Successfully reported this slideshow.
We use your LinkedIn profile and activity data to personalize ads and to show you more relevant ads. You can change your ad preferences anytime.

Haji Kaawaae - Perspectives On the African SME Audit Landscape

783 views

Published on

SMP Committee Train the Trainers' Seminar in Kampala, Uganda, June 4, 2013

Published in: Business
  • Be the first to comment

Haji Kaawaae - Perspectives On the African SME Audit Landscape

  1. 1. PERSPECTIVES ON THE AFRICAN SME AUDIT LANDSCAPE 4 June 2013 Promoting Professionalism in Accountancy CPA HAJ TWAHA KAAWAASE, Partner, Sejjaaka, Kaawaase & Co.
  2. 2. Agenda • Disclaimer • Small and Medium Entities • Small and Medium Practices • Compliance Challenges • Features of an SME Audit • Conclusion 4 June 2013 2 2013 SMP TRAINERS SEMINAR
  3. 3. Understanding SMEs? 3 No. of Employees Total Assets / Revenue p.a. Micro- Enterprise ≤ 4 ≤ 12 M UGX ($4,500) Small Enterprise 5 – 50 13 M -360 M ($5,000 – 140,000) Medium Enterprise > 50 360 M – 25 bill ($140,000- $9.8m) Source: UI A (2008), KPMG & Nation Media Group, 2010 Top 100 SMEs Survey, Uganda Small and Medium Entities (Uganda)
  4. 4. Understanding SMEs? 4 Uganda Europe Australia Micro ≤ 4 ≤ 10 < 5 Small 5 – 50 < 50 < 20 Medium > 50 < 250 < 200 Large 50+ 250+ 200+ China : up to 3,000 employees ?! Source: UIA (2008) , Samujh (2007) Small and Medium Entities (No.of Employees)
  5. 5. Small and Medium Entities (SMEs) • SMEs play a predominant role in most developed and developing countries. • In many countries, SMEs make up the majority of businesses and account for the highest proportion of employment. 4 June 2013 5 2013 SMP TRAINERS SEMINAR
  6. 6. Small and Medium Entities (SMEs) • SMEs make up more than 90% of Uganda’s private sector (Gatsby Uganda). • The SMEs contribute approximately 75% of Uganda’s Gross Domestic product (GDP) and employ more than 2.5 million people. • Health of SME sector is important to the national economy. • SMEs hold the key to sustainable economic growth. 4 June 2013 6 2013 SMP TRAINERS SEMINAR
  7. 7. Small and Medium Entities 4 June 2013 7 2013 SMP TRAINERS SEMINAR
  8. 8. • SMEs have less complex, and less voluminous business transactions, poor internal control structures and poor record keeping practices • In spite of SMEs occupying a place of strategic importance in any economy, they face many problems due to lack of resources at their disposal. 4 June 2013 8 2013 SMP TRAINERS SEMINAR Small and Medium Entities
  9. 9. Small and Medium Practices : SMPs IFAC defines Small and Medium Practices (SMPs) as: “Accounting practices whose clients are mostly SMEs, use external sources to supplement limited in-house technical resources, and have limited number of professional staff”. 94 June 2013
  10. 10. Understanding SMEs? 10 Number %age Uganda’s Big 4 offices Sole practitioners 108 56% 0 2 – 3 Partners 81 42% 1 4 – 5 Partners 4 2% 3 TOTAL 193 100% 4 Source: ICPAU (2013) Does Uganda reflect Africa’s landscape ? Are all audit firms SMPs ?
  11. 11. The SMP Profile in Africa • In line with the size of business entities in Africa, the size of professional firms remains too small. • SMPs provide services mainly audits, but an auditor plays a great role in assisting management to prepare financial statements • SMPs do not specialise by sector/industry • SMPs lack in-house technical resources • SMPs audit files are not fully automated • Many member bodies lack appropriate capacity to support the SMPs 4 June 2013 11 2013 SMP TRAINERS SEMINAR
  12. 12. • SMEs likely to appreciate advice on how they can legally minimise tax expense / leverage on government incentive schemes. • SMPs provide proximity and responsiveness to SME needs. • SMPs act as a one-stop shop for advisory services needed by SMEs. • SMPs provide trust & technical competence. 12 Importance of SMPs to SMEs 4 June 2013
  13. 13. SMEs’ Use of Advice on Financial Management Total Canada China Italy Singapore South Africa U.K. Accountant 41 % 28 % 62 % 32 % 32 % 55 % 45 % Bank or other credit provider 20 % 19 % 18 % 17 % 24 % 23 % 16 % Local business association/chamber of commerce 16 % 20 % 12 % 21 % 24 % 15 % 3 % Professional colleagues/network 16 % 12 % 13 % 12 % 15 % 23 % 19 % Other consultant/adviser 15 % 15 % 22 % 12 % 16 % 17 % 11 % Trade or professional association 14 % 16 % 13 % 13 % 19 % 16 % 9 % Friends and family 13 % 15 % 16 % 14 % 18 % 9 % 8 % Books and magazines 7 % 9 % 5 % 7 % 8 % 8 % 4 % Attorney 6 % 5 % 5 % 11 % 8 % 7 % 2 % Internet resources 6 % 10 % 6 % 6 % 5 % 6 % 4 % Government resources 6 % 8 % 5 % 7 % 9 % 5 % 2 % Do not seek outside advice 20 % 26 % 8 % 21 % 18 % 12 % 30 % Total 100 % 100 % 100 % 100 % 100 % 100 % 100 % (Source: Forbes Insights (2010) Small and Medium Sized Enterprises: Rebuilding a Foundation for Post-Recovery Growth)
  14. 14. Compliance Challenges • The ISAs contain the basic principles and related guidance applicable for an audit of any entity regardless ofsize. • Theissuethathasraisedmuchattentionishowrelevant arethesestandardstoSMEs. • IAASBmaintainstheviewthat“anauditisanaudit”. • EvenwiththepublishedIFACguide[GuidetoUsingISAs in the Audits of Small and Medium-Sized Entities], the volume remains too big for SMPs and not relevantly tailoredforMicro-entities 14 2013 SMP TRAINERS SEMINAR 4 June 2013
  15. 15. “An Audit is an Audit” • The objectives of each audit are the same and the requirements to achieve the objectives are also the same. • At the time of expressing the opinion, the auditor is not aware of all the users of his opinion and must design his/her audit to provide reasonable assurance to any potential users. 15 2013 SMP TRAINERS SEMINAR4 June 2013
  16. 16. “An Audit is an Audit” • The users believe that the auditor has taken similar care while auditing the SME as he/she would have taken while auditing a large entity. • It is similar to a situation of a doctor who treats his patients, where both rich and poor patients expect the application of similar professional skills. 16 2013 SMP TRAINERS SEMINAR4 June 2013
  17. 17. Features of an SME Audit The following features of SMEs impact on the audit: • Concentrationofownershipandmanagementinasmall numberofindividual(s) • Fewsourcesofincomeanduncomplicatedactivities; • Simpleandpersonalizedrecord–keeping,and • Limitedinternalcontrolstogetherwiththepotentialfor managementoverrideofcontrols. • Unwillingnesstopaytheactualpriceoftheauditandthereforegetting lessvalue 17 2013 SMP TRAINERS SEMINAR4 June 2013
  18. 18. Features of an SME Audit • If SMEs are required to audit their financial statements, the SMPs will have little choice in ensuring proper compliance of ISAs. • This is inspite of the fact that such a level of assurance may be unwarranted since a majority of SMEs are owner-managed, have simple and limited volume of transactions and the financial statements are used only by the owners. 18 2013 SMP TRAINERS SEMINAR4 June 2013
  19. 19. Features of an SME Audit • However, legal requirements in many African countries aresuchthattherearenoauditthresholds. • AllregisteredcompaniesundertheCo’sActarerequired tohaveanaudit. • Yet in a numbers of cases a review engagement would suffice. 19 2013 SMP TRAINERS SEMINAR4 June 2013
  20. 20. Features of an SME Audit • A nucleus of competent and qualified staff in SMPs is yet to be attained. Most qualified persons are absorbed in employment and very few are available to the SMPs to practice making compliance with ISQC1 such a hard objectivetoachieve. • SMPs are often too small to taken on large assignment thatwouldhaveotherwisepropelledtogreaterlevelsof investment in infrastructure for future survival and efficiency 20 2013 SMP TRAINERS SEMINAR4 June 2013
  21. 21. Conclusion • Many SMPs face challenges in ensuring proper compliance with ISA. • This is partly a capacity problem. • But ensuring such compliance and building the require capacity increases the cost and makes the audit unviable for some of their SME clients. 21 2013 SMP TRAINERS SEMINAR4 June 2013
  22. 22. Conclusion • In auditing an SME the auditor needs to modify his/her approach and adapt to the address SME-specific requirements. • The basic principles prescribed in different ISAs will remain the same for the audit of SMEs. • Proportionate application of the ISAs is possible in auditing SMEs. 22 2013 SMP TRAINERS SEMINAR4 June 2013
  23. 23. 23 I THANK YOU Certified Public Accountants www.cpa.ug The Uganda Correspondent Firm of Russell Bedford International www.russellbedford.com

×