Summary of observations/comments for considerationGhana’s Accounting Profession

August 1, 2012Observation/Comment:1) The profession does not appear to be a pro-active or catalytic force in Ghana’s economy. An economy’s accounting profession is the underpinning for the

reliability of financial reporting. Third-party end-users: commercial banks, the Securities and Exchange Commission, the Ghana Stock Exchange and others, all depend on accurate and reliable financial statements. The SME sector appears to have been largely abandoned by the accounting profession due to its apparent exclusive focus on the preparation of audited financial statements. Interviewees commented that actually, the ICAG is not viewed as a professional accountancy organization but more of an administrative test administration body. If this is correct, the Country lacks a critically important component to its enabling business environment.

How was this determined?Comments thru interviews with bank representatives; reference to Financial Sector Strategic Plan II (FINSSP II) where there is no reference to collaboration

with the accounting profession-The Institute of Chartered Accountants-Ghana (ICAG); Review of ICAG’s website. Impact: The Accounting Profession is an integral part of a country’s economic process: leadership, active participation, and communications by the profession with the business community is essential so that issuers and users of financial statements understand the latest accounting conventions. Because financial statements enable third party users to make critical decisions (like approving financing), the profession is responsible for creating a system of trust and reliability. This requires interaction and communications within the business community as a whole. I propose that Ghana’s economic growth is negatively impacted because the accounting profession appears to be more of a legal enterprise rather than a service-oriented profession. Why is this happening?The Accounting Profession via the ICAG has its origin in law: The Chartered Accountant’s Act, 1963, (ACT 170). The profession is protected by law and it does not appear to have to function like a profession by serving society and the common good of the business community. Possibly the profession is quite comfortable with the protections that this law provides and since it has legal authority, the need to cooperate with other parties in the business community is really unnecessary since the it appears to have legal, superior, position.

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Recommendation: The Accounting Profession must be co-opted into the business community in a meaningful, active way. Its active participation results in the profession obtaining a more informed understanding as to what is taking place business community. To be effective, the profession cannot function in a vacuum. Likewise, the profession should be transferring knowledge to the business community about accounting theory and new accounting innovations. (For example, is the profession even aware that the World Bank, Ministry of Finance and Economic Planning, and other donors are aggressively pushing for the development of Ghana’s Capital Markets? All firms that will be seeking listing on the Ghana Stock Exchange or seeking the ability to issue publically traded debt instruments will have to provide audited financial statements. Is the profession, at this stage, able to meet this demand? Are all relevant parties communicating? Who Implements this?The ICAG, financial statement issuers and end-users, like commercial banks, the GoG, and others and the donors which are supporting economic growth and access to credit (finance) for small and medium enterprises.

Observation/Comment:2) The ICAG appears to only offer, as an assurance service, the expression of an OPINION ON AUDITED OF HISTORICAL FINANCIAL STATEMENTS. The ICAG’s focus on

the preparation of audited financial statements (which is its legal right) has enabled it to avoid bring to the attention of the business community alternative assurance services, such as the review or compilation of historical financial statements.

How was this determined?Review of ICAG’s website makes absolutely no reference to other assurance services (e.g. reviewed financial statements or compiled financial statements); discussions with bankers as to their interest to rely on financial reporting OTHER THAN audited financial statements indicated their unfamiliarity with this important topic; review of other International Accounting Organizations, specifically the American Institute of CPA’s and the Institute of Chartered Accountants-England and Wales and their utilization of alternative assurance services, where appropriate, such as reviews and compilations. Impact: The problem here has a few dimensions: The end-users of financial statements essentially have the say in what financial information is required for them to make an informed financial decision, such as the extension of financing to a small business. So for example, If a commercial bank REQUIRES audited financial statements prior to extending financing OF ANY AMOUNT AND TERM, TO ANY BUSINESS (large, small or mid-sized), then it will not accept be satisfied with reviewed financial statements. If the Government of Ghana (GoG) requires audited financial statements on every business enterprise, than reviewed financials, likewise will not meet

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their need. The profession’s assurance function regarding the integrity of financial reporting, however, is not a “one size fits all” proposition. However, based on the Law, it is the only assurance service referred to (this appears logical since the law is about 50 years old AND additional assurance services, like reviews and compilations, had not yet evolved in the profession. Based on my professional experience, Banks generally require audited statements in relationship to the credit exposure that they are willing to consider; that is, the larger the credit exposure (loan size), the risk of loss increases and, therefore, it is very reasonable for a commercial bank to require audited historical financial statements from the prospective borrower. However, if a SME is looking to borrow a “less than substantial amount”, than the cost and time required to produce audited financial statements is not cost-effective for either the borrower or the lender. The question to be asked is: can a bank make an informed credit decision utilizing reviewed financial statements? If the answer is yes, than the need and requirement for audited financial statements is an inefficient and expensive request. (However, this is the end-user’s call). The true concern arises, however, as to what extent are end-users aware of alternative assurance services? Based on the Chartered Accountants Law, the option to offer alternative assurance services is not discussed. Given the reduced time and cost of review and compilation services, is there a financial incentive for the ICAG NOT to bring these alternative assurance services to the attention of financial statement issuers and end-users? If alternative assurance services existed and if end-users were comfortable with these, then SME’s should be able to apply for financing without the onerous expensive requirement that they provide audited financial statements. The ICAG’s strength lies in the fact that only its members, who are also practicing accountants, may express an opinion on audited historical financial statements. In this regard it has a guaranteed revenue source that is assured based on both The Accountants ACT, noted above, and also The Companies Act, 1963, (Act 179), whereby ALL “Limited Liability Companies” (both publically and privately owned) are to have their financial statements audited. Neither of these Laws refers to alternative assurance services, as emphasized above. Having the GoG dictate, through law, how companies must report, is beyond the scope of government (which has entitled the ICAG to control this essential business function). Recommendation: The ICAG should offer other assurance services since these may meet the needs of third-party financial statement users, and may be a more affordable and appropriate service for issuers of financial statements, such as SME’s. Third-party end users too need to be instructed in the merits and short-comings of other assurance services, in an effort to promote efficiency in their own credit underwriting processes. Required financial reporting requirements, audit, review, or compilation, should become more relevant as a competitive factors within the banking industry arise. For example, if a particular lender will only accept audited statements (no matter what) but its competitor will accept reviewed statements based on the individual circumstances surrounding the credit, the latter bank should obtain more business that will still be quality business. The availability and utilization of alternative assurance services must be made known throughout the business community for those issuers and third-party users of financial reporting.

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Who Implements this?The ICAG, financial statement issuers and end-users, the GoG through legal amendment.

Observation/Comment:3) The Chartered Accountants Act, 1963, (Law 170) vests complete authority over the country’s accounting profession in a single organization-the ICAG. The Law

has not been amended since inception fifty years ago. (There appears to have been two proposed amendments, with a substantial proposal in 2009; however, it does not appear that this proposal was ever passed into law). There have been significant changes in international business over this time and it appears that ICAG is not presently in a position to meet the country’s business challenges. Accounting theory has likewise evolved over this period of time. Currently, accounting theory is being aligned with the International Financial Reporting Standards (IFRS), which are promulgated by the International Accounting Standards Board (ISAB). (This is an excellent example of how the body of accounting knowledge has evolved over the past 50 years!). To the ICAG’s credit, it has accepted implementation of this body of knowledge. Furthermore, it has agreed to also implement the IFRS-for SME’s, which is a set principles that are a modified, scaled down version of the IFRS. The IFRS (full) applies to public companies, whereas the IFRS-SME’s has been adjusted to more appropriately meet the needs of small and medium enterprises. The adoption of the IFRS (full) and the IFRS-SME is the correct action to have been taken by the ICAG; in January, 2013, the ICAG is planning a training program to expose participants to the IFRS-SME. Again, another very a positive step!

The ICAG preforms the following duties by Law: It is tasked to regulate the accounting profession in Ghana It is to provide local training and education for accountants in Ghana It investigates complaints and it also:

o Reprimands, oro Publishes the offense, oro Withdraws the license of practitioners

It conducts the qualifying examination- Some interviewees maintain that the business community believes that this is ICAG’s only purpose! It approves the course of study for the qualifying examination-Some interviewees maintain that there is absolutely no dialogue with industry such as

the Association of Ghana Industries to obtain input as to what Industry needs in the way of educated accountants. It is responsible for maintaining a register of:

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o Chartered accountantso Practicing accountants (after repeated requests-(2 email; one phone call), information was not provided. o approved licensed Chartered Accounting Firms (information was provided-there are 103 chartered accounting firms in Ghana.

It is to maintain professional standards among members It is to ensure that members are current regarding the professional code of ethics of the accounting profession in Ghana It is to maintain a library relating to accounting. It approves for membership in the ICAG, accounting professionals from other “recognized” professional accounting organizations, like the ICA-England

and Wales. Members from other professional accounting organizations, however, if admitted to the ICAG cannot call themselves Chartered Accountants. They must take additional examinations to be considered Chartered Accountants.

Form a governing Council of 11 members, four of which are from the GOG-Ministry for Education. Term limits for members is set. (Although the Council is noted as being comprised of 11 Chartered Accountants, this does not appear correct since 4 members are from the Ministry of

education). The President of Ghana must approve when the (newly elected) Council can commence operations. Schedule Council monthly meetings. The Council is both JUDGE and JURY regarding disciplinary matters; it is the final disciplinary authority:

o If professional misconduct is determined, it may strike-off or cancel the name/registration of a practioner from the registero It may suspend a practioner or suspend the registration for a period of time. o It may make this restriction permanent or for a period of time, at its discretion. o It may restore the registration of the practioner if the Council is satisfied that the individual is now fit to practice.o In such matters, the Council may or may not appoint a Disciplinary Committee, at its own discretion.

It defines a “Practicing Accountant” (PA) as a Chartered Accountant who works for and practices accounting in an accounting firm. It must develop training courses, deliver these, and monitor professional development attainment. It may form various committees and sub-committees as the Council see the need. For example, the Education and Training committee is one example. The ICAG offers two Programs: the Chartered Accountants Program and a mid-level technician program, the ATWSA.

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Note that the Law does not appear to clearly define what accounting services can be performed at this “technician accountant’s level” (ATSWA). This mid-level accountant participates in a course of study and is tested to determine if she/he has achieved a certain level of accounting skill. This individual, having passed the examinations, she/he may be identified as a Chartered Accountant (I believe that this individual, however, at this level, will not be considered a PA). It is also unclear as to what accounting services other professional accountants in Ghana, who are not CA’s can provide to the public. According to an interviewee, industry does not fully understand the true nature or value of this mid-level technician and that it essentially does not meet the shortage of accountants. Also, those individuals who have been directed into this field of study do not achieve what they were led to believe to be a solid job prospect.How was this determined?Review of the Law, which is on file with supporting documentation. Impact: 1) Government involvement (Ministry of Education; President’s approval to commence Council activities) in the accounting profession may result in the profession

responding principally to Government needs (e.g. taxation issues) as compared to a broader need at the private sector level, (e.g. providing alternative assurance services to satisfactorily address third-party end-users needs), tax planning (as compared to tax preparation), SME consulting, etc.

2) Too much authority and power is vested in a single entity. The following issues seem to arise: a) Is the organization capable of achieving all stated objectives in the Law; b) there does not appear to be any independent authority that can review, question or validate the ICAG’s activities and if it is complying fully with the Law; c) regarding the determination of guilt and consequences, the ICAG-Council appears to be both Judge and Jury-the entire process does not appear necessarily to be objective and, since any decision is final, there does not appear to be room of an independent review, d) the Law does not promote an organization that functions as a Profession; instead, the law establishes an organization that is a legal powerful bureaucracy that need not respond to the economic needs of the country. The ICAG need only comply with the Law. This Law appears to vest significant power into a few hands and legally this power will remain concentrated in the status quo, at the expense of the country’s business community and economic growth.

Recommendation: The Accountants Act, 1963, (Law 170) should be amended to more effectively meet updated, current country needs in the area of public accountancy. In addition, the concentrated power vested in the Council should be disbursed to other functional organizations in order to achieve the objectives of: Testing (examination); administering professional development credit (courses, offering, accumulation of continuing education credits); respond to violations of the LAW and code of ethics; direct the profession in terms of theory (e.g. the decision to comply with the IFRS, etc). The objective of a legal amendment to the law should be to establish a profession that is incentivized to respond to the needs of the business community, and to be compensated for this work, rather than to

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comply with an antiquated Law. I would recommend that the Government’s dimension of participation be modified, with the 4 members of the ministry of education being removed from the Council. Also ambiguity regarding ATSWA services should be made clear as well as what professional accounting services may be offered by parties other than Chartered Accountants, such as Chartered Certified Accountants. Who Implements this?The GoG together with qualified Donors need to reassess the effectiveness of the accounting profession so as not to allow this organization to stifle economic growth and stultifying business development. Also, end-users, like the Ghana Stock Exchange, commercial banking sector, Bank of Ghana (BoG), and those parties that generate financial statements must stand up and demand this change in an effort to create a responsive profession. The Accountants Act, 1963, (law 170) should be reviewed and amended, as necessary, to enable the profession to be able to respond to the needs of the business community, and to move away from the projected image of being a “test taking” organization. I would recommend that the Government aspect of participation (direct and indirect) be modified with the 4 members of the ministry of education removed from the Council. Finally, approval from the President is deleted from this law since it serves absolutely no meaningful purpose except to enforce government control a private sector organization.

SUGGESTED MODIFICATION OF CURRENT ICAG duties by LAW: It is tasked to regulate the accounting profession in Ghana: JOINT EFFORT -MOFEP/ICAG. It is to provide local training and education for accountants in Ghana-ICAG- IN COORDINATION WITH GHANAIAN COLLEGES/UNIVERSITIES and INDUSTRY

PARTICIPANTS, like the Association of GHANAIAN INDUSTRIES. It investigates complaints and it can: JOINT ACTION COMMITTEE-MOFEP & ICAG

o Reprimand, oro Publish the offense, oro Withdraw the license of practitioners ONLY MOFEP

It conducts (and grades) the qualifying examination—CONDUCT & GRADE THE EXAM—MINISTRY OF EDUCATION FORWARDS RESULTS DIRECTLY TO THE MOFEP FOR DESIGNATION OF CA.

It approves the course of study for the qualifying examination---ICAG IN CONJUNCTION WITH INDUSTRY AND OTHER STAKEHOLDERS. It is responsible for maintaining a register of: ICAG WITH COPY TO MOFEP; publish on website for access by public

o Chartered accountants

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o Practicing accountantso approved licensed Chartered Accounting Firms

It is to maintain professional standards among members—ICAG It is to ensure that members are current regarding the professional code of ethics of the accounting profession in Ghana—ICAG WHICH Tracks CDP CREDITS.

RESULTS ARE SUBMITTED TO THE MOFEP FOR CA’S WHO DO NOT MAINTAIN STANDARDS. (A REMEDY FOR COMPLIANCE IS PROVIDED; CA’S ARE NOT EXPELLED FROM THE ICAG, BUT THEIR ABILITY TO PRACTICE SHOULD BE SUSPENDED UNTIL COMPLIANCE IS NOTED).

It is to maintain a library relating to accounting.-ICAG/ outsource to University of Ghana-Accounting/Business Department. It approves for membership in the ICAG, accounting professionals from other “recognized” professional accounting organizations, like the ICA-England and

Wales. Members from other professional accounting organizations, however, if admitted to the ICAG cannot call themselves Chartered Accountants. They must take additional examinations to be considered Chartered Accountants. ICAG

Form a governing Council of 11 members, four of which are from the GOG-Ministry for Education. Term limits for members is set. (Although the Council is noted as being comprised of 11 Chartered Accountants, this does not appear correct since 4 members are from the Ministry of

education). REMOVE 4 MIN OF ED. MEMBERS; REDUCE COMMITTEE SIZE to a more manageable working group The President of Ghana must approve when the (newly elected) Council can commence operations. DELETE THIS REQUIREMENT Schedule Council monthly meetings. ICAG The Council is both JUDGE and JURY regarding disciplinary matters; it is the final disciplinary authority: MOFEP & ICAG JOINT ACTION COMMITTEE.

o If professional misconduct is determined, it may strike-off or cancel the name/registration of a practioner from the registero It may suspend a practioner or suspend the registration for a period of time. o It may make this restriction permanent or for a period of time, at its discretion. o It may restore the registration of the practioner if the Council is satisfied that the individual is now fit to practice.o In such matters, the Council may or may not appoint a Disciplinary Committee, at its own discretion.

It defines a “Practicing Accountant” (PA) as a Chartered Accountant who works for and practices accounting in an accounting firm. SHOULD BE MODIFIED SO THAT A “PA” CAN ONLY PROVIDE SELECT ASSURANCE SERVICES-AUDIT, REVIEW, OR COMPLIANCE. However, CA-PA’s may also provide other accounting services to the public for a fee.

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It must develop training courses, deliver these, and monitor professional development attainment. ICAG AND TRACKS CDP CREDITS FOR COMPLIANCE WITH REQUIREMENTS. Course work to be offered in conjunction with Industry and other stakeholders.

It may form various committees and sub-committees as the Council see the need. For example, the Education and Training committee-ICAG. The ICAG offers two Programs: the Chartered Accountants Program and a mid-level technician program, the ATWSA. (SEE BELOW).

As Summary statement regarding the above: For select assurance services: audit, review, or compilation—only a CA who is also a PA (CA-PA) should be allowed to provide these services because they are the qualified practioners who are current in the field and engaged with the practical knowledge of financial statement disclosures. For other accounting services offered to the public, for a fee, a CA who is in good standing with the ICAG, including ATSWA graduates, ACCA (CCA) members, and CIMA members, should also be able and allowed to provide accounting services (other than assurance services, to the public for a fee. A CA-PA may also offer these same accounting services to the public for a fee. However, only a CA-PA may provide assurance services to the public for a fee.

It is envisioned that the ICAG DOES NOT report to nor is it controlled by the Ministry of Finance and Economic Planning. The relationship between these two organizations is a collaborative partnership since both organizations impact the Country’s Economic Growth and business community. This should provide the ICAG with the professional latitude to be a pro-active profession in order to meet Ghana’s business needs. Therefore, the ICAG will have principal authority for directing CA-PA’s as well as CA’s, the Assoc. of Chartered Certified Accountants will manage CCA’s, CIMA (Certified International Managerial Accountants-another international accounting organization) will manage CGMA (Certified Global Management Accountants) accountants. In the area of training, the ICAG, the ACCA, and CIMA, the 3 organizations will compete directly for membership, which will enhance the development of the accounting profession. There must, however, be only ONE professional designation focused on the providing assurance services-the CA PA and this segment of the industry must continue to be legislated and it should be housed within the ICAG. Recommendations call for the ICAG, however, to have its exclusive control over the accounting profession distributed to other responsible parties within Ghana, some to the GoG, to remove activities that can be performed by other parties more efficiently while enabling the ICAG to remain focused serving Ghana’s business community.

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Observation/Comment:4) There does not appear to be a sufficient number of Practicing Accountants (PA’s) nor chartered accountancy firms. PA’s are defined as Chartered Accountants

(CA’s) who are also practicing accounting (PA’s) in chartered accountancy firms. These are the only individuals who may express an opinion on historical financial statements. Recently, the former ICAG President, Mr. Joseph Blankson, (April 15, 2012) noted that since inception (1963) there have been 2600 admitted members to the ICAG. A recent listing of “members in good standing”, per the ICAG website, indicates that there are currently 2039 members. It should be noted that this number does not identify how many individuals are CA-PA’s. I did request of the ICAG this information, which was not forthcoming. However, I also requested a listing of licensed CA firms, which the ICAG did send. There are 103 listed firm practicing accounting. Based on an article, on file, (8/14/2005!), the VP-ACCA stated that “Ghana needs 8,000 Certified Chartered Accountants in order to propel the nation unto …growth and on a path towards middle-income status”. The need for Chartered Accountants, CA PA’s, licensed chartered accounting firms, and qualified accountants CA’s, ACCA’s and other professionals, who can provide accounting services to the public for a fee, is real. The actual number of CA-PA’s is controlled by the ICAG and was not made available on its website.

Based on an analysis of the 103 “Directory of Practising Firms” (undated), the distribution by NUMBER OF PARTNERS was as follows: Sole Practioners-One Partner—46 firmsPractices with Two Partners-37 firmsPractices with Three Partners-12 firms (one was Deloitte, a Big Four firm)Practices with four or more Partners -8 firms.

Of the firms with 4 or more Partners, 3 firms were the remaining Big Four-International Firms: Ernst & Young, PriceWaterhouseCoopers, and KPMG had 5, 7, and 9 partners respectively. Only 5 Ghanaian Chartered Accounting Firms had 4 or more partners, with the largest one having 5 Partners. Note that the number of Partners roughly indicates the volume of work as well as the varied types of accounting services offered, such as tax, audit, Information Technology consulting, etc. Generally, a technical Partner will oversee the Tax function, another one or two partners will be responsible for the audit practice, etc. The percentage of Ghanaian firms having one or two partners, and therefore deemed to be quite small, represented 80% of total Practicing Chartered Accounting Firms in Ghana. Firms of this size are not likely to be candidates in conducting audits utilizing IFRS or IFRS-SME due to the technical nature of these engagements. Simply put, small chartered accounting firms lack the manpower depth, technical knowledge, work review capability, and financial strength to address audits of public companies. Likewise, it is difficult to accept that firms with 3 partners are anymore technically proficient than firms comprised of 1 or 2 Partners.

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CONCLUSION: It is unknown how many CA-PA’s exist. Of the 103 “approved” Directory of Chartered Accountancy firms, 80% are comprised of 1 or 2 partners. Only 8 firms have 4 or more partners!

How was this determined?Discussion with parties interviewed; article (8/14/2005); direct interaction with the ICAG, review of The Accountants Act, 1963, Law 170; copy of Directory of Practicing (chartered accounting)firms. Impact: The inability of the accounting profession to meet business sector demands (ALL industries, such as trade, agriculture, construction, oil & gas exploration, etc.) impacts the ability of participants to pursue financing from the commercial banking sector based on banking requirements, which lean heavily towards requiring audited financial statements. There does not appear to be enough capacity to meet Ghana’s projected growth or financing needs. Furthermore, the World Bank and other donors are encouraging Ghana to expand it Capital Markets to include expansion of the Ghana Stock Exchange and the Debt Markets. For non-listed companies to apply for listing and debt instrument issuance, these firms will be required to submit audited historical statements (and be accompanied by an “Unqualified Opinion” and appropriate foot note disclosures). The inability of Ghana’s accounting profession to meet audit requirements and to provide sufficient accounting services will limit Ghana’s growth; it will also have a negative impact on firms (SME’s included) being able to access needed financing. Recommendation: Care must be taken so that qualified accountants (properly educated, trained, and ethical) are chartered. Without these skills, financial statements cannot be trusted. (Witness the Arthur Andersen debacle in the US). However, there simply does not appear to be a sufficient number of Chartered Accountants necessary to meet Ghana’s need in this area, presuming, of course, that the accounting profession actually is dedicated to assisting SME’s to obtain financing as well as meeting business expansion in response to Ghana’s projected GDP growth (8 to 8.5% for calendar year 2012). 1) Increase awareness of the need for qualified professional accounting services at the SME level. 2) Increase mid-level technical accountants (ATSWA’s), and permit them to provide accounting services, other than assurance services, for a fee. ALSO, WORK WITH

INDUSTRY TO PROMOTE THE CHARACTER AND CONTRIBUTION THAT THESE PROFESSIONAL CAN MAKE. 3) Permit other professional accountants, such as CCA’s, CA’s, CGMA’s and CAPA’s to provide other accounting services, other than assurance services, for a fee.

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4) Seek to promote Ghanaian firms in more complex audit and accounting engagements. THE ICAG MUST TAKE THE INITIATIVE HERE. IT IS IMPORTANT FOR GHANAIAN BASED CHARTERED FIRMS TO BE RECOGNIZED AS BEING TECHNICALLY AND PROFESSIONALLY COMPETENT THEN THE BIG 4 ACCOUNTING FIRMS.

5) Direct the exam, it’s testing and scoring away from the ICAG and to the Ministry of Education or another independent entity. The ICAG would be informed what candidates passed the bi-annual exam by the MOF&EP. (THE MOF&EP would be notified what CA’s passed the exam by the designated party that administers and grades the examination.

6) Increase the number of examinations offered for the Chartered Accounting exam to four per year, instead of bi-annual. 7) Review the exam process and evaluate if it is unreasonable long (Two parties interviewed said that it took 6-7 years to become a chartered accountant given all

of the “papers” that had to be written). 8) Allow other professional accountants (e.g. CCA’s, CA’s, CGMA’s ) to become practicing accountants if they are mentored by a Chartered Accountancy firm

approved by the ICAG to practice accounting. Who Implements this?The GoG, through the revision of The Chartered Accountants Act, 1963, Law 170, the ICAG, the business community, including the various industry associations and chambers of commerce, etc.

Observation/Comment:5) The Securities and Exchange Commission (SEC) has noted (complained) that publically listed companies on the Ghana Stock Exchange (GSE) “fall short of

International Financial Reporting Standards-IFRS)”. The complaint appeared to be leveled at the firms that are publically listed. The BF&T article, dated July 20, 2012, and on file, quoted Mr. Adu Anane Antwi, the Director-General of the Securities and Exchange Commission (SEC) as making this comment. It should be noted that the ICAG, Chartered Accountants who are practicing Accountants (CA-PA’s), or Chartered Accountancy firms were never mentioned or associated with the issue. It should also be noted that the CA-PA’s are the only professionals allowed to conduct an audit and these professionals are employed by the Chartered Accountancy firms. In short, no criticism was directed at all to the most responsible party for the cause of the complaint. The complaint specifically addressed weakness associated with the preparation and presentation of footnote disclosures. This has been a topic of interest in the Accounting field for decades. The issue in the US has been addressed by stating on the face of the audited and reviewed financial statements that “footnotes disclosures are an integral part of the financial statements”. This means that not only are the financial statements and audit opinions to be considered, but also the footnotes need

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to be read and understood since they contain critically important information that may not be explicitly reflected in the body of the financial statements. The complaint discloses some interesting points:

It appears to be a criticism of the technical capabilities of the larger Chartered Accounting firms (Big 4), that is, those who audit and express an opinion.

The SEC has reporting standards developed and listed firms are not meeting these standards. Does the ICAG or the approved Chartered Accountancy firms even know what the SEC standards are? (Communication). Is the ICAG conducting sufficient training to keep CA PA’s informed and current? The ICAG was not mentioned, yet it bears the responsibility for the complaint. Financial statements are the responsibility of Management BUT it is the

chartered accountant that formats the financial statements and constructs the footnotes, which tie-into the financial statement disclosures. How serious can a discussion about having SME’s list on the GSE and Debt markets (capital markets) when major audited companies cannot satisfy

existing SEC reporting requirements?How was this determined?Article on file; IFRS & IFRS-SME standards, and the fact that the ICAG has formally announced that it will adhere to use of both the IFRS and the IFRS-SME. Impact:Open criticism by the SEC, one of the most important GoG financial statement end-users regarding non-compliance with SEC reporting standards is quite serious. The SEC is the watchdog for investors in that it evaluates firms that are publically listed for investment in terms of appropriateness. Their efforts impact all investors including small retail accounts, the GoG and State Owned Enterprises, commercial banks, the Social Security Fund (SSNIT), Insurance companies, pension plans, etc. If reliance in audited financial statements is cannot be maintained, then serious repercussions are likely (Again, witness the Arthur Andersen debacle in the US and Congress’s passing of the Sarbanes-Oxley (SOX) law). The Chartered Accounting firms are responsible for audited financial reporting, which very much includes adequate and correct footnote disclosures. The comment raises concern about the quality of training, education, and the review function at the Chartered Accounting firm level. Recommendation: 1) Evaluate CA training (I believe that CA training should be one of the major responsibilities of the ICAG). 2) Determine if and how the ICAG monitors CA compliance with Continuous Professional Development (Continuing Professional Education).3) Determine to what extent the ICAG provides educational training in relevant accounting topics.

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4) Consider implementing a Peer Review process whereby Chartered Accountancy firm review the audit work of peer firms in an effort to improve quality. Who Implements this?ICAG, Chartered Accountancy firms, the SEC.

Observation/Comment:

6) The GoG does not have its accounts and records audited by an independent CA-PA, as a matter of course. Some State Owned Enterprises and Governmental Agencies are audited by the Auditor-General; however, the Auditor General is appointed by the President of Ghana. This gives the appearance of a lack of independence.

“The Audit Service of Ghana is a constitutional body under the direction of a seven (7) member governing board. The Service is headed by the Auditor General who is mandated to audit the public accounts of Ghana and all public offices including Metropolitan, Municipal and District Assemblies, Public Corporations and Organizations established by an Act of Parliament and report the findings to Parliament. Audit Service is therefore the monitoring and accountability organ of the state, and the Supreme Audit Institution (SAI) of Ghana. The 1969 Constitution made it an oversight body to promote good governance, ensure accountability and transparency in the Public Sector and Article 188 of the 1992 Constitution reaffirms this position. Thus, Audit Service is the only institution mandated by the Constitution to monitor the use and management of all public funds and report to Parliament”. (Note that the Auditor-General is appointed by the President of Ghana, which raises questions as to its true independence). It has been noted that in some circumstances, the Auditor-General will utilize independent accountancy firms to help complete audit requirements under the law; however, this is not necessarily consistently applied. “A seven-member body named the Audit Services Board governs the Audit Service. The President in consultation with the Council of State appoints the Chairman and four other members of the Board. The Auditor General and the head of the Civil Service, or his/her, representative, are automatic members of the Board”. How was this determined?

Website of the Audit Services of Ghana; discussions with other parties in the business community (Mr. Hamis Ussif-Swiss Embassy)Impact:Full reliance on GoG financial statements are impaired because of the appearance of the lack of independence given that the President appoints the Auditor General regardless of the fact that the AG reports to Parliament.

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Recommendation: 1) Utilizing more of Ghana’s licensed chartered Accounting firms; allocate the independent audits of the Government’s accounts and records to Ghanaian

accounting firms. 2) Utilize the Audit Services of Ghana more in an internal audit/performance audit capacity.Who Implements this?GoG, ICAG-training auditors for governmental audit requirements.General Summary:

1) Ghana’s accounting profession is essentially a bureaucratic effort directed by an antiquated Act of Law. The ICAG does not appear to have flexibility or incentive to respond to meaningful needs of the business community.

2) With its exclusive focus on expressing an opinion on audited financial statements, the ICAG is not providing other necessary and appropriate assurance services within Ghana. This will impact SME’s trying to obtain financing from the commercial banking sector. Banks also need alerted by the ICAG (the accounting profession) what other assurance services exist and why these could possibly replace their obdurate requirement for audited statements.

3) Amend the law to restructure authority to create a more objective responsive effective professional body. Presently, the Law vests complete authority in the ICAG to manage Ghana’s accounting profession. Some duties and responsibilities would best be divided among other responsible organization in order to provide checks and balances within the administration of this critically important profession.

4) A major GoG end user (The Securities and Exchange Commission) has criticized financial statement presentations maintaining that they are not complying with SEC reporting requirements. This is really a direct criticism of the Public Accounting Profession—that is, those approved Chartered Accounting firms that are licensed to practice public accounting. A question arises then as to what the ICAG is providing in the way of quality training. Furthermore, this also raises concern as to how realistic is the suggestion that SME’s be allowed to list on the GSE and to participate in Bond Markets, if correct financial statement reporting, even by large public firms (Big 4) has been identified as problematic.

5) The GoG’s accounts and records and those of State Owned Enterprises should be audited by independent licensed accounting firms. Since the Auditor General is appointed by the President, there is an apparent lack of independence in the Auditor General’s reporting, even if these reports are directed to Parliament for review.

6) There is an insufficient number of accounting professionals, licensed chartered accounting firms and apparently accounting firms with depth. Also, the business community appears to have a strong bias towards using only the Big 4 accounting firms. Ghanaian accounting firms need to be accepted.

Drafted: C. Murphy, 8/1/2012

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