INSTITUTE OF CERTIFIED PUBLIC ACCOUNTANTS OF KENYA

1. INSTITUTE OF CERTIFIED PUBLIC ACCOUNTANTS OF KENYA Credibility . Professionalism . AccountAbility

2. 2nd Africa Congress of Accountants (ACOA) 14th-16th May 2013 Credibility . Professionalism . AccountAbility

3. African Economic Growth, Accountability and Democracy The Tax Implications of Implementing IFRSs CPA Benson Okundi Vice-Chairman, ICPAK Credibility . Professionalism . AccountAbility

4. Contents IFRS and Tax- convergence 2. Status of IFRS implementation in Africa Rwanda- case study? New terminologies and lines Deferred tax-overview 6. Conclusion.

5. IFRS and Tax Convergence • IFRSs are the language of business, promotes comparability of financial results: • Tax laws= country specific measures to drive fiscal policies and generate revenue for governments; • Variances between local Tax Laws and IFRS, and local laws supercedes the standards; • IAS 12 bridges the difference

6. IFRSs and Tax Convergence Movement in deferred tax Tax expense Current tax = + • Current tax – income tax in respect of profits/loss for the period (Based on local tax laws). Current tax = taxable income/loss x tax rate • Taxable income/loss – Accounting profit/loss (based on IFRS/other framework) after tax adjustments provided for in the local laws. • Tax authorities have keen interest on accounting profit • IFRS vs tax laws • Deferred tax – calculated based on provisions of IAS 12.

7. Status of IFRS Implementation

8. Rwandan Case Study • Why the change ? • World Bank funded study in 2008 (ROSC) showed serious gaps; • entities surveyed , • 19 did not apply any principles or standards, • 13 applied undefined local legislation or GAAP. • The review of the audited financial statements revealed various compliance gaps.

9. Rwandan Case Study • How the change ? • Change in legislation (company law) • Delegate power to the national institute to proclaim standards

10. Challenges • Demand for a new set of skills & expertise • Transitional Challenges • Inconsistencies in applicable laws • Emerging technical areas & terminologies • Frequent reviews of standards • Cost verses Benefit Analysis

11. New terminologies • Deferred tax (IAS 12) • Biological assets (IAS 41) • Investment property (IAS 40) • Fair value gains/losses (IAS 39) • Pension assets (IAS 19) • Actuarial gains (IAS 19) • Unrealized exchange gains/losses (IAS 21)

12. iCPARresponse • iCPAR study on harmonization of laws • MOU signed with Rwanda Revenue Authority • The CPA and Accounting Technician Program. • Agreements signed with public Institutions • Ministry of Finance ( MINECOFIN); • Capital Markets Authority ( CMA); • Local Authorities (RALGA)

13. Benefits….. • self assessment mode • comparability of financial statements, making it easier to access capital for Parent/ Subsidiaries. • increased value for an audit opinion • working with other professionals enhances reliability on financial statements

14. iCPARLessons learnt • Adoption of IFRS in any country should be accompanied by; • A revision of tax laws to reflect new line items in IFRSs’ • Sensitization of the tax authorities on the new line items in FS e.g. deferred tax • Strengthening of the accounting profession in the country to avoid part application of IFRSs’

15. Conclusion …….. • Adoption of IFRSs has immediate and on-going implications on the tax authorities. • Impact of IFRSs dependent on: • How similar the national accounting system is closer to IFRSs, • Manner in which the IFRSs are adopted • Investments made to improve skills among accountants & staff of tax authorities. • Does adoption result in higher tax revenues?

16. Conclusion …….. The journey to IFRSs needs to be driven by the supreme accounting body in a given jurisdiction with the support of the state, state agencies and other stakeholders.

17. End….. Thank you Comments, Questions, Discussions & Responses