By Staff Writers
Maseru, Aug 09 (The Night’s Watch) – The Bankers Association of Lesotho (BAL) has broken silence on the humiliating claims by the International Monetary Fund (IMF) that banks in Lesotho are non-compliant with international financial reporting and auditing standards.
The IMF mission that was in Lesotho in March 2019, found that there was “a local banking practice” of having a foreign audit firm which is not registered in Lesotho and with no offices in the country, doing audit work for the banks but a small, domestic audit firm issuing and signing the auditor’s report.
IMF said such practice did not comply with both the International Financial Reporting Standards (IFRS) and International Auditing Standards (IAS).
Banks are required by law to prepare their financial statements as per full IFRS.
The IMF’s AFRITAC South mission, visited Maseru on March 4–14, 2019, at the request of Central Bank of Lesotho (CBL), to provide technical assistance on the implementation of Basel II.
December 31, is the uniform year-end date for all four banks – Standard Lesotho Bank, Nedbank Lesotho, First National Bank (FNB) Lesotho and Lesotho PostBank – to prepare and submit to the CBL their audited annual consolidated financial statements.
But the IMF mission found that despite being mandated to do so, the financial statements were not published in full by the banks, in their – or in the CBL’s – websites.
The mission stated in its report published on July 22, that: “Banks must have their annual financial statements audited in accordance with ISA, however, and despite not in the scope of this mission, while reviewing the financials of some banks, the mission found that there seems to be a local banking practice of having a Big 4 audit firm doing audit work for the bank but a small, domestic audit firm issuing and signing the Auditor’s report.”
It said while it was clear that that such audits were not conducted in accordance with ISAs, and that the audited financial statements were not IFRS-compliant, “the situation reveals a malpractice that consist of having Big 4 audit firm with no offices in Lesotho using a small Lesotho firm, which – otherwise – would not likely be able to perform as the auditor of a bank, to take full legal responsibility for the auditor’s opinion expressing compliance with IFRS and ISAs on financial statements that do not comply with these international standards.”
On Friday, the Lesotho Institute of Accountants (LIA) also released a statement vowing to conduct a thorough investigation into the IMF claims, something which the CBL had said was unnecessary.
On Saturday, The Night’s Watch also reported that BAL and the four commercial banks went to the ground and had not released a statement to merely say they noted IMF claims.
BAL then came out of hiding to set the record straight.
The association, whose members are FNB Lesotho, Lesotho PostBank, Nedbank Lesotho, and Standard Lesotho Bank, said it had noted some media reports “which create the impression that banks in Lesotho are non-compliant with IFRS and IAS”.
“BAL would like to set the record straight on this matter as follows: The Regulatory body for the practice of Accounting and Auditing in Lesotho is the Lesotho Institute of Accountants (LIA). The piece of legislation used by LIA is the Accountants Act of 1977.
“It is the requirement of the Accountants Act that only audit firms registered in Lesotho and with the LIA, can sign Audited Financial Statements. All members of BAL comply with requirement.,” the association said in a statement on Saturday.
It further said the practice of using two audit firms was not peculiar to Lesotho, and neither was the practice prohibited by the International Auditing Standards or LIA.
“The Central Bank of Lesotho regulates financial institutions that include commercial banks. The appointment of Auditors by Banks in Lesotho is approved by the CBL. All banks are fully compliant in this regard,” it said.
It added: “We respectively differ with IMF on this statement, and our firm position is that as a financial services sector, we are fully compliant with CBL regulations and other international financial reporting instruments, such as the IFRS.”
The IMF mission also noted in its report that Lesotho’s banking sector was largely foreign-owned and stressed that the significant foreign presence presented a systematic vulnerability from external shocks that “necessitates CBL attention”.
“The banking sector remains small and comprises four commercial banks offering traditional and corporate banking services through branches around the country. Three banks are subsidiaries of South African banks and the fourth, Lesotho PostBank, is the only domestic bank, fully owned by the Government of Lesotho,” it said.
In its statement on Saturday, BAL acknowledged that three of the banks in Lesotho have parent companies in South Africa and said those banks’ financial statements “get consolidated into Group Audited Financial Statements of the parent companies”.
“As part of the South Africa Reserve Bank (SARB) regulatory and oversight requirements, these parent companies are also subjected to extensive consolidated audit requirements that further provide robust assurance to ensure that their respective subsidiaries fully comply with all the compliance framework.
“Therefore, they have adequate capacity to pick non-compliance with International Financial Reporting Standards (IFRS) when consolidating financials of their subsidiaries,” it said.
BAL concluded its statements by ensuring its clients and other stakeholders that the banks’ financial statements comply with local and international standards. NW