1 Zambia 2017 ROSC A&A 2 03 Currency Equivalent Abbreviations and Acronyms 04 Preface Acknowledgement 05 Executive Summary 10 Introduction 10 Objective 10 Approach 11 Country and Economic Context 12 Link between the Assessment and Zambia Development Agenda 13 Assessment 13 Accounting, Auditing, and Ethics Standards 14 Institutional Framework for the Accountacy Profession 25 Observed Reporting Practices and Perceptions 26 Status of implementation of policy recommendations in the 2007 ROSC A&A 28 Policy Recommendations 34 Appendix A: Status of implementation of policy recommendations in the 2007 ROSC A&A 37 Appendix B: Summary of Financial Reporting, Publication, and Filing Requirements for Different Categories of Companies Zambia 2017 ROSC A&A 3 (Exchange Rate Effective June 30, 2017) Currency Unit = Zambia Kwacha (K) US$1 = K 9.14 A&A Accounting and Auditing ISQC 1 International Standard on Quality Control 1 ACCA Association of Chartered Certified Accountants ISSAIs International Standards of Supreme Audit Institutions AG Auditor General JSE Johannesburg Stock Exchange AGM Annual General Meeting KfW Kreditanstalt für Wiederaufbau BADEX Bond and Derivative Exchange LuSE Lusaka Stock Exchange CA Chartered Accountant MCTI Ministry of Commerce, Trade, and Industry CAW Chartered Accountants Worldwide MoU Memorandum of Understanding CEO Chief Executive Officer MPSA Ministry, Province, and Spending Agency CIMA Chartered Institute of Management Accountants NAPSA National Pension Scheme Authority CPD Continuous Professional Development NBFI Non-bank Financial Institution DC Disciplinary Committee NGO Non-governmental Organization DFID U.K. Department for International Development NQF National Qualification Framework FDI Foreign Direct Investment PACRA Patents and Companies Registration Agency FSAP Financial Sector Assessment Program PAFA Pan African Federation of Accountants GDP Gross Domestic Product PAO Professional Accountancy Organization IAS International Accounting Standards PIE Public Interest Entity ICAEW Institute of Chartered Accountants in England and PRC Practice Review Committee Wales IDC Industrial Development Corporation ROSC Report on the Observance of Standards and Codes IES IFAC Education Standard SEC Securities and Exchange Commission IESBA International Ethics Standards Board for Accountants SMEs Small and Medium Enterprises IFAC International Federation of Accountants SMO Statement of Membership Obligation IFIAR International Forum of Independent Audit Regulators SMP Small and Medium-Size Practitioner IFRS International Financial Reporting Standards SOE State-Owned Enterprise IMF International Monetary Fund XBRL extensible Business Reporting Language IPSAS International Public Sector Accounting Standards ZICA Zambia Institute of Chartered Accountants ISA International Standards on Auditing ZRA Zambia Revenue Authority Zambia 2017 ROSC A&A 4 The Report on the Observance of Standards and Codes, Accounting and Auditing (ROSC A&A) focuses on 2 of the 12 standards and codes of the joint initiative of the World Bank and the International Monetary Fund (IMF). The initiative was developed after the Asian financial crisis in 1997 to review and assist countries in implementing internationally recognized standards in twelve areas 1 with the overall aim of strengthening the national and international financial architecture, and promoting financial and economic stability. This second Zambia ROSC A&A review was conducted in response to a request from the Government of Zambia. This report, which updates an earlier review finalized in 2007, presents the status of implementation of the action plan designed after the first review, the review findings of the current institutional framework pillars supporting the accountancy profession, and policy recommendations that will contribute in developing a second-generation comprehensive accountancy profession reform plan. Implementation of the reforms will strengthen the accountancy and auditing practices in the country and ultimately contribute in achievement of the country’s 7t h National Development Plan, especially enhancing conduciveness of governance and business environment (by improving quality of financial information) and developing human capital. Where applicable, the report also shares good A&A practices adopted in Zambia since the last review. The assessment was conducted using the revised ROSC A&A 2 diagnostic methodology that benchmarks against international good practice governing financial reporting and auditing, specifically, International Financial Reporting Standards (IFRS) and International Standards on Auditing (ISA) and requirements by the International Federation of Accountants. The other institutional framework pillars that were evaluated included the statutory framework supporting the accountancy profession; education and training of accountants; professional accountancy organizations, and monitoring, enforcement, and oversight of the profession and financial reporting practices. The second ROSC A&A review was carried out in Zambia from February to September 2017 through a consultative participatory process involving in-country stakeholders from the Ministry of Finance, Auditor General, Bank of Zambia, Securities and Exchange Commission, Lusaka Securities Exchange, Registrar of Pension and Insurance Authority, Bankers Association of Zambia, Zambia Revenue Authority, Financial Intelligence Centre, Zambia Association of Chambers of Commerce and Industry, Chamber of Mines, Chartered Institute of Management Accountants (CIMA), Association of Chartered Certified Accountants (ACCA), accounting and auditing firms, Commercial Banks, insurance companies, state-owned enterprises, other members of the business community and academia. The ROSC team acknowledges the contributions made by all the stakeholders who participated in the review. The team particularly commends and acknowledges with gratitude the support of the members of the Steering Committee under the chairmanship of Fredson Yamba, Secretary to the Treasury and the Deputy Chairman Mr Mumba Chanda, Deputy Accountant General Local Government, and staff at the Zambia Institute of Chartered Accountant, which served as the review secretariat, with special mention of Hapenga M Kabeta, Chief Executive Officer, and Chansa Chiteba, Director of Standards and Regulation. This report was prepared by a team led by Srinivas Gurazada (Senior Financial Management Specialist, Co-Task Team Leader [TTL]); Patrick Kabuya (Senior Financial Management Specialist, Co-TTL); and consultants, Francis Zulu, Baison Banda, Rakesh Beekum, and Marthie Claassens. The report benefited immensely from comments of peer reviewers: Fabienne Mroczka (Senior Financial Management Specialist); Christina I. Donna (Senior Financial Management Specialist, GGO20); Zivanemoyo Chinzara (Economist, GMF13); and Sarah Gagnon (Technical Manager, Quality and Development, International Federation of Accountants [IFAC]). The team also gratefully acknowledges Ina-Marlene E. Ruthenberg, Country Manager for Zambia; and Hisham Waly, Practice Manager for Africa Region Governance Global Practice, for their guidance and support. The review was conducted as part of the Public Financial Management Reform Program Phase I of the government, financed by a Multi- Donor Trust Fund of the United Kingdom (U.K. Department for International Development [DFID]), Germany ( Kreditanstalt für Wiederaufbau [KfW]), and Finland. 1The 12 ROSC standards are data transparency, fiscal transparency, monetary and financial policy transparency, banking supervision, securities, insurance, payments systems, anti-money laundering, corporate governance, accounting, auditing, and insolvency and creditor rights. Zambia 2017 ROSC A&A 5 The Government of Zambia is implementing the 7th developed after the first review in 2007 and their impact on the National Development Plan (NDP) focused on building a accountancy profession, (b) assessing and identifying any diversified and resilient economy for sustained growth and social emerging issues that relate to A&A practices that require economic development (2017 – 2021). The plan has five strengthening, and (c) proposing policy recommendations to developmental pillars aimed at actualizing among other goals the strengthen the profession. The successful implementation of the economic diversification and job creation, reducing poverty and recommendations will enhance the professions contribution in vulnerability, and creating a conducive governance environment improving the Zambian business and investment climate, and for a diversified economy. The accountancy profession has a advance governance and financial accountability in both the crucial role in contributing towards improvement of the goals private and public sector. especially improving business and investment climate, and developing human capital (investing in people) which is a critical factor in driving achievement of inclusive economic growth. “When you invest in human beings, you’re putting in plac e the capital you need to grow your economies.” President Jim Yong Kim, World Bank Group This second Zambia Report on the Observance of Standards and Codes – Accounting and Auditing (ROSC A&A)2 is aimed at determining reforms that will further strengthen the accountancy profession to accelerate its contribution towards economic and social development. The review, requested by the Ministry of Finance, was conducted using the revised World Bank ROSC A&A 2 methodology in a consultative approach with many stakeholders in the country. It focused on (a) assessing the status of implementation of the policy recommendations and action plan 2ROSC A&A forms part of the ROSC initiative launched jointly by the World Bank and the International Monetary Fund in 1999 as part of the international community’s efforts to strengthen the international financial architecture. The Initiative, started after the Asian crisis in 1997, was to focus on assessing and recommending reforms for each country to apply internationally recognized financial standards and codes in twelve policy areas. Zambia 2017 ROSC A&A 6 An independent Standards and Regulatory Board (SRB) was established supported by a Practice Review Department to conduct audit practice reviews. The department has been conducting reviews since 2009 – initially supported by ACCA (2009 – 2014) – with audit firms being reviewed once every six years and The government and accountancy profession has fully every four years for all auditing firms with PIE clients. or partly implemented eight out of nine recommendations in the Opportunities were identified to strengthen the capacity and first Zambia ROSC A&A, which was conducted in 2007, indicating capability of the practice review department, and improve commitment to strengthen the profession. The implemented robustness and rigor of the practice review methodology. In recommendations include: enacting the Accountants Act of 2008 addition, there is a perception that the SRB is not independent in that strengthened the role and functions of the Zambia Institute of fact and appearance as its activities (including staff) are funded by Chartered Accountants (ZICA); adopting a three-tier financial ZICA members and reports its performance to ZICA members at reporting framework for preparation and audit of financial the Annual General Meeting (AGM). statements for different categories of companies by ZICA (2010); strengthening ZICA’s capacity to function as a strong professional accountancy body – by establishing a Practice Review Department (2009) and a Technical and Standards Department (2012); establishing a Standards and Regulatory Board (SRB) to oversee compliance with applicable standards and regulations governing the profession; and strengthening other regulators’ monitoring capacity. Refer to section II. Implementation of the recommendation has enhanced the relevance and strength of the accountancy profession. The number of ZICA members required to serve the The professional accountancy organizations (PAOs) economy has doubled since the 2007 report, but more should proactively and innovatively engage in thought leadership (accountants) need to be developed. The number of members initiatives to contribute to the achievement of the NDP. The increased from 2,922 to 5,898 with a commendable increase in profession should play an instrumental role in proposing solutions female members (from 21% to 45% of the members). A basic to address the country’s economic and social issues. Such estimation using conservative assumptions of the average number initiatives would contribute in improving the brand value of the of expected professionals and technicians in different types of profession, especially among the government, policy makers, companies indicates that there is a demand of about 7,000 and employers, and prospective accountants. The initiatives could 21,600 professional and technician accountants respectively. This include (a) supporting prospective accountants (especially youth) indicates that there is likely existence of a supply gap. Similarly, the from disadvantaged communities; (b) conducting a benchmark number of students registering for different levels of ZICA study on demand for accounting and finance officials in the qualifications has been declining since 2010 (from 10,728 in 2010 country, to establish shortage of accountants and design initiatives to 8,995 in 2016) and the overall pass rate of ZICA professional to address the gap; (c) developing services that can improve the level examinations has been less than 40% in the past three years. performance and quality of reporting by small and medium The perception is that the decline is attributed to low appreciation enterprises (SMEs) and state-owned enterprises (SoEs) (design of the value of accountancy services and the low brand value of activities that can become the catalyst for growth of SMEs and the profession. SoEs); (d) actively contributing to the government’s ongoing reforms, especially those relating to enhancing domestic revenue ZICA has restructured and rebranded its qualification to mobilization, improving efficiency in infrastructure investments, the Chartered Accountant (CA (Zambia): launched in August and efficiency in delivery of public services (health, education) to 2017. The restructuring will contribute to developing competent citizens, by sharing evidence-based innovative solutions, and suitably qualified accountants to serve Zambia, and other knowledge and experiences, (e) investing in and harnessing use of countries. ZICA is designing and implementing appropriate technology, and so on. infrastructure to roll out the qualification: accrediting training providers, and accrediting practical training officers and officers. The roll out of the qualification will contribute to investing in “I am convinced that through our joint efforts during the people and address the accountants supply gap. next 5 years, we will be able to achieve the objectives of the 7th NDP. I have confidence in Zambia’s ability to The number of auditors and auditing firms has implement this plan efficiently and effectively.” increased but majority face challenges in applying financial President Edgar Lungu, Republic of Zambia reporting standards. Small and Medium Sized Practitioners (SMPs) – auditing firms with less than four partners that constitute The PAOs should accelerate marketing campaign to 95% of the 124 audit firms in the country – face challenges in further raise public awareness of the importance of the applying the complex, onerous accounting and auditing standards accountancy profession in Zambia: increase demand for despite regular support from ZICA. accountancy services and the brand value. Such a campaign should be targeted at different audiences across the country (e.g. youth campaigns) and should be done using different channels including TV, radio, print media and social media. The messages in Zambia 2017 ROSC A&A 7 the campaign should underscore the importance of the profession institutions should closely partner with the PAOs to enhance the and its overall contribution to economic development and poverty curriculum and delivery thereof. alleviation. The initiative would uplift the accountancy profession brand, enhance demand for accountancy services and its ZICA should incrementally provide access opportunities attractiveness especially to the youth and women, and promote to students and members in the rural areas. ZICA training its relevance especially to policy makers and ultimately contribute providers are mainly in the urban cities in the four Provinces. This to improving quality of reporting in the country. disadvantages members and students in other parts of the country especially in rural areas and hinders the ability of the profession to The Accountants Act (i.e. statutory instrument) should contribute in reducing poverty in the country. ZICA should explore prescribe the type of services that should be offered by each providing innovative access opportunities to support members membership category. While the 1994 statutory instrument and students in rural areas all over the country. With reference to defines the 5 membership categories and their qualifications, it is practices in other countries, it could include establishing and silent on the type of services each category can offer. Prescribing operating branches and using technology-based platforms the services e.g. tax practitioners, reviewers of financial (website, webinars and mobile applications) to provide access and statements, and conducting audits, will ensure that respective facilitate growth of the profession in all the provinces. services are rendered by suitably qualified individuals or firms. ZICA should continue to enhance its human, financial, and system (technology) resources to effectively achieve its legislative-stipulated mandate especially that of serving its members. This would involve reviewing the secretariat organization structure to identify areas that require further capacity and capabilities; explore other revenue sources and continue to upgrade and enhance the use of technology in developing capable and competent accountancy professionals and serving the members. ZICA should upgrade and use other functionalities of Integrated Management Information System (iMIS) especially relating to collecting more granular data on members – sectors that they work in, age group; automating audit practice reviews; recording continuous professional development (CPD) attendance; live streaming of events; and so on. Similarly, technology expertise and capability should continue to be ZICA should implement a comprehensive program to developed at the Secretariat. monitor CPD and sanction non-compliance members. Functionality in iMIS to record CPD by the members should be launched and mechanism for effective monitoring of compliance and sanctioning those who do not comply should be strengthened. This will ensure that members remain professionally competent and achieve full compliance with the International Federation of Accountants (IFAC) Statement of Membership Obligation (SMO) 2. ZICA should fast track the process of putting in place appropriate infrastructure to implement the CA Zambia qualification launched in August 2017. This will result to developing more accountants who are innovative, socially responsible and skilled to stay relevant in the 4th industrial revolution period.The infrastructure should include (a) engaging in The country should establish a legally backed a marketing campaign to create more awareness about the independent accountancy profession regulator in the medium to qualification – to become a first choice qualification option by long term. While commendable progress has been made by prospective students; (b) accrediting and supporting more tuition establishing the SRB, the role fulfilled by the SRB is not perceived providers of all the qualifications across the country; (c) to be independent in fact and appearance as stipulated by accrediting, supporting and monitoring practical training International Forum of Independent Audit Regulators (IFIAR) institutions (offices) and officers in both public and private sector principles. The SRB is funded, housed and supported by staff all over the country; and (d) regularly monitoring and providing within ZICA, and reports to ZICA members: facts that increase the necessary support to the trainee accountants to ensure uniformity perception that the SRB is not independent. The improved of training. economic growth, increased number of public interest entities (PIEs), and the government’s goal to attract investors continue to Tertiary institutions offering accountancy related call for the need to have an independent regulator. As degrees should enhance their curriculum and delivery recommended in the 2007 report, the independent regulators’ infrastructure in partnership with PAOs. This would particularly role should include: setting financial reporting standards; include incorporating public sector subjects and practical aspects registering and monitoring auditors of PIEs; monitor compliance especially internship opportunities, and enhancing delivery with financial reporting requirements by PIEs, and sanctioning approaches with increased use of technology. The tertiary non-compliant companies and individuals. Zambia 2017 ROSC A&A 8 partner, which is a shift from the current practice where reviews The SRB should, in the short term, continue to enhance are done on one or two engagements only and these findings are its independence by strengthening its processes, capacity, and applied to all the partners within the firm. In-depth review tools funding. There exist several immediate measures that the SRB can and checklists that incorporate all aspects of International implement to enhance its independence. (a) Improving the Financial Reporting Standards (IFRS), International Standards on independence of the Practice Review Committee by granting it Auditing (ISA), and code of ethics should be revised and applied. power to make final decisions on practice reviews; (b) enhancing the capacity and capability of the practice reviewers e.g. by inviting officials from another audit regulator institution to observe and mentor the reviewers; engage retired audit partners (who are abreast with the professional standards) to mentor the reviewers; The PAOs and other regulators should regularly offer and (c) exploring alternative sources of funding by referring to opportunities to create awareness, enhance knowledge and offer practices in other countries. Some funding practices in other implementation support of financial reporting. The topics to be countries include: (a) full funding from the Government (for addressed in those awareness and knowledge sharing sessions example. Botswana Accounting Oversight Authority); (b) a should extend beyond financial reporting and auditing standards combination of funding from the government, regulated to include subjects relating to requirements by regulators in the member’s subscription and fines; (c) government funding and country e.g. Banking and Financial Services Act, Securities Act, charges to firms being reviewed, (d) audit firms paying a certain listing requirements, Basel III and so on. Ideally, the sessions percentage (or fraction thereof) of their annual audit fees over to should be practical and case study based and capitalize on use of the regulatory function that is then ring-fenced for practice technology. The implementation support would address reviews; and (e) charging institutions that benefit from the challenges identified during practice review cycles and expressed regulation e.g. public interest entities. by preparers, regulators, auditors, and users of financial statements. This could include developing more guidance on the The Companies Act should be amended to align with standards and tools and establishing help desks at the PAO level. stipulations in the Accountants Act relating to which companies should be audited and only require registered auditors to conduct audit. Small and micro enterprises (SMEs) should be exempted from audit in line with the principles in the ZICA directive on tiered reporting (table 1). As noted, several countries including South Africa, Singapore, the United Kingdom, and other ZICA should initiate and facilitate a voluntary merger countries in the European Union, has already exempted SMEs from program for sole practitioners and empower them to offer the audit requirement, thus relieving them of undue compliance alternative services. To facilitate growth of SMPs, increase their burdens and cost. Where audit is required, it should be conducted market share, and comply with the reporting accounting and by persons who are appropriately qualified and skilled to achieve auditing standards, ZICA should facilitate a voluntary program to the desired quality necessary to protect public interest. The enable the SMPs to merge or join international accounting Companies Act allows persons without a practicing certificate to networks. In addition, ZICA should empower SMPs with the ability audit private companies. to secure and deliver alternative service offering that may include internal audit, corporate finance, company restructuring, and preparation of companies’ financial records. Reference should be made to the tools and resources of the IFAC SMP Committee, available on the IFAC website. The government should establish institutions to monitor governance arrangements, performance and compliance with financial reporting requirements by SOEs and mining companies. These institutions are key contributors to the economy. However, currently there is no institution (regulator) responsible for overseeing their compliance with governance and financial reporting requirements, and providing appropriate support to strengthen these pillars. The audit quality review approach and methodology should be strengthened to ensure the process is robust and adds The regulators in the country should enhance their value to the firms being reviewed. This should be done to comply monitoring capacity, methodologies, and information-sharing with quality review requirements of International Standards on processes. The Bank of Zambia, Lusaka Securities Exchange3, Quality Control 1 (ISQC 1). Specifically, engagement reviews Securities Exchange Commission, and Pension and Insurance should be conducted on each practicing engagement audit Authority, should further strengthen their monitoring capacity and 3LuSE is licensed and regulated by the SEC Zambia 2017 ROSC A&A 9 revise their review methodologies to better align with global arrangements would contribute to providing credibility to AG audit regulatory developments. All the regulators should enter into an quality reviews, strengthen human capacity and expertise on audit operational Memorandum of Understanding (MoU) to jointly quality in both institutions, strengthen AG audit quality review conduct reviews, especially on financial reporting standards approach, and enhance knowledge transfer between the two (where feasible), and share findings with each other where institutions. applicable, considering confidentiality requirements. The MoU should also include requirement to share experiences and ideas The profession should initiate reforms to start adopting especially when formulating regulatory requirements by any of the integrated reporting. As the level of financial reporting has regulators. Ideally, IFRS specialists should be stationed in ZICA and matured, especially for PIEs, the country should consider be responsible for conducting reviews of financial statements and incrementally introducing the latest reporting reform, integrated share the findings with other regulators. The regulators should reporting, which encompasses reporting on how the company consider establishing a Regulatory Forum which should be creates value in the short, medium, and long term using all the six instrumental in formulating and implementing the MoU. capitals (financial, manufacturing, human, intellectual, social and relationships, and natural). A national code of corporate governance for application by all companies should be developed. The code should set out governance principles and practices that all The Auditor General (AG) and ZICA should enter into a companies should apply to providing appropriate leadership to voluntary partnership (through an MoU) to conduct audit quality achieve success and sustainability. The code should replace the reviews. The voluntary arrangement could involve ZICA’s Practice separate codes developed by different institutions. Reference Review Department conducting quality reviews of audit firms should be made to other global codes, for example, King IV in contracted by the AG to conduct audits and reperforming a South Africa (published in November 2016), 2016 U.K. Code of number of quality reviews done by the AG’s Quality Reviewer Corporate Governance, and Malaysian Code of Corporate Department. Their findings should be reported to the AG’s Governance. committee that makes the final decisions on the reviews. The Zambia 2017 ROSC A&A 10 The report is set out as follows. Section I describes the objective, approach, country and economic context, and link The objective of the second Zambia Report on the between corporate and financial reporting and the 7th NDP, World Observance of Standards and Codes - Accounting and Auditing Bank country partnership strategy, and different sectors; section II (ROSC A&A)4 is to determine reforms that will further strengthen provides an assessment of the framework supporting the the accountancy profession. Successful implementation of the accountancy profession; section III discusses the status of reforms will enhance the profession’s contribution in improving the implementation of 2007 policy recommendation; and section IV Zambian business and investment climate, advance governance lists policy recommendations. and financial accountability in both the private and public sector, and ultimately contribute to achievement of the government’s 7th National Development Plan (NDP). The review, conducted in response to a request from The review was conducted from February to September the Government of Zambia, focused on (a) assessing the status of 2017 following the revised ROSC A&A 2 methodology. All findings implementation of the policy recommendations and action plan reflect this period of the review. The data and information used for developed after the first review in 2007 and their impact on the the review were gathered from the revised methodology accountancy profession, (b) assessing and identifying any diagnostic questionnaires completed by stakeholders, by reviewing emerging issues that relate to A&A practices that require accountancy profession-related documents; and through strengthening, and (c) proposing policy recommendations to interviews with many diverse stakeholders. The participatory strengthen the profession. It involved reviewing the accountancy approach involved engagement with stakeholders from the profession’s institutional framework pillars, namely, the regulatory Ministry of Finance, Auditor General (AG), Bank of Zambia, framework governing financial reporting practices; education and Securities and Exchange Commission (SEC), Lusaka Stock Exchange training of accountants, qualifications, institutions, and so on; the (LuSE), Registrar of the Pensions and Insurance Authority (PIA), professional accountancy organizations (PAOs) in Zambia; the Bankers Association of Zambia, Zambia Revenue Authority (ZRA), applicable accounting, auditing, and ethics standards and the Financial Intelligence Centre, Chamber of Commerce, Chamber of extent of their implementation; and the regulatory institutions and Mines, CIMA, ACCA, A&A firms, banks, insurance companies, state- their mechanism for monitoring and enforcing compliance with the owned enterprises (SOEs), business communities, and academia. standards. The review focused on assessing the institutional framework 4The ROSC A&A forms part of the ROSC initiative launched jointly by the World Bank initiative, started after the Asian crisis in 1997, was to focus on assessing and and the International Monetary Fund (IMF) in 1999 as part of the international recommending reforms for each country to apply internationally recognized financial community’s efforts to strengthen the internat ional financial architecture. The standards and codes in 12 policy areas. Zambia 2017 ROSC A&A 11 underpinning A&A practices in the regulated entities, private Zambia’s financial system is relatively underdeveloped sectors including small and medium enterprises (SMEs), and SOEs and bank dominated. Banks (17 in total) account for about 81 of the country in comparison with international standards and percent of total financial sector assets, with 10 foreign-owned good practice, as outlined in figure 1. The scope of the review was banks accounting for 77 percent of total bank assets. Four banks extended to also focus on financial reporting requirements in the are listed on LuSE. The nonbank financial institution (NBFI) sector mining and tourism sectors. The outcomes of the assessment are is dominated by pension funds (44 percent of NBFI assets) and aimed at directly contributing in developing a reform plan to insurance companies (14 percent). Other NBFIs include building strengthen the accountancy profession. societies, leasing companies, microfinance institutions, development finance institutions, and foreign exchange bureaus. Figure 1. ROSC A&A 2 There are 38 insurance companies—50 % foreign owned, 48% domestic owned and 2% government owned. Zambia’s capital market is relatively underdeveloped. LuSE had 23 listed companies with market capitalization of US$6,512 million (K 60,009 million) as of June 30, 2017. The debt market consisting of government securities and corporate bonds is underdeveloped. In addition to LuSE, a Bond and Derivative Exchange (BADEX) and Zambia Agricultural Commodity Exchange (ZAMACE) also exist but offer limited products and trading activity. In fact, ZAMACE operates as an exchange market for physical trading commodities is currently not under SEC regulation. There are a total of 25 issued corporate bonds. The main institutional investors are pension funds and banks such as the National Pension Scheme Authority (NAPSA) and Standard Chartered Bank. The securities market is regulated by the SEC. The SEC is responsible for the supervision and development of the Zambian capital markets, including licensing, registration, and authorization for financial intermediaries, issuers of debt and equity instruments, and collective investment schemes. Zambia is a large, landlocked, and politically stable country. It is geographically large but relatively sparsely populated Zambia has a number of parastatal bodies (SOEs) with a rapidly growing population (approximately 15.7 million involved in different sectors established under either the people). Zambia is landlocked but has an open economy, sharing a Companies Act or an enabling legislation. It was difficult to border with eight countries that serve as an expanded market for establish the number of existing SOEs in the country and their its traded goods and as routes for international and regional trade. actual contribution to the economy. The Government of the Zambia is also a democracy and one of the most politically stable Republic of Zambia incorporated the Industrial Development countries in Africa (secure societies are more prosperous; World Corporation (IDC) in 2014 to serve as an investment company to Development Report 2017). After years of one-party state hold shares of SOEs on behalf of the government and invest in new democracy, the country peacefully transitioned to a multiparty companies as the need arises. The IDC not only facilitates the democracy in 1991 and has remained so since. provision and raising of long-term finance for projects but also serves as an investment holding company for SOEs. As of March 31, The Zambian economy has continued its recovery in 2017, the government had transferred shares of 34 SOEs to the 2017 following subdued economic activity from when the growth IDC—most of which were formed under the Companies Act. The fell to 2.9 percent in 2015. The slow growth (from mid-2015) had AG is responsible for the audit of all these institutions including been attributed to slow regional and global growth (crucially in reviewing their operations. China that purchases about 40 percent of global copper production), the decline in global copper prices—falling 20 percent Mining remains a critical sector in Zambia, accounting in 2015, and significant U.S. dollar appreciation against the Zambia for more than 70 percent of exports, about 30 percent of kwacha causing a substantial rise in prices of imported goods, government revenue, and 12 percent of gross domestic product electricity crisis, and low agricultural output due to poor harvests. (GDP) (World Bank, 2015b). Since the privatization of The economy remains largely dependent on copper mining underperforming state-owned mining companies in 2002, private (accounts for over 70 percent of exports). However, recovery investment in the mines (all foreign owned) has exceeded US$12 resulted in a growth of 3.6 % in 2016 and is expected to increase billion, leading copper production (copper and cobalt are the main further to 4.1% and 4.5% in 2017 and 2018, respectively. The higher minerals) to increase from less than 250,000 tons per year to more growth was mainly due to improved performance in agriculture than 770,000 tons in 2016 (2016 annual economic report), making and an upsurge in the mining, tourism, and transport sectors. The Zambia the world’s ninth largest copper producer. Some 80 forecast assumes that the government will continue to implement percent of Zambia’s foreign direct investment (FDI) in recent years the economic recovery plan, improved electricity production has been in mining (World Bank 2015a). Despite this success, because of the favorable weather, and increased copper however, Zambia’s mining industry is not contributing as much as production because of the new and recently refurbished mines. it could to Zambia’s growth and development. It remains an enclave, employing only some 90,000 workers directly—about 8 Zambia 2017 ROSC A&A 12 percent of total formal employment in Zambia. Its contribution to sustained growth and social economic development. The NDP government revenue, though increasing, remains less than that of focuses on building energy, education, health, and environmental other mineral-exporting countries, such as Chile. Of the protection capabilities to improve the livelihood of the Zambian approximately US$2 billion worth of goods and services procured people. The plan has five developmental pillars under the theme for the industry annually, less than 10 percent are locally produced. “accelerating development efforts towards vision 2030 without Underlying much of the political concern that the mining industry leaving anyone behind,” aimed at actualizing, among other goals, is not paying its fair share of government revenue is the suspicion the economic diversification and job creation, reducing poverty that the ZRA and ZCCM-IH, which also oversees the operations of and vulnerability, and creating a conducive governance the mining companies through its residual shareholding, are not environment for a diversified economy. The accountancy equal to the task of ensuring that tax is assessed and paid. The profession has a crucial role in contributing towards achievement concern is not limited to just tax avoidance (through transfer of these goals by developing suitably qualified human capital, pricing) but also concerns of poor information on production, improving the business and investment climate; and advancing smelting, refining, and sales, for which data appear to be governance and financial accountability in both private and public inconsistent. However, significant support to the ZRA and other sector especially by strengthening accounting and audit practices. government agencies from cooperating partners through the monitoring value chain project is helping address these Link with the Country Partnership Strategy. Zambia’s weaknesses. A strong accountancy profession would contribute to Country Partnership Strategy 2013–2016 focus on three themes: improving the quality of financial reports required for tax and (1) reducing poverty and the vulnerability of the poor, (2) royalty assessments and developing adequate and suitably improving competitiveness and infrastructure for growth and qualified finance expertise to serve in mining companies and other employment, and 3) improving governance and strengthening institutions—including the ZRA—involved in various stages of economic management. Themes 2 and 3 emphasize the World mining value chain monitoring Bank’s role of providing support for enhancing the enabling environment for private sector development and strengthening Zambia’s tourism sector is currently one of the country’s institutions and capacity. The ROSC A&A will further contribute in growth potential areas. It has been given the nontraditional export identifying reforms necessary to continue to enhance the business status and is receiving a lot of support from the government by way environment and develop capacity required to serve in both private of infrastructure development, promotion of increased private and public sectors. The timing of the ROSC A&A effort also sector participation, and attractive tax incentives for all complements (a) the work under the Public Finance Management investments in the sector. Reform Program aimed at improving the Chartered Accountant (CA) qualification that will result in developing suitably qualified accounting technicians and professionals to serve the economy and (b) the work of World Bank Group colleagues from the Finance and Markets Global Practice who have been conducting a Financial Sector Assessment Program (FSAP) review. The government’s 7th NDP—covering 2017–2021— focuses on building a diversified and resilient economy for Zambia 2017 ROSC A&A 13 This section evaluates the pillars that underpin the accountancy profession in Zambia in different sectors. ZICA, as mandated by the Accountants Act of 2008, adopted a three-tier financial reporting framework for preparation and audit of financial statements for different categories of companies in December 2010 (table 1). Previously, ZICA had adopted International Financial Reporting Standards (IFRS) as applicable standards to prepare financial statements for all commercial entities in Zambia effective March 2005, but the directive lacked legal backing. The approach specifies the applicable accounting standards to prepare financial statements and audit requirements. A similar approach is being adopted in many countries to address the cost of doing business and reduce administrative and compliance burden, especially for SMEs. In fact, legislation in many countries, including South Africa, Singapore, the United Kingdom, and some countries in the European Union, have already exempted SMEs from the statutory audit requirement. Some of the countries require the companies to conduct an independent review instead of an audit. In this regard, there is an opportunity for ZICA to reevaluate the terminology ‘not full audit’ as an audit is an audit. ZICA requires all licensed auditors to comply with the International Standards on Auditing (ISA). Section 29 of the Accountancy Act 2008 requires auditors to perform an audit in accordance with standards determined by ZICA. There are no financial reporting requirements for nongovernmental organizations (NGOs). 5The stakeholders indicated that some NGOs meet the requirements to be classified as PIEs and should therefore be legally required to prepare and publish audited financial statements to protect public interest. ZICA adopted the Code of Ethics for Professional Accountants as issued by the International Ethics Standards Board for Accountants (IESBA) in entirety without modification effective January 1, 2009. All ZICA members are required to uphold high ethical principles as set out in the code. ZICA uses the code to inform the processes and procedures to monitor and discipline members. ZICA monitors any IESBA updates and adopts the revisions to the code on an ongoing basis. Table 1. Three-Tier Financial Reporting Requirements per ZICA 2010 Directive Type of Company Applicable Accounting Framework Audit Assurance Requirements Listed companies and public interest Full International Financial Reporting Full audit assurance engagement entities (PIEs) Standards (IFRS) 5 The Non-Governmental Organizations Act 2009. Zambia 2017 ROSC A&A 14 Type of Company Applicable Accounting Framework Audit Assurance Requirements Economically significant companies— IFRS for Small and Medium Entities SMEs Full audit assurance engagement companies that are not PIEs or quoted on or full IFRS if the company opts to use it the stock exchange but with turnover of K (effective December 31, 2011) 20 million and above Micro and Small Entities—entities with Zambian Financial Reporting Standard for No full audit required. If needed, full audit turnover of less than K 20 million Micro and Small Enterprises (MSEs can be done; otherwise accountants (effective January 1, 2012) report will suffice subject to Companies Act amendment. As per ZICA, PIEs include (a) all listed entities, (b) any entity that holds assets in a fiduciary capacity, and (c) any entity (i) defined by regulation or legislation as a PIE or (ii) for which the audit is required by regulation or legislation to be conducted in compliance with the same independence requirements that apply to the audit of listed entities. Such regulation may be promulgated by any relevant regulator, including ZICA, as Zambia’s audit regulator. Source: ZICA directive. registered audit firm can conduct an audit. ZICA has proposed a revision to the Companies Act to harmonize the requirement. Table 2. Types and Number of Companies Registered under the Companies Act as April 11, 2017 Type of Company Registered Active Dormant Public limited 77 64 13 companies Private limited companies Limited by shares 130,234 65,883 64,351 Limited by guarantee 7,221 4,641 2,580 Unlimited 6 2 4 The Companies Act of 1994 prescribes the financial Total 137,538 70,590 66,948 reporting requirements for private and public limited companies Source: Patents and Companies Registration Agency (PACRA). (the two categories of companies).6 All companies—as presented in Table 2—are required to prepare annual financial statements The Companies Act of 1994 is silent on monitoring in compliance with the standards prescribed by ZICA, as indicated financial statements. While the act stipulates that companies in paragraph 41. Similarly, the Companies Act requires all should prepare financial statements that should be audited, there companies to be audited. This contradicts the above mentioned lacks legal mandate to monitor compliance with the standards, ZICA directive that exempts micro and small companies from a full which is likely to negatively affect the quality of the financial statutory audit. ZICA has recommended a revision of the reports. Companies Act to harmonize with the requirement supported by the Accountants Act. PACRA8 is mandated to monitor how companies comply with the Companies Act requirements but has limited The Companies Act of 1994 allows people without capacity. Its core mandate is to operate a registry of business audit practice license to serve as auditors for private companies. entities (that is, companies and business names) and intellectual Companies Act Section 1727 states that a public limited company property; store corporate and intellectual property information can only appoint a registered accountant with an audit practice (such information includes financial statements);9 and regulate certificate issued by ZICA to serve as an auditor whereas a private companies to ensure they comply with the Companies Act. PACRA company can appoint an individual or firm as auditor of the is mandated to sanction noncompliant companies by penalizing company. Therefore, audits of private companies may be them for late filing of returns and prosecuting and deregistering conducted by people who are not qualified (nor regulated) to them. PACRA is not required to monitor compliance with serve as auditors. This would negatively affect the audit quality stipulated financial reporting standards; they only monitor filing and ultimately increase the likelihood of reputational damage to of annual returns that is accompanied by annual financial the profession. The requirements contradict the Accountants Act statements. PACRA has an online system to file annual returns, 2008, where only a person holding a practicing audit license or a but it is only used by 3 percent of the registered companies. In 6 Section 13 of the Companies Act 1994: A company incorporated under this act shall be a (a) public company or (b) private company, being (i) limited by shares, (ii) limited by guarantee, or (iii) unlimited. 7 Section 172 of the act reads as follows: “(a) A private company may appoint an individual or firm as auditor of the company; and (b) A publi c company may appoint - A registered accountant having a practice certificate issued by the Zambia Institute of Certified Accounta nts under the Accountants Act…” 8 PACRA is an executive agency of the Ministry of Commerce, Trade, and Industry (MCTI), established under the Patents and Companies Registration Act, No. 15 of 2010. 9 Companies Act Section 186: A public company shall lodge with its annual return a certified copy, certified by both a director and the secretary of the company, of every balance sheet, profit and loss account, group accounts, directors’ report and auditors’ report sent to members and debenture holders of the company in accordance with section one hundred and eighty-two since the last annual return was made. Zambia 2017 ROSC A&A 15 addition, the fact that there are no defined requirements of who accredited auditor, the audit firm must be registered with the can serve as a company secretary contributes to poor record Independent Regulatory Board for Auditors (IRBA) (the institution keeping—many changes taking place in companies, for example, that issues audit practice licenses), have demonstrated ownership and directors, are not updated at PACRA. The agency experience in auditing listed companies, and have a minimum of has 8 staff members responsible of monitoring the submission of three partners that have complied with the IRBA inspections annual returns. They don’t have experience and skills on requirements. One partner must have demonstrated knowledge monitoring compliance with financial reporting requirements. of the JSE, and one must be a specialist in IFRS. Audit partners are required to undergo mandatory training in the JSE listing requirements. A compliance team at the stock exchange monitors Financial reporting requirements for listed companies compliance with stipulated reporting standards. The stock are in line with international standards. The listed companies are exchange monitors compliance by reviewing submitted audited required to prepare annual financial statements in terms of IFRS financial statements, attending all relevant meetings such as the (as stipulated in ZICA’s directive) and subject them to statutory AGM, and reviewing correspondence submitted to the exchange audit, which should be conducted in terms of ISA (the Securities by sponsoring brokers. The review team is required to ensure that Act 2016 and listing requirements of 2016). financial reports are prepared in accordance with the International Accounting Standards (IAS) and IFRS. However, due Dealers and Investment Advisers are required to issue to inadequate capacity, there is limited review on compliance two audit reports, which is considered to be administratively with stipulated financial reporting requirements. expensive and time consuming by some of the companies. Statutory Instrument No. 163 rule 18 requires these types of The SEC regulates the capital markets and sanctions companies to issue two audit reports, one on fair presentation of companies that do not comply with the requirements of the financial statements and the other addressed to the SEC Securities Act and the regulations issued thereunder. The SEC expressing an opinion on a number of issues including whether inspectorate team has a team of four experts (two managers who customer money has been properly segregated and adequate are accountants by profession and two analysts—an accountant financial systems have been maintained throughout the financial and an economist) who monitor compliance with the SEC year. Some of the companies required to comply with the rule requirements. The SEC indicated that there is a need to increase indicated that the requirements are causing confusion and are the number of reviewing experts and strengthen the monitoring administratively expensive as the companies are required to hire methodology to enhance its regulatory role. The current the auditor to conduct and issue two distinctive reports. methodology is compliance focused with minimal review of compliance with stipulated financial reporting requirements. The LuSE has listing requirements that stipulate and thematic findings of SEC reviews indicated lack of full compliance enforce financial reporting requirements, which became with required financial reporting standards and lack of deep effective in 2012. According to the requirements, which are understanding of workings of capital market and SEC harmonized with SADC Stock Exchange requirements, listed requirements by auditors. In terms of the Securities Act, a listed companies can only be audited by an auditor approved by ZICA company or a company whose securities are registered with the and the SEC. In addition, the Securities Act 2016 requires the SEC, a shareholder, or an auditor who contrives this part (auditing auditor of licensees to be a member in good standing with ZICA and corporate responsibility of listed company) shall be liable on and this auditor shall not provide auditing services to the conviction, to a penalty not exceeding one hundred thousand company unless s/he meets the minimum criteria specified by the penalty unit10 (equivalent to US$ 3,282), and to a further penalty commission. The SEC and ZICA has formed a joint working group of ten thousand penalty unit (equivalent to US$ 32) for each day to develop the criteria. Currently, the SEC only relies on whether the offence continues. To this end, no major cases that warrant the auditor is registered with ZICA and has an audit license. In line sanction have arisen in the past five years. with practices in other countries, the Johannesburg Stock Exchange (JSE) example in box 1, the SEC should determine high- The listed companies are required to comply or explain level criteria for designating such audit firms as listed entities are how they have applied the code of corporate governance. There required to issue quality financial reporting to enhance public are no consequences for noncompliance with the code of protection of such high-public-interest companies. The auditors corporate governance issued by LuSE in 2005. However, a report are appointed by the shareholders by way of votes at the AGM. is prepared by the LuSE annually noting companies that are The audit market share of the 23 listed companies for the financial compliant with the code. To enhance application of corporate year-end December 31, 2016, is concentrated on 5 firms as governance principles that result in improved stakeholders’ follows: KPMG - 35 %, PWC – 22%, Deloite – 17%, E&Y – 17% and confidence, LuSE host the Corporate Governance Awards on an Grant Thornton 9%. annual basis. Globally, corporate governance principles have been evolving and new codes have been issued; for example, South Box 1. Africa issued the King IV Report on Corporate Governance JSE Criteria for an Accredited Auditor (November 2016) that contains principles and practices to be The requirement for a JSE-approved, accredited auditor was implemented by the governing body in all categories of added to the JSE listing requirements in 2008. To qualify as an 10The periodic unit issued by Ministry of Finance is quoted at K 0.30 per unit. Thus, a penalty of 100,000 multiplied by K 0.30 gives K30, 000 and as at June 30, 2017 when the dollar was at K9.14, it would amount to $ 3, 282.28 Zambia 2017 ROSC A&A 16 companies to attain governance outcomes of an ethical culture, done using an internal framework. A reconciliation is usually good performance, and effective control within the organization required from the banks between prudential and IFRS-based and legitimacy with stakeholders. Therefore, there is an financial reports. The bank supervision mainly focuses on opportunity for Zambia to develop the latest corporate prudential reviews. During on-site visits, they review the governance code for adoption in the country. adequacy and capacity of finance function. The notable area of noncompliance with financial reporting standards is on bad debt provisioning. The Bank of Zambia has power to impose fines, remove from office any officer involved in misreporting, and institute court proceedings for conviction and possible imprisonment depending on the extent of offence. Over the past Banks apply latest financial reporting practices. five years, there have not been significant breaches. In addition, According to the Banking and Financial Services Act 2017 Section there exists a protocol for the banking supervisor to engage with 88(2), banks are required to prepare annual financial statements the auditors of banks, either directly or indirectly. The Bank of in accordance with IFRS as stipulated by ZICA and rules issued by Zambia has a range of supervisory actions that can be taken if the banks in accordance with this act. The financial statements there is a qualified audit opinion, disclaimer, adverse opinion, and should be subjected to audit using ISA. In addition, banks are matter of emphasis. The reasons for the qualified audit report are required to prepare prudential reports in a standardized format paramount in deciding on the right set of actions. However, in that is slightly different from IFRS requirements, especially with most cases, the Bank of Zambia, through its early warning regard to disclosures, that is, additional disclosures required as mechanism, is made aware of the problems that would lead to a part of market discipline under Basel II, and valuation practices. qualified audit report in a bank. There are inconsistencies between banking regulations covering financial reporting requirements and the provisions of other laws All banks should apply and disclose in their annual and regulations in the country. The Bank of Zambia prescribes bad reports whether they have complied with the Bank of Zambia debt provisions (prudential) that are different from the Corporate Governance Directive 21.5 of 2016. The directive does requirements in IFRS 9. not require additional financial reporting practices except for certain attestations that the board must apply with respect to The bank auditors are appointed by the Board of the reporting and disclosure. The directive requires establishment of Bank under a recommendation of the Audit Committee and an audit committee which should have oversight on the financial ratified by the shareholders at the AGM. There is no preapproved reporting system and ensure that internal controls are adequate list of bank auditors. The expectation is that the auditor must be and effective. The corporate governance directives require board of good repute and in good standing with ZICA. The Bank of members to have technical skills and expert knowledge. As noted Zambia must approve the auditor. Auditors do not face any earlier, the stakeholders called for development of one national restrictions on providing non-audit services to banks they audit. code of corporate governance that should be applied by all The board is required to provide an explanation in the annual entities. Such a move would benefit listed banks that are currently report of the nature of non-audit work undertaken and a required to comply with two codes: the Bank of Zambia and LuSE. demonstration of why such work did not compromise the independence of the auditor. The Bank of Zambia places a cap of 10 years’ continuous engagement of an audit firm and three years for the engagement partner. There is a cooling-off period of at least two years for firms to be eligible for reengagement. 11 In addition, the Corporate Governance Directives, issued by the Insurance companies are required to prepare annual Bank of Zambia in 2016, require the engagement partner to rotate financial statements using IFRS and subject them to audit after three consecutive years. applying ISA as stipulated in the ZICA directive. However, as previously reported, the Insurance Act does not specify the Banks are required to publish their audited annual applicable standards to prepare financial statements or the financial statements and quarterly unaudited financial reports. institution that should stipulate the standards. The act requires The audited financial statements are required to be made publicly the audited financial statements to be submitted to the regulator available on the bank website and at PACRA, and the abbreviated (Pensions and Insurance Authority) within three months after annual financial statements and quarterly unaudited financial year-end. Insurance companies are required to prepare and reports should be published in the newspapers of general submit unaudited quarterly returns with financial information to circulation in the country and at the bank branches. the authority, 30 days after the end of the quarter. The Insurance Act requires the authority to maintain a list of accredited auditors The banking supervisor reviews financial statements of who can conduct audits of insurance companies. However, the banks through a dedicated unit—Examinations and authority has not established such a list nor determined Surveillance—to check compliance with the statutory and Bank accreditation criteria. Generally, the Insurance Companies’ Board, of Zambia requirements. The Supervision Department has 30 under the recommendation of the audit committee, appoints staff, including accountants, with diverse expertise and auditors with a practicing audit license issued by ZICA. There are experience. From a prudential point of view, the monitoring is no requirements for insurance companies to publish their audited 11The issue of the 10-year rule external audit firm rotation is in the Corporate engagement partner, this is covered under Directive 20.8, which restricts the Governance Directives of 2016 (Directive 21.6). However, the Banking and Financial tenure to not more than three consecutive years. Both directives require a cooling- Services Act, which is a superior law, does not place any restriction. For the off period of at least two years. Zambia 2017 ROSC A&A 17 financial statement nor comply with any code of corporate established under the Companies Act and are therefore required governance. to comply with financial reporting thereon. Those listed are also required to comply with the requirements of the Securities Act The Pensions and Insurance Authority has two and LuSE listing requirements as well. The Mines and Minerals supervision departments, namely, pensions and insurance, Development Act is silent on the requirement for preparation and whose roles include monitoring and enforcing compliance with audit of financial statements. There is no institution responsible reporting requirements specified in different regulatory for monitoring how mining companies are complying with instruments. Each supervision department currently has 10 financial requirements. As noted in paragraph 36, there are technical staff, with minimum qualification being a degree and/ or concerns that the mining industry is not paying its fair share of professional qualification in accounting or business related government revenue due to poor quality of financial records that discipline. The Authority is funded by an Insurance levy [0.5 % they maintain (date of production, smelting, refining, and sales (long term insurers) and 0.8% (general insurers) of gross appears to be inconsistent) and that the ZRA is not well premiums of each insurance company] and a Pensions levy [0.3% capacitated to the task of ensuring that the correct tax is assessed of net assets of each pension scheme]. The Authority has sanction and paid. In fact, as noted in paragraph 68, ZRA does not require powers for non-compliance with stipulated insurance compliance companies to support their tax submission with audited financial requirements. Specifically suspend the license, revokes the statements. license, and restricts business and liquidation. The authority can also request removal of the director, chief executive officer (CEO), or senior officials. The incidences that the Authority has recorded in relation to non-compliance relate mainly to late submission of The companies in the tourism sector are required to statutory returns. The Pension Scheme Regulation Act No. 28 of comply with financial reporting requirements stated in the 2006 (as amended in 2005) prescribes administrative penalties for Companies Act. Some of the travel agents, hotels and lodges, and the late submission of statutory returns [ section 26(1)] and tour operators are registered as sole traders or partnerships audited financial statements [section 23(6)]. under the Registration of Business Name Act, while others are companies registered under the Companies Act. Similarly, there is no designated institution to monitor financial reporting by tourism companies. Most of the SOEs are established under the Companies Act and are therefore required to comply with the financial reporting requirements applicable to public limited companies. Specifically, they are required to prepare annual financial statements in terms of IFRS, subject them to an audit, and file an annual return with the registrar of companies. The Public Finance Act 2004 mandates the AG to undertake the audit of SOEs in line with the International Standards of Supreme Audit Institutions (ISSAIs). The AG can secure services of private auditors to carry out such audits on his/her behalf. There is no designated institution or agency responsible for monitoring governance arrangments, performance and compliance with financial reporting requirements of SOEs. The IDC, an investment company wholly owned by the Zambia Government, has taken on monitoring of parastatals. However, there is no structured system in place to monitor the submission of audited financial statements apart from the annual audit requirement. The 2015 AG report on parastatals and statutory bodies reported several financial The financial reporting requirements for the public reporting weaknesses. They included lack of preparation of sector are stipulated in the Constitution of Zambia (Article 1181) and the Public Finance Act (2004). The constitution requires annual financial statements by several institutions, delayed preparation of financial statements, poor financial performance preparation and presentation of annual financial statements for and financial positions of most of the institutions, poor accounting both revenues and expenditures for the year. Section 5(1) of the systems, and poor corporate governance practices. The Public Finance Act states, “The Treasury shall promote and weaknesses negatively affect the ability of the institutions to enforce transparency and effective management in respect of effectively fulfil their stakeholder mandates. revenue, expenditure, assets, and liabilities on ministries, Government departments and statutory corporations.” Section 5(2)(b) states, “The Treasury, for the purpose of performing its functions in subsection (1) shall enforce the provisions of this Act and any prescribed standards of generally recognized accounting There is no institution responsible for monitoring practices and uniform classification systems, in ministries, governance arrangements, performance and quality of financial departments and statutory corporations.” As noted in 2007 ROSC statements issued by mining companies. The companies are A&A, the act does not provide any clarification on what the Zambia 2017 ROSC A&A 18 prescribed principles are. As mandated by the Accountants Act Besides ZICA, there are two other PAOs in the country: U.K.-based 2008, to develop, promote, and enforce standards including branches of ACCA and CIMA. public sector accounting standards, ZICA recommended that the government adopts the International Public Sector Accounting ZICA is a self-regulated membership organization, Standards (IPSAS) cash standard as the accounting standard to be whose primary mandate is to promote the accountancy used in the preparation of its financial statements from 2009. profession, through the regulation and education of Therefore, the financial statements continue to be prepared in accountancy practice in Zambia. The role of ZICA, established in terms of this standard. The government plans to transition to full 1982, includes education and training of accountants and accrual from 2020. A number of ministries, provinces, and auditors; setting of standards (ethical, auditing, and accounting); spending agencies (MPSAs) continue to receive qualified audit issuance of practice licenses; and regulation of the accountancy opinions. The Financial Report for 2014 showed that 26 of the 52 profession—monitoring, investigation, and sanctions. Only ZICA’s MPSA financial statements received qualified audit opinions and registered members can serve and provide accountancy services 19 of the 26 had been qualified for three consecutive years. There in the country. ZICA is governed by a council of 11 members: the is an opportunity for the accountancy profession to actively Accountant General serves as an ex-officio member and 10 are partner with the government to strengthen public financial registered accountants elected by members at the Annual management systems especially internal controls, accounting and General Meeting. The Council has approved a strategic plan 2014– auditing practices which would strengthen effective allocation 2018 that informs the direction of ZICA. The PAO is run day to day and efficient use of the resources for benefit of all Zambians. by full-time staff members (39 as of June 2017) under the leadership of a full-time CEO. ZICA is a member of the The AG is responsible of auditing all public-sector International Federation of Accountants (IFAC) and the Pan entities as empowered by the Public Audit Act. The constitution African Federation of Accountants (PAFA) and an associate of grants the AG with independence on financial autonomy and in Chartered Accountants Worldwide (CAW).13 The institute actively employing staff in partnership with the Public Service participates in both regional and global initiatives relating to Commission. This has enabled the AG to hire professionals. As a accountancy profession, for example, representation in the PAO result, the number of professionally qualified accountants has Development Committee of IFAC, international standard setting increased to 187 (2017) from 136 in 2013. However, it was noted boards/committees, and the PAFA Board and PAFA Standards that there is a challenge to retain professionals, especially due to Setters Forum, to mention a few. ZICA has invested in iMIS, which competitive packages in the private sector. The AG conducts enables members and students to effectively interact with the audits using ISSAIs and collaborates with other professions to institute. Two functionalities of the system became effective in conduct performance audits, for example, engineers. Similar to 2016: the payments system that enables members and students practices in other countries, the AG contracts out some of the to make payments online and register for various events and audit to private audit firms, especially the audits of parastatals workshops online and the ‘time and attendance’ system for and statutory bodies due to limited staff capacity. The AG is registration to attend workshops and events online. developing capacity to conduct audit quality review of its work and the work done by private audit firms (currently not being done). There exist opportunities to conduct joint audit quality reviews by the AG and ZICA teams to strengthen capacity and quality of audits. The results of such reviews, especially private audit firms, should form part of what should be considered during the tender process of contracting private audit firms. ZICA’s secretariat has enhanced its technical human capacity but is insufficient to effectively fulfill all designated The ZRA does not require companies to have audited mandates. ZICA’s technical capacity to effectively discharge its financial statements for tax purposes. The ZRA only requires an responsibilities and fulfil its IFAC membership obligations has ITFA form—tax return—which can be signed off by anyone. improved since the 2007 ROSC. ZICA established a Practice Review However, it is widely acknowledged that enhanced quality of Department in 2009 to carry out quality reviews of practicing financial reporting would improve efficiency in tax assessment auditors and a Technical and Standards Department (2012) to and ultimately domestic revenue mobilization. support members, influence standard setting, and monitor financial statements of PIEs on an ad hoc basis as there is no legal backing to conduct such reviews. Currently, there are three staff members in the Technical Department: one technical manager and two technical officers. The team is supported by a technical committee composed of ZICA members. With reference to the mandate of ZICA, and the number of ZICA members who require The accountancy profession in Zambia has grown to be regulated and supported, the review team consider the significantly over the last decade. A new Accountants Act No. 13 current staffing to be insufficient. of 200812 was enacted, which has strengthened the role of ZICA. 12This act has replaced the Accountants Act of 1982 (Cap 390) and gives legal 13CAW brings together 11 chartered accountancy bodies connecting and oversight and monitoring powers to ZICA. The Accountants Act in section 31 (1) representing the interests of over 1.6 million members and students globally. The states, “The Institute, or any person authorized by it, shall within such period as the membership of CAW will lead to multilateral cooperation, with ZICA members Institute may determine, review the practice of a chartered accountant and may being able to globally carry a respected brand of high quality. inspect and make copies of any book, document or record in the possession and under the control of the chartered accountant.” Zambia 2017 ROSC A&A 19 The institute is mainly funded by membership fees, though opportunities exist to diversify its revenue sources to Table 4. Members and Students Statistics including Gender, strengthen its financial sustainability. The major sources of 2007 and 2017 funding of the institute are examination fees, membership fees, Member Gender 2007 % 2017 % continuous professional development (CPD), and practicing Category certificate renewals. Comparison with other PAOs in Africa, table Male 949 79 939 76 3, indicates that existence of opportunity to increase its revenue, Fellow Female 245 21 297 24 especially from CPD events. Total 1,194 1,236 Male 177 68 493 65 Table 3. Comparative Revenue Sources of PAOs (%) Associate Female 83 32 266 35 Revenue Source ZICA ICPAK ICAG Total 260 759 Membership 35 30 38 Male 41 63 287 59 Examination fees 30 N1 44 Graduate Female 24 37 200 41 Total 65 487 CPD - member events 21 62 4 Male 533 84 1,060 72 Practicing license fees 4 — — Licentiate Female 105 16 418 28 Rental income 1 7 — Total 638 1,478 Male 599 78 1,298 67 Other income 9 1 14 Technician Female 166 22 640 33 Total 100 100 100 Total 765 1,938 Source: PAOs’ annual reports 2016. ICPAK: Institute of Certified Overall total 2,922 5,898 Public Accountants of Kenya; ICAG: Institute of Chartered Male 2,299 79 4,077 69 Accountants of Ghana. Note: N1 = Examinations facilitated by Female 623 21 1,821 45 Kenya Accountants and Secretaries National Examinations Total Board. 9,881 9,362 students Male 7,392 75% 6,386 68 Female 2,489 25% 2,976 32 Source: ZICA. August 2017 The number of ZICA members required to serve the economy has doubled since the last report and more women are While the statutory instrument prescribes the five joining the profession. The number of ZICA members (the 5 national membership categories, it does not indicate the type of categories14) increased from 2,922 in 2007 to 5,898 in 2017 and services to be rendered by the members in each category. Thus, the number of students decreased from 9,881 in 2007 to 9,362 in there is likelihood of members in a certain category providing 2017 as noted in table 4. There is commendable increase in accounting services that they are not qualified to offer. This calls female members (21% to 45%) and students (25% to 32%) over for the need for the law to prescribe the following aspects for each the same period though the male members continue to dominate membership category: the qualification and type of services that the profession. The membership categories comprise people who members in the category can render. are holders of (a) accountancy qualification offered by the institute, (b) a qualification recognized by the institute, and (c) CIMA and ACCA, global PAOs, have established foreign accountancy qualifications who have successfully passed branches in Zambia and their members and students have ZICA-offered Company Law and Taxation Conversion increased since the last report. In fact, as per table 5, 75% and Examinations. Globally, the trend is changing; holders of foreign 61% of ZICA fellows and associate members have ACCA accountancy qualifications are not required to sit for any qualification (because ACCA was the main qualification offered in conversion exams, as it is deemed that the professionals already the country until 2007 when ZICA qualification was launched). have appropriate competencies. This is the case with the 10 PAOs Both institutions offer their qualifications in the country through that form Global Accounting Alliance15 and the PAOs in the five accredited tuition providers. However, several students qualify East African countries (Burundi, Kenya, Rwanda, Tanzania, and through self-study. The two institutions contribute to the Uganda) have entered into a mutual recognition agreement in development of accountancy profession in Zambia. 2011. There is also opportunity for ZICA to maintain granular data, especially on the sectors where the members are serving and their age groups, as such information would assist ZICA and the profession in making evidence-based decisions, for example, on types of support to provide. In addition, the stakeholders indicated that there is potential to attract and develop more There exists an opportunity to develop more suitably qualified accountants, especially by enhancing the professional and technician accountants to serve the country. A demand for accountancy services and increasing the brand value basic estimation using conservative assumptions of the average of accountancy profession. number of expected professionals and technicians in different 14Categories prescribed in Statutory Instrument, 2008 “The Accountants 15The Global Accounting Alliance is made up of 10 of the world’s leading (Qualifications for Registration) Regulations, 2008. They include: Fellows, accounting institutes, brought together to promote quality services, share Associates, Graduates, Licentiates and Technicians information, and collaborate on important international issues. Zambia 2017 ROSC A&A 20 types of companies indicates that there is a demand of about 7,000 and 21,600 professional and technician accountants, respectively (table 6), to serve the country. The computation provides indication of an existing gap that requires to be confirmed by conducting a detailed research on demand of accountants. The government and accountancy profession should put in place smart and innovative measures to develop more accountants to fill the gap. Table 5. Membership of CIMA and ACCA—Also Registered as ZICA Members Associates Fellows PAO 2017 2007 2017 2007 CIMA 85 45 117 147 Proportion to ZICA members 11% 9% Male 47 26 84 119 Female 38 19 33 28 ACCA 463 185 932 965 Proportion to ZICA members 61% 75% Male 269 122 667 759 Female 194 63 265 206 Source: ZICA. Table 6. Estimation of the Number of Professionals and Technicians (October 2017) No. of Estimated Estimated Assumptions – Type of Company Companies Professionals Technicians Average Number per Company Bank of Zambia 1 3 9 3 professionals and 9 technicians a Banks 17 51 153 3 professionals and 9 technicians Insurance companies 38 114 342 3 professionals and 9 technicians Auditing firms with >5 Average of 10 professionals and 50 partners 6 60 300 technicians (1 professional: 5 technicians) Auditing firms—2 to 4 Average of 5 professionals and 30 partners 22 110 660 technicians (1 professional: 5 technicians) Public limited companies 2 professional and 6 technicians 64 128 384 Private limited 1 professional and 3 technicians for 65,883 6,600 19,800 companies—shares each 10 companies Total estimated demand 7, 066 21,648 Current members of ZICA 3,960 1,938 Demand supply gap 3,106 19,710 Source: World Bank estimation based on data from PACRA and ZICA. Note: a. Professionals (CEO, internal auditor, head of risk/supervision), each supported by three technicians per professional. Zambia 2017 ROSC A&A 21 There has been an increase in the number of auditors members are professionally competent to provide quality audit and auditing firms with the majority being single practitioners. services. Members holding non-audit certificates are only An auditing practicing certificate is granted once a person has required to pay outstanding subscriptions plus applicable complied with the stipulated criteria.16 Audit firms are required to penalties to regularize their membership. The practice exists in be registered and issued with a practicing certificate. The non- other countries, though some apply readmission approaches that audit practicing certificate is granted to individuals and firms that do not require reseating exams. Refer to the South Africa example want to undertake general practicing work except audit. There are in box 3. 124 auditing practicing firms (93 in 2007) that employ 600 auditing related staff (table 7). As many as 96 of the 124 firms (77 Box 3. percent) are single practitioners (an increase from 74 in 2007) Readmission Policy—the Independent Regulatory Board for with minimal audit market share; majority focus on tax advisory Auditors (South Africa) services. The small and medium-size practitioners (SMPs)—single If an auditor who has been out of practice for more than five years practitioners and firms with less than four partners comprise 95 wants to return to practice, s/he should provide evidence of CPD percent of the audit firms—face challenges in understanding and and be interviewed by a panel to assess his/her audit knowledge. applying the complex, onerous, and evolving technical A&A This assures the IRBA that the returning auditor has the required requirements. The ability of such firms to comply with the competences, knowledge, and skills to discharge his/her public requirements of International Standards on Quality Control 1 interest responsibility. (ISQC 1) are onerous and unachievable (the firms do not have peer review mechanisms). This potentially has an impact on the quality of services that they render and on their business continuity— potential risk to protecting public interest and reputation of the profession. Table 7. Number of Registered Auditor Accounting ZICA restructured its professional qualification and Number of Audit Firms Practitioners rebranded it to the Chartered Accountant Zambia from the ZICA Partners 2007 2017 2007 2017 professional qualification—launched in August 2017. The 5–9 6 6 0 0 revisions and the restructuring of the qualification offered since 2007, were done to meet recent global developments and to 2–4 13 22 0 5 develop suitably qualified accountants to serve Zambia and other 1 74 96 7 22 countries (contribute to increasing intraregional trade in Total 93 124 7 27 accountancy services). The qualification framework, designed Source: ZICA April 2017 based on the International Education Standards, sets out several competencies that an aspiring professional accountant should acquire by successfully completing the specified technical and The auditing practicing certificates are renewed professional skills training and practical training including passing annually. To renew the practicing certificates, the practitioners the assessments. The entry requirements of the qualification have must submit an annual firm declaration with information on work been improved to attract the best and outstanding talent— done during the year, type of clients, and evidence of CPD. The holders of the grade 12 school certificate or its equivalent with renewal application is accompanied by confirmation of merit grades or better in five subjects including mathematics and professional indemnity insurance, renewal fees, and a continuity English. It incorporates more public sector subjects. In addition, agreement for sole practitioners (box 2)—a practice not in the framework has been designed in a way that it now offers existence in many countries. optional learning streams at the advisory (final) level not included in the previous qualification: public practice, public sector, and Box 2. business. Continuity Agreement “A continuity agreement: A holder of any practicing certificate Figure 2. Revised Professional Qualification Framework who is carrying on public practice must enter into and keep in force for all the period during which a practicing certificate is held a written agreement with another accountant or firm of Advisory Level accountants (or a plurality of them) - the ‘nominee’. For Public Practice partners/directors, this agreement may be made with another equivalent level practicing certificate holder within the practice. Practical Knowledge Application Public Sector This provides for the nominee to be responsible for the Level Level Training individual’s practice in the event of death or incapacity.” Business Source: ZICA, 2017. Auditors out of practice for a period longer than 24 months are required to write a reentry exam before they are issued a new audit practicing certificate. This ensures that the 16Criteria: Individual has (a) been certified by a professional body as having experience (all in audit) between the date of complying with the education and complied with the education and training requirements, (b) passed the competence training requirements and the date of the application. practice examination set by the institute, and (c) more than seven years’ Zambia 2017 ROSC A&A 22 To develop accounting and finance staff to serve in the not include practical training. The curriculum in the institutions entire financial reporting value chain, ZICA has designed three does not include the public sector. Training is theoretical. However, additional diploma qualifications—Diploma in Accountancy, a few universities—for example, University of Lusaka, has which will be the technician qualification; Diploma in Taxation; introduced practical training—computerized accounting in years 3 and Diploma in Public Sector Financial Management for the and 4. It was indicated that the universities are also negatively people who want to specialize in the public sector. ZICA is affected by lack of adequate suitably qualified lecturers and engaging in a campaign to create more awareness of all the training material. ZICA has minimal influence on universities’ qualifications to the prospective candidates and employers. curriculum (Education and Training Committee). ZICA has entered into a Memorandum of Understanding (MoU) with the Higher ZICA has adopted a revised practical training Education Authority—responsible for registering universities and framework (August 2017) and will need to design appropriate accrediting their learning programs. The MoU, which is already infrastructure to effectively implement it. The framework, effective, requires ZICA to contribute in determining the criteria for developed based on the requirements of the International accrediting accountancy-related degrees. Education Standards, sets out the requirements for the trainee (including the competencies s/he must acquire over a three-year The Ministry of Higher Education recently established period), approved (accredited) employer, accredited mentor, and the Zambia Qualification Authority that has developed a ZICA to monitor the process. The infrastructure should address National Qualification Framework (NQF) in 2016. A process has challenges faced when implementing the previous framework. been started to first register professional bodies and their Specifically, the fact that there were only a few accredited qualification. ZICA plans to register and map the new mentors and employers mainly audit firms in the urban areas as qualifications in the NQF to receive the necessary country only a limited number of companies had accepted to offer the recognition. opportunity. Only government institutions were accredited employers in rural areas and their offering were limited. The There is a declining number of students registering for competencies that the trainees needed to acquire were not different levels of ZICA qualifications since 2010 (table 8). There clearly defined and not easily acquired in the accredited are perceptions that the decline is attributed to low appreciation employers as monitoring of the trainees and accredited of value of accountancy services (including financial reporting), employers was a challenge. Mentors signed for trainees without low brand value of the profession, and low salaries. The evidence of work done. There were no opportunities for those in stakeholders called for the need to conduct a detailed analysis to rural areas and there was a lot of job hopping by the trainees, determine the causes and develop evidence-based responses to especially those who had already been granted their qualification attract more students to the profession. certificates (the graduates). The practice affected the capabilities of the new graduates. The employers interviewed during the Table 8. Students’ Registrations at All Levels of ZICA review indicated that the work performance by newly recruited Qualifications graduates was of low quality and inconsistent and depended on Year 2010 2012 2014 2016 where the graduate attended practical training—evidence that Total 10,728 10,217 9,614 8,995 the practical training required to be strengthened. Source: ZICA April 2017. ZICA has accredited tuition providers for the CA qualification, but they are few and mainly located in four provinces17 while a number of students’ study on their own. The pass rate for ZICA examinations has been low over Currently, only 5 tuition providers have been accredited to offer the past three years. As noted in table 9, the number of training for the advisory level of the CA qualification and further candidates who enrolled and passed the professional exams (per 17 for the other levels. These 22 institutions were also accredited subject and overall) in the last three years was very low. However, to deliver previous qualification. The low number of training the overall pass rate has been increasing from 19% in 2014 to 40% providers’ limits access, especially for prospective accountants in in 2016. The pass rate on financial and accounting subjects was rural areas. In addition, thematic findings of monitoring the generally low. This is mainly attributed to self-study, training by training providers by ZICA and feedback from stakeholders inexperienced lecturers (who do not have practical experience interviewed during the review indicated that the providers did not and training techniques), and poor results in mathematics’ at have adequate number of suitably qualified lecturers and lacked Grade 12 by students joining to study the qualification. required teaching material and equipment, which affected the performance of the students. It was indicated that the teaching method focused on teaching students how to pass and did not empower them with practical skills. The tuition cost was also considered to be high, which negatively affected access. As a result, a number of students’ study on their own. ZICA has developed CA Zambia-recommended training material for use by the students, especially those on self-study. A number of universities offer accounting degrees though their programs are focused on the private sector and do 17 Lusaka, Southern Province, Central Province, and Copperbelt. Zambia 2017 ROSC A&A 23 Table 9. Professional-Level Pass Rate standards and regulations governing the profession. The SRB per Subject and Overall (%) reviews and takes action on the decisions of the Practice Review Professional-Level JUNE DEC JUNE DEC JUNE DEC Committee (PRC), considers the results of Competence Practice Papers 2014 2014 2015 2015 2016 2016 Examinations for individuals wishing to become practitioners, and receives reports from the public sector and technical committees. % % % % % % The SRB considers the decisions and recommendations of the PRC P1 - Advanced and makes a final determination by mainly adopting the Financial 11 11 29 36 35 39 recommendations that do not require action and making a final Reporting decision on recommendations that require further action. In cases P2 - Advanced where the PRC decision is to discipline a member, the SRB may Management 6 27 7 35 39 35 refer the matter to the Disciplinary Committee (DC) for action. All Accounting findings by the SRB are reported annually in a common finding report that is published on the ZICA website. The SRB consists of P3 - Strategic eight independent members from the following representative Financial 20 17 20 34 24 47 bodies: the Competition Consumer Protection Commission, Management Pensions and Insurance Authority, Bank of Zambia, SEC, AG’s P4 - Audit office, Chairperson of PRC (ex officio), Chairperson of Technical Assurance and 34 28 28 37 10 31 Committee (ex officio), and Chairperson of Public Sector Services Committee (ex officio). The membership composition gives P5 - Strategic comfort that there is a strong element of independence. Management 40 62 87 55 63 65 The regulatory function conducted by the SRB is Overall pass funded from membership fees. The funding of SRB activities is rate at the included in the ZICA budget which is approved by the council. professional 19 26 29 40 34 40 Similarly, at the end of the year, SRB performance and financial level reports are reported to ZICA members at the AGM. This raises concerns about the perceived independence of the regulatory Source: ZICA April 2017 process. Ideally, the regulatory role should have a stable and sustainable source of funding that is free from influence by the ZICA members are required to comply with CPD people being regulated, the auditors18 as it also increases public requirements by completing 40 hours of learning activity each trust. year, of which 21 hours are verifiable but recording, monitoring, and sanctioning processes are weak. For auditors, the CPD must ZICA has enhanced its capacity to conduct audit be audit specific. ZICA directly designs and offers a number of CPD practice reviews by establishing a Practice Review Department events using different formats: technical update workshops, the (2009) that has conducted many reviews. When the Practice accountant’s forum, the annual business conference, and pre- Review Department was established in 2009, ZICA contracted AGM workshops, and so on. The events focus on tax updates, ACCA for six years to help build internal capacity in practice review IFRS, auditing standards, IPSAS, and soft skills. In 2016, 18 CPD and conduct audit practice reviews of all firms from 2009 to 2014. events were hosted. ACCA and CIMA also provide CPD The department that currently comprises two full-time practice opportunities. ZICA members are required to manually prepare reviewers—reporting to the Director of Standards and and submit an annual self-declaration of CPD attended at the time Regulation—started reviewing SMPs from 2012 and subsequently of renewing their membership. The mechanisms to monitor and transitioned to reviewing all firms from 2015. The department sanction noncompliance required by the IFAC Education Standard benefited from capacity strengthening from the Institute of (IES) 7, ‘Continuing Professional Development: A Program of Chartered Accountants of England and Wales (ICAEW) in 2015– Lifelong Learning and Continuing Development of Professional 2016; the ICAEW accompanied the ZICA reviewers on a Competence’, are weak. ZICA selects a sample of 10% of mentorship program during reviews of the ‘Big Firms’ and assisted submitted declarations to check accuracy. For auditors, 100% in improving the review methodology. The department’s policy is verification is carried out as it is a precondition for renewal of the to review practitioners once every six years (review cycle) or four practicing certificate. Opportunity exist to use the iMIS for years for practitioners with PIE clients. Table 10 provides the members to submit the annual CPD declarations and for ZICA to number of reviews performed in the past five years. Interviews verify the declaration against event and workshops registration with practitioners highlighted concerns on the capabilities, and attendance records maintained in iMIS. capacity and confidence of the reviewers to successfully conduct audit reviews and engage especially with the seasoned and senior partners who have vast wealth of experience. Since the previous ROSC in 2007, an independent Standards and Regulatory Board (SRB), housed within ZICA, was established to promote and maintain the integrity of the accountancy profession by overseeing compliance with relevant 18 IFIAR Core Principles for Independent Regulators, Principle 2. Zambia 2017 ROSC A&A 24 Table 10. Number of Audit Firm Reviews the past four years. The DC comprises a chairperson and vice Audit Firms chairpersons, who are both lawyers. The other members include Firm Size three representatives from accountants in business/commerce 2012 2013 2014 2015 2016 Large, with >5 2 4 4 2 3 and one representative from accountants in practice. The DC partners should meet quarterly. Complaints from the public are reported to the institute either anonymously or openly. These are Medium and 20 21 16 15 21 protected by the whistle blower policy that is in place. The said small complaints are later investigated by the officers in the Standards Total 22 25 20 17 24 and Regulation Directorate or by an independent investigator appointed by the directorate, who submits a report to the SRB Source: ZICA April 2017 either for its information or action, as the case may be. The SRB, after satisfying itself that there is a prima facie case, refers the The Practice Review Department applies a risk-based case to the DC. The DC summons the accused, witnesses (if any), approach, though it is not rigorous enough. The department and investigation officer to appear before it for questioning. The focuses on files with public interest and thematic high risk areas. alleged accused person is entitled to having legal representation. However, when a firm with more than two partners is visited, not The Accountants Act, under Section 77 (5) (a) to (g), spells out the all practitioners in a firm are reviewed. Reviews are done on one various penalties that can be imposed by the DC: censure, fine, or two engagements only and these findings are applied to all the and exclusion from professional body. Only a few cases have been partners within the firm. This is not in line with standards19 and subjected to disciplinary hearing and sanction since 2013 (table best international practice. History has shown that, even in firms 11). If not satisfied with the ruling of the DC, an accused person with very mature quality control systems, quality of work can appeal to the High Court of Zambia under the Chief Justice performed by one partner can differ significantly from another. rules. The decisions—stating the names of the individual and firm—are published in the print media and the Institute’s Annual The audit review methodology focused on use of Report and are also read out to the members at the Annual checklists and tools that are elementary and negatively affect General Meeting. the quality of the findings and issued reports. There is minimal assessment of compliance with IFRS (where applicable); the Table 11. Number of Cases and Sanctions applied ISA checklist does not include reference to all compulsory Year Number of Cases and Outcomes audit requirements. Similarly, it was evident that the two 5 cases were deliberated on and 1 member had his reviewers required more support to enhance their knowledge, 2013 certificates suspended. skills, and experience on IFRS and ISA-related matters. As a result, 1 case was finalized and the member was fined in the review reports do not contain comprehensive evidence-based 2014 monetary terms. findings. There was also lack of a central database where 2015 No cases were finalized. comprehensive evidence of the reviews was kept for easy access. 8 cases were deliberated: 1 has been suspended to These findings call for the need to reevaluate the adequacy of the pave way for further investigations, 3 were methodology and current human and technology capacity. disposed of, and the other 4 are all pending 2016 judgment. The SRB also considered matters relating The Practice Review Department submits its to accountants cited in the AG’s report. This matter preliminary decision and recommendations to the PRC, which is still under investigation. makes the final decision/recommendation. The practice Source: ZICA April 2017 reviewers prepare their reports and indicate whether a review is found satisfactorily or unsatisfactorily and proposes actions for those found unsatisfactory. The PRC considers the reports and The monetary penalty is considered lenient. With either accepts the recommendation or proposes changes to the reference to the Accountants Act of 2008, the DC can impose a reviewer’s decisions and recommendations before submitting maximum penalty of K 27,000 (US$3,000) to ZICA members found their decision to the SRB. As noted earlier, the SRB makes the final guilty. The amount is considered not to be deterrent. The fact that decision. The PRC includes members from the profession but is only members registered with ZICA are monitored makes it worse not completely made up of practicing auditors. The majority of the as there are isolated incidences of other non-ZICA registered members of the PRC are non-practicing auditors. The membership persons offering accountancy-related services, an aspect that includes representatives from the ZRA, LuSE, Bank of Zambia, and increases likelihood of reputational damage. Energy Regulation Board and one representative each from users of financial statements, the big audit firms, and small to medium The SRB issues an annual report with the review audit firms. If the true independence of the PRC and its perceived results on the completed reviews and investigations for the year. independence are to be improved, the PRC should have the power However, the report only discloses a single percentage without to make final decisions on practice reviews. providing details differentiation between the reviews performed on the firms’ compliance with ISQC 1 and ISA220 and the results The DC responds to complaints from the public or of the engagement reviews performed on individual partners. A referrals from the SRB and has only sanctioned a few cases over 19ISA 220 paragraph 15: “[Each] engagement partner shall take responsibility for (a) ISQC1 Glossary of Terms: The engagement partner is “the partner or other person the direction and performance of the audit compliance with professional standards who is responsible for the engagement and its performance, and for the report that and applicable legal and regulatory requirements; and (b) the auditor’s report being is issued on behalf of the firm, and who, where required, has the appropriate appropriate in the circumstances.” authority from a professional and legal or regulatory body.” Zambia 2017 ROSC A&A 25 ‘Common Findings’ report is also issued and published on ZICA’s auditors indicated that preparers relied on their support to website, where most of the findings relate to poor documentation prepare financial statements with reference to applicable on audit files, especially regarding sufficient and appropriate audit standards. There is minimal appreciation of importance of evidence in a re-performable format. This provides evidence to financial reporting and the role of the accountancy profession. findings noted earlier that the review approach and methodology are not robust enough to identify the key underlying issues and Audit practitioners indicated that many companies are complex accounting matters. not able to apply IFRS because of the complexity of the standards and the lack of adequate expertise. The practitioners indicated that IFRS compliance is hampered by complex requirements—for example, determination of fair value in some cases requires the costly services of experts. Banks also face challenges in determining bad debt provisions. The auditors do not fully understand the requirements of the regulators, which negatively affects the audit quality. The regulators engaged during the review indicated that there is a low to medium level of understanding of their requirements by the The review of financial statements shows an auditors, for example, Banking Act requirements, Basel III, SEC improvement in complying with IFRS though there are still areas requirements, and listing requirements. This is evidenced by the that require improvement. The team reviewed 14 financial types of issues raised by the regulators once they review reports statements relating to 2015 and 2016 year-ends: 8 listed issued by the auditors. companies, 3 unlisted companies, and 3 from statutory organizations. Generally, there was a high level of compliance While lending institutions require submission of with IFRS compared to findings in the 2007 review. The key financial statements to and from borrowers, they do not place thematic areas on noncompliance with IFRS were as follows: much reliance on them to make the lending decision. The quality of financial statements prepared by borrowers is of poor quality. • Deferred tax. Noncompliance to IAS 12: Income Taxes was They place more relevance on the collateral provided to secure observed in that in one set of financial statements, the lending. Improving the quality of financial reporting would deferred tax was not calculated and tax reconciliation allow lenders to place greater reliance on financial statements. between tax expense and the product of accounting profit multiplied by the applicable rate was not provided. • Inventories. While most financial statements reviewed were compliant with IAS 2: Inventories, one or two did not comply in that they failed to mention the method of The Practice Review Department findings indicate valuation of inventories and did not state any policy with existence of challenges in fully complying with the requirements regard to inventories. of ISA. This is evidenced by the following thematic reported findings: • Fair values. It was noted that in some cases where fair • Poor documentation of the nature, timing, and extent of values were used, the notes to accounts did not specify audit work performed in a manner that is understandable whether such valuation was undertaken by a qualified • Not evaluating uncorrected misstatements for materiality valuation expert as per disclosure requirements of IFRS 13. purposes • Weak audit testing in areas that involve a lot of • Related party transactions. In most cases, there were management judgments and estimates inadequate disclosures of related party transactions, • Relying on controls without testing them on file leading to noncompliance with IAS 24: Related Party • Not addressing all the assertions in material account Disclosures. Although the values of related party balances or classes of transactions transactions were provided, important disclosures such as • Not tailoring and implementing ISQC 1 policies and relationship, pricing policies, nature, and volumes of procedures for, especially, the SMPs. related party transactions were omitted. The SMPs face challenges in understanding and keeping up-to-date with developments of both IFRS and ISA, which affects the quality of their services. As noted earlier, majority of the audit firms are single practitioners (77%). They A number of preparers rely on auditors to prepare face challenges in understanding and applying the complex and their financial statements in compliance with IFRS, which ever-changing standards. It is also difficult for single practitioners compromises auditors’ independence. Although not as prevalent to comply with all the requirements of ISQC 1. as during the 2007 ROSC, especially in the SMPs, practicing Zambia 2017 ROSC A&A 26 Majority of the main recommendations (8 of 9) in the 2007 report have been fully or partly implemented, which reflects the government’s and ZICA’s commitment to strengthening the accountancy profession . This report has highlighted progress made in each area and noted where further improvement is required. The implementation has contributed to enhancing the relevance and strength of the profession as reported in the assessment section. Table 12. Summary of progress in the implemtation of key policy recommendations in the 2007 ROSC A&A Recommendation Action Taken Status Statutory framework The Companies Act requires amendment to the The Companies Act is undergoing revision and ZICA has Partly done effect that requires (a) only individuals and firms recommended that it be aligned with the Accountants Act Revisions of the with auditing practicing license can conduct audit 2008 to make it mandatory for entities to appoint an Companies Act for private companies, where required; (b). review Auditor who is registered and holds a practicing license from are in progress of the level of statutory penalties for failure to ZICA. comply with requirements for preparation of financial statements and audit; and (c) the Under the Accountants Act, the levels of penalties for non- registrar of companies to enforce the compliance have been enhanced: a penalty of 500, 000 requirements on filing company financial penalty units (K 130,000 or US$ 14,223) or five years in statements. prison or both. Noncompliance with the filing requirements also attracts penalties that are enforced by PACRA. The Banking and Financial Services Act and The Banking and Financial Services Act and Insurance Act Done Insurance Act require banks and insurance refer to ZICA as the institution responsible for prescribing companies to prepare financial statements the accounting standards. complying with properly defined accounting standards and require auditors of banks and insurance companies to comply with ISA. Zambia 2017 ROSC A&A 27 Recommendation Action Taken Status The Public Finance Act 2004 should define the The Public Finance Act is undergoing review with Not done term “prescribed generally acceptable accounting stakeholder consultation under way. ZICA recommended principles.” that the act refers to the Accountants Act on matters relating to financial reporting. Establish an independent A&A regulator (Financial ZICA has amended its structure to provide for the Partly done Reporting Council) by enacting a Financial establishment of the Standards and Regulatory Board which Reporting Act and Financial Reporting Council. focuses on reviewing international standards. However, the board is not seen as fully independent in appearance and fact. Monitoring and evaluation Strengthen the capacities of the SEC, LuSE, Bank of While the regulators have improved their capacities, more Partly done Zambia, and Registrar of Insurance with regard to expertise is required to monitor accounting and financial IFRS so that these regulatory bodies can effectively reporting requirements. deal with matters relating to accounting and financial reporting practices of the regulated entities. Standard setting Set applicable standards, other than IFRS for SMEs. ZICA, as mandated by the Accountants Act 2008, adopted a Done IFRS should not be mandated for SMEs. three-tier financial reporting framework. MSEs are required to apply Zambian Financial Reporting Standard. Professional capacity Strengthen ZICA to build its capacity by addressing ZICA has established a full-fledged Technical Department Done the quality issues and meet its IFAC membership and a Practice Review Department to provide technical obligations. support and monitor auditors. However, ZICA requires strengthening its capacity and capabilities to achieve its mandate and IFAC SMOs. Join regional efforts to address capacity needs in Member of PAFA and CAW. ZICA officers sit on the PAFA Done some technical matters. Standard Setting Committee. Education and training Ensure quality in professional education and Launched a new ZICA CA qualification but more is required Partly done training programs. to accredit more tuition providers and implement an improved practical training program. Zambia 2017 ROSC A&A 28 The principle-based policy recommendations intended (Table 1). As noted earlier, several countries, including South to further improve the accountancy profession infrastructure Africa, Singapore, the United Kingdom, and other countries in the have been formulated based on the findings of the review, European Union, have already exempted SMEs from the audit international experiences, good practice, and country context. requirement, thus relieving them from undue compliance The government and country stakeholders should develop a burdens and cost. Where audit is required, it should be conducted country action plan that incorporates specific objectives to be by persons appropriately qualified and skilled to achieve desired undertaken noting the timing, (short, medium, or long term) and quality necessary to protect public interest. Currently, the the institution responsible for implementing each action. The Companies Act allows persons without a practicing certificate to development of the country driven action plan should consider audit private companies. country priorities, country context and available resources (human and financial). Commitment from the government, the The regulators and ZICA should engage in a process to ROSC A&A Steering Committee, and other stakeholders is critical update financial reporting requirements in different regulations to successfully implement and achieve the desired outcomes. to address the inconsistencies and conflicting financial reporting Development partners should be engaged to support requirements. As noted earlier, there are several conflicting implementation of the action plan with financial and technical financial reporting requirements in the Companies Act, Securities assistance. The key policy recommendations focus on establishing Act (require two different reports to be issued by auditors), an independent accountancy profession regulator; strengthening Banking and Financial Services and Finance Act, and Insurance PAOs to serve a thought leadership role and meet their mandate; Act. The conflicts result in administrative burden to companies as implementing an improved practical training program, with well as companies being governed by many regulators. Ideally, a accredited tuition providers and officers who are monitored; Regulators Forum, comprising ZICA and all regulators in the accrediting and strengthening tuition providers; revising the country, should be established to undertake the harmonization Companies Act to define who can conduct audit; strengthening process; it would involve updating the financial reporting SMPs; and strengthening capacity and methodology of regulators. requirements in the different regulations. In future, where any regulator is involved in updating or preparing a regulation, the institution should consider engaging and involving the Forum to ensure consistency. The Accountants Act (that is, statutory instrument) The Companies Act of 1994 should be amended to should prescribe the type of services that should be offered by align with stipulations in the Accountants Act relating to which each membership category. While the statutory instrument companies should be audited and only require registered defines the five membership categories and their qualifications, it auditors to conduct audit. SMEs should be exempted from audit is silent on the type of services each category can offer. in line with the principles in ZICA’s directive on tiered reporting Prescribing the services, for example, tax practitioners, reviewers Zambia 2017 ROSC A&A 29 of financial statements, and auditors, will ensure that respective services are rendered by suitably qualified individuals or firms. The PAOs should accelerate marketing campaigns to further raise public awareness on the contribution and The Non-Governmental Organizations Act should be importance of the accountancy profession in Zambia economy. amended to require large NGOs to prepare, audit, and publish This campaign should be targeted at different audiences across audited financial statements. This will ensure that the NGOs are the country (for example, youth campaigns) and should be done transparent and accountable. using different channels including TV, radio, print media, and social media. The messages in the campaign should underscore the importance of the profession and its overall contribution to economic development and poverty alleviation. The initiative would uplift the accountancy profession brand; enhance demand for accountancy services; promote its relevance, especially to The profession should engage in thought leadership policy makers; and promote it as a career of choice, especially to initiatives that have an impact on economic and social youth. The profession should adopt smart and innovative ideas to development of the country to contribute to achievement of the attract the youth and women. The campaign should consider the NDP. The profession should proactively play an instrumental role international best practice as provided in three guidance in proposing solutions to address country economic and social documents issued by IFAC: Establishing Governance: A Guide for issues. Such initiatives would contribute in improving the brand of Professional Accountancy Organizations, Establishing and the profession, especially among the government and policy Developing a Professional Accountancy Body, and Statement of makers. Considering experiences from other PAOs, such thought Membership Obligations (SMO) 1–7 (Revised). leadership initiatives could include (a) supporting prospective accountants from disadvantaged communities to undertake accountancy training through partnerships with the private sector and government; (b) conducting a benchmark study on demand of accounting and finance officials in the country, to establish the shortage of accountants to inform initiatives to address the gap; ZICA should fast-track the process of designing (c) conducting research on key reforms that would enable the appropriate infrastructure to implement the practical training government to make informed policy decisions to achieve the framework launched in August 2017. The infrastructure should NDP, for example, infrastructure development bottlenecks or include (a) engaging in a marketing campaign targeted at possible service delivery bottlenecks in health or education, among others; practical training offices and officers (in both urban and rural (d) partner with Government to strengthen public finance areas) to inform them about the new qualification and the management systems which would improve effective allocation benefits of servicing as practical training offices; (b) accrediting and efficient use of the resources for the benefit of all Zambians, practical training offices and officers in both public and private and (e) developing services that can improve performance and sectors20 all over the country and where necessary and providing financial reporting of SMEs and SOEs. the necessary support for the prospective companies to achieve the required accreditation criteria; and (c) regularly monitoring ZICA should continue to enhance its human, financial, and providing necessary support to the trainee, the training and system (technology) resources to effectively achieve its officer, and the training office to ensure uniformity of training. legislative-stipulated mandate. This would involve reviewing the The trainee policy should impose penalty for trainees who change secretariat organization structure to identify areas that require jobs during the practical training period, for example, extend their further strengthening of capacity and capabilities and design a practical training period. ZICA should also consider engaging with process to recruit suitably qualified staff (to address the identified the practical training providers to agree on a trainee salary scale: gaps) over time. Similarly, ZICA should continue to explore other to be applied on a voluntary basis by the registered practical revenue sources to diversify its revenue base and remain training providers. Where appropriate, ZICA should adopt financialy sustainable. Reference should be made to the different innovative technology-based real-life simulations for students in revenue sources, as highlighted in the comparative PAOs in Table areas where there are no accredited practical training providers. 3 and the PAFA revenue policy toolkit on the PAFA website (www.pafa.org.za) that sets out a number of alternative revenue ZICA should be creative in offering practical training for sources for PAOs, for example, advertisements and sponsorships. prospective accountants in rural areas: The institute should continue to upgrade and leverage using • Accredit practical training offices (private and public sectors) improved technology that is necessary to enhance efficiencies and that have offices across the country. fulfil its mandate of serving the members. Some additional • Design and offer electronically simulated case studies that functionalities of using iMIS should include collecting more cover all the competencies that the prospective accountant granular data on members, sectors that they work in, and age is required to acquire during practical training. The group; automating audit practice reviews; recording CPD simulation, which should include different modules to be attendance; live streaming of events; and so on. Similarly, undertaken in several stages over time, should incorporate technology enhancements (for example, use of artificial assessments to test the student’s competence. It should intelligence), expertise, and capability should continue to be developed at the secretariat. 20The practical training institutions to be accredited and monitored should extend sector such as banks and NBFIs, public enterprises, the AG’s office, ZRA, ministries, beyond audit firms to include entities in commerce and industry and the public and departments. Zambia 2017 ROSC A&A 30 designate regional centers in rural areas for access by the students to undertake the simulations. Research should be conducted to determine the • Enlist a number of volunteer members to serve as mentors attributing factors for the declining number of people entering of students in rural areas. the profession to inform design of appropriate measures. As noted in paragraph 86, there has been a decline in the entrance ZICA should support and accredit more tuition to the profession. The research, to be conducted by ZICA, the providers of all the qualifications across the country. This should government, employers, tertiary institutions, and prospective include ZICA identifying potential tuition providers and engaging accountants, would assist in identifying the causes of declining them in long-term support initiatives to develop appropriate entry and proposing practical and impactful solutions. infrastructure to deliver quality learning: competent lecturers, Implementation of the responses would contribute in meeting the equipment, course administers, and so on. Such initiatives would supply gap. include twinning an already accredited provider with an unaccredited provider to provide necessary support. Once ready, ZICA should provide access opportunities for students ZICA should accredit them, continue to provide the institution and members in the rural areas. As noted earlier, ZICA training with necessary support, and conduct regular monitoring (on-site providers are mainly in the urban cities in the four provinces. This and off-site). The sample for monitoring should include those disadvantages members and students in other parts of the partners against whom complaints have been received, where country, especially in rural areas, and hinders the ability of the there is a high failure rate, and other warning signs noted by the profession to contribute in reducing poverty in the country. ZICA ZICA Education and Training Department in addition to a should explore providing innovative access opportunities to randomly selected sample. Complaints made regarding training support members and students in rural areas. With reference to partners must be investigated and appropriate action taken to practices in other countries, it could include establishing and ensure compliance or, in extreme cases where issues cannot be operating branches and using technology-based platforms resolved, recognition should be withdrawn. The approach enables (website, webinars, and mobile applications) to provide access students to differentiate between non-accredited and accredited and facilitate growth of the profession in all the provinces. providers, which will ultimately serve as an incentive to tuition providers to improve the quality of their courses. Over time, ZICA To improve the low pass rates, ZICA should partner should transition to a position where majority of the students with other institutions to support students. This would include would be required to attend training in the accredited tuition engaging in activities to improve mathematics and English providers—eliminating self-study. performance in secondary school, for example, English and mathematics camps for secondary school students. As noted in ZICA should consider not requiring holders of foreign paragraph 87, low pass rates was mainly in finance and accounting qualification to sit for the Company Law and Taxation subjects which require competency in mathematics. Also, it Conversion Examinations. This is in line with the global trend should continue to enhance the training material required by where such qualified professionals are only required to submit a students. letter of good standing from their parent PAO and portfolio of work done, if considered necessary, in order to be admitted as ZICA should implement a comprehensive program to members of the national PAO. It is deemed that the professional monitor CPD and sanction noncompliance in accordance with already have appropriate competencies. the IFAC SMO 2 and IES 7. Continuing Professional Development: A Program of Lifelong Learning and Continuing Development of ZICA should promote and encourage students to study Professional Competence’. The IFAC SMO 2 requires all member Diploma in Accountancy- to qualify as accounting technicians. organizations to monitor compliance with CPD requirements of its Globally, it is being acknowledged that a country should have members by verifying a sample. Although ZICA has made CPD more technicians than professional accountants to serve in both mandatory and require members to manually submit annual CPD public and private sector. As noted in table 6, more than 19,700 returns, a process for effective monitoring of compliance and technicians require to be developed to meet the conservatively sanctioning those who do not comply should be strengthened. computed demand. Therefore, there is an opportunity for ZICA to Use of iMIS to record CPD by members should be considered. increase the number of technicians by actively creating more Noncompliant members should be sanctioned. awareness and promoting the technician qualification as a career of choice to both prospective candidates and employers in all sectors. Tertiary institutions offering accountancy-related The country should establish a legally backed degrees should enhance their curriculum and delivery independent accountancy profession regulator in the medium to infrastructure. This would include revising the curriculum to long term. While commendable progress has been made by ensure it includes both theoretical and practical aspects, establishing the SRB, the role fulfilled by the SRB is not perceived especially internship opportunities. In addition, it should to be independent in fact and appearance with reference to IFIAR incorporate public sector-related subjects. The delivery principles. The SRB is funded, housed, and supported by staff approaches should also be enhanced to ensure the focus is within ZICA: facts that increase the perception that the SRB is not beyond just passing exams and include use of technology. ZICA independent. The improved economic growth, increased number should explore opportunities to closely partner with the of PIEs, the government’s goal to attract investors, and increasing universities to enhance the curriculum and delivery thereof. number of audit failures globally continue to call for the need to Zambia 2017 ROSC A&A 31 have an independent regulator, to provide independent responsible for the quality of the audit opinion signed off. assurance on quality of reporting, especially by PIEs. As This will shift from the current practice where reviews are recommended in the 2007 report, the establishment should be done on one or two engagements only and these findings anchored in a law. The role of the independent regulator should are applied to all the partners within the firm as this is not include setting financial reporting standards, registering and in line with best international practice. monitoring auditors of PIEs, monitoring compliance with financial (b) Review compliance with all the applicable elements of ISA. reporting requirements by PIEs, and sanctioning non-compliant In this regard, the ISA checklist needs to be enhanced to companies and individuals. include reference to each point indicated as compulsory in all the standards. The revision will lead to more The SRB should, in the short term, continue to enhance comprehensive review reports, which will also benefit the its independence by strengthening its processes, capacity, and quality of the audits and provide the practitioners with a funding. There exist several immediate measures that the SRB can valuable development opportunity. implement to enhance its independence. (c) Develop and apply in-depth review tools and checklists for (a) Improve the independence of the PRC by granting it power IFRS and the other financial reporting frameworks to make final decisions on practice reviews. approved for use in Zambia. Current review is very (b) The IFIAR core principles state that “for the audit elementary and does not comprehensively provide regulators to be effective, it is a prerequisite that there is credible evidence that the financial statements are sufficient staff of appropriate competence.” In this regard, prepared in terms of applicable standards in Zambia. the SRB and Practice Review Department should, on a (d) Conduct a robust review of the firm’s compliance with all cyclical basis, subject their work to an independent the requirements as stipulated in the code of ethics. A assessment by another regulator. This can take the form comprehensive review checklist should be developed to of accompanying reviewers on ‘live reviews’ and observing monitor compliance with the IESBA Code of Ethics. The how they execute their task or performing a ‘second review process, at this stage, is elementary, high level, and review’ off-site on the same work that the reviewers reactive. inspected while visiting the practitioner. (e) Develop and apply a comprehensive ISQC 1 checklist (c) Recruit retired audit partners preferably on a part-time covering all the specific requirements within the eight basis. The experience of such resources will be very useful, sections of ISQC 1. especially in mentoring practice reviewers. (f) Automate audit practice review. (d) Consider other initiatives to enhance the capacity and capability of the practice reviewers. (e) Raise more awareness on the benefits of regulation and how the SRB operates with focus on independence. (f) Explore alternative sources of funding by referring to practices in other countries. IFIAR’s core principles provide ZICA and other regulators should regularly offer that “The audit regulator should have a stable source of opportunities to create awareness and enhance knowledge on funding, which is secure and free from influence by financial reporting. Such sessions should adopt different delivery auditors and audit firms and sufficient to execute its formats including capitalizing on use of technology. The topics to powers and responsibilities.”21 Therefore, the SRB should be addressed in those sessions should extend beyond financial explore a combination of funding options that will result reporting and auditing standards to include subjects relating to in transitioning from relying on membership fees to requirements by regulators in the country, for example, Banking sources from those not regulated. Although various Act, SEC, listing requirements, Basel III, and so on. Ideally, the funding structures exist in the world, not all of them are sessions should be practical and case study based. Conduct free from criticism. Some approaches include (i) full awareness campaigns on issues of financial reporting, addressing funding from the government (for example, Botswana target groups separately. In addition, target participants should Accounting Oversight Authority); (ii) a combination of extend beyond professional accountants to include company funding from the government, members subscription, and directors and top management of companies, regulators, and the fines; (iii) government funding and charges to firms being public. reviewed; (iv) audit firms paying a certain percentage (or fraction thereof) of their annual audit fees over to the ZICA, ACCA, and CIMA should increase their support on regulatory function that is then ring-fenced for practice implementation of accounting standards to preparers of reviews; and (v) charging of institutions that benefit from financial statements. Such support would address challenges the regulation, for example, PIEs. identified during practice review cycles and expressed by preparers, regulators, auditors, and users of financial statements. The audit quality review approach and methodology This could include developing more guidance on the standards, should be strengthened. This will ensure that the process is tools, and establishing help desks at the PAO level. The developed robust and adds value to the firms being reviewed. This should be guidance and respective training material should be downloaded done to comply with quality review requirements of ISQC 1. in the PAOs’ website for access by interested parties. Where Specifically: applicable, the PAOs should regularly design and offer in-house (a) Conduct engagement reviews on each practicing training to institutions like the ZRA, Regulator of SOEs, and engagement audit partner, and that person should remain Chamber of Commerce, to mention a few. 21 IFIAR Core Principles for Independent Regulators, Principle 2. Zambia 2017 ROSC A&A 32 The AG and ZICA should enter into a voluntary ZICA should initiate and facilitate a voluntary merger partnership (through an MoU) to conduct audit quality reviews. program for sole practitioners and empower them to offer The voluntary arrangement could involve the ZICA Practice alternative services. To facilitate growth of SMPs, increase their Review Department in conducting quality reviews of audit firms market share, and comply with the reporting A&A standards, ZICA contracted by the AG to conduct audits and reperforming a should facilitate a voluntary program to enable the SMPs to merge number of quality reviews done by the AG’s Quality Reviewer or join international accounting networks. In addition, ZICA should Department. Their findings should be reported to the AG’s empower SMPs with the ability to secure and deliver alternative committee that makes the final decisions on the review. The audit service offering that may include internal audit, corporate quality review findings should form part of criteria that the AG finance, company restructuring, and preparation of companies’ should consider at the time of contracting private audit firms. The financial records. Reference should be made to the tools and arrangements would contribute to providing credibility to AG resources of the IFAC SMP Committee, available on the IFAC audit quality reviews, strengthen human capacity and expertise in website. In addition, ZICA should provide assistance for practicing audit quality in both institutions, strengthen AG audit quality auditors to establish mechanisms for meeting the requirements review approach, and enhance knowledge transfer between the of ISQC 1, Quality Control for Firms that Perform Audits and two institutions. Reviews of Historical Financial Information and Other Assurance and Related Services Engagements, all three financial reporting Box 5. frameworks approved for use by ZICA (IFRS, IFRS for SMEs, and Partnership between the AG South Africa and IRBA Zambian Financial Reporting Standard for SMEs), and the details “Although having no legal oversight role over the Auditor General, required of the IESBA Code of Ethics. IRBA entered into an agreement with the Auditor General in 2000 to review and provide credibility to internal quality control Box 4. monitoring process by the AGSA. The objectivity of the process assures the Auditor General that his/her office consistently delivers audit reports of high standards. The review involves IRBA “For many small and medium-sized practices today, the secret to re-performing, on a sample basis, certain quality reviews success could lie in the three Ts: technology, talent and transition performed by the AGSA’s quality reviewers and reporting to the to advisory.” Quality Assurance Committee that makes the final decision of the Sylvia Tsen, IFAC Executive Director (October 2017) review. From 2012/13, IRBA will start carrying out a firm-level quality control review in terms of ISQC 1. The arrangement contributes to knowledge transfer in the two Institutions.” Source: Extract from South Africa ROSC A&A 2013, paragraph 3.66. The government should establish institutions to monitor governance arrangements, performance and compliance with financial reporting requirements by parastatals A national code of corporate governance for and mining companies. These institutions are key contributors to application by all companies should be developed. The code the economy. However, currently, as noted earlier, there is no should set out governance principles and practices that all institution (regulator) responsible for monitoring them. companies should apply to provide appropriate leadership to achieve success and sustainability. The code should replace the The regulators in the country should enhance their separate codes developed by different institutions. Reference capacity, methodologies, and information-sharing processes. should be made to other global codes, for example, King IV in The Bank of Zambia, LuSE , Securities Exchange Commission, and South Africa (published in November 2016), 2016 U.K. Code of the Pension and Insurance Authority should further strengthen Corporate Governance, and Malaysian Code of Corporate their capacity and revise their review methodologies to better Governance. align with global regulatory developments. It is also recommended that all regulators enter into an operational MoU The profession should initiate reforms to start to jointly conduct reviews, especially on financial reporting adopting integrated reporting and explore use of eXtensible standards (where feasible), and share findings with each other, Business Reporting Language (XBRL) in reporting financial where applicable, taking into account confidentiality information. As the level of financial reporting has matured, requirements. Ideally, IFRS specialists would be stationed in ZICA, especially for PIEs, the country should consider incrementally conduct the reviews of financial statements, and share the introducing the latest reporting reform, integrated reporting, findings with other regulators. Hence, the above proposed which encompasses reporting on how the company creates value Regulatory Forum (paragraph 108) should be instrumental in in the short, medium, and long term using all its six capitals, 22 a formulating and implementing the MoU. shift from the current reporting regime where focus is only on one capital, financials. Similarly, globally, a number of countries are introducing the use of XBRL to record and electronically 22Capitals: financial, manufactured, intellectual, human, social and relationship, and natural. Zambia 2017 ROSC A&A 33 communicate business and financial data—reporting financial paragraph 36 above, poor quality information on production, information. XBRL results in maintaining one set of data that is smelting, refining, and sales by mining companies negatively accessed by all interested parties. It reduces the administrative impacts on tax revenue generated from the sector. The requirements, cost, and efficiency and enhances data integrity accountancy profession should partner with the Government and and credibility. Zambia should explore introduction of XBRL in the the mining sector to strengthen finance and accounting capacity medium to long term. required to prepare quality financial information in compliance with the stipulated financial reporting standards, and effectively The Government in partnership with the accountancy serve in various stages of mining value chain monitoring especially profession should design reforms to strengthen quality of in ZRA and other monitoring institution as noted in paragraph 129. financial information by mining companies. As noted in Zambia 2017 ROSC A&A 34 Policy Recommendation Responsible Implementation Progress Status Agency/Timing 1. Statutory framework (a) Companies Act PACRA The Company Act is undergoing revision and Partly done: • Require preparers of financial statements to ZICA has recommended that it be aligned with revision of comply with properly defined accounting the Accountants Act 2008 to make it the standards. mandatory for entities to appoint an auditor Companies • Ideally, the definition of accounting who is registered and holds a practicing license Act is in standards in the Companies Act should from ZICA. Further, the Accountants Act progress. directly refer to standards set by the mandates ZICA to “set ethical, auditing and responsible standard-setting institution. This accounting standards.” correlation will help avoid the need to continually update the act with every new Under the Accountants Act, the levels of development in accounting standards. penalties for noncompliance have been • Amend the provision dealing with the enhanced to make them effective deterrents. appointment of auditors for private Noncompliance attracts a penalty of 500,000 companies to require that only qualified penalty units or 5 years in prison or both. individuals and firms registered by the regulatory authority may serve as statutory Noncompliance with the filing requirements auditors. also attracts penalties, which are enforced by • Review the level of statutory penalties for PACRA failure to comply with requirements for preparation of financial statements and audit. • Require the registrar of companies to enforce the requirements on filing company financial statements. (b) Banking and Financial Services Act and Insurance Bank of The Insurance Act and the Banking and Done Act Zambia/Pension Financial Services Act require financial • Require banks and insurance companies to and Insurance institutions regulated under these bodies to prepare financial statements complying with Authority comply with accounting standards as properly defined accounting standards. The prescribed by ZICA, thus IFRS. In addition, the definition of accounting standards should be Bank of Zambia has issued specific guidelines dealt with as recommended in the on compliance with IFRS and Basel II and III Companies Act. requirements. Zambia 2017 ROSC A&A 35 • Require auditors of banks and insurance companies to comply with ISA. • Require the regulators of banks, insurance companies, and all other financial institutions to take steps to ensure that the regulated entities comply with the applicable accounting standards in their general purpose financial statements. (c) Public Finance Act Secretary to the The Public Finance Act is undergoing review Not done Define the term “prescribed generally Treasury with stakeholder consultation under way. ZICA acceptable accounting principles” by defining recommended that the act makes reference to the prescribing body. the Accountants Act on matters relating to financial reporting. (d) Financial Reporting Act and Financial Reporting Standards and ZICA has amended its structure to provide for Partly done Council Regulatory Board the establishment of the SRB that focuses on • The composition, functions, and powers of reviewing international standards and ensures the proposed Financial Reporting Council compliance under the PRC recommendations. need to be configured in line with the Noncompliance with standards is a disciplinary emerging international trends to ensure matter reportable to the independent DC independence and effectiveness in regulating headed by a legal practitioner as indicated general purpose financial reporting. earlier. Appeals on the decisions of the DC go • This council should be empowered with to the High Court of Zambia. oversight to assess whether the preparers and auditors of financial statements are The membership of the SRB comprises complying with the applicable standards and representatives of sector regulators and users whether the auditing profession is of financial statements to enhance its appropriately serving the interests of users of independence. audited financial statements and of the wider public. • It should adjust the scope of its work in coordination with the monitoring and enforcement activities of other regulators, including professional self-regulatory organizations. • Practicing accountants and auditors would not be normally eligible for inclusion in the governing board of the Financial Reporting Council. 2. Monitoring and evaluation A strong monitoring and enforcement mechanism is ZICA The establishment of the SRB with delegated Partly done. vital to an environment of high-quality financial powers and responsibilities and financed under reporting; therefore, both self-regulatory the ZICA structure ensures its sustainability and Relate to organizations and statutory regulators must have the autonomy from political influence. This is establishing capacity to implement arrangements for efficient because financing arrangements of statutory an monitoring of compliance and consistently take bodies in Zambia have had some difficulties in independent appropriate action against violators. In addition, areas the past in terms of sustainability. regulator of public interest must have even stronger independent regulation. The Financial Reporting Council should have necessary Further, under the revised structure, a position Partly done. resources to be independent of the professional of an enforcement officer has been established, accountancy body, and it should by law be financially which will be occupied by a legal practitioner, Relate to and operationally independent. This Council should be who will investigate any complaints against CAs establishing responsible for regulating the entire profession— and subject them to the DC. an regulating auditors and checking compliance of PIEs independent with the applicable accounting standards. Legislation regulator should give this oversight body adequate power to require submission of audited financial statements by PIEs and all other companies that are subject to annual statutory audit. The review panel might include accounting experts drawn on a part time basis from various sectors of the economy. To ensure the transparency of the Financial Reporting Council’s activities, it should report each calendar year on enforcement actions conducted, issues addressed, and sanctions imposed. Zambia 2017 ROSC A&A 36 To improve regulation of auditors, the Financial The SRB is the final authority on regulatory Reporting Council should regulate auditors as an area matters, enforcement, and standard setting. of public interest since auditors have a distinct quality The board oversees the activities of the PRC, assurance role in financial reporting. The oversight which oversees the audit monitoring function. body should develop and implement efficient and The SEC and Bank of Zambia have permanent effective procedures for conducting quality reviews of seats on the SRB. auditors. Strengthen the capacities of the SEC, LuSE, Bank of The regulators are strengthening their capacity Partly done Zambia, and Registrar of Insurance with regard to IFRS to monitor compliance with financial reporting so that these regulatory bodies can effectively deal requirement. However, more expertise is with matters relating to accounting and financial required to monitor accounting and financial reporting practices of the regulated entities. reporting requirements. 3. Standard setting Stipulate a clear statutory mandate to the proposed ZICA The SRB is the final authority on standard Done Financial Reporting Council for setting A&A standards. setting and application of standards by various The responsibility for officially mandating the A&A types of businesses operating in Zambia. standards should be shifted from a self-regulating organization to the statutory body. Set applicable standards, other than IFRS, for SMEs. IFRS is not mandatory for SMEs. ZICA adopted a Done IFRS should not be mandated for SMEs. three-tier reporting framework. MSEs are required to apply Zambian Financial Reporting Standards 4. Professional capacity Strengthen ZICA to build its capacity by addressing the ZICA ZICA has enhanced its capacity since the Done quality issues and meet its IFAC membership enactment of the Accountants Act in 2008. It obligations by addressing the following: has a full-fledged technical department to deal • Providing implementation guidance to with technical matters and a practice review practitioners department to deal with audit monitoring and • Monitoring and enforcing ethical technical support to SMPs. ZICA also requirements investigates complaints from the public against • Supporting small practitioners in their its members for possible disciplinary action by practice and in developing their firms the independent DC. However, ZICA requires to strengthen its capacity and capabilities to achieve its mandate and IFAC SMOs. Join regional efforts to address capacity needs in some ZICA is an active member of PAFA and most Done technical matters. recently CAW. In addition, two senior ZICA officers serve on PAFA’s standard setting committees, namely audit and assurance and financial reporting committees. 5. Education and training Ensure quality in professional education and training ZICA Under the ZICA Professional Accountancy Partly done programs by complying with the following: Program, practical training for three years is a • Ensure that the syllabus for the ZICA program requirement. of national qualifications is in line with international developments. ZICA launched a Chartered Accountant Zambia. • Support Copperbelt University in developing capacity to increase the number of BAcc. In accordance with the Accountants Act 2008, graduates while sustaining the quality of the for one to be given a practicing and non-audit degree. practicing certificate, a CA needs to write a • Monitor practical training requirements for competence examination. professional accountants. • Make CPD affordable and accessible. CPD is offered to members at an affordable • Enforce requirements of CPD. rate and is strictly enforced by taking a sample of 10% of the general membership and 100% Raise awareness of issues in financial reporting by for auditors for verification. Appropriate ensuring that such issues include developments in sanctions are enforced for noncompliance. financial reporting, local focus on financial reporting, improvements at the local level, responsibilities of The annual CPD program includes updates on specific groups, legal penalties for noncompliance, auditing, ethical, and accounting standards. and the benefits of high-quality corporate financial Technical updates are also posted in the reporting for economic development and poverty quarterly membership and students’ alleviation. publications and the ZICA website. A tailor- made workshop for chief financial officers has recently been introduced to enhance corporate financial reporting. Zambia 2017 ROSC A&A 37 Type of Law/Regulation Regulator(s) Applicable Financial Reporting Audit Requirements Publication/Filing Company Framework Public • Companies Act • PACRA • The PIEs, full IFRS. • Full audit • File certified accounting companies 1994 (as • Significant large companies assurance records, financial statements, amended) with turnover of over K 20 engagement or other returns on a periodic • Accountants Act million are required to • Audit to be or annual basis with the 2008 apply either full IFRS or IFRS performed in commission for SMEs. accordance with • File financial statements with ISA PACRA as part of annual return • Performed by ZICA-registered practitioners Private • Companies Act • PACRA • Companies under K 20 • No full audit for • File financial statements with companies 1994 (as million may apply Zambian companies with PACRA as part of annual return amended) Financial Reporting less than K 20 • Accountants Act Standards for MSEs million 2008 (developed by ZICA in • Audit to be 2010). performed in accordance with ISA • Performed by ZICA-registered practitioners Zambia 2017 ROSC A&A 38 Listed • Companies Act • PACRA • Full IFRS • Full audit • File financial statements with company 1994 (as • SEC assurance PACRA as part of annual return amended) engagement • Submit to the SEC • Accountants Act • Audit to be • Submit as per LuSE listing rules 2008 performed in to the stock exchange • SEC Act accordance with • Publish in newspaper and • LuSE listing ISA prospectus requirements • Performed by ZICA-registered practitioners SOEs • Companies Act • PACRA • Full IFRS or IFRS for SMEs • Full audit • File financial statements with 1994 (as • IDC assurance PACRA as part of annual return amended) engagement • Submit to PS responsible for • Accountants Act • Audit to be SOEs at the Ministry of Finance 2008 performed in • Submit to the Parliamentary • Public Finance accordance with Accounts Committee Act ISA • Statutory • Performed by Legislation ZICA-registered establishing the practitioners SOE Banking • Companies Act • PACRA • Full IFRS • Full audit • File financial statements with institutions 1994 (as • Bank of assurance PACRA as part of annual return amended) Zambia engagement • Submit to the Bank of Zambia • Accountants Act • Audit to be • Publish in newspapers, 2008 performed in website, and branch banking • Banking and accordance with halls Finance Act 2017 ISA • Performed by ZICA-registered practitioners NBFIs • Companies Act • PACRA • Full IFRS • Full audit • File financial statements with 1994 (as • Bank of assurance PACRA as part of annual return amended) Zambia engagement • Submit to the Bank of Zambia • Accountants Act • Audit to be 2008 performed in • Banking and accordance with Finance Act 2017 ISA • Performed by ZICA-registered practitioners Insurance • Companies Act • Pensions and • Full IFRS • Full audit • File financial statements with companies 1994 (as Insurance assurance PACRA as part of annual return amended) Authority engagement • Submit to the Pensions and • Accountants Act • PACRA • Audit to be Insurance Authority 2008 performed in • Insurance Act accordance with 1997 (as ISA amended) • Performed by ZICA-registered practitioners Zambia 2017 ROSC A&A