audit risk does not decrease as a result of rotation. The need for further research has been sug-gested, but it has also emerged that the other motivating factor was transformation in the audit sector. While transformation is critical-ly important, there may be additional risks created and, by doing so, could drastically curtail any perceived benefits.”

“While we stand to gain more public work than we’ll lose it if it is implemented, predominantly I believe there will be disad-vantages. On the whole, I disagree with it, because it infringes on the shareholders’ right to choose the auditor they want. The issue of independence can be better achieved through mandatory partner rotation,” Patrizi says.

The year of rotation will have the risk of elevated costs in audit fees, as well as the risk of inferior audit quality through the lack of accumulative company knowledge. Clients are mostly against it, and they feel that the 10-year tenure is too short, according to Kgoedi.

Patrizi says: “Often audit fees are seen as a grudge purchase, they have to pay for it, but they don’t want to, like insurance.”

The regulator has provided examples where the opposite has occurred, where fees have decreased, according to Stewart. He adds: “I am not sure if there is enough evi-dence for either party to be correct. If one looks at the South African market, the size of the firm is a factor for rotation cost.”

For the parliament’s next session to discuss the MAFR proposals, around June, SAICA has been specifically requested to make addi-tional representation.

The firms generally support any meas-ures that aim to improve audit quality and auditor independence, according to Saven. “There is a general consensus that, on its own, mandatory audit firm rotation will not achieve independence due to being too costly to implement, will negatively impact risks and affect the understanding of a client’s business. We prefer to see mandatory firm rotation in another form, on a more man-aged basis,” he says.

COUNTRY SURVEY International Accounting BulletinSOUTH AFRICA


■ SOUTH AFRICA 2017

NETWORKS & ASSOCIATIONS: FEE DATA

Rank NameFee income

(ZARm)Growth (%)

Fee split (%)Year-end

Audit & assurance Accounting services Tax services Advisory Other

Networks

1 PwC* (1) 4,900.5 1% 64 - 13 23 - Jun-16

2 Deloitte* (e ) 4,837.9 8% n.d n.d n.d n.d n.d n.d

3 EY* (1) (2) 2,730.9 10% 45 - 15 33 7 Jun-16

4 Grant Thornton International* (1) 677.6 3% 52 - 10 27 11 Sep-16

5 BDO* 530.3 3% 45 9 13 19 14 Sep-16

6 Mazars* 499.8 7% 51 23 12 14 0 Aug-16

7 Moore Stephens International* 300.4 7% 37 22 13 12 16 Dec-16

8 Nexia International* 285.3 2% 41 31 8 9 11 Jun-16

9 PKF International* (3) 238.5 24% 55 12 10 2 21 Jun-16

10 Kreston International* (1) 160.6 1% 31 - - 6 63 Oct-16

11 RSM* 154.7 3% 46 17 16 12 8 Jun-16

12 Crowe Horwath International* 151.6 36% 36 7 7 1 49 Feb-17

13 HLB International* 143.5 4% 29 10 22 36 3 Dec-16

14 Baker Tilly International* 128.9 11% 54 18 8 9 11 Feb-17

15 MGI Worldwide* 58.7 8% 41 34 5 6 14 Jun-16

16 ECOVIS International* 15.2 -13% 56 12 17 10 5 Aug-16

- KPMG* n.d n.ap n.d n.d n.d n.d n.d n.d

- UHY International* n.d n.ap 58 10 24 - 8 Dec-16

Total fee income/growth 15,814.3 6%

Associations

1 Morison KSi* 586.1 1% 71 1 1 26 1 Dec-16

2 Praxity* 499.8 5% 51 23 12 14 - n.ap

3 GMN International* (4) 73.2 39% 27 37 18 12 6 Sep-16

4 MSI Global Alliance* 68.8 -20% 20 44 9 9 18 Dec-16

5 LEA Global /Leading Edge Alliance*

63.4 10% 42 6 44 3 5 Mar-16

6 BKR International* (5) 48.4 13% n.d n.d n.d n.d n.d n.ap

7 PrimeGlobal* (1) 32.4 10% 66 - 15 - 19 May-16

8 Integra International* 30.0 3% 45 20 20 15 - Dec-16

9 DFK International* 24.9 -15% 36 25 6 10 23 Feb-16

Total fee income/growth 1,427.0 3%

Notes: (e) International Accounting Bulletin estimate. n.d = not disclosed, n.c = not collected, n.ap = not applicable, n.av = not available. (1) Accounting is included in Audit & Assurance, (2) EY submitted for Africa overall last year. (3) PKF International attributed its fee increase to acquiring two firms: PKF Rademeyer Wesson and PKF Constantia Valley. (4) GMN International attributed the increase in turnover to a new member, and an overall increase in activity of existing members, also leading to a staff increase. (5) BKR International restated its fee income for the previous year as the figure published in last year’s survey was not representative of all member firms. *Disclaimer: only data from the named member firm or the exclusive member firms within a network/association is included. Data relating to correspondent and non-exclusive member firms is not included.

Source: International Accounting Bulletin



The first year of an audit always has more costs, says Van Heerden, and the bigger firms will be able to absorb those costs and uphold quality even though their margins are being squeezed. Smaller firms could decide that the cost to rotate audits leads to the work not being sustainable anymore.

The regulator has said that audit quality has become worse based on its inspection processes, which is its reason for implement-ing MAFR. However, a lot of firms have been critical of the inspection process regarding inconsistencies and inspectors changing over time, reveals Van Heerden. “The reduction in quality has no guarantee, whether it was a bad sample or due to inconsistent inspectors or that the regulator has become stricter. I am worried about small and mid-sized firms deciding against taking audit clients, which will be terrible for the market,” he says.

Doubling-upMany interviewed firm leaders discussed

the possibility of joint audit firm rotation and whether it is a preferable alternative to MAFR.

Joint audit would lead to a fee increase, but the major benefit is that both audit part-ners don’t have to rotate at the same time, meaning that the one that stays on has the ability to share information and knowledge of the client, making it easier to bring new auditors on board.

Another benefit is that the auditor capacity doesn’t matter as companies could have a Big Four firm and a mid-tier firm splitting the work, not necessarily evenly. This provides an opportunity for firms outside the Big Four.

Saven says: “We have seen joint rotation operate very successfully, and so we support it. It is well implemented and a few coun-tries are looking into introducing it. On a worldwide basis it should be considered, particularly in relation to concentrating risk, enhancing independence and facilitating a broader capability.”

Stewart adds: “It is difficult to service mul-tinational clients and, in my opinion, joint audit should be the route to follow as it will broaden the base of audit firms doing multi-national work.”

But, for Patrizi, joint audit still relates to multinationals who can only be serviced by the Big Four. “Therefore, there just simply isn’t a big enough pool of firms that can

rotate on a joint audit basis, so within the major conglomerates it is going to present a problem,” he says. “I am not convinced joint audit is going to come in because it has failed in a number of other territories.”

South Africa already has audit partner rotation, which is in the IFAC Code of Con-duct, but it is legislated for a shorter period of five years. As everything becomes more regulated, it puts more pressure on the small-and-medium firms to comply with reporting requirements. The cost of compliance is huge and, if that level of quality isn’t high enough, the firms get sanctioned.

Agulhas says that South Africa relies very much on external capital. “One of the impor-tant components of creating an environment where foreign direct investment (FDI) can occur is a well-regulated and reliable capital market. Public confidence in any profession depends on the quality and robustness of the oversight,” he says.

The IMF, following a recent visit, projected South Africa’s GDP growth in 2017 at 1% and inflation is expected to return below 6% in the second half of 2017 and into 2018. According to the IMF, the priority to stimu-late economic growth and job creation rests with structural reforms.

Paolo Mauro, the IMF staff team leader conducting the 2017 Article IV consultation discussions with South Africa, says: “Follow-ing last year’s near-stagnation, there are signs of a modest improvement and the next year is unlikely to prevent a further increase in unem-ployment. Against the background of declin-ing business and consumer confidence, the authorities face the dual challenge of reignit-ing growth and rendering it more inclusive.”

South African President Jacob Zuma has been under scrutiny for removing the min-ister of finance, Pravin Gordhan, who was doing a ‘sterling job’ of keeping the economy on track, according to Betty. The majority were unhappy with this decision, creating a huge amount of pressure and shortly after-wards South Africa had its international borrowing status downgraded by two of the rankings agencies and so the currency has also depreciated.

Betty comments: “Removing the finance minister is not considered a good economic decision for the president to make. There are six people on the President’s Committee and most of them disagree with him, so it is just a

matter of whether he can get removed now.”Criticisms have especially been directed

at the fact that President Zuma sacked Gor-dhan without consultation. Even if President Zuma apologised, it fed into the political uncertainty that leads to loss in market value.

The newly appointed minister of finance, Malusi Gigaba, is trying to convey an inter-national message that policies will not change and it’s business as usual to avoid a third rankings company downgrading the country, according to Stewart.

However, political uncertainty in South Africa is a reality he adds. “There is a lot of vying for positions within the party and when there is a lot at stake these differences start arising. There is also talk of a Russian nuclear deal, spoken about for some time as a major economic project, but many disa-gree with it and believe it won’t contribute financially to our economy. The sooner we get political stability, the sooner our economy can grow.”

Patrizi says: “The recent reshuffle was really detrimental to the country and the tim-ing of it was horrendous, and the reality is that the risk of foreign capital leaving South Africa has increased and new capital is not coming in. The consequences will be rising inflation and it will hit our growth rate. This includes affecting where our firms would be looking to get future growth or business.”

The regulator reports to the minister of finance by a standing committee and, as these players change, their messages and aspects of their policies also change. As a result of the status downgrade, the “grease has been taken out of the engine and our clients are suffering” Van Heerden says.

The economy and political situation is the first real sign of creating a brain drain, says Van Heerden, where professionals such as accountants, auditors and legal practitioners are deciding to emigrate, making the recruit-ment of top people more difficult.

The South African auditing profession has been strong up to this point and time will tell if MAFR will strengthen it or not. But although interviewed firm leaders are reluc-tant to see rotation come in, there is a sense that better and stronger regulation is neces-sary to take the profession as a whole to the next level. In the context of political uncer-tainty and economic difficulties, will IRBA provide the answers? <

COUNTRY SURVEY International Accounting BulletinSOUTH AFRICA


■ SOUTH AFRICA 2017

NETWORKS & ASSOCIATIONS: STAFF DATA

Rank NameTotal staff

Growth (%)Partners Professional staff Administrative staff Offices

2016 2015 2016 2015 2016 2015 2016 2015 2016 2015

Networks

1 Deloitte* (e) 5,136 5,085 1% 269 266 4,207 4165 667 654 9 9

2 PwC* 5,108 5,164 -1% 270 278 3,964 4,344 874 542 21 23

3 KPMG* (e) 3,333 3,300 1% 232 230 n.d n.d n.d n.d 12 12

4 EY* 2,550 2,412 6% 159 144 2058 1920 333 348 10 10

5 Grant Thornton International* 1,058 1,108 -5% 94 100 783 815 181 193 11 11

6 Mazars* 946 951 -1% 56 65 704 728 186 158 12 11

7 Moore Stephens International*

690 719 -4% 57 55 521 567 112 97 19 20

8 BDO* 662 697 -5% 51 51 450 502 161 144 4 5

9 PKF International* 559 476 17% 49 41 435 370 75 65 10 9

10 Nexia International* 451 506 -11% 41 40 346 397 64 69 11 11

11 Kreston International* 436 440 -1% 36 40 350 350 50 50 8 5

12 RSM* 333 316 5% 25 24 253 233 55 59 2 4

13 Baker Tilly International* 274 263 4% 16 16 181 175 77 72 3 3

14 HLB International* 197 195 1% 22 22 125 123 50 50 10 10

15 Crowe Horwath International* 153 137 12% 24 24 103 79 26 34 3 3

16 MGI Worldwide* 94 93 1% 12 12 82 81 0 0 2 2

17 UHY International* 40 42 -5% 3 4 14 14 23 24 1 1

18 ECOVIS International* 28 30 -7% 2 2 21 23 5 5 2 2

Totals/growth 22,048 21,934 1% 1,418 1,414 14,597 14,886 2,939 2,564 150 151

Associations

1 Morison KSi* 1035 1,028 1% 44 41 929 864 62 123 12 13

2 Praxity* 946 911 4% 56 58 704 695 186 158 12 13

3 GMN International* (1) 211 159 33% 26 20 139 103 46 36 17 13

4 MSI Global Alliance* 154 160 -4% 9 9 124 131 21 20 3 3

5 LEA Global / Leading Edge Alliance

125 123 2% 13 13 76 74 36 36 8 8

6 BKR International 104 104 0% 8 8 76 76 20 20 2 2

7 Integra International 99 106 -7% 6 5 82 67 11 34 1 2

8 PrimeGlobal 70 71 -1% 6 7 51 51 13 13 2 2

9 DFK International 67 74 -9% 3 8 50 56 14 10 2 1

Totals/growth 2,811 2,736 3% 171 169 2,231 2,117 409 450 59 57

Notes: (e) International Accounting Bulletin estimate. n.d = not disclosed, n.c = not collected, n.ap = not applicable, n.av = not available. *Disclaimer = Data relating to correspondent and non-exclusive member firms is not included.Source: International Accounting Bulletin


RANKING International Accounting BulletinEGYPT


■ EGYPT 2017


Rank NameFee income

(EGPm)Growth (%)


Audit & Assurance Accounting Services Tax services Advisory Other

Networks

1 KPMG* (1) 256.3 6% 66 - - - 34 Dec-16

2 EY* (1) 196.4 9% 50 - 39 4 7 Jun-16

3 PwC* (e) 155.0 -5% n.d n.d n.d n.d n.d Jun-16

4 Mazars* (1) 48.9 5% 60 - 30 10 - Aug-16

5 RSM* (2) 39.2 -20% 17 7 36 40 - Dec-16

6 Baker Tilly International * (3) 22.7 16% 70 2 20 8 - Dec-16

7 Kreston International* (1) 21.6 0% 55 - 40 - 5 Oct-16

8 Grant Thornton* (e) 18.1 -5% n.d n.d n.d n.d n.d n.d

9 HLB International* 16.4 10% 48 14 17 21 - Dec-16

10 Moore Stephens International* (4) 12.4 53% 57 4 33 5 1 Dec-16

11 Crowe Horwath International* (5) 7.4 32% 73 3 5 19 - Dec-16

12 MGI Worldwide* 5.0 n.ap 20 20 45 - 15 Jun-16

13 Nexia International* 3.3 -5% 49 21 20 10 - Jun-16

14 PKF International* (1) (6) 2.5 64% 59 - 21 - 20 Jun-16

- Deloitte* n.d n.d n.d n.d n.d n.d n.d n.d

- BDO* n.d n.d n.d n.d n.d n.d n.d n.d

Total fee income/growth 805.3 4%

Associations

1 Praxity* (1) 48.9 5% 60 - 30 10 - n.d

2 Morison Ksi* 12.8 11% 54 8 27 10 1 Dec-16

3 PrimeGlobal* (1) 10.7 22% 67 - 14 - 19 May-16

4 GMN International* 5.9 -10% 13 18 54 3 12 Sep-16

5 DFK International* 4.3 62% 38 8 42 12 - Dec-16

6 EuraAudit International* (1) 3.4 69% 73 - 18 - 9 Dec-16

7 IAPA* (e) 3.2 5% n.d n.d n.d n.d n.d n.d

8 MSI Global Alliance* (7) 2.7 35% 36 25 9 8 21 Dec-16

9 CPA Associates International* 1.8 -7% 30 15 50 5 - Dec-16

10 INPACT* (e) 1.6 5% n.d n.d n.d n.d n.d n.d

11 ANTEA* 1.3 3% 12 58 27 3 - Dec-16

12 Integra International* 1.1 -5% 45 20 20 15 - Dec-16

13 Allinial Global* 0.2 n.ap 30 15 45 - 10 Dec-16


Notes: (e) International Accounting Bulletin estimate. n.d = not disclosed, n.c = not collected, n.ap= not applicable, n.av= not available.(1) Audit & assurance includes accounting services, (2) RSM has restated its fee income for previous financial year as last year it submitted its data in USA$ rather than local currency, (3) Baker Tilly International attributed growth to increased number of clients, depite several of their key partners and managers leaving the firm, (4) Moore Stephens attributed its growth to the addition of five partners/directors from Baker Tilly Egypt, (5) Crowe Horwath International attributed its growth to consulting work, (6) PKF International attributed its growth to a significant assignment, (7) MSI Global Alliance has restated its data for FY15 as last year it provided its information in USA$, it attributed its growth to new clients and higher exchange rate for USA$ as some of their contracts are in USA$. *Disclaimer = Only data from the named member firm or the exclusive member firms within a network/association is included. *Disclaimer = Data relating to correspondent and non-exclusive member firms is not included.


RANKINGSInternational Accounting Bulletin EGYPT


■ EGYPT 2017




2016 2015 2016 2015 2016 2015 2016 2015 2016 2015

Networks

1 KPMG* 833 796 5% 34 35 n.d n.d n.d n.d 2 n.d

2 Mazars* 496 482 3% 20 18 422 411 54 53 2 2

3 EY* 333 280 19% 7 6 306 254 20 20 1 1

4 PwC* 300 393 -24% n.d 16 n.d 331 n.d 46 n.d 2

5 Kreston International* 265 235 13% 6 5 230 209 29 21 9 8

6 RSM* 236 241 -2% 22 28 187 193 27 20 5 5

7 Baker Tilly International* 164 193 -15% 11 11 125 162 28 20 2 2

8 Grant Thornton* (e) 146 140 4% n.d 6 n.d 118 n.d 16 n.d 1

9 Moore Stephens International*

140 123 14% 12 9 92 84 36 30 3 3


11 Crowe Horwath International* 89 85 5% 7 5 70 68 12 12 2 2


13 Nexia International* 28 26 8% 4 3 19 19 5 4 2 3

14 MGI Worldwide* 10 n.ap n.ap 2 n.ap 8 n.ap n.c n.ap 1 n.ap

- Deloitte* n.d n.d n.d n.d n.d n.d n.d n.d n.d n.d n.d

- BDO* n.d n.d n.d n.d n.d n.d n.d n.d n.d n.d n.d

Totals/growth 3,192 3,137 2% 139 156 1,570 1,953 238 267 33 33

Associations

1 Praxity* 496 482 3% 20 18 422 411 54 53 2 2

2 PrimeGlobal* 126 127 -1% 10 10 87 87 29 30 5 5

3 Morison Ksi* 111 114 -3% 13 17 77 77 21 20 4 3

4 IAPA* (e) 54 57 -5% n.d 2 n.d 42 n.d 13 n.d 1

5 DFK International* 45 45 0% 4 4 36 35 5 6 1 2

6 EuraAudit International* 41 41 0% 3 3 31 31 7 7 1 1

7 GMN International* 40 38 5% 4 5 31 28 5 5 2 3

8 MSI Global Alliance* 32 27 19% 2 3 21 20 9 4 1 1

9 ANTEA* 31 24 29% 10 2 14 17 7 5 2 1

10 INPACT* (e) 26 27 -5% n.d 2 n.d 21 n.d 4 n.d 1

11 Allinial Global* 20 n.ap n.ap 2 n.ap 15 n.ap 3 n.ap 1 n.ap

12 Integra International* 19 27 -30% 3 3 14 20 2 4 2 2

13 CPA Associates International* 15 13 15% 2 2 9 8 4 3 2 2

Totals/growth 1,056 1,022 3% 73 71 757 797 146 154 23 24

Notes: (e) International Accounting Bulletin estimate. n.d = not disclosed, n.c = not collected, n.ap = not applicable, n.av= not available. *Disclaimer = Data relating to correspondent and non-exclusive member firms is not included.Source: International Accounting Bulletin

RANKINGS International Accounting BulletinKENYA


■ KENYA 2017


Rank NameFee income

(KESm)Growth (%)


Audit & assurance Accounting services Tax services Advisory Other

Networks

1 PwC* 3,112.5 -3% n.d n.d n.d n.d n.d Dec-15

2 Deloitte* (e) 3,108.3 -24% n.d n.d n.d n.d n.d May-16

3 EY* 1,679.5 16% 36 6 31 16 11 Jun-16

4 PKF International* (1) 1,369.3 10% 66 - 14 - 20 Jun-16

5 Grant Thornton* 494.5 23% 41 - 13 39 7 Sep-16

6 RSM* 355.1 15% 58 4 16 18 4 Dec-16

7 Baker Tilly International* (2) 328.9 37% 88 5 5 2 - Dec-16

8 BDO* (3) 258.0 21% 47 9 12 24 8 Dec-16

9 Crowe Horwath International* 131.0 -5% 68 11 8 8 5 Dec-16

10 Mazars* 114.8 6% 58 13 10 9 10 Aug-16

11 Nexia International* 54.2 27% 58 28 9 5 1 Jun-16

12 HLB International* (4) 28.6 18% 31 4 6 1 58 Dec-16

13 Kreston International* 12.9 17% 63 33 4 - - Oct-16

- KPMG* n.d n.d n.d n.d n.d n.d n.d n.d

Total fee income/growth 11,047.5 -4%

Associations

1 MSI Global Alliance* 175.0 -1% 50 30 10 - 10 Dec-16

2 Praxity* 114.8 6% 58 13 10 9 10 n.ap

3 Integra International* 103.7 n.ap 45 20 20 15 - Dec-16

4 GMN International* 66.6 47% 57 21 5 10 7 Sep-16

5 DFK International* 65.5 11% 58 16 4 17 5 Jun-17

6 CPA Associates International* 30.0 -35% - 50 20 25 5 Dec-16

7 PrimeGlobal* (1) 27.9 -17% 70 - 15 15 - May-16


Notes: (e) International Accounting Bulletin estimate. n.d = not disclosed, n.c = not collected, n.ap = not applicable, n.av = not available. (1) Accounting services are included in audit & assurance, (2) Growth was attributed to regional work increase in financial consulting and due dilligence, (3) Growth rate is on a 15-month period from Sep-15 to Dec-16, (4) Other includes project management, property management and company secretarial services. *Disclaimer: Data relating to correspondent and non-exclusive member firms is not included.


RANKINGSInternational Accounting Bulletin KENYA


■ KENYA 2017




2016 2015 2016 2015 2016 2015 2016 2015 2016 2015

Networks


2 PwC 350 538 -35% n.d 18 n.d 432 n.d 88 1 1

3 EY* 306 292 5% 18 17 235 222 53 52 1 2

4 Deloitte 300 822 -64% 11 28 n.d 614 n.d 180 2 7

5 Grant Thornton* 144 140 3% 10 8 110 114 24 18 1 1

6 BDO* (1) 80 59 36% 4 6 59 48 17 5 1 1

7 RSM* 88 80 10% 3 13 70 63 15 4 2 2

8 Crowe Horwath International* 77 83 -7% 6 5 50 64 21 14 2 2

9 Baker Tilly International* 70 68 3% 4 3 40 55 26 10 1 1

10 Mazars* 56 57 -2% 4 4 39 39 13 14 2 2

11 Nexia International* 35 40 -13% 3 4 25 30 7 6 2 2


13 Kreston International* 18 15 20% 2 2 13 10 3 3 1 1

- KPMG* n.d n.d n.d n.d n.d n.d n.d n.d n.d n.d n.d

Totals/growth 2,032 2,692 -25% 84 128 1,024 2,068 285 495 23 22

Associations

1 MSI Global Alliance* 64 25 156% 4 3 50 14 10 8 1 1

2 Praxity* 56 57 -2% 4 4 39 39 13 14 2 2

3 GMN International* 46 46 0% 3 3 35 33 8 10 3 3

4 Integra International* 28 n.ap n.ap 4 n.ap 20 n.ap 4 n.ap 1 n.ap

5 DFK International* 26 26 0% 4 4 19 19 3 3 1 1

6 PrimeGlobal* 19 28 -32% 2 3 15 20 2 5 1 1

7 CPA Associates International* 14 21 -33% 1 1 10 15 3 5 2 2

Totals/growth 253 203 1 22 18 188 140 43 45 11 10

Notes: (e) International Accounting Bulletin estimate. n.d = not disclosed, n.c = not collected, n.ap = not applicable, n.av = not available. *Disclaimer: Data relating to correspondent and non-exclusive member firms is not included.Source: International Accounting Bulletin

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