The Accounting and Auditing Board of

Ethiopia (AABE)
www.aabe.gov.et
International Public Sector Accounting
Standards (IPSAS)

Dawit Mengistie
June, 2017
Addis Ababa, Ethiopia
 Presentation outline
 Background
– The what and why of Financial reporting?
– Regulatory framework in Ethiopia
 IPSAS Implementation Road Map
 AABE Five Year Strategy
 The Ethiopian Regulatory
Framework
 Financial Reporting Proclamation
847/2014
 Council of Ministers Regulation
332/2014
 Directives to be issued by AABE
 IPSAS
Adoption Road Map
 Overview of IPSAS
 IPSAS is a globally-accepted set of accounting standards
and interpretations established by:
– International Public Sector Accounting Standards Board
(IPSASB)
 IPSAS assist preparers of financial statements produce
and present:
– high quality
– transparent, and
– comparable financial information
 IPSASs are designed for use by Public sector including
Non-profit oriented entities.
 IPSASs are principle based
 Background
 Scope of IPSAS Conversion – Conversion will touch
almost every aspect of the organization. Its impact is
profound!
 And conversion to IPSAS does not end with the
publication of the first set of IPSAS compliant
financial statements.
 Necessary preparation including changes in
accounting policy, IT system, process, etc. must
precede conversion to IPSAS
 Implementation of ISAs – immediate and no road
map needed.
 • Policies and procedures • Impact of accounting on
• Not just Finance • Finance function efficiency taxation considered
• Front Office, research, credit • Finance and Operations irrelevant by IPSASB
• Non-executives transformation • Impact on tax strategies
• Access to knowledge and • Data collection
tools • Structured products
• Inland Revenue

Control
• Covenant renegotiation environment • Fair value
• Valuation of earn outs
• Debt vs. equity
• Demand for valuations Training and Review of hedging strategies
• Impact of consolidation of SPEs knowledge Tax planning •

• Hedging documentation
• Clients’ appetite for existing
structured financial products • Day One profit recognition
• Viability of transactions due to • Observability of market prices
treatment on own balance sheet • Embedded derivatives
Ability to assess client suitability Operations • Reserving policies
•
and credit Financial
• SPEs
instruments
Business
impact of
• Fragmented processes/ systems Processes and
IPSAS Oversight and
resulting from IPSAS tactical
solutions systems project
• Data capture
management • Complex project
management
• Hedging
• Audit Committee
• Loan provisions involvement
• Segmental reporting Management • Non-executive
• Financial Statements information doners understanding and
presentation relations oversight
Resources and budgets
Employee •

benefits
• Early education
• Key performance indicators
• Underlying business performance
• Management reporting
• Volatility of earnings and equity
• Underlying infrastructure • Share based payments
• Hedging strategies
• Reconciliation to reported • Pension arrangements and
results funding • Re-benchmarking relative to global
peer group
• IPSAS alignment • Retirement benefit costs
• Alignment of remuneration
and bonuses
 Statement of Adoption
 Ethiopia adopt IPSAS as issued by the
International Public Sector Accounting Standards
Board (IPSASB).
 A three phase transition over a period of three
years for reporting entities.
 Effective and meaningful adoption may be
derailed if any of the milestones and timelines is
ignored.
 “voluntary” adoption before the mandatory date
permitted. BUT What Does ROSC AA 2007
Review Result Showed ??
 ROSC 2007 Review Result of FSs
 focused on issues of presentation and disclosure
only (not recognition and measurement issues)
 sample of 35 financial statements from financial
institutions, public enterprises, share companies,
etc.
 review result revealed that there were significant
differences between the actual accounting
practices and IFRS/IPSAS requirements
 conclusion the actual accounting practice in
Ethiopia differ from IFRS/IPSAS.
 IPSAS - What is it?
 IPSASs are a single set of accounting
standards which specify how certain
transactions and other events should be
reported in financial statements.
 The main purpose of these standards is to
maintain stability and transparency
throughout the financial world.
 Financial Reporting: Why is it
Important?
 No transparency => no trust
 No trust => no grant/donation
 No grant/donation=> no social service
 No social service => no community
development
Accounting & Auditing as part of Governance
 Sound governance and effective institutions are
essential to achieve shared prosperity and
sustained reductions in poverty.
 Public accountability and proper governance
contribute to better delivery of public services,
support competition and growth, including
through cooperation with public service entities.
 Quality information helps the government
properly analyse risks and play their essential
roles in resolving the complex and interconnected
challenges in variety of sectors, including in
health, social protection and education.
Users of Accounting & Financial Reporting

Donors
High-Quality Financial Reporting: 3 Key
Dimensions
Standards are Just one Piece of a Complicated
Puzzle
Financial Reporting is not just about the Standards
All supporting pillars are important and need to be
strengthened
TRUST
Ensuring Compliance with Reporting Obligations
Ensuring Compliance with Reporting Obligations -
Challenges
 Making the reporting available to the public
 Powers of the regulator/supervisor
– To investigate
– To remedy or sanction
 Organization of the regulator
– Sufficient resources
– Cooperation between regulators
 Market discipline
 Suitability of the standards
Ensuring Compliance with Reporting
Obligations - Monitoring audits
Monitoring audits The Regulator
 Who will guard the  Independent
guardians?
 Public oversight  Competent
– Monitoring and
inspections
– Investigations
 Transparent
– Sanctions
Preconditions for Effective Regulation
 Comprehensive and well defined accounting and
auditing principles and standards.
 Legal requirements for the preparation and
publication of FS according to those principles
and standards.
 Enforcement system for preparers of FS to ensure
compliance with accounting standards
 Corporate governance arrangements and
practices that support high-quality corporate
reporting and auditing practice, and
 Effective educational and training arrangements
for accountants and auditors.
 Voluntary Adoption
 reporting entities are not allowed to make
such unreserved reference to IPSAS unless
they fully comply with all the requirements of
the IPSASs applicable to their circumstances.
 reference to IPSAS by reporting entities prior
to the mandatory requirement date shall be
considered as “voluntary” adoption and
treated accordingly.
 such claim by reporting entities and their
auditors shall be scrutinised strictly and any
infraction shall be dealt with firmly.
Mandatory Adoption of IFRS and IPSAS
 PHASE 1: Significant Public Interest Entities -
Financial Institutions and public enterprises owned
by Federal or Regional Governments
 Hamle 1, 2009 the date for adoption of IFRS.
 PHASE 2: Other Public Interest Entities (ECX
member companies and reporting entities that meet
PIE quantitative thresholds) and IPSAs for Charities
and Societies
 Hamle 1, 2010 the date for adoption of IPSAS
 PHASE 3: Small and Medium-sized Entities
 Hamle 1, 2011 the date for adoption of IFRS-SME
 Reporting Date:
IPSAS Implementation SMEs

Roadmap Reporting Date:

Other PIEs 20011/12
Reporting Date:
2011/12
Significant PIEs
Transition Date: SMEs
2010/11
2010/11 •IFRS reporting by
Transition Date: other SMEs
IPSAS Competency

Other PIEs 2009/10

•IPSAS/Quarterly •Audit procedures
2009/10
reporting by other PIEs •Stakeholders
Transition Date: •Audit procedures communications
Significant PIEs 2008/09
2008/09 •IFRS/Quarterly •Stakeholders •Compliance
reporting by sig. PIEs communications monitoring for
•Audit procedures •Compliance Other PIEs
2007/08 •Stakeholders monitoring for sig. PIEs
2007/08 •Transition •SMEs prepare opening
communications
adjustments •Other PIE’s prepare SFP and comparative
•Prepare IFRS opening SFP & figs
•Awareness •Stakeholders
•Assessment
opening SFP comparative figs
•Dry Runs for •Dry Runs for other communications
•Amendment of laws,
PIEs •Dry Runs for SMEs
regulation and directives “significant PIEs”
•Training •SME’s commence
•Planning/impact analysis
•Prepare
transition planning
•Transition adjustments/ comparative figures
opening BS for sig. PIEs

Alignment with other initiatives and training for appropriate personnel

Realisation and standardisation of statutory reporting

 Disclosure Requirements by REs
 Prior disclosure of the effects of IPSAS adoption
starting from two years prior to adoption
– Preparation plans for IPSAS adoption and the progress
thereof
– Different accounting treatments that are expected to
have a great impact on the entity
– Quantified information about anticipated effects on
financial position & performance
– Changes in the consolidation scope - increase or
decrease in the no of branches to be consolidated or
description and reason of why it is not possible to
provide such information.
 Monitoring Preparation for
IFRS/IPSAS Adoption
• During the preparation period AABE
undertakes survey of reporting entities
that are subject to mandatory IPSAS
application
• Survey results will be utilized to plan
and execute appropriate intervention
measures to facilitate timely adoption.
 Reporting Requirement on Audit
organizations
• audit organizations to prepare and submit business
reports starting from 2008/09 describing the status of
their own preparation for the adoption of IPSAS by their
clients.
• E.g. teams and staff members dedicated to the firm's
preparation for IPSAS adoption, education sessions
• AABE will analyse the reports and examine how
organizations are preparing for the adoption of IPSAS.
• AABE will direct the organizations that lacked sufficient
preparation to place adequate efforts in the preparation
• Result of report examination will be used as input in the
selection of audit organizations for quality review
IPSAS Roadmap Implementation Task Force
 A joint public and private-sector task force for
efficient implementation of the Roadmap
 Goal of TF- to deal with issues arising from
adoption and to support the stabilisation of the
adoption process.
 Focus of TF - identifying and providing
recommendations for the amendment of the
accounting infrastructure including the related
laws, regulations and directives.
 the Task Force may establish different working
groups, as required, to deal with specialist areas
 Activities of the IFRS & IPSAS Roadmap
Implementation Task Force during Preparation Stages

 Identify and submit recommendation for

amendment of Laws and Regulations
contradicting FRP.
 Tax Law
 Revision of the regulatory requirements for
financial Institutions
 Clarifying regulatory requirements from the
pronouncement of a Standard
 Preparatory work for the
Implementation of the Roadmap
 Public sensitization and awareness
 Training and Education
– AABE to organise a series of workshops
and training programmes
– IFRS/IPSAS Training Centre
 Creation of a dedicated Website
IPSAS Implementation

Challenges and Lessons Learned

 Not an Easy TASK
 there should be no doubt that conversion to
IPSASs is a big task and challenging;
 practical challenges that may be faced as a result
of implementing the IPSAS need to be identified
and addressed in order to benefit fully from the
introduction of IPSAS
 adequate preparation & planning, both at a
national and organization level is the critical
success factor;
 its profound impact requires a great deal of
decisiveness and commitment;
 Practical Challenges
1. Potential knowledge shortfall,
2. Accounting Education and training,
3. Limited Training Resources,
4. Tax system effect,
5. Legal system effect,
6. Enforcement and Compliance
mechanism,
Potential knowledge shortfall (Level of
Awareness)
 the transition plan to IPSAS and its
implications for preparers and users of FS,
regulators, educators and other
stakeholders need to be effectively
coordinated and communicated.
 do a lot of sensitisation and awareness
raising on the potential impact,
communicating the temporary impact of the
transition on business performance and
financial position.
 Accounting Education and Training –
Capacity-related issues
 inadequate technical capacity among preparers and
users of FS, auditors and regulatory authorities
 Small number of accountants and auditors who are
technically competent in implementing IPSAS.
 further compounded by short period given for the
actual implementation - not long enough to train a
good number of competent professionals.
 further compounded by the wide gap between
accounting education and accounting practice
 Weak (none existing) professional accountancy
bodies
 Limited Training Resources
 Professional accountants are required to ensure
successful implementation of IPSAS.
 Along with these accountants, government
officials, financial analysts, auditors, tax
practitioners, regulators, lecturers, preparers of
financial statements and information officers are
all responsible for smooth adoption process.
 Training materials (and trainers) on IPSASs are
not readily available at affordable costs in
Ethiopia to train such a large group which poses
a great challenge to IPSAS adoption.
 Legal System Effect
 Inconsistencies may exist between the Financial
Reporting Proclamation, and other existing laws
that provide some guidelines on preparation of
financial statements.
 IPSAS does not recognize the presence of these
laws and the accountants have to follow the
IPSAS fully with no overriding provisions from
these laws.
 law makers have to make necessary amendments
to ensure a smooth transition to IPSAS.
Strategies to address the challenges
 Nationwide intensive capacity building program to
facilitate and sustain the process of adoption is
needed as early as possible. (IFRS Academy)
 Raise awareness of professionals, regulators and
preparers to improve the knowledge gap.
 Improve the legal framework of accounting and
auditing to protect the public interest. Identify
inconsistencies and propose amendment of the
various laws and regulations.
 Strengthen the institutional Capacity of AABE to
monitor and enforce accounting and auditing
standards and codes.
Strategies to address the challenges
 Support the establishment of strong PABs.
 Strengthen professional education and training.
 Develop internationally recognised national professional
qualification (CPA(E))
 Enforce CPD requirements
 Facilitate the revision of university accounting
curricula to enable students to gain exposure to
practical IPSAS application.
 Take measures to strengthen capacity of regulators
to enable them to effectively deal with accounting
and financial reporting practices of the regulated
entities.
 Work with other regulators to identify and achieve
regulatory synergies
Important IPSAS related questions to
consider
Four Areas:
1. Initial considerations
2. Financial reporting considerations
3. Conversion project considerations
4. Nonfinancial reporting considerations
 Key Questions – Initial consideration
 Should we be first mover (adopt voluntarily)?
 How can our organization take advantage of
opportunities presented by the conversion to
IPSAS?
 What are the most significant risks associated
with converting to IPSAS?
 How will converting to IPSAS affect our
stakeholders and what should be done to
manage their expectations?
 Key Questions – Financial Reporting
considerations
 How will converting to IPSAS impact external financial
reporting?
 What will be the impact on management reporting?
 How will management address the need for
comparative financial information prepared under
both the current system and IPSAS?
 What are competitors and industry peers doing?
 Has the Project Team/management considered that
PIEs are required to apply IPSAS throughout their
group structures?
 How will IPSAS impact tax reporting and tax filings?
 Key Questions - Conversion project
considerations
 What will converting to IPSAS mean for the org’n?
 How do we plan to approach the conversion to
IPSAS and how ready are we to do this?
 What are the key areas that need to be addressed
during the conversion?
 What can we learn from the conversion experiences
of others?
 What is the timeline for our IPSAS conversion
project, what resources will be required and how
much will it cost?
 Key Questions – Nonfinancial
Reporting considerations
 Other than financial reporting, which other
operational areas will be affected by the
conversion?
 Can our current IT systems handle the business’
revised data collection requirements under IPSAS?
 Other than financial reporting integrity, what are
the other implications for boards of directors?
 What IPSAS training programs are management
planning to provide to finance personnel?
 How should we use a third party advisor?
 What is the role of our independent auditor?
 A Holistic Approach to IPSAS
Conversion Project Management?
 Planning and implementing IPSAS
conversion ensuring that all linkages and
dependencies are established between
accounting and reporting, systems and
processes, people and operation.
 The conversion needs to effectively address
the challenges and opportunities of adopting
IPSAS to all aspects of your business.
IPSAS

IPSAS

IPSAS

IPSAS
 Accounting gap IT/process impact
analysis assessment
Tax impact analysis
Systems/process
Reporting gap conversion strategy
analysis

IPSAS
Alternative
accounting
Initial IPSAS
treatments
awareness
Financial and training
business impact Management
assessment presentations

Measures to reduce IPSAS project

potential volatility plan and budget
 Accounting and Reporting
The first key area to tackle
It involves a diagnostic and in-depth analysis of the
differences between current financial reporting
framework and IPSASs
Undertaking accurate and comprehensive upfront
assessment of the impact of IPSAS and the “Gap
analysis” is critical success factor for the
conversion.
It is essential that this is undertaken for your
specific entity, even if the sectoral issues are
deemed to be similar.
 Systems and Processes
A major effect of converting to IPSAS will be the
increased effort required throughout the org’n to
capture, analyse and report new data to comply
with IPSAS requirements.
Making strategic and tactical decisions relating to
information systems and supporting processes
early in the project helps limit unnecessary costs
and risks arising from possible duplication of effort
or changes in approach at a later stage.
Some entities take the opportunity of an IPSAS
conversion project to streamline the existing
systems and processes.
From Accounting Gaps to Information Sources
 The foundation of the project is to understand the IPSAS
to current reporting framework differences.
 The initial analysis needs to be followed by determining
the effect of those accounting gaps on internal processes,
information systems and internal controls.
 What the org’n need to determine is which systems and
processes will need to change and translate accounting
differences into technical system specifications.
 One of the difficulties org’face in creating technical
specifications is to understand the detailed end-to-end flow
of information from the source systems to the general
ledger and further to the consolidation and reporting
systems.
 People
 The success of the project will depend on the people
involved. There needs to be an emphasis on
communications, engagement, training, support, and senior
sponsorship, all of which are part of change management.
 Training should not be underestimated and entities often
don’t fully appreciate the levels of investment and resource
involved in training.
 Although most conversions are driven by a central team,
you ultimately need to ensure the conversion project is not
dependent on key individuals and that the business-as-
usual operations can be performed when the project ends.
 Training tends to be more successful when tailored to the
specific needs of the entity.
 Roles and Responsibilities
Audit Committee/Board of Directors
Ensure that Management:
 Is sensitive to the issues/timelines and has the appropriate
resources and skills to conduct an IPSAS conversion
 Has considered reporting implications and impacts on all
areas of the business
 Has a conversion plan to meet the requirements, including
appropriate controls required to manage through the
period of change and maintain reporting integrity
 Ongoing monitoring
 Roles and Responsibilities
Management
 Form IPSAS Project Team
 Implement and manage the conversion
process by active supervision and
communication with the IPSAS Project Team
 Project Sponsorship
 Roles and Responsibilities
IPSAS Project Team
Formed by management to:
 Manage budget, resources and timelines
 Ensure compliance to IPSAS standards
 Coordinate all aspects of the conversion
(people, process, technology) across business
units
 Roles and Responsibilities
Internal Audit
 The “eyes and ears” of the Audit Committee / Board of
Directors
 Assess the overall project governance (e.g., risk assessment
of the conversion)
 On-going monitoring of the project benchmarks,
deliverables and meeting of expectations
 Business Process Advisors
 Conduct ongoing business process, pre-implementation and
post-implementation reviews to evaluate aspects of the
convergence implementation (i.e., controls around key
business process and systems changes)
 Roles and Responsibilities
External Auditors
 Communicate with management and internal
audit on risk impacts associated with changes
to impacted processes and internal controls
 Measure success from a financial reporting
perspective
 IPSAS Implementation Key Risk Areas
 Financial Reporting and Disclosures
 Financial and Business Processes and
Controls
 Management Reporting
 IT Systems
 Conversion Project Management
 Overall Change Management
* Risk/impact assessment across each of these risk areas will vary
between reporting entities and should be assessed individually.
Key risks of an IPSAS conversion project?
Vision and direction
 Unresolved or uncertain strategy from the
IPSAS diagnostic
 Lack of clear project scope and requirements
 No assessment on business impact or priority
 Poorly defined critical success factors
 Unclear governance and oversight
 Lack of management support
Key risks of an IPSAS conversion project?
Planning
 Project planning function not completed in adequate
detail
 Skills/resources in place inadequate for project needs
 Unrealistic and incomplete timelines
 Accounting policies selected not compliant with IPSAS
rules
 Inadequate risk assessment and determination of
project risks
Key risks of an IPSAS conversion project?
Execution
 Unidentified transition issues impact critical
deliverables
 Poor communication between project team and end
users
 Insufficient business unit involvement
 Conversion project interdependencies not recognized
 Financial reporting disclosure requirements
inaccurately or not completely identified
Key risks of an IPSAS conversion project?
Business acceptance
 Ineffective deployment strategy
 Lack of business impact of IPSAS
 Unresolved problems and disputes
 Incomplete operating and maintenance information
 Insufficient user satisfaction
 Scale and volume of defects
 No project close-out
 Global sourcing conflicts
Key risks of an IPSAS conversion project?
Measuring and monitoring
 Ineffective project management systems
 Insufficient project monitoring and reporting
 Lack of continuity in project staff
 Poor communication with stakeholders
 Lack of control in change order process
 Ineffective decision making and resolution of issues
 Poor quality management and assurance plans
 Changing design and scope
 Lessons learned: typical pitfalls
 Rapid start to implementing work without a structured
assessment
 Time to complete and/ or resources are underestimated:
“We will just switch to IPSAS”
 Accounting rules are seen as “pretty similar”, but small
differences can matter a lot.
 Impacts of IPSAS conversion are not addressed with
stakeholders
– Lack of clarity about strategies for selecting the various
accounting options
– Inability to provide information on all areas impacted by
IPSAS (e.g. to analysts)
 Lack of sufficient communication with auditors
 Key take away
 Understand the IPSAS impact early in the
project lifecycle –accounting, process, people
and IT
 Complexities not to be underestimated –it
cannot be done in isolation
 Not just a finance project –adopt a holistic
approach
 Post conversion activities –the hard work
may just be beginning –develop a sustainable
approach
 Thank you

Questions
or
Comments?