HISTORY OF AUDITING IN ETHIOPIA

GROUP 2

Group Members
1. Alem Geremew ______________ ECSU 2201490
2. Ahmed Mohammed __________ ECSU
3. Asresach Alene ____________ ECSU
4. Ashrak ____________________ ECSU
5. Andualem _________________ ECSU
6. Bashir ____________________ ECSU
 OUTLINE OF THE CONTENTS
 Introduction

 Establishment & evolution of Auditing in

Ethiopia
 Functions of Audit commission

 Current status of auditing in Ethiopia

 External Audit Report of public Undertaking

 Critical examination of the Audit procedure

 Critical examination the basis of issuing The

Audit opinions
 FIELD VISIT TO AWASH BANK
  INTRODUCTION
The main objectives of government auditing are to
express opinion on financial statements and related issues
of legality, regularity and fraud as well as examining
whether government institutions are operating
economically, efficiently and effectively. To achieve these
objectives every country establishes a supreme audit
institution (SAI) whose independence is protected by law.

To obtain this information forming an independent

Supreme Audit Institution is very important. Accordingly,
the Ethiopian SAI has been established to discharge the
above mentioned responsibilities though it passed
through a lot of ups and downs.
ESTABLISHMENT & EVOLUTION OF AUDITING IN
ETHIOPIA

The history of Ethiopias supreme audit

institution (SAI) is related to the 1931
constitution, which stated the
importance of the proper collection of
the government revenue and the
necessity of setting procedures to
control expenditures.
CONT....
 However, the constitution failed to stipulate the
need for government auditing and establishing a
SAI. But latter, proclamation No. 69 of 1944
established the first legal auditinstitution called
Audit Commission. Under this proclamation the
commission was responsible for the audit of the
accounts of the Ministry of Finance, whereas the
financial transactions of other ministries were
inspected and controlled by the Ministry of Finance
itself.
 The Comptroller and Auditor General who headed
the commission was reporting directly to the prime
Minster.
FUNCTIONS OF AUDIT COMMISSION

The main functions of the commission were:

 Verification of revenue collection through its

inspectors.
 Ensuring appropriate implementations of laws
regulations and guidance.
 Identification and detection of irregularities and
fraud.
 Initiating legal proceedings against those who were
involved in fraudulent activities and irregularities.
 Submitting reports on its findings with
recommendations.
ESTABLISHMENTS CONTINUES…..
 Though the proclamation established sort of the first
government audit institution, the commission was not
independent of the ministry as far as its professional
freedom is concerned. Besides, its audit coverage is
limited to only to certain government departments.
However, these short comings were resolved after two
years through the amended proclamation No. 79 of
1946.
 The amended proclamation centralized the audit of all
government accounts under one audit department
called the Audit and Control Department, under the
leadership of the Comptroller and Auditor General
reporting to the Prime Minster.
ESTABLISHMENTS CONTINUES …
 The Audit and Control Department
continued to operate until it was
amalgamated with the Ministry of
Finance’s control department without any
legislative provision in 1952. This was a
major setback in the process of
developing an independent national audit
institution.
ESTABLISHMENTS CONTINUES …
 But after three years, the revised constitution of
1955 established a relatively independent audit
institution. Articles 120 and 121 of the revised
constitution of 1955 established a separate and
independent audit entity accountable to the
emperor and to parliament.
 These articles required the auditor general to
report regularly to the emperor and parliament
on the financial operations of the government.
ESTABLISHMENTS CONTINUES …

The articles also empowered the auditor

general to access all books and records
pertaining to government accounts.
However, the constitution did not
stipulated the detailed functions and
reporting requirements of the Office of
the Auditor General until Decree No. 32 of
1958 which articulated the functions of
the office including reporting
responsibility.
ESTABLISHMENTS CONTINUES …
Later,an amended legislation was
issued as proclamation 179/1961.
The new proclamation, in addition to
defining powers and duties, it laid
down the conditions regarding the
appointment and independence of
the auditor general as well as the
reporting procedures.
ESTABLISHMENTS CONTINUES…

The provisions of this legislation was a

mile stone as the office of auditor general
has acquired a higher degree of
independence to carry out regularity
audits; but the proclamation lacked a
mandate for expanding the scope of the
offices audit to carry out performance or
value for money audits.
ESTABLISHMENTS CONTINUES…
 Accordingly,the office has to wait until
proclamation No. 164/1979. Proclamation
N0.164/1979 increased the traditional power
and duties of the Office of Auditor General
considerably by empowering the office to
conduct efficiency and effectiveness
(performance) audits.

 However, the proclamation failed to incorporate

the reporting and remuneration aspects of
independence which are part and parcel of the
basic necessities for effective operation of a SAI.
CURRENT STATUS OF AUDITING IN ETHIOPIA

Generally speaking, the status of auditing

profession in Ethiopia is characterized with the
following:
 The accounting and auditing provisions in the
Commercial Code 1960 brought up to date with
good international practice.
 The Commercial Code makes directors of
companies responsible for preparation of
financial statements, including consolidated
financial statements for group companies, and
for ensuring that an audit of the financial
statements is conducted.
CURRENT STATUS CONT….
 Public Enterprises Proclamation 25/1992 requires state-
owned enterprises to keep Books of accounts which is
the base for auditing following generally accepted
accounting principles (GAAP).
 The financial reporting requirements of NGOs are
contained in the General Guidelines for the
Implementation of the National Policy on Disaster
Prevention and Management.
 There are no extra requirements for banks and
insurance companies for preparation of their annual
financial statements.
CURRENT STATUS CONT….
 Auditors for banks are required to be approved by the
National Bank of Ethiopia.
 Auditors for insurance companies are not subjected to
any additional requirements other than the provisions of
the Commercial Code.
 The number of professional accountants and auditors in
Ethiopia is rather low in relation to the size of the
economy.
 The Ethiopian Professional Association of Accountants
and Auditors (EPAAA), has no legal backing and is not a
member of International Federation of Accountants
(IFAC).
CURRENT STATUS CONT….
 Ethiopia does not have a quality assurance program for
auditors.
 No legal requirement exists for auditors to have
professional indemnity insurance.
 The big-four international audit firm networks are not
present in the country.
 The country has not yet experienced litigation on
financial reporting.
 Locally, there is neither a professional accountancy
qualification nor training available for professional
accountancy.
EXTERNAL AUDIT REPORT OF PUBLIC
UNDERTAKING
 We evaluate the external audit report of awash
international bank in 2022, Audited by The office of the
federal auditor general audit service corporation. We
evaluated the component of the audit report of financial
statements as follows.

 Report title; the audit report of awash international

bank contain “The independent auditors report to the
shareholders of awash international bank share
company. Report on the audit of the financial statement
at 30 June 2022.
CONT….
 Audit report address; the report is addressed to the
shareholders of awash international bank.

 Introductory paragraph; the audit report of awash

international bank includes the introductory paragraph
clearly.
CONT….
 "We have audited the financial statement of Awash
International bank Share Company (the bank), which
comprise the statement of financial position as at 30
June 2022, and the statement of profit or loss and other
comprehensive income, statement of changes in equity
and statement of cash flows for the year then ended,
and notes to the financial statements, including
summery of significant accounting policies".
CONT….
 Responsibilities of the Directors and Those Charged
with Governance for the Financial
Statements

“The Directors are responsible for the preparation and fair

presentation of the financial
statements in accordance with IFRSs, and for such internal
control as management determines
is necessary to enable the preparation of financial
statements that are free from material
misstatement, whether due to fraud or error.
CONT….
 In preparing the financial statements, management is
responsible for assessing the Group’s
ability to continue as a going concern, disclosing, as
applicable, matters related to going concern
and using the going concern basis of accounting unless
management either intends to liquidate
the Group or to cease operations, or has no realistic
alternative but to do so. Those charged with governance
are responsible for overseeing the Group’s financial
reporting process.
CONT….
 Auditors’ Responsibilities for the Audit of the
Financial Statements

Our objectives are to obtain reasonable assurance about

whether the financial statements as a
whole are free from material misstatement, whether due to
fraud or error, and to issue an
auditor’s report that includes our opinion. Reasonable
assurance is a high level of assurance, but
is not a guarantee that an audit conducted in accordance
with ISAs will always detect a material
CONT….
misstatement when it exists. Misstatements can arise from fraud
or error and are considered
material if, individually or in the aggregate, they could
reasonably be expected to influence the
economic decisions of users taken on the basis of these financial
statements.”

 Scope paragraph:

 The scope paragraph is a factual statement about what the

auditor did in the audit. This paragraph first states that the
auditor followed international standards on auditing. The
remainder briefly describes important aspects of an audit.
 “As part of an audit in accordance with ISAs, we exercise
professional judgment and maintain
professional skepticism throughout the audit. We also:
CONT….
 Identify and assess the risks of material misstatement of
the financial statements, whether due to fraud or error,
design and perform audit procedures responsive to those
risks, and obtain audit evidence that is sufficient and
appropriate to provide a basis for our opinion. The risk
of not detecting a material misstatement resulting from
fraud is higher than for one resulting from error, as fraud
may involve collusion, forgery, intentional omissions,
misrepresentations, or the override of internal control.
Obtain an understanding of internal control relevant to
the audit in order to design audit procedures that are
appropriate in the circumstances, but not for the purpose
of expressing an opinion on the effectiveness of the
Group’s internal control.”
CONT….
 Opinion paragraph:

 The final paragraph in the standardized report states the

auditor’s conclusion based on the results of the audit
examination. This part of the report is so important that
frequently the entire audit report is referred to simply as the
auditor’s opinion. The opinion paragraph is stated as an opinion
rather than as a statement of absolute fact or a guarantee. The
intent is to indicate that the conclusions are based on
professional judgment. The phrase “in our opinion” indicates
that there may be some information risk associated with the
financial statements, even though the statements have been
audited. The opinion paragraph is directly related to the first and
fourth generally accepted auditing report standards. The auditor
is required to state an opinion about the financial statements
taken as a whole, including a conclusion about whether the
company followed generally accepted accounting principles.
CONT….
 The audit report of awash international bank contains
opinion part and it has presented as follows:
“We have audited the consolidated financial statements of
awash international bank (the Bank) and its consolidated
subsidiaries (the Group), which comprise the consolidated
and the Bank’s statements of financial position as at 30
June 2022, and the consolidated and the Bank’s statements
of profit or loss and other comprehensive income,
consolidated and Bank’s statements of changes in equity
and consolidated and the Bank’s statements of cash flows
for the year then ended, and notes to the consolidated and
the Bank’s financial statements, including consolidated and
the Bank’s summaries of significant accounting policies…”
CONT….
 Name of the audit firm:

 The name identifies the audit firm or practitioner that has

performed the audit. Typically, the firm’s name is used,
since the entire audit firm has the legal and professional
responsibility to make certain the quality of the audit
meets professional standards.
 In the Awash international bank report the name of the
audit firm is stated as Audited by: “Federal Auditor
general audit Services Corporation”
CRITICAL EXAMINATION OF THE AUDIT PROCEDURE

 The auditor’s firm runs through the following

procedures

 Identify and assess the risks of material misstatement of

the financial statements, whether due to fraud or error;
 Design and perform audit procedures responsive to
those risks;
 Obtain audit evidence that is sufficient and appropriate
to provide a basis for our opinion and;
 Obtain an understanding of internal control relevant to
the audit in order to design audit procedures that are
appropriate in the circumstances, but not for the
purpose of expressing an opinion on the effectiveness of
the bank internal control.
CRITICAL EXAMINATION THE BASIS OF ISSUING THE
AUDIT OPINIONS

 The report has put its opinion as follows;

 “In our opinion, the accompanying consolidated financial

statements present fairly, in all material respects, the
consolidated financial positions of the Bank as at 30 June
2022 and the consolidated and the Bank’s financial
performances and the consolidated and the Bank’s cash
flows for the year then ended in accordance with
International Financial Reporting Standards (IFRSs).”
CRITICAL EXAMINATION CONT….

 But we believe that one of the

controversial parts of the auditor’s report
is the meaning of the term present fairly.
Does this mean that if generally accepted
accounting principles are followed, the
financial statements are presented fairly,
or something more?
CRITICAL EXAMINATION CONT….
 The auditing firm expresses the basis for giving the opinion as
follows;
 “We conducted our audit in accordance with International
Standards on Auditing (ISAs). Our
responsibilities under those standards are further described
in the Auditor’s Responsibilities for the Audit of the Financial
Statements section of our report. We are independent of the
Group in
accordance with the International Ethics Standards Board for
Accountants’ Code of Ethics for
Professional Accountants (IESBA Code) together with the
ethical requirements that are relevant to our audit of the
consolidated financial statements in Ethiopia, and we have
fulfilled our other ethical responsibilities in accordance with
those requirements and the IESBA Code. We believe that the
audit evidence we have obtained is sufficient and
appropriate to provide a basis for our opinion.”
CRITICAL EXAMINATION CONT….

 Hence the opinion is having assured that

the auditing is conducted based on ISAs,
we concluded that the opinion given to
the awash international bank regarding
the 2022 audit performed by The Federal
Auditor general Services Corporation is a
“qualified opinion”.