Audited Accounts

Last week the accountants and tax collectors met at the Mulungushi International Conference Centre in Lusaka as part of a series of planned meetings to discuss the demand by the Zambia Revenue Authority for the submission of Audited Accounts with annual tax returns at the end of each financial year.

The meeting produced some hue and cry from the public on this newly introduced hurdle, to be faced by local businesses, which could possibly affect this year’s tax returns, as the country ended the business financial year on 31 March 2010.

A scrutiny of the Companies Act under chapter 388 of the Laws of Zambia reveals that actually this demand for Audited Accounts to be produced is enshrined in Part VIII Section 164 (3) which reads;

‘The directors shall take reasonable steps to ensure that the annual accounts of the company and, if it is a holding company for which group accounts are required, the group accounts, are audited as required by this Part within the time allowed by subsection (1). Sub section (4) further reads ‘The directors shall cause the auditors' report relating to the annual accounts that is furnished to the directors in accordance with this Part to be attached to, or endorsed upon, the annual accounts.

The interpretation of the word ‘company’ is contained in Part I and reads; ‘company’ means - (a) a company incorporated under this Act; or (b) subject to section four and Division 14.3, an existing company; ‘company limited by guarantee’ means a company incorporated as such, being a company satisfying section nineteen.

In a nutshell, the production of audited accounts is a requirement under the law, but only for companies incorporated under the Act. This generally means Limited Liability companies and companies Limited by Guarantee although there may be some special companies that are incorporated but are unlimited. This requirement applies both to private companies and public companies.

Now that the legal issues are dispensed with, the next question is; how does this legal requirement which is now demanded by the Zambia Revenue Authority impact on the private sector in particular?

For the medium to large corporates this requirement is part of their year to year activities and forms part of their annual due diligence and performance analysis program which focuses on improving the productivity of the company and protecting the interests of the shareholders or guarantors as the case may be. No dust is kicked up by this demand for audited accounts and life goes on as before.

As for the medium to small entrepreneurs, a new hurdle will have been introduced that will demand a higher level of book keeping which requires qualified accountants that cost more money to the business. In addition, the cost of an audit by an accredited or recognized auditing firm is likely to be a large burden that will add to the cost of doing business. Figures of between a low of K 5 million and a high of K 30 million were thrown across the room during the private sector – public sector debate on the issue in Lusaka.

However one wants to interpret this development, it is clear to see that there is a cost that companies will have to bear which may escalate even higher if the auditing firms decide to hike their charges across the board in response to this new revelation within the law. After all, business is all about seizing the opportunity to maximize profits where possible.

Part of the rationale behind the running of a series of meetings across the country to discuss this issue, is to receive the various views, concerns, criticisms, and comments on the way forward for Zambian registered companies.

It is extremely important to address this issue with an open mind and a spirit of nation building by both the private sector and the various arms of government and the public service.

Open and candid discussion and debate can chart a path for the private sector that should prevent hundreds of companies that constitute the medium to small businesses from de-registering as limited liability companies and re-registering as sole traders to avoid having to produce audited accounts for tax purposes. This undesirable move renders many companies unable to borrow from the banks in any meaningful way, blocks a clear pathway for equity partnerships and joint venture, and leaves firms and families exposed to economic storms as the country integrates with the region and the global economy. In the case of Zambia, this shift could account for more than 90 percent of all businesses registered and active.

Some smart planning and strategic engagement must be implemented with all stakeholders to ensure that Zambia promotes economic growth and higher productivity within the solutions agreed upon.

Options to research how this issue has been handled in Europe with special focus on the United Kingdom and her former colonies across the world, may offer some insights and possible solutions for Zambia, aside from simply following the law of the day.

Across the world, laws are made every day, amended every day, and in some cases repealed every day, when they do not support the aspirations and positive evolution of the people they govern.

Published 20 April 2010