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www.InternationalAccountingBulletin.com
● 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
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
Sydney: +61 2 8076 8800
New York: +1 646 395 5465
or by email at:sales@wealthinsight.com
Head Office: 71-73 Carter Lane, London, EC4V 5EQ • Tel: +44 (0) 203 096 2618 • Email: info@construction-ic.com • © Timetric 2015
....you need to be more than just a
high-flyer
To understand the Wealth market...
Wealth market intelligence that drives informed decision making
WEALTHINSIGHTI N T E L L I G E N C E C E N T E R
A4 Wealth Ad 31032016.indd 1 31/03/2016 16:57:20
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
Editor: Vincent HuckTel: +44 (0)20 7406 6709Email: vincent.huck@uk.timetric.com
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Financial News Publishing Ltd, 2015Registered in the UK No 6931627ISSN 0265-0223 Unauthorised photocopying is illegal. The contents of this publication, either in whole or part, may not be reproduced, stored in a data retrieval system or transmitted by any form or means, electronic, mechanical, photocopying, recording or otherwise, without the prior permission of the publishers.
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
Sydney: +61 2 8076 8800
New York: +1 646 395 5465
or by email at:sales@wealthinsight.com
Head Office: 71-73 Carter Lane, London, EC4V 5EQ • Tel: +44 (0) 203 096 2618 • Email: info@construction-ic.com • © Timetric 2015
....you need to be more than just a
high-flyer
To understand the Wealth market...
Wealth market intelligence that drives informed decision making
WEALTHINSIGHTI N T E L L I G E N C E C E N T E R
A4 Wealth Ad 31032016.indd 1 31/03/2016 16:57:20
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
April 2016 y 3www.InternationalAccountingBulletin.com
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
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FEATURE International Accounting BulletinIFAC SMP SURVEY
4 y April 2016 www.InternationalAccountingBulletin.com
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
April 2016 y 5www.InternationalAccountingBulletin.com
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
6 y April 2016 www.InternationalAccountingBulletin.com
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
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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
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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
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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
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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. <
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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
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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
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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.
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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
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SURVEYInternational Accounting Bulletin MIDDLE EAST
“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
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SURVEY International Accounting BulletinMIDDLE EAST
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.
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SURVEYInternational Accounting Bulletin MIDDLE EAST
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.
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SURVEY International Accounting BulletinMIDDLE EAST
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
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SURVEYInternational Accounting Bulletin MIDDLE EAST
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
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SURVEY International Accounting BulletinMIDDLE EAST
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
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SURVEYInternational Accounting Bulletin MIDDLE EAST
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
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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-
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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
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SURVEY International Accounting BulletinMIDDLE EAST
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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
April 2016 y 23www.InternationalAccountingBulletin.com
SURVEYInternational Accounting Bulletin MIDDLE EAST
United Arab Emirates
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
24 y April 2016 www.InternationalAccountingBulletin.com
■ MIDDLE EAST 2016
NETWORKS: FEE DATA
Rank Name Fee income ($m) Growth rate(%)Fee split (%)
Year-endAudit & Assurance Accounting Services Tax services Advisory Other
1 PwC* 752.0 25% n.d Jun-15
2 EY* (e) 488.4 1% n.d Jun-15
3 Deloitte* (e) 487.9 -2% n.d May-15
4 KPMG* (e) 487.7 -4% n.d Sep-15
5 BDO* 140.6 1% 45 13 15 27 - Sep-15
6 Grant Thornton* (1) 65.1 -3% 53 - 12 26 10 Sep-15
7 Crowe Horwath International* (2) 53.0 2% 51 - 19 27 3 Dec-15
8 Baker Tilly International* 46.5 9% 30 7 21 33 9 Jun-15
9 RSM* (2) 40.7 -2% 49 - 18 27 6 Dec-15
10 Moore Stephens International* 40.2 8% 60 5 15 12 8 Dec-15
11 PKF International* (2) 32.6 17% 57 - 13 25 5 Jun-15
12 Mazars* 28.6 7% 45 17 33 5 - Aug-15
13 Nexia International* (2) 26.8 -5% 48 - 43 7 3 Jun-15
14 UHY International* (2) 25.1 5% 50 - 17 28 5 Dec-15
15 Kreston International* (2) 22.3 10% 54 - 26 14 6 Oct-15
16 HLB International* 22.2 28% 55 6 27 7 5 Dec-15
17 ECOVIS International* 8.4 15% 44 2 36 12 6 Dec-15
18 MGI* 7.1 7% n.c Jun-15
19 Reanda International* (4) 3.3 7% 23 9 - 17 51 Dec-15
20 Santa Fe Associates* 1.7 n/a 32 35 33 - - Dec-15
Total revenue/growth 2,779.9 6%
Notes: (e) IAB estimates, n.d = not disclosed, n.c.= not collected, n/ap= not applicable, n/av= not available (1) Accounting services are included in other, (2) Accounting services are included in audit & assurance, (4) Other includes corporate finance, company secretarial and business formation. *Disclaimer = Only data from the named member firm or the exclusive member firms within a network/association is included. Data relating to correspondent and non-exclusive member firms is not included.
Source: International Accounting Bulletin
■ MIDDLE EAST 2016
ASSOCIATIONS: FEE DATA
Rank Name Fee income ($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.
Source: International Accounting Bulletin
RANKINGS International Accounting BulletinMIDDLE EAST
IAB 560.indd 24 05/04/2016 12:08:49
April 2016 y 25www.InternationalAccountingBulletin.com
■ MIDDLE EAST 2016
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.
Source: International Accounting Bulletin
■ MIDDLE EAST 2016
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
Source: International Accounting Bulletin
RANKINGSInternational Accounting Bulletin MIDDLE EAST
IAB 560.indd 25 05/04/2016 12:08:49
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Tel: +44(0)20 3096 2636 ; Email: sharon.howley@timetric.com
IAB 541v2.indd 26 19/09/2014 10:19:50
Tel: +44 (0)20 3096 2636; Email: sharon.howley@timetric.com
Tel: +44 (0)20 7406 6553 Email: sharon.howley@vrlfinancialnews.com
pobcamend.indd 1 21/11/2014 15:19Untitled-14 1 21/08/2015 14:20
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