African countries continue exhibiting poor auditing and accounting systems due to shortage of qualified accountants and auditors, this is despite the growing recognition of importance of financial reporting standards through various award programmes aimed at improving the standards of financial reporting.
The Chief judge of the Financial Reporting (FiRE) awards, Dr. James Mc.Fie, said despite the fact that many companies releasing financial reports on annual or quarterly basis, the contents are still complex and lacks clarity. He attributes this to miscommunication and confusion in interpreting the results.
“Many companies have time and again released their financial reports to portray how they are fairing, however there is still opaqueness in their presentation. Without clear concepts of reporting financial issues the stakeholders will find it difficult to interpret the information,” said Mc.Fie.
“According to academic research, when a company wants to keep a secret, they resort to using technical terms and language in their presentation,” he added.
Experts say that potential investors will be attracted by clear reports that exhibits transparency and comparability with others. This has not been true with corporates as majority will always defy the Common accounting standards and codes which shifts their focus to impressing their stakeholders rather than the financial development of the companies.
Mc.Fie said auditors of financial results are always concerned with the reporting process other than the progress of the company which ties them on presenting what members would like to hear. This he termed as unprofessional as it goes against the International standards.
“The auditors will always make sure Directors of companies report to members correctly. They look at the reporting process other than the progress of the company. That is why you will hear directors saying, despite the losses the company is stable,” explains Mc.Fie.
He added: “This is the major reason we have the international accounting standards board to guide on what should be included in reports to bring about understanding of financial reports.”
The common accounting frameworks commonly used for financial accounting and reporting includes Generally Accepted Accounting Principles (GAAP) and the International Financial Reporting Standards (IFRS).
Despite Kenya’s superiority in financial reporting that is attributable to the numerous FiRe awards the country has engaged in the last 25 years, he cited lack of independence and transparency in preparation of the final report as challenges many accountants face especially when one works for two or more different corporations.
“If I own shares at BAT and work at Pricewaterhouse Coopers, it is difficult to carry an audit report as conflict of interest may arise, I may start selling and buying shares after getting information before the release of the results, it requires independence to produce accurate reports said Mac Fie.
The chief judge also cautioned auditors to always remain vigilant to the changing nature of the international standards that accountants have been unable to follow due to their busy nature. The standards always comes with voluminous pages and can have from 3000 to 25,000 pages. He said the factor has impacted a lot in companies that would like to maintain 100 percent of the standards.
“The standards keep on changing, due the accountants busy nature, it makes it difficult for them to pass through the voluminous books of which some are over 3000 pages on disclosure only.” said the Judge.
“When an audit firm in the US wants to present results fairly and accordingly, it has to comply with the US general accepted accounts principle, we got a book which has 25,000 pages on disclosure,” he added.
At the same time he noted that many accountants are always familiar with cash flow statements remaining oblivious of other important statements that can improve the financial performance of corporates. Mc. Fie noted that some accounts officers either read the same statement along time ago that they rare no longer familiar with it or have never came across it since they started working. He is urging all accountants to be conversant with all the statements contained in the book.
“The problem arises from accountants who either defy learning the statements, have read it in the past 27 years or never read it completely from beginning to end. Some rely on only one statement which is the cash flow,” said Mc Fie.
With the implementation of the new constitution on course, he cited the introduction of county governments will greatly aide the local authority to practice accountability in handling resources. This is because the county governors will be handling huge amount of funds for numerous developmental projects that will be associated with the offices.
He said : “Local authorities gets a lot of money through Lattifs and other projects, how do you ensure accountability from these people?, through their participation in the awards, citizens will be able to realize accountability in taxes they pay.”
This years financial reporting awards is scheduled for 8th October, and will lay much of its focus on companies exhibiting Corporate Social Responsibility. This the judge said has been well emulated by many companies which are so far doing well. He said this time round the category will have a special award.
“Companies are adopting CSR activities and so far they are doing well, we have a special award to corporates with the best CSR sustainabilty model,” he said adding that those with focus on environmental issues will have high chances on scooping the award.
He is however calling on companies to follow corporates acts, international standards as they observe clarity in presentation of reports which entails, profit and loss accounts, balance sheets, cashflow statements, change in equity dividends and shares.