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Accounting standards miss mark

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Accounting standards miss mark

The first-ever study to measure compliance with Cambodia’s new Law on Accounting and Auditing found few companies willing to talk about their accounting practices, and a low rate of compliance among those that did.

In-person interviews with 50 companies and an online survey sent to 3,560 organisations – of which just 363 replied – found that less than half of Cambodian companies actually followed required international accounting standards.

“I found that, at most, only 43 per cent of companies required to apply accounting standards did so. There was also widespread noncompliance with the requirement to have an independent audit of the financial statements,” said Casey Barnett, president of CamEd Business School, who carried out the survey on behalf of the National Accounting Council (NAC).

Of firms required to have an external audit, 59 per cent of respondents said they fulfilled their legal obligation, a figure that drops to 47 per cent when financial institutions and audit firms are excluded.

Barnett acknowledged that the scope of the study was limited due to the small amount of responses to both the online survey and the interview requests. Only 10 per cent of the organisations contacted contributed to the study.

However, he said the results should be seen as an upper estimate of the actual compliance rate, given the hesitance that companies may have to report their noncompliance, despite anonymity offered to all survey participants.

Joseph Lovell, managing partner at law firm BNG Legal, said the survey results are roughly in line with his own estimation.

“From my experience, I would believe that the figures in the report are reasonably reflective of reality,” he said. “However, I do also believe that they are representative of an improving situation.”

According to Lovell, improvement in accounting practices is likely to be incremental as Cambodia still has a long way to reach developed market standards.

“Greater compliance with accounting and auditing standards is a prerequisite for the continued strong growth and maturation of the local economy and key to supporting greater levels of foreign direct investment,” he explained.

The National Assembly passed the Law on Accounting and Auditing in January. The legislation appoints the NAC as the Kingdom’s sole authority for enforcing and monitoring all accounting and auditing activities.

Despite the law’s efforts to push for the greater application of international standards, some respondents to the study felt the lack of NAC enforcement meant organisations were never pressured to adopt the required auditing and accounting practices.

Nonetheless, low managerial interest to comply was listed in the report as the main reason for non-compliance. Other reasons given included scarcity of skilled staff, confusion related to the new regulation and cost of implementation.

Of the companies surveyed, international and larger companies were most likely to be compliant, while overall, Cambodian organisations demonstrated lower levels of adherence to the regulation.

Key Kak, lead partner at accounting firm Morison Kak & Associés, estimated that the rate of implementation of internationally recognised standards amongst Cambodian organisations was much lower than the NAC report might indicate.

“Maybe 15 per cent of Cambodian business leaders can explain what the Cambodian International Financial Reporting Standards [CIFRS] are,” he said. “Very few Cambodian company executives know about it.”

Kak said the NAC and the Ministry of Economy and Finance were not prepared to implement and verify adherence to the CIFRS as they lack the proper expertise and sufficient trained staff to do so.

“The new law gives authority to the state to manage and implement international standards, but the state does not have enough expertise to properly carry out its role,” he said.

The solution, he suggested, is to give accounting professionals the responsibility to implement it.

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