1 IMPROVING SKILLS STANDARDS IN ACCOUNTING AND FINANCIAL MANAGEMENT WITHIN SMES IN SURINAMECyril Soeri M.A. RA CISA IFRS Seminar 2011
Research objective2 The overall objective of the project ‘Improving skills standards in accounting and financial management within SMEs in Suriname’ is to support adoption of international standards in accounting and financial management within SMEs and SMPs operating in Suriname. Based on above objective the SUVA investigated and described the Surinamese context, while reporting on the following matters: A situational analysis and needs assessment; A review of existing educational curricula and recommendations for improvement.
Scope3 Scope In the scope are included the following international standards: International standards for financial management: COSO’s internal control framework for Small Public Companies; International standards for financial reporting: IFRS (full) and IFRS for SMEs; International standards on auditing: ISAs and HRA (Dutch translation of ISAs); International standards for education; IES standards for professional accountancy education.
Methodology4 Methodology the research techniques used: In-depth interviews, Study of international standards and Assessment of course offerings.
Population (1)5 Population (to be continued) As defined in the scope of IFRS for SME: Entities that have no public accountability and that are required, or choose, to publish general purpose financial statements for external users. Essentially, an entity is considered to have public accountability if: its debt or equity instruments are publicly traded; or it is a financial institution or other entity that, as part of its primary business, holds assets in a fiduciary capacity for a broad group of outsiders. As defined by the Draft Civil Law act, title 2, article 120 (March 2009): As target group are included organizations, which do not comply to one of the two criteria for being a large limited liability company (‘grote N.V.’): Net revenue less than SRD 24 million (article 120.3); Balance total less than SRD 12 million (article 120.3).
Population (2)6 Population (Continued) The business organizations and sources of information include the following stakeholders: Ministry of Finance; Ministry of Trade and Industry; Chamber of Commerce (KKF); Suriname Business Development Center (SBDC), which is a workforce of the Suriname Business Forum (representatives of Business and Government); General Bureau for Statistics (ABS); Association Surinamese Business (VSB); Association of Surinamese Manufacturing Companies (ASFA); Association of Banks; Government Audit Body (CLAD); Suriname Institute of Chartered Accountants (SUVA).
7 SITUATIONAL ANALYSIS: - REGULATORY AND STANDARDS FRAMEWORK- IMPLEMENTATION OF INTERNATIONAL STANDARDS IFRS Seminar 2011
Situational analysis (0)8 Regulatory and standards framework Current regulatory framework Legal framework for banks and insurance companies Other observations on current laws and regulations Draft Revised Civil law Summary of observations Recommendations
Situational analysis (1)9 Current situation (to be continued): Trade Law of 1936 (‘Wetboek van Koophandel’), basically covers reporting requirements for organisations. The current Trade Law however does not enforce: a defined set of accounting standards: currently referred to a shortl-list of presentation requirements (article 73, Trade Law) a mandatory audit: currently referred to as an ‘investigation of financial accounts by an expert’ (article 74, Trade Law); code for good corporate governance. Other laws and regulations on accounting and auditing of financial institutions (including insurance companies) are governed by the Law on Supervision of Financial institutions.
Situational analysis (2)10 Current situation (continued): Suriname has a stock exchange, which has a legal status of an ‘association’ and is not institutionalize yet by law. There is currently no Stock Exchange law that governs the supervision on listed companies; Since 2007 the Certified Accountants in Suriname are united in an accounting professional body, which is also not institutionalized yet by law. Please note that accountancy professional bodies has the authority to set the accounting and auditing standards applicable in neighboring countries as Guyana, Brasil, Trinidad & Tobago, Barbados, but also Europe and the United States of America.
Situational analysis (3)11 The Draft Revised Civil Law (2009) contains: General financial statements requirements (article 15); For limited liability companies: financial statements are prepared in accordance with ‘generally accepted accounting principles’ (article 117.1): No reference made to the set of accounting standards to be used; No reference made to the qualification of the ‘external expert’; No reference made to level of assurance expected from the ‘investigation’; For Large limited liability companies (balance total greater than SRD 12M and revenue greater than SRD24M): Preparation of financial statements in accordance with IFRS; No clear reference made on the ‘external expert’ to perform the audit on the financial statements, which is expected to be a certified accountant;
Situational analysis (4)12Summary of observations (to be continued): The Trade Law 1936 has no clear reference on set of accounting standards to be applied; There is no clear reference to a mandatory audit on the financial statements. There is no clear reference to the qualification of the ‘expert’ responsible for the investigation of the financial statements, while a certified accountant is expected; Publication of the financial statements at the Trade Register is limited for companies which comply with the following requirements: The Deeds of Incorporation states bearer shares with a total amount of SRD 50; The Limited Liability Company has bearer debenture; The Limited Liability Company has listed shares; The Company has activities of holding cash from third parties or practices insurance activities. No reference is made to a Corporate Governance Code promoting governance and adequate level of internal control of the companies.
Situational analysis (5)13Summary of observations (continued): The draft Civil Law 2009 should be an improvement of the Trade Law 1936. However, the following findings are noted, which disclose significant room for improvement: IFRS is mandatory for large companies, but no set of accounting standards is defined for small and medium sized enterprises; There is still no clear definition on the ‘expert’ responsible for the investigation of the financial statements. For small and medium sized entities it is unclear which level of assurance is expected from the investigation of the external expert’; Other findings on the regulatory framework include: Improvements in the current Bank Act; There is no Stock Exchange Act governing the supervision on listed companies; There is no Accountancy law that protects the quality of audits and the public certified accounting profession.
Recommendations (1)14 Adoption of an Accountancy profession Act is recommended to be able to monitor the quality of audit practices. In almost all jurisdiction the monitoring of the quality of the audit practices is performed by an Institute of Chartered Accountants; Adoption of a Stock Exchange Act to protect the capital market from malpractices and monitor the quality of financial statements; The Draft Revised Civil law should further be improved and clarified on the following subjects: (to be continued): Transparency and comparability will be improved when organizations are obliged to publish their financial statements at the Trade register, not limited to only large companies;
Recommendations (2)15 The Draft Revised Civil law should further be improved and clarified on the following subjects (continued): Companies which do not comply to the criteria of a large company should publish in according with IFRS for Small and Medium Entities, in absence of own national accounting standards; It is strongly recommended to clearly distinct the certified accountant who is registered at the Suriname Institute of Certified Accountants (SUVA) complying with the International Standards on Auditing (ISA) as pronounced by the International Federation of Accountants (IFAC). In order to enforce good corporate governance, I strongly recommend including a reference to an international accepted governance code, which suits the Surinamese environment. No such reference is yet included in the draft Civil law.
Needs analysis (0)17 Needs for adopting international standards: Needs analysis amongst Business organizations and Bureau of Statistics Needs analysis amongst stakeholders: a government’s perspective : Public spending (expenditure) Taxation purposes (income) Results of interviews with business.
Needs analysis (1)18 Needs analysis amongst Business organizations: Financial statistics of companies: 40% of response rate; Compliance of current Trade Law; Business population is mostly SMEs; IFRS readiness: Globalization and the potential for Suriname to grow; Adequate financial management is seen as necessity for fiscal purposes; Enforcement by Law necessary.
Needs analysis (2)19 Needs analysis amongst stakeholders: a government’s perspective: Public spending (expenditure) Taxation purposes (income)
Results of interviews with business21 The needs analysis discloses that there is a lack of awareness and knowledge on international standards, showing that 64% of the respondents have little or no knowledge of IFRS or IFRS SME and none of the respondents has knowledge of the COSO’s Internal Control Framework for Small Public Companies. All the respondents confirmed the need for good defined accounting practices in a law. All respondents confirmed with a medium to high support of adopting international standards, while 82% of the respondents would consider to voluntarily implementing IFRS (for SMEs). All of the respondents confirmed the expectation gap between graduates from the university and colleges compared to business needs, while acknowledging the needs for training on accounting and financial management based on international standards.
Recommendations – Needs analysis (1)22 Recommendations (to be continued): Development of awareness campaigns for entrepreneurs is key to increase good accounting practices. The awareness sessions will stipulate the benefits for entrepreneurs, including: entrepreneurs will operate more efficiently; their access to capital and investments will improve; accounting personnel within SMEs and SMP’s will be trained and certified; financial reporting will be more transparent, and enhance the growth of the SME sector within Suriname. The training should be practical usable with the background that very small companies do not have the culture of having an adequate accounting system.
Recommendations – Needs analysis (2)23 Recommendations (cont’d 1): Taken into account the large and diverse population of SMEs we propose to make a training programme for each category of SME, based on their maturity level. We distinguish the following maturity levels in SMEs: Maturity level 0-1 (low): In this stage entrepreneur starts his own business, based on their technical expertise. Taken into account the size of the business, the entrepreneur chooses to perform the marketing, accounting, and HR activities himself. In this phase the information need is mostly internal purposes and to be able to submit the tax return.
Recommendations – Needs analysis (3)24 Recommendations (cont’d 2): Maturity level 2 (medium): In this stage the entrepreneur recognizes that it is not feasible anymore to perform most of the supporting business activities himself, besides the core business. In this critical phase, the entrepreneur sets up small departments, sometimes represented by one person, which is closely related to him. Since credit sales and purchases occur on credit, the entrepreneur is more interested in an accounting system on an accrual basis with timely management information on the actual performance in relation the budget. The internal control system meets at least to the minimum preconditions to be in control, such as segregation of duties, budget control system, general IT and specific IT controls, guidelines and procedures from management.
Recommendations – Needs analysis (4)25 Recommendations (cont’d 3): Maturity level 3 (high): In this phase the size of the enterprise has grown to a certain level that owns equity is not enough anymore to finance the autonomous growth. In case of external finance and export related production, (foreign) suppliers and customers have increased information need to assess the financial health of the company. The family business has grown to a professional organization. In order to comply with the (foreign) and local information needs, there is a coaching and training need in understanding the impact of international standards on the organization.