Rwanda’s emergence as a prime investment destination in Africa has enhanced her integration into regional and the wider global economies.
The country’s changing economic fortunes have ridden on the back of a bouquet of reforms in various sectors of the economy.
While most of these reforms revolve around popular business and economic areas that are evident to the casual observer such as starting a business, registering property, trading across borders, protecting investors and accessing credit, the least mentioned is perhaps Rwanda’s strides in the adoption of International Financial Reporting Standards (IFRS).
This is not surprising though, given that IFRS is often thought of as ‘something technical that accountants and auditors talk about or do’.
Legislative changes touching on key sectors of the economy in recent years, including a new Banking Act, Company’s Act and Insurance Law have included components seeking to enforce adoption of IFRS by companies in Rwanda.
This aligns Rwanda’s efforts with the rest of the world, where the globalisation of business and finance has led to the successful mass adoption of IFRS by over 12,000 companies in over 100 countries.
The world’s largest economies have not been left behind in supporting the concept of ultimately attaining use of a single set of high quality accounting standards globally.
The most notable initiative is the ongoing convergence project between IFRS and the US generally accepted accounting principles.
In the European Union, member states have been required to use IFRS as adopted by the EU for listed companies since 2005.
Other major economies that are in the process of adopting IFRS or aligning their national accounting frameworks with IFRS include Brazil, Russia, India, China, Japan and Canada.
Despite the challenges towards full compliance in Rwanda, there are obvious benefits in IFRS adoption to the economy as a whole and to individual businesses.
As an emerging prime investment destination in Africa, foreign investors seeking to invest in local companies will seek assurance that the financial information of target local companies is prepared using a set of high-quality, understandable and globally accepted accounting standards.
Often, the companies coming to invest in Rwanda are subsidiaries of foreign companies that must use IFRS. The same applies to local businesses seeking financing from abroad or from local banks.
The financial information they provide to financiers is only reliable to the extent that it is prepared using globally accepted accounting standards.
Comparability of financial information prepared by local businesses to that prepared by local peers within their respective industries or by similar businesses abroad is at the heart of the global drive towards use of a single set of high quality accounting standards.
Regulated businesses, such as those quoted at the Rwanda Stock Exchange or those in the financial services sector have stakeholders who require reliable financial information from them, whether it is the regulators, the stock exchange investors, the banking public or a buyer of an insurance policy.
In looking at Rwanda’s road map towards full IFRS compliance, a number of areas need to be addressed: the capacity of our accountants to implement IFRS; legislative requirements that are in conflict with an IFRS framework; whether it is too much of a burden for SMEs; and whether Rwanda’s tax regime is supportive of an IFRS framework.
In the next few weeks, we will look at these questions and discuss the practical implications of some standards and developments in the IFRS world to local businesses.
Samuel Kariuki is a Manager with PwC Rwanda