The Ethiopian Capital Market Authority in a newly formed government agency that will be responsible for regulating capital markets in Ethiopia.
ADDIS ABABA (ENA) – Having an International Financial Reporting Standards (IFRS) compliant financial statement would be beneficial for participating in the capital market, according to the Ethiopian Capital Market Authority (ECMA). This is because IFRS brings transparency by enhancing the international comparability and quality of financial information, which enables investors and other market participants to make informed economic decisions. Accurate financial documentation is also necessary to measure important metrics, such as debt-to-asset ratios, which investors use to evaluate how effectively companies pay down debt and generate revenue.
The ECMA Director-General, Brook Taye, told the Ethiopian News Agency (ENA) that the most important element of IFRS compliance is not necessarily for anybody but for the company itself because it would let the company know and understand the true value of their business. “IFRS brings new ways of understanding and measuring the value of a company,” he added. Therefore, the primary beneficiary of IFRS compliance is the company itself.
Taye also elaborated that by adopting IFRS, private companies would ultimately know the true value of their business, which is very beneficial for the owner to know where they stand. Furthermore, IFRS is crucial for financial statements to be consistent, reliable, and comparable between businesses in any country. “IFRS’s main purpose and benefit are for the companies themselves,” he stated. “That is the primary benefit, and it would allow, for example, if they want to participate and list in the capital market. Then having the IFRS compliant financial statement would be beneficial because you would know the true extent of the companies’ performance.”
For investors, he affirmed that the standards give some confidence that the company has been properly recording its performance, paying its taxes, and valuing its assets correctly.
In general, Brook noted that IFRS is important for the overall economy. The process of realizing a capital market in Ethiopia is well underway to ensure the existence of a functioning market soon. The capital market is a financial system that allows private and public institutions to buy and sell equity and debt instruments, and companies to raise long-term funds through the sale of securities such as stocks and bonds.
International Financial Reporting Standards (IFRS) are a set of accounting standards that govern how particular types of transactions and events should be reported in financial statements. They were developed and are maintained by the International Accounting Standards Board (IASB).
The Capital Market Authority (CMA) is one of the key institutions established by Article 3(1) of the Proclamation as an autonomous Federal Government Regulatory Authority with its own juridical personality, accountable to the Prime Minister of the Federal Democratic Republic of Ethiopia.
Source: ENA