New financial reporting system to start in Uganda

Purpose. A person peruses a company financial statement. Financial reports enable a firm’s board of directors evaluate the managers they have appointed. FILE PHOTO

What you need to know:

  • Advantage. Good financial reporting contributes to the growth of a modern business sector.

Kampala.

To conform with global practice and requirements, the Central Bank has said all financial reporting in the country by institutions or companies will be done using International Financial Reporting Standards (IFRS 9) beginning next year.
The version of IFRS 9 replaces previous versions and is mandatory beginning January 1, 2018 with early adoption permitted (subject to local endorsement requirements).
The IFRS 9 Financial Instruments issued on July 24, 2014 is the International Accounting Standard Board’s (IASB’s) replacement of International Accounting Standard 39 Financial Instruments.
In a speech read for him by the executive director strategies and risk management, Mr Eliot Mwebya, last week during the seventh edition of Financial Reporting Awards in Kampala, deputy governor Bank of Uganda Louis Kasekende said good financial reporting contributes to the growth of a modern business sector.
“To maximise the benefit of financial reports for all stakeholders, it is essential that they be prepared according to international best practice, such as the International Financial Reporting Standards, which will become mandatory in Uganda, as in the rest of the world, from the beginning of 2018,” he said. He added: “A common set of internationally recoganised standards for financial report allows everyone to understand precisely what the information contained in them means. We also require high caliber professional accountants to the highest standards.”

SME dominance
Dr Kasekende said the business sector in Uganda is dominated by Small and Medium scale Enterprise (SMEs); the recent data from Census of Business establishment indicates that the average number of employees of a registered business is only 2.3.
He explained that as is the case elsewhere in Africa, SMEs in Uganda struggle to expand because the vast majority never expand enough to become large firms.
He revealed that of the approximately 460,000 registered businesses in Uganda, less 1,000 have more than 50 employees.
Firms in Uganda are still struggling to expand due to lack of capital. Mr Kasekende said firms cannot expand without mobilising capital for investment, adding that beyond a relatively small size, the investment needs of a firm outstrip the financial resources of a sole proprietor or single family.
“Hence finance must be mobilised from outside sources that is outside the firm’s immediate ownership. From their business perspective, the ideal form of finance for expansion is equity capital, because this is long-term finance and its returns are linked to the performance of the firm,” he said.
Mr Kasekende noted that a second fundamental change which firms must take if they are to expand successfully is separation of ownership and management.
As a firm grows larger, its management becomes more complex, demanding professional and technical expertise.