This article was first published in the April 2017 international edition of Accounting and Business magazine.

The uprising of January 2011 and the unrest that followed had far-reaching ramifications for businesses in Egypt, and for finance professionals too. ‘It put the accountancy sector temporarily on the back foot,’ admits Hazem Hassan, chairman of KPMG in Egypt and president of the Egyptian Society of Accountants and Auditors (ESAA), part of the International Federation of Accountants (IFAC).

Prior to the uprising in 2011, numerous reforms and new regulations had been slated for introduction in line with international best practices, but instability delayed their implementation. Now as Egypt is getting back on track, the accountancy sector faces a range of new challenges, not least as a result of last year’s currency devaluation and other structural reforms.

Egypt’s accounting standards were last updated in 2006, when new Egyptian Accounting Standards (EAS) were developed to take account of International Financial Reporting Standards (IFRS) in practice at the time. However, it was not until the last quarter of 2016 that the new EAS finally came into line with IFRS.

‘We agreed with the Egyptian Financial Supervisory Authority (EFSA) that IFRS will be the basis for the EAS. [They should] be identical, in most cases a direct translation from English to Arabic,’ Hassan says. ‘We had adopted IFRS as a solid guideline for standards, but due to political and economic changes we had not updated these to reflect the many amendments that had taken place internationally.’ 

That said, he stresses: ‘The new standards are a great step forward in improving the credibility of the financial sector and the comparability of financial statements here with others outside of Egypt.’ A new Strategic Partnership Agreement between the ESAA and ACCA, signed last year, will further bolster the sector (see box).

This year will see the introduction of new regulations for the accounting profession, primarily focused on qualifications and mandatory training. ‘Right now, you can get an audit licence without having to pass any specific professional examination. That will change under the new regulations,’ says Hassan.

The new regulation will extend the prerogative of the audit oversight board to oversee the quality of audit of all public interest companies and limited liability companies in addition to the companies listed on the stock exchange.

‘The closer our standards are to IFRS the better for Egypt, as it strives to be part of the global business world and provide legitimacy for the bourse,’ says Hassan.

This is particularly important, he stresses, as Egypt seeks foreign direct investment (FDI) to help get the economy back on track and provide jobs for a population growing by 1.2 million a year.

FDI reached a high of US$11.4bn in 2009, but then plunged in following years. In 2015, it rose again to US$6.9bn, according to Egypt’s Ministry of Investment Data. A new draft investment law was prepared in December 2016 and awaits ratification.

The new standards also include measures to improve financial reporting among small-and-medium-sized enterprises (SMEs). According to the Egyptian Banking Institute, the country’s estimated 2.5 million SMEs must be brought into the formal economy – currently, 60% are not formally recognised as companies.

In June last year, the Egyptian government announced an initiative to provide US$25bn to finance 350,000 small companies and create four million new jobs over the next four years. While the money is clearly welcome, ‘SMEs will require skilled accountants for budgeting, management accounting and tax – but this is lacking,’ observes Hassan.

Egypt is not a country that is short of accountants – it has over one million employed in business or working in the profession, according to Hassan. However, most accountants engaged in audit lack a recognised professional certification, having opted for the more traditional route – this route allows them to apply for a licence to audit small companies after five years of university study and training, and for a licence to audit joint stock companies after eight years. 

Hassan estimates that around 25,000 professional accountants in the country, including 2,400 ESAA members, have an international level of competence. ‘We need to increase the number of qualified accountants and the new standards state they must have a professional qualification,’ he says. ‘I am sorry to say we have left it until 2017 to introduce requirements for auditors to do so, but better late than never.’

Key to achieving this goal is managing the number of accounting students to ensure ‘quality, not quantity’. Some universities have a very high number of students studying in their commerce faculty, in some cases as many as 52,000. ‘How can you give a proper education to 52,000 students?’ asks Hassan. ‘Universities should make fundamental changes to the curriculum, emphasise the practical aspect of accounting and offer a degree linked to a professional qualification like ACCA,’ he adds.

The ESAA has taken action in support of this goal. It recently opened a E£30m (US$1.6m) training centre in Cairo, capable of training up to 500 people simultaneously in four different groups.

The years of unrest that followed the 2011 uprising have been trying times for accountants. But the past quarter has brought new and different challenges. In November last year, the government devalued the Egyptian pound from EGP9 to the dollar to EGP13; the rate has since stabilised at around EGP16 to the dollar. The move followed the introduction of a 13% value-added tax (VAT), a spike in customs duties of up to 60% and the removal of some fuel and food subsidies.

These developments would be tough under any circumstances, but the devaluation coincided with ‘a great lack of foreign currency,’ says Hassan. Egyptian businesses that import or have fixed-asset equipment were unable to settle their debts in foreign currency to outside suppliers. ‘The liabilities in Egyptian pounds in foreign currencies almost doubled from one day to the next,’ says Hassan. 

‘There is a big role for accountants to play in assisting management to make changes to the business model, and the forecasts due to changes in operational costs, sales and future earnings due to the new exchange rate.’ 

Paul Cochrane, journalist