THE CASE FOR ACCOUNTING STANDARDS IN SOMALIA

hortly after Somalia’s Auditor General published the annual government audit and compliance report (Annual Performance Report 2018) followed by an interview with the Minister of Finance in response to the report, the Somali public started to discuss the merits of the report and the ministerial rebuttal. An Auditor General passes a judgment on how public finances are managed on the basis of auditing rules and principles. Those rules and principles are meant to furnish the government, donors, investors and business-owners with information about the state of public finances.

In this essay, I will discuss about the importance of putting in place a standardized financial system in Somalia, a country that has gained a lot from the entrepreneurial zest complemented by investment from members from Somali diaspora, who invested in different sectors such as remittances, telecommunications, education (primary, secondary and tertiary) and health care. If you do want to run a business of your own, for example, you will have to think about how to make a profit from products or the service you sell and pay employees (if you are not a sole trader). It is equally important to pay off debts you owe and collect money you are owed. In short you have to know if the return on investment (ROE) warrants further investment. In order to do that, a business should have an accountant.

Accountants record the company’s accounts in line with International Financial Reporting Standards (IFRS). In many cases, businesses hire the service of auditors and accountants in order to make sure that all record keeping practices are complied with. Doing so will provide investors with information about the financial position of the company reflected in the audited accounts.

Accounting standards allow for a government to levy taxes, and regulators to make sure that businesses comply with, among order obligations, safety standards and environment protection, what is now known Environmental, social and corporate governance (ESG).

In the extremely unregulated business environment of Somalia, there is a risk that entrepreneurial progress can be undone by the absence of national accounting standards aligned with the International Financial Reporting Standards. For the government to be able to levy income tax, it will oblige business owners to submit company accounts once a year. The task of preparing company accounts falls to accountants, who prepares the company’s accounts in line with existing accounting and tax laws. Without trained and independent accountants, a government will not be able to introduce a reliable and sound taxation policy.

In 1986 the former military government created a Ministry of Revenues (Wasaaradda Lacagta) with a mandate to send existing business in Somalia back-dated tax bills (macaashul-macaash). An office of the Ministry of Revenue had been built at the main office of every district commissioner’s office in Mogadishu.

There were no accountants with a private practice although financial accounting was a subject taught at the former Technical and Commercial Teachers’ College of the Somali National University and ex-Somali Institute of Development Administration and Management (SIDAM). SIDAM trained accountants for both public and private entities. Some SIDAM graduates found employment with joined parastatals including quasi-private entities such as the National Insurance Company and Somali Airlines. This story is relevant to avoid repeating the mistake of introducing income and corporate tax without the appropriate infrastructure.

It is common practice now among all small and medium-sized companies in Somalia to use automated accounting systems and, based on my observations, an accounting software such as SAGE and QuickBooks Accounting in a both multi-user format as well as point of sale module, making it necessary for them to have an in-house accountant.

Bigger companies have their account externally audited to enable shareholders to keep abreast of the company’s performance.

In order to cater the needs of these businesses, many universities in Somalia teach financial accounting as part of Business Administrations programs but there is a small number certified accountants practicing in Somalia. It may become the norm for Somali companies to raise capital by selling equity. Investors will need to make informed decisions about shares to buy. This is hardly possible if potential investors cannot have access to company accounts (quarterly or annually). They will need to know the financial position of the company whose shares they want to buy.

To contribute to achieving this goal, a group of Somali certified accountants in the United Kingdom established the Somali Association of Certified Accountants (SACS) in April 2010. The main objective was to contribute to professionalising services of accountants in Somalia and enhance professional capacity of Somalia by liaising with international accounting bodies. SACA ceased to exist due to lack of progress on its goals.

Not long after the establishment of SACS, another group of accountants formed the Somali Institute of Certified Public Accountants (SICPA), formerly known as Association of Somali Professional Accountants (ASPA), an umbrella body to bring together Somali certified accountants and students in Somalia and around the world. After attracting enough membership to its fold, it was officially registered with Somali federal government in early 2016. The institute has forged ties with ACCA and lCPAK (Institute of Certified Public Accountants of Kenya) and is in dialogue with PAFA (Pan-African Federation of Accountants) and IFAC (International Federation of Accountants) for their guidance and support.

These developments have raised the profile of accountants in Somalia for an accountant’s job is not merely to crunch numbers. The accountant plays a significant role in an entrepreneurial society like ours. Public sector accountants are equally important in ensuring that, among other tasks, a government’s meagre resources do not get squandered.

Unlike the pre-1991 government-appointed accountants (Xisaabiye Idman), public sector accountants will undergo a proper training to discharge their duties in line with financial reporting procedures. The practicing accountant will be a member of an association to ensure quality assurance and opportunities for continued professional development. Investors will have more confidence to make investment decisions when accounting standards are in place.

Thirty years ago, Accountancy was a most sought-after subject in Somalia due to MBA courses taught at SIDAM/SOMTAD project under the State University of New York (SUNY) at Albany, a successor to a similar SIDAM-based MBA programme run by California State University at Fresno. It is the right time Somali accountants pooled their resources and expertise to provide necessary services which do require professional skills for the proper functioning of both private and public sectors.

Ali Haji Warsame MBA, CPA, CGMA
Former Presidential Candidate & 
PL Minister of Education
Former CEO, Golis Telecom Somalia
Email : alijowjowle@yahoo.co.uk

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