1.

Development of Auditing In Ethiopia

The process of auditing professionalization in Ethiopia appears to exhibit distinct Patterns during
the three epochs when the state followed capitalist-oriented (pre 1974), Communist (1974
through to 1991), and then capitalist-oriented (1991 onwards) ideologies. This section examines
the auditing professionalization processes in the Country during the past periods. It is apparent
from the foregoing quote that performance auditing in a rudimentary sense was started for the
government system of Ethiopia in the early 20th century explains that the contribution of foreign
advisors to the kings of Ethiopia during the period from the 1890s through to the 1970s led to the
issuance of government regulations and proclamations. This marks the start of today’s Office of
the Federal Auditor General of Ethiopia (OFAG), which, amongst other duties, monitors and
regulates the accounting and auditing profession in the country. In about the same time frame,
the Ethiopian Highway Authority and Ethiopian Airlines were established. In addition, the
Ethiopian Telecommunications Corporation and the Ethiopian Electric Light and Power
Authority became autonomous state-owned enterprises. These phenomena led to involvement of
foreign companies as partners, financiers or consultants to the Ethiopian state-owned enterprises.
Consequently, internal audit was introduced in these enterprises with a view to strengthening
internal controls. As a consequence of the growth of demand for trained manpower in accounting
and auditing up to the early-1940s, the Addis Ababa College of Commerce was established in
1943. The Colleges of Business were then established at Addis Ababa University in 1963 and
Asmara University in 1969. These institutions have played essential role in the development of
the accounting and auditing profession in Ethiopia by producing trained manpower.

Other significant developments in the history of accounting and auditing in Ethiopia took place
in the 1960s. Firstly, the Commercial Code of Ethiopia was proclaimed in 1960. This Code
contains accounting and external auditing provisions, which still serve as the legal basis for
financial reporting and external audit of companies. The code contains some requirements for
financial accounting, reporting, and external auditing of companies that operate in Ethiopia.
Limitations that possibly constrained the code’s contribution to the development of accounting
and auditing in the nation include that it does not:

a) Specify the accounting standards to be followed in financial reporting;

b) Define the qualifications of an auditor;

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 c) Require compliance with professional standards on auditing; or
d) Impose an audit requirement upon private limited companies with less than 20 members.

The second development was the formation of the Office of the Auditor General (OAG) in 1961
by Proclamation 199/1961. This proclamation accorded the OAG greater authority than was
provided in the 1944 proclamation that established the Audit Commission. The proclamation has
subsequently been revised three times, in 1979, 1987 and 1997. The 1997 version of the
proclamation is the legal basis for external audit for government organizations in Ethiopia to date
of writing. 1974 – 1991 Following a revolution, a military government with a communist
ideology took power in Ethiopia in 1974. Subsequently, private companies were nationalized and
the number of state owned enterprises in the country increased. As a result of these changes,
international public accounting firms, i.e., Price Waterhouse Peat & Co. and Mann Judd & Co.,
closed their Ethiopian branches. Nevertheless, formation of the Audit Service Corporation (ASC)
to conduct external audit of public enterprises was an important landmark in the history of
accounting and auditing in this period. This development was a result of the need to fill the gap
created by the closure of international accounting firms. Furthermore, internal audit as a separate
function appeared during this period (in 1987) when the Auditor General was mandated by
Proclamation No. 13/1987 to monitor and regulate internal auditing in government offices and
state-owned enterprises.

This proclamation also gave the auditor general the authority to issue minimum requirements for
recruitment of internal auditors, provide training to internal auditors, and require reports on
internal audit of government organizations. As this period is generally considered as a time when
the development of accounting and auditing was directly or indirectly constrained, limited
achievements were made in terms of development of audit profession. Post 1991 was a period
when Ethiopia shifted back to a free-market economic system after being structured as a
command economy for seventeen years. This shift led to a number of public enterprises being
privatized. The resulting new corporate governance structure in the private sector would be
expected to enhance the importance of financial reporting and external auditing. Change of
government and the type of government tend to be important influences on the development of
the accounting and auditing profession in Ethiopia. The free-market system has been considered
as one of the signals of hope for a better future for the accounting and auditing profession.

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Matching this expectation, the Ethiopian government has been undertaking financial reforms in
the areas of financial reporting and internal audit in the public sector.

2. Types of Audit and Auditors in Ethiopia

2.1. Types of Audit in Ethiopia

The Commercial Code of Ethiopia contains articles that are related to the auditing practice in
Ethiopia. The Commercial Code of Ethiopia contains provisions requiring partnership and
corporation (Share Company) to keep books and accounts, related to corporations specifically
about appointment of auditors, competency of auditors, professional secrecy and liabilities of
auditors. Furthermore, the code specifies persons who are founders and beneficiaries of a
company or its subsidiary, persons related by blood to the fourth degree, or persons who receive
remuneration from company founders it also states that directors are not to engage in auditing
that company. (Principle of Independence) In addition, according to the code, an auditor is liable
for breach of professional secrecy, for negligence in the performance of professional services,
and for breach of contract. According to the Commercial Code, auditors are liable to client and
third party for losses they cause, for issuing inappropriate report, for failure to inform the law for
any offences that they knew was committed by the client that affects the public.

Financial Statement Audit

Financial audit is simply an attestation that the client’s financial statement is accurate. Financial
audit or audit of financial statements is a statutory requirement of each and every registered
company. Financial statements’ audit is carried out by professionally qualified personnel’s
known as auditors. The primary objective of carrying out financial audit is to obtain an unbiased
and independent opinion from auditors that the financial statements are giving a true and fair
view, and they are out of material misstatements. For all companies, it is mandatory to carry out
financial audit, done by external auditors, before publishing the financial statements. The
shareholders or owners of the company appoint auditors to verify that the work done and
financial statements prepared by the stewards-the management appointed by them are correct and
show the clear picture of the company’s financial status.

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Operational Audit

Operational audit is a structured review of the systems, internal controls, and procedures of an
organization in order to evaluate whether they are being constructed efficiently and effectively
and to make suggestions to improve them, if necessary. The operational audit is designed to
assess the control level exercised by management, and it mainly focus on effectiveness and
efficiency of operations, reliability and integrity of financial and operational information,
safeguarding of assets, and compliance with laws, rules and regulations. Generally, operational
audit is carried out by internal auditors. Internal auditors are the auditors who are, basically,
employees of the organization. Operational auditors are generally internal auditors who are there
to facilitate the activities of management via checking the efficiency and effectiveness and hence
making suggestions to improve efficiency

Compliance Audit

Compliance Audit mostly focuses on tax audit done by tax auditors of Ethiopian government. A
tax audit is a systematic examination of business`s relevant commercial system to determine
whether a taxpayer’s declaration states the tax liability correctly and complying with the
provisions of the tax laws and related subsidiary legislations. Auditing involves examination of
financial statements, books of accounts and vouchers of a taxpayer by Tax Auditors. So as to
ascertain whether the taxpayer has accurately considered revenues and expenses when
determining the taxes shown in the declarations as per the requirements of the tax laws. It also
involves other approaches such as observation of premises, direct monitoring of receipts in cash
businesses, use of mark-up techniques and analysis of key ratios. The overall objective is to
improve the compliance of taxpayers, whether they declare the correct amount of tax and paid at
the right time. The expectation by a taxpayer of an audit should have a deterrent effect and
encourage the taxpayer to declare as far as possible a credible tax return. It also improves the
taxpayer’s understanding and awareness of the relevant taxes.

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 2.2. Types of Auditors in Ethiopia

Internal Auditor

Internal auditors are employed by individual companies to audit for management much as the
GAO does for congress. The internal audit group in some legal firm can include over a hundred
persons and typically report directly to the president, another high executive officer or even the
audit committee of board of directors. Internal auditors’ responsibilities vary considerably,
depending on the employer some internal audit staff consist of only one or two employees who
may spend most of their time doing routine compliance auditing. Other internal audit staff
consists of numerous employees who have diverse responsibilities, including many outside
accounting areas.

Governmental Auditors

Government auditors are employed by various local, state, and federal governmental agencies.
At the federal level, the three primary agencies are the Office of Auditor General, the audit
service corporation, and the federal Inland Revenue authority. The office of Auditor General is a
federal organization headed by the auditor general. This office is responsible for conducting
financial statement audit, compliance audit and operational audit of various Federal Government
offices. The regional governments have also their own regional audit bureau with similar
functions. The Federal Inland Revenue Authority is responsible for administering the federal tax
laws. Thus, the authority’s auditors audit the returns of taxpayers for compliance with applicable
tax laws. That is, the auditors examine the tax returns of the taxpayer to ensure that it is prepared
in accordance with the tax laws and regulations. The authority’s auditors are known as tax
auditors. Another government organ that performs audit is the audit Service Corporation. The
Audit services corporation audits the financial statements of the public enterprises. Thus, the
type of audit performed by the audit service corporation is financial statement audit.
Governmental Units that provides auditing service in Ethiopia includes

Independent (External) Auditor

An independent auditor, also known as certified public accountant or external auditor, has no
connection to the organization being audited. Independent auditor conducts the audit on a fee

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basis, and is primary responsible to third parties creditors and shareholders. The type of audit
carried out by an independent auditor is financial statement audit. In Ethiopia, the authorized
auditors perform financial statement audit. In addition, the Audit service corporation a
government—owned organization, performs financial statement audit.

3. Private (External) auditing in Ethiopia

Private auditing practice was started with the opening of a branch office of Price Waterhouse
Peat & Co. in Addis Ababa, following the establishment and growth of multinational British
companies like A. Bessie & Co., Mitchell Cotts Ltd., and Shell; and the issuance of the
commercial Code of Ethiopia in 1960. The demand for commercial audit has increased, as the
Commercial Code of Ethiopia required the multinational companies to present audited financial
statements for renewal of trade license. The Office of Auditor General audits or causes to be
audited the accounts of the Federal Government offices and organizations. On the other hand, the
Audit Service Corporation provides auditing services to public enterprises. The private
businesses also need audited financial statements for various purposes such as for bank loan and
for tax purposes. Thus, private auditing firms provide auditing, accounting services, tax services,
and management advisory services on fee basis primarily to the private businesses. The type of
audit conducted by private auditing firms is financial statement audit.

4. Special Legal Provisions Related to Auditing in Ethiopia

Auditing Standards are the criteria or yardstick against which the qualities of audit results are
evaluated. They provide minimum guidance for the auditor that helps to determine the extent of
auditing steps and procedures that should be applied in the audit work.

Similarly, the Ethiopian Government Auditing Standards stated that the statement of auditing
standards describes the basic principles which govern the auditor’s professional responsibilities
and which must be complied with whenever an audit is carried out. It provides a framework
within which professional judgment must be exercised and establish the minimum standard to be
followed on individual audits (OFAG: Ethiopian Government Auditing Standards: 2004)

Due to absence of a well-organized and empowered professional accounting and auditing body
in Ethiopia at the present time, there are no formalized professional standards issued by any

6
authority in the country. However, OFAG have adopted minimum auditing standards
incorporated in their respective audit standards which it has developed.

The task of preparing detailed ethical principles and rules is primarily that of the professional
associations and that all members of the associations have the responsibilities to accept,
implement and enforce such requirements. In Ethiopia, due to the absence of an organized strong
national professional association there is no comprehensive set of ethical standards to govern the
behaviors of professional accountants. In the case of authorized auditors, it is assumed that they
adhere to the code of ethics set by the professional bodies to which they are members. (OFAG:
2004).

Therefore, this chapter of the project paper is going to explore the Ethiopian private auditors'
practices in applying auditing standards established by professional body to which they are
members; the code of ethics applicable to them, and the major legal concepts that relate auditors'
liability to clients and third parties under common law.

Ethiopian Government Auditing Standards

The purpose of auditing standards is to establish standards and provide guidance on the objective
and principles governing an audit of financial statements. The objective of audit of financial
statements is to enable auditors to give an opinion on those financial statements taken as a whole
and thereby to provide reasonable assurance that the financial statements give a true and fair
view and have been prepared in accordance with relevant accounting standards or other
requirements.

The auditing standards adapted by OFAG have classification as General standards, fieldwork
standards, and reporting standards. These standards are adopted from International Federation of
Accountants (IFAC), UK and AICPA.

The development of public accounting profession cannot be left or be waited upon to develop by
itself voluntarily in a self-regulated manner as in those advanced countries as England and
America. A deliberate attempt instead must be made through legislation to establish, develop,
and regulate public accounting profession despite the disadvantages that may loom in developing
an accounting profession by legislation (Johannes; 1970).

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Therefore, from the above discussion it is wise to conclude that for the accounting profession to
be well developed all the concerned body including the audit organization should regulate and
monitor the auditing activities in one way or another.

General Standards

According to Ethiopian government auditing standards document issued by office of the Auditor
General (OFAG: 2002) the general standards includes the auditors independence in all aspects
from the client, auditor's professional competence, exercising due professional care, audit quality
control by both the auditor's and client, audit engagement letter requirement (commercial
perspective), subsequent events to audited financial statement (commercial perspective) and
going concern requirement (commercial perspective).

Fieldwork Standards

Office of the Auditor General (OFAG: 2002) also discloses fieldwork related standards, which
are the responsibility of the auditor's. These include planning the audit, Knowledge of the entity,
materiality of the information to be disclosed, accounting and internal control systems
requirement, audit sampling requirement, supervision and review of the work of field auditors by
senior auditors, fraud and error detection requirement, compliance with applicable laws and
regulations, audit evidence gathering, audit of accounting estimates requirement, obtaining
management representations, opening balances and comparatives discloser, discloser of related
parties information (commercial perspective), considering the work of internal audit, using the
work of an expert, the relationship between principal auditor and other auditor, and working
paper importance and its ownership.

Reporting Standards

According to the document issued by office of the auditor General (OFAG: 2002), the reporting
standards involve the report format, report contents, report presentation, timeliness of the report,
report distribution, and the importance of the report to management.

From the above discussions it is wise to conclude that the auditing standards adopted from the
international standards are the guidelines to be followed by the auditors. Moreover, these
standards are adopted from CPA and ACCA standards.

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Code of Ethics Applicable to Authorized Auditors

As stated on the OFAG code of Ethics for authorized auditors (2004), most authorized auditors
and accountants perform their duties and responsibilities in accordance with the professional
standards and ethical requirements developed by OFAG in the past. However, clients and their
parties have been complaining against some authorized auditors and accountants regarding the
unethical actions done by the practicing auditors and accountants.

Therefore, for these reasons, OFAG established a revised code of Ethics for authorized auditors
to be used as a basis in discharging their professional duties to the public, as follows:

Independence: a professional accountant, member of assurance teams and firms should be

independent in the performance of professional services for the client. Independence requires the
state of mind that permits the provision of an opinion without being affected by influences that
compromise professional judgment, allowing an individual to act with integrity, and exercise
objectivity and professional skepticism.

Besides it requires that avoidance of facts and circumstances that are so significant that a
reasonable and informed third party, including safeguards applied, would reasonably conclude a
firm’s or a member of the assurance team’s, integrity, objectivity or professional skepticism had
been compromised.

Professional competence and Responsibilities regarding the use of Non-accountants:

professional accountants should refrain from agreeing to perform professional services which
they are not competent to carry out unless competent advice and assistance is obtained so as to
enable them to satisfactory perform such services. If a professional accountant does not have the
competence to perform a specific part of the professional service, technical advice may be sought
from experts such as other professional accountants, lawyers, actuaries, engineers, geologists,
and values.

Fees and commissions: professional accountants, who undertake professional services for a
client, assume the responsibly to perform such services with integrity and objectivity and in
accordance with the appropriate technical standards. That responsibility is discharged by
applying the professional skill and knowledge which professional accountants have acquired

9
through training and experience. For the service rendered, the professional accountant is entitled
to remuneration.

Professional fees should be a fair reflection of the value of the professional services performed
for the client, taking in to account the skill and knowledge required the level of training and
experience, the time necessary occupied by each person and the degree of responsibility.

A professional accountant should not pay a commission to obtain client nor should a commission
be accepted for referral of a client to a third party. A professional accountant should not accept a
commission for the referral of the products or services of others.

Activities incompatible with the practice of public accountancy: A professional accountant

should not concurrently engage in any business, occupation or activity that impairs or might
impair integrity, objectivity or independence, or the good reputation of the profession and
therefore would be incompatible with the rendering of professional services.

The rendering two or more professionals services concurrently does not by itself impair integrity,
objectivity or independence, but regarded as inconsistent with the practice of public accountancy.

Relations with other professional accountants: Professional accountants should only accept
new assignments which they can expect to complete with professional competence. It is essential
therefore for the profession in general and in the interests of their clients that professional
accountants be encouraged to obtain advice when appropriate from those who are competent to
provide it. Besides the proprietors of a business have an independent right to choose their
professional advices and to change to others should they so desire? While it is essential that the
legitimate interests of the proprietors be protected, it is also important that a professional
accountant who is asked to replace another professional accountant has the opportunity to
ascertain if there are any professional reasons why the appointment should not be accepted. This
cannot effectively be done without direct communication with the existing accountant. In the
absence of a specific request, the existing accountant should not volunteer information about the
client’s affairs.

Advertising and solicitation: advertising and solicitation should be aimed at informing the
public in an objective manner and should be decent, honest, truthful, and in good taste.

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Solicitation by the use of coercion or harassment should be prohibited. It is clearly desirable that
the public should be aware of the range of services available from a professional accountant.

Accordingly, there is no objection to a member body communicating such information to the

public on an institutional basis, i.e., in the name of the member body. Hence, it is wise to
conclude from the above that Ethiopia private auditors should have a responsibility to follow
those fundamental principles. Thus, these fundamental principles are the guidelines to regulate
the practice of the auditors.

Legal Responsibilities and Liability

Authorized auditors and accountants have an important role in society. Investors, creditors,
employees and other sectors of the business community as well as the government and the public
at large rely on professional accountants for sound financial accounting and reporting, effective
financial management and competent advice on a variety of business and taxation matters. The
attitude and behavior of professional accountants in providing such services have an impact on
the economic well-being of the community. Therefore, they should accept the obligation to act in
a way that will serve the public interest, honor the public trust, and demonstrate commitment to
professionalism (OFAG: 2004).

Article 374 of the commercial code of Ethiopia states that the auditors shall have duties or
responsibilities:

- To audit the books and securities of the company

- To verify the correctness and accuracy of the inventories, balance sheets and profit and
loss accounts,
- To certify that the report of the board and directors reflects the correct state of the
company’s affairs,
- To carry out such special duties as may be assigned to them
Also the auditors have a legal responsibility to submit to the annual general meeting a written
report to board of directors. (Commercial code of Ethiopia Art. 375)

Besides as stated on commercial code Art. 376 sub 1, auditors are legal responsible to inform
directors irregularities. Thus where the auditors find irregularities or breaches of legal or

11
statutory requirements, they shall inform the directors and, where grave irregularities or breaches
have occurred, they shall inform the general meeting. (Art 376 of commercial code of Ethiopia).

On the other hand, auditors are legally liable for violation of professional responsibilities and
legal responsibilities. Supporting this, Art 380 of commercial code of Ethiopia, state that auditors
shall be civilly liable to the company and third parties for any fault in the exercise of their duties
which occasioned loss. Besides an auditor who knowingly gives, or confirms an untrue report
concerning the position of a company or fails to inform the public prosecutor of an offence
which he known to have been committed shall be punished under Art. 438 or Art. 664 of penal
code as the case may be.

Of course, as stated on the commercial code of Ethiopia, Art 373, Auditors shall be liable to
penalties prescribed in Art 407 of the penal code for breaches of professional secrecy, i.e.
professional and legal responsibilities.

Therefore, the researcher concludes from the above that private auditors should strictly follow
that code of ethics formulated by OFAG and the commercial code of Ethiopia 1960 in examining
entities books of accounts as well as in reporting to the users audited financial statements. Thus,
failure to comply with these regulations has legal liability to their clients and the law of the land.

5. The Audit Service Corporation

As stated earlier the Office of the Auditor General was given the sole responsibility to audit or
cause to be audited all the government enterprises. However, the small number of trained
manpower, especially after the 1974 revolution, when the Ethiopian government nationalized a
number of private enterprises, the office could not satisfy the need for audit with in the country.
Thus, there was a need to establish a semi-independent audit services corporation under the aegis
of the Auditor General. Therefore, the Audit Service Corporation was established in 1977
pursuant to Proclamation 126/1977. According to Proclamation 126/1977, the objective of the
corporation was: To render audit services to production, distribution and service giving
organizations, of which the government is the owner or majority shareholder. To render
management consultancy services to the organizations specified above. . To find way and means
for further development of audit profession and try to make Ethiopia self-sufficient within a short
period, with respect to audit profession. The corporation was established as an independent entity

12
with powers to sue and be sued, enter into contracts, determine terms and conditions of
recruitment, as well as to charge fees for its services. The objective of audit rendered by the audit
service corporation is the same as that of private auditing firms. The audit service corporation
audits public enterprises to examine if their financial statements present fairly the true picture of
their activities. The audit is conducted on fee basis. The end result is an audit report that contains
the expression of the auditor's opinion. Thus, the type of audit rendered by the audit service
corporation is a financial statement audit.

6. Status of Accounting and Auditing Profession in Ethiopia

Current status of Internal Auditing in Ethiopia

The Scope and Practice of Internal Auditing in Ethiopia In order to assess the state of internal
auditing in the country as a basis for further action to strengthen the function; a survey was
conducted by the Office of the Auditor General in 1991. The main purposes were to determine
the service quality, methodology and educational and skill content as well as organizational
structure of internal auditing. The survey was carried out by means of questionnaires developed
by an ad hoc committee. Although the questions were widely distributed the analysis was based
on the 362 responses obtained from 312 different ministries, government departments and 50
public enterprises. In other words, 86% of the responses were obtained from public bodies. The
survey indicated that there was a serious lack of internal audit education and training. An
accounting background has been seen as the most important requirement for entry into the
internal auditing work. Such a requirement, however, does not provide internal auditors with the
knowledge of adequate analytical tools necessary for carrying out their professional
responsibilities. Hence the findings of the survey at the time indicated that the scope and
professional content of internal auditing work was severely limited to:

1. Low-level financial and compliance audits,

2. Pre-audit,
3. Non-audit work such as witnessing the hand-over of stores, cash and personnel transfers

The prevalence of such limited scope of work of internal auditing was attributed to a number
factors, which included: -

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 1. The low level education, training and experience of internal auditors
2. The lack of management awareness about the functions and contributions of internal
auditing
3. The prevalence of weak internal control systems in organizations in which internal audit
is an integral part.
4. The absence of a professional organization to cater for the professional development of
internal auditing in the country for a long time.

Presently, Government has taken the initiative to improve upon some of the above enumerated
weaknesses and to reorganize and strengthen the internal auditing practice both in public bodies
and fully and/or partially Government owned enterprises; to this effect, not only did Government
provide for the necessary legislative framework by the Financial Administration Proclamation of
the Federal Government (Proclamation 57/1996) and the Council of Ministers Regulation
(Regulation No. 17/1997) as well as directives issued by MoFED but also taking measures to
reorganize and strengthen internal auditing in these organizations. Need to Adopt the
Professional Practice Framework of the Institute of Internal Auditors (IIA) the framework
consists of a common body of knowledge most thoroughly researched, authoritative and globally
accepted for the training and practice of internal auditing. Internal Audit studies, qualification
exams are based on the contents of this Framework and this would assist Ethiopian candidates to
familiarize themselves with the basic materials. The Framework is made up of best practice
guides for modern day internal auditing profession and it is expected that any development and
modernization of internal auditing internal auditor is employees of the companies they audit.
This type of auditors involved in an independent appraisal activity, often known as internal
auditing within an organization as a service to the organization. The objective of internal
auditing is to assist the management of the organization in the effective discharge of its
responsibilities.

The attainment of this overall objective involves such activities as: Reviewing and appraising the
soundness, adequacy, and application of accounting, financial, and other operating control at a
reasonable cost. Ascertaining the excellent of compliance with established policies, plans and
procedures, Ascertaining the extent to which company assets are accounted for and safeguarded
from losses of all kinds: Ascertaining the reliability of management data developed writhen the

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organizations Appraising the quality of performance in completing assigned responsibilities;
Recommending operating improvements; The scope of the internal audit function extends to all
of the organization’s activities (Internal auditors are primarily involved in compliance and
operational audits).

Current Status of External Auditing profession in Ethiopia

There are some notable efforts in Ethiopia aimed at improving the quality of financial
information. One is aimed at establishing accounting and auditing standards for the private sector
under the auspices of the Office of the Federal Auditor General (OFAG). Another is aimed at
improving the capacity for public finance management under the auspices of the Ethiopian Civil
Service College (ECSC). Work is also ongoing on revision of the Ethiopian Commercial Code
under the auspices of the Ministry of Justice. The Office of the Federal Auditor General and the
Ethiopian Civil Service College has been given some legislative authority for regulating the
accountancy profession. OFAG was established by Proclamation No.68/1997 by which it was set
up “to make efforts, in co-operation with concerned organs, to promote and strengthen
accounting and auditing professions.” OFAG has other broader responsibilities as provided for in
the country’s Constitution. Article 101 (2) of the Constitution states that “The Auditor General
shall audit and inspect the accounts of ministries and other agencies of the Federal Government
to ensure that expenditures are properly made for activities carried out during the fiscal year and
in accordance with approved allocations and submit his reports there on to the House of Peoples
Representatives.” The ECSC was re-established through Council of Ministers Regulations
No.121/2006. One of its objectives, as set out in these regulations, is “to formulate standards and
certify professionals.” The ECSC is also given powers and duties, “to formulate standards and
based on such standards confer professional certification in auditing and accountancy.”

For these purposes, the ECSC has established an Institute for Certifying Accountants and
Auditors (ICAA). The ECSC already has broader responsibilities of responding to capacity
building needs of the civil service. There are efforts by the Ethiopian Civil Service College
(through its Institute for Certifying Accountants and Auditors - ICAA) to certify accountants and
auditors, focusing initially in the public sector. The ECSC was initially established in 1995. In
the first 10 years of its operations ECSC designed and offered diploma and degree programs in
accounting, economics, management, law, and urban development. The ECSC was re-

15
established in 2006 with new focus. The focus is now on special needs of the civil service,
including specialized programs that have never been properly offered by other institutions. It has
dropped a few diplomas and degrees in accounting, economics, and law, which are available in
other colleges and universities. The ECSC has been tasked to undertake certification of
accountants and auditors. For this purpose, ECSC has already set up the Institute for Certifying
Accountants and Auditors (ICAA) and is designing its programs and operations. Initially this
effort was in response to the capacity requirements of the public sector, but it is planned that it
will expand to deal with the private sector needs as well. This also, the ROSC team believes, is a
useful step in the right direction. But it needs to be well coordinated with the other related
initiatives. These various initiatives need to be brought together to holistically deal with
establishing strong financial reporting infrastructure for the country. OFAG issued a Code of
Ethics for Professional Accountants in the country in January 2004. While the Code is tailor
made for practice in Ethiopia, it is modeled on the Code of Ethics for Professional Accountants
issued by IFAC and the International Organization of Supreme Audit Institutions (INTOSAI).
Since issuing the Code, OFAG has investigated a serious complaint, which resulted in
disciplinary measures being taken against two auditors. OFAG circulated the resulting
disciplinary measures to the profession, regulatory bodies, companies and other institutions that
engage auditors. Regardless of these efforts, currently there is no requirement for compliance
with accounting and auditing standards both in the Commercial Code 1960 and other laws and
regulations for specific sector entities. Some laws require compliance with generally accepted
accounting principles and generally accepted auditing standards, but these terms are not defined.

The Ethiopian professional Association of Accountants and Auditors (EPAAA) is not a

professional certification or regulatory body, does not have legal backing and is not a member of
the International Federation of Accountants (IFAC).

The Office of the Federal Auditor General (OFAG) regulates the accountancy profession but has
other broader responsibilities. There is no quality review of auditors’ work and no local legal
requirement for auditors to have professional indemnity insurance. There is no local professional
accountancy qualification. Enforcement mechanisms of financial reporting requirements are
nonexistent because of lack of capacity in regulatory institutions and the absence of penalties in
the regulations.

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