www.InternationalAccountingBulletin.com
April 2016 Issue 560
After oil
Middle East focuses on
economic diversification
●● IFAC’s SMP survey
●● International Women’s Day
●● Iran: The end of isolation
●● Rankings: Middle East
IAB 560.indd 1
05/04/2016 12:06:51
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CONTENT
International Accounting Bulletin
NEWS
Editor: Vincent Huck
Tel: +44 (0)20 7406 6709
Email: vincent.huck@uk.timetric.com
Contributor: Carlos Martin Tornero, editor
sister publication The Accountant
Tel: +44 (0)20 74066705
Email: carlos.tornero@uk.timetric.com
Picture credits: Maxuser (cover),
Lightspring (P1), estudio Maia (P6-7)/
Shutterstock.com
Managing Director - Briefing
Services: Ana Gyorkos
Tel: +44 (0)207 406 6707
Email: ana.gyorkos@timetric.com
■■New competition: financial services firms at
risk
■■Angola’s accountancy profession heralds
expected tough emergence
■■Deloitte replaces KPMG for audit of Bulgarian
Telecomunication Company
■■USA private companies divided on the
importance of 2016 presidential election
■■Data analytics is changing forensic
accounting
02-03
MIXED TRANS-TASMAN VIEWS ON IFRS
Users of financial reports in
New Zealand and Australia are
overall satisfied with the current state of financial reporting
but have identified room for
improvement,
FEATURES
04&09
IS THE WORLD A VILLAGE?
Globalisation has been a keyword in the business world for decades, and yet it appears that for smaller actors the local market is enough,
and international connections hold few benefits. Vincent Huck looks at some of the results of IFAC’s latest global SMP survey
IRAN: THE END OF ISOLATION
Publisher: Ameet Phadnis
Tel: +44 (0)207 406 6561
Email: ameet.phadnis@timetric.com
Subscription Enquiries: Sharon Howley
Tel: +44 (0)20 7406 6615
Email: sharon.howley@timetric.com
Director of Events: Ray Giddings
Tel: +44 (0) 203 096 2585
Email: ray.giddings@timetric.com
Sales Executive: Alex Aubrey
Tel: +44 (0) 203 096 2603
Email: alex.aubrey@uk.timetric.com
Following the nuclear deal between the Islamic Republic of Iran, the permanent members of the United Nations Security Council and
the European Union, Abbas Vafadar, senior partner and managing director of audit firm Azmoon Pardaz Iran Mashhood and Iranian
Association of Certified Public Accountants high council member speaks to Vincent Huck.
COMMENTS
05-08
CALLING FOR A GENDER CONFIDENCE GAP
We’ve all heard of the ‘gender pay gap’, but a ‘gender confidence gap’ could also have a part to play when it comes to continued inequality
in sectors like finance, Olivia Hill, Chief HR Officer at Association of Accounting Technicians (AAT), writes.
DEBATE
For more information on accessing
International Accounting Bulletin content
online, including a five-year archive,
please telephone +44 (0)20 406 6579
Is the accountancy industry still a white, male-dominated space?
London Office
40-42 Hatton Garden, London, EC1N 8EB
CFA Institute director of financial reporting policy Vincent Papa gives his views on the recently released report by EFRAG and ICAS on professional investors and the decision usefulness of financial reporting.
Asia Office
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#04-02J, Maxwell House
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vrlfinancialnews.com.sg
CONTEXT INFLUENCES INVESTOR USE OF FINANCIAL STATEMENTS
REGIONAL SURVEY: AN ELUSIVE MIDDLE EAST
11-13
COMPREHENSIVE VIEWS FROM THE LOCALS
11-23
Financial News Publishing Ltd, 2015
Registered in the UK No 6931627
ISSN 0265-0223
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RANKINGS: MIDDLE EAST
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IAB 560.indd 1
BAHRAIN
LEBANON
EGYPT
OMAN
IRAQ
PALESTINE
ISRAEL
QATAR
JORDAN
SAUDI ARABIA
KUWAIT
UNITED ARAB EMIRATES
24-25
April 2016 y 1
05/04/2016 12:06:58
NEWS
New competition: financial services firms at
risk
Traditional financial services firms believe their
businesses are at risk due to advance in technology
and the success of financial technology companies, a
global survey by PwC has found.
PwC survey of 544 CEOs, head of innovation,
CIOs and top management involved in digital and
technological transformation across the financial
service industry in 46 countries found that 83% of
respondents from traditional financial services firms
believe part of their business is at risk of being lost
to standalone financial technology companies. This
figure rises to 95% in the case of banks.
Financial technology companies themselves
anticipate they could capture 33% of the traditional
firms’ business, according to the survey.
Sixty seven percent of traditional firms ranked
pressure on profit margins as the top financial
technology related threat, followed by loss of market
share (59%).
“FinTech is shifting the paradigm of traditional
intermediary roles by making them obsolete. While
FS organisations have acted as intermediaries in the
financial system by providing an invaluable service
to clients, their functions are being usurped by new
technology-driven business models,” Manoj Kashyap,
PwC Global financial services fintech leader said.
Given how fast technology is developing,
incumbents cannot afford to ignore FinTech, he
continued. “Nevertheless, our survey has shown
that a non-negligible 25% of firms do not deal with
FinTech companies at all. With the pace of change
now occurring at increasingly faster intervals, no FS
business can rest on its laurels.”
Angola’s accountancy profession heralds
expected tough emergence
Angola’s profession has kick-started an official
regulatory system and created a defined framework of
accounting standards.
Currently, national firms follow IFRS, IAS or local
accounting plans. But one local source told The
Accountant: “When I am asked if I follow the rules
according to international standards of course I have
to say yes. I try to comply with everything, but inside
our country it is not mandatory.”
Spurred on by the Angola Ministry of Finance’s
ongoing banking reforms, including the legislative
need for most banks to produce audits, a new
Professional Body of Accountants and Accounting
Experts of Angola (OCPCA) plans to regulate the
accounting profession. OCPCA was established in
December 2014. However steering committees had
been working on its preparation since 2011.
“Seems too long, doesn’t it? It was a big fight to
establish OCPCA, but finally the government gave the
green light to go forward,” Carlos Pinho, managing
partner at BKR’s Angolan member firm ACE, told The
Accountant. Pinho also sits on OCPCA’s disciplinary
board. According to him, while the new professional
body is working hard to create a framework for
officially accepted accounting standards, already
having previewed several regulations, the whole
process will take time to complete.
Deloitte replaces KPMG for audit of Bulgarian
Telecomunications Company
Bulgarian Telecomunications Company EAD (BTC) has
2 y April 2016
IAB 560.indd 2
International Accounting Bulletin
appointed Deloitte Audit OOD as its auditors replacing
KPMG Bulgaria OOD.
Deloitte will be BTC’s auditor commencing with the
audit of the accounts for year-end December 2015.
The announcement was made to the Irish Stock
Exchange earlier this week.
“If you are collecting evidential data, you are
working to police standards,” he explains.
“You undertake notes in the bagging and tagging
of evidence and bar coding to make sure the evidence
is permissible in court. You can destroy a case if not,”
Walker warns.
USA private companies divided on the
importance of 2016 presidential election
ESMA publishes report on the activities of EU
accounting enforcers
Over a third of USA companies surveyed by PwC USA
believe the 2016 presidential election is unimportant
for the companies’ growth agenda in the next several
years.
Companies were asked: “How important will the
2016 elections be to private companies’ groth agenda
in the next several years?” While 37% responded it
will be unimportant, 31% replied ‘very important/
critical’ and 32% replied ‘moderately important. Only
11% of respondent said there were delaying decisions
to await the election’s outcome.
Asked which themes discussed by presidential
hopefuls they were paying particular attention
to, tax reform topped the list for surveyed
executives. This was followed by increased capital
availability, infrastructure spending and increased
manufacturing.
The European Securities and Markets Authority
(ESMA) has published an overview of its activities as
well as the activities of accounting enforcers in the
European Economic Area when examining compliance
of financial information provided by issuers listed on
regulated markets in FY15.
The report found that ESMA and European
enforcers have strengthened supervisory
convergence in the area of enforcement of financial
information. For example, the number of accounting
issues discussed by the enforcers before taking
enforcement decisions increased significantly:
65 emerging issues in 2015 again 47 in 2014. This
contributed to enhancing supervisory convergence
as enforcers should take into account the outcome of
these discussions when taking decisions, according
to ESMA’s report.
Overall, enforcement actions have been taken
against a quarter of the issuers included in the
sample of 189 issuers. In many cases, enforcement
actions cover several areas of the same set of IFRS
financial statements. In relation to the application
of the new consolidation package, ESMA and the
European enforcers acknowledge the good quality of
application of IFRS requirements in the 2014 financial
statements.
ESMA believes that there is still room for
improvement in the application of the IAS 12
requirements related to recognition, measurement
and disclosures of deferred tax assets arising from
tax losses.
Data analytics is changing forensic accounting
The advent of technology has quite literally changed
the face of accounting.
Today financial information exists in countless
formats - from spreadsheets, digital banking tools,
company portals, apps, PDFs, mobile phones, and
emails.
To ease the complex process of data extraction,
forensic accountants are teaming up with technology
experts.
“We work hand in hand with the IT groups of
companies we investigate,” said Mitch Hirsh forensic
accounting and dispute services partner at RSM US.
“We also have technology staff members at RSM
that assist us in data mining and in imaging hard
drives so that we can effectively to retrieve data
without fear of it being compromised”, he explains.
Demand for big data technology and services
is growing. According to the International Data
Corporation (IDC), this market will be worth $41.5
billion by 2018.
In amongst IDC’s trends to watch out for in 2016
is driving real-time analysis to enhance clientsatisfaction and applying analytics to specific
problems, such as fraud and risk prevention.
“If someone is writing cheques to them self or is
paying their own personal credit card with company
funds or embezzling money, where technology could
come into play is that you get hold of the person’s
work computer and find that they are booking
vacations to Ohio or have a gambling problem,” notes
Crowe Howarth LLP’s director of advisory and forensic
technology services Tim Bryan.
Even if carefully concealed, financial anomalies
are recognised through statistical testing
and e-discovery services - such as Benford’s
law, analysing internal correspondences for
inconsistencies and validation of the data’s source.
But in terms of standards used by the data analyst,
head of forensic technology and discovery services
at EY UK Paul Walker emphasises there is a ‘defined
methodology’ around the life cycle of an any project.
UK FRC launch consultation on audit
enforcement procedure
Ahead of the EU audit regulation and directive
coming into effect in June of this year, the UK
Financial reporting Council (UK FRC), has launched a
consultation on proposals for the audit enforcement
procedure.
The procedure will apply to the investigation and
sanctioning of breaches of the various requirements
of the statutory auditors of Public Interest Entities.
The proposed new Audit Enforcement Procedure
will, in relation to statutory audit cases, replace
the FRC’s existing sanctions procedure and
disciplinary tribunal scheme and will provide a single,
streamlined procedure for audit enforcement.
The consultation is open until 4 May 2016
FSB’s TCFD publishes consultation
The Task Force on Climate-related Financial Disclosures
(TCFD) of the Financial Stability Board (FSB) has
published a consultation seeking stakeholders’ views
on the existing climate disclosures initiatives.
The consultation is aimed at addressing what
constitutes relevant disclosures and sets out the
scope and objectives of the next phase of the TCFD’s
work, chaired by Michael Bloomberg, after its
creation in December 2015. A final report with the
findings will be published by the end of this year.
www.InternationalAccountingBulletin.com
05/04/2016 12:06:58
NEWS
International Accounting Bulletin
Mixed Trans-Tasman views on IFRS
Users of financial reports in New Zealand
are overall satisfied with the current state of
financial reporting but have identified room
for improvement, according to research by
the New Zealand External Reporting Board
(XRB).
This is the first research on user’s needs
conducted since New Zealand’s adoption of
IFRS in 2007.
XRB surveyed 155 users from the investors’ (46), lenders’ (25), intermediaries’ (72)
and regulators’ (12) communities.
The research found that the changes in
corporate reporting for New Zealand listed companies have been positive but must
continue to evolve. Seventy nine percent of
respondents use corporate financial reports.
But while 31% see financial reports as
their primary source of information, 35%
rely on advisors and analysts’ reports.
Seventy six percent of respondents find
all financial statement information useful
and 54% said they do not require any other
information in the financial statements.
However requirements for more detailed
statements vary greatly from one surveyed
population to the other. Seventy five percent of intermediaries do not want more
information, while 73% of surveyed investors say they want more information in the
financial statements.
Overall 46% of respondents want more
information and this includes: comparisons
between actual targets/budgets, enhanced
segment reporting, more detailed cash flow
information, and more information on credit facilities, borrowings, loans.
Equally 48% of respondents need more
information in the financial report, in
particular regulators (75%) and investors
(64%). In essence, they ask for more information on business strategies and prospects, narratives that explain financial performance and position, information about
entity’s business and summary financial
information.
Overall respondent suggest improvements
in reporting through:
• Greater consistency in the format
presentation of financial statements
• Simplifying and standardising reporting and the language used
• Improving disclosures on contingencies guarantees
• Obligations and related party transaction
• Providing 5-year summaries on key
performance indicators and forecasts
• Providing more non-financial and
sustainability information
• Improving timeliness of reporting
“The research confirms the approach
taken by the XRB: we will continue to
follow international standards, working
closely with international standard setting
boards, to ensure their outputs are suitable
for adoption and implementation in New
Zealand,” ERB chairman Graeme Mitchell
said. “Our team will continue to participate
in international projects, and we will facilitate and encourage the corporate reporting
debate in New Zealand.”
Australia
ards Board (AASB) has published the preliminary findings of a review of IFRS adoption
in Australia.
The preliminary findings, based essentially on the review of academic literature,
show that IFRS adoption had a positive
outcome through improvements in the relevance of accounting reports. The review
also suggested that the adoption of the IFRS
goodwill impairment regime improved
accounting quality.
However the review suggested that measures of accounting quality have remain
stable or consistent with Australian GAAP
and that prior Australian GAAP treatments
for identifiable intangible assets were more
appropriate.
While some literature suggested positive
results in terms of comparability of Australian financial reporting practices with global
peers, not all literature agreed.
IFRS adoption by Australian companies
appears to have had a positive outcome for
investors and analysts, based on research
revealing improved analyst forecast accuracy.
The review also revealed a degree of pessimism by managers around the time of
IFRS adoption towards many of the possible
benefits from accounting convergence.
AASB concluded that given the mixed
results of the literary review as well as the
lack of academic literature examining all
aspects of the possible impact of IFRS adoption in Australia, the board would carry
on further research and conduct outreach
activities to gather views form preparers
and users of financial statements.
Similarly the Australian Accounting Stand-
Obama administration to close tax loopholes in Delaware, Nevada and Wyoming
Robert Stack, deputy assistant secretary
(International Tax Affairs) at the USA
Department of the Treasury, announced in a
recent interview that the Obama administration was working on a law to end tax secrecy
in the considered tax heavens of Delaware,
Wyoming and Nevada.
Speaking to French newspaper L e
Monde, Stack said the new rule would apply
to offshore companies incorporated in those
states and would require them to disclose
their shareholders, which thus far was not a
legal requirement.
“It is unacceptable that business enti-
www.InternationalAccountingBulletin.com
IAB 560.indd 3
ties are created on our territory without us
knowing who their shareholders are and
what the purpose of these entities are,” he
told Le Monde. “It is a loophole in our regulation and we have to close it.”
However Robert Maas, tax consultant
at CBW (DFK International), said it would
be difficult for the Obama administration
to deliver on this unless it signs up to the
OECD’s Common Reporting Standard
(CRS).
“They have two major problems before
they can do so,” Maas said. “The first is
that Congress has made clear that it is not
going to pass any more of Obama’s legislation, so it is hard to see how this can happen
during Obama’s presidency.”
The second, he continued, is that CRS
undermines banking confidentiality as it
requires a country’s domestic banks to give
its tax authority specified information in
relation to accounts held by residents of
other CRS assenting countries. “And in
the USA bank regulation is split between
the Federal and State Government and
most States do not take kindly to the Federal government seeking to interfere in their
affairs.”
April 2016 y 3
05/04/2016 12:06:58
FEATURE
IFAC SMP SURVEY
International Accounting Bulletin
Is the world a village?
Globalisation has been a keyword in the business world for decades, and yet it appears that for smaller
players having a local reach is enough, and international connections hold few benefits. Vincent Huck
reports
N
early half of the 6,725 small and
medium practices (SMP) surveyed
for the International Federation of
Accountants’ (IFAC) annual global
SMP survey have no interest in joining a network, association, or alliance of firms. Only
28% of respondents reported that their SMP
belonged to a network (11%), association
(10%), or alliance (7%), and 24% indicated
that their practice was considering joining
one.
For IFAC SMP committee chair Giancarlo
Attolini, this is a typical case of whether one
looks at the glass half full or half empty. He
is more optimistic, and points to the fact that
52% of respondents have joined or are in the
process of joining an international organisation. “In our view this shows a great interest
in networks and associations,” Attolini says.
“But of course you can look at the other
48% and say that almost half of them are
not interested.”
Nevertheless, Attolini says that one needs
to dig into the data and look at the answers
in relation to the respondents’ size in order
to gain the full picture. “You will see that the
larger the practice, the more likely they are
to have joined or are considering joining an
international organisation,” he says. “So, I
wouldn’t interpret it as a lack of interest, I
would say it is a growing interest.”
When asked for reasons why the other
48% are not interested in international affiliations, Attolini says that while the survey
doesn’t ask the question, he (being an SMP
practitioner) explains it by the lack of international activity by SMP clients, and that
there is therefore no need for international
affiliations.
Bodo Richardt, president of the European
Federation of Accountants and Auditors
for SMEs (EFAA), gives a slightly different
commentary on the survey results. On first
reading, he says, the numbers are surprising
given that some of the most important challenges that SMPs face have a major international dimension.
4 y April 2016
IAB 560.indd 4
“Take the most pressing issue for Europe’s
SMPs for example - keeping up with standards and regulations (54% of respondents),”
Richardt says. “This challenge clearly has to
be addressed on a European level, where the
frame for national legislation is set for SMPs
and their SME clients.”
Richardt goes on to explain that upon
closer inspection of the survey, one sees that
80% of the respondents were sole practitioners and small SMPs.“For most of these small
SMPs, being part of an international network or an international association might
feel at odds with their passion to drive their
own future and create their practice exactly
how they want it,” he continues. “And it
might be impractical for them to become
personally engaged, due to the time and
resource constraints they usually face.”
It is in any case important for small SMPs
to realise that they are not spared from decisions taken at the international level, Richardt warns. “The larger SMPs obviously see
the benefits.”
Like Attolini, Martin van Roekel, CEO
at BDO International, points to the lack
of international clients as an explanation.
“Most likely, many SMPs don’t have clients that need international services and as
a result there is no real need for them to be
part of an international network, association
or alliance, unless they see business benefits
in having an international brand as a result
of being a member of an international organisation,” he says.
Although only 28% of SMPs are part of
an international network, association or
alliance it is interesting to see that 24% of
the SMPs are considering joining one, Van
Roekel continues. “This might be an indication that they see business benefits in becoming a member of an international organisation as a result of more of their clients getting
(more) international activities.”
However, the survey also looked at the
international activity of SME clients and
found that only 13% of them had no activ-
ity, while 74% deal in import and export of
goods or services. Many SMEs import and
export goods, Attolini says. “That requires
services in custom regulation, VAT, tax, border control, how to move goods from one
place to the other. But you can do that from
your own jurisdiction and you don’t need a
foreign office working with you. Actually,
most SMEs’ import and export paperwork
is dealt with by a shipping agent or someone
who is not a SMP accountant.”
The survey results highlight a clear divide
between the SMPs in mature economies and
those in emerging countries. The regions
with the largest number of respondents considering membership were: Africa (35%),
the Middle East (32%), Asia (30%), and
Central and South America and the Caribbean (29%). On the other hand, in Australasia and Oceania (69%), Europe (60%)
and North America (51%), a majority of
respondents said they were not considering
an international affiliation.
For Attolini this comes down to the nature
of the markets. “If you look at Africa and
Asia, they have much more dynamic and
forward-looking economies than the old
Europe,” he says.
“Africa in particular is a place of growth
and a region where most networks and associations are looking to increase their presence and dealings. I predict that interest in
international affiliation will only grow in the
future in this region.”
Attolini wishes it would be the same situation in Europe, but he says European SMPs
have become comfortable with the status
quo in terms of doing it alone, and they are
struggling to reinvent themselves in a changing economy.
Six thousand seven hundred and twenty
five practitioners from 169 countries replied
to the survey. Of these, 41% were from
Europe, 26% from Asia, 15% from Africa,
8% from Latin America, 5% from the Middle East, 3% from North America and 2%
from Australasia and Oceania. <
www.InternationalAccountingBulletin.com
05/04/2016 12:06:58
INTERNATIONAL WOMEN’S DAY
International Accounting Bulletin
s
COMMENT
Calling for a gender confidence gap
We’ve all heard of the ‘gender pay gap’, but a ‘gender confidence gap’ could also have a part to play when
it comes to continued inequality in sectors like finance, Olivia Hill, Chief HR Officer at Association of
Accounting Technicians (AAT), writes
T
he gender pay gap has come into
sharp focus again in recent weeks,
particularly as a result of International Women’s Day which, last month
asked the social media users among us to
#PledgeForParity.
This is also an issue that was courted by
some of the biggest players in the finance
and accounting industries, with the likes
of PwC, Deloitte and finance recruitment
specialists Marks Sattin and Robert Half
all producing figures on the gender pay gap.
In fact, Robert Half’s data indicates that
women could be missing out on as much as
£300,000 ($431,722.5) in salary when compared to men over a working lifetime.
It is clear that, the so called ‘gender pay
gap’ is sadly, still very much a part of today’s
so called progressive labour market.What’s
more the UK finance sector is considered to
be one of the most sluggish when it comes to
progress on this issue.
In fact, this is something that has been
recognised in an official capacity as part of
a recent government-backed review called
Women in Finance which shows that the
sector is lagging behind when it comes to
ensuring not only equal pay, but that there
are equal opportunities for progression
regardless of gender.
It is clear from the media column inches,
and the considerable weight being thrown
behind the issue by the government that
more needs to be done – particularly in the
finance sector.
Gender confidence gap
However, to truly address the gender pay
gap we need to look beyond these three
words and see what factors are at play in
retaining the status quo.
Recent research by my own organisation,
AAT, which focuses on the UK finance sector, suggests that although the gender pay
gap is still a burning issue, a ‘gender confidence gap’ may be another important, contributory factor.
www.InternationalAccountingBulletin.com
IAB 560.indd 5
For example, our recent investigation
reveals that men working in one of the UK’s
biggest sectors (finance) believe they should
be paid £11,900 more than the amount they
are currently earning. In comparison, it’s
almost half that figure for women at just
£6,850.
What’s more, almost half of women
(48%) know or suspect that their male colleagues are earning more than them when
doing the same role.
When it comes to actually asking for a pay
rise, our research reveals that men are twice
as likely as women to ask for – and get – a
pay rise.
In addition, the difference in salary assertiveness between men and women is also
highlighted in our data with twice as many
men wanting to earn £10,000 or more on
top of their current salary (28% vs 14%),
while three times as many think they should
earn double their current salary (6% vs 2%).
Given this difference in salary assertiveness, its little wonder that a gender pay gap
continues to have a hold on the sector.
men and women at different seniority levels as part of a range of reforms aimed at
securing real equality for women. To highlight where the gaps in pay and opportunities need tackling most, the government also
plans to publish the pay gap by sector.
Tradition still prevails
UK financial sector
What’s even more revealing from our data is
that women see the ‘old boys club’ mentality as throwing up barriers to their own progression within finance organisations (cited
by 42%) along with a further 35% saying
that male-domination at a senior level also
had a role to play.
Interestingly, 28% of female respondents
also citied childcare responsibilities as creating a barrier to progression; females are still
traditionally expected to take the lion’s share
of childcare responsibilities.
Last month the government took positive
steps to try and redress the gender balance.
It announced that new league tables will
be used to publish pay gap data – exposing
larger companies that are failing to address
the gender pay gap.
In addition, these companies will be
required to report on the representation of
With a focus on the UK finance sector, the
AAT is also committed to championing
positive steps forward in tackling gender
inequality. Armed with the data from its own
recent investigation of the sector, the AAT is
looking to provide the information and guidance organisations need.
One recent example of this can be seen
in the AAT’s recent publication of its Making the Finance Sector Add Up For Women
white paper.
This online document is easily accessible
for all types and sizes of organisation in
the finance sector, and provides the insight
needed to identify types of unconscious and
conscious bias in the workplace.
What’s more the white paper also provides
a number of steps organisations can follow
to ensure that gender inequality is tackled
and avoided. <
April 2016 y 5
05/04/2016 12:06:59
COMMENT
INTERNATIONAL WOMEN’S DAY
International Accounting Bulletin
Debate highlights: Is the accountancy
i
To celebrate International Women’s Day, Carlos Martin Tornero engages in a global dialogue with female
accountancy leaders, who perceive significant change in attitudes, yet certainly not enough. What follows
are some excerpts of their contributions
Andrea Serejski , Buenos Aires, Argentina. Partner, SMS - San
Martín, Suarez y Asociados (SMS Latinoamérica): “Twenty-two
years ago I was working as a manager in the Buenos Aires office
of the former Arthur Andersen, when I had my first child. After
my leave, I decided to return to my job but something important
had changed in my life. So I decided to ask for a part time work.
There was no other similar case, no other mother manager, and
consequently my request shocked my bosses.”
Brigitte Schuler , Aachen,
Germany. Partner and founder,
Fidaix (PrimeGlobal): “Often
I see women giving up if they
have a male competitor without
asking themselves who the
most suitable for the promotion
might be.”
Francesca Lagerberg , global leader
for tax services, Grant Thornton
International: “My daughter is currently
14. In the highly unlikely event that she
follows me in to the accountancy profession, I would like to hope that this debate
is of historical interest only and she will
see numerous role models to inspire her.”
Jean Stephens, global CEO, RSM International:
“As the only female CEO of a top ten global
accounting network, I am conscious that there
is still much to be done to further diversity.
[It’s] necessary to speed our progress towards
gender parity, which the World Economic Forum
estimates won’t be achieved until 2133 at the
current rate of progress.”
Annette Blaes , Saarbrucken, Germany. CEO,
actis ProTEAM Personalberatung (Alliott
Group): “While men who are professionally
dedicated are celebrated as successful ‘bosses’,
women are stigmatised as ‘bossy’[...] that
takes men to the top of the career ladder while
women are stuck in the elevator shortly before
reaching the top floor.”
Diane Medley , managing partner and co-founder of MCM
CPAs & Advisors in the US (Baker Tilly International): “This
year, 40% of our partner and principal roles are held by women,
which puts us well ahead of the national average. That being
said, 55% of our firm staff overall are women, which means we
aren’t quite keeping up the pace as women climb the ladder.”
Hilde Blomme , deputy CEO,
Federation of European
Accountants: “Looking back, the
thought of a woman holding a senior
level or Board position appeared despicable … to men.”
Joy Thomas , executive vicepresident, CPA Canada: “There is
evidence that demonstrates men are
promoted based on what they might
do – women are promoted based on
what they have done, so there are still
barriers for women to overcome.”
Linda Devonish-Mills , director
of technical accounting activities, Institute of Management
Accountants:: “Diversity in the
profession at senior level, C-suite
positions, along with senior level
volunteer opportunities is very
well hidden.”
Kirsten Patterson New Zealand country head, Chartered Accountants
Australia and New Zealand: “For our new provisional (graduate) members joining the profession the balance has already tipped the other
way, and they are now almost 60 percent female. What impact does
the feminisation of an industry have and what new issues are going to
emerge that are not currently in our historical experience? It’s something we need to watch to ensure women don’t – ironically – create the
reverse of the ‘bad old days’ for women accountants.”
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INTERNATIONAL WOMEN’S DAY
International Accounting Bulletin
COMMENT
industry still a white, male-dominated space?
Marcia Lin Beijing, China. Business consulting director, Lee & Lee Associates (Alliott Group): “Company
culture changes are needed to inspire women and
make them more confident. Senior management needs
to consider the gender diversity issue more seriously to
provide better opportunities to women.”
Nancy Altobello, global vice-chair - talent, EY: “The
business case is really quite simple: We need to build
a well-worn path for female leaders to tread upon, not
only today but for future generations. It’s about establishing role models and mentors for younger women in
the workforce and setting them up for success.”
Rita Hood, North American regional director, AGN
International: “I couldn’t disagree more: as an example, AGN
International currently employs a team of 3 men and 9 women
located throughout the globe - 4 of whom are the Regional
Directors for North America, Europe, Central and South
America.”
Shonagh Fraser, Aberdeen, Scotland.
Partner, Hall Morrice (PrimeGlobal):
“Society perpetuates the idea that
men do not have to take such an
active role in the day-to-day responsibility of caring for children.”
Uschi Schreiber, global vice-chair - markets, and chair of global accounts committee, EY: “Women remain under-represented
in senior roles in many important sectors, including STEM fields.
And as the pace of technological change is moving ever faster
and there is a growing need for people with technology skills, we
are at risk of leaving women even further behind.”
Marianne Smits-Smits , The Netherlands.
Partner and consulting director, HLB van Daal
& Partners:: “The female participation in the
accounting profession is still provocative. The masculine culture must also change. We have to work
together to tear down “the double-glass ceiling.”
Olivia Kirtley, president,
IFAC: “Diversity and inclusion in the accountancy
profession is not just the
right thing to do; it is a
business imperative.”
Sharron Gunn, commercial executive director,
ICAEW:: “When I first
qualified as a chartered
accountant, there were
no female partners or role
models. The face of decision making was male.”
Sue Perlin, partner, Plante Moran
(Praxity) and leader of Women in
Leadership Initiative: “Studies show that
companies with broad diversity perform
better. As a profession, we must be intentional about creating diverse environments
that attract not only women but also the
wealth of ethnically diverse talent.”
Valérie Ménard, Montreal, Canada.
Partner, Hardy Normand & Associés
(Alliot Group): “When I joined [the
firm] in 2004, the 6 partners were all
men. I was the second woman to access
partnership in 2012 and now 25 % of the
partners are women, with three of the
youngest being women!”
FULL CONTRIBUTIONS AVAILBLE ONLINE
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COMMENT
INVESTORS’ VIEWS
International Accounting Bulletin
Context influences investor use of financial statements
CFA Institute director of financial reporting policy Vincent Papa gives his views on the
recently released report by EFRAG and ICAS on professional investors and the decision
usefulness of financial reporting
T
he European Financial Reporting
Advisory Group (EFRAG), in collaboration with the Institute of
Chartered Accountants of Scotland
(ICAS), has recently issued a report containing some thought-provoking insights on how
the context of an investor’s decision - i.e.
valuation versus management stewardship
assessment - influences the priority assigned
to and use of financial statements. The conclusions of the study are based on inferences made from a sample of 81 institutional
investors and analysts reviewing a hypothetical European manufacturing firm’s financial
statements. The results show that the context of an investor’s decision influences the
relative importance which investors attach
to the primary financial statements (income
statement and balance sheet) and to the line
items within these statements.
The EFRAG-ICAS study is timely given
the general acknowledgement that financial
statement information is the lifeblood of the
capital markets, and that it is an integral
input into the analysis of performance, risk
and future prospects of reporting companies
by investors. Indeed, the accounting conceptual framework recognises investors as the
primary users of financial statements information. That said, participants involved in
the formulation of requirements for, supply
and quality assurance of financial information (i.e. accounting standard setters, auditors, securities regulators and CFOs) often
encounter a diversity of investor articulated
preferences; this creates a puzzle which
requires evidence to help substantiate the
specific application of financial statements
by different capital market participants.
Another factor which increases the relevance of the general line of enquiry undertaken by the EFRAG- ICAS study is that
there are several ongoing trends within the
corporate reporting landscape that have
challenged the primacy of mandated financial statement information in its relevance
as an input for valuation and performance
assessment purposes. These include the
proliferation of alternative performance
measures - also described as non-GAAP
measures - as well as the increase in the
weight being assigned by investors to other
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non-financial information, such as Corporate Social Responsibility Reporting. These
developments have increased the need for an
enhanced understanding of specific application of both financial and non-financial
information.
The EFRAG-ICAS study conclusions were
predicated on findings related to questions
aimed at unpacking what influences investors’ judgements on, and preference for,
financial reporting information.
The report highlights three specific conclusions which have implications for accounting
policy makers. Firstly, the research finds that
the information objective of financial statement users clearly matters for the design of
financial accounting standards. When investors have the objective of assessing managerial performance, they focus on information
which reflects managerial effort and tend to
discard information that may be relevant for
the value of a firm but is beyond the control
of current management, such as valuation
gains and losses on financial instruments or
changes in pension liabilities due to macroeconomic changes. This implies that standard setters need to make explicit statements
about potentially conflicting information
objectives. One size does not fit all and differing objectives appear to require different
measurement approaches.
Second, professional investors focus heavily on the income statement when making
both valuation and stewardship decisions.
They have strong reservations about the
representational faithfulness of bottom line
figures being negatively affected by managerial estimates and judgments, triggered by revaluations that relate to balance sheet line
items.
Third, the finding that investors view the
corporate governance of a firm as being
highly influential on the representational
faithfulness of financial reporting information. Hence, enhancing corporate governance ought to be considered when designing accounting standards to ensure a mutually complementary relationship between the
corporate governance and quality of financial reporting information.
Taking these three conclusions into
account, the study certainly illuminates on
the questions of application which it set out
to resolve, and it makes a
useful contribution to the mosaic of existing
knowledge therein. It should also enrich the
ongoing accounting standard setting considerations and debates within the conceptual
framework around the objectives of financial statements, and a suitable measurement
framework.
The spectrum of investor perspectives on
different financial statement elements and on
the priority of financial statements information, cited throughout, are quite insightful.
The paper also includes interesting findings
around non-GAAP measures and notes that
the general focus on the non-GAAP measure
EBITDA, combined with concerns about its
lack of standardisation and comparability,
calls for the development of a standardised
set of performance measures for the income
statement.
There are, however, questions on how far
to generalise the conclusions which have
been drawn.
These questions arise due to the following
parameters of the study: the focus on sector
specific financial statements, such as manufacturing, and the focus on evaluating investor perspectives based mainly on the balance
sheet and income statement. There is scope
to extend the insights presented in the paper
through an approach which explicitly tests,
and thereafter draws conclusions from investor perspectives on the Other Comprehensive Income (OCI).
Overall, this is a timely and thought provoking study on factors that influence investors’ perspectives on and application of
financial statement information.However,
there is likely a need to further extend the
study with a purpose of providing a comprehensive stakeholder understanding of investors’ financial reporting information preferences across different sectors and across
all the main financial statements. Such an
extended study could help guide accounting standard setters and would be particularly useful for the International Accounting
Standard Board (IASB) considerations for
enhancing its performance reporting requirements. <
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05/04/2016 12:08:29
IRAN
International Accounting Bulletin
FEATURE
The end of Iran’s isolation
Following the nuclear deal between the Islamic Republic of Iran, the permanent members of the United
Nations Security Council and the European Union, Abbas Vafadar, senior partner and managing director
of audit firm Azmoon Pardaz Iran Mashhood and Iranian Association of Certified Public Accountants high
council member speaks to Vincent Huck
International Accounting Bulletin: Since
you last spoke to our magazine, in early
2015, what developments have there been
in the Iranian accountancy market?
Abbas Vafadar: The demand for professional services in Iran can be divided into two
categories - routine services for domestic
companies and required services for foreign
investors and financers. The former category
has undergone very few changes if any, and
there has been reduced demand for it, due
to an omission of tax audit services from
the list of audit firms’ possible assignments.
Since passing the new direct taxes act, taxpaying entities no longer have the right to
appoint auditors of their choice for tax audit
purposes. As a result, tax audit assignments,
which were a considerable part of the audit
firms’ income, have vanished.
On the other hand, demand from foreign
companies seeking Iranian audit firms’ professional services is on the rise. After the
lift of nuclear-related sanctions imposed by
the USA, European Union and UN, foreign
investors have started studying the Iranian
market extensively.
Comprehensive market research requires a
deep understanding of the laws and regulations, including but not limited to legal corporate structures, corporate and labor laws,
tax laws, and social security regulations.
Knowledge of new specific rules related to
doing business with the outside, such as the
Foreign Investment Protection & Promotion Acts (FIPPA), is also necessary. In some
cases, in collaborative efforts, Iranian audit
firms have performed due diligence assignments under instruction of international
audit firms. Iranian companies have also
been approaching audit firms to prepare
their ‘Information Memorandum’ for foreign investors.
A different type of demand for services
is attributed to the IFRS based financial
statements. Iranian companies need to present their IFRS-based financials in order
to attract potential foreign investors. They
also need these statements for offering their
shares in the international stock exchanges,
as well as to request loans and lines of credit
from abroad.
I must remark, that out of 270 Iranian
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audit firms, only a handful have the professional capability for offering the aforementioned services.
International Accounting Bulletin: what is
the status of IFRS adoption?
Vafadar: First of all, it is necessary to know
how the Iranian Accounting standards are
set.
The Audit Organisation, under the Ministry of Economy and Financial Affairs, is in
charge of setting the accounting standards
in Iran. Currently, we have 32 accounting standards, which are based on IAS and
IFRS. These Iranian standards have not
been updated for some time, and although
some of them have been revised by IASB, the
changes have not been implemented. Some
IFRS have neither been translated nor implemented in Iran.
On top of these problems, we are facing
several other obstacles in implementing IFRS
in Iran. Unless relevant tax laws are amended to be compatible with IFRS implementation, companies will face serious corporate
tax implications. Finding a reliable mechanism for establishing fair values according
to IFRS is another outstanding issue. Lack of
familiarity with these standards, specifically
‘first-time adoption of IFRS’ also remains a
significant challenge.
The aforementioned problems make us
realise that adoption of IFRS and the replacing of national standards does not seem realistic, at least for the near future.
Having said that, the Audit Organisation
has authorised the Security and Exchange
Organisation to enforce IFRS adoption by
listed companies. According to the Audit
Organisation approval, dated 19 June 2012:
“Those companies and financial institutions registered by Securities and Exchange
Organisation (SEO), which are selected by
SEO, and their subsidiaries and associates,
should apply IFRS in preparation of their
financial statements from the date specified
by SEO”.
Also, on 11 January 2014, the SEO stated:
“All the listed companies, financial institutions and their subsidiaries and their associates in SEO are permitted to prepare consolidated financial statements in accordance
with IFRS from 20 March 2013 onwards. In
this regard, the parent company is required
to prepare its separate financial statements
based on Iranian Accounting Standards
while preparation of consolidated financial statements in compliance with Iranian
Accounting Standards are not mandatory.
However, the preparation of separate financial statements in accordance with IFRS for
parent companies are permitted.”
It is worth mentioning that the SEO is
considering to require big listed companies
to comply with IFRS in their reporting as
of Islamic calendar year 1395 (20th March
2016 – 20th March 2017).
As a result, three committees have been
recently set up by the SEO which focus on
IFRS adoption, namely:
1) The technical committee, which has the
responsibility to translate IFRS and prepare
related manuals.
2) The fair value committee, of which I am
a member.
3) The education and training committee.
It is expected that for the first year, 10
big listed companies will be selected and
required to apply IFRS.
As I mentioned before, at this stage, the
national accounting standards will not
change, and thus the selected listed companies must continue to prepare their financials
based on the national standards as well. Tra-
April 2016 y 9
05/04/2016 12:08:30
FEATURE
IRAN
ditional financial statements are required for
domestic legal compliance matters such as
tax etc.
However, any company that keeps an eye
on foreign capital or finance has no choice
but to present its financials based on IFRS
for international business. As an example,
the trade/investment insurance programs
Hermes, from Germany, and Sace, from Itlay,
have already announced that Iranian companies wishing to use their services extensively
have to prepare their financials based on
IFRS.
For this reason, many big companies active
in the petrochemical field and the steel industry, as well as Iranian banks, are looking to
prepare their financials based on IFRS.
These fast moving developments after a
long period of isolation, combined with lack
of adequate experience in this area make it
inevitable to collaborate with international firms to use their experience especially
towards ‘first-time adoption of IFRS’.
International Accounting Bulletin: With the
nuclear deal and the lifting of sanctions, are
there more ties with international networks
and associations?
I understand that PwC and EY are on the
verge of announcing member firms in Iran.
Do you have any information? Any another
official announcement in the pipeline?
Vafadar: First of all, I should emphasise
that the presence of big international audit
firms in Iran is unavoidable. Iran needs the
experience and knowledge of big international audit firms to carry out a wide range
of services, including risk-based audit, due
diligence, M&A, and internal controls, in a
professional and proper manner.
On the other hand, the presence of foreign
companies calls for the presence of auditors
in Iran. And according to Iranian auditing
regulations, the only authorised signatories
of audit reports are Iranian partners of Iranian audit firms, who are also members of
the Iranian Association of Certified Public
Accountants.
This means that international audit firms
cannot simply open a branch in Iran and
have their internationally qualified employees acting as auditors, unless they are Iranian
nationals and Iranian CPAs. Such firms cannot even officially become partners of Iranian firms.
Based on this, the only way to have an
active lawful presence in Iran is through an
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International Accounting Bulletin
Iranian audit firm with Iranian CPAs as partners.
Therefore, it seems that it would be easier
for international networks of independent
audit firms acting under one name to enter
the Iranian market.
On the other hand, there are very few
Iranian audit firms that may be suitable for
partnering with international firms. Generally speaking, the majority of Iranian audit
firms are only involved with traditional audit
services. There are only a handful of audit
firms that have well-equipped information
technology, tax and advisory departments, as
well as staff with international qualifications
to carry out professional advisory services.
Let me try to summarise the history of the
largest international audit firms’ presence in
Iran. PwC, the biggest audit firm worldwide,
is probably the most popular in Iran, and this
goes back to the pre-revolution presence of
Coopers & Lybrand in our country. In 1978,
Coopers had 800 staff members in its office
in Tehran. If I remember correctly, their Tehran office was the fifth largest office internationally. To put this in perspective, 36 years
later, Azmoon Pardaz Iran Mashhood Audit
firm (currently the biggest private audit firm
in Iran) has less than 300 professional staff.
To the best of my knowledge, PwC has not
yet made an agreement with an Iranian firm
to become a member firm in Iran.
Deloitte, the second biggest audit firm,
has never had an official presence in Iran,
although it has previously entered into contracts for rendering services in Iran. Considering that nearly 45% of Deloitte’s revenue
is from the USA, and given the poisonous
political atmosphere between the USA and
Iran, it seems unlikely in the short term to see
Deloitte entering the Iranian market.
Tadvin & Co. used to be EY’s Iranian
member firm, so it is the likely candidate for
EY in Iran.
Bayat Rayan Audit used to be KPMG’s Iranian member firm. There have been rumours
that KPMG has contacted other firms to
explore possible membership opportunities.
BDO, the fifth biggest audit firm worldwide, has not had a presence in Iran for 35
years. BDO, unlike the Big Four, doesn’t have
regional firms, but is a network of independent audit firms.
Considering the aforementioned legal
aspects, I believe that BDO has a more suitable structure for conducting business in Iran.
As far as I know, BDO has also had talks
with Iranian audit firms.
Grant Thornton also had a member
firm, Raymand & Co, before the sanctions.
Despite news of Grant Thornton communicating with some Iranian firms, I think their
most likely candidate is Raymand & Co.
I must raise an important point for big
audit firms who are seeking entry into the
Iranian market. Although it is true that sanctions related to nuclear disputes have been
lifted, Iran is still under other USA-imposed
sanctions, which may result in complex
issues.
According to these sanctions, USA companies or companies with USA employees
need general or specific licenses from the
Office of Foreign Assets Control (OFAC) in
order to operate in Iran. To my knowledge,
so far, none of the big six international audit
firms have been successful in attaining these
licenses.
However, according to some sources,
things may change in April or May 2016.
Naturally, until then, nobody expects official
announcements from any firms regarding an
introduction of their members and the start
of activities in Iran.
International Accounting Bulletin: In light
of the recent deal, are Iranian professionals
optimistic? What challenges and opportunities do you foresee for your firm and Iranian
firms in 2016/2017?
Vafadar: After a long period of isolation,
entrance of foreign investors and international audit firms to the relatively intact Iranian
market provides numerous opportunities for
mutual benefit.
It will definitely revolutionise the field of
auditing and accounting in Iran, and will
bring prosperity to many firms active in this
sector.
However, the challenges Iranian audit
firms are facing in order to adapt to the international professional standards are serious.
They need to meet the expectation of their
clients on assurance, advisory and tax services with respect to the standards.
Obviously, the Iranian firms which become
member firms of the big international audit
networks will have a much more important
role to play in this emerging and competitive
market.
Overall, these are exciting times for our
profession in Iran and we are looking forward to re-engaging with international partners. <
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05/04/2016 12:08:31
MIDDLE EAST
International Accounting Bulletin
SURVEY
An elusive Middle East
From Churchill’s Sneeze to falling oil prices and countries that don’t want to be associated with each other,
the Middle East seems more like a malleable region than a coherent grouping of countries. Nevertheless,
despite political and economic instabilities and diplomatic intrigue, accounting firms make the most of the
opportunities. Vincent Huck reports.
L
egend has it that the border of the British protectorate of Transjordan was
messily drawn on a map by Winston
Churchill after a liquid lunch. Churchill himself, in his characteristically grandiloquent style, said he had created Transjordan
“with the stroke of a pen, one Sunday afternoon in Cairo”.
The Sunday afternoon in question took
place in March 1921 at the Cairo Conference (with Churchill as the newly appointed Colonial Secretary), where the UK and
France sealed their areas of influence in the
Middle East as the Ottoman Empire was
taking its last breaths.
Whether or not the story is true, the Cairo
Conference defined the Middle Eastern
region as we know it now. It was agreed that
Syria and Lebanon remained under French
control. The UK was to administer Palestine
and support the establishment of a Jewish
state. East of the Jordan Valley, King Hussein
and his four sons were to begin one of the
most important lineages of the 20th century,
the Hashemites. They ruled over Transjordan (now Jordan), Iraq, and Saudi Arabia,
while under British influence.
This flashback might in part explain the current differences in fortune of each of these
countries. While the sub-region of the Gulf
grew on the back of oil extraction, the subregion of the Levant has strained with political instabilities and armed conflicts.
As a result, today there is a polarised Middle Eastern region, with the countries of the
Gulf Cooperation Council (GCC) on one
side and the rest of the region on the other.
As Crowe Horwath International EMEA
director, Bernard Delomenie says: “Leaving
Turkey aside, there are two building blocks
in the region: The Levant and the Gulf,
then you have Iran, Egypt and Israel. So the
Middle East per se doesn’t really exist as an
homogenous region, but is more an amalgamation of the Gulf, The Levant and other
countries.”
The Levant
Delomenie explains that because of the political situation, the Levant is the most difficult
part of the region to conduct business. “All
of our offices are impacted by the instability,
nevertheless, we continue to have a significant amount of work, particularly from the
not-for-profit sector,” he says, admitting that
without not-for-profit it would be difficult
for Crowe Horwath International to remain
in countries like Syria, Iraq or Palestine.
In Syria, there are no more economic
enquiries, Delomenie continues. “But, we do
get some in Iraq, and here we have to separate the Kurdish part of Iraq, even if it is not
a recognised state, from the rest of Iraq. We
have more demand from the Kurdish part
of Iraq.”
Failing states
Things do not look promising for Iraq and
Syria. Anders Heede, BDO EMEA CEO,
says that his organisation may even stop
considering those markets. “Syria and Iraq
are two states that are failing or that have
failed. There are tremendous security issues,
and tremendous consequences for the population…it is a really sad story,” he says, adding that for the time being, BDO’s clients
are avoiding those countries. “The big question is what is going to happen in Iraq: is it
going to remain one country or is going to be
divided in three between North (the Kurdish
part), Centre and South?”
Heede acknowledges that there is no
desire from neighbouring countries to see
a Kurdish state emerge, but BDO is seeing
opportunities in the Kurdish region. “It is
the most stable region of Iraq and we are
seeing an interest from both Middle Eastern
Bahrain
Contributor: Athos Fouttis, UC&CS EMEA, president
Bahrain has made great efforts to diversify its economy; its highly developed communication and transport facilities make Bahrain home to
numerous multinationals with business in the Gulf. As part of its diversification plans, Bahrain implemented a Free Trade Agreement (FTA)
with the USA in August 2006, the first FTA between the USA and a Gulf state. Bahrain’s economy, however, continues to depend heavily on
oil. In 2014, petroleum production and refining accounted for 77% of Bahrain’s export receipts, 87% of government revenue, and 19% of GDP. Other major
economic activities are production of aluminium (Bahrain’s second biggest export after oil), finance and construction. Bahrain competes with Malaysia as a
world centre for Islamic banking and continues to seek new natural gas supplies as feedstock to support its expanding petrochemical and aluminium industries.
Despite the challenging external and internal environments, Bahrain has maintained economic resilience and continues to be a regional leader in economic
freedom. It remains a financial hub for dynamic economic activity, with high levels of trade and investment bolstered by a competitive and efficient regulatory
environment. Bahrain has an open economy and its currency, the Bahraini, is the second strongest unit in the world. Since the late 20th century, the country
has invested heavily in banking and tourism. With a very successful financial industry, many large financial structures exist in Bahrain’s capital, Manama.
Bahrain’s political scene will remain unstable from 2016 to 2020 as protests against the rule of the Al Khalifa royal family continue. The government will
maintain a hard-line in dealing with unrest, and intermittent efforts to pursue dialogue with the opposition are unlikely to make meaningful progress in the
short term. Economic growth will slow further in 2016, from 2.7% in 2015, as lower oil prices hit government and private consumption. The services sector
will remain vulnerable. Despite the challenging external and internal environments, Bahrain has maintained economic resilience and continues to be a regional
leader in economic freedom.
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SURVEY
MIDDLE EAST
and Turkish firms,” Heede says, adding that
it remains a high-risk region, both politically
and to some degree, in terms of security.
“But the political situation between Turkey and northern Iraq is rather friendly,” he
continues. “They have some sort of de-facto
independence in Iraq and enjoy this situation
to develop their region economically without being any threat to Turkey. There are
many Turkish companies within construction, energy and smaller businesses active in
northern Iraq.”
As a result of the security issues and political instability, opportunities for accounting firms in most of these countries are in
non-statutory work. “We see opportunities,
mostly in the advisory area, including all traditional business services like accounts and
payroll,” Heede says. “It’s not big businesses,
it’s small operations, but it is clients we want
to serve wherever they go.”
Lebanese hub
Lebanon, on the other hand, is a country
with a broader market base. According to
Delomenie, there are opportunities in all ser-
Egypt
Contributor: Athos Fouttis, UC&CS EMEA,
president
Economic growth in Egypt slowed to 3% in the
first quarter of FY16. This was driven by a large
drop in exports due to faltering activity in the
tourism sector amid persistent security concerns.
Recent indicators suggest the situation remains
difficult. However after years of political upheaval
left its economy in tatters, Egypt has made progress in restoring confidence.
Recent policy choices include measures designed
to introduce more dynamic investment and
spur much-needed private-sector job creation.
The reform of fuel subsidies has been a notable
achievement, and Egypt’s vital tourism industry
has begun to revive. Another big advantage is a
well-diversified economy.
Amid continued terrorist attacks, the tourist industry is reviving, and there are signs of
increased investment and economic growth.
Moreover, major exports comprising natural gas,
non-petroleum products (petrochemical products, pharmaceuticals, medical, retail clothes, cotton textiles, citrus fruits, rice, wheat, maize and
dried onions) and more recently ceramics, steel,
cement, cars, and car spare parts are expected to
be increased in the short and medium term.
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IAB 560.indd 12
International Accounting Bulletin
vices and sectors in Lebanon.
Mazars partner Loïc Wallaert shares this
thought and explains it as a consequence of
the Syrian crisis. “A lot of Syrians went to
Lebanon, and therefore the activity is quite
extensive because so far it is safer than it has
been in the past,” he says. “So the Lebanese
economy is picking up.”
Indeed, Damascus is only 85km flying distance from Beirut (around 140km driving
distance). Therefore Lebanon provided an
exit route for Syrian refugees. Regardless of
the recent crisis, Syria has always played an
important part in Lebanon’s internal politics.
It has traditionally seen its smaller neighbour
as part of greater Syria; an inheritance of the
Ottoman Empire. And, throughout the Lebanese civil war, Syria sent troops and occupied part of the country. Another regional
giant, Iran, also impacts Lebanese internal
politics as it helped create and supports the
Hezbollah.
In this context, Heede gives a more contrasting view of the current Lebanese market.
While it has always been an interesting market with a historically strong financial sector,
he sees the political situation as unstable.
“There has not been a president for more
than a year, and we’ve seen stories in the
news about garbage littering the streets for
months which has only just started to be
removed,” he says. “Business-wise, Lebanon
has for many years been a hub in the region
and our Lebanese firm is doing well, but it is
a challenging situation for all.”
On the other end of the spectrum, the Gulf
region is a more stable business zone for
accounting firms.
“The Gulf is the opposite of the Levant,”
Delomenie summarises. “With the exception of Yemen, which is in a crisis, we had a
record year and we are working very well in
every country.”
A particular trend that has had an impact
on the entire Middle Eastern region, but
more particularly on the GCC countries,
is the drop in oil prices. The price of Brent
crude has fallen by 43% to $52 per barrel in
the year to mid-October 2015, before falling
a further 45% to just $28 per barrel in midJanuary, according to ICAEW’s Economic
Insight: Middle East, Quarterly briefing Q1
2016.
This fall in oil price has had a strong
impact on Gulf economies, and has led to an
interesting trend. “Because the governments
were raising a lot of money through oil pro-
Heede, BDO
duction, they have to think again about how
to fund their projects,” Wallaert explains.
“With some new thoughts on the way they
deal with tax. For example, the UAE has
introduced a new VAT system.” As a result,
tax opportunities for accounting firms are
flourishing, be it in tax advice, tax audit,
transfer pricing or tax law.
At the same time, Wallaert continues, private finance initiative (PFI) projects are picking up in the Gulf. “Because the financing
is becoming scarce, PFI projects are clearly
growing, and there is an increased demand
for accounting firms.”
Region-wide due diligence work has
slowed down in the last year, according to
Wallaert. “Most people from outside the
region are waiting to see how the situation
evolves before investing,” he says. “Even
though some people see the market conditions as a good opportunity to invest at a
low price, there are still transactions, but less
than in the past.”
Iran
Aside from oil prices, the big topic in the
region over the last few months has been the
renewed dialogue between Iran and the USA.
In January, a nuclear deal was made, and the
western sanctions on Iran were partly lifted.
“Iran is a very interesting market given the
size of its population and its economy,”
Heede says. “And we are seeing many clients looking into the Iranian market as there
are investments to be made, in particular in
infrastructure and industry sectors.”
Delomenie and Wallaert share this optimism, and explain that the number of inquiries with regard to Iran is increasing by the
day.
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05/04/2016 12:08:34
Wallaert predicts that in the coming
months a lot of networks will make their
presence in Iran official. However, for Heede,
there are two things holding international
firms back: first, the outcome of the USA
election and the USA’s international policies
post-election, and second, the ‘snap back’
provision in the nuclear deal which could
see sanctions return if Iran were to break the
terms of the deal. “This means that if you’ve
done an investment, its value could drop tremendously and very quickly, which explains
the cautious approach by firms.”
Delomenie, Crowe Horwath
“It is amazing. Everybody is looking to
go back to Iran, and if you look at flying to
Teheran, planes are fully booked,” Wallaert
says. “At this stage it is only on an exploration basis on how to set companies, looking
for partnerships, or trying to acquire businesses.”
Since the nuclear deal, Heede continues,
there has been an increase in the number of
trade delegations visiting Iran. “However, it
is still a very complicated situation, because
there are still some strong USA sanctions in
place,” he warns. “So a lot of work is going
into understanding what you can do and
what you cannot do, and then you have the
USA election coming up, which, depending
on how that ends up, may change the picture.”
Despite the sanctions, over the years Iranian firms have developed informal ties with
international networks and associations,
as revealed by our sister publication, The
Accountant, last year. However, with the
nuclear deal, the question is—when will these
ties be formalised? International Accounting Bulletin understands that amongst the
Big Four, PwC and EY are nearing a formal
announcement.
A PwC spokesperson said: “PwC is monitoring developments in Iran closely and supports the goals of the Joint Comprehensive
Plan of Action. […] Certain PwC member
firms are assisting international clients who
are considering business opportunities with
Iran and evaluating potential opportunities
to begin operations there.”
Similarly an EY spokesperson said: “EY is
working closely with clients to support their
commercial interests in Iran, consistently
with applicable laws and regulations.”
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International Accounting Bulletin
An odd neighbour
Another country that is set apart in the
region is Israel. For most accounting networks and associations, Israel is grouped
under ‘Europe’, and while the Israeli market
is more geared towards the USA, one can’t
ignore the country’s location. Israel’s geographical situation and relations with its
neighbours have played a huge role in the
region’s history. Heede describes the Israeli
market as extremely innovative and dynamic, but the security issues are never far from
economic players’ minds.
Ariel Zitnitski from Israeli firm Zitnitski
Weinstein & Co. (Morison KSi) says that due
to the similarities in market structure and
regulation it is easier to work with the USA
or Europe, rather than in the Middle East.
Nevertheless, while acknowledging tensions between Israel and its neighbours, Zitnitski says there is a certain level of business
activity between his country and Egypt as
well as with neighbouring Jordan.
When asked about Palestine, he says: “I
can’t give specific details, but there are a lot
of companies in Israel that have subsidiaries in Palestine. Because of regulatory differences they can’t do it directly from Israel and
have to set up operations in Palestine. But the
businesses are working together and money
is transferring from one side to the other.”
Zitnitski recognises that there is huge business potential in the Middle East, and that
better relations between Israel and its neighbours could help fulfil this potential.
Looking forward, all interviewed firm
leaders name security and stability as prerequisites if the region were to flourish from
a business perspective. All are optimistic, as
they see their member firms perform well in
the face of adversity, but they know that the
Middle East still has much to offer were it
given the right circumstances. <
Iraq
Contributor: Mohammed Khattab, PKF Iraq,
chairman
Two major incidents affected Iraq in FY15:
1. Baghdad–Erbil oil agreement: Both
governments of Iraq and Kurdistan agreed that
the Kurdistan Regional Government (KRG) shall
supply the government of Iraq through its State
Oil Marketing Company (SOMO), with 550,000
barrels per day. In return, KRG would receive
17% of the federal Iraqi budget from SOMO.
Both parties have not met their obligations. Nevertheless, the Iraqi government insisted that KRG
is solely responsible instead of admitting that it
suffers an acute cash flow problem. All the above
resulted in a decrease in the amount of oil marketed through SOMO from KRG, which at the same
time increased KRG’s independent oil export.
2. The double shock of ISIL insurgency
and the drop in oil prices: Considering Iraq’s entire
economy is dominated by the country’s income
from oil exports, the impact of these two incidents
on the economy was enormous and explained that
the main focus of the government was on:
• Funding the military operations
• Rebuilding the areas liberated from
ISIL
• Increasing the oil production capacity regardless of market volatility.
As a result, all sectors of activity were affected.
Continued decrease in oil prices along with the
unpredictable end of the war on terrorism shall
lead into challenges more than opportunities for
all sectors including accountancy.
The Iraqi accounting market has reemerged, but
its early stages of maturity were cut short in June
2014 with the resurgence of terrorism. As a result,
clients require the minimum from accountancy
firms, and services are limited to external audit,
rather than internal audit, bookkeeping, financial
consulting.
In the short and medium term and due to the
political situation in the country, the economy is
expected to continue to suffer with no expectation
of growth. Nonetheless, in the long term and if
the political situation stabilises again, given that
Iraq is a country with numerous resources, the
economy can rejuvenate.
It is also worth mentioning the removal of sanctions on Iran. Not only because of its effects on
the Iraqi oil exports, but also on the foreign direct
investments. Iran is a very similar country to Iraq.
However, Iran is more stable and has a “new and
shiny” appeal which makes it a more enticing
investment environment.
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International Accounting Bulletin
Israel
Contributor: Ofir Angel, Angel
Group (ANTEA), senior partner
An important recent legislative
advance in Israel is voluntary disclosure, which enables asset owners
who conceal their assets abroad to report to the
Israel Securities Authority anonymously and avoid
a criminal offender status with the tax authorities.
In terms of regulation of money laundering, law
enforcement within banks and the stock exchange
has intensified. Registration is required from
financial institutions, and there are follow-ups
on any irregular activity or suspicion of money
laundering. Additionally, all individuals leaving
and entering the country with money exceeding a
specified limit are reviewed. Together, the Double
Taxation Treaty and the Automatic Exchange of
Information (AEOI) reduce the possibility of tax
evasion and improves voluntary disclosure procedures.
I think there are four main highlights in the
accountancy market. First, a popular phenomenon in the Israeli accounting market is mergers
of large firms with smaller ones. Since the market
is relatively small there is a huge competition, big
accounting firms are looking to merge in order
to scale up and enter new sectors. Second, is a
reduction in bookkeeping and auditing services
as a result of the digitisation of these services.
Third, taxation is problematic because internal
legislation has become more complicated and
international trade is developing fast. Last, online
marketing for accounting firms has become more
popular, and clients are looking online for service
providers.
My expectations for the future: business and tax
consulting services will continue to grow; bookkeeping and auditing processes will continue to
become digitised, and will require fewer professional personnel; in the next five years, international and online trade will have a more significant
role in the market; accountants will be expected to
offer more complex solutions.
Contributor: Yaron Saporta, Saporta Penn Chen
(GMN International), managing partner
Economic growth in Israel in 2015 was minor,
however the yearly change in the Israeli Consumer Price Index was approximately 0.5%.
The increase in income from governmental taxes
reduced the national budget deficit to a yearly rate
of 2% of GDP. This increase in income came from
tax on real estate, which increased by 54%.
The Israeli stock exchange was affected by the
difficulties in the global market. Only few sectors
had a positive exchange rate. Accounting firms
fees are decreasing, and the accountancy profes-
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IAB 560.indd 14
sion in general is subject to a decrease in popularity among students.
There have been several major changes in tax
rules and regulations. A major reform in the code
of Israel Money Laundering and Terror Financing Prohibition has had an impact with respect
to CPA’s work. There is a new requirement for
authentication of particulars and documents for
services rendered by lawyers and CPAs. The new
requirement on lawyers and CPAs is with respect
to services of establishment of corporations, businesses or trusts on behalf of clients; there is a voluntary disclosure procedure extension until 30
June 2016.
In terms of economic reorganisation between
2015-2016, there have been updates within Israeli
legislations: the reduction of the VAT rate from
18% to 17%; a reduction of the tax pension limit
with respect to salary limit (2.5 times of the average salary instead of 3.5); the addition of an extra
year to limitation of yearly tax assessment; an
increase in regulation for online reporting to tax
authorities; and a decrease in tax rate for corporations from 26.5% to 25%.
The ranking of the 10 largest accounting firms in
Israel has remained unchanged in 2015. In recent
years, accounting firms have clearly diversified
their offerings to clients. In the future, I expect
accounting firms to develop in terms of digitisation as well as widen their scope of activities to
add more services.
Contributor: Ariel Zitnitski, Zitnitski Weinstein & Co. (Morison KSi)
Looking at recent years, there are
some promising signs within the Israeli economy. A recognised current trend is increased
private equity investments. The low interest rates
in markets around the world are pushing more
private equity for capital investment. We can see
that private equity drives Israeli tech forward and
we will feel the effects of this process in a few
years. One of the most significant changes is that
we have observed crowd funding platforms, and
understand the need to let the public get involved
in many fields. Although it began in micro finance
in underdeveloped countries, today it has spread
to every middle class household. That, in combination with low interest rates, allows all households to participate in new initiatives, and allows
more entrepreneurs to raise funds.
In light of these changes, one of the most important roles of the accountant is to examine alternative options for his client. When the economic
situation does not seem stable, investments are
made for a better future, and accountants must
have the vision to look ahead.
Jordan
Contributor: Mohammed Khattab, PKF Jordan,
chairman
After the 2015 census, Jordan now has a publication that supports its claim regarding the impact
of the 1.4m Syrian refugees in the country. With
90% of those 1.4m Syrian refugees living outside
the dedicated camps and penetrating Jordanian
society, the economic impact has, according to
Jordan’s Prime Minister, incurred costs of over
$7bn since 2011. However, successful reforms
along with the global decrease in oil prices helped
strengthen trade lower inflation rates. The Central
Bank of Jordan (CBJ) reported a decrease in inflation across the kingdom, with the consumer price
index (CPI) falling by 0.7% in the first 10 months
of 2015.
Given the country’s reliance on imported feedstock for virtually all of its power generation and
fuel needs, the decline in global energy prices has
yielded some benefits, particularly for Jordanian
industry. According to the CBJ, the industrial producers’ price index (a figure that measures changes
in the selling price of domestic industrial output)
declined by 9.6% year over year in the first three
quarters of 2015, with a slump in refined oil products accounting for 10.7% of the decrease.
The government’s focus has been on renewable
energy, and several solar energy projects have been
announced. The government has also announced
several major infrastructure projects, especially in
Amman.
Local and international NGOs and donors have
announced several projects, initiatives and programs geared towards providing customised support for the growth of the micro small and medium entreprises sector in Jordan.
The accountancy market has been highly affected
by the severe instability and turbulences in the
region, which has affected most industries. This,
with an increase in companies closing, has led to
more challenges than opportunities. Some of the
challenges that the accounting firms are currently
facing are:
1. High competition which has led to lower fees.
2. Due to fee pressure, the level of professionalism
has also declined, as firms are unable to afford
highly trained and professional practitioners.
3. This has led many professionals to look for
more stable jobs in industry.
The outlook for 2016 remains cautiously optimistic. In the medium and long term, if the decline
in oil prices continues, this shall negatively affect
the Jordanian economy as numbers of Jordanians
working in the Gulf states might need to return to
Jordan, thus leading to an increase in unemployment.
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SURVEY
Kuwait
Contributor: Nayer Nazar, Nazar and partners
(Nexia International), managing partner
In Kuwait, the accountancy and auditing profession is growing. The Big Four dominate market
shares, especially with regards to listed companies.
Most medium sized firms seek international affiliation to strengthen their positions and be more
attractive to clients. I expect a better future for the
profession in Kuwait with new laws coming in to
legislate foreign investors, VAT and income tax .
The New Direct Investment Law (Law No. 116
of 2013) was introduced to attract foreign investment in Kuwait by providing income tax and custom duty exemptions, in addition to other non-tax
benefits.
The Kuwait Direct Investment Promotion Authority (KDIPA) in coordination with the Ministry of
Finance (tax department) has issued a detailed
mechanism for the granting of an income tax
exemption through its Decision No. 16 of 2016.
While the tax benefit was previously based on a
tax holiday (up to 100% of the taxable profits),
KDIPA has now linked tax benefits to the performance of the investor and an assigned multiplier
factor (percentage/value). This mechanism also
provides for a 10 year tax exemption from the
effective start date of the operations. The decision also provides the process of qualifying as an
eligible investor/activity as well as the process for
obtaining an annual tax exemption certificate.
A series of amendments have been made to the
Capital Markets Authority (CMA) Law of
Kuwait, designed to help attract foreign investors. Key elements of the amendments surround
the ability of foreign investors to invest in securities traded in the Kuwait Stock Exchange (KSE),
the possibility of investment funds being listed on
the KSE, and added measures designed to increase
investor protection. The amendments also prescribe criteria for Investment Portfolio Managers
(IPMs) and for diversifying portfolio investors.
One of the features of the CMA Law is a proposed
exemption from taxation on dividends for investing in funds and portfolios listed on the KSE effective from 10 November 2015.
However, as there is no corresponding amendment
under the Kuwait Income Tax Law, official clarification is needed from the Kuwait Tax Authority
(KTA), along with related compliance procedures
(if any).
The KTA have started seeking information from
Kuwaiti companies listed on the KSE regarding
dividends distributed from 2008 to 2014 to NonGulf Cooperation Council (GCC) foreign corporate shareholders to ensure that all tax related to
the above activities are collected before the exemption is applied as of 2015.
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The government of the State of Kuwait has signed
an agreement with the government of the USA
for the improvement of the International Tax
Compliance and the implementation of FATCA,
which falls under the Model 1 Intergovernmental
Agreement (IGA). The IGA sets the definitions,
obligations (with respect to the USA reportable
accounts), timeline, implementation and enforcement of compliance with FATCA, the mechanism
of communication and approach to difficulties/
conflicts.
On 9 September 2015, the Ministerial Order No.
48 of 2015 was issued, substantiating the IGA and
its annexures, in addition to highlighting action to
be taken by Financial Institutions before the year
ended 31 December 2015.
Contributor: Rabea Al Muhanna, Horwath Al
Muhanna & Co. (Crowe Horwath International), executive
partner
As an oil producing country with very little economic diversification, falling oil prices have had an
impact on Kuwait’s economy. In FY15 and FY16, the
country is expected to record its
very first budget deficit in 16 years.
However, Kuwait still remains well positioned to
weather both lower oil prices and global volatility.
The high financial buffers are enabling increased
public investment in infrastructure, which is a key
factor expected to support non-oil growth in 2016
and beyond.
There have been several developments in 2015 on
the regulatory front. These include:
1. In November 2015, the Capital Markets
Authority (CMA) officially announced the new
executive by-laws, which introduce substantial
reforms to CMA’s executive by-laws and processes. A clear and detailed timeline has now been
established to ensure a seamless transition to the
new regulatory framework.
2. The minimum capital requirements to establish
a business were significantly reduced, which is
likely to result in formation of more limited liability companies as well as shareholding companies.
3. New FDI regulations were issued at the end of
2014 clarifying the 2013 Investment Law. These
executive regulations include efforts to reduce red
tape and lengthy procedures by establishing a onestop shop for licensing businesses.
Now that a clear timeline for the move to the new
regulatory framework has been established, we
expect that there will be increased opportunity for
strong accounting firms in Kuwait to support the
CMA regulated companies in governance risk and
compliance areas. The minimum capital relaxations are likely to result in the formation of smaller
entities such as limited liability companies, which
would result in more assurance services opportunities.
Not much growth is expected in the short term
due to the current economic situation, which is
likely to last at least until the end of this year. With
the current Five Year Development Plan running
through to 2020, improved economic diversification and regulatory reforms to attract investment
in place, prospects in the medium and long term
certainly look good.
Contributor: Hisham Sorour, Baker Tilly Kuwait,
managing partner
There are several key highlights in the region:
1. We have seen a dramatic fall in international oil
prices (almost $35/barrel), which has resulted in
economic contraction.
2. On the back of these falling oil prices, there is
an expected fall in GDP (it fell from KD47.8bn
in 2014 to 35.4bn in 2015).
3. In 2015 the economy saw 3.5% inflation, and
the first budget deficit (KD4.8bn) in almost 16
years.
4. The Kuwaiti Dinar weakened against the USA
dollar, retreating from KD0.292 to KD0.300
against the dollar.
5. To curtail expenditure, there was a reduction
in a number of government subsidies/incentives.
Some opportunities in the region:
1. Performing compliance engagements for clients
supervised by the CMA.
2. Participating as transaction advisors for projects specifically related to public private partnerships.
3. Promoting M&A transactions in Kuwait.
4. Extensive training and seminar requirements
with the governmental sector.
Some challenges in the region:
1. The adverse laws/regulations of the CMA.
2. Falling oil prices, which have resulted in an economic decline.
3. Cut-throat competition within the accounting
and advisory domain.
4. A decline in quantity and quality of assignments
as a result of the economic decline.
5. Pressure on pricing levels.
In the short term, considering the present oil crises, I predict that this uncertain economic climate
will continue at least until the end of 2018.
In the medium term, I am optimistic that the country will sustain itself on the back of huge profits
and reserves, which were made in previous years
when oil prices were higher.
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International Accounting Bulletin
Lebanon
Contributor: Samir Hanna, DFK
Fiduciaire du Moyen Orient
There have been many highlights
and trends in the region:
1. Due to recent escalation of conflicts
in Syria, Iraq and Yemen, economic activities in
the region were destabilised, market confidence
weakened, posing significant threats over the
prospects of the countries in the region.
2. The drop in oil prices devastated the budgets
of many oil-exporting countries, forcing them to
cut down their budgets and to freeze (or cancel)
government spending projects. The price drop
should have seen the growth rate of the region’s
oil importers increase, and they should have saved
the profits from lower oil prices in order to reduce
their public debts. However, security problems
and overflow from regional conflicts have weakened their promising recovery. Additionally, the
depreciation of the Euro against the USA dollar
significantly affected their competitive edge in the
international market.
3. Being an oil importer, the three main pillars of
the Lebanese economy (excluding government
spending) are: real estate and construction; tourism; and the banking sector.
4. The country has been ranked by Euromoney
Group, in its quarterly country risk’s survey (4th
quarter 2015) at 122 out of 186 countries worldwide, and 14 out of 22 countries in the Middle
East and North Africa (MENA) region.
5. According to Merrill Lynch, in 2015, Lebanon had the 11th highest return on external debt
among 41 markets in Central and Eastern Europe
and the Middle East and Africa.
6. The construction sector had its own share of the
slowdown, so that in 2015 the number of newly
issued construction permits dropped by 9.3%
compared to 2014.
7. Tourism has also suffered, with a shy 2%
increase in 2015.
8. Lebanese banks continued to use deposit
inflows to subscribe to sovereign debts, which
is, according to S&P, a key credit risk for these
banks.
9. Overall, more than 600 days without a president, and the turmoil in neighbouring countries
had detrimental effects on Lebanon.
Tax optimisation, governance, business ethics
and compliance with international and local regulatory requirements have always been priorities
to businesses in the MENA region. The negative
budget impact of the oil price drop has forced
many oil exporting governments to search for
alternative sources of finance (tax returns, indirect
taxes, public debt instruments issuance, etc.), and
to request more transparency in business informa-
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IAB 560.indd 16
tion as well as tighter regulatory compliances. This
has created an increasing need for businesses in
close door-to-door advisory services in terms of
tax planning, corporate governance and regulatory compliances.
Accounting firms in the region can play an important role in delivering such services; they can help
clients to understand their fiscal, governing and
regulatory obligations and requirements, firms
can ensure that clients understand the options
available to them, and they can assist clients in
being as competitive and compliant as possible.
However, with the current turmoil in the region
and the slowdown in economic and business
growth, challenges facing medium sized accounting firms include the practicalities of charging
clients for these services, and the extent to which
clients are willing to pay for them.
In terms of expectations, keeping in mind that history has taught us that the economic cycle fluctuates between periods of expansion and contraction. We believe that the current downturn in the
economy and the chaotic political and security status in the region will come to an end. Ultimately,
businesses should regain growth and profitability,
and the need for tax optimisation, governance,
business ethics and compliance will gain greater
ground in the market. Until then, our aim is to
keep an eye on our clients, raise awareness for the
need for such services, and to continue to promote
our ability to deliver.
Contributor: Hisham El-Moukammal, Crowe
Horwath Professional Auditors, CEO
Since 2005, the Lebanese economy has been
driven by shocks rather than by global or regional
growth developments. The breakdown in the
political process and severe deterioration in government services are fundamental challenges to the
system in Lebanon. The country continues to be
beset by structural and infrastructural bottlenecks
(electricity, water, waste treatment, transportation
and telecommunications). The regional turmoil,
especially the war in Syria, poses serious security
threats in Lebanon. The Syrian crisis has displaced
millions of people, both within and outside Syria.
Lebanon is the neighbouring country most affected by the crisis. The inflow of Syrian refugees not
only strained already-weak public finances, but
also added pressure to the country’s infrastructure
and social fabric. According to the IMF, the Syrian crisis caused the Lebanese poverty rate to rise
by 4% to 32%, and led to a 50% growth (since
2011) in the workforce. This widened the income
gap, as Syrian refugees accept lower wages than
Lebanese workers.
Real estate, construction, finance and tourism
have been the traditional drivers of economic
activity in Lebanon.
Since these sectors are neither labour intensive nor
attract lower skilled and cheaper foreign labour,
growth does not adequately generate employment
for Lebanese nationals. This structural labour
market weakness is changing the socio-demographic fabric of the country. Educated Lebanese
seek employment in countries with a demand for
highly skilled labour, which creates a diaspora;
meanwhile, non-Lebanese dominate the unskilled
labour market, pricing out the nationals.
Almost all economic sectors grew at a slower pace
in 2015. The performance of the country’s agricultural and industrial sectors remained below
potential in 2015.
The real estate and construction sectors also witnessed a slowdown, with declines in a number
of aggregates, namely property transactions and
their value, sales operations, cement deliveries and
construction permits.
Shy signs of improvement within tourism have
been seen, especially during the summer months.
However, it remains well below its level prior to
the regional turmoil.
Lebanon’s strong financial sector is the outcome
of prudent regulatory structuring and effective
supervision. The country’s banking sector has
positioned itself as a safe haven in the region during times of crisis, and has consistently attracted
inflows from the MENA region. The financial
market continued to operate solidly, and the Lebanese pound money supply saw healthy expansions
in 2015, while certificates of deposits in local and
foreign currencies were on market players’ radars.
Despite a morose economic background, confidence remained anchored in the banking sector. In
2015, Banque du Liban (BDL), the Lebanese central bank and monetary authority, issued several
circulars that were instrumental in strengthening
the confidence in Lebanon, as well as the country’s
reputation. As part of its modernisation plan, BDL
has established two new units: the Financial Stability Unit, who monitors the financial sector in
Lebanon in order to avoid any likely crisis; and
the Consumer Protection Unit, which ensures that
banks deal fairly and transparently with all customers. In 2015, BDL activated the Capital Markets Authority (CMA).
The CMA is an independent autonomous regulatory authority, with a wide mandate, ranging from
supervision of market players to licensing and registering individuals and institutions. The CMA has
two main aims:
• To promote and develop the Lebanese capital market
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Lebanon
• To protect investors from fraudulent
activities by issuing regulations that
are in line with international financial markets best practices.
BDL is preparing to launch an electronic trading
platform in the first half of 2016, which will be
operated by the private sector. This platform will
create liquidity for start-ups and start-up funds,
but also for other financial instruments, shares
and debt instruments from both public and private sectors. The CMA will supervise and regulate
this platform. It will be connected internationally
and the Lebanese diaspora could invest through it,
knowing that it is reliable.
BDL placed additional focus on targeting the
knowledge industry. Lebanon’s highly qualified
human capital is able to effectively turn innovative
ideas into successful businesses, creating room for
new employment opportunities. BDL accordingly
issued Intermediate Circular 331 to encourage
Lebanese banks to invest in equity capital for startups, incubators, accelerators and other companies
working within the knowledge economy.
On November 24, 2015 the Lebanese Parliament ratified four important laws: declaration of
amounts of carried cash at the border (Law 42),
exchange of tax information (Law 43), fighting
money laundering and terrorist financing (Law
44), and Law 53 on the international convention
for the suppression of the financing of terrorism.
During 2015, The Lebanese Minister of Finance
ratified a decision to cut taxes on profits generated from Lebanese industrial exports by half. The
exclusive beneficiaries from this tax cut are companies that manufacture their goods locally for the
sole purpose of exporting, This decision came in
light of the Ministry’s efforts to support the Lebanese industrial sector amid challenges, to enhance
the competitiveness of Lebanon’s industrial products, and to attract new investors to Lebanon’s
manufacturing sector.
As an outcome of the UNDP project with the
Ministry of Economy and Trade, which aims to
provide support in the planning, formulation and
implementation of sound trade and economic
policies, Lebanon is in the process of revising and
amending its Code of Commerce.
Lebanon has begun the process of joining the
WTO, and the designated committee has prepared
all necessary technical issues, published the necessary legislations, and have carried out meetings
regarding this issue.
Regardless of the rate and type of change, economic success will always depend on reliable, relevant,
timely, and consistent information.
The challenges for accounting firms in the market are: standing out in a crowded market; using
technology to reduce manual processes; offer-
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Oman
ing new services; improving marketing & client
acquisition; having a clear business plan and value
proposition; retaining talented employees; keeping
fees and profitability up; gaining clients that are
prepared to pay for quality accounting services;
achieving this with minimal time investment from
partners, owners and managers, effectively using
social media to network; and developing policies
and procedures in compliance with the legal and
ethical obligations and regulations.
The opportunities for accounting firms in the
market are: consulting; fraud detecting and prevention; and information assurance.
The accounting profession industry is constantly
changing. Our expectations for the medium term
are:
1. That fee pressures and rising staff labour costs
will force us to carefully examine the mix of services, industry concentrations, and our positioning in
the marketplace relative to the technical/consulting
resources and competition.
2. That career development and leadership training will continue to grow as the need for quality
professional staff at managerial and partner levels
turns into a crisis. We invest heavily in our best
and brightest in order to remain competitive and
develop succession plans.
3. To develop a comprehensive vision compatible
with the work program that includes all the procedures and steps required, the timetable and the
transitional period for the application of the international accounting standards for public sectors.
3. To start applying international accounting
standards for public sectors, by providing professional human resources, information technology
equipment and software.
4. To create an integrated and reliable internal control system at all business levels, from the board
down to the other units in the company/organization.
El-Moukammal, Crowe Horwath
Professional Auditors
Contributor: Percy Bhaya, PKF Oman, managing
partner
The Oman economy is heavily dependent on oil
prices, and revenue from oil and gas constitute
about 82% of the government revenue (according
to the government budget estimate). In approximately one year, oil prices dropped significantly –
from hovering around USA$120 per barrel, to $3540 per barrel now. Consequently, there has been an
overall slowing in economic activity in Oman. After
the shock of the oil price drop, the Omani government has been trying to diversify the economy, and
is planning to relax rules and regulations governing
foreign investments in order to promote investment.
The government is also planning to introduce VAT
in 2017/2018. This will enable accounting firms to
have one more vertical in their portfolio. Our main
challenge is that, consequent to the slowdown, the
business environment is currently going through a
depression. Most oil experts predict that this will
continue for the next two to three years. The long
term will depend on oil and gas prices, as well as
how successful the efforts to encourage foreign
investments have been.
Contributor: Davis Kallukaran, Crowe Horwath
Oman, managing partner
The downturn in oil prices has affected all Middle Eastern countries that are highly dependent on
oil, and Oman is no exception. The huge reduction
in oil price was a real shock to an economy where
oil and gas contribute about 50% to the GDP. In
response to this challenge, the Government of
Oman has taken drastic measures by discontinuing fuel subsidies for local consumption. It has also
proposed to increase the income tax rate from 12%
to 15%. At the same time, in order to diversify the
economy into a non-oil dependent country, Oman
has embarked upon various development measures
to inject growth into the economy and to create
employment for its younger generation.
As part of the sultanate’s efforts to reform certain
long-standing corporate governance practices of
companies that are seen as inhibiting growth and
shielding boards of directors from accountability to
shareholders, the Capital Market Authority (CMA)
issued a new Code of Corporate Governance effective from 1 July 2016, for all public joint stock companies listed on the Muscat Securities Market .
The regulatory changes introduced by the Central
bank of Oman, the capital market authority and
the income tax department have brought about
a plethora of opportunities for accounting firms.
The mandatory requirement, for entities having
a loan facility of RO250,000 from a single bank
or RO500,000 from all the banks put together, to
submit audited IFRS compliant financial statements
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Palestine
Contributor: Jamal Abu Farha, Al Shayeb Auditing & Accountancy (GGI)
Palestine has been aiming towards more sustainable economic development in the past few years,
and efforts are being made by the Ministry of
National Authority to promote investments in
Palestine.
The Palestinian Investment Promotion Agency
was founded to facilitate and promote investments
in Palestine.That, in addition to the emergence of
new industrial zones (especially in the Bethlehem
Governorate), has encouraged business owners to
take the next step towards expanding and investing in new businesses.Also, real estate has been
on the rise in the past few years, and more investments are being made in construction all around
Palestine.
Accounting firms are facing a very dynamic market in Palestine, which is constantly changing and
adapting to the needs of economic development.
On one hand, many millions of dollars are being
funded through donor countries and institutions,
which create a growing demand to provide stateof-the-art assurance and evaluation services to
satisfy donor needs.
On the other hand, private businesses and investment opportunities are also on the rise, creating
new business opportunities and pushing business service providers to enhance the quality of
their services and the qualifications of their staff.
On another level, the Palestinian Association for
Certified Public Accountants has been pushing
accounting firms to comply and adopte international standards.
A realistic diagnosis of the Palestinian economy
suggests a rise in investments, start-up businesses
and an expansion of industries as the most strategic tools of sustainable development.
The emergence of initiatives that call for investing
in Palestine evidently supports this vision.
An example is the Invest Palestine Initiative, which
is a private company aiming to encourage and
facilitate investments in Palestine from its diaspora
community worldwide.
Such initiatives mean accounting firms are looking
into a market expansion, where the professional
services of accountancy, assurance, and tax advising are on the rise to satisfy the needs not only
of local businesses, but also foreign, international
and diaspora interests in the Palestinian economy.
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Oman
Continued from page 17 within four months
of their year end, has given accounting firms tremendous opportunities. However, to complete
the audits within four months of the year-end is
challenging, especially since there is a mandatory
requirement that firms should have not less than
50% Omani staff.
The skillset of the local population is far below
expectations, and audits tend to be costly. There
is also a mandatory requirement that all the listed
companies should have a yearly internal audit
function. However, the listed companies with
RO5m or more should have their own in-house
internal auditors. Yet another opportunity is the
stipulation for all listed companies to have poli-
cies and procedure manuals in all the major areas
of operation.
In the long run, Oman should do well upon completion of current infrastructure developments in
developing new express highways, seaports and
airports.
The country’s development into a tourism destination is still in the offing. Oman is also investing heavily in developing the skillset of its people,
which should meet the Omanisation targets for
certain industries. Lately, Oman was instrumental in brokering a deal for lifting western-imposed
sanctions on Iran. With the opening up of Iran, it is
expected that Oman will find favour with Iranian
investment on a large scale.
Farha, Al Shayeb Auditing &
Accountancy
Kallukaran, Crowe Horwath Oman
Qatar
Contributor: Basel Abusalah, Basel Abusalah & Partner (Nexia), managing partner
Qatar’s economy grew by 7% in 2015, a comparable growth rate to 2014 when it grew by 6.5%.
Despite the slump in oil prices, and the country’s reliance on oil and gas, Qatar’s economy will be powered by major infrastructure projects, including the building of a new city at the location of the 2022
football World Cup final, a rail network ($36bn) and a mega-reservoir project ($2bn). Qatar has set up
the National Vision 2030 project, which will see continued spending past the World Cup to create an
economy that will deliver a high standard of living for its citizens.
The continued spending will also mean an increased labour market as new jobs are created in construction and other sectors.
Earlier this month it was announced that Qatar’s population has exceeded 2.3m.
There are several challenges in the Qatari market:
1. The audit fees pressure
2. Most of the biggest enterprises and corporations usually work with the Big Four audit firms.
3. Qatar’s market is too small for having a large customer base.
In terms of the future, a major bank has recently reported that super-rich Qatar will withstand plummeting global oil prices and its economy will expand by almost 7% in both 2016 and 2017.
Contributor: Athos Fouttis , UC&CS EMEA, president
Petroleum and natural gas are the main sectors of Qatar’s economy and are responsible for more than
70% of the government’s revenue, over 60% of the country’s GDP, and roughly 85% of export earnings.
Oil reserves should ensure continued output at present levels for the next 23 years. Furthermore, there
are natural gas reserves (the third-largest in the world), and export and production of natural gas are
becoming increasingly important. Long-term goals involve the diversification of the economy and the
development of offshore petroleum.
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Saudi Arabia
Contributor: Ibrahim Albassam, PKF AlBassam & AlNemer, managing partner
Since the Capital Market Authority decision, at the end of November 2014, to ban Deloitte from providing external audit services to listed companies, the
remaining three firms of the Big Four and other mid-tier firms have significantly increased their fees and market share. PwC was an exception: they appear to
be uninterested in assuming new audits of listed companies, presumably because their Mobily case is still pending CMA decision.
The main gainers for volume and market share were KPMG, BDO, Grant Thornton, EY and PKF. (See table)
Gains for KPMG, BDO and Grant Thornton were also huge in the non-listed entities, while EY opted to increase its fees and clean up its portfolio of clients.
The profession is facing huge criticism from the public and from regulators. The Ministry of Commerce and Industry will soon adopt the new Companies
Law, which includes harsh measures for auditors, board members and management in cases of non-compliance, and is eyeing the use of Articles 211, 212 &
213 of the new law to punish wrongdoings.
A combined effort by the regulators, CMA, MOCI and SAMA (the central bank), will
result in higher demand for auditing services, yet disciplinary actions will also result in
Ranking per number of audits of listed companies:
pushing fees higher.
Name
2015
2014
Saudi Arabia is in the process of adopting IFRS, with full adoption for listed companies
KPMG
44
35
planned for 2017 and adoption for non-listed companies planned for 2018. This has
EY
43
37
resulted in many opportunities for accounting firms. KPMG in particular has been the
PwC
29
40
main gainer in winning new contracts in this area.
PKF
24
19
The CMA is expected to articulate a supervising body similar to the PCAOB, but no
BDO
20
8
timetable is known. VAT will be implemented in 2017 or 2018, and will add an additional
Grant Thornton
14
2
layer of revenue to the profession.
Change is yet to come as the main gainers have taken on lots of business, but, bearing
Mazars
6
2
in mind the lack of qualified and experienced human resources (and the work permits
Crowe Horwath
6
5
dilemma over the last ten years), their ability to complete their work is questionable.
TAGI
3
7
It is hard to know what to expect next: there is a big possibility of Deloitte returning to
RSM
3
3
auditing listed companies; the level of client satisfaction within the services of the main
Deloitte
0
36
gainers is yet to be seen; and we have yet to see the outcome of the rotation rule for listed
Data provided by PKF AlBassam & AlNemer
as well as non listed companies.
United Arab Emirates
Contributor: Vipul Kothari, Kothari Auditors &
Accountants (IAPA), managing partner/director
Volatility in commodities, and especially the lower
oil prices, has had an impact on the economy and
on business sentiment. This was more apparent
than ever during the second half of 2015. The
property market has weakened, and this is expected to remain throughout 2016. Liquidity crunch
remains a key issue facing businesses due to curtailed lending by the banking sector. However, the
government is acting quickly by diversifying the
economy and aiming to further reduce the oil sector’s contribution to the GDP, from a current level
of 35% to 20% by 2020.
One of the steps being taken to diversify government revenue sources is the introduction of taxes,
and GCC countries have already agreed on implementation of VAT. The UAE will introduce 5%
VAT on 1 January 2018. The impact of this is
expected to be moderate, since UAE already levies
a custom duty of 5% on the majority of products.
In 2016, the UAE’s economy is expected to grow
by 3.5%, despite a slide in oil prices. This indicates
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IAB 560.indd 19
that the UAE has been successful in diversifying
its economy.
There are opportunities for the accountancy profession in the GCC and especially in the UAE due
to increased regulation and the imposition of VAT.
2016 may be a challenging year, but expectations
are that by the end of 2016, we should see healthy
growth of the economy, stabilising of oil prices at
levels above US$50, and an easing of the liquidity situation. All of these, coupled with Expo
Kothari, Kothari Auditors &
Accountants
2020 Dubai, where infrastructure development is
expected to give a big boost to the economy, make
me confident that 2017 to 2019 will be good for
the UAE’s economy in general.
Contributor: Baha Alnajjar, Quantum Albadi
(Abacus), senior partner & CEO
Dubai’s foreign investment agency (Dubai FDI)
has compiled summary reports on trends and
opportunities across diverse sectors to help investors by highlighting business prospects in Dubai.
The reports cover key sectors such as logistics,
retail, information technology, healthcare and
green technology.
According to the Dubai FDI report on the retail
sector, between 2012 and 2015, retail sales in
the UAE grew by 32.9%, from AED114bn to
AED151bn. Retail plays a vital role in economic
development, and along with the constant growth
in demand, it is one of the most lucrative foreign
investment prospects in Dubai.
In terms of Dubai’s efficiency, viability and profitability as a logistics hub, the report states that the
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on-going expansion of transport infrastructure has
further brightened investment prospects in logistics
and related sectors. Dubai has the third largest reexport hub in the world, and the UAE’s logistics
market is expected to reach AED34.5bn in the next
two years. Being a vital element of a competitive
freight network and located strategically in the
Middle East, North Africa and South Asia region,
Dubai provides connections to a quarter of the
world’s population.
Healthcare in Dubai is by far the best in the region,
and has diversified into research and development,
pharmaceutical production and equipment manufacturing as well as medical tourism. This diversification, according to Dubai’s FDI report, makes
foreign investment and participation more likely.
The population in the Middle East is estimated to
exceed 520m by 2030, and the cost of healthcare
needs of the UAE alone reached nearly AED30bn
during 2015. Thus, this sector demands substantial investment in facility development and management, in addition to private sector expertise in
specialised research, diagnostics, therapies, education and training.
The report on information technology (IT) points
to specialised industry clusters, like Dubai Internet
City and Dubai Silicon Oasis. Dubai developed
these to enable software developers, hardware
manufacturers, service providers and network
designers to capitalise on Dubai’s location, high
internet coverage and focus on innovation. Quoting from recent studies, the report says that IT
spending in Dubai alone reached AED5bn in 2014.
The emergence of sustainability as a priority in
government strategy and the potential it has created for investment in clean technologies are detailed
in the report on Green Technology. Dubai has pioneered renewable energy benchmarks in the region
and has launched an integrated energy strategy,
which aims for a 30% reduction in carbon emissions by 2030. The initial phase of Mohammed bin
Rashid Al-Maktoum Solar Park produces 10 MW
of electricity, and by it’s completion in 2030, the
park will produce 1,000 MW.
As the UAE has grown, so has the local accounting
profession. Accounting services have come a long
way in the UAE and the Middle East. Chartered
accountants are highly regarded for their professional integrity and knowledge. The profession has
constantly endeavoured to keep pace with evergrowing business needs, which stem from a significant economic growth. From being perceived
in the past as a peripheral service, the profession
and its components have become pivotal. Many
international accounting firms have a presence in
20 y April 2016
IAB 560.indd 20
the UAE either directly or through their affiliates.
A number of factors have driven the recent job and
business growth. Firstly, the UAE has come out of
the global financial crisis faster than other parts of
the world, which means that companies are feeling optimistic. Secondly, the announcement that
Expo 2020 will be held in Dubai has buoyed hopes
in sectors like construction and infrastructure. Of
course, the price of oil always affects the UAE and
the region as a whole, and whilst oil prices have
not returned to the heights of 2008, they are still
reasonable, which helps drive the economy and
investments.
The UAE has spent a considerable number of years
building an economy that is not reliant on oil. For
example, the growth of the aviation industry in the
UAE through privately owned world-class airlines,
combined with investment in defence, aerospace,
heavy metals, manufacturing, nuclear and renewable energy, railways, ports and industrial zones,
have added a new dimension to the economy. In
addition, the hospitality industry continues to
grow, with new hotels opening almost monthly.
The UAE’s reputation as a destination for major
sporting events and exhibitions also benefits this
sector. The retail sector and luxury goods retail
have also continued to flourish. The real estate
market has come back to the fore, property prices
are rising, and there has been much investment
in the market from local, regional and international investors. According to a recent survey, an
astounding 90% of UAE finance executives are
more confident in the UAE’s growth prospects
compared to last year. This is the strongest level of
confidence expressed worldwide.
According to the UAE’s Minister of Economy, our
economy is expected to grow between 3% and
3.5% in 2016. Despite challenging geopolitical
situations in parts of the region, the UAE has maintained its growth due to the resilience and economic diversification it achieved in recent years.
The government has issued new rules and regulations to further improve the business environment.
The industrial sector, which contributes 14% to
GDP, is forecast to expand and contribute 20%
in 2021. Growth will come from non-traditional
industries and a knowledge-based economy, which
will see huge activity in the coming years.
The oil-dominated economy is fast diversifying,
and in 2021 the oil and gas sector will make up
only 30% of the GDP. The government’s emphasis
on innovation will see business opportunities grow
as AED300bn will be invested in the sector.
The UAE’s government has announced that it will
complete all major projects within energy, electric-
ity, tourism, transport, financial, insurance and
other sectors, which will further boost growth.
The social sector has also seen major investments,
with education and health sectors being developed
getting improved facilities.
Contributor: Zayd Maniar, Horwath Mak, international liaison partner
Highlights and trend in the market this year
includes important mergers, regulatory changes
and the economic situation. An important merger
was PwC acquiring Strategy& (formerly Booz &
Co). This signifies opportunities ahead in professional consulting and the need to promote an
independent brand to ensure an adequate distinction between audit and consulting practices.
Regulatory changes include the UAE’s Securities
Commodities Authorities increasing the disclosure
requirements and regulations to safeguard investors. Economically, with oil prices at a 12-year low
and government deposits at banks down 11.6%,
liquidity is fairly restricted. For organisations that
are highly leveraged, growing concerns arisen.
Key opportunities lie in assisting clients in restructuring businesses and advising on the upcoming
introduction of VAT, which is payable from 1
January 2018.
Short term, we need to be selective about clients
by assessing how the firm sources clients. Medium
term, the ethics of partners need to be a key discussion at network meetings, to ensure that growth is
sustainable. In the long term, firms who have been
selective with clients and maintained their ethics
Maniar, Horwath Mak
will continue to enjoy profitability and success.
Contributor: Graham Martins, PKF UAE, managing partner,
Being, arguably, a hydrocarbon economy, one of
the most common talking points in the UAE over
the last year has been the impact of the substan-
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tial reduction in oil prices from highs of $115 per
barrel in 2014 to below $30 per barrel in recent
weeks. This was combined with the surprise volatility of the Yuan after government intervention,
turmoil on stock markets and uncertainty of a
Brexit, as well as mixed data from the USA.
It is unclear as to whether the oil price will stabilise
over the next 12 to 18 months, and therefore governments and businesses face an uncertain environment. In such times the tendency is to tighten belts
and wait and see.
In the UAE, an increasingly smaller proportion of
the GDP is directly oil-dependent – possibly about
one third – and in Dubai this is even lower. There
is, however, the indirect effect: many businesses
may be dependent upon business in countries such
as Saudi Arabia or Kuwait, both of which have suffered tremendously from the oil price fall. This in
turn has impacted expenditure in the UAE, whether in staff numbers, pay levels or re-investment.
Additionally, there is also the substantial expense
of the conflict in Yemen with the provision of UAE
armed forces.
The UAE governments have faced up to these challenges by continuing to invest in infrastructure,
and this is particularly the case for Dubai, with
the looming Expo 2020 Dubai and its exploring
new ways to diversify revenue streams. The latter has seen many government initiatives within
the knowledge and environmental sectors. However, one of the more prominent matters has been
the announcement that VAT will be introduced
in 2018. This will be a major shift in policy from
the ‘tax free’ environment existing previously. On
a positive note, the change in Iran sanctions has
opened up opportunities for many in the UAE, but
it is an unknown market for most, and treading
with caution will be a common approach.
In summary, there has been an increasing degree
of uncertainty in the future of the economy, in the
world as well as in the UAE. This impacts corporate decision-making.
Many companies are trying to come to grips with
the new Commercial Companies Law. Whilst it
appears to be clear for joint stock companies, the
impact it will have on private companies remains
uncertain as executive regulations are awaited.
This in turn will affect the responsibilities of auditors. The possible auditor rotation provisions
could have a significant impact, both in terms of
client profile and in fees.
Most audit firms will now be considering the possible scope of the introduction of VAT in 2018 and
how they can advise their clients in preparation.
This will have IT and operational consequences.
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IAB 560.indd 21
Martins, PKF UAE
The uncertainties already referred to will themselves lead to challenges for audit, accounting
and consulting firms. More caution on the part of
clients and potential clients will lead to increased
challenges, seeking new work or converting proposals into engagements. This is all in the face of
generally rising costs. So, like governments in the
region, seeking to diversify revenue streams will
be an important matter for firms to address over
the next year.
In the long term, the prognosis for the UAE is very
good. The progressive and innovative attitude of
the government and of companies bodes well for
the long term health of the economy. The medium
term is bolstered with the upcoming Expo 2020
Dubai and the opening of Iran. Weathering the
short term uncertainties is the immediate goal, to
ensure that we are in good shape to reap the benefits of the medium to long term.
Contributor: Gerard Rahman, BDO UAE, CEO
The total spend on professional services has
decreased with the fall in oil prices, which naturally impacts the economy in the UAE. With limited
regulation outside of ADAA (Abu Dhabi Accountability Authority) and DFSA (Dubai Financial Services Authority), financial institutions are influencing their borrowing customers to upgrade their
auditors within their own perception of the relative
quality of audit firms. Within the smaller area of
professional services, it becomes more challenging
to enter certain service lines or maintain them if
they are not yet mature. Customers generally do
not move because of price. However, with pressure
to get the best value from expenditure, customers
will challenge professional firms where they feel
that the service quality is not meeting their expectations, and hence, towards the end of 2015, there
was significant customer movement between professional firms.
Any disruption in customer behaviour is an opportunity to both retain existing customers and attract
new customers. So, the trends should be seen as
positive. At the end of the day, customers leave you
or come to you because of how you treat them. As
accounting firms have vied for more market share
over the last five years, margins have suffered, and
this is not sustainable over the next three years.
Accounting firms have to be realistic about sustaining weak margins in certain services or customers and its impact on quality.
With such close business ties to India over the last
half century, the UAE is heavily dependent on chartered accountants from India. However, with India
adopting IFRS soon, there will be a real need for
substantial numbers of IFRS-experienced accountants in India, and the obvious location to recruit
from will be the Gulf countries. This will change
the source of talent and resource in accounting
firms in the UAE.
The UAE has been a significant economy in the
world market for less than a generation. The country is evolving and adapting for sustainability just
like any other nation. It is time for service quality
to improve. It is time for professional firms to be
serious about making sustainable profits rather
than buying revenue for market share.There are
many good accounting firms in the UAE, but they
all need to determine what their real proposition to
their customer is, and focus on that. There is a real
opportunity for accounting firms to mature over
the next five years, and although the landscape will
change, it will improve.
Contributor: Athos Fouttis, UC&CS EMEA,
president
The UAE has the second largest economy in the
Arab world (after Saudi Arabia), and a GDP of
AED2.2trn (USA$599 bn) in 2015.
The UAE’s economy, with the exception of Dubai,
remains extremely reliant on oil despite having the
most diversified economy in the GCC.
The UAE is competitive in many areas of economic
freedom. Barriers to trade are quite low, and regulations support open-market policies.
With a favourable business climate and political
stability, the UAE has created a dynamic entrepreneurial environment for international investors. The financial sector’s overall soundness has
improved substantially since the Dubai debt crisis
of 2009.
The UAE will remain stable from 2016 to 2020. A
possible transfer of power in Abu Dhabi from the
current ruler who is in poor health to the crown
prince should pass smoothly. We forecast that real
GDP growth will remain weak, especially in 201617 due to low oil prices, which will keep the fiscal position in deficit until 2018. The authorities
will prioritise economic diversification in order to
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promote non-oil growth. Dubai has made progress with managing its debts and this will remain
a focus.
Contributor: Mago Singh, Baker Tilly UAE, group
managing partner
The most important change in the market in 2015
was the introduction of new business nature: the
commercial companies. The new law has many
provisions relating to the offering of shares by the
joint stock companies and regulative provisions,
but from the auditor’s perspective it has been made
compulsory that every company must have audited
accounts and must submit audited financials.
Another important decision in 2015 was to implement a tax system and in particular introduce
VAT.
This is currently being implemented and will offer
huge opportunities for tax practices to contribute
toward easy assessment and enforcement, as well
as advising on the simplification of procedure.
The biggest challenge for the accountancy profession in the UAE is the lack of regulation. There
is no statutory body that governs accountants. To
have a professional license to practice, it is compulsory to be a UAE-qualified accountant, and there
are simply not enough of them. There are very few
nationally qualified chartered accountants, who
are all in high positions in the government or ministries, and as such they are unavailable.
In absence of qualified accountants, the market is
full of UAE nationals who have recently graduated
or have a year of banking experience. The ministry gives audit licenses to these people to practice, however, they lack the knowledge to do so
effectively. As regulations are not in place, services
provided by such individuals are booming and for
as little as $500 you can receive audited financials
Singh, Baker Tilly UAE
22 y April 2016
IAB 560.indd 22
with a clean opinion.
We are very positive and while in the short to
medium term the region may experience some ups
and downs, in the long term our expectations are
optimistic.
With a large population and continuing growth,
there are opportunities, particularly in infrastructure, education, health care, and information technology, which are areas in which we will concentrate.
Contributor: Mahavir Hingar, Sun Management
Consultants (Reanda), director corporate finance
The UAE’s economy is considered the second largest economy in the Arab world. With the exception
of Dubai, the UAE’s economy is heavily reliant on
oil revenues, the economic slowdown and decline
in the oil prices from its peak has dented the government revenue. And now the government is not
leaving any stone unturned to transform the oil
based economy to a non-oil based economy by
increasing the contribution of non-oil sector to
its GDP. Dubai, in particular has achieved significant results over a period of time by diversifying
its economy and making it less susceptible to the
oil prices, with significant investments in infrastructure, manufacturing, trade, tourism, nuclear
and renewable energy, industrial zones, education,
healthcare and financial services sectors.
Despite the fall in the oil prices and economic
slowdown the government is still spending on most
of the infrastructure and real estate projects at the
same pace. The works on the various Dubai’s
iconic projects like Mall of the world, Dubai Creek
Harbour, Dubai Canal, Dubai Opera, etc. are
underway in 2016. Expo 2020 is expected to cost
USA$9.4bn and would add more than $ 23bn to
the UAE’s GDP. Dubai’s airport, one of the busiest
airports in the world, the UAE’s airlines and hospitality industry are already gearing up to handle
nearly 25m visitors travelling to the country for the
World Expo 2020.
The UAE, which is ranked 1st among the Arab
countries on the ‘Ease of doing business ranking
2016’ issued by the World Bank has decided to
introduce VAT at the rate of 5% from January
2018, ending its tax-free environment for investors and consumers. The healthcare and education sector along with a hundred food items will
remain exempted from VAT. The imposition of
VAT is expected to generate approximate revenue
of AED12bn for the government.
In the year 2015, the UAE government has also
introduced the new Commercial Companies Law
(CCL) to strengthen the legal and regulatory
framework of doing business. The stated objective of the new CCL is to continue the UAE’s
development into a global market with a more
regulated business environment. In particular, it
raises levels of: good corporate governance, protection of shareholder interest and promotion of
corporate social responsibilities of the companies.
Some notable features of the new CCL include the
recognition of the concept of holding and subsidiary companies, procedures for pledging shares,
retention of documents, valuation of shares and
the issued and authorized capital requirements for
public joint stock companies etc.
The UAE has been a non-tax regime for over five
decades and turning now to a partially taxed economy will pose major implementation challenges.
The accountants and auditors will now have to see
everything from a tax point of view. Practitioners
will find new opportunities for their firms, but will
have to go through a major revamp to get ready
for the new VAT environment. The corporate
requirements and regulations imposed by CCL is
also an opportunity for the audit firms to advise
their clients.
Another challenge is to find skilled and experienced professionals locally with competitive remuneration packages during the times when the cost
of living is increasing day by day. The UAE has
been an attractive and preferred destination for
white collar workers, the corporate sector comparatively offers higher remuneration and perks than
the accountancy firms which makes the sourcing of
qualified professionals difficult. Retention of professionals by the accounting firms is also a challenge as the industry regularly absorb the experienced qualified professionals from accounting and
audit firms.
The fact that the UAE is more diversified than most
of the other oil exporting countries has been a big
plus in terms of being comparatively less impacted
by the drop in oil prices. The UAE also came out
of the global financial crisis much faster than other
parts of the world. Yes, there are many tough challenges to overcome but there are certainly positive
sentiments powered and inspired by the government’s timely decision making process. The UAE is
upbeat about the potential flow of foreign capital
in the next five years as a result of giant projects
led by infrastructure, retail sector and Expo 2020.
The government is also highly optimistic that the
SME sector will continue to deliver a robust performance and will remain a major contributor to
the non-oil national incomes.
In 2014, the SME sector accounted for 60% of
the UAE’s non-oil GDP. The government seeks to
www.InternationalAccountingBulletin.com
05/04/2016 12:08:48
SURVEY
MIDDLE EAST
International Accounting Bulletin
United Arab Emirates
raise the figure to 70% by 2021. The UAE also aims to see a 5% contribution by 2021 from the innovation & knowledge sector. The country is in talks with
nations in Europe, Asia and North America about collaborations and alliances in order to boost its knowledge economy. The UAE’s industrial sector currently
accounts for 14% of GDP and the figure is expected to reach 20% by 2025.
■■ MIDDLE EAST
■■ MIDDLE EAST
NETWORK/ASSOCIATION
In how many of the countries surveyed here is
your organisation represented in at the moment?
NETWORK/ASSOCIATION
In how many of the countries surveyed here is
your organisation represented in at the moment?
Abacus Worldwide
2
Kreston International
12
AGN International
13
Mazars
11
ANTEA
4
MGI
10
Baker Tilly International
13
Moore Stephens International
13
BDO
12
Morison KSi
11
Crowe Horwath International
15
MSI Global Alliance
11
DFK International
10
Nexia International
12
ECOVIS International
5
PKF International
14
EuraAudit International
4
Praxity
5
GMN International
5
PrimeGlobal
10
Grant Thornton
13
Reanda International
1
HLB International
14
RSM
13
IAPA
6
SANTA FE ASSOCIATES
3
INPACT
7
UC&CS GLOBAL
1
Integra International
7
UHY International
9
■■ MIDDLE EAST
FIRM MOVEMENTS
NETWORK/ASSOCIATION
FIRM ADDITIONS, MERGERS & ACQUISITIONS
Abacus Worldwide
Added: Quantum Al Badi Charterd Accountants (Abu Dhabi, UAE)
AGN International
Added: Keepers Advisory Services (Kuwait), Al Obaidly & Partners (Qatar)
Baker Tilly International
Added: Baker Tilly Wahid Abdel Ghaffar & Co. (Egypt - Cairo)
BDO
Added: BDO Accounting, Audit & Tax Services (formerly Harvard for Accounting, Auditing & Tax Services) (Ramallah, West Bank & Gaza)
ECOVIS International
Added: ECOVIS Al Sabti (Riyadh, Saudi Arabia)
Grant Thornton
Added: Dr Sultan Hassan Al Dosari Auditing & Accounting (Qatar)
Lost: Grant Thornton Arab Accountants - Al Eid & Co(Qatar)
HLB International
Added: Vezin Yeminli Mali Müavirlik A. (Istanbul and Ankara, Turkey)
Integra International
Added: Merheb Consultancy & Audit (Beirut, Lebanon)
MGI
Lost: AGH (Cairo, Egypt)
Moore Stephens International
Added: Ibrahim Abbasi & Co. (Amman Jordan)
MSI Global Alliance
Added: HBK Hobeika & Co (Beirut, Lebanon)
Nexia International
Added: Dr Abdul Salam Al Miklafi & Co (Sana'a, Yemen)
PKF International
Added: PKF Allied Accountants (Manama, Bahrain), PKF AlBassam & AlNemer (AlKhobar, Saudi Arabia)
Lost: PKF Bahrain (Manama, Bahrain)
Reanda International
Added: Reanda UAE (UAE, Dubai)
Santa Fe Associates
Added: Chuoujaa Audit Firm (Egypt), Farouk Kozman & Co (Egypt)
UC&CS GLOBAL
Added: Athos Fouttis & Co.(Dubai)
UHY International
Added: UHY ÖZCAN & ÖZCAN (Turkey), UHY Peten Sworn in CPA (Turkey)
Lost: UHY Uzman CPA and Auditing (Turkey)
www.InternationalAccountingBulletin.com
IAB 560.indd 23
April 2016 y 23
05/04/2016 12:08:49
RANKINGS
MIDDLE EAST
International Accounting Bulletin
■■ MIDDLE EAST 2016
NETWORKS: FEE DATA
Rank
Name
Fee split (%)
Fee income ($m)
Growth rate(%)
25%
n.d
Audit & Assurance
Accounting Services
Tax services
Advisory
Other
Year-end
1
PwC*
752.0
Jun-15
2
EY* (e)
488.4
1%
n.d
Jun-15
3
Deloitte* (e)
487.9
-2%
n.d
May-15
4
KPMG* (e)
487.7
-4%
n.d
Sep-15
5
BDO*
140.6
1%
45
13
15
27
-
Sep-15
6
Grant Thornton* (1)
65.1
-3%
53
-
12
26
10
Sep-15
7
Crowe Horwath International* (2)
53.0
2%
51
-
19
27
3
Dec-15
8
Baker Tilly International*
46.5
9%
30
7
21
33
9
Jun-15
9
RSM* (2)
40.7
-2%
49
-
18
27
6
Dec-15
10
Moore Stephens International*
40.2
8%
60
5
15
12
8
Dec-15
11
PKF International* (2)
32.6
17%
57
-
13
25
5
Jun-15
12
Mazars*
28.6
7%
45
17
33
5
-
Aug-15
13
Nexia International* (2)
26.8
-5%
48
-
43
7
3
Jun-15
Dec-15
14
UHY International* (2)
25.1
5%
50
-
17
28
5
15
Kreston International* (2)
22.3
10%
54
-
26
14
6
Oct-15
16
HLB International*
22.2
28%
55
6
27
7
5
Dec-15
2
36
12
6
17
ECOVIS International*
8.4
15%
44
18
MGI*
7.1
7%
n.c
19
Reanda International* (4)
3.3
7%
23
9
-
17
51
Dec-15
20
Santa Fe Associates*
1.7
n/a
32
35
33
-
-
Dec-15
2,779.9
6%
Total revenue/growth
Dec-15
Jun-15
Notes: (e) IAB estimates, n.d = not disclosed, n.c.= not collected, n/ap= not applicable, n/av= not available (1) Accounting services are included in other, (2) Accounting services are included in audit & assurance, (4) Other includes corporate finance, company
secretarial and business formation. *Disclaimer = Only data from the named member firm or the exclusive member firms within a network/association is included. Data relating to correspondent and non-exclusive member firms is not included.
Source: International Accounting Bulletin
■■ MIDDLE EAST 2016
ASSOCIATIONS: FEE DATA
Rank
Name
Fee income ($m)
Growth rate(%)
Fee split (%)
Audit & Assurance
Accounting Services
Tax services
Advisory
Other
Year-end
1
Praxity*
58.1
91%
52
11
28
8
2
n/a
2
Morison KSi* (1)
38.1
n/a
49
14
10
10
17
Dec-15
3
PrimeGlobal* (2)
18.9
1%
62
-
19
-
19
May-15
4
AGN International*
14.9
4%
50
17
16
12
5
Dec-15
5
MSI Global Alliance* (2)
14.9
-7%
66
-
12
12
10
Dec-15
6
DFK International* (2)
14.1
6%
57
-
23
19
1
Sep-15
7
IAPA* (3)
9.2
1%
42
10
29
8
11
n/a
8
INPACT* (2)
7.7
57%
68
-
3
25
4
Dec-14
9
Integra International* (2)
5.9
2%
55
-
35
10
-
Dec-15
10
GMN International*
5.0
1%
50
21
12
10
7
Sep-15
11
ANTEA* (4)
4.6
6%
52
-
20
27
1
Dec-15
12
Abacus Worldwide*
1.5
200%
45
37
3
13
2
Dec-15
13
EuraAudit International* (2)
1.3
18%
76
-
4
18
3
Dec-15
14
UC&CS GLOBAL*
1.0
n/ap
3
2
6
89
-
Dec-15
195.1
58%
Total revenue/growth
Notes: n.d = not disclosed, n.c.= not collected, n/ap= not applicable, n/av= not available (1) Other includes litigation support and company formation/administrations, (2) Accounting services are included in Audit & Assurance, (3) Other includes consultancy and
outsourcing, (4) Accounting services are included in advisory. *Disclaimer = Only data from the named member firm or the exclusive member firms within a network/association is included. Data relating to correspondent and non-exclusive member firms is not
included.
Source: International Accounting Bulletin
24 y April 2016
IAB 560.indd 24
www.InternationalAccountingBulletin.com
05/04/2016 12:08:49
RANKINGS
MIDDLE EAST
International Accounting Bulletin
■■ MIDDLE EAST 2016
NETWORKS: STAFF DATA
Rank
Name
Total staff
Partners
Professional staff
Administrative staff
Offices
2015
2014
Growth (%)
2015
2014
2015
2014
2015
2014
2015
2014
1
BDO*
2,295
2,096
9%
122
121
1,897
1,725
276
250
34
32
2
Grant Thornton*
1,153
1,075
7%
80
71
881
851
192
153
19
19
3
Crowe Horwath International*
997
865
15%
119
103
722
619
156
143
48
48
4
Mazars*
916
871
5%
31
34
766
726
120
111
17
17
5
RSM*
887
884
0%
80
76
693
697
114
111
24
25
6
Moore Stephens International*
856
797
7%
60
57
650
608
146
132
29
30
7
Baker Tilly International*
810
880
-8%
84
98
585
622
141
160
35
34
8
PKF International*
640
517
24%
81
87
474
351
85
79
32
26
9
Nexia International*
580
542
7%
82
75
392
371
106
96
26
24
10
UHY International*
551
505
9%
44
44
352
319
155
142
17
15
11
Kreston International*
530
509
4%
29
31
433
410
68
68
29
30
12
HLB International*
526
445
18%
56
49
371
312
99
84
31
28
13
MGI*
214
186
15%
25
28
189
158
n/a
n/a
19
17
14
ECOVIS International*
144
119
21%
23
21
100
80
21
18
10
8
15
Santa Fe Associates*
47
n/a
n/a
6
n/a
26
n/a
15
n/a
3
n/a
16
Reanda International*
32
31
3%
4
4
19
17
9
10
4
4
11,178
10,322
8%
926
899
8,550
7,866
1,703
1,557
377
357
Totals
Notes: n.d = not disclosed, n.c.= not collected, n/ap= not applicable, n/av= not available *Disclaimer = Only data from the named member firm or the exclusive member firms within a network/association is included. Data relating to correspondent and nonexclusive member firms is not included.
Source: International Accounting Bulletin
■■ MIDDLE EAST 2016
ASSOCIATIONS: STAFF DATA
Rank
1
Name
Praxity*
Total staff
Partners
Professional staff
Administrative staff
Offices
2015
2014
Growth (%)
2015
2014
2015
2014
2015
2014
2015
2014
1,403
1,354
4%
74
76
1,150
1,101
179
177
42
43
2
Morison KSi*
786
n/ap
n/ap
96
n/ap
556
n/ap
134
n/ap
39
n/ap
3
PrimeGlobal*
562
504
12%
94
53
361
350
107
101
28
26
4
AGN International*
543
414
31%
n/av
n/av
n/av
n/av
n/av
n/av
20
18
5
DFK International*
423
381
46
40
294
240
83
101
28
21
6
IAPA*
317
n.c.
n/a
29
n.c.
205
n.c.
83
n.c.
12
n.c.
7
MSI Global Alliance*
281
239
18%
29
26
189
185
63
58
15
13
8
INPACT*
260
203
28%
37
43
183
124
40
36
12
12
9
Integra International*
177
159
11%
23
18
132
120
22
21
11
10
10
ANTEA*
133
126
6%
18
20
95
87
20
19
10
6
11
11
GMN International*
118
115
3%
18
16
76
78
24
21
11
12
EuraAudit International*
112
108
4%
28
27
68
65
16
16
8
8
13
Abacus Worldwide*
55
30
83%
7
4
36
21
12
5
5
2
14
UC&CS Global*
5
n/av
n/ap
1
n/av
3
n/av
1
n/av
1
n/av
5,175
3,633
42%
500
323
3,348
2,371
784
555
242
170
Totals
Notes: n.d = not disclosed, n.c.= not collected, n/ap= not applicable, n/av= not available . *Disclaimer = Only data from the named member firm or the exclusive member firms within a network/association is included. Data relating to correspondent and nonexclusive member firms is not included
Source: International Accounting Bulletin
www.InternationalAccountingBulletin.com
IAB 560.indd 25
April 2016 y 25
05/04/2016 12:08:49
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Untitled-14
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541v2.indd1 26 1
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