MADDA WALABU

UNIVERSITY
COLLEGE OF BUSINESS AND ECONOMICS
DEPARTMENT OF ACCOUNTING AND FINANCE

POST-GRADUATE PROGRAM ®
Assignment
On

The Role of Accounting and auditing Board of

Ethiopia (AABE) in Enhancing the Accounting
Profession
Submitted to;Dr. Teferi D. (Ph.D.)

№ Name of Members ID№

1 Habtamu Alebachew PGR/18541/12
2 Zemenu Fekede PGR/18544/12
3 Tegene Dese PGR/18548/12
4 Tesfaye waktola PGR/19440/12
5 Abudlfeta Alo PGR/18549/12
6 Rabiya Hussen PGR/18547/12

Febru
ary 2020
Bale
, robe Ethiopia
Introduction
The development of accounting in Ethiopia seems to exhibit distinct patterns during the three
chronological periods: Pre-1974, 1974 to 1991, and post-1991.) the establishment of the
commercial school in 1943 provided an important and the only venue for training of would
be office clericals in commercial subjects such as banking, secretarial and finance. Another
development in the 1940s was the start of public accounting in Ethiopia. This is traced to
events when British accounting firms, like Price Waterhouse and Peat, opened branches in
the country. An effort to establish indigenous professional accounting associations in
Ethiopia occurred in 1973 when the Ethiopian Professional Association of Accountants and
Auditors (EPAAA) was established. The Ethiopian Accounting and Finance Association
(EAFA – it ceased to continue), the Ethiopian 35 chapter of the Institute of Internal Auditors
(IIA), and the Accounting Society in Ethiopia (ASE) have been established. Ethiopia formed
the first legal audit commission in 1944 according to proclamation number 69/1944. Under
this proclamation the commission was responsible for the audit of the accounts of the
Ministry of Finance, whereas the financial transactions of other ministries were inspected and
controlled by the Ministry of Finance itself.
Ethiopia establish Accounting and auditing board in 2006. According to proclamation
number 847/2006 it announces the formation of AABE with the primary purpose of
protecting the public interest. To achieve this, AABE is responsible for regulating the
profession as well as for issuing a national professional accountancy qualification that is
recognized internationally. Among others, its responsibilities include setting accounting and
auditing standards and code of conduct to regulate the behavior of professionals; register and
certify professionals and firms to provide such services; review and monitor the work of
professionals and firms rendering accountancy and/or audit services and reporting entities;
providing professional qualification training, supporting education and continuous
professional development programs; enforcing the financial reporting law and taking
disciplinary measures on those who do not comply with the provisions of the law and the
regulation set by the Government and directives, other relevant policies and guidelines issued
by the Board.
Historical Background of Accounting in Ethiopia
Ethiopia has had alternating political orders: from a developing market economy (pre 1974)
to a communist economy (1974 through to 1991), and then back to a market oriented
economy (1991 onwards) (Mihret, 2009). The development of accounting in Ethiopia seems
to exhibit distinct patterns during the three chronological periods: Pre-1974, 1974 to 1991,
and post-1991. These patterns are described below in terms of stakeholders‟ efforts to
promote the development of accounting and the outcomes of such efforts. According to Kinfu
(1990) the establishment of the commercial school in 1943 provided an important and the
only venue for training of would be office clericals in commercial subjects such as banking,
secretarial and finance. Another development in the 1940s was the start of public accounting
in Ethiopia. This is traced to events when British accounting firms, like Price Waterhouse and
Peat, opened branches in the country (Mihret, 2009). An effort to establish indigenous
professional accounting associations in Ethiopia occurred in 1973 when the Ethiopian
Professional Association of Accountants and Auditors (EPAAA) was established (Kinfu et al
2009:87). According to Mihret (2009), the EPAAA was aspiring to develop to a level where
it would certify and license public accountants to practice in Ethiopia. Composition of
members to the association included mainly accounting and auditing practitioners. In 1974, a
military government came into power in Ethiopia and declared a communist ideology. Most
people agree that this period (up to 1991) was a time when the development of accounting
appears to have been held back when majority of foreign private audit firms closed their
offices (Kinfu et al 2009:88). According to Kinfu (2009:89), after 1991, when the country
shifted back to a free-market economic order, a number of public enterprises were privatized,
which resulted in a new corporate governance structure that would be expected to enhance
the importance of financial reports. In parallel development, EPAAA has been re-activated
and three other professional associations, i.e. the Ethiopian Accounting and Finance
Association (EAFA – it ceased to continue), the Ethiopian 35
chapter of the Institute of Internal Auditors (IIA), and the Accounting Society in Ethiopia
(ASE) have been established (Mihret, 2009). The journey of the accounting profession is
Ethiopia is marked by traverses following the state ideologies. Moreover, the responsibility to
develop and enhance the profession was never fixed. Various government organs had
assumed responsibility at occasions. The legal mandate given to OFAG itself was considered
supplementary duty as the office had other major responsibilities. In recent periods, the
Ethiopian Civil Service College was also given the mandate to certify and regulate the
professionals. Add to this, the effort to develop national standard oscillated between MoFED,
Addis Ababa Chamber of Commerce and Ministry of Industry. Absence of an authoritative
body entrusted with the power to issue code of conduct and regulate the practice was a
serious impediment for the profession. Now that a proclamation that endorses the adoption of
IFRS and provides for the establishment of a regulatory body with a sole purpose of
regulating the profession is in place – one may say the better days for the profession are
around the horizon.

Recent development

There has been ongoing public sector financial reform in Ethiopia since the early-1990s that
has been undertaken with the support of Western consultants and Western funding agencies
(Peterson 2001). Particularly concerning the accountancy profession, World Bank and
International Monetary Fund undertook a study that resulted in Reports on Observance of
Standards and Codes (ROSC). ROSC recommended, among others recommendations,
establishing a National Board of Accountants and Auditors, under which professional
associations would be established. As has been the case in Greece (Caramanis 2002), the
dynamics of the state, such global agents, and the professions could create impetus for the
development of the profession. Earlier than the ROSC study, there was a Ministry of Trade
and Industry initiative which led to a road map for the development of accounting standards
in Ethiopia. This was done by the ACCA as a consultant and with the involvement of other
stakeholders in the Country. Also, the Ethiopian Civil Service College had an initiative to
establish an institute for certification of accountants in the public sector. At the time of
writing, all these initiatives have been coordinated and a national steering committee has been
established towards establishing national financial reporting standards and a national board of
accountants and auditors. The stakeholders of all the initiatives participate as members of the
national steering committee. The climate may be considered suitable for the existing
professional associations to come together (perhaps by way of merger), review their
strategies, and exploit the opportunities to evolve into a national accountancy body that
would have greater power to obtain state support to regulate and monitor the profession. Such
a strategy of transformation has contributed positively to the development of the accounting
profession in Nigeria (Uche 2002). Creating a cooperative atmosphere among the
associations does not appear complicated because, unlike the cases in Nigeria (Uche 2002)
and Kenya (Sian 2006), there has been little competition among the professional associations
in Ethiopia. This is perhaps mainly because none of these associations were granted statutory
authority of monopoly to monitor and regulate the profession. In addition, the associations
have slightly

different orientations in that the EPAAA has been predominantly focused on public practice
whereas the rest have not clearly advocated public practice as a primary goal. Considering a
merger between some of the existing professional accounting associations could help develop
greater influence in lobbying and enhanced capacity to develop and control the knowledge
base. This will help integrate the separate strands of effort to develop a viable accountancy
association and to gather momentum for development. Developing the capacity to train and
produce indigenous qualified members may appear quite overwhelming, yet it is not
insurmountable. Institute of Certified Accountants in Nigeria (ICAN) overcame such a
challenge, inter alia, through collaborations with higher education institutions. Would-be
members of ICAN were attached to universities to study the theoretical parts of the ICAN
syllabus, an arrangement which enabled ICAN to concentrate on the professional parts of the
syllabus (Uche 2002). However, in the case of Ethiopia, the professional associations should,
in our opinion, first work closely to resolve the issue of the difference between orientation in
accounting education and accounting practice. As this appears to be a critical step in any
attempt to develop the profile of accounting practice in the Ethiopia, it seems an urgent need
for the future.

AUDITING

The history of Ethiopia’s supreme audit institution (SAI) is related to the 1931 constitution,
which stated the importance of the proper collection of the government revenue and the
necessity of setting procedures to control expenditures. However, the constitution failed to
stipulate the need for government auditing and establishing a SAI. But latter, proclamation
No. 69 of 1944 established the first legal audit institution called Audit Commission. Under
this proclamation the commission was responsible for the audit of the accounts of the
Ministry of Finance, whereas the financial transactions of other ministries were inspected and
controlled by the Ministry of Finance itself. The Comptroller and Auditor General who
headed the commission was reporting directly to the prime Minster. The main functions of
the commission were:
• Verification of revenue collection through its inspectors.
• Ensuring appropriate implementations of laws regulations and guidance.
• Identification and detection of irregularities and fraud.
• Initiating legal proceedings against those who were involved in fraudulent activities and
irregularities.
• Submitting reports on its findings with recommendations.

Though the proclamation established sort of the first government audit institution, the
commission was not independent of the ministry as far as its professional freedom is
concerned. Besides, its audit coverage is limited to only to certain government departments.
However, these short comings were resolved after two years through the amended
proclamation No. 79 of 1946. The amended proclamation centralized the audit of all
government accounts under one audit department called the Audit and Control Department,
under the leadership of the Comptroller and Auditor General reporting to the Prime Minster.
Although the power and duties of the commission were substantially increased the
commissioner still lacked independence from the executive as he was reporting to the prime
minister. The Audit and Control Department continued to operate until it was amalgamated
with the Ministry of Finance’s control department without any legislative provision in 1952.
This was a major setback in the process of developing an independent national audit
institution. But after three years, the revised constitution of 1955 established a relatively
independent audit institution. Articles 120 and 121 of the revised constitution of 1955
established a separate and independent audit entity accountable to the emperor and to
parliament. These articles required the auditor general to report regularly to the emperor and
parliament on the financial operations of the government. The articles also empowered the
auditor general to access all books and records pertaining to government accounts. However,
the constitution did not stipulated the detailed functions and reporting requirements of the
Office of the Auditor General until Decree No. 32 of 1958 which articulated the functions of
the office including reporting responsibility. Latter, an amended legislation was issued as
proclamation 179/1961. The new proclamation, in addition to defining powers and duties, it
laid down the conditions regarding the appointment and independence of the auditor general
as well as the reporting procedures. The provisions of this legislation was a mile stone as the
office of auditor general has acquired a higher dgree of independence to carry out regularity
audits; but the proclamation lacked a mandate for expanding the scope of the office’s audit to
carry out performance or value for money audits. Accordingly, the office has to wait until
proclamation No. 164/1979. Proclamation N0.164/1979 increased the traditional power and
duties of the Office of Auditor General considerably by empowering the office to conduct
efficiency and effectiveness (performance) audits. However, the proclamation failed to
incorporate the reporting and remuneration aspects of independence which are part and parcel
of the basic necessities for effective operation of a SAI.

ACCOUNTING AND AUDITING BOARD OF ETHIOPIA

- AABE
 Establishing The Accounting and Auditing Board of Ethiopia (hereinafter the
"Board") is hereby established as an autonomous government organ having its own
legal personality.
 The Board shall be accountable to the Ministry. The Board shall have its head office
in Addis Ababa and may have branch offices elsewhere, as may be necessary.
 The Board shall have the following objectives:
 promote high quality reporting of financial and related information by reporting
entities;
 promote the highest professional standards among auditors and accountants;
 promote the quality of accounting and auditing services;
 ensure that the accounting profession is used in the public interest;
 protect the professional independence of accountants and auditors.

 Powers and Duties of the Board The Board shall, without prejudice to the powers
and duties given to it by Article 4 of the Proclamation, have the following
additional powers and duties to:-

 establish, publish and review a Code of Professional Conduct and Ethics for
certified public accountants and certified auditors, which shall be consistent with
that of the International Federation of Accountants or its successors;

 issue directives related to professionals including for the acceptance or rejection

of application, suspension, cancellation or renewal of certificate and registration;
 issue its own examination and quality requirement directives;
 confer, consult, maintain contact or co-operate with any relevant authorities,
associations, societies, institutions or bodies to enhance the standing of the
accounting profession and professionals both nationally and internationally;
 cooperate with, or become a member or an affiliate of, any international body, the
objectives and functions of which are similar to those of the board;


 facilitate arbitration or conciliation to amicably resolve disputes between

professionals and their clients;
 consider and propose for amendment of existing or proposed legislation in
Ethiopia affecting the accounting profession;
 conduct or arrange for the conduct of professional qualification examination for
the purposes of registering certified public accountants;
 represent the accounting and auditing profession in Ethiopia;
 lay down the requirements to register persons who qualify to be certified public
accountants or certified auditors and register such persons as professionals and
maintain a list of such persons;
 establish requirements for, conduct, or arrange for the conduct of continuing
professional training programs;
 inquire into any breach of the Code of Professional Conduct and Ethics of the
Board, the provisions of this Regulation or Regulations or directives issued under
the proclamation, any certified auditor or certified public accountant, either on its
own initiative or at the request or grievance of any person and take disciplinary
action where appropriate;
 implement a sound quality assurance mechanism to ensure high quality audit
practice;
 conduct or arrange for the conduct of practice review of the auditors of small and
medium enterprises;
 engage in the continuous review and dissemination of international and domestic
informations to professionals and others concerning to professions of accounting
and auditing;
 perform such other related functions as are necessary for the achievement of its
objectives.
Organization of the Board
 The Board shall have:
 a Board of Directors;
 a Director General and, as may be necessary, a Deputy Director Generals,
to be appointed by the Government; and
 the necessary staff and the Board may establish various advisory
committees to assist it in discharging its responsibilities properly.

Members of the Board of Directors

- The Board of Directors shall, including the chairperson, have 12 members to be

appointed by the government from the relevant government organs, higher education
institutions, and the private sector and from associations representing the profession.
- The majority of the persons to be appointed as members of the Board of Directors
shall be from accounting and other related disciplines.
- Term of office of members of the Board of Directors shall be three years.
- Notwithstanding the provision of sub-article (1) of this Article, any member of the
Board of Directors may be reappointed to serve in the board for another term of three
years.
- A member of the Board of Directors appointed to serve as such in the board for two
consecutive terms may be reappointed after a three years' interval.
Powers and Duties of the Board of Directors
- The Board of Directors shall have the powers and duties to:
- oversee the activities of the Board;
- review the budget and work program and reports of the board prior to their
submission to the government;
- review the rates of fees to be paid for services rendered by the board prior to their
submission to the government.
- Meetings of the Board of Directors .
- The Board of Directors shall meet regularly once in a month; provided, however, that
extraordinary meeting of the Board of Directors may be called by the Chairperson or
when at least two third of the members request for such a meeting at any time.
- There shall be a quorum where two third of the members are present at any meeting.
Decisions of the Board of Directors shall be passed by a majority vote; provided,
however, that the chairperson shall have a casting vote in case of a tie.
 - The Director General of the Board shall, unless otherwise excused by the Board of
Directors, attend every meeting of the Board of Directors without voting right.
- Without prejudice to the provisions of this Article, the Board of Directors may adopt
its own rules of procedure.

Disqualification and Removal of Members of the Board of Directors

- A person shall not qualify to be a member of the Board of Directors, if that person:
- has at any time been convicted of an offence involving corruption, theft, fraud,
forgery, perjury or other acts of dishonesty;
- has, within the past five years been convicted of a criminal offence under any law
punishable by a term of imprisonment of no less than six months without the option of
a fine;
- would have a conflict of interest if appointed as a member;
- would for any other reason be disqualified by law from serving as a trustee in
Ethiopia. And A person shall be removed from membership of the Board of
Directors, if that person:
- submits a resignation request to the Minister in writing;
- has committed a breach of the Code of Conduct and Ethics adopted by the board;
- unable to discharge the responsibilities as a member of the Board of Directors as shall
be determined by a majority vote of the members thereof; or
- fails to attend at least half of the meetings of the Board of Directors over a period of
12 consecutive months.
Powers and Duties of the Director General
The Director General shall be the chief executive officer of the board and shall,
subject to the general direction of the Board of Directors, direct and administer the
activities of the board. Without limiting the generality of sub-article (1) of this
Article, the Director General shall have the powers and duties to:- a) exercise the
powers and duties of the board stated under Article 6 of this regulation; b) employ and
administer employees engaged in support services of the board in accordance with the
federal civil service laws and, in the case of employees engaged in the core functions
of the bdard, in accordance with directives approved by tht., government following
 the basic principles of the federal civil service laws; c) prepare and, upon review by
the Board of Directors, submit to the Ministry the work program and budget of the
board, and implement same upon approval; d) effect payments in accordance with the
approved budget and work program of the board; e) represent the board in its dealings
with third parties; f) prepare and, upon review by the Board of Directors, submit to
the Ministry the performance and financial reports of the board. The Director General
may delegate part of his powers

and duties to other officers and employees of the board to the extent necessary for the
efficient performance of the activities of the board.
source of the Budget
- The Board's budget shall be drawn from the following sources:
- annual budget allocated by the government; and
- from other sources.
Books of Accounts
- The Board shall keep complete and accurate books of accounts.
- The books of accounts and financial documents of the board shall be audited annually
by the Auditor General or by an auditor assigned by Auditor general.

Purpose and role of the Board

The AABE is the statutory body established in terms of the Financial Reporting Proclamation
847/2014, with the primary purpose of protecting the public interest. To achieve this, AABE
is responsible for regulating the profession as well as for issuing a national professional
accountancy qualification that is recognized internationally. Among others, its
responsibilities include setting accounting and auditing standards and code of conduct to
regulate the behaviour of professionals; register and certify professionals and firms to provide
such services; review and monitor the work of professionals and firms rendering accountancy
and/or audit services and reporting entities; providing professional qualification training,
supporting education and continuous professional development programs; enforcing the
financial reporting law and taking disciplinary measures on those who do not comply with the
provisions of the law and the regulation set by the Government and directives, other relevant
policies and guidelines issued by the Board.
Stakeholder relationships underpin our activities. Consequently the development of this
Strategic Plan takes into account the significant stakeholder interests. Equally important, and
to ensure that the AABE is fully integrated, the staff and management played a key role in the
preparation of this Strategic Plan.

Objectives of the Board

AABE has clear and realistic statutory objectives which are stated in Section 5 of the
Regulation as to:

Promote high quality reporting of financial and related information by reporting entities;

 Promote the highest professional standards among auditors and accountants;

 Promote the quality of accounting and auditing services;

 Ensure the accountancy profession is used in the public interest;

 Protect the professional independence of accountants and auditors.

In order to achieve the above statutory objectives, AABE will endeavour to:

 Support and promote building necessary institutional capacity to strengthen the

accountancy profession;

 Support and promote the establishment of strong Professional Accountancy Organizations

in Ethiopia;  Build a strong accountancy profession;

 Support the establishment of a local strong CPA qualification with international

recognition;

 Support and promote compliance with international standards by applicable reporting

entities and auditors.
Conclusion
There have been ongoing public sector financial reforms in Ethiopia since the early-1990s
that have been undertaken with the support of Western consultants and Western funding
agencies. This could be exploited by existing professional accounting associations by forming
some sort of cooperation and developing the capacity to produce qualified members. Despite
the apparent tendency of interest to enhance accounting and auditing infrastructure in the
country post-1991, the state controls most of the accounting regulation. This is illustrated by
the role of government bodies undertaking such activities instead of passing over to
professional associations by strengthening the latter. Given the limited capacity of the
professional associations, nevertheless, government monitoring appears apposite (Wallace
1999) and possibly continues as the only viable option in the short term. In the authors’ view,
the different nascent indigenous associations need to work closely and exert lobbying efforts
to attain a shift from the existing state regulation to self-regulation.