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Auditing profession in Egypt

Egypt has a history in the field of financial and management accounting. During the 1960s, with the triple movements toward central economic management, nationalization, and expansion of the public sector, the Central Auditing Organization became responsible for auditing the public sector. In the mid-1970s, the Egyptian government had followed an open-door policy to liberalize the national economy, and had initiated several improvements in the accounting and auditing standards and practices.

The main law governing professional accountants and auditors in Egypt, particularly in the private sector, is Accounting Practice Law 133/1951 and its amendments, which are deemed out-of-date by most practitioners. It does not require a qualifying examination for entry.

The Company Law 159/1981 requires all companies to maintain sound accounting records and prepare annual audited financial statements. The Capital Market Law 95/1992 also requires all listed companies to file annual and semi-annual audited financial statements and quarterly financial statements with the Capital Market Authority and the Cairo and Alexandria Stock Exchange. The Capital Market Law requires all listed companies to publish financial statements in two widely spread newspapers. Finally, the Banking Law 163/1957 requires all banks to follow accounting and auditing requirements and guidelines set by the Central Bank of Egypt.

The new Income Tax Law No. 91 of 2005 drastically amended the previous income tax rules in Egypt. Law 91 introduced a 50 per cent reduction in personal and corporate taxes, to a maximum rate of 20 per cent, and abolished all the income tax exemptions stipulated in Investment Law No. 8 of 1997 in relation to establishments that are incorporated after the law’s entry into force (i.e. unified tax exemptions and legislation).

In addition, the Central Auditing Organization is an independent public organization. It controls the government funds and those of other public corporations as stipulated in the law. It is responsible for the audit of state-owned enterprises.

We have to explore the current auditing challenges and problems in Egypt and the possibility of developing a knowledge-based system to formulate the auditor's report on financial statements.

All the major international audit firms had a presence in Egypt in addition to well-established local audit firms whose clients included listed companies.

The Ministerial Decree 503/1997 is considered the first Egyptian Accounting Standards to be issued. In 2002, Egypt had twenty-two accounting standards and six Auditing Standards. The Egyptian Standards on Auditing (ESA) deal only with the reporting issues and ignore the other areas of International Standards on Auditing (ISA) (Navady, 2001). Egyptian standards on auditing only handle the auditor’s report on financial statements, which enhances the form of the report without covering the whole auditing process.

Almost all ISA are applicable in Egypt. Auditors are required to follow the Egyptian standards on auditing that relate to the auditor’s report, and any ISA that relates to other aspects of auditing process. Knowledge deficiencies of most practitioners by ISA in practice restrict ensuring sound auditing practice. Although large auditing firms have greater competence to provide high auditing quality, compliance with the applicable auditing standards is not always ensured, and differed from small firms.

The lack of qualification of those who prepare and audit financial statements and inadequate regulatory enforcement mechanisms are considered the main reasons for shortage in compliance with accounting and auditing standards. If the auditor’s report refers to compliance with International Accounting Standards (IAS),

There are two questions should know before starting to develop and use audit knowledge based system, (1) What are the current problems in the Egyptian auditing environment? And (2) Can the development and use audit knowledge based system help to provide a solution to some of these problems?

I believe that the auditor’s work in general would be used as a guide for investment, and valuation of companies. There is a scarcity of experienced auditors as well as a cost/fees squeeze. The development of a proposed system will help them to overcome the lack of experience and expertise. The auditor’s work also facilitates the process of economic development through the presentation of reliable information concerning the financial position of the companies. Lack of expertise and experience of performing the audit is considered the biggest challenge, especially in the regions of Egypt. In Egypt, there is no effective code of ethics for professional accountants and auditors. The audit practitioners are not required to follow any modern code of ethics in line with the IFAC code. In practice, there is little awareness among many practicing auditors of international best practice concerning conflicts of interest and auditor independence.

The presence of high pressure on the auditors in terms of fees paid by the auditees, and lack of protective regulations, weaknesses and/or vagueness of the professional standards, and weaknesses of the ethical standards in the profession are viewed as important factors behind these problems, and the complexity of the Egyptian environment.

An audit expectation gap exists where there is difference in belief between auditors and the auditees about duties and responsibilities assumed by auditors and the messages conveyed by the auditor’s report

By Gamil Mohamed ,CPA &ESAA gamil@egcma.com Certified Public Accountant