The Commercial Code of Ethiopia contains articles that are related to the auditing practice in Ethiopia. There are also different types of auditing in Ethiopia. These includes:- Private External auditing, internal auditing,performance auditing,compliance auditing,Investigation auditing,project and contract auditing.
The Office of Auditor General Plays key roll including a development, management and administration of auditing in Ethiopia. It is the responsible organ for auditing in Ethiopia. Generally,there are six pillars that make up a strong financial reporting infrastructure: statutory framework, profession and ethics, education and training, enforcement mechanisms, accounting standards, and auditing standards.
However these pillars are not developed or implemented in Ethiopia resulting in week auditing system or status at all. In early days an auditor used to listen to the accounts read over by an accountant in order to check them Auditing is as old as accounting. It was in use in all ancient countries such as Mesopotamia, Greece, Egypt. Rome, U. The original objective of auditing was to detect and prevent errors and frauds.
Auditing evolved and grew rapidly after the industrial revolution in the 18th century with the growth of the joint stock companies the ownership and management became separate. The shareholders who were the owners needed a report from an independent expert on the accounts of the company managed by the board of directors who were the employees.
The objective of audit shifted and audit was expected to ascertain whether the accounts were true and fair rather than detection of errors and frauds.
With the increase in the size of the companies and the volume of transactions the main objective of audit shifted to ascertaining whether the accounts were true and fair rather than true and correct. Hence the emphasis was not on arithmetical accuracy but on a fair representation of the financial efforts.
The later developments in auditing pertain to the use of computers in accounting and auditing. In conclusion it can be said that auditing has come a long way from hearing of accounts to taking the help of computers to examine computerized accounts 1.
Auditing in Ethiopia 2. This section examines the auditing professionalization processes in the Country during the past periods. It is apparent from the foregoing quote that performance auditing in a rudimentary sense was started for the government system of Ethiopia in the early 20th century explains that the contribution of foreign advisors to the kings of Ethiopia during the period from the s through to the s led to the issuance of government regulations and proclamations.
Some of the proclamations and regulations continue to define or at least strongly influence the legal basis of accounting and audit practice in Ethiopia to this date. In discussing the contribution of foreign advisors to the development of accounting in Ethiopia, Kinfu considers as initial contributions the role of consultants during the Construction of the Ethio-Djibouti railway in the s and of the legal, military, and foreign affairs advisers in the s.
The author then attributes developments of accounting from to the earlys to the Anglo-American legal and financial advisors to Emperor Haile Silassie I This was followed by the formation of the Audit Commission by Proclamation No.
In about the same time frame, the Ethiopian Highway Authority and Ethiopian Airlines were established. In addition, the Ethiopian Telecommunications Corporation and the Ethiopian Electric Light and Power Authority became autonomous state-owned enterprises.
These phenomena led to involvement of foreign companies as partners, financiers or consultants to the Ethiopian state-owned enterprises. Consequently, internal audit was introduced in these enterprises with a view to strengthening internal controls. As a consequence of the growth of demand for trained manpower in accounting and auditing up to the earlys, the Addis Ababa College of Commerce was established in These institutions have played essential role in the development of the accounting and auditing profession in Ethiopia by producing trained manpower Argaw a; Kinfu The code contains some requirements for financial accounting, reporting, and external auditing of companies that operate in Ethiopia.
This proclamation accorded the OAG greater authority than was provided in the proclamation that established the Audit Commission Argaw a; Kinfu The proclamation has subsequently been revised three times, in , and The version of the proclamation is the legal basis for external audit for government organizations in Ethiopia to date of writing.
Subsequently, private companies were nationalized and the number of state owned enterprises in the country increased. As a result of these changes, international public accounting firms, i. Nevertheless, formation of the Audit Service Corporation ASC Government of Ethiopia to conduct external audit of public enterprises was an important landmark in the history of accounting and auditing in this period.
This development was a result of the need to fill the gap created by the closure of international accounting firms. Furthermore, internal audit as a separate function appeared during this period in when the Auditor General was mandated by Proclamation No. This proclamation also gave the auditor general the authority to issue minimum requirements for recruitment of internal auditors, provide training to internal auditors, and require reports on internal audit of government organizations As this period is generally considered as a time when the development of accounting and auditing was directly or indirectly constrained, limited achievements were made in terms of development of audit profession.
This shift led to a number of public enterprises being privatized. The resulting new corporate governance structure in the private sector would be expected to enhance the importance of financial reporting and external auditing. Change of government and the type of government tend to be important influences on the development of the accounting and auditing profession in ethiopia.
The free-market system has been considered as one of the signals of hope for a better future for the accounting and auditing profession. Matching this expectation, the ethiopian government has been undertaking financial reforms in the areas of financial reporting and internal audit in the public sector.
Types of Audit and Auditors in Ethiopia 3. The Commercial Code of Ethiopia contains provisions requiring partnership and corporation Share Company to keep books and accounts, related to corporations specifically about appointment of auditors, competency of auditors, professional secrecy and liabilities of auditors.
Furthermore, the code specifies persons who are founders and beneficiaries of a company or its subsidiary, persons related by blood to the fourth degree, or persons who receive remuneration from company founders it also states that directors are not to engage in auditing that company. Principle of Independence In addition, according to the code, an auditor is liable for breach of professional secrecy, for negligence in the performance of professional services, and for breach of contract.
According to the Commercial Code, auditors are liable to client and third party for losses they cause, for issuing inappropriate report, for failure to inform the law for any offences that they knew were committed by the client that affects the public. The demand for commercial audit has increased, as the Commercial Code of Ethiopia required the multinational companies to present audited financial statements for renewal of trade license.
The Office of Auditor General audits or causes to be audited the accounts of the Federal Government offices and organizations. On the other hand, the Audit Service Corporation provides auditing services to public enterprises.
The private businesses also need audited financial statements for various purposes such as for bank loan and for tax purposes.
Thus, private auditing firms provide auditing, accounting services, tax services, and management advisory services on fee basis primarily to the private businesses. The type of audit conducted by private auditing firms is financial statement audit. The Office of Auditor General issues license to private auditors. However some private organizations and nongovernmental organizations also employ external and internal auditors and undertakes performance audit.
In Ethiopia it is the least developed type of audit. In Ethiopia there is no law which enforces privately owned organizations to undertake performance audit. Auditing involves examination of financial statements, books of accounts and vouchers of a taxpayer by Tax Auditors so as to ascertain whether the taxpayer has accurately considered revenues and expenses when determining the taxes shown in the declarations as per the requirements of the tax laws.
It also involves other approaches such as observation of premises, direct monitoring of receipts in cash businesses, use of mark-up techniques and analysis of key ratios.
The overall objective is to improve the compliance of taxpayers, whether they declare the correct amount of tax and paid at the right time. The expectation by a taxpayer of an audit should have a deterrent effect and encourage the taxpayer to declare as far as possible a credible tax return.
Types of Auditors in Ethiopia 4. The same Proclamation mandated the then Ministry of Finance to audit other budgetary institutions as a measure of internal control over the financial operations of the budgetary institutions.
It appears that this early practice of internal auditing as per Procl. The latter part of the s witnessed the establishment of internal audit functions in key public sector institutions such as the national defense, education, road construction, and other non-budgetary public sectors, which included the Ethiopian Airlines, Telecommunication and the financial sector consisting of the modern layer of the Ethiopian economy. These institutions in one way or the other had external links or financing operations, which created awareness of the need for internal controls to sectarian appropriate financial management and to safeguard organizational assets.
The period of the early s, marked the introduction of a budgetary system in government. The commencement of an annual public budget in for the first time in the history of the country ushered in a system of financial administration based on the annual budget with all its attendant requirements for strengthened internal control in the budgetary agencies.
This entailed the formation of internal audit as an integral apart of the budgetary internal control system. The establishment at the time of the Addis Ababa Commercial School and the Addis Ababa University College supplied with limited but better informed manpower, for some key institutions in the economy.
The main purposes were to determine the service quality, methodology and educational and skill content as well as organizational structure of internal auditing. The survey was carried out by means of questionnaires developed by an ad hoc committee. Although the questions were widely distributed the analysis was based on the responses obtained from different ministries, government departments and 50 public enterprises.
The survey indicated that there was a serious lack of internal audit education and training. An accounting background has been seen as the most important requirement for entry into the internal auditing work.
Hence the findings of the survey at the time indicated that the scope and professional content of internal auditing work was severely limited to: 1 Low-level financial and compliance audits, 2 Pre-audit 3 Non-audit work such as witnessing the hand-over of stores, cash and personnel transfers The prevalence of such limited scope of work of internal auditing was attributed to a number factors, which included: 1 The low level education, training and experience of internal auditors 2 The lack of management awareness about the functions and contributions of internal auditing 3 The prevalence of weak internal control systems in organizations in which internal audit is an integral part.
Need to Adopt the Professional Practice Framework of the Institute of Internal Auditors IIA 1 The framework consists of a common body of knowledge most thoroughly researched, authoritative and globally accepted for the training and practice of internal auditing.
Internal Audit studies, qualification exams are based on the contents of this Framework and this would assist Ethiopian candidates to familiarize themselves with the basic materials. The Framework is made up of best practice guides for modern day internal auditing profession and it is expected that any development and modernization of internal auditing Internal auditor is employees of the companies they audit.
This type of auditors involved in an independent appraisal activity, often known as internal auditing within an organization as a service to the organization. At the federal level, the three primary agencies are the Office of Auditor General, the audit service corporation, and the federal Inland Revenue authority.
The office of Auditor General is a federal organization headed by the auditor general. This office is responsible for conducting financial statement audit, compliance audit and operational audit of various Federal Government offices. The regional governments have also their own regional audit bureau with similar functions. The Federal Inland Revenue Authority is responsible for administering the federal tax laws.
That is, the auditors examine the tax returns of the taxpayer to ensure that it is prepared in accordance with the tax laws and regulations.
The Audit services corporation audits the financial statements of the public enterprises. EY Homepage. Recent searches. See all results for. How entrepreneurs can transform access to safe water 4 Jun Corporate responsibility. Select your location Change. Local sites. Connect with us. My EY log in. HC upholds powers to conduct service tax audit even after introduction of GST. Subject Alerts. Categories Indirect Tax Tax. Jurisdictions India. Link copied. There can be a self-assessment in which case the return filed by the Assessee is accepted as such and the tax amount indicated therein is accepted as being correct; Section 72 of the Finance Act i.
Best judgement assessment Even for the purpose of Section 72 of the Finance Act, a prima facie satisfaction is to be arrived at that the return filed by the Assessee fails to assess the tax in accordance with law. Even in such an instance, the calling for the accounts, documents and other evidence is not to be undertaken by an Assessing Officer mechanically ; Moreover, it is not any or every officer of the Service tax department who can exercise the power under Section 72 of the Finance Act.
The function of making an assessment has to be assigned to such officer. It is only such officer who is entrusted with such power who can proceed to ask for the documents, records, accounts etc. The extent of the audit and the period for which it should be conducted is also to be specified by the Commissioner.
Power to search premises The power to search the premises is also hedged in by certain limitations, like the requirement of the officer to record reasons to believe that i there are documents or books that have been secreted in a place ii such documents or books are useful or relevant for any proceedings.
Therefore even the power under Section 82 cannot be said to be totally without guidelines or restrictions. These documents are not envisaged to be produced under Rule 5 2 and definitely not under any of the provisions of the Finance Act. The Petitioner would have no objection to producing before a Cost Accountant or a CA the documents of accounts, records etc. There is also no requirement of such officer having to be authorised to carry out a search under Section 82 of the Finance Act or an assessment under Section 72 thereof.
If any and every officer is going to be deputed for that purpose, it would result in harassment of the Assessees ; Rule 5A 2 of the Service Tax Rules envisages that even the CAG can require production of documents from an individual Service tax Assessee.
This Court in Satyanarayanan Vs. With there being no such authorisation under the Finance Act, the answer has to be in the negative. The entire instruction appears to be without any reference to the applicable provisions in the Finance Act or the Rules; Earlier Audit Manual of was held by this Court in the Travelite case, not to have any statutory force. This lacuna pointed out by the Court in the Travelite case has not been set right. The verification of the records can take place by the officers of the Department provided such officers are authorised to undertake an assessment of a return or of adjudication for the purposes of Section 73 of the Finance Act.
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