Charles Lutimba, the director of standards at the Institute of Certified Public Accountants of Uganda. PHOTO/ RACHEAL NABISUBI
Briefly tell us about the IFRS and financial reporting standards.
The International Financial Reporting Standards (IFRS) and financial reporting standards are vital in accounting. Under the Accountants Act (Chapter 294 of Uganda's laws), the Institute of Certified Public Accountants of Uganda is responsible for promoting awareness and adoption of these standards. IFRS includes components like International Accounting Standards, International Standards on Auditing, International Public Sector Accounting Standards, and IFRS for SMEs. New sustainability standards, set to be adopted, will also impact financial reporting, with a roadmap to be released this year detailing adoption and transition rules for entities.
Historically, accountants have focused on bookkeeping, financial reporting, and advisory services, acting as financial gatekeepers. However, as the world evolves, the role of accountants and financial reporting is changing.
How does the shift arise?
The concept of value has shifted from focusing solely on financial metrics like profit, revenue, and earnings per share to incorporating environmental, social, and governance (ESG) factors. Today, investors and stakeholders are increasingly interested in understanding the impact a company's operations have on the environment and society. Internal factors, such as labor practices, gender diversity, and employee treatment, are also becoming important considerations in corporate reporting.
This expanded definition of value is reshaping corporate reporting and highlights the evolving role of accountants in value creation and stewardship. For accountants and organizations, adapting to this new understanding of value is essential for effective reporting and long-term success in the profession.
How does Uganda incorporate IFRS into its accounting practices?
ICPAU has committed to adopting IFRS as part of its mandate from the International Federation of Accountants (IFAC). As a member of IFAC, the institute is required to adopt the use of IFRS. This commitment ensures that accountants in Uganda align with international accounting practices, enhancing the credibility and transparency of financial reporting in the country.
Is there a difference in financial reporting standards for small and medium enterprises (SMEs) compared to larger multinationals?
In Uganda, there are distinct accounting frameworks based on the size and nature of the entity. Smaller enterprises are encouraged to use IFRS for SMEs, which simplifies reporting for private companies, while larger entities or those with significant public interest must follow the full IFRS.
The public sector uses International Public Sector Accounting Standards (IPSAS), though some NGOs also adopt these standards. Uganda has also recently adopted IFRS sustainability disclosure standards to enhance sustainability reporting.
These frameworks—full IFRS, IFRS for SMEs, IPSAS, and IFRS sustainability standards—guide accountants in recognizing, measuring, and reporting financial information, aligning Uganda's financial practices with global standards. The goal is to ensure consistency in financial reporting across countries, enabling easy comparison between entities globally.
Over time, IFRS standards have evolved to reflect changes in the economy, introducing new standards such as IFRS 15 (replacing IAS 18) for revenue recognition, and IFRS 16 (replacing IAS 17) for lease accounting. IFRS 16 addresses issues with lease reporting that were previously omitted from balance sheets, providing a more transparent and accurate reflection of financial positions. These ongoing changes aim to keep accounting practices aligned with economic developments and global trends.
What are the recent IFRS developments in financial reporting regarding COVID-19, leases, and insurance contracts?
Recent updates to IFRS standards have addressed various issues in financial reporting, especially following COVID-19. IFRS 9, which focuses on financial instruments, provides clear guidelines for banks and companies on how to recognise and account for these instruments, ensuring accurate financial reporting. IFRS 17, introduced for insurance contracts, marks a significant shift from the more lenient IFRS 4, with the first statements under this standard issued in Uganda for the 2024 reporting year.
Additionally, IFRS 18 will replace the current standard on financial statement presentation and disclosure, taking effect on January 1, 2027. Accountants and organizations should start preparing for these changes by adjusting their practices and gathering the necessary information.
The IFRS for Small and Medium Enterprises (SMEs) is also undergoing its third revision, in response to ongoing changes in full IFRS standards. The latest revisions introduce significant updates and new sections to the SME standard.
Sustainability standards are increasingly being integrated into financial reporting, and all accountants should stay updated and prepare for their implementation.
Why have stakeholder expectations regarding sustainability reporting changed over time? Where does this leave Uganda’s commitment in sustainability reporting?
Stakeholder expectations have evolved due to increasing awareness and discussion around climate change and sustainability issues. The establishment of the International Sustainability Standards Board, part of the FRS Foundation, has also influenced this shift by introducing a baseline framework for sustainability reporting.
On September 4, 2024, it was announced that Uganda will adopt international sustainability reporting standards. This commitment reflects a growing focus on sustainability practices and environmental, social, and governance (ESG) aspects in financial reporting.
What initiatives have been taken to promote sustainability reporting in Uganda?
By the end of the first half of this year, a clear roadmap for embracing sustainability reporting will be released. This roadmap will outline who is required to adopt the standards, the phased approach to implementation, and transitional guidelines.
How will the phased adoption of sustainability reporting standards work, and why is sustainability assurance important in reporting?
The adoption will occur in phases, with mandatory applicants designated in the first phase, followed by voluntary applicants, and a timeline for the public sector to adopt standards.
Sustainability assurance is crucial to ensure that the information reported by entities is accurate and verifiable. Assurance providers will review and certify the sustainability reports against established company policies and known information, ensuring reliability for the public and capital providers.
Sustainability reporting standards are vital for transparency and accountability. They help guide investors in making informed decisions by assessing how companies manage climate-related issues and sustainability practices.
What is the future of financial reporting standards?
The future of financial reporting is shifting from focusing solely on financial metrics to a broader approach known as integrated or corporate reporting. This expanded framework includes financial data alongside critical elements such as environmental impact and human resources.
Key trends driving this change include the growing use of automation, AI-driven analytics, data visualisation tools, blockchain, and cloud computing, all of which will improve efficiency, accuracy, and transparency. Advanced IT platforms will provide easy access to high-quality data, enabling organizations to meet diverse reporting needs.
Additionally, ESG (Environmental, Social, and Governance) factors are becoming increasingly important, with companies of all sizes needing to address sustainability and climate change in their operations and reporting. The evolving landscape is driven by stakeholder expectations and a redefined understanding of business value.
Why the shift?
There is a shift from focusing on investor interests to prioritizing stakeholders in organizational operations. This shift requires entities, particularly accountants, to embrace technology and sustainability to stay competitive in reporting and predictive modeling. SMEs face challenges in adapting to new sustainability reporting standards, especially since many operate informally, leading to lost government revenue.
To help SMEs, tailored sustainability reporting standards have been introduced, with a longer adoption timeline compared to larger companies, and mechanisms are in place to support proper compliance.
What strategies are being implemented to help SMEs improve their financial management and enhance their access to capital?
Many SMEs struggle to access capital due to poor record-keeping and a lack of trust from banks. To address this, our institute launched the "Problem Initiative," connecting accountants and auditors with SMEs to improve financial management and ensure accurate financial statements.
Proper bookkeeping systems can increase SMEs' chances of securing loans, but many still face challenges providing the necessary documentation.
While some SMEs engage in climate-related activities eligible for green funding, new tax regulations require larger businesses to submit audited financial statements. Smaller SMEs may find compliance costs too high and could benefit from sharing accounting services.
The SME sector includes businesses of various sizes, with smaller enterprises often neglecting proper reporting due to limited resources, and some entities like financial institutions not qualifying as SMEs under current guidelines.
