With this you should be at the forefront of the financial landscape
By Moses Gathura Kamau
The purpose of this proposed article is to shed light and stimulate discussion on the effects of Digitization of the economy especially within the East African Context and its effect on accounting policy, norms and cultures within the profession.
The advent of the digital age has brought far reaching changes to all sectors of the economy, professions and way of life. Indeed it has been named the 4th industrial revolution where information technology has been the key driver of these digital changes.
The accounting profession has quickly taken steps here at home and internationally both technically and legislatively to adapt to these changes including but not limited to:
1. Legislative & Technical Review of Laws and Regulations leading to the Accountants Act 15 of 2008
2. IFRS 9 Financial Instruments which contains accounting requirements for financial instruments, replacing IAS 39 Financial Instruments: Recognition and Measurement. The standard contains requirements in areas such as Classification and measurement. Financial assets are classified by reference to the business model within which they are held and their contractual cash flow characteristics.
With our main focus being on the economy and financial activities as members of ICPAK; we need to be at the forefront of the digital revolution; offering guidance to the public; policy direction; as well as be points of reference on contentious issues that are sure to arise. In this light we have seen proliferation of new digital currencies and means of exchange that are sure to impact our way of working in the future.
These digital currencies and means of exchange include Cryptocurrencies; MPESA, Airtel PESA, Paypal, Kopokopo among others. Indeed the growth of these alternative modes of payment has now grown to cross border transactions where you can now for example transfer funds from Kenya to Tanzania using MPESA/ Vodacom Platforms.
The explosive growth of these modes of exchange means that we in the Accounting and Audit Sector should be at the forefront of the financial landscape; offering advice, foresight as well as risk management to the society
With our main focus being on the economy and financial activities as members of ICPAK; we need to be at the forefront of the digital revolution; offering guidance to the public; policy direction; as well as be points of reference on contentious issues that are sure to arise.
A key example comes to mind with the advent of Debt/Equity Financing using Mobile Money platforms. This is where SMEs will be able to access digital loans which are applied for; approved, received and repaid over their tenor on a wholly digital platform running on Artificial Intelligence Platform.
What does this mean for accounting & audit?
AUDIT This automatically means that Auditors should immediately plan for this new digital frontier including changes to their schemes of work; audit evidence collection as well as quality of data collected.
Examples include for mobile loans issues such as:
- Lack of Loan Documentation – Financing is now applied for using mobile phones with the only evidence of this loan application being a USSD Message and Deposit Message from the Service Provider. Transaction trails nowadays are just a trail of SMS Messages. Should we ask SMEs to save these messages as part of proof of Loan Financing?
- Should we create new guidelines for Audit of Digital Funds? 3. Is it time for the Financial Auditor’s role to merge with the Information Systems Auditor as their roles interlink with every passing day?
ACCOUNTING From an accounting perspective I do believe that it is time committees were constituted by ICPAK and other like-minded bodies including state organs on the treatment of digital finances. These institutions include Central Banks both here at home and regionally, the East African Community as well as interested individuals and thought shapers.
From media reports it is commendable that efforts have started to be made to regulate and provide guidance on these digital financial assets.
However from a more technical perspective I do believe that issues to be tackled should include:
1. Treatment of Crypto Funds & Digital Financial Assets
Should these crypto funds be classified as intangible assets on Balance Sheets or classified as Cash/Cash Equivalents?
2. Is it time for the Regulators to develop a clear policy on the creation of and use of digital financial products?
3. How do we value products such as Crypto Funds? Are they or should they be deemed as a medium of exchange by the Regulatory Organs in Kenya?
4. Should the IFRS Foundation and the International Accounting Standards Board (IASB) develop a new Standard – designed specifically to deal with these digital financial assets (MPESA, Crypto Funds etc?). With Kenya being at the forefront of the digital transformation with world leading products, I believe that such a working committee if formed by IFRS Foundation, and the International Accounting Standards Board (IASB) should indeed have majority committee members from ICPAK and related organizations in Kenya.
I hopefully believe that these brief issues as raised, will stimulate discussion and lead to an industry approved road-map as we match forward towards a new digital future.
