IFRS in Ethiopia: joining the family!

A section of the ifrs.org website monitors the application of IFRS across the world, based on profiles for 167 jurisdictions.

That’s not the whole world though, and you might well have asked – what about Ethiopia (well, you might have)? It’s not included among the 167, and barely mentioned anywhere on the website; there’s just the following 2020 exchange between two IASB members:

  • ‘I truly believe Africa has an important role to play in standard-setting,’ Bruce says. ‘Over my years of travelling across the continent, you always meet people with a passion for what the Board is doing. As a global standard-setter, I think it’s important that Africa is being heard.’
  • Over the past eight months of the global pandemic, Board members have had to change their outreach. Darrel has been working remotely from South Africa; yet since the start of lockdown, he has managed to engage with more than 4,500 people who have an interest in the Board’s work.
  • ‘We’ve had more than 30 outreach events, conferences and individual stakeholder meetings,’ Darrel says. ‘We’ve reached out to at least 25 countries across the continent. The [remote] format has allowed us to do outreach with Nigeria in the morning, present at a conference in Zimbabwe in the afternoon and meet regulators in Ethiopia the next morning—I think this has engaged more people with the ‘IFRS family’.’

No indication though of what came of that meeting with regulators. Likewise, at the time of writing, the Deloitte IAS Plus website lists Ethiopia only as a jurisdiction on which Deloitte is “seeking information” (“if you can help us with missing data, please send us an email.”). So, hey Deloitte, here’s some such information! From the Renew Capital website:

  • Previously in Ethiopia, there was not a single accounting standard in use. Businesses had to rely on different regulations and their own internal accounting policies for the preparation of financial reporting. This impacted comparability and reliability of the reporting used by various stakeholders. The government of Ethiopia issued a proclamation called “Financial Report Proclamation of Ethiopia: 847/2014” and Council of Ministers Regulation 332/2014 instructing adoption of IFRS and establishing AABE (Accounting and Audit Board of Ethiopia). AABE is responsible for guiding and dictating the implementation of IFRS as of December 2014.The IFRS implementation roadmap has three phases which started in 2018. Since then, a number of large companies have adopted IFRS in their reporting process while the majority of SMEs and some public interest entities have not been able to adopt the standard. As a result, the government has delayed the implementation enforceability schedule and recently announced a new threshold for the adoption of the full IFRS (listing all applicable rulings or codification to be strictly followed by adopters) and also sectioning out IFRS rules for SMEs,

The first threshold arrives this year:

  • Threshold 1: Minimum criteria to adopt Full IFRS: Entities that meet two of the below four criteria should start adopting the standard by 2023:
  • Annual turnover exceeding 300M ETB
  •  Total employees exceeding 200
  • Total asset exceeding 200M ETB
  • Total liability exceeding 200M ETB

At the time of writing, 300m ETB seems to equate to around US$5.5 milllon. Which brings us to this recent update on CapitalEthiopia.com:

  • 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.
  • “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 market understanding. 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.”

Some of the articulation is a little fuzzy, but one can get the general idea, that while much of the world already sees IFRS as a been-there-done-that to be trampled over on the way to the infinitely more exciting ISSB standards, some jurisdictions are still working out basic matters of infrastructure, culture and credibility. So there’s your Ethiopia update. I’m sure we all wish them well!

The opinions expressed are solely those of the author.

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