Financial reporting dilemmas for retirement benefit schemes: Evidence from the Uganda (Published)
Purpose: Firstly, to determine the state of compliance by Ugandan retirement benefit schemes with the financial reporting guideline issued by the Uganda Retirement Benefits Regulatory Authority (the regulator) in June 2017. Secondly, in regard to adoption of International Financial Reporting Standard (IFRS 9 – Financial Instruments) which became effective in 2018. Thirdly, with regard to the external auditor’s disclosure in the Independent Auditor’s report under International Standards on Auditing (ISA 701 – Key Audit Matters) which became effective in 2016. Methodology: A sample of 50 of a population of 63 retirement benefit schemes in Uganda was selected. The sample comprised 37682 contributing members with average assets of US$ 8.35million per Scheme and annual average income of US$ 1.07million per Scheme. Audited financial statements for the years 2017 and 2018 were examined and specific quantitative data extracted. A questionnaire was also administered to the partners who signed off the opinions in the Independent Auditor’s report of the sampled retirement benefit schemes. Results: There was 100% compliance in regard to some of the information guided by the regulator. This was the need to present the statement of changes in net assets, statement of net assets and statement of cash flows in the given format. 88% complied with the format for the statement of cash flows. However, the biggest challenge was on the five-year financial trend of the Scheme where only 40% complied. The other was only 50% complied with IFRS 9 – Financial Instruments (both in terms of accounting policies and disclosures). 82% of the Independent Auditors’ reports disclosed Key Audit Matters. Significance of study: This study is timely for any gaps to be corrected for the financial year 2019. Whilst the regulator attempted to standardize the financial reporting, a specialized area of expected credit losses under IFRS 9 requires attention. In particular, Schemes can be provided with the assumptions to be used in their IFRS 9 model given that the economic condition in Uganda are the same for all of them. In addition, there should be a consensus on the applicability of ISA 701 for retirement benefit schemes and whether they are publicly accountable entities. Future research: A survey approach can be adopted in which a sample of members of retirement benefit schemes can participate in commenting on the good and challenges they have faced with the financial statements and the independent auditor’s reports.
Keywords: Big-4, Financial Reporting, SMP, retirement benefits
Determinants of External Auditors’ Remuneration: Evidence from the Ugandan Insurance Sector (Published)
There is perception in Uganda that the gap between the auditors’ remuneration paid to the Big-4 (Deloitte, EY, KPMG and PwC) and that for the Small and Medium-sized Practices (SMPs) has continued to grow but little is known of what is causing the disparity. There are 100 companies in the insurance sector in Uganda yet there are 230 licenced audit firms at end of 2018 leading to an excess of supply over demand. A sample of 74 insurance players in Uganda was used for this longitudinal study based on selected data extracted from audited financial statements for the years 2014-2017. The study revealed that the client’s annual income and total assets have a statistically significant influence on the auditor’s remuneration. The auditor’s size (SMP or Big-4) also had statistically significant influence on the auditor’s remuneration – the client size influenced the choice of the auditor. The smallest insurance player had total assets of only USD 7,079 while the largest had USD 58.2million. In terms of income, the largest earned USD 34.6million per annum. Big-4 earned a premium of USD 17,235 on their remuneration per client per annum by virtue of their size and reputation. Given these three determinants, the auditor’s remuneration was USD 23,189 per client for Big-4 compared to USD 2,422 per client for the SMPs. Whereas SMPs held 66% of the number of insurance audits in Uganda, their market share of the auditor’s remuneration was 17%. This translates into a Concentration Ratio (CR4) of auditor’s remuneration of 83% held by the Big-4. The estimated size of the auditor’s remuneration in the insurance sector in Uganda is USD 822,000 per annum of which the SMP’s share is approximately USD 150,000 per annum. The implications for accountancy practice, especially SMPs in Uganda, are that the gap can only be reduced through acquisition of medium and larger insurance players who would then be able to afford higher auditor’s remuneration. Future research could include a qualitative dimension of in-depth interviews of selected insurance players to understand their criteria for audit firm choice and auditor’s remuneration budget
Keywords: Auditor’s Remuneration, Big-4, Concentration, Insurance, SMP
Audit Market Dynamics and Auditors’ Remuneration of Listed Companies in East Africa (Published)
This study of companies listed on the stock exchanges in Tanzania, Kenya, Rwanda and Uganda has uncovered oligopolistic audit market structure. A total of 78 listed companies (74% of population) was analysed using audit fees’ data from 2013-2017. The study revealed that Big4 had a statistically positive influence on the audit fees paid by the listed companies. Non_Big4 as a bloc had a negative influence as some of the firms experienced reduction in audit fees after taking over from Big4. The Herfindahl-Hirschman Index (HHI) was 0.94 while Concentration Ratio (CR4 – clients) which measures client market concentration of the Big4 was 86% and CR4- audit fees was much higher at 96% with PwC and KPMG the top two. Only 5% of variation in audit fees could be attributed to variation in stock exchange. Audit fees increased by a compound annual growth rate of 8% but Non_Big4 remain marginalized and forced into fee discounting to retain the few clients.
Keywords: Audit Fees, Audit Market, Big-4, Competitiveness, Concentration