Addis Ababa University

School of Graduate Studies

School of Business and Public Administration

Department of Accounting and Finance

The Accounting Profession in Ethiopia:

Future Challenges and Prospects

By: Solomon Zeleke

Project Advisor:

Ulaganathan Subramanian (PhD)

June 2010

Addis Ababa
The Accounting Profession in Ethiopia:
Future Challenges and Prospects

A Project Paper
Submitted to the School of Business and Public
Administration of Addis Ababa University
In Partial Fulfillment of the Requirement
for the Degree of Master of Science
in Accounting and Finance

By: Solomon Zeleke

June 2010
 Declaration

I, Solomon Zeleke declare that, this paper prepared for the partial fulfillment of the

requirements for MSC. Degree in Accounting and Finance entitled “The Accounting

Profession in Ethiopia: Challenges and Future Prospects” is prepared with my own effort. I

have prepared it independently with the close advice and guidance of my advisor.

Solomon Zeleke

Signature ––––––––––––––

Date ––––––––––––––

i
 Certification

This is to certify that Ato Solomon Zeleke Abegaze has carried out this research work on the

topic entitled “The Accounting Profession in Ethiopia: Future Challenges and Prospects ”

under my supervision. This work is original in nature and it is sufficient for submission for the

partial fulfillment for the award of MSc. in Accounting and Finance.

Ulaganathan Subramanian (Dr.)

Signature –––––––––––––––––––––

Date –––––––––––––––––––––

ii
 Acknowledgements

First of all I thank God for giving me the potential, courage and determination to complete my

studies in general and this project in particular. I am also very thankful to my supervisor,

Ulaganathan Subramanian (Dr.), for all his assistance and willingness to share his knowledge

and experiences with me in the preparation of this project in particular and in other courses in

general. This small piece of appreciation can not fully convey my heartfelt thanks towards him.

Finally, I would also like to thank those who participated in distributing, collecting and

completing the questionnaires sacrificing their invaluable time. I assure them that they are

contributing their own share to the development of the profession.

iii
 LIST OF ACRONYMS

AAA- American Accounting Association

AAPA– American Association of Public Accountants

ACCA– Association of Chartered Certified Accountants

AICPA– American Institute of Certified Public Accountants

AG– Auditor General

APB– Accounting Principles Board

ASC– Audit Service Corporation

ASE– Accounting Society of Ethiopia

CASB– Cost Accounting Standards Board

CEO– Chief Executive Officer

CFO– Chief Financial Officer

CIA– Certified Internal Auditor

CPD– Continuous Professional Development

EAFA– Ethiopian Accountancy and Finance Association

ECSAFA– Eastern, Central and Southern Africa Federation of Accountants

ECSC– Ethiopian Civil Service College

EPAAA– Ethiopian Professional Association of Accountants and Auditors

FASB– Financial Accounting Standards Board

FRSSE– Financial Reporting Standards for Small Entities

GAAP– Generally Accepted Accounting Principles

GAAS– Generally Accepted Auditing Standards

iv
CPA– Certified Public Accountant

IAS– International Accounting Standards

IASB– International Accounting Standards Board

ICAA– Institute for Certifying Accountants and Auditors

IFAC– International Federation of Accountants

IFRS– International Financial Reporting Standards

IMA– Institute of Management Accountants

IFRS– International Financial Reporting Standards

ISA– International Standards on Auditing

OFAG– Office of the Federal Auditor General

PCAOB– The Public Company Accounting Oversight Board

ROSC– Report on the Observance of Standards and Codes

SEC– Securities and Exchange Commission

SMEs– Small and Medium-Sized Entities

v
 Table of Contents
Chapter One: Introduction .........................................................1
1.1 Background of the Study ............................................................................................. 1
1.2 Statement of the Problem............................................................................................. 3
1.3 Objective of the Study ................................................................................................. 4
1.4 Research Methodology ................................................................................................ 4
1.5 Scope and Limitation of the Study............................................................................... 5
1.6 Significance of the Study ............................................................................................. 6
1.7 Organization of the Paper ............................................................................................ 6
Chapter Two: Literature Review ...............................................7
2.1 Introduction.................................................................................................................. 7
2.2 The Accounting Profession – Historical Background ................................................. 9
2.3 The Accountancy Profession ..................................................................................... 16
2.4 The Role of Accountants ........................................................................................... 21
2.5 The Development of Accounting Standards .............................................................. 25
2.6 Accounting and Audit Failures .................................................................................. 34
2.7 Convergence to International Accounting Standards ................................................ 38
2.8 Problems of the Accounting Profession..................................................................... 40
Chapter Three: Data Presentation and Analysis....................... 43
3.1 Data Gathering ........................................................................................................... 43
3.2 Empirical Results and Discussion.............................................................................. 44
3.2.1 Accountants and Career Opportunities .............................................................. 44
3.2.2 Accountancy Professional Institutions and Legal Environment........................ 47
3.2.3 Use of Accounting Information for Decisions................................................... 50
3.2.4 Accounting Curriculum ..................................................................................... 52
3.2.5 Competency and Sufficiency of Accountants.................................................... 54
3.2.6 Accounting and Information Technology (ICT)................................................ 59
3.2.7 Challenges of the Accounting Profession .......................................................... 60
Chapter Four: Conclusions and Recommendations ................. 63
4.1 Conclusions................................................................................................................ 63
4.2 Recommendations...................................................................................................... 65
References ............................................................................... 68
Appendix: ................................................................................ 70
 Chapter One: Introduction

1.1 Background of the Study

The accounting profession’s services are critical to the effectiveness and efficiency of a

nation’s commerce and capital markets as well as international markets. Accounting is

important for markets, free enterprise, and competition because it assists in providing

information that leads to capital allocation. The better the information, the more effective the

process of capital allocation and then the healthier the economy. The public accounting

profession, through its independent audit function, has fulfilled the important role of attesting

to the reliability of financial statements and related data. (GAO 1996).

Over the past two decades, certain unexpected business failures that were well-publicized and

costly—such as financial institution failures and large government bailouts—have raised

questions about what the public expects from an independent audit of public companies and the

effectiveness of the audit function to meet those expectations(Ibid.).

More recently, the globalization of businesses, the increasing complexities of business

transactions, and advances in information technology are challenging the relevance and

usefulness of traditional financial reporting and the auditor’s role in serving the public interest.

These issues, coupled with significant litigation involving independent auditors, prompted

many studies of financial reporting and auditing over the past two decades, resulting in

1
hundreds of recommendations and many actions by the accounting profession to address these

issues (Ibid.).

The accounting profession seems to be ever changing and is currently facing many challenges.

The many nations are in the middle of a serious economic crisis, and many pundits want to

claim that it is rooted in an accounting regulation, the mark to market rule. These claims, along

with numerous scandals over the past decade, place current accounting practices under

tremendous scrutiny. At the same time, accounting standards are undergoing the most

significant reorganization in nearly a century with the Financial Accounting Standards Board’s

codification project. An even more fundamental change in basic accounting principles is

looming within the next few years; the conversion to International Financial Reporting

Standards that is being pursued by the Securities and Exchange Commission and the FASB

(Ibid.).

The development of accountancy profession in Ethiopia is at its very infancy stage. There is no

one dominant professional accountancy body that has attempted to lead and guide the

development of the profession in a sustainable manner. The Ethiopian Professional Association

of Accountants and Auditors (EPAAA), which has been in existence since the early seventies,

has done very little in the direction of moving the accountancy profession forward. (Aberra

2005).

The establishment of Ethiopian Accountancy and Finance association (EAFA) in 1994, and the

tasks it subsequently accomplished have relevance to the development of the profession, and

could be mentioned as a steps in the right direction. EAFA was active since its inception in

2
many respects. It even went as far as applying for International Federation of Accountants

(IFAC) membership. But since 1998, when the leadership was changed, it remains in the state

of dormancy.(Ibid.). A relatively young association, Accounting Society of Ethiopia (ASE),

has been established in June 2004 with a vision of seeing Ethiopia having a strong and broad

based local professional association that facilitates the development of coherent and well-

established principles, standards and practices and qualified, ethical professionals in line with

the ever-changing international, social, economical, technological and political

environments.(Mitiku 2005)

Hence, this research paper has explored the challenges the accounting profession is facing in

Ethiopia and its futures prospects and opportunities.

1.2 Statement of the Problem

The basic research problem addressed by this project is assessing opportunities, challenges,

and future prospects of the accounting profession in Ethiopia from different stakeholders of the

profession.

The specific questions answered are:

1. What are the challenges the profession is facing today?

2. What are the bodies in charge to solve the problems?

3. How can the challenges and problems be solved?

4. What opportunities are there for the profession and how they can be exploited?

3
 1.3 Objective of the Study

The primary objective of the study was devising/identifying mechanisms of resolving

challenges and developing the accountancy profession.

Specific objectives include:

1. Properly conceptualizing the problems/challenges of the profession

2. Identifying promising solutions

3. Bringing attitude of stakeholders about the status of the profession together.

4. Identifying directions to tape/utilize opportunities

This study will have several contributions to academic institutions to reconsider their

curriculum in a manner that will meet the interest of candidates and adjust their level of intake

or assignment to the departments.

1.4 Research Methodology

Target Population

The study considers only major stakeholders who are actively involved in accounting and

auditing matters such as CFOs, members of academic intuitions and professional associations

of selected companies, and selected auditing firms.

Sampling Method

In order to achieve the objectives of the study, the researcher has used purposive sampling

technique and selected some sixty organizations/institutions from the target population.

4
 Methods of Data Collection

In order to get the reliable data, both primary and secondary sources were used. Hence, the

primary data was collected through self-administered questionnaire. Secondary data were

gathered from various sources such as the internet, journals, research publications etc

Method of Data Analysis

The primary data collected were identified for validity, coded, properly inputted and analyzed

using Statistical Package for Social Sciences (SPSS). Various types of descriptive statistics

were developed in the form of charts, tables, and graphs to properly analyze the responses.

The qualitative aspects of the questionnaires were also analyzed using narrations and

comparisons.

1.5 Scope and Limitation of the Study

The scope of the study is limited to the city of Addis Ababa as the researcher was constrained

by time for other course works not to visit the regions. As to the participants concerned, data

collection was limited only to major stakeholder who have decision making power such as

leaders of professional associations, CFOs of selected companies across different industries,

selected auditing firms, and leaders of selected academic intuitions. Even though such

limitations were there, the researcher strongly believes that the findings of the study will have

invaluable contributions to the profession.

5
 1.6 Significance of the Study

This study will have several contributions to the accountancy profession in Ethiopia.

Specifically, it:

1. Enables to point out major problems the accounting profession is facing in Ethiopia and

suggest the appropriate measures that should be taken to resolve them

2. Helps to improve awareness of stakeholders, support academicians and practitioners in

understanding their contributions and responsibilities

3. Will be an input for policy makers when devising policies concerning these matters.

The research outcomes will also be a stepping-stone in initiating further studies in related

issues.

1.7 Organization of the Paper

The research paper has been organized in to four chapters. The first chapter is an introduction

part that deals about this study. The related literatures review has been included under the

second chapter. The third chapter presents findings and analysis based on the findings. Finally,

the conclusions and recommendations have been included in the last chapter.

6
 Chapter Two: Literature Review

2.1 Introduction

Wikipedia defines accountancy as “the art of communicating financial information about

a business entity to users such as shareholders and managers”. It continues and adds “the art

lies in selecting the information that is relevant to the user and is reliable”

http://en.wikipedia.org/wiki/Accountancy. The American Accounting Association (AAA)

defines accounting as “the process of identifying, measuring, and communicating economic

information to permit informed judgments and decisions by users of the information”.(Rao

2006)

An alternative explanation is that accounting is part of the management information system

(MIS) of an organization. In this context, the accounting element is referred to as an accounting

information system. (CIMA Official 2006)

White (2009) says it may seem highly contrarian to ask: Where is the sustainable value the

accounting profession is providing? He says accounting provides value to businesses,

organizations, and individuals in three fundamental ways:

• Managerial information and control: Accounting provides a monetary view over the

operations of the business so managers can make effective decisions to optimize their

enterprise and achieve their strategic goals. Accounting information should also provide

the ability to monitor progress toward those goals and insights to adjust tactics.

7
 • External capital market information: Capital and credit is more available and cheaper

with high quality information on the financial status of an enterprise. Even for

governments with the power to force compliance, public information on financial

management builds confidence among the citizenry, makes reporting and paying taxes

more of a patriotic duty, and makes enforcement activities more legitimate.

• Supporting regulatory compliance: Maintaining an orderly society requires a degree of

oversight, regulatory control, and certainly tax revenue to provide government services.

The accounting profession is clearly needed to meet tax and other financial regulatory

requirements that will necessarily be placed on businesses and individuals.

Proper preparation and content of financial reports are vital to the effective functioning and

success of market-based economies. True, fair, complete, comparable, and transparent financial

reporting is the goal to provide necessary information to investors for the best economic

decisions and results. (Garner et al. 2008)

Carmichael et al. (2007) puts the role of financial statements using the following diagram.

Financial Financial Useful Good Effective

Statements Information Information Decision Capital Markets

Sufficient Sound Society’s

Capital Economy Well-being
Resources

8
The above diagram summarizes the links between a society’s well-being and the availability of

useful financial statements. An important ingredient in providing for the well-being of

society’s members is a sound economy.

According to ROSC (2007), in Ethiopia, there is a lack of appreciation of the role of quality

financial reporting by the business community. Stakeholders indicated that there is lack of

appreciation of good quality financial reporting by the business community. Most people in the

business community are not aware of the importance of good quality financial reporting and

the purpose it would serve. ROSC (2007) also says appointment of auditors in Ethiopia is

usually through bidding process with hardly any regard to technical expertise. Most auditors

complained that the audit fees in the country are very low, mainly caused by a practice where

most appointments for auditors are done through a bidding process, with little or no regard of

professional expertise. This is indicative of little appreciation of high quality audit services.

2.2 The Accounting Profession – Historical Background

2.2.1 The Evolution of Accounting

The practice of record keeping existed ages before the formal recording of history. Barbarians

began to keep records by scratching them on rocks. From there crude forms of picture writing,

the process of rudimentary bookkeeping began. The Italians were the leading bookkeepers and

record makers for centuries. As early as 813 A.D., Bookkeepers were recognized in Italy and

from these men came many of the fundamentals of the modern double entry bookkeeping. (Rao

2006)

9
In 1911, a Florentine banker devised the first complete bookkeeping system as distinguished

from the simple devices previously used. It had all the rudiments of a set of books including a

rough plan of cross entries. The first known system of complete double entry was discovered in

Genoa in 1340 (Ibid.).

The first text book on bookkeeping was written in 1494 by Pacioli, a monk of the order of St.

Francis at Venice. Many present day methods were described by this old world mathematician

and the ideas he expressed have lived to the present day. Pacioli’s treatise is based on the

premise that where one wishes to conduct his business properly, he must first have sufficient

cash or credit. Secondly, he must be a good bookkeeper. Thirdly, he must possess a proper

book keeping system (Ibid.).

Although Pacioli was not the inventor of double entry, he had an exceptional understanding of

the power of the simple mathematical formula, a = b + c, to facilitate control of business

activities where ‘‘a,’’ ‘‘b,’’ and ‘‘c’’ are made to represent assets, liabilities, and owners’

equity, respectively. He also had the exceptional pedagogical ability to articulate the double-

entry model so clearly that it has withstood the test of time with changes only to accommodate

evolving business activity. After 500 years, Pacioli’s double-entry system is still the rock solid

foundation of accounting. Among Pacioli’s words that have echoed down through the centuries

are the accounting student’s first learning hurdle: ‘‘The debit entry must always be put on the

left; the credit entry on the right’’ (Mosso 2009)

10
The years following Pacioli’s treatise were marked by the refinement of the double entry

bookkeeping system and by the use of the position of the accountant in the commercial world.

Publications were released and some accountants association were formed, but it was not until

the 19th century that accounting really became a profession. (Rao 2006)

The next big development arose out of the Industrial Revolution, which began in Great Britain

about 1750, when certain companies adopted cost accounting techniques to help them survive

and thrive during an era of cutthroat competition and, during the early 1770s, when a severe

recession hit. (Buckstein 2010)

th
The auditing profession, as we know it in the industrialized world, developed during the 19

century. Under the British Companies Act of 1844, annually appointed auditors were required

to examine the financial results of public companies. This practice slowly picked up during the
th
latter half of the century. As the 20 century dawned, audits had become a common practice

and represented “an important milestone” in the profession’s history (Ibid.).

Ethics were introduced in 1906 by the American Association of Public Accountants (AAPA)

— which was formed in 1887 and was the predecessor organization to the renamed American

Institute of Accountants (1916) — and then by the American Institute of Certified Public

Accountants (AICPA) in 1957. The leaders of the Institute “knew that rules of conduct and the

means of enforcing them were necessary for two reasons: first, to improve the quality of

11
auditing and financial reporting; second, to induce behavior on the part of practitioners which

would attract public respect and confidence (Ibid.).

2.2.2 Historical Development in Ethiopia

Kinfu (2005) says accounting as a local profession is little developed or recognized in the

Ethiopian tradition though looking at the vernacular terms of Hisab Yazi, Hisab Shum, Histab

Mermari, Tekotatari, Bejerond, and Negadras. There would seem to have been bookkeeping

and auditing notions being considered and practiced for sometime no matter how inadequately

delineated they might have been. Aberra (2005) also clams that the development of

accountancy profession in Ethiopia is at its very infancy state.

The Sixties

The sixties saw many important events which were to spur the demand for accounting and

auditing professional services. Examples are the establishment of share companies and

branches of multinational companies, the sprouting of few private commercial industrial

enterprises and the formation of the nucleus for the start of a capital market in the name of

“share-dealing group” under the Commercial Bank of Ethiopia. (Kinfu 2005)

The Commercial Code came out in 1960 and required the keeping of books of accounts by all

types of traders and the submission of annually audited financial statements by share

companies to the Ministry of Industry and Commercial. International public accounting firms

started opening branch offices in the country bringing their expert-staff from home-office. The

12
faculty of Law and the college of Business Administration (CBA) were opened at Addis Ababa

University (Ibid.).

The Seventies

An ad-hoc committee under the auspices of the Auditor General established the Ethiopian

Professional Association of Accountants and Auditors (EPAAA) in March 1973. Since its

establishment it had prepared professional standards, and code of ethics-and-conducts rules.

For some time these have served as the bases of standard of practice in Ethiopia (Ibid.).

The eruption of the revolution brought change into the accounting and auditing services. The

bringing of many private industrial and commercial enterprises under public ownership

required their monitoring to be done by the Auditor General (AG). Consequently, to bring the

financial affairs and operations of these enterprises under direct public control, the Auditor

General’s powers were amended by proclamation 164/1979. As the Auditor General’s

capability to perform commercial and industrial audit were rather limited, the Audit Service

Corporation (ASC) was established pursuant to proclamation 126/1977 (Ibid.).

Few years later proclamation 163/1979 was issued to regulate and coordinate financial

operations of public enterprises and agencies, containing guidelines on financial reporting,

especially, on income determination and disposition, budget preparation and reporting, and

audit (Ibid.).

13
 The Eighties

In an attempt to meet the acute shortage of skilled manpower in accounting and auditing, a

crash program to train 700 junior accountants in six months was launched; the commercial

School was upgraded to offer a two year diploma program in accounting, while the accounting

enrollments at the Asmara and Addis Ababa University were made to expand (Ibid.).

With the establishment of People’s Democratic Republic of Ethiopia (PDRE) in 1988,

proclamation 13/1988 was issued. By this proclamation the office of the AG was empowered

to issue, suspend and renew certificate of competence for accountants and auditors (private and

internal auditors); charge fee for certification and licensing and renewal; issues directives on

auditing procedures; and be the sole responsible authority for all audits in the country be it

government, commercial, external and internal, in addition to performing efficiency audits

(Ibid.).

The Nineties Up to Now

After the change of government in 1991, and subsequent changes in the economic policies,

efforts were made to bring the issues of accountancy development to the forefront. The

establishment of Ethiopian Accountancy and Finance Association (EAFA) in 1994, and the

subsequent tasks accomplished by it to raise issues that have relevance to the development of

the profession, could be mentioned as steps in the right direction. (Aberra 2005)

14
EAFA was active since its inception in many respects. It even went as far as applying for IFAC

membership. It started a periodic publication called “Ethiopian Accountancy and Finance

Journal”. However, the same momentum could not be kept, when the change in leadership was

made in 1998, in accordance with its statutes. Since then, EAFA remains in the state of

dormancy (Ibid.).

Ethiopia is recently admitted as a member of Eastern, Central and Southern Africa Federation

of Accountants (ECSAFA), through EPAAA. But Ethiopia is not a member of IFAC. It is also

argued that had Ethiopia been represented in the international accountancy form, the lack of

progress in developing the accounting infrastructure with the country would have accelerated

much (Ibid.).

A relatively younger professional association, the Accounting Society of Ethiopia (ASE) was

established in June 2004. Because of lack of strong association and lack of publications that

would make graduates have interest in their career and exercise their professionalism and lack

of a forum for discussion about their growth, the quality of graduates and even their

curriculum, interested groups from Addis Ababa Commercial College, Addis Ababa University

Faculty of Business and Economics and from private colleges in collaboration with those who

are working in the real world (especially graduates of Addis Ababa Commercial College) took

the initiative to establish the association. (Mitiku 2005)

15
 2.3 The Accountancy Profession

2.3.1 The Accountancy Profession in the Developed World

Brewster (2003) argues that with the exception of accounting historians almost no one realizes

the tremendous public responsibility and respect that has been given throughout history to the

people now referred to as “accountants.” It’s not an overstatement to say that modern society

would have never developed without the people who brokered, sanctioned, recorded, and

organized economic transactions. Garner et al. (2008) agrees with it and says without honest

record keeping and reporting, society is adrift without the means to assess productive efforts

and to assign the fruits of production to best future uses.

Various services rendered by a modern accountant include: Maintenance of Books of

Accounts; Conducting Statutory Audit and internal audit; Taxation; Management Accounting;

Financial Service such as Investment, Business expansion, mergers, and acquisitions;

Management Consultancy Service; and Other Services such as Registering share transfers and

new issues, Company formation and liquidation. (Rao 2006).

IFAC Policy Position (2007) underlies the need to regulate the profession. It says like other

professions, the sustainability of the accountancy profession depends upon the quality of the

services provided by its members and on the profession’s capacity to respond effectively and

efficiently to the demands of the economy and society.

16
 Regulations for Accountants

Carmichael et al. (2007) identifies three general categories of regulations for accountants:

standards for practice, standards for competence, and standards for behavior.

Standards for Practice

The standards used in financial accounting are known collectively as generally accepted

accounting principles (GAAP). Correspondingly, the practices to be applied in audits are

known collectively as generally accepted auditing standards (GAAS). Although the obvious

main purpose of GAAP and GAAS is to provide guidance to practitioners, the standards also

provide some assurance to statement users about the quality of the information they receive. In

addition, they serve as an after-the-fact basis for evaluating the decisions of preparers or

auditors. If accounting policies or practices prove to have been contrary to generally accepted

standards, the persons who chose to use them can be more easily held responsible for injury

resulting from those choices (Ibid.).

Standards for Competency

In addition to controlling accountants’ practices, society also regulates the competence of

individual accountants. In the United States, the most common competence indicator is the

license to practice as a certified public accountant (CPA). Some accountants in some states

carry the designations Public Accountant or Registered Accountant. The Certified Management

Accountant certificate was developed by the Institute of Management Accountants (IMA). The

Certified Internal Auditor (CIA) certificate is similar to the CMA, and is administered by The

Institute of Internal Auditors. All these accountants are required to pass examinations and meet

17
other requirements which includes completing “continuing professional education”(CPE)

requirements in order to maintain their competency (Ibid.).

Standards for Behavior

The accountancy laws in the various states generally incorporate a set of ethical standards. If

the state authority determines that a CPA has violated these standards, it may revoke or

suspend the license to practice. The most significant of these bodies is the American Institute

of Certified Public Accountants (AICPA). There are other societies (also associations and

institutes) at the state level. The Institute of Management Accounting also sanctions unethical

CMAs, and The Institute of Internal Auditors sanctions unethical CIAs (Ibid.).

2.3.2 The Accountancy Profession in Ethiopia

The number of professional accountants in Ethiopia is rather low in relation to the size of the

economy. There are an estimated 200 professional accountants in the country. In comparison,

Uganda and Ghana, with economies less than Ethiopia, each have more than 1,000 professional

accountants. Kenya, whose economy is roughly 1.5 times that of Ethiopia, had 3,000

professional accountants in 2001. Having a shortage of professional accountants means that

there are positions in the private and public sector that are filled by persons with lower

qualifications. (ROSC 2007)

In the absence of a strong professional body and specifically dedicated institutions, Office of

the Federal Auditor General (OFAG) regulates the accounting profession. The activities of

18
OFAG in regulating the profession include licensing of all auditors in the country, issuing a

Code of Ethics for Professional Accountants, and taking disciplinary measures on proven acts

of misconduct by professional accountants. On its part, OFAG, institutionally, is facing

effectiveness challenges partly caused by the broad nature of its statutory obligations, shortage

of staff and has insufficient human, institutional, and logistical capacity to meet its statutory

obligations (Ibid.).

Aberra (2005) says the Ethiopian Professional Association of Accountants and Auditors

(EPAAA), which has been in existence since the early seventies, has done very little in the

direction of moving the accountancy profession forward. For the most part of its existence, the

association was in a state of dormancy, partly due to its own limited capacity, restrictive

membership base, and lack of visionary plans. The absence of conducive political environment

during the years, in which the military socialist government was in power, might also be

attributed as a factor that has hampered the activities of EPAAA.

Ethiopia does not have a quality assurance program for auditors. A quality assurance program

checks the auditors’ work at both partner and firm level, and ensures that auditors conduct their

duties with outmost professional diligence. To ensure that audit firms have effective quality

control arrangements, a mechanism of independent review must be in place. Such a review

mechanism does not exist in Ethiopia at the present time. (ROSC 2007)

19
 2.3.3 Professional Education and Training in Ethiopia

Aberra (2005) says for accounting to contribute significantly to the economic development of a

country, a sound accounting education and training system is needed, together with a set of

cohesive laws and policies pertaining accounting.

ROSC (2007) identified that locally, there is neither professional accountancy qualifications

nor training available for professional accountancy in Ethiopia. All professional accountants

hold foreign professional qualifications. The leading professional qualification is Association

of Chartered Certified Accountants (ACCA). The ACCA has 192 members (including

associates), and 1,300 students in Ethiopia. It is estimated that about 95 percent of the

professional accountants in the country hold the ACCA qualification.

Academic accountancy programs are available in universities and colleges. Some Ethiopian

universities and colleges award a Bachelor’s degree in accounting. Throughout the country, the

Bachelor’s degree in accounting follows the same curriculum. The accountancy degree has a

good reputation within the Ethiopian market; graduates get employed easily. The available

accounting degrees and diplomas are said to meet the current demands of the business

community; however, the curriculum as well as text books may not prepare graduates well for

enhanced financial reporting requirements. The curriculum does not include international

components in accounting (IFRS) and auditing (ISA). Professional values and ethics are not

taught as a separate subject (as required by IFAC standards on education) although a subject in

20
the curriculum (Civics) covers general ethics. The textbooks in use are not up to date with

recent trends in financial reporting (Ibid.).

Higher educational institutions are losing well-qualified instructors because of low pay. There

is no domestic institution, which monitors and enforces continuous professional development

(CPD). The CPD programs are the means through which professional accountants keep up to

date with the local and international developments in accounting and auditing. IFAC requires

its member bodies attain CPD hours compulsory for all professional accountants (Ibid.).

Aberra (2005) says a concerted effort need to be exerted by all concerned to chart out the

direction of training in accounting. The bias towards theoretical and foreign accounting

practices has to be weighed against its relevance and benefits for Ethiopia, with its weak

private sector and inexistence capital market. Emphasis should be given to accounting for

decision-making and control to respond to the needs of the public sector. A curriculum review

at all levels of accounting education is needed to emphasize on teaching graduates soft skill

such as communication and presentation skill, in addition to the “dry” courses in accounting.

The application of information technology in accounting in particular should also be given the

utmost priority.

2.4 The Role of Accountants

Professional accountants work in virtually all sectors of the economy. They work in public

practice, in large, medium and small firms, and as individual practitioners. They also work

21
within commercial, industrial and financial enterprises, non-profit organizations and public

sector entities, including academic institutions. Professional accountants, therefore, contribute

across all sectors of the economy. (IFAC Policy Position 2007)

The roles that professional accountants play, in whichever sector of the economy they work,

are very diverse. They work in the areas of accounting and financial reporting, management,

taxation, information systems, corporate finance, and business intelligence. They also work as

internal or independent auditors or as consultants across a range of specialist areas. Many also

serve as academics in a wide range of educational institutions (Ibid.).

Professional accountants therefore contribute to the growth of individual companies, support

and sustain non-profit organizations, and assist governments in achieving their economic and

social objectives. They also contribute to financial market performance, through the reporting

of, and providing assurance on, financial information on which investors and other

stakeholders rely. In these ways and others, professional accountants contribute to the growth

of economies and ultimately to the well being of society (Ibid.).

Goldberg (2001) identifies the following basic, traditional activities of accountants:

Recording

Recording includes not only making durable records in books but also the designing,

installation and implementation of systems appropriate to the purpose for which the recording

is required. It is, in a sense, the initial and pervasive activity in accounting (Ibid.).

22
 Reporting

Accounting reports may vary from an ad hoc statement of, say, a day’s output of a specific

manufacturing process or the quantity of energy used by a particular instrument, to the annual

report to shareholders of a multinational enterprise or the budget of the most sophisticated

social or political organization (Ibid.).

Interpreting

It seems only natural that accountants should be widely regarded as competent interpreters of

reports prepared and presented as the technical and vocational output of other accountants. For

instance, providers (lenders and investors) of resources to others to deploy usually require

reports showing how the deployers have used the resources entrusted to them. But the validity

of such interpretation depends on the reliability of the figures provided in the reports as

prepared from the records (Ibid.).

Validating

Validating or verifying information contained in accounting reports is a widely recognized

function of professional accountants, who are presumed to have the required expertise to form

a reliable judgment on the validity and veracity of the information transmitted in accounting

reports as instruments of communication (Ibid.).

Further, in seeking to validate accounting reports and records, the monitor (or investigator or

auditor) looks for evidence which may, in fact, invalidate them. The search is for error, either

23
intentional (which suggests dishonest or fraudulent intent) or unintentional (which may suggest

human incompetence or weakness in a recording system) (Ibid.).

Fundamental Problems with the Current Accounting Model

As startling as it may seem, the current accounting model has no clear objective! One whole

FASB concept entitled ‘‘Objectives of Financial Reporting’’ has objectives like ‘‘information

that is . . . useful in investment and credit decisions . . . or . . . useful in assessing the

enterprise’s cash flow prospects.’’ Objectives that broad could be fulfilled by extracting

information from the Wall Street Journal, accounting degree not required. (Mosso 2009)

Absence of a clear objective does not directly affect the content of the balance sheet, but it is

largely the cause of four fundamental problems (Ibid.).

The first of those fundamental problems is that the balance sheet is often incomplete. It omits

some assets and liabilities that have demonstrable economic value, such as many intangible

assets and most lease liabilities.

A second and related problem is that the current model misclassifies some liabilities as equity

shares such as options written on an entity’s own stock. Thus, the liability element of the

balance sheet is often understated and the equity element is overstated.

24
A third problem is that the balance sheet is stated in many diverse and inconsistent units of

monetary measure. The balance sheet violates the mathematical principle that, put in layman

terms, ‘‘you cannot add apples and oranges.’’

A fourth problem is that the current model by its design delays the reporting of the effects of

many current economic events that would serve as early warning signals and by its flexibility

permits managers to delay the reporting of bad news.

As a result of those four problems, the current accounting model permits financial measures of

the same or similar things to be reported in many different ways all in accordance with some

existing accounting principle. The model suggests that accounting should make like things look

alike and different things look different. It does not come close to doing that. The model says

that comparability and consistency are desirable qualities of accounting information, but the

model produces financial statements that are almost always noncomparable and inconsistent to

a large degree (Ibid.).

2.5 The Development of Accounting Standards

2.5.1 The Development of Accounting Standards in the United States

The Securities and Exchange Commission (SEC)

In the 1934 act, Congress gave the SEC both the power and responsibility for setting

accounting and reporting standards for companies whose securities are publicly traded.

25
However, the SEC, a government appointed body, always has delegated the responsibility for

setting accounting standards to the private sector. (Spiceland 2001)

The SEC does issue its own accounting standards in the form of Financial Reporting Releases

(FRRs), which regulate what must be reported by companies to the SEC itself. These standards

usually agree with those previously issued by the private sector (Ibid.).

The American Institute of Certified Public Accountants (AICPA)

The efforts of the AICPA, the national professional organization of practicing Certified Public

Accountants (CPA’s), have been vital to the development of GAAP. (Kieso and Weygandt

1995)

The Committee on Accounting Procedure (CAP)

The first private sector body to assume the task of setting accounting standards was the

Committee on Accounting Procedure (CAP). The CAP was a committee of the American

Institute of Accountants (AIA). The AIA , which was renamed as the AICPA in 1957, is the

national organization of professional public accountants. From 1938 to 1959, the CAP issued

51 Accounting Research Bulletins (ARBs) which dealt with specific accounting and reporting

problems. (Spiceland 2001)

The Accounting Principles Board (APB)

In 1959 the Accounting Principles Board (APB) replaced the CAP. Members of the APB also

belonged to the AICPA. The APB operated from 1959 through 1973 and issued 31 APB

26
Opinions, various Interpretations, and four statements. Many ARBs and APB Opinions have

not been superseded and still represent authoritative GAAP. Both the CAP and the APB had no

theoretical framework which led to their criticism (Ibid.).

The Financial Accounting Standards Board (FASB)

Based on the recommendations of “Wheat Study Group” appointed by the AICPA, the

Financial Accounting Standards Board (FASB) was formed in 1972. FASB is an independent

body relying on the Financial Accounting Foundation (FAF) for selection of its members and

approval of its budgets. (Epstein et al. 2009)

The Board issues several types of pronouncements. The most important of these are Statements

of Financial Accounting Standards and Interpretations, FASB staff positions, FAS 133

implementation issues, and Technical Bulletins (Ibid.).

The FASB used a due process procedure to develop accounting standards. Steps in the due

process include: identifying and studying the problem, appointing a task force, issuing

discussion memorandum, having public comment period, issuing Exposure Draft, having

public comment period, having public hearing and issuing standard. (Dyckman 1992)

Cost Accounting Standards Board

The Cost Accounting Standards Board (CASB) was established in 1970. It was responsible

only for negotiated defense contracts and issued several Cost Accounting Standards in this

regard. Since the basis for external financial statements in many cases is the internal cost

27
accounting procedures employed, these cost accounting standards occasionally influence

external reporting. (Nikolai et al. 1983)

Other Sources

Certain principles and practices evolved into current acceptability without adopted standards.

For example, depreciation and inventory costing methods have no definitive pronouncements.

Even much of the content of balance sheets and income statements has evolved over the years

without adopted standards. (Epstein et al. 2009)

2.5.2 International Accounting Standards Board (IASB)

The International Accounting Standards Committee IASC was formed in 1973 as a result of an

agreement by accountancy bodies in Australia, Canada, France, Germany, Japan, Mexico, the

Netherlands, the United Kingdom and Ireland, and the United States. At the beginning of 2001,

the IASC appointed a new IASB with the responsibility of working toward a single set of high-

quality global accounting standards. The IASC was especially helpful to companies in

developing economies that did not have the financial history or resources to develop

accounting standards. (Needles 1995)

The IFAC, which was formed in 1977 and also consists of most of the world’s accountancy

organizations, fully supports the work of the IASB and recognizes the IASB as the sole body

having responsibility and authority to issue pronouncements on international accounting

standards. The IFAC’s objective is to develop international guidelines for auditing, ethics,

education, and management accounting (Ibid.).

28
 2.5.3 Accounting Standards for Small and Medium-Sized Entities (SMEs)

Current International Accounting Standards (IAS) and U.S. standards provide one standard for

all entities regardless of size. A lively debate has been ongoing in the United States for many

years, sometimes called Big GAAP versus Little GAAP. The IASB has put accounting for

Small and Medium-Sized Entities (SMEs) in its agenda in 2003. The study surveyed interested

parties and found widespread support for global SME standards. (Garner et al. 2008)

Separate standards for small entities are available in the United Kingdom where Financial

Reporting Standards for Small Entities (FRSSE) are issued by the UK Accounting Standards

Board (ASB). These standards have simplified accounting requirements in the areas of

disclosure, presentation, recognition, and measurement (Ibid.).

2.5.4 Fundamental Problems With The Current Standard-Setting Process

The current standard-setting process is broken. It is beset with two underlying problems,

namely, that the FASB lacks true independence and that the current accounting model is choice

based with no clear objective to guide the choices. Those two underlying problems have led to

four symptomatic problems as follows (Mosso 2009).

The first problem is excessive due process. The present form of due process causes delay

beyond reason – it takes far too long to complete a standard-setting project. Serious accounting

practice problems fester for years while standard setters wrestle with constituents over what is

the best way to solve them. Because of all the delaying mechanisms built into the current

29
process, new standards that might throw off early warning signals of impending trouble are

suppressed for years (Ibid.).

A second problem is conflict of interest. Entities that issue public financial statements, and

have their performance judged by those statements, have far too much influence on the

standard-setting process. Entities’ interest in having accounting standards that can be

manipulated to fuzz up reported earnings is in direct conflict with the public interest in having

standards that result in reporting on management accountability fully, accurately, and timely

(Ibid.).

A third problem is the narrow scope of most standard-setting projects. Most projects focus on

only one major issue and a few subsidiary issues. Consequently, few standards apply

unambiguously to all entities in all industries. Transaction by transaction standard setting is

like fighting a forest fire one tree at a time (Ibid.).

A fourth problem is buck-passing. The standard-setting process fosters a pass-the-buck attitude

among issuers and auditors. Accounting procedures that are not prohibited in the current model

can be used until standard setters rule them to be flawed. Issuers are motivated to use the most

favorable procedures they can dream up and auditors, if they disagree, are inclined to buck

problems up the line to the standard-setting body and use their own professional accounting

skills to twist the current model to fit the answers that issuers want (Ibid.).

30
 2.5.5 The Political Aspects of Standard Setting

Political aspects of standard setting are well known in the United States with the interplay of

the U.S. Congress with the SEC and the FASB. In the United States, political influence is

frequently brought to bear by various interested parties. The European Community displayed

similar attributes in the run up to 2005. The 2005 conversion from national standards to IFRS

was approved by the EU Accounting Regulatory Committee and the European Parliament

Economic and Monetary Affairs Committee in October 2004 with a "carve-out" of seventeen

paragraphs from IAS 39. (Garner et al. 2008)

The role of the standard setter is to resolve conflicts amongst interested groups by building

consensus. Private standard setters develop their standards according to a due process, which

allows all interested parties the opportunity to provide input on proposed accounting standards.

(Gregoriou and Gaber 2006)

2.5.6 Legal and Regulatory Framework of Accounting in Ethiopia

Aberra (2005) says there is no national accounting body to set national standards or

recommend the adoption of existing standards. ROSC (2007) also says there are no accounting

and auditing standards set in Ethiopia. Some laws (commercial code of 1960, Income Tax

Proclamation No. 286/2002 and Public Enterprises Proclamation 25/1992) require GAAP to be

applied. However, in all cases, GAAP is not defined. Without definition, interpretations of

GAAP can vary widely. For auditing standards, in the year 2003, OFAG directed all auditors

to conduct audits in compliance with ISA. However, the directive met resistance from auditors.

31
One of the arguments for resistance by the auditors was that it is impossible to apply ISA in the

absence of accounting standards. The directive was subsequently withdrawn.

Most institutions follow advice of their auditors on how to prepare financial statements. In the

absence of practical authoritative guidelines, auditors use their knowledge and best endeavors

in conducting audits. Some apply ISA, while others apply generally accepted auditing

standards. It appears therefore that auditors determine accounting standards for their clients and

every auditor determines their own standards (Ibid.).

The OFAG and the Ethiopian Civil Service College (ECSC) have been given some legislative

authority for regulating the accountancy profession. OFAG was established by Proclamation

No.68/1997. 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). There is also no guidance for NGOs on the standards to be used in preparation and

auditing of their financial statements in the General Guidelines (Ibid.).

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 OFAG. A study was spearheaded by OFAG in collaboration with

EPAAA under the auspices of the Ministry of Trade and Industry that contracted ACCA in

32
2005 resulting into a report called titled: Ethiopian Accounting and Auditing Standards

Development ‘Road Map.’ The road map focuses mainly on the setting of private sector

accounting and auditing standards and developing a monitoring body for the profession called

the National Board of Accountants and Auditors. Work is also ongoing on revision of the

Ethiopian Commercial Code under the auspices of the Ministry of Justice (Ibid.).

2.5.7 Overview of Accounting Standards in the Global Economy

The huge volume of international business transactions and the ever-more complex

interconnected global markets make movement toward global standards recognized among all

nations evermore imperative. There is general consensus that global market participants would

benefit from the adoption of a single set of required accounting standards that would be

consistent, comparable, and relevant across the world-spanning environment of finance and

commerce. (Garner et al. 2008)

Prior to 2000, developments in international accounting standard setting had the goal of

harmonization of country standards. With the advent of the International Accounting Standards

Board (IASB) in 2001, the time was right to change the goal to convergence of country

standards. In both the harmonization and now the convergence era, progress has been made in

moving accounting standards toward comparability and mutual agreement and toward the

eventual goal of development and adoption of one set of global accounting standards (Ibid.).

33
 2.6 Accounting and Audit Failures

The debacles of the late twentieth and early twenty-first centuries are unique in the annals of

stock market history because of the wholesale failure of accounting and auditing service

providers to perform their duty to a remarkable number of large international companies.

Parameters set by accounting and auditing standards that should have been operating were not

being honored. Literally all of the Big Five international accounting firms have been shown to

have participated in audit failures. The great international accounting firm of Arthur Andersen

has ceased to exist. (Garner et al. 2008)

Audit failures and attendant public company financial restatements had become increasingly

common in the 1990s. Clients of each of the large public accounting firms had issued

restatements of earnings with attendant instances of audit failures or suspected audit failures.

The large, high-profile failures caused increasing concerns throughout the world about audit

performance in general (Ibid.).

The end of U.S. auditor self-regulation came in the wake of two titanic bankruptcies: the

collapse of American-based Enron Corporation and WorldCom. Both were clients of the audit

firm Arthur Andersen. Enron used a number of methods to "manipulate its reported earnings".

But Enron's financial statements had been deemed fairly presented by auditor Arthur Andersen.

Enron, with $60 billion in booked assets, had become the largest bankruptcy in history up to

that time (Ibid.).

34
Any reasonable reading of the Enron events seems certain to indicate that Andersen auditors

did not carry out GAAS as promulgated and had violated the existing AICPA Code of

Professional Conduct.. This is not to say that Arthur Andersen was alone or that the other

international Big Five firms were not also in violation on numerous occasions (Ibid.).

2.6.1 Sarbanes-Oxley Act of 2002 and the Public Company Accounting

Oversight Board

The most far-reaching piece of federal legislation affecting the accounting profession since the

securities acts of the 1930s, the Sarbanes-Oxley Act, was passed and signed into law in the

summer of 2002. The Sarbanes-Oxley Act is a direct result of the allegations of financial

reporting fraud at a large number of major corporations beginning in the fall of 2001 (e.g.,

Enron, Global Crossing, Qwest, Adelphia Communications, Tyco, and WorldCom, among

others). (Carmichael et al. 2007)

The Act was designed to restore public confidence. As a result of this act the self-regulation of

public company auditors in the United States came to an inglorious end. In the wake of this

reform, legislated reforms spread to virtually every developed and most of the developing

countries in the world. There seems to have been general worldwide recognition that financial

reporting and all those who have roles in financial reporting processes must improve

significantly. A new era of greater government regulation and oversight for U.S. auditors, and

indeed for auditors around the world, had begun. (Garner et al. 2008)

35
The act addresses problems in the following areas:

Financial Accounting Standard-Setting

The act authorizes the SEC to recognize accounting principles as generally accepted so long as

they are established by a standard-setting body that meets the act's criteria. The FASB was

accepted by the SEC as such a body, so long as the added congressional provisions are met

(Ibid.).

Corporate Boards of Directors

Changes made by the Act are designed to bolster audit committee independence as well as

auditor independence from corporate management. Corporate audit committees and their

public corporations must meet a number of new standards (Ibid.).

Corporate Management

In addition to other things the act requires the corporate chief executive officer (CEO) and

chief financial officer (CFO) certify in each shareholder annual and quarterly report that, based

on their knowledge, the corporate financial statements, together with disclosures, present fairly

the operations and financial condition of the corporation in all material respects. They must

certify that they are responsible for establishing and maintaining internal controls that they

have evaluated for effectiveness (Ibid.).

Public Company Internal Control

The act requires that a management-prepared report on internal control must either be part of

the annual corporate financial statement or made in an accompanying separate report

36
referenced in the annual financial statement. Auditors are required to prepare a report on

internal control and attest to management's internal control assessment (Ibid.).

Public Company Auditing

The Public Company Accounting Oversight Board (PCAOB) was created. All accounting

firms auditing public companies must register with the PCAOB. The PCAOB is required to

establish or adopt auditing, quality control, ethics, and independence standards for auditors of

public companies. In addition, the PCAOB conducts inspections of registered public

accounting firms. (Carmichael et al. 2007)

Auditor Independence

The Sarbanes-Oxley Act specifically prohibits accounting firms from performing many non-

audit services for a public company audit client (Ibid.).

2.6.2 Unexpected Benefits for Accountants

Because of the prohibitions and requirements of Sarbanes-Oxley, many corporations'

accounting needs cannot all be handled by the same Big Four accounting firms. The next tier of

large accounting firms, as well as regional firms, have been in a good position to provide both

the attestation and the professional non-attestation work needed by corporations in this new

environment. (Garner et al. 2008)

Internal auditors also have taken on a more prominent role in their corporations. In many

companies, internal audit now reports directly to the CEO or the board of directors.

37
Membership in the Institute of Internal Auditors has more than doubled in the last ten years

(Ibid.).

2.7 Convergence to International Accounting Standards

Importance of the Convergence and its Progress

Globalization of capital markets has helped fuel demand for a common worldwide accounting

framework. Use of different national accounting standards makes it more difficult and costly

for an investor to compare opportunities and make informed financial decisions. (GAAP

Convergence 2002)

Differences in accounting standards also impose additional costs on companies that must

prepare financial information based on multiple reporting models in order to raise capital in

different markets, as well as creating potential confusion as to which are the “real numbers.”

(Ibid.).

As a result there is general consensus that global market participants would benefit from the

adoption of a single set of required accounting standards that would be consistent, comparable,

and relevant across the world-spanning environment of finance and commerce. World

standards, it seems certain, will aid in better allocation of economic resources, which will in

turn enhance the world's economic performance. (Garner et al. 2008)

38
The U.S. FASB and IASB are pursuing an ongoing convergence project. In September 2002,

FASB and IASB issued a joint memorandum that committed the boards to the pursuit of a

common set of high quality accounting standards. In the aftermath of the Enron and other

accounting scandals, it was thought that the United States was more willing to accept

international methods and standards. The convergence project with the United States was seen

as vital to the effort to bring a single set of world standards to the world's capital markets

(Ibid.).

In 2002, the European Parliament and the European Council of Ministers passed a Regulation

that requires the adoption of IASB standards. From 2005, all EU listed companies are required

to prepare their consolidated financial statements in accordance with IFRS. This Regulation

also will require listed companies based in the central and eastern European countries that plan

to join the EU to prepare for adoption of IFRS. (GAAP Convergence 2002)

The vision of achieving a single worldwide language of financial reporting is beginning to

materialize. Of the 59 countries surveyed in GAAP Convergence 2002 95 percent either have

adopted, intend to adopt, or intend to converge with, IFRS. This indicates that the IASB is

viewed as the appropriate body to develop a global accounting language. The adoption of IFRS

by most major countries around the world, as well as general trends toward globalization,

should encourage these remaining countries to look to IFRS for guidance in the future (Ibid.).

Garner et al. (2008) also supports this idea and says over 100 countries throughout the world

now permit or require IFRS for companies listed on stock exchanges within their jurisdictions.

39
To be sure, some of these have used modified versions of the IFRS in their jurisdictions, so that

it cannot be said that IFRS have been adopted as a single global standard across all of these

countries.

The work of convergence to one set of standards remains a work in progress (Ibid.). The

accounting profession, governments, regulators, national standard setters, the IASB, preparers,

universities, and analysts and investors are all constituents that must continue to work together

to eliminate differences between national and international standards. (GAAP Convergence

2002)

2.8 Problems of the Accounting Profession

Garner et al. (2008) claims that there remain some intractable problems facing the accounting

profession around the world that are likely to continue for some time to come. The public

accounting profession will face four of these problems:

Concentration of the Market for Large Company Audits

Nearly all of the world's largest corporations rely upon the Big Four public accounting firms

for their audits. About 97 percent of U.S. pubic companies with revenue over $250 million

annually are audited by Big Four firms. In Japan, for example, the concentration is 80 percent

of public companies. In Canada, fully two-thirds of public companies employ Big Four firms

for required annual auditing. In the European market, the firms collect in excess of 70 percent

40
of large corporate audit fee income. All of the largest 100 British companies are Big Four audit

clients (Ibid.).

This tight oligopoly in public accounting services for the largest companies has caused

concerns that competition has been stifled. Because client corporations have few alternatives,

costs for accounting services may be higher and quality of auditing and other services lower. A

continuing concern is that one of the Big Four will fail and the oligopoly would go to only

three public accounting firms capable of worldwide large company audits. In fact, some

observers believe that financial markets could suffer great damage to their operations from

failure of one of these firms (Ibid.).

Restatements on the Rise

Increased volume of prior-year financial statement restatements carries significant negative

effects on companies, investors, and auditors. Improvement in financial statement preparation

and auditing is an important problem that both corporations and their auditors must address. In

2002, the U.S. General Accounting Office reported that, from 1997 to June 2002, restatements

caused by accounting irregularities grew approximately 145 percent, and that number was

expected to rise to 170 percent by the end of 2002. Revenue recognition problems were the

leading cause of restatements in each year studied and were responsible for over 50 percent of

immediate stock market losses (Ibid.).

41
 Auditor Liability a Major Hurdle

Litigation costs and settlement payouts have increased over the years. In the post-Enron-

Andersen era, these costs have jumped substantially. Litigation costs, for insurance,

settlements, and the like now routinely mount from 10 to 20 percent of Big Four firm audit

revenues. These costs, of course, are passed on to clients in the form of higher fees (Ibid.).

Remedies for outsized litigation settlements have been instituted in some jurisdictions. Some

European countries have placed limits on auditor liability such as in Germany and Greece.

Caps for auditor liability were examined and rejected by the United Kingdom's Office of Fair

Trading. Reasoning cited was that since larger firms have much larger exposure to liability

litigation than smaller firms, a cap on liability settlements would benefit larger entities and not

help smaller ones advance (Ibid.).

Peer Reviews

Peer reviews represent another area of unresolved controversy for accountants. The U.S. peer

review system prior to the Sarbanes-Oxley Act was exclusively carried out by the profession

under the aegis of the AICPA. The process of having one CPA firm conduct peer review of

another was a major part of accountant self-governance. Few details of peer review findings

were made public and in fact, not a single major accounting firm had ever received a failing

grade. The peer review process excluded audits for which there was pending litigation. This is

akin to computing the grade-point average of a college student without including any courses

in which he had received low grades. Review guidelines lacked requirements needed to ensure

that adequate audits had been performed (Ibid.).

42
 Chapter Three: Data Presentation and Analysis

3.1 Data Gathering

A survey has been carried out using the attached questionnaire (Annex 1) with the goal of

assessing the challenges and future prospects of the accounting profession in Ethiopia.

Structured questionnaires were distributed to 70 accountants and other professionals many of

whom have managerial position. The accountants who participated in the study are serving in

the different sectors of the economy. Specifically they are from the academia, audit firms,

banks, construction companies, shipping and transit, printing press and NGOs and 53 of them

(77.5%) have responded.

The respondents are university lecturers, audit managers and their staff, branch managers, cost

and budget accountants and finance experts. All of the respondents have accounting

background with BA degree and above.

Graph 1: Respondents’ educational background

100

80
Percent

60

40 86.79%

20

0 5.66% 7.55%
Diploma Degree Masters
Qualification

Most of the respondents mentioned the availability of high job opportunity and better pay as a

factor that motivated them to join the profession. Even though it is also the case for other

43
professions, some parties, particularly accounting professors, may have a great role to play.

They can make the subject matter of accounting interesting to students by relating their class

illustrations and exam questions to real world cases. But all organizations (business and non-

business) should cooperate by providing relevant company data to facilitate the teaching-

learning process.

3.2 Empirical Results and Discussion

3.2.1 Accountants and Career Opportunities

No one denies the role that accounting and accountants play as information providers and

interpreters for the success of any venture profit-or nonprofit oriented. But if accountants have

to provide value adding service, they need to have job satisfaction and a bright future in their

career. As shown in the following chart, more than 88 % of the respondents believe that they

have bright future in their career.

Chart 1: Perception of Future Career

Yes
11.32% No

88.68%

Most of the respondents who said "Yes" give the great job opportunity it has (locally and

abroad) as their reason. The expansion of the economy and the related complexities in the

business environment and the modernization of the tax system of the country by FIRA, among

44
other things, are increasing the demand for accounting professionals more than ever. The fact

that the principles of accounting are basically the same across different countries makes it

international skill with a global job market particularly if they get certification from ACCA,

CPA, CIA, CIMA, etc. Many agree that unlike other professions in Ethiopia, accountants have

opportunities for further training on international certifications like ACCA.

Respondents were also asked if the tasks assigned to them are commensurate with their

professional expertise. More than 78% of the respondents believe that the jobs assigned to

them are commensurate with their professional expertise.

Chart 2: Job Assignment of Accountants

21.15% Yes
No

78.85%

But the remaining feel they are underutilized. The wide gap between the theory and the

practice in the country is mainly responsible for some respondents to feel underutilized. This

kind of feeling is creating job dissatisfaction and hindering practitioners from enriching their

accounting knowledge through further reading and on job trainings. Some respondents even

mentioned they are given a different kind of work not related to accounting.

Respondents were also asked what critical problem accountants are facing in their professional

practice. Less emphasis given by firms for the field and lack of knowledge of accounting by

managers together explain nearly 64% of their problem. It is known that management is the

45
major customer of accounting information and is also fully responsible for the financial

statements prepared and issued by a company. Therefore, managers should appreciate and use

accounting information in their decisions and strive to have at least the minimum level of

accounting knowledge to effectively use the information.

Table 1: Problems Accountants Face in their Professional Practice

Responses Frequency Percent

Lack of Competence 13 16.9
Limited accounting provisions/proclamations 12 15.6
Less emphasis given by firms for the field 28 36.4
Lack of knowledge of accounting by managers 21 27.3
Others 3 3.9
Total 77 100

Some cite lack of authoritative accountancy body that works towards the advancement of the

profession and the professionals. Some also believe that the majority of business owners and

managers do not rely on accounting information. Usually they make decisions without using

financial information. Majority of business owners are not educated and hence they do not

know the benefits of informed decision. They are maintaining accounting recorded (if at all)

only because it is required by tax authority, not for its own sake. Because of this they are less

committed to creating favorable working condition for accountants. And therefore, accountants

are not exercising what the profession requires them. Some respondents also indicated there is

lack of competence on the side of the accounting professionals.

46
 3.2.2 Accountancy Professional Institutions and Legal Environment

Behind every successful profession, there are strong professional institutions and

organizations. Accounting is no exception. For example, the role the AICPA has been playing

for the last several decades in the U.S., is worth mentioning. Although thousands of accounting

professionals graduate from different universities, about 85% of the respondents in this study

believe there are no sufficient and strong accounting professional associations in Ethiopia.

Chart 3: Accounting Professional Institutions

Yes
15.09%
No

84.91%

Most of them attribute this problem for lack of motivation, commitment by the professionals,

financial problem and poor emphasis that the government gives to professional associations in

general. Even though some professional organizations do exist like EPAAA, EAFA, ASE,

most members of the profession have no information even about their existence. These

institutions do not have the mandate for licensing or disciplining members. Hence, they have

remained largely inactive and dormant.

As it is known, the major role of accountancy associations is to set standards of ethics for its

members. One result of lack of strong professional accountancy association in Ethiopia is lack

of ethics among the professionals.

47
 Table 2: Ethics of Accountants

Particulars Frequency Percent

High 1 1.9
Moderate 19 36.5
Little 30 57.7
No 2 3.8
Total 52 100

This is supported by the fact that only about 2% of the respondents (one respondent) rated

application of professional ethics by members of the accounting profession in Ethiopia as high.

Whereas more than 57% of the respondents believe that they practice it little.

Regarding GAAP, almost 50 % of the respondents believe financial statements prepared in

Ethiopia are more or less in accordance with GAAP.

Chart 4: GAAP and Our Financial Statements

1.85% 5.56% Yes - all in

all
Yes - more
or less
40.74% Yes -
51.85% some what
No

A significant amount of the respondents (40.74%) have doubt whether financial statements are

being prepared based on GAAP. Many of them claim that in Ethiopia most accountants prepare

financial statements based on the interest of shareholders, BODs, and managers rather than

sticking to GAAP. Some claimed that as Ethiopia has no its own GAAP, reports are prepared

48
using U.S. GAAP, UK GAAP, IFRS and IAS and a combination of these which makes it

difficult to say they are in line with GAAP.

When asked whether there is conducive legal environment in Ethiopia to establish accounting

professional institutions, 66% of them agreed there is. But most of them hold the view that the

government is not actively supporting the associations beyond giving license and registration

rights. The government is expected to provide all round support particularly financial aid.

Table 3: Legal Environment for Accountancy Associations

Responses Frequency Percent

Yes 33 66
No 17 34
Total 50 100

Ethiopia has a few number of fully qualified accountants such as ACCAs, CPAs, CIAs, and

CIMA holders. More than 60 % of the respondents say these accountants are working in the

private sector including NGOs. Whereas, around 32% of the respondents believe that they are

serving in both the private and the public sector. This can be considered as a local brain drain.

This is because; public sectors including universities with a primary purpose of providing

service to the public effectively and efficiently are having no access to these accountants. They

are going to the private sector particularly NGOs and other international organizations where

their contribution is relatively less.

49
 Graph 2: Fully Qualified Accountants' Choice

60

Percent 40
62.26%
20 32.08%

0 5.66%

Private Sector Public Sector Both

Fully_Qualified_Accountants

3.2.3 Use of Accounting Information for Decisions

The main end product of accounting is to provide relevant and reliable information to users.

The respondents were asked about the level of dependence on accounting information for

decision in their organization and other firms and their answer is summarized on the following

table.

Table 4: Level of Dependence on Accounting Information

Particular Frequency Percent

High 15 28.8
Moderate 19 36.5
Little 16 30.8
No 2 3.8
Total 52 100

More than 71% of the respondents put the level of dependence on accounting information from

moderate to zero. They gave lack of knowledge of accounting by managers (46.2%), lack of

competence by accountants in preparing and providing useful information (23.1%),

accountants are busy in doing routine accounting activities (27%). Some have also claimed that

50
there is no market for accounting information. Both businesses and the government do not use

much accounting information practically.

The use of similar accounting conventions within an industry facilitates the comparability of

the reports and increases its usefulness. Respondents were also asked if similar accounting

system and conventions are in use in the same industry. Around 64.58% of the respondents

agree that firms in an industry in Ethiopia use similar accounting conventions. This is

something to be appreciated. However, many respondents have the opposite idea.

Chart 5: Accounting Systems in an Industry

35.42% Yes
64.58%
No

The existence of differences in accounting systems as responded by the remaining 35.42% of

the respondents could have a detrimental effect on the usefulness of the financial statements.

Particularly investors and creditors will face difficulty to evaluate the performance of a

company relative to the industry to make investment and credit decisions. Management will

not be able to see where the company stands in the industry.

Several countries have adopted IFRS already and Ethiopia is also on the move to adopt it. For

the question on familiarity with IFRS, more than 55% of the respondents said they are not

familiar with IFRS whereas around 44% said they are already familiar with it. As we saw in

the literature the IFRS is not part of the curriculum in accounting courses offered by Ethiopian

51
universities and colleges. This indicates there is a great challenge ahead to adopt IFRS in

Ethiopia.

Chart 6: Readiness for IFRS

Yes
No

44.23%
55.77%

3.2.4 Accounting Curriculum

The quality of accounting professionals is dependent on a good curriculum and education

system. Respondents were asked different questions regarding accounting education. More

than 67 % of respondents believe that the accounting principles being taught at Ethiopian

universities are not inline with the real world environment.

Particulars Frequency Percent

Yes 17 32.7
No 35 67.3
Total 52 100

Table 3: Accounting theory and practice

This response is consistent with the response obtained on the curriculum. More than 65% of

the respondents said the accounting curriculum of Ethiopian universities and colleges does not

reflect the need of various stakeholders.

52
 Particulars Frequency Percent
Yes 18 34.6
No 34 65.4
Total 52 100

Table 4: The curriculum and the need of stakeholders

More than 84% of the respondents see accounting education in Ethiopia as more of theoretical

rather than practical oriented. They claim that the practical aspect seems ignored totally. Even

though it is theoretical, the curriculum is not still up to date and recent accounting standards

and principles are not incorporated.

Chart 7: Evaluating Accounting Education

More of theoretical
15.38% A combination of
both

84.62%

Regarding the courses in the curriculum some have suggested an optimum combination of ICT,

finance and accounting courses be offered in universities and colleges. Universities and

colleges should also conduct need assessment in the industry and revise their curriculum.

Table 5: Suggested Courses for Accounting Professionals

Particulars Frequency Percent

More ICT Courses 28 44.4
More finance courses 22 34.9
More accounting courses 13 20.6
Total 63 100

53
A profession’s future is also determined by the quality of students joining it. In this regard

respondents were asked whether accounting is capable of attracting the brightest and the best

students and their responses are summarized as follows:

Table 5: Ability to attract the best and brightest students

Particulars Frequency Percent

Yes 23 45.1
No 28 54.9
Total 51 100

More than 50 % of the respondents believe that the profession is not attracting such kind of

students because they feel that they have other better options both in social and natural

sciences, according to some respondents. Others also stated that accounting is considered to be

less attractive as a career by the society. Hence, the profession has started to get assigned

students on a quota basis becoming the last choice of students even though it has better job

opportunities against the past trend.

Those who responded positively claimed that the better job opportunity and good career path

the profession gives and the future expansion of market economy in the country are the

reasons for attracting the best and brightest students.

3.2.5 Competency and Sufficiency of Accountants

The number and quality of professionals is an important factor for the development of a

profession. Regarding the competency of accountants respondents’ answers are summarized as

shown in chart 8 below:

54
 Chart 8: Competence Level of Accountants ( in number of respondents)
Highly competent
5 Sufficiently
2 competent
10 Moderately
competent
Little competent
35

From the 52 respondents 35 of them, which is 67%, believe that accountants in Ethiopia are

moderately competent. This number is followed by those responding as sufficiently competent.

This indicates that accountants have somehow average level of competence.

The respondents’ view of the sufficiency of accountants has been summarized as follows in

table 6.

Table 6: Sufficiency of Accounting Professionals

Responses Frequency Percent

Not sufficient 15 28.3
Fairly sufficient 18 34
Sufficient 15 28.3
More than the demand 5 9.4
Total 53 100

Some 34% of the respondents believe that the number of accountants is sufficient for the

Ethiopian environment, while 28% said that the number is not sufficient. This indicates some

degree of shortage of accounting professional. But this shortage may be partly attributable to

distribution problems.

55
The backbone of accountancy profession is public accounting predominantly auditing which is

influenced by the availability of quality and sufficient number of accounting professionals.

Respondents were asked about how well audit firms are practicing in Ethiopia and their

responses are summarized as follows:

Table 7: The Practice of Audit Firms

Response Frequency Percent

Yes 20 39.2
No 31 60.8
Total 51 100

A significant number of the respondents, 61%, stated that audit firms are not practicing well in

Ethiopia. Some of the reasons they mentioned include financial interest of audit firms

threatening their independence, lack of competent staff (full time- as they employ par-time

workers to save costs ), lack of capacity of the supervising organization (AG), ethical problem

of owners and managers of audit firms, absence of practical experience of legal liability of

audit firms and others. Another justification given is lack of market demand for best quality

audit opinion. Neither the government nor the business environment demanded such quality

audit opinion. For example, banks mainly use collateral and government tax offices do not use

audited financial statement for tax assessment purpose.

A key determinant of the quality of a profession is the improvement of competence of

professionals across time. Respondents were also asked to assess this issue comparing recent

graduates with previous years’ graduates. Table 8 below summarizes the responses:

56
 Table 8: Comparison of competence of graduates across time

Responses Frequency Percent

Have comparable competence 8 16
Have greater competence 1 2
Have less competence 32 64
Have no idea 9 18
Total 50 100

As can be seen in the above table, 64% of the respondents stated that recent graduates are less

competent than the previous ones. This is consistent with the professions failure to attract the

best and the brightest students in recent days. Reasons cited by respondents are poor education

system and policy that emphasizes on quantity rather than quality, lack of commitment on the

side of teachers and students, poor academic infrastructure, the tendency to retain large number

of students in the private academic institutions etc.

The above problem would be aggravated if accountants do not have a means of updating and

upgrading themselves.

Table 9: Means of updating used by professional

Frequency Percent
Horizontally 16 27.6
Vertically 26 44.8
Not updating 11 19
Others 5 8.6
Total 58 100

Some 45% stated that professionals update themselves vertically by developing their own

profession. This is inline with the availability of certification programs like ACCA, CIA,

CIMA and the establishment of masters programs in various institutions through distance as

57
well as conventional modes and this contributes to the profession’s development. Of course, a

considerable number of them (around 28%) claimed that professionals update themselves

horizontally by changing their profession.

Part of the justification for changing their profession is associated with the attitude towards the

title of being an accountant. Respondents’ affiliation to the title “Accountant” is summarized as

follows:

Chart 9: Attitude towards being an accountant

Yes
No
53.85% 46.15%

Surprisingly about 54 % of the respondents stated that accounting professionals are not proud

of being an accountant. This is due to the routine day-to-day accounting work they are

involved in and lesser emphasis given to their output by decision makers. This is consistent

with the responses above about the usefulness of accounting and auditing reports. Some

respondents also complained about the work environment and the remuneration issues.

Still the above fact is also strengthened by the responses given by respondents when asked

what they prefer to be called. It is given in the following table.

58
 Table 10: Name preference

Responses Frequency Percent

Accounting practitioner 6 11.8
Finance professional 33 64.7
Auditor 7 13.7
Others 5 9.8
Total 51 100

Around 65 % of the respondents said they would prefer the name “Finance professional” rather

than accounting practitioner. Some respondents, however, preferred to be called professional

accountant.

3.2.6 Accounting and Information Technology (ICT)

Information Technology (IT) has become an important aid in current dynamic and very

competitive business environments. Respondents were asked about the impact of IT on the

accounting profession and their response is summarized below:

Graph 3: Impact of IT on the accounting profession

100

80
Percent

60

40

20

Positive Negative No impact

Impact_of_IT

More than 90% of the respondents agree that IT has a positive impact on the accounting

profession. Whereas some believe IT has a negative impact claiming that it may substitute the

59
work of accountants. It is very good to have so many professionals with a positive attitude

towards the technology that should be supported by the necessary training on IT.

On of the roles of accountants is to design accounting systems for organizations. Respondents

were also asked who they think is involved in the design of accounting systems in different

organizations and their response is summarized in the following table:

Table 11: Accounting system design

Frequency Percent
Accountants 26 45.6
ICT Professionals 21 36.8
Management professionals 5 8.8
Others 5 8.8
Total 57 100

More than 80% of the respondents said accountants together with IT professionals design the

accounting system. This is a very good practice because accountants alone cannot design and

install complex accounting systems without the support of IT professionals and the vice versa.

Accountants’ participation in the design of the accounting systems will make the system more

effective and efficient.

3.2.7 Challenges of the Accounting Profession

As it has been discussed in the literature part, the accounting profession is facing several

challenges, particularly in the developed world. Challenges should be identified and addressed

as soon as possible if the profession is to provide the service expected of it. With this objective,

60
respondents were asked to comment on the challenges of the accounting profession in Ethiopia.

Their response is as follows:

Table 12: Challenges of the accounting profession

Responses Frequency Percent

Development of ICT 13 16
Lack of legal framework 22 27.2
Lack of regulatory bodies 24 29.6
Government influence 15 18.5
Others 7 8.6
Total 81 100

As it can be seen from the above table respondents identified lack of regulatory bodies and lack

of clear legal frameworks as the major challenge for the accounting profession in Ethiopia.

There is no clear legal framework as to the practice and professional code of conduct. Many of

the respondents also cited the absence of strong accounting associations that will be in charge.

Some also mentioned lack of attention and recognition by top management as a major

challenge.

Authoritative /regulatory bodies whether professional or governmental or both would moderate

the demand and supply of accounting. They can develop accounting standards and follow up

their implementations and enforce professionals to be fair and ethical in reporting and other

services. They can make users accept financial data before making any decisions. In the

absence of the necessary authoritative and regulatory bodies and the necessary legal

framework, Ethiopia will continue to be a country without its own accounting standards and

the profession’s value will continue to be underestimated.

61
Most respondents, more than 90 %, believe that professional associations, the government and

private companies are the major responsible sectors to bring improvement to the profession in

addition to accountants.

62
Chapter Four: Conclusions and Recommendations

4.1 Conclusions
This study has assessed the current state of the accounting profession in Ethiopia, its challenges

and future prospects. For this purpose both a literature review and an empirical analysis of data

were made.

As discussed in the literature part accounting information is essential to properly manage

businesses of all sizes and forms. As designers, producers, interpreters, auditors and users of

business information, accountants play invaluable for economic growth and development.

Thus, the state of development of a country and the state of the development of the accounting

profession in a country are positively related.

Based on the available data collected by the questionnaires, an analysis was conducted and

some preliminary conclusions were drawn. The analysis provides evidence that the Ethiopian

accounting profession has the following problems and opportunities:

♣ Even though accounting is several decades old, it is still at its infant stage in

Ethiopia. There is lack of authoritative and strong accountancy body that works

towards the advancement of the profession and the professionals.

♣ Many accounting professionals are being underutilized and feeling job

dissatisfaction. This is also discouraging practitioners from enriching their

63
 accounting knowledge through further reading and continuous professional

development programs.

♣ In Ethiopia, on the part of the different users of accounting information, there is less

level of dependence on accounting reports. As a result company management and

the government are giving less support for the field.

♣ There is lack of clear and strong legal framework that encourages and regulates

members of the accounting profession to properly carryout their duties.

♣ Ethiopia has only a few number of fully qualified accountants who are concentrated

in the private sector and NGOs. In addition Employers have no tradition of

investing on employees in the form of continuous professional development (CPD).

♣ There is a wide gap between the accounting theory taught at Ethiopian universities

and colleges and the real world environment. The curriculum does not reflect the

need of various stakeholders.

♣ Despite its high job opportunity accounting has lost its capacity to attract

outstanding students. This has resulted in less competent accounting graduates

compared to previous years.

♣ Accounting professionals lack sense of pride and belongingness towards the title

“accountant”.

♣ Even though there are a large number of accountants, the number is still not

sufficient to produce financial data on a timely basis.

♣ Audit firms are not practicing well in Ethiopia because of impairment of

independence, lack of ethical standards and supervision, lack of competent

accountants and lack of sufficient market for best quality audit report.

64
 ♣ Even though Ethiopia is planning to adopt IFRS in the near future, several members

of the profession are not familiar with it and it seems that it is not appropriate time

to do so because the necessary awareness creation and preparatory works have not

yet been done.

♣ Even though there are several challenges facing the profession of Accountancy in

Ethiopia, there are also ample opportunities ahead of it. Some of these opportunities

are the growing market economy in the country and the accounting infrastructure it

needs, attractive career path improvement opportunities available, Certification and

continued professional development possibilities, the field’s predominance

existence in all academic institutions (both public and private), lucrative pay scales

and attractive job opportunities just to mention a few.

♣ In general it can be concluded that all the responsible parties (government,

academicians, accounting firms, employers, and members of the accountancy

profession) have failed to play their role.

4.2 Recommendations

The objective of the study is to identify the challenges and future prospects of the accounting

profession in Ethiopia and give recommendations on how to improve and enhance the

profession in Ethiopia. Based on the findings of the empirical analysis made in the previous

chapter, the following recommendations have been made.

65
♣ The government should delegate the supervision of professional accountants and

the development of all professional matters to a private or quasi private sector. It

should also provide the necessary infrastructural support for these private or quasi

private institutes.

♣ The government should promote the accounting profession by giving appropriate

credit for audited financial statements through the tax bureau. The legal system

should also create accountability and the related legal liability for auditors and

accountants.

♣ All stakeholders- the government, all concerned organizations, accounting

professionals and their associations, and accounting educators should work hand in

had to support universities and colleges to train competent accountants of the future.

It is also recommended that support be provided to strengthen CPD training courses

throughout the country. This will particularly help Ethiopia to move to the IFRS

smoothly without much difficulty.

♣ Other stakeholders mainly business organizations also should act to improve the

state of the accountancy profession in Ethiopia by properly preparing the financial

statements and giving credit to the reports by using them as an aid to their decision.

♣ Regarding the courses in the curriculum attempts should be made to have an

optimum combination of ICT, finance and accounting courses. Efforts should also

be made to make the accounting education practical oriented. A lot is expected from

university and college professors with this regard. They should try to make their

class illustrations and evaluations using real world cases taken from Ethiopian

environment.

66
♣ Ethiopia has no accounting and auditing standards. Instead it uses a mix of U.S.,

UK and international accounting standards. But there must be a uniform

enforceable standard at national level. This may take the form of adopting IFRS as

it has been started or develop its own standard that fits to its economic condition

with reference to the experience of other countries, where appropriate.

♣ Professional accounting associations, accounting firms, and member of the

profession have a big role to play for the development of the accounting profession.

In this regard it is recommended that these parties initiate discussions among

themselves and organize themselves and create the capacity to influence the

government for the development of the accounting profession. They have to follow

the example of other professional associations both local and international and

contribute for the development of the accounting profession. They should increase

their effort to get representation in international and regional accountancy forums.

♣ The combined outcome of all the above recommendations will enable the country,

the business community and the professionals properly utilize the ample

opportunities that the profession avails.

67
 References
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Sustainable Development’, Accounting Focus, A Quarterly Journal of Accounting Society of
Ethiopia, Addis Ababa
Belverd, N 1995, Financial Accounting, 5th edn, Princeton: Houghton, Mifflin Company.

Brewster, M, 2003, Unaccountable: How The Accounting profession Forfeited a Public Trust,
John Wiley & Sons, Inc., Hoboken, New Jersey.

Buckstein, J, Recovery of the accounting profession post-Enron, accessed at https://www.cga-

pdnet.org/Non_VerifiableProducts/ArticlePublication/RecoveryAccountingProfession/Recover
yAccountingProfession_p1.pdf, on May 01, 2010.

Carmichael, R, Whittington, O, And Graham, L 2007, Accountants’ Handbook. Volume One:

Financial Accounting And General Topics, 11th Edn, John Wiley & Sons, Inc.

Dyckman, T, Dukes, R, and Davis, C 1992, Intermediate Accounting, Revised edn, Richard D.
Irwin, Inc.

Epstein, J, Nach R, and Bragg, M, 2009, GAAP Codification Enhanced, John Wiley & Sons,
Inc., Hoboken, New Jersey

Street, D 2002, GAAP Convergence 2002, A Survey of National Efforts to Promote and
Achieve Convergence with International Financial Reporting Standards, University of Dayton.

Garner, D, McKee, D, and McKee, Y 2008, Accounting and the global economy After
Sarbanes-Oxley, M.E. Sharpe, Inc. 80 Business Park Drive, Armonk, New York 10504.
GAO, 1996, The Accounting Profession Major Issues: Progresses and Concerns, USA.

Goldberg, L 2001, A Journey into Accounting Thought, published by Routledge, the Taylor &
Francis Group.

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Gregoriou, G and Mohamed Gaber, M 2006, International Accounting Standards, Regulations,
and Financial Reporting, Elsevier Ltd.

IFAC Policy Position, 2007, Regulation of the Accountancy Profession, New York, USA.

Kester, B and Nissley, W, 'Education for Professional Accountancy', The Accounting Review,
Vol. 11, No. 2 Published by: American Accounting Association

Kieso, E and Weygandt, J 1995, Intermediate Accounting, 8th edn, John Wiley & Sons, New
York

Kinfu, J (2005), 'The Accountancy Profession in Ethiopia', Accounting focus: A Quarterly

Journal of Accounting Society of Ethiopia, Volume 1, Issue 1 August, 2005.

Mitiku, A 2005, History of Accounting Society of Ethiopia’ ed., Accounting Focus, A

Quarterly Journal of Accounting Society of Ethiopia, Addis Ababa
Nikolai, L, Bazley, J, Schroeder, Rand and Reynolds, I 1983, Intermediate Accounting, 2nd
edn, Boston: Kent Publishing Company.

Mosso, D 2009, 'Early Warning and Quick Response: Accounting In The Twenty-First
Century', Emerald Group Publishing Limited, Howard House, Wagon Lane, Bingley BD16
1WA, UK
Rao, T 2006, Accounting and Financial Management for BCA & MCA, New Age International
(P) Ltd., Publishers, India.

Report on the Observance of Standards and Codes (ROSC) Ethiopia Accounting and Auditing,
November 2007 accessed at http://www.worldbank.org/ifa/rosc_aa_ethiopia.pdf, on March 05,
2010.
Sims, S 2009, ‘Accounting in 2014: Facing the Challenges of the Future’, Tennessee CPA
Journal.
White, R, 2009, Challenging the Value Creation Paradigm in Today's Accounting Profession.

69
Appendix:
Questionnaire Used for the Project

Addis Ababa University

Faculty of Business and Economics
Department of Accounting and Finance
Dear Sir/Madam,

The purpose of this questionnaire is to collect data for a final project on the title The
Accounting Profession in Ethiopia: Challenges and Future Prospects in requirement for
partial fulfillment of MSC. in Accounting and Finance from Addis Ababa University
Faculty of Business and Economics. The project has the objective of assessing the current
state of the profession in Ethiopia and exploring problems it is facing and opportunities
awaiting it ahead in the futures in the current fast changing and globalization age. I would
like to emphasize that your responses are extremely valuable for the successful completion
of this project and I would greatly appreciate you are answering all questions genuinely. I
assure you that the information you provide would be kept totally confidential and would
not be used for any other purpose.

I would like to thank you very much in advance for sacrificing you invaluable time to fill
the questionnaire.

1. Profession  Accounting  Business Administration  ICT

 Others, please specify __________________

2. Educational level (qualification)  Diploma  Degree  Masters  Phd

 Others, please specify _________________

3. If you are an accountant which factors motivated you for joining the profession?
________________________________________________________________
________________________________________________________________

4. Do accountants have a bright future in their career?

 Yes  No

70
5. Please give your reason for your answer in # 4 _________________________
_________________________________________________________________
________________________________________________________________

6. As an accounting professional are the functions assigned to you commensurate with

your professional expertise?
Yes  No

7. If your answer for question # 6 is “No”, what effect is it having on your performance?
_________________________________________________
_____________________________________________________________

8. What according to you is the critical problem of Accountants in their professional

practice?
 Lack of competence  Limited accounting provisions/proclamations
 Less emphasis given by firms for the field
 Lack of knowledge of accounting by managers
 Others, please specify _________________________

9. Do you think that Ethiopia has sufficient and strong Accounting professional
institutions?
Yes  No

10. If your answer for question # 9 is “No”, what is your reason?

______________________________________________________________________
______________________________________________________________

11. How do you rate the application of accounting professional ethics in Ethiopia by
accountants?
 High  Moderate  Little  No

12. Do you think that the financial statements prepared by accountants are in accordance
with GAAP?

Yes – all in all  Yes – more or less  Yes – some what  No

13. Give your reasons if your answer to question # 12 is either “yes-somewhat” or “No”
________________________________________________________
_____________________________________________________________

14. How do you rate the level of dependence on accounting information for decision
making in your organization and other firms?
 High  Moderate  Little No

71
15. If your answer to question # 14 is “little” or “No”, what is the reason for not using
accounting information?
 Lack of knowledge of accounting by managers
 Lack of competence by accountants in preparing accounting information in
the manner to be used
 Accountants are busy in doing routine accounting activities
 Others, please specify _______________________________________

16. Do you think that firms in the same industry are using similar accounting
systems/conventions?
 Yes  No

17. If there is difference in the accounting conventions used by these firms, what will be its
consequence on
 Financial statement users _____________________________________
 Firms _____________________________________________________
 Others, if any _______________________________________________

18. Do you think that the legal environment in Ethiopia is conducive to establish
accounting professional institutions?
Yes  No

19. What aids/supports does the government give to Accounting professional institutions?
________________________________________________
___________________________________________________________

20. Where are fully qualified accountants such as CPAs and ACCA holders working?
 Private sector  Public sector  Both

21. Many countries including Ethiopia are on the move to adopt International Financial
Reporting Standards (IFRS). Are you fully familiar with IFRSs?
Yes  No

22. Are the accounting principles being taught at Ethiopian universities inline with what is
being practiced in the real business environment?
 Yes  No

23. Does the accounting curriculum of Ethiopian universities and colleges include the need
of various stakeholders?
Yes  No

24. How do you evaluate accounting education in Ethiopia?

 Practical oriented  More of theoretical
 A combination of both  Others, please specify ___________________
______________________________________

72
25. What do you suggest to universities and colleges to include in their curriculum
 More ICT Courses
 More finance courses
 More accounting courses (new accounting fields)
 Others, please specify ____________________________________________

26. Are students choosing accounting as a career the best and brightest ones?
Yes  No
Comments, ____________________________________________________
______________________________________________________________

27. How do you rate the competence of accountants in Ethiopia?

 Highly competent
 Sufficiently competent
 Moderately competent
 Little competent

28. What about the number of accountants in the country?

 Not sufficient
 Fairly sufficient
 Sufficient
 More than the demand

29. Are Audit firms practicing well in Ethiopia

 Yes  No

30. If your answer to question # 29 is “No”, the reason is

 Financial problem
 Lack of integrity and objectivity
 Lack of competent staff
 Lack of uniform accounting principles/guidelines to follow
 Others, please specify ____________________________________________

31. How do you compare the current accounting graduates with past years’ graduates?
 Have comparable competence
 Have greater competence
 Have less competence
 Have no idea

32. If your answer to question # 31 is “less competent” give your reasons

_________________________________________________________________
________________________________________________________________

33. Do you think that accountants are proud of being an accountant?

 Yes  No

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34. If your answer to question #33 is “No”, the reason(s) is(are)
 No good working environment
 No proper (adequate) payment (remuneration)
 Tedious and very routine work it involves
 Other professions are substituting accounting
 Others, if any ____________________

35. How do accountants in your organization update themselves through learning?

 Horizontally- by changing their profession
 Vertically- by developing their own profession
 They are not updating themselves
 Others, if any __________________________________________________

36. What is the impact of ICT on accounting profession

 Positive by supporting it
 Negative by substituting it
 No impact
 Others if any __________________________________________________

37. Who do you think are mostly involved in designing accounting system in different
organizations?
 Accountants  ICT Professionals  Management professionals
 Others, please specify ______________________________________

38. Which one do you prefer to be called?

 Accounting practitioner
 Finance professional
 Auditor
 Others, please specify ______________________________________

39. What do you think is the challenge of the accounting profession in Ethiopia?
 Development of ICT
 Lack of legal framework
 Lack of regulatory bodies
 Government influence
 Others, if any ___________________________________________________
___________________________________________________

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40. Give reasons for your response to question #39 __________________________
_________________________________________________________________

41. Which sector do you think are more responsible to bring improvement in addition to
accountants?
 Government
 Private companies
 Professional associations
 Others, please specify ____________________________________________

42. How do accountants solve the challenges they face?

 Through professional accounting assumptions
 Through continuous educational development
 By having ICT knowledge
 By changing their profession
 Others, please specify ___________________________________

43. Any other comments you may have

______________________________________________________________________
______________________________________________________________________
______________________________________________________________________
______________________________________________________________________
______________________________________________________________________
______________________________________________________________________
______________________________________________________________________

Thank You

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 Addis Ababa University

School of Graduate Studies

The Accounting Profession in Ethiopia:

Future Challenges and Prospects

By: Solomon Zeleke

Department of Accounting and Finance

School of Business and Public Administration

Addis Ababa University

Approved by the Examiner

Examiner: P. Laxmikantham (PhD)

Date _____________________

Signature _________________