South Asia - Afghanistan: Public Sector Accounting

Afghanistan: Public Sector Accounting and Auditing

Report Summary:

(October, 2007) This assessment is meant to help implement more effective public financial management through better quality accounting and audit processes in Afghanistan and to provide greater stimulus for more cost-effective government spending. It provides information on how local practices compare to international standards of financial reporting and auditing.

Facts:

- There is an urgent need to develop a critical mass of professional accountants in Afghanistan.
- A code of ethics based on the IFAC Code of Ethics for Professional Accountants is needed.
- Only a few state-owned enterprises produce annual income and expenditure accounts for audit.
- Improved Public Accounts Committees and other processes are needed for following up audit reports.

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Executive Summary

In Afghanistan, effective and adequate implementation of better quality accounting and auditing is crucial to underpin the country’s Public Financial Management (PFM) systems, provide stimulus for cost effective outcomes of government spending, and ensure that the massive amounts of foreign aid and technical assistance being injected into the country support long-term national capacity development. This report strongly recommends that the country adopt best international standards and practices in accounting and auditing, institute a new National Audit Act, implement the 2004-2009 Strategic Development Plan, and strengthen local financial expertise.

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Chapter 1: Introduction

The methodology used for assessing current accounting and auditing processes in Afghanistan and the assistance provided by the World Bank in adopting modern PFM practices are reviewed here. The objectives of this report are highlighted: (a) to provide the Afghan government and other stakeholders with the knowledge as to where local practices stand in accordance with international standards; (b) to assess the prevailing variances; (c) to chart paths for improvement; and (d) to provide a continuing basis for measuring improvements.

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Chapter 2: Public Sector Accounting

This chapter provides an assessment of the current state of Afghanistan’s accounting laws and regulations, education and training of public sector accountants, and accounting standards as practiced. Major recommendations for improvement include that Afghanistan accounting laws and regulations endorse the specific use of international accounting standards, the country adopt the Cash Basis International Public Sector Accounting Standard (IPSAS) in the short term, and the reporting and monitoring processes for state-owned enterprises be rigorously reviewed and updated.

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Chapter 3: Public Sector Auditing

Current arrangements and the apparent gaps in the country’s public sector audit process, in the following areas, are reviewed and discussed: institutional framework for the supreme audit institution; process for setting auditing standards; use of code of ethics; arrangements to ensure accountability and independence in the supreme audit institution; arrangements to ensure adequate skills and qualifications of the auditors; and arrangements to ensure auditor competence and quality assurance. Recommendations are made in areas with significant scope for improvement.

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Chapter 4: Action Plans

This section compares the current state of public sector reporting, accounting and auditing in Afghanistan with international standards, and lists the action plans decided on to move towards the international standards, in the following areas: statutory framework for accounting; training and accountant competence; setting accounting standards; financial reporting; statutory framework for auditing; setting auditing standards; ensuring independence of the auditor; training and auditor competence; quality assurance; audit planning and conduct; audit reporting; and response to audit reports.

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