Rankings report – ghana

Corruption blights investor confidence in Ghana

Concerns persist around the audit regime in particular and corruption in general across Ghana, where recent efforts to increase confidence in these areas have been patchy at best. Paul Golden reports


ccording to Nicholas Tetteh, audit manager at PrimeGlobal member firm Eddie Nikoi, public perception of the quality of the work done by audit firms in Ghana has not improved significantly since the collapse of the banking sector that began in the middle of 2017 and as a result many organisations remain reluctant to have their accounts audited..

Mazars Ghana managing partner Ernest Toah Akonor takes a more positive view, noting that the Institute of Chartered Accountants (ICAG) has stepped up quality monitoring review and compliance, enforcing continuous profession development programmes to ensure members are abreast of technical and corporate developments as well as issues relating to corporate governance.

“In addition, the new Companies Act 2019 requires mandatory rotation of auditors,” he adds. “Companies registered under the law – regardless of size or public interest level – must rotate their auditors every six years.”

This suggestion that the audit profession is moving in the right direction is shared by Samuel Abiaw, partner at Baker Tilly Andah + Andah, who observes that confidence was improved by the sanctions meted out to four firms in August 2019 by the ICAG for non-compliance with auditing standards.

“This has brought some sanity into the profession as well as closing the expectation gap,” he says. “ICAG is in the process of establishing an act to promote the study of accountancy; to regulate the accountancy profession and practice; and to provide for related matters. It has also been organising an annual regulators forum where practitioners meet with representatives from various regulatory bodies to discuss new laws, guidelines and directives.”

According to Abiaw, the public does not appear to understand that avoiding corporate failure is primarily the responsibility of a company’s management team. “While an audit may identify factors that could result in corporate failure - such as material uncertainty around going concern and internal control deficiencies - it is not designed to address market-related factors such as sustainability of the business model,” he adds.

Unfortunately, it is difficult to express anything like the same level of confidence in the government’s commitment to tackling corruption within the public sector. “Reports from the auditor general led to charges against government officials, but these were reversed when challenged in court,” explains Philip Aryee, partner at Moore Stephens International member firm Lobban Hyde. “A special prosecutor appointed by the government to ensure prosecution of corrupt cases by state officials resigned after three years without success. These developments create the perception that the fight against corruption is not effective.”

Similar sentiments are expressed by MGI OAK Chartered Accountants partner Timothy Osei, who agrees that the gains made by appointing the special prosecutor and strengthening the audit regime were eroded with the resignation of the special prosecutor and the government’s directive to the auditor general to take compulsory retirement.

When asked what this means for the industry and how firms would like to see this situation change, Samuel Hammond, director advisory at PKF Ghana observes that corruption increases the cost of doing business. “Thankfully, the president is about to appoint another person to this role and we hope he will be able to discharge his duties and reduce the perception of corruption in the country,” he says.

Tetteh attempts to put the situation in context by noting that corruption levels in Ghana remain low compared to other African countries while acknowledging that low level government employees are known to ask for a ‘tip’ in return for facilitating service they are supposed to perform as part of their job. “Ghanaian anti-corruption law is primarily contained in the criminal code, which criminalises active and passive bribery, extortion, wilful exploitation of public office, use of public office for private gain, and bribery of foreign public officials,” he explains.

“The Public Procurement Act, the Financial Administration Act, and the Internal Audit Agency Act are there to promote public sector accountability and to combat corruption. The government has a strong anti-corruption legal framework in place, but faces challenges of enforcement. Gifts and other gratuities offered to civil servants with the aim of influencing their duties are illegal, but facilitation payments are not defined in law.”

Nicholas Tetteh, audit manager, Eddie Nikoi

While Ghana has a strong anti-corruption legal framework and structures, enforcing these laws is the challenge agrees Akonor. “The creation of the office of the special prosecutor and the appointment of a known anti-corruption crusader was seen as a step in the right direction,” he continues.

“However, within the last 24 months public procurement breaches by some public institutions, complaints by the special prosecutor of uncooperative attitudes of public institutions in providing information to his office for investigative purposes and his eventual resignation in November 2020, and the various auditor general reports on some public institutions and officials and events culminating in his retirement are generally perceived by the public as indications that corruption remains pervasive and that little progress has been made in tackling it.”

If the Transparency International corruption index is anything to go by, Ghana is making progress at a slow pace. The latest index saw Ghana drop from 73rd position in 2019 to 75th position last year.

Corruption within the public sector is on the rise as the country “lacks people with the wit and will to stop it” according to Abiaw. “The special prosecutor was not given the support he needed to function and the auditor general was sidelined as he was seen to be a threat to the government as he was picking on some officials of the ruling party,” he adds.

Given concerns around audit quality and probity in public life, fee pressure is a development every firm in Ghana could do without. As Tetteh observes, pressure on small audit firms in particular is rising and this has caused some to compromise on audit quality. “The perception of most business owners is that audited financial statements are only there to help them to meet their regulatory requirements,” he says. “With that in mind, value is not being placed on the work of auditors, which leads to business owners being reluctant to paying high audit fees. This creates liquidity issues on the part of audit firms and reduces the number of firms in the country.”

Whilst clients are pushing fees downwards, audit firms are under pressure to maintain or even increase fees as fair compensation for the increased risks associated with audits as well as the significant investment made in technology in order to remain relevant. “This pushback from auditors meets fierce resistance because audit fees are seen as a necessary evil,” adds Akonor.

Fee pressure has been exacerbated by the mandatory rotation of auditors in Ghana as well as the coronavirus pandemic says Abiaw. “With most clients calling for a reduction in audit fees, we are compelled to either maintain our fees or reduce them as clients do not have the ability to pay.”

Hammond says his firm has had to adjust its work programme to meet the demands of clients by doing most of its audit work remotely and only visiting the client office when it is necessary. “In some cases we have had to maintain or reduce audit fees,” he adds.

On the regulatory front, significant developments over the last 24 months include:

  • Corporate Insolvency and Restructuring Act, 2020 effective from 29 December 2020
  • Anti-Money Laundering Act 2020
  • Securities and Exchange Commission directive on registration of partners of audit firms to sign off financial statements of companies listed on the stock exchange
  • Borrowers and Lenders Act, 2020 (Act 1052) effective from 29 December 2020
  • Laws for the establishment of tax courts

Aryee explains that the effective date set by the registrar general for implementation of mandatory rotation of auditors for both public and private companies after six years is 2022. However, this could be the subject of litigation as most practitioners envisage 2025 to be the most likely effective date. “Discussions between ICAG and the registrar general are ongoing as strict adherence to the date set by the latter could lead to loss of clients in 2023 for most firms, which could lead to potential lay-off of staff and closure of some practices,” he says. “It is also a disincentive to the growth of local firms.”

Other changes in the Companies Act will result in the separation of accounting/taxation work from audit services by the same firm. According to Aryee this will create additional costs for small businesses as they will now be required to pay separate fees for these services. “Some practitioners are of the view that benchmarks must be introduced to exempt small businesses and start-up companies from strict adherence to the new requirements in order to avoid the associated costs,” he adds.

The coronavirus pandemic has inevitably affected accounting firms across the country. “The obvious negative impacts are reduction in business income; lower wages, salaries and bonuses for employees; some employees being laid off and others resigning; and the reduction of working hours,” says Tetteh. “However, the pandemic has also forced businesses to make use of technology to enable working online or from home.”

It has become necessary to draw a delicate balance between ensuring productivity is maintained at the lowest cost when working remotely, adds Akonor. “This new way of working requires investment in technology-driven services and facilitating the cost of providing these services away from the physical office,” he concludes. “All this at a time when organisations struggling to keep their heads above water have resorted to cost cutting.”