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 private sector. Quality information helps the government properly analyze risks and play their essential roles in resolving the complex and interconnected challenges in variety of sectors, including in health, social protection and education.

1. The Accounting and Auditing Board of Ethiopia
(AABE)
www.aabe.gov.et
International Financial Reporting
Standards (IFRS)
Implementation Road Map
Dawit Mengistie
June, 2017
Addis Ababa, Ethiopia

2. The Ethiopian Regulatory
Framework
 Financial Reporting Proclamation
847/2014
 Council of Ministers Regulation
332/2014
 Directives to be issued by AABE

3. IFRS
Adoption Road Map

4. IFRS - What is it?
 IFRSs 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.

5. Financial Reporting: Why is it
Important?
 No transparency => no trust
 No trust => no credit
 No credit => no investment
 No investment => no growth

6. Background
 Scope of IFRS Conversion – Conversion will touch
almost every aspect of the company. Its impact is
profound!
 And conversion to IFRS does not end with the
publication of the first set of IFRS compliant
financial statements.
 Necessary preparation including changes in
accounting policy, IT system, process, etc. must
precede conversion to IFRS
 Implementation of ISAs – immediate and no road
map needed.

7. • Early education
• Underlying business performance
• Volatility of earnings and equity
• Hedging strategies
• Re-benchmarking relative to global
peer group
Management
information
Employee
benefits
Tax planning
Financial
instruments
Control
environment
Business and
franchise
Oversight and
project
management
Training and
knowledge
Processes and
systems
Investor
relations
Business
impact of
IFRS
• Key performance indicators
• Management reporting
• Underlying infrastructure
• Reconciliation to reported
results
• IFRS alignment
• Share based payments
• Pension arrangements and
funding
• Retirement benefit costs
• Alignment of remuneration
and bonuses
• Impact of accounting on
taxation considered
irrelevant by IASB
• Impact on tax strategies
• Data collection
• Structured products
• Inland Revenue
• Fair value
• Debt vs. equity
• Review of hedging strategies
• Hedging documentation
• Day One profit recognition
• Observability of market prices
• Embedded derivatives
• Reserving policies
• SPEs
• Policies and procedures
• Finance function efficiency
• Finance and Operations
transformation
• Covenant renegotiation
• Valuation of earn outs
• Demand for valuations
• Impact of consolidation of SPEs
• Clients’ appetite for existing
structured financial products
• Viability of transactions due to
treatment on own balance sheet
• Ability to assess client suitability
and credit
• Fragmented processes/ systems
resulting from IFRS tactical
solutions
• Data capture
• Hedging
• Loan provisions
• Segmental reporting
• Financial Statements
presentation
• Not just Finance
• Front Office, research, credit
• Non-executives
• Access to knowledge and
tools
• Complex project
management
• Audit Committee
involvement
• Non-executive
understanding and
oversight
• Resources and budgets

8. 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 private sector.
 Quality information helps the government
properly analyze risks and play their essential
roles in resolving the complex and interconnected
challenges in variety of sectors, including in
health, social protection and education.

10. Accounting & Auditing: Key Development Benefits

11. Users of Accounting & Financial Reporting

12. Financial Reporting: Multiple Users and Uses

13. High-Quality Financial Reporting: 3 Key
Dimensions

14. Standards are Just one Piece of a Complicated
Puzzle

15. Financial Reporting is not just about the Standards

16. All supporting pillars are important and need to be
strengthened

17. TRUST

18. Why Public Oversight?
 The modern movement towards public oversight of the
auditing profession began with the wave of corporate
financial reporting scandals starting about 15 years
ago in the U.S., Europe, and Japan.
 Over the last decade, beginning with the Sarbanes-
Oxley Act of 2002, a worldwide consensus has
developed that auditors cannot adequately regulate
themselves, mainly because they do not have sufficient
incentive to do so:
– Conflict of interest built into the auditor-client
relationship
– Market may not adequately recognize and reward audit
quality
– Unregulated competition may be based on price or
willingness to accommodate, rather than on audit
quality

19. Ensuring Compliance with Reporting Obligations

20. 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

21. Suitability of the Standards - Financial Reporting

22. Statement of Adoption
 Ethiopia adopt IFRS as issued by the IASB.
 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 ??

23. 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 requirements
 conclusion the actual accounting practice in
Ethiopia differ from IFRS.

24. Voluntary Adoption
 reporting entities are not allowed to make
such unreserved reference to IFRS unless they
fully comply with all the requirements of the
IFRSs applicable to their circumstances.
 reference to IFRS 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.

25. Mandatory Adoption of IFRS
 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 IFRS
 PHASE 3: Small and Medium-sized Entities
Hamle 1, 2011 the date for adoption of IFRS

26. 2007/08
2008/09
2009/10
2010/11
20011/12
Transition Date:
Significant PIEs
Transition Date:
Other PIEs
Reporting Date:
Significant PIEs
Transition Date: SMEs
Reporting Date:
Other PIEs
Reporting Date:
SMEs
•Awareness
•Assessment
•Amendment of laws,
regulation and directives
•Training
•Planning/impact analysis
•Transition adjustments/
opening BS for sig. PIEs
•Transition
adjustments
•Prepare IFRS
opening SFP
•Dry Runs for
“significant PIEs”
•Prepare
comparative figures
•IFRS/Quarterly
reporting by sig. PIEs
•Audit procedures
•Stakeholders
communications
•Other PIE’s prepare
opening SFP &
comparative figs
•Dry Runs for other
PIEs
•SME’s commence
transition planning
•IFRS/Quarterly
reporting by other PIEs
•Audit procedures
•Stakeholders
communications
•Compliance
monitoring for sig. PIEs
•SMEs prepare opening
SFP and comparative
figs
•Stakeholders
communications
•Dry Runs for SMEs
•IFRS reporting by
other SMEs
•Audit procedures
•Stakeholders
communications
•Compliance
monitoring for
Other PIEs
Alignment with other initiatives and training for appropriate personnel
Realisation and standardisation of statutory reporting
IFRSCompetency
2007/08
2008/09
2009/10
2010/11
2011/12
IFRS Implementation Roadmap

27. Disclosure Requirements by REs
 Prior disclosure of the effects of IFRS adoption
starting from two years prior to adoption
– Preparation plans for IFRS 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 subsidiaries to be consolidated or
description and reason of why it is not possible to
provide such information.

28. Monitoring Preparation for IFRS
Adoption
• During the preparation period AABE
undertakes survey of reporting entities
that are subject to mandatory IFRS
application
• Survey results will be utilized to plan
and execute appropriate intervention
measures to facilitate timely adoption.

29. Reporting Requirement on Audit Firms
• audit firms to prepare and submit business reports
starting from 2008/09 describing the status of their own
preparation for the adoption of IFRS by their clients.
• E.g. teams and staff members dedicated to the firm's
preparation for IFRS adoption, education sessions
• AABE will analyse the reports and examine how firms are
preparing for the adoption of IFRS.
• AABE will direct the firms 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 firms for quality review

30. IFRS 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

31.  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
Activities of the IFRS Roadmap Implementation
Task Force during Preparation Stages

32. 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 Training Centre
 Creation of a dedicated Website

33. IFRS Implementation
Challenges and Lessons Learned

34. Not an Easy TASK
 there should be no doubt that conversion to IFRSs
is a huge task and a big challenge;
 practical challenges that may be faced as a result
of implementing the IFRS need to be identified and
addressed in order to benefit fully from the
introduction of IFRS
 adequate preparation & planning, both at a
national and firm level is the critical success
factor;
 its profound impact requires a great deal of
decisiveness and commitment;

35. 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,

36. Potential knowledge shortfall (Level of
Awareness)
 the transition plan to IFRS 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.

37. 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 IFRS.
 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

38. Limited Training Resources
 Professional accountants are required to ensure
successful implementation of IFRS.
 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 IFRSs are
not readily available at affordable costs in
Ethiopia to train such a large group which poses
a great challenge to IFRS adoption.

39. Tax System Effect/ Tax Reporting
 Tax considerations associated with the conversion to
IFRS are complex.
 IFRS conversion normally calls for a detailed review of
tax laws and tax administration.
 Specific taxation rules would have to be redefined to
accommodate these adjustments.
– e.g., loss relief period may need to be reviewed because
transition adjustments may result in huge losses that
may not be recoverable within the allowed periods.
 Accounting issues that may present significant tax
burden on adoption of IFRS, include determination of
Impairment, Loan loss provisioning and Investment in
Financial Instruments.

40. Legal System Effect
 Inconsistencies may exist between the Financial
Reporting Proclamation, and other existing laws
that provide some guidelines on preparation of
financial statements.
 IFRS does not recognize the presence of these
laws and the accountants have to follow the IFRS
fully with no overriding provisions from these
laws.
 law makers have to make necessary amendments
to ensure a smooth transition to IFRS.

41. 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.

42. 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 IFRS 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

43. Important IFRS related questions to
consider
Four Areas:
1. Initial considerations
2. Financial reporting considerations
3. Conversion project considerations
4. Nonfinancial reporting considerations

44. Key Questions – Initial consideration
 Should we be first mover (adopt voluntarily)?
 How can our organization take advantage of
opportunities presented by the conversion to
IFRS?
 What are the most significant risks associated
with converting to IFRS?
 How will converting to IFRS affect our
stakeholders and what should be done to
manage their expectations?

45. Key Questions – Financial Reporting
considerations
 How will converting to IFRS 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 IFRS?
 What are competitors and industry peers doing?
 Has the Project Team/management considered that
PIEs are required to apply IFRS throughout their
group structures?
 How will IFRS impact tax reporting and tax filings?

46. Key Questions - Conversion project
considerations
 What will converting to IFRS mean for the org’n?
 How do we plan to approach the conversion to
IFRS 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 IFRS conversion
project, what resources will be required and how
much will it cost?

47. Key Questions – Nonfinancial
Reporting considerations
 Other than financial reporting, which other
business areas will be affected by the conversion?
 Can our current IT systems handle the business’
revised data collection requirements under IFRS?
 Other than financial reporting integrity, what are
the other implications for boards of directors?
 What IFRS 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?

48. A Holistic Approach to IFRS
Conversion Project Management?
 Planning and implementing IFRS
conversion ensuring that all linkages and
dependencies are established between
accounting and reporting, systems and
processes, people and the business.
 The conversion needs to effectively address
the challenges and opportunities of adopting
IFRS to all aspects of your business.

50. Accounting gap
analysis
IT/process impact
assessment
Tax impact analysis
Systems/process
conversion strategyReporting gap
analysis
Alternative
accounting
treatments Initial IFRS
awareness
training
Financial and
business impact
assessment
Management
presentations
Measures to reduce IFRS project plan

51. 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 IFRSs
Undertaking accurate and comprehensive upfront
assessment of the impact of IFRS 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.

52. Systems and Processes
A major effect of converting to IFRS will be the
increased effort required throughout the org’n to
capture, analyse and report new data to comply
with IFRS 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 IFRS
conversion project to streamline the existing
systems and processes.

53. From Accounting Gaps to Information
Sources The foundation of the project is to understand the IFRS 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.

54. 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.

55. Audit Committee/Board of Directors
Ensure that Management:
 Is sensitive to the issues/timelines and has the appropriate
resources and skills to conduct an IFRS 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

56. Management
 Form IFRS Project Team
 Implement and manage the conversion
process by active supervision and
communication with the IFRS Project Team
 Project Sponsorship
Roles and Responsibilities

57. IFRS Project Team
Formed by management to:
 Manage budget, resources and timelines
 Ensure compliance to IFRS standards
 Coordinate all aspects of the conversion
(people, process, technology) across business
units
Roles and Responsibilities

58. 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

59. 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
Roles and Responsibilities

60. IFRS 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.

61. Key risks of an IFRS conversion
project?
Vision and direction
 Unresolved or uncertain strategy from the
IFRS 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

62. Key risks of an IFRS 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 IFRS
rules
 Inadequate risk assessment and determination of
project risks

63. Key risks of an IFRS 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

64. Key risks of an IFRS conversion
project?
Business acceptance
 Ineffective deployment strategy
 Lack of business impact of IFRS
 Unresolved problems and disputes
 Incomplete operating and maintenance information
 Insufficient user satisfaction
 Scale and volume of defects
 No project close-out
 Global sourcing conflicts

65. Key risks of an IFRS 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

66. 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 IFRS”
 Accounting rules are seen as “pretty similar”, but small
differences can matter a lot.
 Impacts of IFRS 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
IFRS (e.g. to analysts)
 Lack of sufficient communication with auditors

67. Key take away
 Understand the IFRS 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

68. Questions
or
Comments?
Thank you

69. Some key impact areas –
presentation and accounting
 Components/Presentation of Financial
statements
 Use of fair values –relevance over reliability
 Business Combinations
 Detailed guidance on treatment of
government grants
 Extensive disclosure requirements

70. Anticipating the challenge to solve it faster
 Key decision makers to adopt principles
 Availability of IFRS technical resources
 Cost of bridging gaps in knowledge –budget
constraints
 Organization wide training in IFRS principles
relevant to entity
 IFRS 1 may also require going back in time to
evaluate impact – unless record retention is
reasonably effective just gathering information
could be a challenge
 Applying fair values to accounting

71. Multiple impacting areas to
consider…….

72. The IFRS Clouds (Challenges)

73. IFRS transition challenges