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Quality accounting and auditing supports economic growth, says World Bank official

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By Patricia Mc Kenzie

This grant to strengthen the Institute of Certified Public accountants of Kenya (ICPAK) is part of our commitment to supporting the accountancy profession in both public and private sector. Nairobi County government looses billions of shillings in revenue due to weak financial systemsNairobi County government looses billions of shillings in revenue due to weak financial systems

I cannot emphasize enough the importance of high quality accounting and auditing in ensuring financial transparency and accountability with attendant effect on improving governance and supporting economic growth and poverty alleviation.

Good governance is at the core of the government’s strategy for Kenya’s development. For the bank, good governance is the central focus of our country partnership strategy for Kenya.

Both strategies recognize that poor governance with weak institutions and standards, limited transparency and accountability contributes to misuse of both private and public resources.

This constrains promotion of corporate activities, economic growth, and poverty reduction. It is worth noting that the small and medium-sized enterprises which make up the vast majority of the corporate entities in Kenya are constrained by weak financial management and financial reporting, and limited access to finance.

These weaknesses serve to increase the business risk, and adversely affect productivity and competitiveness of the overall corporate sector in the economy.

In order to achieve sustainable economic growth in any economy, there must be a stable financial system. Weaknesses in domestic regimes for accounting and auditing undermine financial stability, financial intermediation and the investment climate.

Strengthening such regimes has a positive development impact. In recent years, the bank has been an advocate and active partner of accountancy development and reform in its member countries.

Good standards

The report on the observance of standards and codes (ROSC A&A) review in Kenya has sought to evaluate the current situation in accounting, auditing and reporting and accomplishments in reforms, to find the strengths that may be built upon, and to identify the areas where further improvements will be helpful for strengthening the accounting, auditing and corporate financial reporting regime.

The review exercise has covered key elements of the accounting, auditing and reporting infrastructure for overseeing policy development, setting standards, monitoring compliance in accounting, auditing and corporate reporting.

The grant is in response to a request from the key stakeholders in the country to provide assistance with the implementation of major policy recommendations of ROSC accounting and auditing with regard to the institutional strengthening of ICPAK and the accounting and auditing profession in Kenya as a whole.

The grant of $698,000 will be implemented over a period of 18 months. It is expected that by the end of t6he period, ICPAK would have even stronger institutional capacity including better ICT facilities.

The grant also provides ICPAK with additional resources to work toward strengthening the capacity of small and medium sized practitioners (SMPs).

SMPs constitute over 80 per cent of the registered audit firms in Kenya, and these are mainly one-partner firms. A lot needs to be done to improve the quality of audit carried out by these firms, and enhance their ability for sustainable growth.

ICPAK should explore ways of getting these SMPs to establish viable sixe firms through mergers and/or network building; which will enable them to ensure synergies, and bid for bigger jobs.

Another aspect that would be covered under the project is the development of framework for practical experience for trainee accountants.

Practical training

As of now, there is no institutional and legal framework to put in place arrangements for practical training of the trainee accountants who write the Kenya accountants and Secretaries National Examination Board (KASNEB) examination.

According to international best practice, professional examination combined with at least three year’s monitored practical training is the prerequisite of awarding professional accountancy qualification. Practical training is extremely important for preparing an individual for the job market.

The World Bank fully supports devolution process to the county form of government. the grant will provide assistance in regard to strengthening of the Public Financial Management (PFM) system at the county level, particularly in the areas of budgeting and financial reporting.

As a part of the ROSC Accounting and Auditing Country Action Plan, implementation support, the bank has provided assistance in the development of the Financial Reporting Oversight Board Bill under a First initiative grant.

We urge the National Treasury to move with haste in processing the Bill through proper channel so that necessary steps are taken for its enactment as soon as possible.

The law is very important in regard to providing oversight over the financial reporting and auditing of the public interest entities, among other things.

Ms Mc Kenzie is Financial Sector Manager at the World Bank. This is an edited version of a speech she delivered during IDF signing between the World Bank and ICPAK in Nairobi.

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