According to the International Monetary Fund, Africa is projected to post GDP growth of 5% in 2012, compared with the projected expansion of advanced economies and the global economy by 1.3% and 3.3% respectively. The easing of inflation and strong domestic demand is expected to continue, making Africa the engine of global economic growth.
Accountants therefore have a real opportunity to be at the heart of future economic success on the continent. But there are challenges.
As African businesses grow and prosper, so does the need for a vibrant and effective accountancy profession. The opportunity for professional accountants is to position themselves firmly at the centre of good corporate governance, and align themselves with the debates on economic and social development. These are crucial as they will affect millions of people and businesses.
We have the competence, reputation and influence to change the corporate governance and development landscape.
In a 2011 survey on governance and ethical practices, Leadership and governance in Africa, ACCA found that the majority of its members believed accountants should be involved in driving activities to improve ethical practices.
However, the survey also found mixed views on the effectiveness of governance codes and frameworks in improving practice. Despite their own efforts to reduce unethical behaviour, the majority of respondents said that lack of obligation and enforcement, along with political intervention in decision-making, were making the guidelines that had been provided less effective.
According to the survey, the three main barriers to improving ethical behaviour and good corporate governance practices are: the levels of corruption, organisational cultures and lack of government support.
These barriers can be broken down through the ethics of professional accountants based on fundamental principles outlined in the code of ethics issued by the International Ethics Standards Board for Accountants. Those principles are: integrity, objectivity, professional competence and professional behaviour.
The developed world has witnessed numerous scandals arising from corporate governance failures: Barings Bank, Enron and Olympus – and the global banking and financial crisis. These have led to a raft of regulatory responses, codes and legislation, going as far back as the UK’s Cadbury Code, through the Sarbanes-Oxley Act and right up to the Frank-Dodds Act. We have seen the results of the King Committee on Corporate Governance in South Africa, whose codes now apply to all companies listed on the Johannesburg Stock Exchange. We have also seen many regulators in Africa enhance their corporate governance regulations and guidelines.
Unlike Sarbanes-Oxley, the King codes adopt a comply or explain philosophy – a similar approach to the UK’s governance codes. The King philosophy consists of three key elements: leadership, sustainability and good corporate citizenship. King views good governance in essence as effective and ethical leadership.
Business leaders should direct their companies to achieve sustainable economic, social and environmental performance. Sustainability is seen as the primary moral and economic imperative. Corporate citizenship flows from the fact that a company is accountable under the South African constitution and should operate in a sustainable manner.
There are a number of widely accepted corporate governance principles, including separation of CEO and chairman, balanced boards with independent directors, and the establishment of effective audit, remuneration and nomination committees. Accountants would serve themselves well by reinforcing these principles at every opportunity.
A key recommendation of King III, which was published in 2009, was that organisations should produce an integrated report in place of an annual financial report and a separate sustainability report.
Such initiatives reflect the changing business landscape in Africa, and provide accountants with a great opportunity. They have a crucial role to play in good corporate governance. They are the gatekeepers and reputational champions, providing transparency in reporting, decoding regulation for the company, and supporting internal integration and adherence to good governance practice.
Accountants can deliver professional rigour and integrity, follow standards and procedures that highlight concerns and ensure that discussions on risk with management are healthy and productive, offering an independent challenge to the practices within a business.
There is an equally important role for accountants to play in furthering social and economic growth. Strong professional accountancy organisations will help create a body of competent and capable accountancy professionals who will bring effective regulation and oversight of accounting, auditing and financial reporting. Financial information will increase in quality and reliability and facilitate the sound management of public resources.
We will also see strong capital markets and a thriving SME sector. All of which will lead to financial stability, necessary for social progress, economic growth and development. The African Union and such regional economic groupings as the East African Community, the Southern African Development Community and Economic Community of West African States have important leadership roles to play, with good corporate governance at the top of their agendas.
There will also be challenges. All stakeholders – market practitioners, directors, shareholders – need to be educated in the very best corporate governance practices. Corporate governance must be demystified and businesses educated to appreciate its importance. We must convince businesses that good corporate governance adds value to shareholders and other stakeholders and is a must for sustainability.
At the same time Africa needs to ensure its professional accountancy organisations do not lag behind their counterparts around the world – we must ensure we have built the capacity to take on this opportunity. This is why the role of the Pan African Federation of Accountants (PAFA) and IFAC bodies such as the Professional Accountancy Organisations Development Committee, Compliance Advisory Panel, Professional Accountants in Business and Small and Medium Practices Committee is critical. In addition, global professional accountancy organisations such as ACCA with a big presence in Africa must play a supportive role in the development of the profession.
But whatever the challenges, this is an opportunity that must not be missed.
This article first appeared in Accountancy Futures, Edition 6, 2013