The Bank adopted international financial reporting standards (IFRS) one year ahead of the scheduled time.
The state owned Commercial Bank of Ethiopia (CBE) has become the first financial firm to adopt the International Financial Reporting Standards (IFRS), a year ahead of a deadline set by authorities for a federal regulatory board.
CBE's President, Bekalu Zeleke, received the results of the financial reports carried out by KPMG, an international consulting firm, on Tuesday, September 2017. Brian D'souza, a partner at KPMG for East Africa, delivered the report at the Bank's headquarters on Churchill Road, in the presence of Atkilit Kidanemariam, vice president for Finance & Accounting at CBE.
Contracted for close to 16 million Br, the consulting firm took about a year to complete the job, which is not only the first of its kind in Ethiopia but hopes to strengthen corporate governance and ensure broader transparency among financial firms.
The Administration of Prime Minister Hailemariam Desalegn enacted a financial proclamation in 2014, a move followed by the founding of the Accounting & Audit Board of Ethiopia (AABE). The Board, comprising of 12 members under the chairmanship of Abraham Tekeste (PhD), minister of Finance & Economic Cooperation (MoFEC), is mandated to transform the financial reporting system in the nation's firms.
It requires banks, insurance firms and public enterprises to comply with the International Financial Reporting System (IFRS) with a deadline set for 2018. Other entities, including public institutions, and small and medium enterprises must comply with the standard in the next three years.
IFRS is a modern financial reporting system practised in over 135 countries. Besides benefiting from having uniform international standards, it would also make it possible for companies, including the CBE, to tap global financial markets, according to experts. Gash Yemane, an accountant and head of AABE, is amongst these experts who applauded the move by the CBE.
"Each of the country's institutions should follow the path of the Bank to ascertain their financial stands," he told Fortune.
The CBE, which has 16 million customers, will report its last year's financial statement using IFRS. Its unaudited report for the year has a gross profit of 14.6 billion Br. Seven decades in the business, and with a capital of close to half a trillion Birr, it is the first time the Bank lets its accounts to be reported following international reporting standards after KPMG's consultants completed the report for the recent three fiscal years.
The Bank had floated an international tender where four global consultants - Deloitte, PricewaterhouseCoopers (PWC), Grant Thornton as well as KPMG - responded last year. The latter was hired to do the job for over 700,000 dollars.
For the CBE, with a market share of over 40pc in the banking industry, the implementation of the new standard is part of its plan to achieve world class status in the next eight years, according to Yonas Lidetu, finance director at the CBE, who was also in charge of the reporting project.
"We can now benchmark our performance against international financial institutions," he told Fortune. "We can now easily navigate in to the global market."
Executing IFRS requires more disclosure of gross revenues, pre-tax profit and balance sheets, helping auditors weigh prospects for the Bank or make international comparisons, Yonas said.
Implementing the project involved the valuation of assets, projection of employees' benefits, and training of the employees of the Bank. However, it took four more months to complete the work of transforming from the Generally Accepted Accounting Principles (GAAP) than what was originally planned. It was time-consuming to collect and organise the financial data of the past three years, according to Abiy Fesseha, associate director of KPMG Africa.
"We have assessed and valued every asset of the Bank," he told Fortune. "We have even projected the Bank's future performance during the implementation process."
KPMG has also completed a roadmap and strategic document for three years on information technology to the National Bank of Ethiopia (NBE), whose authorities received the document in the first week of August 2017.
The CBE, however, is not the only financial institution putting an effort to comply with financial reporting based on IFRS.
Two months ago, the Ethiopian Insurance and Ethiopian Bankers' associations awarded PWC to execute IFRS with price tags of 800,000 dollars each. PWC agreed to handover the project before the conclusion of this fiscal year.