After oil · 2016. 6. 6. · IFAC’s SMP survey International Women’s Day Iran: The end of...

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● IFAC’s SMP survey ● International Women’s Day

● Iran: The end of isolation ● Rankings: Middle East

April 2016 Issue 560

After oil

Middle East focuses on economic diversification

IAB 560.indd 1 05/04/2016 12:06:51

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CONTENTInternational Accounting Bulletin

April 2016 y 1www.InternationalAccountingBulletin.com

NEWS 02-03

FEATURES 04&09

COMPREHENSIVE VIEWS FROM THE LOCALS 11-23

REGIONAL SURVEY: AN ELUSIVE MIDDLE EAST 11-13

MIXED TRANS-TASMAN VIEWS ON IFRS

Users of financial reports in New Zealand and Australia are overall satisfied with the cur-rent state of financial reporting but have identified room for improvement,

IRAN: THE END OF ISOLATION

Globalisation has been a keyword in the business world for decades, and yet it appears that for smaller actors the local market is enough, and international connections hold few benefits. Vincent Huck looks at some of the results of IFAC’s latest global SMP survey

IS THE WORLD A VILLAGE?

Following the nuclear deal between the Islamic Republic of Iran, the permanent members of the United Nations Security Council and the European Union, Abbas Vafadar, senior partner and managing director of audit firm Azmoon Pardaz Iran Mashhood and Iranian Association of Certified Public Accountants high council member speaks to Vincent Huck.

■ New competition: financial services firms at risk

■ Angola’s accountancy profession heralds expected tough emergence

■ Deloitte replaces KPMG for audit of Bulgarian Telecomunication Company

■ USA private companies divided on the importance of 2016 presidential election

■ Data analytics is changing forensic accounting

COMMENTS 05-08

We’ve all heard of the ‘gender pay gap’, but a ‘gender confidence gap’ could also have a part to play when it comes to continued inequality in sectors like finance, Olivia Hill, Chief HR Officer at Association of Accounting Technicians (AAT), writes.

CALLING FOR A GENDER CONFIDENCE GAP

Is the accountancy industry still a white, male-dominated space?

DEBATE

CFA Institute director of financial reporting policy Vincent Papa gives his views on the recently released report by EFRAG and ICAS on pro-fessional investors and the decision usefulness of financial reporting.

CONTEXT INFLUENCES INVESTOR USE OF FINANCIAL STATEMENTS

RANKINGS: MIDDLE EAST 24-25

BAHRAIN

EGYPT

IRAQ

ISRAEL

JORDAN

KUWAIT

LEBANON

OMAN

PALESTINE

QATAR

SAUDI ARABIA

UNITED ARAB EMIRATES

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WealthInsight provides proprietary insight, data and analysis on the world’s High Net Worth Individuals (HNWIs) and the global wealth market.

Our HNW communities, built up over 30 years, provides our clients with exclusive access to insight on over 140,000 HNWIs.

An example of the insight the WealthInsight Intelligence center provides you:

• The ability to create bespoke, tailored dossiers

• Daily alerts on liquidity events affecting the wealth of HNWIs

• Monthly forecasts on trends in the global wealth market

For further information visit www.wealthinsight.com or contact us on:

London: +44 203 096 1977

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or by email at:[email protected]

Head Office: 71-73 Carter Lane, London, EC4V 5EQ • Tel: +44 (0) 203 096 2618 • Email: [email protected] • © Timetric 2015

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To understand the Wealth market...

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IAB 560.indd 1 05/04/2016 12:06:58

NEWS International Accounting Bulletin

2 y April 2016 www.InternationalAccountingBulletin.com

New competition: financial services firms at risk Traditional f inancial services f irms believe their businesses are at risk due to advance in technology and the success of financial technology companies, a global survey by PwC has found.

PwC survey of 544 CEOs, head of innovation, CIOs and top management involved in digital and technological transformation across the financial service industry in 46 countries found that 83% of respondents from traditional financial services firms believe part of their business is at risk of being lost to standalone financial technology companies. This figure rises to 95% in the case of banks.

Financial technology companies themselves anticipate they could capture 33% of the traditional firms’ business, according to the survey.

Sixty seven percent of traditional firms ranked pressure on profit margins as the top financial technology related threat, followed by loss of market share (59%).

“FinTech is shifting the paradigm of traditional intermediary roles by making them obsolete. While FS organisations have acted as intermediaries in the financial system by providing an invaluable service to clients, their functions are being usurped by new technology-driven business models,” Manoj Kashyap, PwC Global financial services fintech leader said.

Given how fast technology is developing, incumbents cannot afford to ignore FinTech, he continued. “Nevertheless, our survey has shown that a non-negligible 25% of firms do not deal with FinTech companies at all. With the pace of change now occurring at increasingly faster intervals, no FS business can rest on its laurels.”

Angola’s accountancy profession heralds expected tough emergenceAngola’s profession has kick-started an off icial regulatory system and created a defined framework of accounting standards.

Currently, national firms follow IFRS, IAS or local accounting plans. But one local source told The Accountant: “When I am asked if I follow the rules according to international standards of course I have to say yes. I try to comply with everything, but inside our country it is not mandatory.”

Spurred on by the Angola Ministry of Finance’s ongoing banking reforms, including the legislative need for most banks to produce audits, a new Professional Body of Accountants and Accounting Experts of Angola (OCPCA) plans to regulate the accounting profession. OCPCA was established in December 2014. However steering committees had been working on its preparation since 2011.

“Seems too long, doesn’t it? It was a big fight to establish OCPCA, but finally the government gave the green light to go forward,” Carlos Pinho, managing partner at BKR’s Angolan member firm ACE, told The Accountant. Pinho also sits on OCPCA’s disciplinary board. According to him, while the new professional body is working hard to create a framework for officially accepted accounting standards, already having previewed several regulations, the whole process will take time to complete.

Deloitte replaces KPMG for audit of Bulgarian Telecomunications CompanyBulgarian Telecomunications Company EAD (BTC) has

appointed Deloitte Audit OOD as its auditors replacing KPMG Bulgaria OOD.

Deloitte will be BTC’s auditor commencing with the audit of the accounts for year-end December 2015.

The announcement was made to the Irish Stock Exchange earlier this week.

USA private companies divided on the importance of 2016 presidential electionOver a third of USA companies surveyed by PwC USA believe the 2016 presidential election is unimportant for the companies’ growth agenda in the next several years.

Companies were asked: “How important will the 2016 elections be to private companies’ groth agenda in the next several years?” While 37% responded it will be unimportant, 31% replied ‘very important/critical’ and 32% replied ‘moderately important. Only 11% of respondent said there were delaying decisions to await the election’s outcome.

Asked which themes discussed by presidential hopefuls they were paying particular attention to, tax reform topped the list for surveyed executives. This was followed by increased capital availability, infrastructure spending and increased manufacturing.

Data analytics is changing forensic accountingThe advent of technology has quite literally changed the face of accounting.

Today financial information exists in countless formats - from spreadsheets, digital banking tools, company portals, apps, PDFs, mobile phones, and emails.

To ease the complex process of data extraction, forensic accountants are teaming up with technology experts.

“We work hand in hand with the IT groups of companies we investigate,” said Mitch Hirsh forensic accounting and dispute services partner at RSM US.

“We also have technology staff members at RSM that assist us in data mining and in imaging hard drives so that we can effectively to retrieve data without fear of it being compromised”, he explains.

Demand for big data technology and services is growing. According to the International Data Corporation (IDC), this market will be worth $41.5 billion by 2018.

In amongst IDC’s trends to watch out for in 2016 is driving real-time analysis to enhance client-satisfaction and applying analytics to specific problems, such as fraud and risk prevention.

“If someone is writing cheques to them self or is paying their own personal credit card with company funds or embezzling money, where technology could come into play is that you get hold of the person’s work computer and find that they are booking vacations to Ohio or have a gambling problem,” notes Crowe Howarth LLP’s director of advisory and forensic technology services Tim Bryan.

Even if carefully concealed, financial anomalies are recognised through statistical testing and e-discovery services - such as Benford’s law, analysing internal correspondences for inconsistencies and validation of the data’s source.

But in terms of standards used by the data analyst, head of forensic technology and discovery services at EY UK Paul Walker emphasises there is a ‘defined methodology’ around the life cycle of an any project.

“If you are collecting evidential data, you are working to police standards,” he explains.

“You undertake notes in the bagging and tagging of evidence and bar coding to make sure the evidence is permissible in court. You can destroy a case if not,” Walker warns.

ESMA publishes report on the activities of EU accounting enforcersThe European Securities and Markets Authority (ESMA) has published an overview of its activities as well as the activities of accounting enforcers in the European Economic Area when examining compliance of financial information provided by issuers listed on regulated markets in FY15.

The report found that ESMA and European enforcers have strengthened supervisory convergence in the area of enforcement of financial information. For example, the number of accounting issues discussed by the enforcers before taking enforcement decisions increased significantly: 65 emerging issues in 2015 again 47 in 2014. This contributed to enhancing supervisory convergence as enforcers should take into account the outcome of these discussions when taking decisions, according to ESMA’s report.

Overall, enforcement actions have been taken against a quarter of the issuers included in the sample of 189 issuers. In many cases, enforcement actions cover several areas of the same set of IFRS financial statements. In relation to the application of the new consolidation package, ESMA and the European enforcers acknowledge the good quality of application of IFRS requirements in the 2014 financial statements.

ESMA believes that there is still room for improvement in the application of the IAS 12 requirements related to recognition, measurement and disclosures of deferred tax assets arising from tax losses.

UK FRC launch consultation on audit enforcement procedureAhead of the EU audit regulation and directive coming into effect in June of this year, the UK Financial reporting Council (UK FRC), has launched a consultation on proposals for the audit enforcement procedure.

The procedure will apply to the investigation and sanctioning of breaches of the various requirements of the statutory auditors of Public Interest Entities.

The proposed new Audit Enforcement Procedure will, in relation to statutory audit cases, replace the FRC’s existing sanctions procedure and disciplinary tribunal scheme and will provide a single, streamlined procedure for audit enforcement.

The consultation is open until 4 May 2016

FSB’s TCFD publishes consultationThe Task Force on Climate-related Financial Disclosures (TCFD) of the Financial Stability Board (FSB) has published a consultation seeking stakeholders’ views on the existing climate disclosures initiatives.

The consultation is aimed at addressing what constitutes relevant disclosures and sets out the scope and objectives of the next phase of the TCFD’s work, chaired by Michael Bloomberg, after its creation in December 2015. A final report with the findings will be published by the end of this year.

IAB 560.indd 2 05/04/2016 12:06:58


NEWSInternational Accounting Bulletin

Users of financial reports in New Zealand are overall satisfied with the current state of financial reporting but have identified room for improvement, according to research by the New Zealand External Reporting Board (XRB).

This is the first research on user’s needs conducted since New Zealand’s adoption of IFRS in 2007.

XRB surveyed 155 users from the inves-tors’ (46), lenders’ (25), intermediaries’ (72) and regulators’ (12) communities.

The research found that the changes in corporate reporting for New Zealand list-ed companies have been positive but must continue to evolve. Seventy nine percent of respondents use corporate financial reports.

But while 31% see financial reports as their primary source of information, 35% rely on advisors and analysts’ reports.

Seventy six percent of respondents find all financial statement information useful and 54% said they do not require any other information in the financial statements.

However requirements for more detailed statements vary greatly from one surveyed population to the other. Seventy five per-cent of intermediaries do not want more information, while 73% of surveyed inves-tors say they want more information in the financial statements.

Overall 46% of respondents want more information and this includes: comparisons between actual targets/budgets, enhanced segment reporting, more detailed cash flow information, and more information on cred-it facilities, borrowings, loans.

Equally 48% of respondents need more information in the financial report, in

particular regulators (75%) and investors (64%). In essence, they ask for more infor-mation on business strategies and pros-pects, narratives that explain financial per-formance and position, information about entity’s business and summary financial information.

Overall respondent suggest improvements in reporting through:

• Greater consistency in the format presentation of financial statements

• Simplifying and standardising report-ing and the language used

• Improving disclosures on contingen-cies guarantees

• Obligations and related party trans-action

• Providing 5-year summaries on key performance indicators and forecasts

• Providing more non-financial and sustainability information

• Improving timeliness of reporting

“The research confirms the approach taken by the XRB: we will continue to follow international standards, working closely with international standard setting boards, to ensure their outputs are suitable for adoption and implementation in New Zealand,” ERB chairman Graeme Mitchell said. “Our team will continue to participate in international projects, and we will facili-tate and encourage the corporate reporting debate in New Zealand.”

AustraliaSimilarly the Australian Accounting Stand-

ards Board (AASB) has published the prelim-inary findings of a review of IFRS adoption in Australia.

The preliminary findings, based essen-tially on the review of academic literature, show that IFRS adoption had a positive outcome through improvements in the rel-evance of accounting reports. The review also suggested that the adoption of the IFRS goodwill impairment regime improved accounting quality.

However the review suggested that meas-ures of accounting quality have remain stable or consistent with Australian GAAP and that prior Australian GAAP treatments for identifiable intangible assets were more appropriate.

While some literature suggested positive results in terms of comparability of Austral-ian financial reporting practices with global peers, not all literature agreed.

IFRS adoption by Australian companies appears to have had a positive outcome for investors and analysts, based on research revealing improved analyst forecast accu-racy.

The review also revealed a degree of pes-simism by managers around the time of IFRS adoption towards many of the possible benefits from accounting convergence.

AASB concluded that given the mixed results of the literary review as well as the lack of academic literature examining all aspects of the possible impact of IFRS adop-tion in Australia, the board would carry on further research and conduct outreach activities to gather views form preparers and users of financial statements.

Robert Stack, deputy assistant secretary (International Tax Affairs) at the USA Department of the Treasury, announced in a recent interview that the Obama administra-tion was working on a law to end tax secrecy in the considered tax heavens of Delaware, Wyoming and Nevada.

Speaking to French newspaper Le Monde, Stack said the new rule would apply to offshore companies incorporated in those states and would require them to disclose their shareholders, which thus far was not a legal requirement.

“It is unacceptable that business enti-

ties are created on our territory without us knowing who their shareholders are and what the purpose of these entities are,” he told Le Monde. “It is a loophole in our regu-lation and we have to close it.”

However Robert Maas, tax consultant at CBW (DFK International), said it would be difficult for the Obama administration to deliver on this unless it signs up to the OECD’s Common Reporting Standard (CRS).

“They have two major problems before they can do so,” Maas said. “The first is that Congress has made clear that it is not

going to pass any more of Obama’s legisla-tion, so it is hard to see how this can happen during Obama’s presidency.”

The second, he continued, is that CRS undermines banking confidentiality as it requires a country’s domestic banks to give its tax authority specified information in relation to accounts held by residents of other CRS assenting countries. “And in the USA bank regulation is split between the Federal and State Government and most States do not take kindly to the Fed-eral government seeking to interfere in their affairs.”

Obama administration to close tax loopholes in Delaware, Nevada and Wyoming

Mixed Trans-Tasman views on IFRS

IAB 560.indd 3 05/04/2016 12:06:58

FEATURE International Accounting BulletinIFAC SMP SURVEY


Nearly half of the 6,725 small and medium practices (SMP) surveyed for the International Federation of Accountants’ (IFAC) annual global

SMP survey have no interest in joining a net-work, association, or alliance of firms. Only 28% of respondents reported that their SMP belonged to a network (11%), association (10%), or alliance (7%), and 24% indicated that their practice was considering joining one.For IFAC SMP committee chair Giancarlo Attolini, this is a typical case of whether one looks at the glass half full or half empty. He is more optimistic, and points to the fact that 52% of respondents have joined or are in the process of joining an international organisa-tion. “In our view this shows a great interest in networks and associations,” Attolini says. “But of course you can look at the other 48% and say that almost half of them are not interested.”

Nevertheless, Attolini says that one needs to dig into the data and look at the answers in relation to the respondents’ size in order to gain the full picture. “You will see that the larger the practice, the more likely they are to have joined or are considering joining an international organisation,” he says. “So, I wouldn’t interpret it as a lack of interest, I would say it is a growing interest.”

When asked for reasons why the other 48% are not interested in international affil-iations, Attolini says that while the survey doesn’t ask the question, he (being an SMP practitioner) explains it by the lack of inter-national activity by SMP clients, and that there is therefore no need for international affiliations.

Bodo Richardt, president of the European Federation of Accountants and Auditors for SMEs (EFAA), gives a slightly different commentary on the survey results. On first reading, he says, the numbers are surprising given that some of the most important chal-lenges that SMPs face have a major interna-tional dimension.

“Take the most pressing issue for Europe’s SMPs for example - keeping up with stand-ards and regulations (54% of respondents),” Richardt says. “This challenge clearly has to be addressed on a European level, where the frame for national legislation is set for SMPs and their SME clients.”

Richardt goes on to explain that upon closer inspection of the survey, one sees that 80% of the respondents were sole practition-ers and small SMPs.“For most of these small SMPs, being part of an international net-work or an international association might feel at odds with their passion to drive their own future and create their practice exactly how they want it,” he continues. “And it might be impractical for them to become personally engaged, due to the time and resource constraints they usually face.”

It is in any case important for small SMPs to realise that they are not spared from deci-sions taken at the international level, Rich-ardt warns. “The larger SMPs obviously see the benefits.”

Like Attolini, Martin van Roekel, CEO at BDO International, points to the lack of international clients as an explanation. “Most likely, many SMPs don’t have cli-ents that need international services and as a result there is no real need for them to be part of an international network, association or alliance, unless they see business benefits in having an international brand as a result of being a member of an international organ-isation,” he says.

Although only 28% of SMPs are part of an international network, association or alliance it is interesting to see that 24% of the SMPs are considering joining one, Van Roekel continues. “This might be an indica-tion that they see business benefits in becom-ing a member of an international organisa-tion as a result of more of their clients getting (more) international activities.”

However, the survey also looked at the international activity of SME clients and found that only 13% of them had no activ-

ity, while 74% deal in import and export of goods or services. Many SMEs import and export goods, Attolini says. “That requires services in custom regulation, VAT, tax, bor-der control, how to move goods from one place to the other. But you can do that from your own jurisdiction and you don’t need a foreign office working with you. Actually, most SMEs’ import and export paperwork is dealt with by a shipping agent or someone who is not a SMP accountant.”The survey results highlight a clear divide between the SMPs in mature economies and those in emerging countries. The regions with the largest number of respondents con-sidering membership were: Africa (35%), the Middle East (32%), Asia (30%), and Central and South America and the Carib-bean (29%). On the other hand, in Aus-tralasia and Oceania (69%), Europe (60%) and North America (51%), a majority of respondents said they were not considering an international affiliation.

For Attolini this comes down to the nature of the markets. “If you look at Africa and Asia, they have much more dynamic and forward-looking economies than the old Europe,” he says.

“Africa in particular is a place of growth and a region where most networks and asso-ciations are looking to increase their pres-ence and dealings. I predict that interest in international affiliation will only grow in the future in this region.”

Attolini wishes it would be the same situ-ation in Europe, but he says European SMPs have become comfortable with the status quo in terms of doing it alone, and they are struggling to reinvent themselves in a chang-ing economy.

Six thousand seven hundred and twenty five practitioners from 169 countries replied to the survey. Of these, 41% were from Europe, 26% from Asia, 15% from Africa, 8% from Latin America, 5% from the Mid-dle East, 3% from North America and 2% from Australasia and Oceania. <

Is the world a village?

Globalisation has been a keyword in the business world for decades, and yet it appears that for smaller players having a local reach is enough, and international connections hold few benefits. Vincent Huck reports

IAB 560.indd 4 05/04/2016 12:06:58

s COMMENTInternational Accounting Bulletin INTERNATIONAL WOMEN’S DAY


The gender pay gap has come into sharp focus again in recent weeks, particularly as a result of Internation-al Women’s Day which, last month

asked the social media users among us to #PledgeForParity.This is also an issue that was courted by some of the biggest players in the finance and accounting industries, with the likes of PwC, Deloitte and finance recruitment specialists Marks Sattin and Robert Half all producing figures on the gender pay gap. In fact, Robert Half’s data indicates that women could be missing out on as much as £300,000 ($431,722.5) in salary when com-pared to men over a working lifetime.

It is clear that, the so called ‘gender pay gap’ is sadly, still very much a part of today’s so called progressive labour market.What’s more the UK finance sector is considered to be one of the most sluggish when it comes to progress on this issue.

In fact, this is something that has been recognised in an official capacity as part of a recent government-backed review called Women in Finance which shows that the sector is lagging behind when it comes to ensuring not only equal pay, but that there are equal opportunities for progression regardless of gender.

It is clear from the media column inches, and the considerable weight being thrown behind the issue by the government that more needs to be done – particularly in the finance sector.

Gender confidence gapHowever, to truly address the gender pay gap we need to look beyond these three words and see what factors are at play in retaining the status quo.

Recent research by my own organisation, AAT, which focuses on the UK finance sec-tor, suggests that although the gender pay gap is still a burning issue, a ‘gender confi-dence gap’ may be another important, con-tributory factor.

For example, our recent investigation reveals that men working in one of the UK’s biggest sectors (finance) believe they should be paid £11,900 more than the amount they are currently earning. In comparison, it’s almost half that figure for women at just £6,850.

What’s more, almost half of women (48%) know or suspect that their male col-leagues are earning more than them when doing the same role.

When it comes to actually asking for a pay rise, our research reveals that men are twice as likely as women to ask for – and get – a pay rise.

In addition, the difference in salary asser-tiveness between men and women is also highlighted in our data with twice as many men wanting to earn £10,000 or more on top of their current salary (28% vs 14%), while three times as many think they should earn double their current salary (6% vs 2%).

Given this difference in salary assertive-ness, its little wonder that a gender pay gap continues to have a hold on the sector.

Tradition still prevailsWhat’s even more revealing from our data is that women see the ‘old boys club’ mental-ity as throwing up barriers to their own pro-gression within finance organisations (cited by 42%) along with a further 35% saying that male-domination at a senior level also had a role to play.

Interestingly, 28% of female respondents also citied childcare responsibilities as creat-ing a barrier to progression; females are still traditionally expected to take the lion’s share of childcare responsibilities.

Last month the government took positive steps to try and redress the gender balance. It announced that new league tables will be used to publish pay gap data – exposing larger companies that are failing to address the gender pay gap.

In addition, these companies will be required to report on the representation of

men and women at different seniority lev-els as part of a range of reforms aimed at securing real equality for women. To high-light where the gaps in pay and opportuni-ties need tackling most, the government also plans to publish the pay gap by sector.

UK financial sectorWith a focus on the UK finance sector, the AAT is also committed to championing positive steps forward in tackling gender inequality. Armed with the data from its own recent investigation of the sector, the AAT is looking to provide the information and guid-ance organisations need.

One recent example of this can be seen in the AAT’s recent publication of its Mak-ing the Finance Sector Add Up For Women white paper.

This online document is easily accessible for all types and sizes of organisation in the finance sector, and provides the insight needed to identify types of unconscious and conscious bias in the workplace.

What’s more the white paper also provides a number of steps organisations can follow to ensure that gender inequality is tackled and avoided. <

Calling for a gender confidence gap

We’ve all heard of the ‘gender pay gap’, but a ‘gender confidence gap’ could also have a part to play when it comes to continued inequality in sectors like finance, Olivia Hill, Chief HR Officer at Association of Accounting Technicians (AAT), writes

IAB 560.indd 5 05/04/2016 12:06:59


COMMENT International Accounting BulletinINTERNATIONAL WOMEN’S DAY

Debate highlights: Is the accountancy industry still a white, male-dominated space?

Andrea Serejski , Buenos Aires, Argentina. Partner, SMS - San Martín, Suarez y Asociados (SMS Latinoamérica): “Twenty-two years ago I was working as a manager in the Buenos Aires office of the former Arthur Andersen, when I had my first child. After my leave, I decided to return to my job but something important had changed in my life. So I decided to ask for a part time work. There was no other similar case, no other mother manager, and consequently my request shocked my bosses.”

Annette Blaes , Saarbrucken, Germany. CEO, actis ProTEAM Personalberatung (Alliott Group): “While men who are professionally dedicated are celebrated as successful ‘bosses’, women are stigmatised as ‘bossy’[...] that takes men to the top of the career ladder while women are stuck in the elevator shortly before reaching the top floor.”

Brigitte Schuler , Aachen, Germany. Partner and founder, Fidaix (PrimeGlobal): “Often I see women giving up if they have a male competitor without asking themselves who the most suitable for the promotion might be.”

Diane Medley , managing partner and co-founder of MCM CPAs & Advisors in the US (Baker Tilly International): “This year, 40% of our partner and principal roles are held by women, which puts us well ahead of the national average. That being said, 55% of our firm staff overall are women, which means we aren’t quite keeping up the pace as women climb the ladder.”

Linda Devonish-Mills , director of technical accounting activi-ties, Institute of Management Accountants:: “Diversity in the profession at senior level, C-suite positions, along with senior level volunteer opportunities is very well hidden.”

Francesca Lagerberg , global leader for tax services, Grant Thornton International: “My daughter is currently 14. In the highly unlikely event that she follows me in to the accountancy profes-sion, I would like to hope that this debate is of historical interest only and she will see numerous role models to inspire her.”

Hilde Blomme , deputy CEO, Federation of European Accountants: “Looking back, the thought of a woman holding a senior level or Board position appeared des-picable … to men.”

Joy Thomas , executive vice-president, CPA Canada: “There is evidence that demonstrates men are promoted based on what they might do – women are promoted based on what they have done, so there are still barriers for women to overcome.”

Jean Stephens, global CEO, RSM International: “As the only female CEO of a top ten global accounting network, I am conscious that there is still much to be done to further diversity. [It’s] necessary to speed our progress towards gender parity, which the World Economic Forum estimates won’t be achieved until 2133 at the current rate of progress.”

Kirsten Patterson New Zealand country head, Chartered Accountants Australia and New Zealand: “For our new provisional (graduate) mem-bers joining the profession the balance has already tipped the other way, and they are now almost 60 percent female. What impact does the feminisation of an industry have and what new issues are going to emerge that are not currently in our historical experience? It’s some-thing we need to watch to ensure women don’t – ironically – create the reverse of the ‘bad old days’ for women accountants.”

To celebrate International Women’s Day, Carlos Martin Tornero engages in a global dialogue with female accountancy leaders, who perceive significant change in attitudes, yet certainly not enough. What follows are some excerpts of their contributions

IAB 560.indd 6 05/04/2016 12:08:00


Debate highlights: Is the accountancy industry still a white, male-dominated space?

COMMENTInternational Accounting Bulletin INTERNATIONAL WOMEN’S DAY

Marcia Lin Beijing, China. Business consulting direc-tor, Lee & Lee Associates (Alliott Group): “Company culture changes are needed to inspire women and make them more confident. Senior management needs to consider the gender diversity issue more seriously to provide better opportunities to women.”

Marianne Smits-Smits , The Netherlands. Partner and consulting director, HLB van Daal & Partners:: “The female participation in the accounting profession is still provocative. The mas-culine culture must also change. We have to work together to tear down “the double-glass ceiling.”

Olivia Kirtley, president, IFAC: “Diversity and inclu-sion in the accountancy profession is not just the right thing to do; it is a business imperative.”

Sharron Gunn, commer-cial executive director, ICAEW:: “When I first qualified as a chartered accountant, there were no female partners or role models. The face of deci-sion making was male.”

Shonagh Fraser, Aberdeen, Scotland. Partner, Hall Morrice (PrimeGlobal): “Society perpetuates the idea that men do not have to take such an active role in the day-to-day responsi-bility of caring for children.”

Valérie Ménard, Montreal, Canada. Partner, Hardy Normand & Associés (Alliot Group): “When I joined [the firm] in 2004, the 6 partners were all men. I was the second woman to access partnership in 2012 and now 25 % of the partners are women, with three of the youngest being women!”

Nancy Altobello, global vice-chair - talent, EY: “The business case is really quite simple: We need to build a well-worn path for female leaders to tread upon, not only today but for future generations. It’s about estab-lishing role models and mentors for younger women in the workforce and setting them up for success.”

Rita Hood, North American regional director, AGN International: “I couldn’t disagree more: as an example, AGN International currently employs a team of 3 men and 9 women located throughout the globe - 4 of whom are the Regional Directors for North America, Europe, Central and South America.”

Sue Perlin, partner, Plante Moran (Praxity) and leader of Women in Leadership Initiative: “Studies show that companies with broad diversity perform better. As a profession, we must be inten-tional about creating diverse environments that attract not only women but also the wealth of ethnically diverse talent.”

Uschi Schreiber, global vice-chair - markets, and chair of glob-al accounts committee, EY: “Women remain under-represented in senior roles in many important sectors, including STEM fields. And as the pace of technological change is moving ever faster and there is a growing need for people with technology skills, we are at risk of leaving women even further behind.”

FULL CONTRIBUTIONS AVAILBLE ONLINE

IAB 560.indd 7 05/04/2016 12:08:28


COMMENT International Accounting BulletinINVESTORS’ VIEWS

The European Financial Reporting Advisory Group (EFRAG), in col-laboration with the Institute of Chartered Accountants of Scotland

(ICAS), has recently issued a report contain-ing some thought-provoking insights on how the context of an investor’s decision - i.e. valuation versus management stewardship assessment - influences the priority assigned to and use of financial statements. The con-clusions of the study are based on inferenc-es made from a sample of 81 institutional investors and analysts reviewing a hypotheti-cal European manufacturing firm’s financial statements. The results show that the con-text of an investor’s decision influences the relative importance which investors attach to the primary financial statements (income statement and balance sheet) and to the line items within these statements.

The EFRAG-ICAS study is timely given the general acknowledgement that financial statement information is the lifeblood of the capital markets, and that it is an integral input into the analysis of performance, risk and future prospects of reporting companies by investors. Indeed, the accounting concep-tual framework recognises investors as the primary users of financial statements infor-mation. That said, participants involved in the formulation of requirements for, supply and quality assurance of financial informa-tion (i.e. accounting standard setters, audi-tors, securities regulators and CFOs) often encounter a diversity of investor articulated preferences; this creates a puzzle which requires evidence to help substantiate the specific application of financial statements by different capital market participants.

Another factor which increases the rel-evance of the general line of enquiry under-taken by the EFRAG- ICAS study is that there are several ongoing trends within the corporate reporting landscape that have challenged the primacy of mandated finan-cial statement information in its relevance as an input for valuation and performance assessment purposes. These include the proliferation of alternative performance measures - also described as non-GAAP measures - as well as the increase in the weight being assigned by investors to other

non-financial information, such as Corpo-rate Social Responsibility Reporting. These developments have increased the need for an enhanced understanding of specific appli-cation of both financial and non-financial information.

The EFRAG-ICAS study conclusions were predicated on findings related to questions aimed at unpacking what influences inves-tors’ judgements on, and preference for, financial reporting information.

The report highlights three specific conclu-sions which have implications for accounting policy makers. Firstly, the research finds that the information objective of financial state-ment users clearly matters for the design of financial accounting standards. When inves-tors have the objective of assessing manage-rial performance, they focus on information which reflects managerial effort and tend to discard information that may be relevant for the value of a firm but is beyond the control of current management, such as valuation gains and losses on financial instruments or changes in pension liabilities due to macro-economic changes. This implies that stand-ard setters need to make explicit statements about potentially conflicting information objectives. One size does not fit all and dif-fering objectives appear to require different measurement approaches.

Second, professional investors focus heav-ily on the income statement when making both valuation and stewardship decisions. They have strong reservations about the representational faithfulness of bottom line figures being negatively affected by manage-rial estimates and judgments, triggered by re-valuations that relate to balance sheet line items.

Third, the finding that investors view the corporate governance of a firm as being highly influential on the representational faithfulness of financial reporting informa-tion. Hence, enhancing corporate govern-ance ought to be considered when design-ing accounting standards to ensure a mutu-ally complementary relationship between the corporate governance and quality of finan-cial reporting information.

Taking these three conclusions into account, the study certainly illuminates on

the questions of appli-cation which it set out to resolve, and it makes a useful contribution to the mosaic of existing knowledge therein. It should also enrich the ongoing accounting standard setting consid-erations and debates within the conceptual framework around the objectives of finan-cial statements, and a suitable measurement framework.

The spectrum of investor perspectives on different financial statement elements and on the priority of financial statements informa-tion, cited throughout, are quite insightful. The paper also includes interesting findings around non-GAAP measures and notes that the general focus on the non-GAAP measure EBITDA, combined with concerns about its lack of standardisation and comparability, calls for the development of a standardised set of performance measures for the income statement.

There are, however, questions on how far to generalise the conclusions which have been drawn.

These questions arise due to the following parameters of the study: the focus on sector specific financial statements, such as manu-facturing, and the focus on evaluating inves-tor perspectives based mainly on the balance sheet and income statement. There is scope to extend the insights presented in the paper through an approach which explicitly tests, and thereafter draws conclusions from inves-tor perspectives on the Other Comprehen-sive Income (OCI).

Overall, this is a timely and thought pro-voking study on factors that influence inves-tors’ perspectives on and application of financial statement information.However, there is likely a need to further extend the study with a purpose of providing a compre-hensive stakeholder understanding of inves-tors’ financial reporting information pref-erences across different sectors and across all the main financial statements. Such an extended study could help guide account-ing standard setters and would be particu-larly useful for the International Accounting Standard Board (IASB) considerations for enhancing its performance reporting require-ments. <

Context influences investor use of financial statementsCFA Institute director of financial reporting policy Vincent Papa gives his views on the recently released report by EFRAG and ICAS on professional investors and the decision usefulness of financial reporting

IAB 560.indd 8 05/04/2016 12:08:29


FEATUREInternational Accounting Bulletin IRAN

Context influences investor use of financial statements

International Accounting Bulletin: Since you last spoke to our magazine, in early 2015, what developments have there been in the Iranian accountancy market? Abbas Vafadar: The demand for profession-al services in Iran can be divided into two categories - routine services for domestic companies and required services for foreign investors and financers. The former category has undergone very few changes if any, and there has been reduced demand for it, due to an omission of tax audit services from the list of audit firms’ possible assignments. Since passing the new direct taxes act, tax-paying entities no longer have the right to appoint auditors of their choice for tax audit purposes. As a result, tax audit assignments, which were a considerable part of the audit firms’ income, have vanished.

On the other hand, demand from foreign companies seeking Iranian audit firms’ pro-fessional services is on the rise. After the lift of nuclear-related sanctions imposed by the USA, European Union and UN, foreign investors have started studying the Iranian market extensively.

Comprehensive market research requires a deep understanding of the laws and regula-tions, including but not limited to legal cor-porate structures, corporate and labor laws, tax laws, and social security regulations. Knowledge of new specific rules related to doing business with the outside, such as the Foreign Investment Protection & Promo-tion Acts (FIPPA), is also necessary. In some cases, in collaborative efforts, Iranian audit firms have performed due diligence assign-ments under instruction of international audit firms. Iranian companies have also been approaching audit firms to prepare their ‘Information Memorandum’ for for-eign investors.

A different type of demand for services is attributed to the IFRS based financial statements. Iranian companies need to pre-sent their IFRS-based financials in order to attract potential foreign investors. They also need these statements for offering their shares in the international stock exchanges, as well as to request loans and lines of credit from abroad.

I must remark, that out of 270 Iranian

audit firms, only a handful have the profes-sional capability for offering the aforemen-tioned services. International Accounting Bulletin: what is the status of IFRS adoption?Vafadar: First of all, it is necessary to know how the Iranian Accounting standards are set.

The Audit Organisation, under the Minis-try of Economy and Financial Affairs, is in charge of setting the accounting standards in Iran. Currently, we have 32 account-ing standards, which are based on IAS and IFRS. These Iranian standards have not been updated for some time, and although some of them have been revised by IASB, the changes have not been implemented. Some IFRS have neither been translated nor imple-mented in Iran.

On top of these problems, we are facing several other obstacles in implementing IFRS in Iran. Unless relevant tax laws are amend-ed to be compatible with IFRS implementa-tion, companies will face serious corporate tax implications. Finding a reliable mecha-nism for establishing fair values according to IFRS is another outstanding issue. Lack of familiarity with these standards, specifically ‘first-time adoption of IFRS’ also remains a significant challenge.

The aforementioned problems make us realise that adoption of IFRS and the replac-ing of national standards does not seem real-istic, at least for the near future.

Having said that, the Audit Organisation has authorised the Security and Exchange Organisation to enforce IFRS adoption by listed companies. According to the Audit Organisation approval, dated 19 June 2012:

“Those companies and financial institu-tions registered by Securities and Exchange Organisation (SEO), which are selected by SEO, and their subsidiaries and associates, should apply IFRS in preparation of their financial statements from the date specified by SEO”.

Also, on 11 January 2014, the SEO stated:“All the listed companies, financial institu-

tions and their subsidiaries and their associ-ates in SEO are permitted to prepare con-solidated financial statements in accordance

with IFRS from 20 March 2013 onwards. In this regard, the parent company is required to prepare its separate financial statements based on Iranian Accounting Standards while preparation of consolidated finan-cial statements in compliance with Iranian Accounting Standards are not mandatory. However, the preparation of separate finan-cial statements in accordance with IFRS for parent companies are permitted.”

It is worth mentioning that the SEO is considering to require big listed companies to comply with IFRS in their reporting as of Islamic calendar year 1395 (20th March 2016 – 20th March 2017).

As a result, three committees have been recently set up by the SEO which focus on IFRS adoption, namely:

1) The technical committee, which has the responsibility to translate IFRS and prepare related manuals.

2) The fair value committee, of which I am a member.

3) The education and training committee.It is expected that for the first year, 10

big listed companies will be selected and required to apply IFRS.

As I mentioned before, at this stage, the national accounting standards will not change, and thus the selected listed compa-nies must continue to prepare their financials based on the national standards as well. Tra-

The end of Iran’s isolationFollowing the nuclear deal between the Islamic Republic of Iran, the permanent members of the United Nations Security Council and the European Union, Abbas Vafadar, senior partner and managing director of audit firm Azmoon Pardaz Iran Mashhood and Iranian Association of Certified Public Accountants high council member speaks to Vincent Huck

IAB 560.indd 9 05/04/2016 12:08:30


FEATURE International Accounting BulletinIRAN

ditional financial statements are required for domestic legal compliance matters such as tax etc.

However, any company that keeps an eye on foreign capital or finance has no choice but to present its financials based on IFRS for international business. As an example, the trade/investment insurance programs Hermes, from Germany, and Sace, from Itlay, have already announced that Iranian compa-nies wishing to use their services extensively have to prepare their financials based on IFRS.

For this reason, many big companies active in the petrochemical field and the steel indus-try, as well as Iranian banks, are looking to prepare their financials based on IFRS.

These fast moving developments after a long period of isolation, combined with lack of adequate experience in this area make it inevitable to collaborate with internation-al firms to use their experience especially towards ‘first-time adoption of IFRS’.

International Accounting Bulletin: With the nuclear deal and the lifting of sanctions, are there more ties with international networks and associations?I understand that PwC and EY are on the verge of announcing member firms in Iran. Do you have any information? Any another official announcement in the pipeline?Vafadar: First of all, I should emphasise that the presence of big international audit firms in Iran is unavoidable. Iran needs the experience and knowledge of big interna-tional audit firms to carry out a wide range of services, including risk-based audit, due diligence, M&A, and internal controls, in a professional and proper manner.

On the other hand, the presence of foreign companies calls for the presence of auditors in Iran. And according to Iranian auditing regulations, the only authorised signatories of audit reports are Iranian partners of Ira-nian audit firms, who are also members of the Iranian Association of Certified Public Accountants.

This means that international audit firms cannot simply open a branch in Iran and have their internationally qualified employ-ees acting as auditors, unless they are Iranian nationals and Iranian CPAs. Such firms can-not even officially become partners of Ira-nian firms.

Based on this, the only way to have an active lawful presence in Iran is through an

Iranian audit firm with Iranian CPAs as part-ners.

Therefore, it seems that it would be easier for international networks of independent audit firms acting under one name to enter the Iranian market.

On the other hand, there are very few Iranian audit firms that may be suitable for partnering with international firms. Gener-ally speaking, the majority of Iranian audit firms are only involved with traditional audit services. There are only a handful of audit firms that have well-equipped information technology, tax and advisory departments, as well as staff with international qualifications to carry out professional advisory services.

Let me try to summarise the history of the largest international audit firms’ presence in Iran. PwC, the biggest audit firm worldwide, is probably the most popular in Iran, and this goes back to the pre-revolution presence of Coopers & Lybrand in our country. In 1978, Coopers had 800 staff members in its office in Tehran. If I remember correctly, their Teh-ran office was the fifth largest office interna-tionally. To put this in perspective, 36 years later, Azmoon Pardaz Iran Mashhood Audit firm (currently the biggest private audit firm in Iran) has less than 300 professional staff. To the best of my knowledge, PwC has not yet made an agreement with an Iranian firm to become a member firm in Iran.

Deloitte, the second biggest audit firm, has never had an official presence in Iran, although it has previously entered into con-tracts for rendering services in Iran. Consid-ering that nearly 45% of Deloitte’s revenue is from the USA, and given the poisonous political atmosphere between the USA and Iran, it seems unlikely in the short term to see Deloitte entering the Iranian market.

Tadvin & Co. used to be EY’s Iranian member firm, so it is the likely candidate for EY in Iran.

Bayat Rayan Audit used to be KPMG’s Ira-nian member firm. There have been rumours that KPMG has contacted other firms to explore possible membership opportunities.

BDO, the fifth biggest audit firm world-wide, has not had a presence in Iran for 35 years. BDO, unlike the Big Four, doesn’t have regional firms, but is a network of independ-ent audit firms.

Considering the aforementioned legal aspects, I believe that BDO has a more suita-ble structure for conducting business in Iran. As far as I know, BDO has also had talks

with Iranian audit firms.Grant Thornton also had a member

firm, Raymand & Co, before the sanctions. Despite news of Grant Thornton communi-cating with some Iranian firms, I think their most likely candidate is Raymand & Co.

I must raise an important point for big audit firms who are seeking entry into the Iranian market. Although it is true that sanc-tions related to nuclear disputes have been lifted, Iran is still under other USA-imposed sanctions, which may result in complex issues.

According to these sanctions, USA com-panies or companies with USA employees need general or specific licenses from the Office of Foreign Assets Control (OFAC) in order to operate in Iran. To my knowledge, so far, none of the big six international audit firms have been successful in attaining these licenses.

However, according to some sources, things may change in April or May 2016. Naturally, until then, nobody expects official announcements from any firms regarding an introduction of their members and the start of activities in Iran.

International Accounting Bulletin: In light of the recent deal, are Iranian professionals optimistic? What challenges and opportuni-ties do you foresee for your firm and Iranian firms in 2016/2017? Vafadar: After a long period of isolation, entrance of foreign investors and internation-al audit firms to the relatively intact Iranian market provides numerous opportunities for mutual benefit.

It will definitely revolutionise the field of auditing and accounting in Iran, and will bring prosperity to many firms active in this sector.

However, the challenges Iranian audit firms are facing in order to adapt to the inter-national professional standards are serious.

They need to meet the expectation of their clients on assurance, advisory and tax ser-vices with respect to the standards.

Obviously, the Iranian firms which become member firms of the big international audit networks will have a much more important role to play in this emerging and competitive market.

Overall, these are exciting times for our profession in Iran and we are looking for-ward to re-engaging with international part-ners. <

IAB 560.indd 10 05/04/2016 12:08:31

Legend has it that the border of the Brit-ish protectorate of Transjordan was messily drawn on a map by Winston Churchill after a liquid lunch. Church-

ill himself, in his characteristically grandilo-quent style, said he had created Transjordan “with the stroke of a pen, one Sunday after-noon in Cairo”.

The Sunday afternoon in question took place in March 1921 at the Cairo Confer-ence (with Churchill as the newly appoint-ed Colonial Secretary), where the UK and France sealed their areas of influence in the Middle East as the Ottoman Empire was taking its last breaths. Whether or not the story is true, the Cairo Conference defined the Middle Eastern region as we know it now. It was agreed that Syria and Lebanon remained under French control. The UK was to administer Palestine and support the establishment of a Jewish state. East of the Jordan Valley, King Hussein and his four sons were to begin one of the most important lineages of the 20th century, the Hashemites. They ruled over Transjor-dan (now Jordan), Iraq, and Saudi Arabia, while under British influence. This flashback might in part explain the cur-rent differences in fortune of each of these

countries. While the sub-region of the Gulf grew on the back of oil extraction, the sub-region of the Levant has strained with politi-cal instabilities and armed conflicts.

As a result, today there is a polarised Mid-dle Eastern region, with the countries of the Gulf Cooperation Council (GCC) on one side and the rest of the region on the other. As Crowe Horwath International EMEA director, Bernard Delomenie says: “Leaving Turkey aside, there are two building blocks in the region: The Levant and the Gulf, then you have Iran, Egypt and Israel. So the Middle East per se doesn’t really exist as an homogenous region, but is more an amalga-mation of the Gulf, The Levant and other countries.”

The LevantDelomenie explains that because of the polit-ical situation, the Levant is the most difficult part of the region to conduct business. “All of our offices are impacted by the instability, nevertheless, we continue to have a signifi-cant amount of work, particularly from the not-for-profit sector,” he says, admitting that without not-for-profit it would be difficult for Crowe Horwath International to remain in countries like Syria, Iraq or Palestine.

In Syria, there are no more economic enquiries, Delomenie continues. “But, we do get some in Iraq, and here we have to sepa-rate the Kurdish part of Iraq, even if it is not a recognised state, from the rest of Iraq. We have more demand from the Kurdish part of Iraq.”

Failing statesThings do not look promising for Iraq and Syria. Anders Heede, BDO EMEA CEO, says that his organisation may even stop considering those markets. “Syria and Iraq are two states that are failing or that have failed. There are tremendous security issues, and tremendous consequences for the popu-lation…it is a really sad story,” he says, add-ing that for the time being, BDO’s clients are avoiding those countries. “The big ques-tion is what is going to happen in Iraq: is it going to remain one country or is going to be divided in three between North (the Kurdish part), Centre and South?”

Heede acknowledges that there is no desire from neighbouring countries to see a Kurdish state emerge, but BDO is seeing opportunities in the Kurdish region. “It is the most stable region of Iraq and we are seeing an interest from both Middle Eastern


SURVEYInternational Accounting Bulletin MIDDLE EAST

An elusive Middle EastFrom Churchill’s Sneeze to falling oil prices and countries that don’t want to be associated with each other, the Middle East seems more like a malleable region than a coherent grouping of countries. Nevertheless, despite political and economic instabilities and diplomatic intrigue, accounting firms make the most of the opportunities. Vincent Huck reports.

Contributor: Athos Fouttis, UC&CS EMEA, president

Bahrain has made great efforts to diversify its economy; its highly developed communication and transport facilities make Bahrain home to

numerous multinationals with business in the Gulf. As part of its diversification plans, Bahrain implemented a Free Trade Agreement (FTA)

with the USA in August 2006, the first FTA between the USA and a Gulf state. Bahrain’s economy, however, continues to depend heavily on

oil. In 2014, petroleum production and refining accounted for 77% of Bahrain’s export receipts, 87% of government revenue, and 19% of GDP. Other major

economic activities are production of aluminium (Bahrain’s second biggest export after oil), finance and construction. Bahrain competes with Malaysia as a

world centre for Islamic banking and continues to seek new natural gas supplies as feedstock to support its expanding petrochemical and aluminium industries.

Despite the challenging external and internal environments, Bahrain has maintained economic resilience and continues to be a regional leader in economic

freedom. It remains a financial hub for dynamic economic activity, with high levels of trade and investment bolstered by a competitive and efficient regulatory

environment. Bahrain has an open economy and its currency, the Bahraini, is the second strongest unit in the world. Since the late 20th century, the country

has invested heavily in banking and tourism. With a very successful financial industry, many large financial structures exist in Bahrain’s capital, Manama.

Bahrain’s political scene will remain unstable from 2016 to 2020 as protests against the rule of the Al Khalifa royal family continue. The government will

maintain a hard-line in dealing with unrest, and intermittent efforts to pursue dialogue with the opposition are unlikely to make meaningful progress in the

short term. Economic growth will slow further in 2016, from 2.7% in 2015, as lower oil prices hit government and private consumption. The services sector

will remain vulnerable. Despite the challenging external and internal environments, Bahrain has maintained economic resilience and continues to be a regional

leader in economic freedom.

Bahrain

IAB 560.indd 11 05/04/2016 12:08:32

and Turkish firms,” Heede says, adding that it remains a high-risk region, both politically and to some degree, in terms of security.

“But the political situation between Tur-key and northern Iraq is rather friendly,” he continues. “They have some sort of de-facto independence in Iraq and enjoy this situation to develop their region economically with-out being any threat to Turkey. There are many Turkish companies within construc-tion, energy and smaller businesses active in northern Iraq.”

As a result of the security issues and politi-cal instability, opportunities for account-ing firms in most of these countries are in non-statutory work. “We see opportunities, mostly in the advisory area, including all tra-ditional business services like accounts and payroll,” Heede says. “It’s not big businesses, it’s small operations, but it is clients we want to serve wherever they go.”

Lebanese hubLebanon, on the other hand, is a country with a broader market base. According to Delomenie, there are opportunities in all ser-

vices and sectors in Lebanon. Mazars partner Loïc Wallaert shares this

thought and explains it as a consequence of the Syrian crisis. “A lot of Syrians went to Lebanon, and therefore the activity is quite extensive because so far it is safer than it has been in the past,” he says. “So the Lebanese economy is picking up.”

Indeed, Damascus is only 85km flying dis-tance from Beirut (around 140km driving distance). Therefore Lebanon provided an exit route for Syrian refugees. Regardless of the recent crisis, Syria has always played an important part in Lebanon’s internal politics. It has traditionally seen its smaller neighbour as part of greater Syria; an inheritance of the Ottoman Empire. And, throughout the Leb-anese civil war, Syria sent troops and occu-pied part of the country. Another regional giant, Iran, also impacts Lebanese internal politics as it helped create and supports the Hezbollah.

In this context, Heede gives a more con-trasting view of the current Lebanese market. While it has always been an interesting mar-ket with a historically strong financial sector, he sees the political situation as unstable. “There has not been a president for more than a year, and we’ve seen stories in the news about garbage littering the streets for months which has only just started to be removed,” he says. “Business-wise, Lebanon has for many years been a hub in the region and our Lebanese firm is doing well, but it is a challenging situation for all.”On the other end of the spectrum, the Gulf region is a more stable business zone for accounting firms.“The Gulf is the opposite of the Levant,” Delomenie summarises. “With the excep-tion of Yemen, which is in a crisis, we had a record year and we are working very well in every country.”

A particular trend that has had an impact on the entire Middle Eastern region, but more particularly on the GCC countries, is the drop in oil prices. The price of Brent crude has fallen by 43% to $52 per barrel in the year to mid-October 2015, before falling a further 45% to just $28 per barrel in mid-January, according to ICAEW’s Economic Insight: Middle East, Quarterly briefing Q1 2016.

This fall in oil price has had a strong impact on Gulf economies, and has led to an interesting trend. “Because the governments were raising a lot of money through oil pro-

duction, they have to think again about how to fund their projects,” Wallaert explains. “With some new thoughts on the way they deal with tax. For example, the UAE has introduced a new VAT system.” As a result, tax opportunities for accounting firms are flourishing, be it in tax advice, tax audit, transfer pricing or tax law.

At the same time, Wallaert continues, pri-vate finance initiative (PFI) projects are pick-ing up in the Gulf. “Because the financing is becoming scarce, PFI projects are clearly growing, and there is an increased demand for accounting firms.”

Region-wide due diligence work has slowed down in the last year, according to Wallaert. “Most people from outside the region are waiting to see how the situation evolves before investing,” he says. “Even though some people see the market condi-tions as a good opportunity to invest at a low price, there are still transactions, but less than in the past.”

IranAside from oil prices, the big topic in the region over the last few months has been the renewed dialogue between Iran and the USA. In January, a nuclear deal was made, and the western sanctions on Iran were partly lifted. “Iran is a very interesting market given the size of its population and its economy,” Heede says. “And we are seeing many cli-ents looking into the Iranian market as there are investments to be made, in particular in infrastructure and industry sectors.”

Delomenie and Wallaert share this opti-mism, and explain that the number of inquir-ies with regard to Iran is increasing by the day.

SURVEY International Accounting BulletinMIDDLE EAST


Contributor: Athos Fouttis, UC&CS EMEA,

president

Economic growth in Egypt slowed to 3% in the

first quarter of FY16. This was driven by a large

drop in exports due to faltering activity in the

tourism sector amid persistent security concerns.

Recent indicators suggest the situation remains

difficult. However after years of political upheaval

left its economy in tatters, Egypt has made pro-

gress in restoring confidence.

Recent policy choices include measures designed

to introduce more dynamic investment and

spur much-needed private-sector job creation.

The reform of fuel subsidies has been a notable

achievement, and Egypt’s vital tourism industry

has begun to revive. Another big advantage is a

well-diversified economy.

Amid continued terrorist attacks, the tour-

ist industry is reviving, and there are signs of

increased investment and economic growth.

Moreover, major exports comprising natural gas,

non-petroleum products (petrochemical prod-

ucts, pharmaceuticals, medical, retail clothes, cot-

ton textiles, citrus fruits, rice, wheat, maize and

dried onions) and more recently ceramics, steel,

cement, cars, and car spare parts are expected to

be increased in the short and medium term.

Egypt

Heede, BDO

IAB 560.indd 12 05/04/2016 12:08:34



“It is amazing. Everybody is looking to go back to Iran, and if you look at flying to Teheran, planes are fully booked,” Wallaert says. “At this stage it is only on an explora-tion basis on how to set companies, looking for partnerships, or trying to acquire busi-nesses.”

Since the nuclear deal, Heede continues, there has been an increase in the number of trade delegations visiting Iran. “However, it is still a very complicated situation, because there are still some strong USA sanctions in place,” he warns. “So a lot of work is going into understanding what you can do and what you cannot do, and then you have the USA election coming up, which, depending on how that ends up, may change the pic-ture.”

Despite the sanctions, over the years Ira-nian firms have developed informal ties with international networks and associations, as revealed by our sister publication, The Accountant, last year. However, with the nuclear deal, the question is—when will these ties be formalised? International Account-ing Bulletin understands that amongst the Big Four, PwC and EY are nearing a formal announcement.

A PwC spokesperson said: “PwC is moni-toring developments in Iran closely and sup-ports the goals of the Joint Comprehensive Plan of Action. […] Certain PwC member firms are assisting international clients who are considering business opportunities with Iran and evaluating potential opportunities to begin operations there.”

Similarly an EY spokesperson said: “EY is working closely with clients to support their commercial interests in Iran, consistently with applicable laws and regulations.”

Wallaert predicts that in the coming months a lot of networks will make their presence in Iran official. However, for Heede, there are two things holding international firms back: first, the outcome of the USA election and the USA’s international policies post-election, and second, the ‘snap back’ provision in the nuclear deal which could see sanctions return if Iran were to break the terms of the deal. “This means that if you’ve done an investment, its value could drop tre-mendously and very quickly, which explains the cautious approach by firms.”

An odd neighbourAnother country that is set apart in the region is Israel. For most accounting net-works and associations, Israel is grouped under ‘Europe’, and while the Israeli market is more geared towards the USA, one can’t ignore the country’s location. Israel’s geo-graphical situation and relations with its neighbours have played a huge role in the region’s history. Heede describes the Israeli market as extremely innovative and dynam-ic, but the security issues are never far from economic players’ minds.

Ariel Zitnitski from Israeli firm Zitnitski Weinstein & Co. (Morison KSi) says that due to the similarities in market structure and regulation it is easier to work with the USA or Europe, rather than in the Middle East.

Nevertheless, while acknowledging ten-sions between Israel and its neighbours, Zit-nitski says there is a certain level of business activity between his country and Egypt as well as with neighbouring Jordan.

When asked about Palestine, he says: “I can’t give specific details, but there are a lot of companies in Israel that have subsidiar-ies in Palestine. Because of regulatory differ-ences they can’t do it directly from Israel and have to set up operations in Palestine. But the businesses are working together and money is transferring from one side to the other.”

Zitnitski recognises that there is huge busi-ness potential in the Middle East, and that better relations between Israel and its neigh-bours could help fulfil this potential.

Looking forward, all interviewed firm leaders name security and stability as pre-requisites if the region were to flourish from a business perspective. All are optimistic, as they see their member firms perform well in the face of adversity, but they know that the Middle East still has much to offer were it given the right circumstances. <

Iraq

Contributor: Mohammed Khattab, PKF Iraq,

chairman

Two major incidents affected Iraq in FY15:

1. Baghdad–Erbil oil agreement: Both

governments of Iraq and Kurdistan agreed that

the Kurdistan Regional Government (KRG) shall

supply the government of Iraq through its State

Oil Marketing Company (SOMO), with 550,000

barrels per day. In return, KRG would receive

17% of the federal Iraqi budget from SOMO.

Both parties have not met their obligations. Nev-

ertheless, the Iraqi government insisted that KRG

is solely responsible instead of admitting that it

suffers an acute cash flow problem. All the above

resulted in a decrease in the amount of oil market-

ed through SOMO from KRG, which at the same

time increased KRG’s independent oil export.

2. The double shock of ISIL insurgency

and the drop in oil prices: Considering Iraq’s entire

economy is dominated by the country’s income

from oil exports, the impact of these two incidents

on the economy was enormous and explained that

the main focus of the government was on:

• Funding the military operations

• Rebuilding the areas liberated from ISIL

• Increasing the oil production capac-ity regardless of market volatility.

As a result, all sectors of activity were affected.

Continued decrease in oil prices along with the

unpredictable end of the war on terrorism shall

lead into challenges more than opportunities for

all sectors including accountancy.

The Iraqi accounting market has reemerged, but

its early stages of maturity were cut short in June

2014 with the resurgence of terrorism. As a result,

clients require the minimum from accountancy

firms, and services are limited to external audit,

rather than internal audit, bookkeeping, financial

consulting.

In the short and medium term and due to the

political situation in the country, the economy is

expected to continue to suffer with no expectation

of growth. Nonetheless, in the long term and if

the political situation stabilises again, given that

Iraq is a country with numerous resources, the

economy can rejuvenate.

It is also worth mentioning the removal of sanc-

tions on Iran. Not only because of its effects on

the Iraqi oil exports, but also on the foreign direct

investments. Iran is a very similar country to Iraq.

However, Iran is more stable and has a “new and

shiny” appeal which makes it a more enticing

investment environment.

Delomenie, Crowe Horwath

IAB 560.indd 13 05/04/2016 12:08:35



Israel

Contributor: Ofir Angel, Angel

Group (ANTEA), senior partner

An important recent legislative

advance in Israel is voluntary dis-

closure, which enables asset owners

who conceal their assets abroad to report to the

Israel Securities Authority anonymously and avoid

a criminal offender status with the tax authorities.

In terms of regulation of money laundering, law

enforcement within banks and the stock exchange

has intensified. Registration is required from

financial institutions, and there are follow-ups

on any irregular activity or suspicion of money

laundering. Additionally, all individuals leaving

and entering the country with money exceeding a

specified limit are reviewed. Together, the Double

Taxation Treaty and the Automatic Exchange of

Information (AEOI) reduce the possibility of tax

evasion and improves voluntary disclosure pro-

cedures.

I think there are four main highlights in the

accountancy market. First, a popular phenom-

enon in the Israeli accounting market is mergers

of large firms with smaller ones. Since the market

is relatively small there is a huge competition, big

accounting firms are looking to merge in order

to scale up and enter new sectors. Second, is a

reduction in bookkeeping and auditing services

as a result of the digitisation of these services.

Third, taxation is problematic because internal

legislation has become more complicated and

international trade is developing fast. Last, online

marketing for accounting firms has become more

popular, and clients are looking online for service

providers.

My expectations for the future: business and tax

consulting services will continue to grow; book-

keeping and auditing processes will continue to

become digitised, and will require fewer profes-

sional personnel; in the next five years, interna-

tional and online trade will have a more significant

role in the market; accountants will be expected to

offer more complex solutions.

Contributor: Yaron Saporta, Saporta Penn Chen

(GMN International), managing partner

Economic growth in Israel in 2015 was minor,

however the yearly change in the Israeli Con-

sumer Price Index was approximately 0.5%.

The increase in income from governmental taxes

reduced the national budget deficit to a yearly rate

of 2% of GDP. This increase in income came from

tax on real estate, which increased by 54%.

The Israeli stock exchange was affected by the

difficulties in the global market. Only few sectors

had a positive exchange rate. Accounting firms

fees are decreasing, and the accountancy profes-

sion in general is subject to a decrease in popular-

ity among students.

There have been several major changes in tax

rules and regulations. A major reform in the code

of Israel Money Laundering and Terror Financ-

ing Prohibition has had an impact with respect

to CPA’s work. There is a new requirement for

authentication of particulars and documents for

services rendered by lawyers and CPAs. The new

requirement on lawyers and CPAs is with respect

to services of establishment of corporations, busi-

nesses or trusts on behalf of clients; there is a vol-

untary disclosure procedure extension until 30

June 2016.

In terms of economic reorganisation between

2015-2016, there have been updates within Israeli

legislations: the reduction of the VAT rate from

18% to 17%; a reduction of the tax pension limit

with respect to salary limit (2.5 times of the aver-

age salary instead of 3.5); the addition of an extra

year to limitation of yearly tax assessment; an

increase in regulation for online reporting to tax

authorities; and a decrease in tax rate for corpora-

tions from 26.5% to 25%.

The ranking of the 10 largest accounting firms in

Israel has remained unchanged in 2015. In recent

years, accounting firms have clearly diversified

their offerings to clients. In the future, I expect

accounting firms to develop in terms of digitisa-

tion as well as widen their scope of activities to

add more services.

Contributor: Ariel Zitnitski, Zitnit-

ski Weinstein & Co. (Morison KSi)

Looking at recent years, there are

some promising signs within the Israe-

li economy. A recognised current trend is increased

private equity investments. The low interest rates

in markets around the world are pushing more

private equity for capital investment. We can see

that private equity drives Israeli tech forward and

we will feel the effects of this process in a few

years. One of the most significant changes is that

we have observed crowd funding platforms, and

understand the need to let the public get involved

in many fields. Although it began in micro finance

in underdeveloped countries, today it has spread

to every middle class household. That, in combi-

nation with low interest rates, allows all house-

holds to participate in new initiatives, and allows

more entrepreneurs to raise funds.

In light of these changes, one of the most impor-

tant roles of the accountant is to examine alter-

native options for his client. When the economic

situation does not seem stable, investments are

made for a better future, and accountants must

have the vision to look ahead.

Jordan

Contributor: Mohammed Khattab, PKF Jordan,

chairman

After the 2015 census, Jordan now has a publica-

tion that supports its claim regarding the impact

of the 1.4m Syrian refugees in the country. With

90% of those 1.4m Syrian refugees living outside

the dedicated camps and penetrating Jordanian

society, the economic impact has, according to

Jordan’s Prime Minister, incurred costs of over

$7bn since 2011. However, successful reforms

along with the global decrease in oil prices helped

strengthen trade lower inflation rates. The Central

Bank of Jordan (CBJ) reported a decrease in infla-

tion across the kingdom, with the consumer price

index (CPI) falling by 0.7% in the first 10 months

of 2015.

Given the country’s reliance on imported feed-

stock for virtually all of its power generation and

fuel needs, the decline in global energy prices has

yielded some benefits, particularly for Jordanian

industry. According to the CBJ, the industrial pro-

ducers’ price index (a figure that measures changes

in the selling price of domestic industrial output)

declined by 9.6% year over year in the first three

quarters of 2015, with a slump in refined oil prod-

ucts accounting for 10.7% of the decrease.

The government’s focus has been on renewable

energy, and several solar energy projects have been

announced. The government has also announced

several major infrastructure projects, especially in

Amman.

Local and international NGOs and donors have

announced several projects, initiatives and pro-

grams geared towards providing customised sup-

port for the growth of the micro small and medi-

um entreprises sector in Jordan.

The accountancy market has been highly affected

by the severe instability and turbulences in the

region, which has affected most industries. This,

with an increase in companies closing, has led to

more challenges than opportunities. Some of the

challenges that the accounting firms are currently

facing are:

1. High competition which has led to lower fees.

2. Due to fee pressure, the level of professionalism

has also declined, as firms are unable to afford

highly trained and professional practitioners.

3. This has led many professionals to look for

more stable jobs in industry.

The outlook for 2016 remains cautiously optimis-

tic. In the medium and long term, if the decline

in oil prices continues, this shall negatively affect

the Jordanian economy as numbers of Jordanians

working in the Gulf states might need to return to

Jordan, thus leading to an increase in unemploy-

ment.

IAB 560.indd 14 05/04/2016 12:08:36



Kuwait

Contributor: Nayer Nazar, Nazar and partners

(Nexia International), managing partner

In Kuwait, the accountancy and auditing profes-

sion is growing. The Big Four dominate market

shares, especially with regards to listed companies.

Most medium sized firms seek international affili-

ation to strengthen their positions and be more

attractive to clients. I expect a better future for the

profession in Kuwait with new laws coming in to

legislate foreign investors, VAT and income tax .

The New Direct Investment Law (Law No. 116

of 2013) was introduced to attract foreign invest-

ment in Kuwait by providing income tax and cus-

tom duty exemptions, in addition to other non-tax

benefits.

The Kuwait Direct Investment Promotion Author-

ity (KDIPA) in coordination with the Ministry of

Finance (tax department) has issued a detailed

mechanism for the granting of an income tax

exemption through its Decision No. 16 of 2016.

While the tax benefit was previously based on a

tax holiday (up to 100% of the taxable profits),

KDIPA has now linked tax benefits to the perfor-

mance of the investor and an assigned multiplier

factor (percentage/value). This mechanism also

provides for a 10 year tax exemption from the

effective start date of the operations. The deci-

sion also provides the process of qualifying as an

eligible investor/activity as well as the process for

obtaining an annual tax exemption certificate.

A series of amendments have been made to the

Capital Markets Authority (CMA) Law of

Kuwait, designed to help attract foreign inves-

tors. Key elements of the amendments surround

the ability of foreign investors to invest in securi-

ties traded in the Kuwait Stock Exchange (KSE),

the possibility of investment funds being listed on

the KSE, and added measures designed to increase

investor protection. The amendments also pre-

scribe criteria for Investment Portfolio Managers

(IPMs) and for diversifying portfolio investors.

One of the features of the CMA Law is a proposed

exemption from taxation on dividends for invest-

ing in funds and portfolios listed on the KSE effec-

tive from 10 November 2015.

However, as there is no corresponding amendment

under the Kuwait Income Tax Law, official clari-

fication is needed from the Kuwait Tax Authority

(KTA), along with related compliance procedures

(if any).

The KTA have started seeking information from

Kuwaiti companies listed on the KSE regarding

dividends distributed from 2008 to 2014 to Non-

Gulf Cooperation Council (GCC) foreign corpo-

rate shareholders to ensure that all tax related to

the above activities are collected before the exemp-

tion is applied as of 2015.

The government of the State of Kuwait has signed

an agreement with the government of the USA

for the improvement of the International Tax

Compliance and the implementation of FATCA,

which falls under the Model 1 Intergovernmental

Agreement (IGA). The IGA sets the definitions,

obligations (with respect to the USA reportable

accounts), timeline, implementation and enforce-

ment of compliance with FATCA, the mechanism

of communication and approach to difficulties/

conflicts.

On 9 September 2015, the Ministerial Order No.

48 of 2015 was issued, substantiating the IGA and

its annexures, in addition to highlighting action to

be taken by Financial Institutions before the year

ended 31 December 2015.

Contributor: Rabea Al Muhanna, Horwath Al

Muhanna & Co. (Crowe Hor-

wath International), executive

partner

As an oil producing coun-

try with very little eco-

nomic diversification, fall-

ing oil prices have had an

impact on Kuwait’s econo-

my. In FY15 and FY16, the

country is expected to record its

very first budget deficit in 16 years.

However, Kuwait still remains well positioned to

weather both lower oil prices and global volatility.

The high financial buffers are enabling increased

public investment in infrastructure, which is a key

factor expected to support non-oil growth in 2016

and beyond.

There have been several developments in 2015 on

the regulatory front. These include:

1. In November 2015, the Capital Markets

Authority (CMA) officially announced the new

executive by-laws, which introduce substantial

reforms to CMA’s executive by-laws and pro-

cesses. A clear and detailed timeline has now been

established to ensure a seamless transition to the

new regulatory framework.

2. The minimum capital requirements to establish

a business were significantly reduced, which is

likely to result in formation of more limited liabil-

ity companies as well as shareholding companies.

3. New FDI regulations were issued at the end of

2014 clarifying the 2013 Investment Law. These

executive regulations include efforts to reduce red

tape and lengthy procedures by establishing a one-

stop shop for licensing businesses.

Now that a clear timeline for the move to the new

regulatory framework has been established, we

expect that there will be increased opportunity for

strong accounting firms in Kuwait to support the

CMA regulated companies in governance risk and

compliance areas. The minimum capital relaxa-

tions are likely to result in the formation of smaller

entities such as limited liability companies, which

would result in more assurance services opportu-

nities.

Not much growth is expected in the short term

due to the current economic situation, which is

likely to last at least until the end of this year. With

the current Five Year Development Plan running

through to 2020, improved economic diversifica-

tion and regulatory reforms to attract investment

in place, prospects in the medium and long term

certainly look good.

Contributor: Hisham Sorour, Baker Tilly Kuwait,

managing partner

There are several key highlights in the region:

1. We have seen a dramatic fall in international oil

prices (almost $35/barrel), which has resulted in

economic contraction.

2. On the back of these falling oil prices, there is

an expected fall in GDP (it fell from KD47.8bn

in 2014 to 35.4bn in 2015).

3. In 2015 the economy saw 3.5% inflation, and

the first budget deficit (KD4.8bn) in almost 16

years.

4. The Kuwaiti Dinar weakened against the USA

dollar, retreating from KD0.292 to KD0.300

against the dollar.

5. To curtail expenditure, there was a reduction

in a number of government subsidies/incentives.

Some opportunities in the region:

1. Performing compliance engagements for clients

supervised by the CMA.

2. Participating as transaction advisors for pro-

jects specifically related to public private partner-

ships.

3. Promoting M&A transactions in Kuwait.

4. Extensive training and seminar requirements

with the governmental sector.

Some challenges in the region:

1. The adverse laws/regulations of the CMA.

2. Falling oil prices, which have resulted in an eco-

nomic decline.

3. Cut-throat competition within the accounting

and advisory domain.

4. A decline in quantity and quality of assignments

as a result of the economic decline.

5. Pressure on pricing levels.

In the short term, considering the present oil cri-

ses, I predict that this uncertain economic climate

will continue at least until the end of 2018.

In the medium term, I am optimistic that the coun-

try will sustain itself on the back of huge profits

and reserves, which were made in previous years

when oil prices were higher.

IAB 560.indd 15 05/04/2016 12:08:39



Lebanon

Contributor: Samir Hanna, DFK

Fiduciaire du Moyen Orient

There have been many highlights

and trends in the region:

1. Due to recent escalation of conflicts

in Syria, Iraq and Yemen, economic activities in

the region were destabilised, market confidence

weakened, posing significant threats over the

prospects of the countries in the region.

2. The drop in oil prices devastated the budgets

of many oil-exporting countries, forcing them to

cut down their budgets and to freeze (or cancel)

government spending projects. The price drop

should have seen the growth rate of the region’s

oil importers increase, and they should have saved

the profits from lower oil prices in order to reduce

their public debts. However, security problems

and overflow from regional conflicts have weak-

ened their promising recovery. Additionally, the

depreciation of the Euro against the USA dollar

significantly affected their competitive edge in the

international market.

3. Being an oil importer, the three main pillars of

the Lebanese economy (excluding government

spending) are: real estate and construction; tour-

ism; and the banking sector.

4. The country has been ranked by Euromoney

Group, in its quarterly country risk’s survey (4th

quarter 2015) at 122 out of 186 countries world-

wide, and 14 out of 22 countries in the Middle

East and North Africa (MENA) region.

5. According to Merrill Lynch, in 2015, Leba-

non had the 11th highest return on external debt

among 41 markets in Central and Eastern Europe

and the Middle East and Africa.

6. The construction sector had its own share of the

slowdown, so that in 2015 the number of newly

issued construction permits dropped by 9.3%

compared to 2014.

7. Tourism has also suffered, with a shy 2%

increase in 2015.

8. Lebanese banks continued to use deposit

inflows to subscribe to sovereign debts, which

is, according to S&P, a key credit risk for these

banks.

9. Overall, more than 600 days without a presi-

dent, and the turmoil in neighbouring countries

had detrimental effects on Lebanon.

Tax optimisation, governance, business ethics

and compliance with international and local reg-

ulatory requirements have always been priorities

to businesses in the MENA region. The negative

budget impact of the oil price drop has forced

many oil exporting governments to search for

alternative sources of finance (tax returns, indirect

taxes, public debt instruments issuance, etc.), and

to request more transparency in business informa-

tion as well as tighter regulatory compliances. This

has created an increasing need for businesses in

close door-to-door advisory services in terms of

tax planning, corporate governance and regula-

tory compliances.

Accounting firms in the region can play an impor-

tant role in delivering such services; they can help

clients to understand their fiscal, governing and

regulatory obligations and requirements, firms

can ensure that clients understand the options

available to them, and they can assist clients in

being as competitive and compliant as possible.

However, with the current turmoil in the region

and the slowdown in economic and business

growth, challenges facing medium sized account-

ing firms include the practicalities of charging

clients for these services, and the extent to which

clients are willing to pay for them.

In terms of expectations, keeping in mind that his-

tory has taught us that the economic cycle fluctu-

ates between periods of expansion and contrac-

tion. We believe that the current downturn in the

economy and the chaotic political and security sta-

tus in the region will come to an end. Ultimately,

businesses should regain growth and profitability,

and the need for tax optimisation, governance,

business ethics and compliance will gain greater

ground in the market. Until then, our aim is to

keep an eye on our clients, raise awareness for the

need for such services, and to continue to promote

our ability to deliver.

Contributor: Hisham El-Moukammal, Crowe

Horwath Professional Auditors, CEO

Since 2005, the Lebanese economy has been

driven by shocks rather than by global or regional

growth developments. The breakdown in the

political process and severe deterioration in gov-

ernment services are fundamental challenges to the

system in Lebanon. The country continues to be

beset by structural and infrastructural bottlenecks

(electricity, water, waste treatment, transportation

and telecommunications). The regional turmoil,

especially the war in Syria, poses serious security

threats in Lebanon. The Syrian crisis has displaced

millions of people, both within and outside Syria.

Lebanon is the neighbouring country most affect-

ed by the crisis. The inflow of Syrian refugees not

only strained already-weak public finances, but

also added pressure to the country’s infrastructure

and social fabric. According to the IMF, the Syr-

ian crisis caused the Lebanese poverty rate to rise

by 4% to 32%, and led to a 50% growth (since

2011) in the workforce. This widened the income

gap, as Syrian refugees accept lower wages than

Lebanese workers.

Real estate, construction, finance and tourism

have been the traditional drivers of economic

activity in Lebanon.

Since these sectors are neither labour intensive nor

attract lower skilled and cheaper foreign labour,

growth does not adequately generate employment

for Lebanese nationals. This structural labour

market weakness is changing the socio-demo-

graphic fabric of the country. Educated Lebanese

seek employment in countries with a demand for

highly skilled labour, which creates a diaspora;

meanwhile, non-Lebanese dominate the unskilled

labour market, pricing out the nationals.

Almost all economic sectors grew at a slower pace

in 2015. The performance of the country’s agri-

cultural and industrial sectors remained below

potential in 2015.

The real estate and construction sectors also wit-

nessed a slowdown, with declines in a number

of aggregates, namely property transactions and

their value, sales operations, cement deliveries and

construction permits.

Shy signs of improvement within tourism have

been seen, especially during the summer months.

However, it remains well below its level prior to

the regional turmoil.

Lebanon’s strong financial sector is the outcome

of prudent regulatory structuring and effective

supervision. The country’s banking sector has

positioned itself as a safe haven in the region dur-

ing times of crisis, and has consistently attracted

inflows from the MENA region. The financial

market continued to operate solidly, and the Leba-

nese pound money supply saw healthy expansions

in 2015, while certificates of deposits in local and

foreign currencies were on market players’ radars.

Despite a morose economic background, confi-

dence remained anchored in the banking sector. In

2015, Banque du Liban (BDL), the Lebanese cen-

tral bank and monetary authority, issued several

circulars that were instrumental in strengthening

the confidence in Lebanon, as well as the country’s

reputation. As part of its modernisation plan, BDL

has established two new units: the Financial Sta-

bility Unit, who monitors the financial sector in

Lebanon in order to avoid any likely crisis; and

the Consumer Protection Unit, which ensures that

banks deal fairly and transparently with all cus-

tomers. In 2015, BDL activated the Capital Mar-

kets Authority (CMA).

The CMA is an independent autonomous regula-

tory authority, with a wide mandate, ranging from

supervision of market players to licensing and reg-

istering individuals and institutions. The CMA has

two main aims:

• To promote and develop the Leba-nese capital market

IAB 560.indd 16 05/04/2016 12:08:39



Oman

Contributor: Percy Bhaya, PKF Oman, managing

partner

The Oman economy is heavily dependent on oil

prices, and revenue from oil and gas constitute

about 82% of the government revenue (according

to the government budget estimate). In approxi-

mately one year, oil prices dropped significantly –

from hovering around USA$120 per barrel, to $35-

40 per barrel now. Consequently, there has been an

overall slowing in economic activity in Oman. After

the shock of the oil price drop, the Omani govern-

ment has been trying to diversify the economy, and

is planning to relax rules and regulations governing

foreign investments in order to promote investment.

The government is also planning to introduce VAT

in 2017/2018. This will enable accounting firms to

have one more vertical in their portfolio. Our main

challenge is that, consequent to the slowdown, the

business environment is currently going through a

depression. Most oil experts predict that this will

continue for the next two to three years. The long

term will depend on oil and gas prices, as well as

how successful the efforts to encourage foreign

investments have been.

Contributor: Davis Kallukaran, Crowe Horwath

Oman, managing partner

The downturn in oil prices has affected all Mid-

dle Eastern countries that are highly dependent on

oil, and Oman is no exception. The huge reduction

in oil price was a real shock to an economy where

oil and gas contribute about 50% to the GDP. In

response to this challenge, the Government of

Oman has taken drastic measures by discontinu-

ing fuel subsidies for local consumption. It has also

proposed to increase the income tax rate from 12%

to 15%. At the same time, in order to diversify the

economy into a non-oil dependent country, Oman

has embarked upon various development measures

to inject growth into the economy and to create

employment for its younger generation.

As part of the sultanate’s efforts to reform certain

long-standing corporate governance practices of

companies that are seen as inhibiting growth and

shielding boards of directors from accountability to

shareholders, the Capital Market Authority (CMA)

issued a new Code of Corporate Governance effec-

tive from 1 July 2016, for all public joint stock com-

panies listed on the Muscat Securities Market .

The regulatory changes introduced by the Central

bank of Oman, the capital market authority and

the income tax department have brought about

a plethora of opportunities for accounting firms.

The mandatory requirement, for entities having

a loan facility of RO250,000 from a single bank

or RO500,000 from all the banks put together, to

submit audited IFRS compliant financial statements

• To protect investors from fraudulent activities by issuing regulations that are in line with international finan-cial markets best practices.

BDL is preparing to launch an electronic trading

platform in the first half of 2016, which will be

operated by the private sector. This platform will

create liquidity for start-ups and start-up funds,

but also for other financial instruments, shares

and debt instruments from both public and pri-

vate sectors. The CMA will supervise and regulate

this platform. It will be connected internationally

and the Lebanese diaspora could invest through it,

knowing that it is reliable.

BDL placed additional focus on targeting the

knowledge industry. Lebanon’s highly qualified

human capital is able to effectively turn innovative

ideas into successful businesses, creating room for

new employment opportunities. BDL accordingly

issued Intermediate Circular 331 to encourage

Lebanese banks to invest in equity capital for start-

ups, incubators, accelerators and other companies

working within the knowledge economy.

On November 24, 2015 the Lebanese Parlia-

ment ratified four important laws: declaration of

amounts of carried cash at the border (Law 42),

exchange of tax information (Law 43), fighting

money laundering and terrorist financing (Law

44), and Law 53 on the international convention

for the suppression of the financing of terrorism.

During 2015, The Lebanese Minister of Finance

ratified a decision to cut taxes on profits gener-

ated from Lebanese industrial exports by half. The

exclusive beneficiaries from this tax cut are com-

panies that manufacture their goods locally for the

sole purpose of exporting, This decision came in

light of the Ministry’s efforts to support the Leba-

nese industrial sector amid challenges, to enhance

the competitiveness of Lebanon’s industrial prod-

ucts, and to attract new investors to Lebanon’s

manufacturing sector.

As an outcome of the UNDP project with the

Ministry of Economy and Trade, which aims to

provide support in the planning, formulation and

implementation of sound trade and economic

policies, Lebanon is in the process of revising and

amending its Code of Commerce.

Lebanon has begun the process of joining the

WTO, and the designated committee has prepared

all necessary technical issues, published the nec-

essary legislations, and have carried out meetings

regarding this issue.

Regardless of the rate and type of change, econom-

ic success will always depend on reliable, relevant,

timely, and consistent information.

The challenges for accounting firms in the mar-

ket are: standing out in a crowded market; using

technology to reduce manual processes; offer-

ing new services; improving marketing & client

acquisition; having a clear business plan and value

proposition; retaining talented employees; keeping

fees and profitability up; gaining clients that are

prepared to pay for quality accounting services;

achieving this with minimal time investment from

partners, owners and managers, effectively using

social media to network; and developing policies

and procedures in compliance with the legal and

ethical obligations and regulations.

The opportunities for accounting firms in the

market are: consulting; fraud detecting and pre-

vention; and information assurance.

The accounting profession industry is constantly

changing. Our expectations for the medium term

are:

1. That fee pressures and rising staff labour costs

will force us to carefully examine the mix of servic-

es, industry concentrations, and our positioning in

the marketplace relative to the technical/consulting

resources and competition.

2. That career development and leadership train-

ing will continue to grow as the need for quality

professional staff at managerial and partner levels

turns into a crisis. We invest heavily in our best

and brightest in order to remain competitive and

develop succession plans.

3. To develop a comprehensive vision compatible

with the work program that includes all the pro-

cedures and steps required, the timetable and the

transitional period for the application of the inter-

national accounting standards for public sectors.

3. To start applying international accounting

standards for public sectors, by providing profes-

sional human resources, information technology

equipment and software.

4. To create an integrated and reliable internal con-

trol system at all business levels, from the board

down to the other units in the company/organiza-

tion.

Lebanon

El-Moukammal, Crowe Horwath Professional Auditors

IAB 560.indd 17 05/04/2016 12:08:42



Palestine

Contributor: Jamal Abu Farha, Al Shayeb Audit-

ing & Accountancy (GGI)

Palestine has been aiming towards more sustain-

able economic development in the past few years,

and efforts are being made by the Ministry of

National Authority to promote investments in

Palestine.

The Palestinian Investment Promotion Agency

was founded to facilitate and promote investments

in Palestine.That, in addition to the emergence of

new industrial zones (especially in the Bethlehem

Governorate), has encouraged business owners to

take the next step towards expanding and invest-

ing in new businesses.Also, real estate has been

on the rise in the past few years, and more invest-

ments are being made in construction all around

Palestine.

Accounting firms are facing a very dynamic mar-

ket in Palestine, which is constantly changing and

adapting to the needs of economic development.

On one hand, many millions of dollars are being

funded through donor countries and institutions,

which create a growing demand to provide state-

of-the-art assurance and evaluation services to

satisfy donor needs.

On the other hand, private businesses and invest-

ment opportunities are also on the rise, creating

new business opportunities and pushing busi-

ness service providers to enhance the quality of

their services and the qualifications of their staff.

On another level, the Palestinian Association for

Certified Public Accountants has been pushing

accounting firms to comply and adopte interna-

tional standards.

A realistic diagnosis of the Palestinian economy

suggests a rise in investments, start-up businesses

and an expansion of industries as the most strate-

gic tools of sustainable development.

The emergence of initiatives that call for investing

in Palestine evidently supports this vision.

An example is the Invest Palestine Initiative, which

is a private company aiming to encourage and

facilitate investments in Palestine from its diaspora

community worldwide.

Such initiatives mean accounting firms are looking

into a market expansion, where the professional

services of accountancy, assurance, and tax advis-

ing are on the rise to satisfy the needs not only

of local businesses, but also foreign, international

and diaspora interests in the Palestinian economy.

Qatar

Contributor: Basel Abusalah, Basel Abusalah & Partner (Nexia), managing partner

Qatar’s economy grew by 7% in 2015, a comparable growth rate to 2014 when it grew by 6.5%.

Despite the slump in oil prices, and the country’s reliance on oil and gas, Qatar’s economy will be pow-

ered by major infrastructure projects, including the building of a new city at the location of the 2022

football World Cup final, a rail network ($36bn) and a mega-reservoir project ($2bn). Qatar has set up

the National Vision 2030 project, which will see continued spending past the World Cup to create an

economy that will deliver a high standard of living for its citizens.

The continued spending will also mean an increased labour market as new jobs are created in construc-

tion and other sectors.

Earlier this month it was announced that Qatar’s population has exceeded 2.3m.

There are several challenges in the Qatari market:

1. The audit fees pressure

2. Most of the biggest enterprises and corporations usually work with the Big Four audit firms.

3. Qatar’s market is too small for having a large customer base.

In terms of the future, a major bank has recently reported that super-rich Qatar will withstand plummet-

ing global oil prices and its economy will expand by almost 7% in both 2016 and 2017.

Contributor: Athos Fouttis , UC&CS EMEA, president

Petroleum and natural gas are the main sectors of Qatar’s economy and are responsible for more than

70% of the government’s revenue, over 60% of the country’s GDP, and roughly 85% of export earnings.

Oil reserves should ensure continued output at present levels for the next 23 years. Furthermore, there

are natural gas reserves (the third-largest in the world), and export and production of natural gas are

becoming increasingly important. Long-term goals involve the diversification of the economy and the

development of offshore petroleum.

Continued from page 17 within four months

of their year end, has given accounting firms tre-

mendous opportunities. However, to complete

the audits within four months of the year-end is

challenging, especially since there is a mandatory

requirement that firms should have not less than

50% Omani staff.

The skillset of the local population is far below

expectations, and audits tend to be costly. There

is also a mandatory requirement that all the listed

companies should have a yearly internal audit

function. However, the listed companies with

RO5m or more should have their own in-house

internal auditors. Yet another opportunity is the

stipulation for all listed companies to have poli-

cies and procedure manuals in all the major areas

of operation.

In the long run, Oman should do well upon com-

pletion of current infrastructure developments in

developing new express highways, seaports and

airports.

The country’s development into a tourism desti-

nation is still in the offing. Oman is also invest-

ing heavily in developing the skillset of its people,

which should meet the Omanisation targets for

certain industries. Lately, Oman was instrumen-

tal in brokering a deal for lifting western-imposed

sanctions on Iran. With the opening up of Iran, it is

expected that Oman will find favour with Iranian

investment on a large scale.

Oman

Farha, Al Shayeb Auditing & Accountancy Kallukaran, Crowe Horwath Oman

IAB 560.indd 18 05/04/2016 12:08:44



Saudi Arabia

Contributor: Ibrahim Albassam, PKF AlBassam & AlNemer, managing partner

Since the Capital Market Authority decision, at the end of November 2014, to ban Deloitte from providing external audit services to listed companies, the

remaining three firms of the Big Four and other mid-tier firms have significantly increased their fees and market share. PwC was an exception: they appear to

be uninterested in assuming new audits of listed companies, presumably because their Mobily case is still pending CMA decision.

The main gainers for volume and market share were KPMG, BDO, Grant Thornton, EY and PKF. (See table)

Gains for KPMG, BDO and Grant Thornton were also huge in the non-listed entities, while EY opted to increase its fees and clean up its portfolio of clients.

The profession is facing huge criticism from the public and from regulators. The Ministry of Commerce and Industry will soon adopt the new Companies

Law, which includes harsh measures for auditors, board members and management in cases of non-compliance, and is eyeing the use of Articles 211, 212 &

213 of the new law to punish wrongdoings.

A combined effort by the regulators, CMA, MOCI and SAMA (the central bank), will

result in higher demand for auditing services, yet disciplinary actions will also result in

pushing fees higher.

Saudi Arabia is in the process of adopting IFRS, with full adoption for listed companies

planned for 2017 and adoption for non-listed companies planned for 2018. This has

resulted in many opportunities for accounting firms. KPMG in particular has been the

main gainer in winning new contracts in this area.

The CMA is expected to articulate a supervising body similar to the PCAOB, but no

timetable is known. VAT will be implemented in 2017 or 2018, and will add an additional

layer of revenue to the profession.

Change is yet to come as the main gainers have taken on lots of business, but, bearing

in mind the lack of qualified and experienced human resources (and the work permits

dilemma over the last ten years), their ability to complete their work is questionable.

It is hard to know what to expect next: there is a big possibility of Deloitte returning to

auditing listed companies; the level of client satisfaction within the services of the main

gainers is yet to be seen; and we have yet to see the outcome of the rotation rule for listed

as well as non listed companies.

Contributor: Vipul Kothari, Kothari Auditors &

Accountants (IAPA), managing partner/director

Volatility in commodities, and especially the lower

oil prices, has had an impact on the economy and

on business sentiment. This was more apparent

than ever during the second half of 2015. The

property market has weakened, and this is expect-

ed to remain throughout 2016. Liquidity crunch

remains a key issue facing businesses due to cur-

tailed lending by the banking sector. However, the

government is acting quickly by diversifying the

economy and aiming to further reduce the oil sec-

tor’s contribution to the GDP, from a current level

of 35% to 20% by 2020.

One of the steps being taken to diversify govern-

ment revenue sources is the introduction of taxes,

and GCC countries have already agreed on imple-

mentation of VAT. The UAE will introduce 5%

VAT on 1 January 2018. The impact of this is

expected to be moderate, since UAE already levies

a custom duty of 5% on the majority of products.

In 2016, the UAE’s economy is expected to grow

by 3.5%, despite a slide in oil prices. This indicates

that the UAE has been successful in diversifying

its economy.

There are opportunities for the accountancy pro-

fession in the GCC and especially in the UAE due

to increased regulation and the imposition of VAT.

2016 may be a challenging year, but expectations

are that by the end of 2016, we should see healthy

growth of the economy, stabilising of oil prices at

levels above US$50, and an easing of the liquid-

ity situation. All of these, coupled with Expo

2020 Dubai, where infrastructure development is

expected to give a big boost to the economy, make

me confident that 2017 to 2019 will be good for

the UAE’s economy in general.

Contributor: Baha Alnajjar, Quantum Albadi

(Abacus), senior partner & CEO

Dubai’s foreign investment agency (Dubai FDI)

has compiled summary reports on trends and

opportunities across diverse sectors to help inves-

tors by highlighting business prospects in Dubai.

The reports cover key sectors such as logistics,

retail, information technology, healthcare and

green technology.

According to the Dubai FDI report on the retail

sector, between 2012 and 2015, retail sales in

the UAE grew by 32.9%, from AED114bn to

AED151bn. Retail plays a vital role in economic

development, and along with the constant growth

in demand, it is one of the most lucrative foreign

investment prospects in Dubai.

In terms of Dubai’s efficiency, viability and profit-

ability as a logistics hub, the report states that the

United Arab Emirates

Ranking per number of audits of listed companies:

Name 2015 2014

KPMG 44 35

EY 43 37

PwC 29 40

PKF 24 19

BDO 20 8

Grant Thornton 14 2

Mazars 6 2

Crowe Horwath 6 5

TAGI 3 7

RSM 3 3

Deloitte 0 36

Data provided by PKF AlBassam & AlNemer

Kothari, Kothari Auditors & Accountants

IAB 560.indd 19 05/04/2016 12:08:45




on-going expansion of transport infrastructure has

further brightened investment prospects in logistics

and related sectors. Dubai has the third largest re-

export hub in the world, and the UAE’s logistics

market is expected to reach AED34.5bn in the next

two years. Being a vital element of a competitive

freight network and located strategically in the

Middle East, North Africa and South Asia region,

Dubai provides connections to a quarter of the

world’s population.

Healthcare in Dubai is by far the best in the region,

and has diversified into research and development,

pharmaceutical production and equipment manu-

facturing as well as medical tourism. This diversi-

fication, according to Dubai’s FDI report, makes

foreign investment and participation more likely.

The population in the Middle East is estimated to

exceed 520m by 2030, and the cost of healthcare

needs of the UAE alone reached nearly AED30bn

during 2015. Thus, this sector demands substan-

tial investment in facility development and man-

agement, in addition to private sector expertise in

specialised research, diagnostics, therapies, educa-

tion and training.

The report on information technology (IT) points

to specialised industry clusters, like Dubai Internet

City and Dubai Silicon Oasis. Dubai developed

these to enable software developers, hardware

manufacturers, service providers and network

designers to capitalise on Dubai’s location, high

internet coverage and focus on innovation. Quot-

ing from recent studies, the report says that IT

spending in Dubai alone reached AED5bn in 2014.

The emergence of sustainability as a priority in

government strategy and the potential it has creat-

ed for investment in clean technologies are detailed

in the report on Green Technology. Dubai has pio-

neered renewable energy benchmarks in the region

and has launched an integrated energy strategy,

which aims for a 30% reduction in carbon emis-

sions by 2030. The initial phase of Mohammed bin

Rashid Al-Maktoum Solar Park produces 10 MW

of electricity, and by it’s completion in 2030, the

park will produce 1,000 MW.

As the UAE has grown, so has the local accounting

profession. Accounting services have come a long

way in the UAE and the Middle East. Chartered

accountants are highly regarded for their profes-

sional integrity and knowledge. The profession has

constantly endeavoured to keep pace with ever-

growing business needs, which stem from a sig-

nificant economic growth. From being perceived

in the past as a peripheral service, the profession

and its components have become pivotal. Many

international accounting firms have a presence in

the UAE either directly or through their affiliates.

A number of factors have driven the recent job and

business growth. Firstly, the UAE has come out of

the global financial crisis faster than other parts of

the world, which means that companies are feel-

ing optimistic. Secondly, the announcement that

Expo 2020 will be held in Dubai has buoyed hopes

in sectors like construction and infrastructure. Of

course, the price of oil always affects the UAE and

the region as a whole, and whilst oil prices have

not returned to the heights of 2008, they are still

reasonable, which helps drive the economy and

investments.

The UAE has spent a considerable number of years

building an economy that is not reliant on oil. For

example, the growth of the aviation industry in the

UAE through privately owned world-class airlines,

combined with investment in defence, aerospace,

heavy metals, manufacturing, nuclear and renew-

able energy, railways, ports and industrial zones,

have added a new dimension to the economy. In

addition, the hospitality industry continues to

grow, with new hotels opening almost monthly.

The UAE’s reputation as a destination for major

sporting events and exhibitions also benefits this

sector. The retail sector and luxury goods retail

have also continued to flourish. The real estate

market has come back to the fore, property prices

are rising, and there has been much investment

in the market from local, regional and interna-

tional investors. According to a recent survey, an

astounding 90% of UAE finance executives are

more confident in the UAE’s growth prospects

compared to last year. This is the strongest level of

confidence expressed worldwide.

According to the UAE’s Minister of Economy, our

economy is expected to grow between 3% and

3.5% in 2016. Despite challenging geopolitical

situations in parts of the region, the UAE has main-

tained its growth due to the resilience and econom-

ic diversification it achieved in recent years.

The government has issued new rules and regula-

tions to further improve the business environment.

The industrial sector, which contributes 14% to

GDP, is forecast to expand and contribute 20%

in 2021. Growth will come from non-traditional

industries and a knowledge-based economy, which

will see huge activity in the coming years.

The oil-dominated economy is fast diversifying,

and in 2021 the oil and gas sector will make up

only 30% of the GDP. The government’s emphasis

on innovation will see business opportunities grow

as AED300bn will be invested in the sector.

The UAE’s government has announced that it will

complete all major projects within energy, electric-

ity, tourism, transport, financial, insurance and

other sectors, which will further boost growth.

The social sector has also seen major investments,

with education and health sectors being developed

getting improved facilities.

Contributor: Zayd Maniar, Horwath Mak, inter-

national liaison partner

Highlights and trend in the market this year

includes important mergers, regulatory changes

and the economic situation. An important merger

was PwC acquiring Strategy& (formerly Booz &

Co). This signifies opportunities ahead in pro-

fessional consulting and the need to promote an

independent brand to ensure an adequate dis-

tinction between audit and consulting practices.

Regulatory changes include the UAE’s Securities

Commodities Authorities increasing the disclosure

requirements and regulations to safeguard inves-

tors. Economically, with oil prices at a 12-year low

and government deposits at banks down 11.6%,

liquidity is fairly restricted. For organisations that

are highly leveraged, growing concerns arisen.

Key opportunities lie in assisting clients in restruc-

turing businesses and advising on the upcoming

introduction of VAT, which is payable from 1

January 2018.

Short term, we need to be selective about clients

by assessing how the firm sources clients. Medium

term, the ethics of partners need to be a key discus-

sion at network meetings, to ensure that growth is

sustainable. In the long term, firms who have been

selective with clients and maintained their ethics

will continue to enjoy profitability and success.

Contributor: Graham Martins, PKF UAE, manag-

ing partner,

Being, arguably, a hydrocarbon economy, one of

the most common talking points in the UAE over

the last year has been the impact of the substan-

Maniar, Horwath Mak

IAB 560.indd 20 05/04/2016 12:08:46




tial reduction in oil prices from highs of $115 per

barrel in 2014 to below $30 per barrel in recent

weeks. This was combined with the surprise vola-

tility of the Yuan after government intervention,

turmoil on stock markets and uncertainty of a

Brexit, as well as mixed data from the USA.

It is unclear as to whether the oil price will stabilise

over the next 12 to 18 months, and therefore gov-

ernments and businesses face an uncertain environ-

ment. In such times the tendency is to tighten belts

and wait and see.

In the UAE, an increasingly smaller proportion of

the GDP is directly oil-dependent – possibly about

one third – and in Dubai this is even lower. There

is, however, the indirect effect: many businesses

may be dependent upon business in countries such

as Saudi Arabia or Kuwait, both of which have suf-

fered tremendously from the oil price fall. This in

turn has impacted expenditure in the UAE, wheth-

er in staff numbers, pay levels or re-investment.

Additionally, there is also the substantial expense

of the conflict in Yemen with the provision of UAE

armed forces.

The UAE governments have faced up to these chal-

lenges by continuing to invest in infrastructure,

and this is particularly the case for Dubai, with

the looming Expo 2020 Dubai and its exploring

new ways to diversify revenue streams. The lat-

ter has seen many government initiatives within

the knowledge and environmental sectors. How-

ever, one of the more prominent matters has been

the announcement that VAT will be introduced

in 2018. This will be a major shift in policy from

the ‘tax free’ environment existing previously. On

a positive note, the change in Iran sanctions has

opened up opportunities for many in the UAE, but

it is an unknown market for most, and treading

with caution will be a common approach.

In summary, there has been an increasing degree

of uncertainty in the future of the economy, in the

world as well as in the UAE. This impacts corpo-

rate decision-making.

Many companies are trying to come to grips with

the new Commercial Companies Law. Whilst it

appears to be clear for joint stock companies, the

impact it will have on private companies remains

uncertain as executive regulations are awaited.

This in turn will affect the responsibilities of audi-

tors. The possible auditor rotation provisions

could have a significant impact, both in terms of

client profile and in fees.

Most audit firms will now be considering the pos-

sible scope of the introduction of VAT in 2018 and

how they can advise their clients in preparation.

This will have IT and operational consequences.

The uncertainties already referred to will them-

selves lead to challenges for audit, accounting

and consulting firms. More caution on the part of

clients and potential clients will lead to increased

challenges, seeking new work or converting pro-

posals into engagements. This is all in the face of

generally rising costs. So, like governments in the

region, seeking to diversify revenue streams will

be an important matter for firms to address over

the next year.

In the long term, the prognosis for the UAE is very

good. The progressive and innovative attitude of

the government and of companies bodes well for

the long term health of the economy. The medium

term is bolstered with the upcoming Expo 2020

Dubai and the opening of Iran. Weathering the

short term uncertainties is the immediate goal, to

ensure that we are in good shape to reap the ben-

efits of the medium to long term.

Contributor: Gerard Rahman, BDO UAE, CEO

The total spend on professional services has

decreased with the fall in oil prices, which natural-

ly impacts the economy in the UAE. With limited

regulation outside of ADAA (Abu Dhabi Account-

ability Authority) and DFSA (Dubai Financial Ser-

vices Authority), financial institutions are influ-

encing their borrowing customers to upgrade their

auditors within their own perception of the relative

quality of audit firms. Within the smaller area of

professional services, it becomes more challenging

to enter certain service lines or maintain them if

they are not yet mature. Customers generally do

not move because of price. However, with pressure

to get the best value from expenditure, customers

will challenge professional firms where they feel

that the service quality is not meeting their expec-

tations, and hence, towards the end of 2015, there

was significant customer movement between pro-

fessional firms.

Any disruption in customer behaviour is an oppor-

tunity to both retain existing customers and attract

new customers. So, the trends should be seen as

positive. At the end of the day, customers leave you

or come to you because of how you treat them. As

accounting firms have vied for more market share

over the last five years, margins have suffered, and

this is not sustainable over the next three years.

Accounting firms have to be realistic about sus-

taining weak margins in certain services or custom-

ers and its impact on quality.

With such close business ties to India over the last

half century, the UAE is heavily dependent on char-

tered accountants from India. However, with India

adopting IFRS soon, there will be a real need for

substantial numbers of IFRS-experienced account-

ants in India, and the obvious location to recruit

from will be the Gulf countries. This will change

the source of talent and resource in accounting

firms in the UAE.

The UAE has been a significant economy in the

world market for less than a generation. The coun-

try is evolving and adapting for sustainability just

like any other nation. It is time for service quality

to improve. It is time for professional firms to be

serious about making sustainable profits rather

than buying revenue for market share.There are

many good accounting firms in the UAE, but they

all need to determine what their real proposition to

their customer is, and focus on that. There is a real

opportunity for accounting firms to mature over

the next five years, and although the landscape will

change, it will improve.

Contributor: Athos Fouttis, UC&CS EMEA,

president

The UAE has the second largest economy in the

Arab world (after Saudi Arabia), and a GDP of

AED2.2trn (USA$599 bn) in 2015.

The UAE’s economy, with the exception of Dubai,

remains extremely reliant on oil despite having the

most diversified economy in the GCC.

The UAE is competitive in many areas of economic

freedom. Barriers to trade are quite low, and regu-

lations support open-market policies.

With a favourable business climate and political

stability, the UAE has created a dynamic entre-

preneurial environment for international inves-

tors. The financial sector’s overall soundness has

improved substantially since the Dubai debt crisis

of 2009.

The UAE will remain stable from 2016 to 2020. A

possible transfer of power in Abu Dhabi from the

current ruler who is in poor health to the crown

prince should pass smoothly. We forecast that real

GDP growth will remain weak, especially in 2016-

17 due to low oil prices, which will keep the fis-

cal position in deficit until 2018. The authorities

will prioritise economic diversification in order to

Martins, PKF UAE

IAB 560.indd 21 05/04/2016 12:08:47




promote non-oil growth. Dubai has made pro-

gress with managing its debts and this will remain

a focus.

Contributor: Mago Singh, Baker Tilly UAE, group

managing partner

The most important change in the market in 2015

was the introduction of new business nature: the

commercial companies. The new law has many

provisions relating to the offering of shares by the

joint stock companies and regulative provisions,

but from the auditor’s perspective it has been made

compulsory that every company must have audited

accounts and must submit audited financials.

Another important decision in 2015 was to imple-

ment a tax system and in particular introduce

VAT.

This is currently being implemented and will offer

huge opportunities for tax practices to contribute

toward easy assessment and enforcement, as well

as advising on the simplification of procedure.

The biggest challenge for the accountancy profes-

sion in the UAE is the lack of regulation. There

is no statutory body that governs accountants. To

have a professional license to practice, it is compul-

sory to be a UAE-qualified accountant, and there

are simply not enough of them. There are very few

nationally qualified chartered accountants, who

are all in high positions in the government or min-

istries, and as such they are unavailable.

In absence of qualified accountants, the market is

full of UAE nationals who have recently graduated

or have a year of banking experience. The min-

istry gives audit licenses to these people to prac-

tice, however, they lack the knowledge to do so

effectively. As regulations are not in place, services

provided by such individuals are booming and for

as little as $500 you can receive audited financials

with a clean opinion.

We are very positive and while in the short to

medium term the region may experience some ups

and downs, in the long term our expectations are

optimistic.

With a large population and continuing growth,

there are opportunities, particularly in infrastruc-

ture, education, health care, and information tech-

nology, which are areas in which we will concen-

trate.

Contributor: Mahavir Hingar, Sun Management

Consultants (Reanda), director corporate finance

The UAE’s economy is considered the second larg-

est economy in the Arab world. With the exception

of Dubai, the UAE’s economy is heavily reliant on

oil revenues, the economic slowdown and decline

in the oil prices from its peak has dented the gov-

ernment revenue. And now the government is not

leaving any stone unturned to transform the oil

based economy to a non-oil based economy by

increasing the contribution of non-oil sector to

its GDP. Dubai, in particular has achieved signifi-

cant results over a period of time by diversifying

its economy and making it less susceptible to the

oil prices, with significant investments in infra-

structure, manufacturing, trade, tourism, nuclear

and renewable energy, industrial zones, education,

healthcare and financial services sectors.

Despite the fall in the oil prices and economic

slowdown the government is still spending on most

of the infrastructure and real estate projects at the

same pace. The works on the various Dubai’s

iconic projects like Mall of the world, Dubai Creek

Harbour, Dubai Canal, Dubai Opera, etc. are

underway in 2016. Expo 2020 is expected to cost

USA$9.4bn and would add more than $ 23bn to

the UAE’s GDP. Dubai’s airport, one of the busiest

airports in the world, the UAE’s airlines and hos-

pitality industry are already gearing up to handle

nearly 25m visitors travelling to the country for the

World Expo 2020.

The UAE, which is ranked 1st among the Arab

countries on the ‘Ease of doing business ranking

2016’ issued by the World Bank has decided to

introduce VAT at the rate of 5% from January

2018, ending its tax-free environment for inves-

tors and consumers. The healthcare and educa-

tion sector along with a hundred food items will

remain exempted from VAT. The imposition of

VAT is expected to generate approximate revenue

of AED12bn for the government.

In the year 2015, the UAE government has also

introduced the new Commercial Companies Law

(CCL) to strengthen the legal and regulatory

framework of doing business. The stated objec-

tive of the new CCL is to continue the UAE’s

development into a global market with a more

regulated business environment. In particular, it

raises levels of: good corporate governance, pro-

tection of shareholder interest and promotion of

corporate social responsibilities of the companies.

Some notable features of the new CCL include the

recognition of the concept of holding and subsidi-

ary companies, procedures for pledging shares,

retention of documents, valuation of shares and

the issued and authorized capital requirements for

public joint stock companies etc.

The UAE has been a non-tax regime for over five

decades and turning now to a partially taxed econ-

omy will pose major implementation challenges.

The accountants and auditors will now have to see

everything from a tax point of view. Practitioners

will find new opportunities for their firms, but will

have to go through a major revamp to get ready

for the new VAT environment. The corporate

requirements and regulations imposed by CCL is

also an opportunity for the audit firms to advise

their clients.

Another challenge is to find skilled and experi-

enced professionals locally with competitive remu-

neration packages during the times when the cost

of living is increasing day by day. The UAE has

been an attractive and preferred destination for

white collar workers, the corporate sector compar-

atively offers higher remuneration and perks than

the accountancy firms which makes the sourcing of

qualified professionals difficult. Retention of pro-

fessionals by the accounting firms is also a chal-

lenge as the industry regularly absorb the experi-

enced qualified professionals from accounting and

audit firms.

The fact that the UAE is more diversified than most

of the other oil exporting countries has been a big

plus in terms of being comparatively less impacted

by the drop in oil prices. The UAE also came out

of the global financial crisis much faster than other

parts of the world. Yes, there are many tough chal-

lenges to overcome but there are certainly positive

sentiments powered and inspired by the govern-

ment’s timely decision making process. The UAE is

upbeat about the potential flow of foreign capital

in the next five years as a result of giant projects

led by infrastructure, retail sector and Expo 2020.

The government is also highly optimistic that the

SME sector will continue to deliver a robust per-

formance and will remain a major contributor to

the non-oil national incomes.

In 2014, the SME sector accounted for 60% of

the UAE’s non-oil GDP. The government seeks to Singh, Baker Tilly UAE

IAB 560.indd 22 05/04/2016 12:08:48




raise the figure to 70% by 2021. The UAE also aims to see a 5% contribution by 2021 from the innovation & knowledge sector. The country is in talks with

nations in Europe, Asia and North America about collaborations and alliances in order to boost its knowledge economy. The UAE’s industrial sector currently

accounts for 14% of GDP and the figure is expected to reach 20% by 2025.

■ MIDDLE EAST

NETWORK/ASSOCIATIONIn how many of the countries surveyed here is your organisation represented in at the moment?

Abacus Worldwide 2

AGN International 13

ANTEA 4

Baker Tilly International 13

BDO 12

Crowe Horwath International 15

DFK International 10

ECOVIS International 5

EuraAudit International 4

GMN International 5

Grant Thornton 13

HLB International 14

IAPA 6

INPACT 7

Integra International 7

■ MIDDLE EAST

NETWORK/ASSOCIATIONIn how many of the countries surveyed here is your organisation represented in at the moment?

Kreston International 12

Mazars 11

MGI 10

Moore Stephens International 13

Morison KSi 11

MSI Global Alliance 11

Nexia International 12

PKF International 14

Praxity 5

PrimeGlobal 10

Reanda International 1

RSM 13

SANTA FE ASSOCIATES 3

UC&CS GLOBAL 1

UHY International 9

■ MIDDLE EAST

FIRM MOVEMENTS

NETWORK/ASSOCIATION FIRM ADDITIONS, MERGERS & ACQUISITIONS

Abacus Worldwide Added: Quantum Al Badi Charterd Accountants (Abu Dhabi, UAE)

AGN International Added: Keepers Advisory Services (Kuwait), Al Obaidly & Partners (Qatar)

Baker Tilly International Added: Baker Tilly Wahid Abdel Ghaffar & Co. (Egypt - Cairo)

BDO Added: BDO Accounting, Audit & Tax Services (formerly Harvard for Accounting, Auditing & Tax Services) (Ramallah, West Bank & Gaza)

ECOVIS International Added: ECOVIS Al Sabti (Riyadh, Saudi Arabia)

Grant ThorntonAdded: Dr Sultan Hassan Al Dosari Auditing & Accounting (Qatar) Lost: Grant Thornton Arab Accountants - Al Eid & Co(Qatar)

HLB International Added: Vezin Yeminli Mali Müavirlik A. (Istanbul and Ankara, Turkey)

Integra International Added: Merheb Consultancy & Audit (Beirut, Lebanon)

MGI Lost: AGH (Cairo, Egypt)

Moore Stephens International Added: Ibrahim Abbasi & Co. (Amman Jordan)

MSI Global Alliance Added: HBK Hobeika & Co (Beirut, Lebanon)

Nexia International Added: Dr Abdul Salam Al Miklafi & Co (Sana'a, Yemen)

PKF InternationalAdded: PKF Allied Accountants (Manama, Bahrain), PKF AlBassam & AlNemer (AlKhobar, Saudi Arabia) Lost: PKF Bahrain (Manama, Bahrain)

Reanda International Added: Reanda UAE (UAE, Dubai)

Santa Fe Associates Added: Chuoujaa Audit Firm (Egypt), Farouk Kozman & Co (Egypt)

UC&CS GLOBAL Added: Athos Fouttis & Co.(Dubai)

UHY International Added: UHY ÖZCAN & ÖZCAN (Turkey), UHY Peten Sworn in CPA (Turkey) Lost: UHY Uzman CPA and Auditing (Turkey)

IAB 560.indd 23 05/04/2016 12:08:49


■ MIDDLE EAST 2016

NETWORKS: FEE DATA

Rank Name Fee income ($m) Growth rate(%)Fee split (%)

Year-endAudit & Assurance Accounting Services Tax services Advisory Other

1 PwC* 752.0 25% n.d Jun-15

2 EY* (e) 488.4 1% n.d Jun-15

3 Deloitte* (e) 487.9 -2% n.d May-15

4 KPMG* (e) 487.7 -4% n.d Sep-15

5 BDO* 140.6 1% 45 13 15 27 - Sep-15

6 Grant Thornton* (1) 65.1 -3% 53 - 12 26 10 Sep-15

7 Crowe Horwath International* (2) 53.0 2% 51 - 19 27 3 Dec-15

8 Baker Tilly International* 46.5 9% 30 7 21 33 9 Jun-15

9 RSM* (2) 40.7 -2% 49 - 18 27 6 Dec-15

10 Moore Stephens International* 40.2 8% 60 5 15 12 8 Dec-15

11 PKF International* (2) 32.6 17% 57 - 13 25 5 Jun-15

12 Mazars* 28.6 7% 45 17 33 5 - Aug-15

13 Nexia International* (2) 26.8 -5% 48 - 43 7 3 Jun-15

14 UHY International* (2) 25.1 5% 50 - 17 28 5 Dec-15

15 Kreston International* (2) 22.3 10% 54 - 26 14 6 Oct-15

16 HLB International* 22.2 28% 55 6 27 7 5 Dec-15

17 ECOVIS International* 8.4 15% 44 2 36 12 6 Dec-15

18 MGI* 7.1 7% n.c Jun-15

19 Reanda International* (4) 3.3 7% 23 9 - 17 51 Dec-15

20 Santa Fe Associates* 1.7 n/a 32 35 33 - - Dec-15

Total revenue/growth 2,779.9 6%

Notes: (e) IAB estimates, n.d = not disclosed, n.c.= not collected, n/ap= not applicable, n/av= not available (1) Accounting services are included in other, (2) Accounting services are included in audit & assurance, (4) Other includes corporate finance, company secretarial and business formation. *Disclaimer = Only data from the named member firm or the exclusive member firms within a network/association is included. Data relating to correspondent and non-exclusive member firms is not included.

Source: International Accounting Bulletin


ASSOCIATIONS: FEE DATA

Rank Name Fee income ($m) Growth rate(%)Fee split (%)

Year-endAudit & Assurance Accounting Services Tax services Advisory Other

1 Praxity* 58.1 91% 52 11 28 8 2 n/a

2 Morison KSi* (1) 38.1 n/a 49 14 10 10 17 Dec-15

3 PrimeGlobal* (2) 18.9 1% 62 - 19 - 19 May-15

4 AGN International* 14.9 4% 50 17 16 12 5 Dec-15

5 MSI Global Alliance* (2) 14.9 -7% 66 - 12 12 10 Dec-15

6 DFK International* (2) 14.1 6% 57 - 23 19 1 Sep-15

7 IAPA* (3) 9.2 1% 42 10 29 8 11 n/a

8 INPACT* (2) 7.7 57% 68 - 3 25 4 Dec-14

9 Integra International* (2) 5.9 2% 55 - 35 10 - Dec-15

10 GMN International* 5.0 1% 50 21 12 10 7 Sep-15

11 ANTEA* (4) 4.6 6% 52 - 20 27 1 Dec-15

12 Abacus Worldwide* 1.5 200% 45 37 3 13 2 Dec-15

13 EuraAudit International* (2) 1.3 18% 76 - 4 18 3 Dec-15

14 UC&CS GLOBAL* 1.0 n/ap 3 2 6 89 - Dec-15

Total revenue/growth 195.1 58%

Notes: n.d = not disclosed, n.c.= not collected, n/ap= not applicable, n/av= not available (1) Other includes litigation support and company formation/administrations, (2) Accounting services are included in Audit & Assurance, (3) Other includes consultancy and outsourcing, (4) Accounting services are included in advisory. *Disclaimer = Only data from the named member firm or the exclusive member firms within a network/association is included. Data relating to correspondent and non-exclusive member firms is not included.


RANKINGS International Accounting BulletinMIDDLE EAST

IAB 560.indd 24 05/04/2016 12:08:49



NETWORKS: STAFF DATA

Rank NameTotal staff Partners Professional staff Administrative staff Offices

2015 2014 Growth (%) 2015 2014 2015 2014 2015 2014 2015 2014

1 BDO* 2,295 2,096 9% 122 121 1,897 1,725 276 250 34 32

2 Grant Thornton* 1,153 1,075 7% 80 71 881 851 192 153 19 19

3 Crowe Horwath International* 997 865 15% 119 103 722 619 156 143 48 48

4 Mazars* 916 871 5% 31 34 766 726 120 111 17 17

5 RSM* 887 884 0% 80 76 693 697 114 111 24 25

6 Moore Stephens International* 856 797 7% 60 57 650 608 146 132 29 30

7 Baker Tilly International* 810 880 -8% 84 98 585 622 141 160 35 34

8 PKF International* 640 517 24% 81 87 474 351 85 79 32 26

9 Nexia International* 580 542 7% 82 75 392 371 106 96 26 24

10 UHY International* 551 505 9% 44 44 352 319 155 142 17 15

11 Kreston International* 530 509 4% 29 31 433 410 68 68 29 30

12 HLB International* 526 445 18% 56 49 371 312 99 84 31 28

13 MGI* 214 186 15% 25 28 189 158 n/a n/a 19 17

14 ECOVIS International* 144 119 21% 23 21 100 80 21 18 10 8

15 Santa Fe Associates* 47 n/a n/a 6 n/a 26 n/a 15 n/a 3 n/a

16 Reanda International* 32 31 3% 4 4 19 17 9 10 4 4

Totals 11,178 10,322 8% 926 899 8,550 7,866 1,703 1,557 377 357

Notes: n.d = not disclosed, n.c.= not collected, n/ap= not applicable, n/av= not available *Disclaimer = Only data from the named member firm or the exclusive member firms within a network/association is included. Data relating to correspondent and non-exclusive member firms is not included.



ASSOCIATIONS: STAFF DATA

Rank NameTotal staff Partners Professional staff Administrative staff Offices

2015 2014 Growth (%) 2015 2014 2015 2014 2015 2014 2015 2014

1 Praxity* 1,403 1,354 4% 74 76 1,150 1,101 179 177 42 43

2 Morison KSi* 786 n/ap n/ap 96 n/ap 556 n/ap 134 n/ap 39 n/ap

3 PrimeGlobal* 562 504 12% 94 53 361 350 107 101 28 26

4 AGN International* 543 414 31% n/av n/av n/av n/av n/av n/av 20 18

5 DFK International* 423 381 46 40 294 240 83 101 28 21

6 IAPA* 317 n.c. n/a 29 n.c. 205 n.c. 83 n.c. 12 n.c.

7 MSI Global Alliance* 281 239 18% 29 26 189 185 63 58 15 13

8 INPACT* 260 203 28% 37 43 183 124 40 36 12 12

9 Integra International* 177 159 11% 23 18 132 120 22 21 11 10

10 ANTEA* 133 126 6% 18 20 95 87 20 19 10 6

11 GMN International* 118 115 3% 18 16 76 78 24 21 11 11

12 EuraAudit International* 112 108 4% 28 27 68 65 16 16 8 8

13 Abacus Worldwide* 55 30 83% 7 4 36 21 12 5 5 2

14 UC&CS Global* 5 n/av n/ap 1 n/av 3 n/av 1 n/av 1 n/av

Totals 5,175 3,633 42% 500 323 3,348 2,371 784 555 242 170

Notes: n.d = not disclosed, n.c.= not collected, n/ap= not applicable, n/av= not available . *Disclaimer = Only data from the named member firm or the exclusive member firms within a network/association is included. Data relating to correspondent and non-exclusive member firms is not included


RANKINGSInternational Accounting Bulletin MIDDLE EAST

IAB 560.indd 25 05/04/2016 12:08:49

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IAB 541v2.indd 26 19/09/2014 10:19:50

Tel: +44 (0)20 3096 2636; Email: [email protected]

Tel: +44 (0)20 7406 6553 Email: [email protected]

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