The Auditing Profession in Egypt KPMG HAZEM HASSAN

Transcription

1 The Auditing Profession in Egypt KPMG HAZEM HASSAN

2 Cutting through complexity The Auditing Profession in Egypt 2

3 The Auditing Profession in Egypt 3 Contents Introduction History Qualifications Egyptian Society of Accountants and Auditors Special Registers Oversight Board The Proposed Law of the Profession esso

4 Introduction The Auditing Profession in Egypt 4 Egypt has been one of the pioneer countries in the profession of Accounting and Auditing, same as most countries that were under the British influence.

5 History The Auditing Profession in Egypt 5 Before 1956The auditing profession was practiced prior to that date by Egyptian firms in association with the foreign firms. and the existence of international firms at that time made a drastic effect on the progress and development of the local firms. During 1951 a profession of accounting law was issued 1 organizing the profession. In 1961, the nationalization process started in Egypt and it included almost all economic activities in the country resulting in the existence of what is subsequently known as The Public Sector ; which became the main feature of the economic activities in Egypt, whereas the state owned all the economic establishments, not only the large ones, but also the medium and small-sized ones. As a result thereof, the scope of the governmental Auditing Authority; which used to be called as the 2 auditing bureau and currently known as The Central Auditing Organization, was extremely extended. The government assign ned the Central Auditing Organization (CAO) the responsibility to audit all governmental bodies and authorities, in addition to all Public Sector companies. (CAO) became the main body concerned with auditing all kinds of economic activities in Egypt. 3 Auditing firms/individuals As a result of the aforementioned, the role of audit firms and individual auditors was significantly scaled down due to the transfer of ownership of all entities to the government; therefore, they were obliged to engage the Central Auditing Organization in auditing their accounts. Consequently, the market available for auditors shrinked substantially and became limited to some banks, international hotel chains and airline companies. That situation forced most of auditors to quit the profession and to work for either the Public Sector companies or for the Central Auditing Organization which became almost the only and largest audit firm in Egypt. However, some auditors had the opportunity to open audit firms in countries in the regio on such as the Gulf countries, Libya and Lebanon; where the market of the profession was in its preliminary stages of creation and development. Since then the Egyptian auditors became the core group upon which the foundations of the audit firms were laid in the above mentioned countries. 1 Law No. 133 for the year Law No. 52 for the year Law No. 129 for the year 1964

6 The Auditing Profession in Egypt 6 Building up the profession ( ) Things remained this way until the outbreak of the Great October War in 1973, which led to the commencement of applying the open door policy 4 and the first law governing investment and the free zones was issued in Egypt. This law perm mitted foreigners, Arabs and Egyptians to form companies that had been called The Private Sector companies ; and that date became the new starting point of establishing the audit profession once again in Egypt, in the light of the flow of investments to Egypt; as well as, the formation of companies that necessitated the existence of private audit firms at that time. During the period from the year 1974 to 1985 the Private Sector companies started working side by side with the Public Sector companies and took a fair share of the economic market in Egypt. However, two frameworks of accounting and auditing kept existence in Egypt; one of which was related to the Public Sector and was represented in the Unified Accounting System (UAS) that was issued in 5 the year 1966, whose performance, implementation and compliance therewith were assigned to the Central Auditing Organization. As for the Private Sector, it applied what was called at that time the Generally Accepted Accounting Principles and the Generally Accepted Auditing Standards, but the definite status of the said standards and principles were still not precisely specified at that time, as they were only independent opini ons and writings of the accountancy experts and university professors quoted from foreign practices and publications. As of the year 1985, there were representatives of the "Big Eight" firms, at that time, in Egypt, and through such representatives, the implementation of the International Accounting Standards started to take place in the preparation of the financial statements as well as the International Standards on Auditing 6 were in practice for the purpose of auditing the said financial statements. The Unified Accounting System remained applicable to the Public Sector companies and the Central Auditing Organization kept auditing the financial statements of these companies. In 1992, the capital market law was issued in relation to the capital market in Egypt, whichh explicitly stipulated in its articles, the necessity of bringing all the companies subject to the said law to prepare their financial statements in accordance with the International Accounting Standards and that the auditors of the accounts of such companies must audit these financial statements in compliance with the International Standards on Auditing, while things remained the same in relation to the Public Sector companie es. 4 Law No. 43 for the year 1974 as amended 5 Presidential Decree No fo r the year Law No. 95 for the year 1992

7 The Auditing Profession in Egypt 7 Official issuance of EASs and ESAs (after 1996) The Capital Market law encountered a large number of objections to its stipulations, as they referred to the compliance with the International Accounting Standards and International Standards on Auditing whereas they were considered as foreign standards that have no Arabic stipulation corresponding thereto; hence, they are difficult to be implemented. Accordingly, the Egyptian Society of Accountants and Auditors (ESAA) immediately prepared the Egyptian Accounting Standards and the Egyptian Standards on Auditing. 7 7 Minister of Economy decree No.625 for the year 2000

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9 The Auditing Profession in Egypt 9 Qualifications According to the Egyptian laws, the auditing profession is permitted to be practiced only by Egyptian natural persons, and there is a general register for auditors kept at the Ministry of Finance where the authorized aud ditors are to be recorded therein as 8 follows : Schedule (A): The auditors under training are registered in this schedule for three years during which the trainee receives his/her training at one of the accredited audit firms, and upon evidencing receiving the training for the above mentioned period, the auditor s name shall be transferred to Schedule (B) and becomes a public accountant; however, he/she shall not be authorized to audit corporations unless after the lapse of additional five consecutive years, after which he/she should submit an application to be registered in the said register as one of the auditors entitled to audit corporations. Thereafter he/she shall become a public auditor with full power and authorities of the certified public accountant. The law stipulates that there are some equivalent positions whose occupants are not required to spend the training period as prescribed by law due to their capacit ties. The approximate number of auditors registered in the general register at the Ministry of finance is auditors. Members of the Egyptian Society of Accountants and Auditors are 9 exempted from all the above mentioned prescribed periods. 8 Law No. 133 for the year Law No. 133 for the year 1951

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11 Egyptian Society of Accountants and Auditors The Auditing Profession in Egypt 11 The Egyptian Society of Accountants and Auditors was established by virtue of a royal 10 decree in 1946, and currently it includes members, most of them are practitioners of the auditing profession. In order for the accountant to be a member of the society he should enter into a training contract with an accountant who is a member of the society for a three year period during which he shall be trained under the supervision of the member accountant. Pursuant to the said contract, the accountant shall be entitled to sit for the intermediate exam after the lapse of one year and half from signing the said contract. He shall be examined in five subjects; Accounting, Auditing, Taxation, Info ormation Technology, and Cost Accounting. In case the accountant passed this intermediate exam, he shall be entitled to sit for the final exam after a year and half from passing the intermediate exam. He shall be examined in another five subjects; Financial Accounting, Managerial Accounting, Auditing, Taxation, Law and general knowledge. The Society s articles of association were recently amended in a manner that made it possible for the trainee accountant to enter into a training contract with an accountant who is not a member of the Society on condition that the audit firm of this non-society member accountant should be one of the firms accredited by the Society. The exams are held by the society during the months of May and November of each year. The board of directors of the Society is composed of fifteen members, and its employees are about twelve employees headed by the executive manager of the society. 10 Royal Decree dated 24 April 194 6

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13 The Auditing Profession in Egypt Special Registers s Due to the lack of profe essional qualification through exams for certified accountants, some sup pervisory authorities have made special registers for the auditors who sh hall carry out the auditing of the entities that fall under their supervision; an example of which are the Central Bank of nancial Supervisory Authority, The Egyptian Egypt, the Egyptian Fin Insurance Supervisory Authority, and the Egyptian Mortgage Finance Authority; as these authorities have laid down certain prerequisites for being recorded in their registers which include efficiency and high qualification of the auditors who shall be assigned q g to audit the accounts of these companies. Oversight Board B 11 A unit was established in the Egyptian Financial Supervisory Authority (EFSA) which is respon nsible for registering the auditors, inspecting, monitoring and followin ng up their work. The unit is recently under the process of preparation in order to carry out its inspection whether through appointing high hly qualified inspectors or preparing the necessary programs required for performing p their work. 11 EFSA Board resolution No. 24 for the year

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15 The Auditing Profession in Egypt 15 The Proposed Law of the Profession Since more than three years, the professional accounting community has been trying to enact a new law for the profession to be presented and ratified by the Egyptian parliament. The most important features of this l aw are as follows: First: The certified public accountants who are authorized to carry out the auditing process, must pass certain professional exams in order to be qualified for performing their work as customarily applied in most of the developed countries. Second: The auditor must have appropriate professional training during his qualification period, while the equivalent positions which substitute the required profession nal training shall be revoked. Third: Professional firms shall be allowed to be formed in order to work side by side with individuals offices and that is for the purpose of boosting and developing the profession, which currently requires lot of investments; and moreover, surrounded by many professional risks which the firms are cap pable of meeting more than the individuals. Fourth: On an annual basis, the auditor must fulfill the requirements of Professional Continuing Education according to the rules required by the profession, and in order to get the Egyptian auditors to be aware and up to date with the current standards in practice and widely known on the international level, not only in the field of accounting and auditing, but also in all fields related to such profession. 11 EFSA Board resolution No. 24 fo r the year 2009

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18 The Auditing Profession in Egypt 18 Cairo Office Pyramids Heights Office Park Km 22 Cairo / Alexandria Desert Road Al Ahram P.O.Box 48 Al Ahram Giza - Cairo Egypt Tel: (202) Fax:(202) Alexandria Office 12 Nouh Affandi Street El Soltan Hussein El Pharaana Alexandria Egypt Tel: (203) /52 Fax: (203) Egypt Disclaimer The information contained herein is of a general nature and is not intended to address the circumstances of any particular individual or entity. Although we endeavour to provide accurate and timely information, there can be no guarantee that such information is accurate as of the date it is received or that it will continue to be accurate in the future. No one should act upon such informationn without appropriate professional advice after a thorough examination of the particular situation. Egypt Copyright 2010 KPMG Hazem Hassan, the Egyptian member firm of KPMG International, a Swiss cooperative. All rights reserved. Printed in the Arab Republic of Egypt. The KPMG logo and name are trademarks of KPMG International. KPMG International, as a Swiss cooperative, is a network of independent member firms. KPMG International provides no audit or other client services. Such services are provided solely by member firms in their respective geographic areas. KPMG International and its member firms are legally distinct and separate entities. They are not and nothing contained herein shall be construed to place these entities in the relationship of parents, subsidiaries, agents, partners, or joint venturers. No member firm has any authority (actual, apparent, implied or otherwise) to obligate or bind KPMG International or any member firm in any manner whatsoever. Designed and produced by KPMG s Egypt Design Services