SMEs make up over 90% of Uganda's private sector and contribute about 75% of GDP. SMPs, which are accounting practices that mainly serve SMEs, face challenges in fully complying with ISAs due to their small size and lack of resources. While "an audit is an audit", SME audits have distinguishing features like concentrated ownership and less complex record-keeping. Strict legal requirements in Africa mean that all registered companies need audits, even though a review may suffice for some SMEs. Proportionate application of ISAs is possible for SME audits.

1. PERSPECTIVES ON THE
AFRICAN SME AUDIT
LANDSCAPE
4 June 2013 Promoting Professionalism in Accountancy
CPA HAJ TWAHA KAAWAASE,
Partner, Sejjaaka, Kaawaase & Co.

2. Agenda
• Disclaimer
• Small and Medium Entities
• Small and Medium Practices
• Compliance Challenges
• Features of an SME Audit
• Conclusion
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3. Understanding SMEs?
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No. of
Employees
Total Assets /
Revenue p.a.
Micro-
Enterprise
≤ 4 ≤ 12 M UGX
($4,500)
Small
Enterprise
5 – 50 13 M -360 M
($5,000 – 140,000)
Medium
Enterprise
> 50 360 M – 25 bill
($140,000- $9.8m)
Source: UI A (2008), KPMG & Nation Media
Group, 2010 Top 100 SMEs Survey, Uganda
Small and Medium Entities (Uganda)

4. Understanding SMEs?
4
Uganda Europe Australia
Micro ≤ 4 ≤ 10 < 5
Small 5 – 50 < 50 < 20
Medium > 50 < 250 < 200
Large 50+ 250+ 200+
China : up to 3,000 employees ?!
Source: UIA (2008) , Samujh (2007)
Small and Medium Entities
(No.of Employees)

5. Small and Medium Entities (SMEs)
• SMEs play a predominant role in most
developed and developing countries.
• In many countries, SMEs make up the majority
of businesses and account for the highest
proportion of employment.
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6. Small and Medium Entities (SMEs)
• SMEs make up more than 90% of Uganda’s
private sector (Gatsby Uganda).
• The SMEs contribute approximately 75% of
Uganda’s Gross Domestic product (GDP) and
employ more than 2.5 million people.
• Health of SME sector is important to the
national economy.
• SMEs hold the key to sustainable economic
growth.
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7. Small and Medium Entities
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8. • SMEs have less complex, and less
voluminous business transactions, poor
internal control structures and poor record
keeping practices
• In spite of SMEs occupying a place of
strategic importance in any economy, they
face many problems due to lack of resources
at their disposal.
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Small and Medium Entities

9. Small and Medium Practices : SMPs
IFAC defines Small and Medium Practices (SMPs)
as:
“Accounting practices whose clients are mostly
SMEs, use external sources to supplement
limited in-house technical resources, and have
limited number of professional staff”.
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10. Understanding SMEs?
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Number %age Uganda’s
Big 4 offices
Sole practitioners 108 56% 0
2 – 3 Partners 81 42% 1
4 – 5 Partners 4 2% 3
TOTAL 193 100% 4
Source: ICPAU (2013)
Does Uganda reflect Africa’s landscape ?
Are all audit firms SMPs ?

11. The SMP Profile in Africa
• In line with the size of business entities in Africa, the
size of professional firms remains too small.
• SMPs provide services mainly audits, but an auditor
plays a great role in assisting management to prepare
financial statements
• SMPs do not specialise by sector/industry
• SMPs lack in-house technical resources
• SMPs audit files are not fully automated
• Many member bodies lack appropriate capacity to
support the SMPs
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12. • SMEs likely to appreciate advice on how they
can legally minimise tax expense / leverage on
government incentive schemes.
• SMPs provide proximity and responsiveness to
SME needs.
• SMPs act as a one-stop shop for advisory
services needed by SMEs.
• SMPs provide trust & technical competence.
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Importance of SMPs to SMEs
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13. SMEs’ Use of Advice on Financial Management
Total Canada China Italy Singapore South Africa U.K.
Accountant 41 % 28 % 62 % 32 % 32 % 55 % 45 %
Bank or other credit provider 20 % 19 % 18 % 17 % 24 % 23 % 16 %
Local business association/chamber of
commerce 16 % 20 % 12 % 21 % 24 % 15 % 3 %
Professional colleagues/network 16 % 12 % 13 % 12 % 15 % 23 % 19 %
Other consultant/adviser 15 % 15 % 22 % 12 % 16 % 17 % 11 %
Trade or professional association 14 % 16 % 13 % 13 % 19 % 16 % 9 %
Friends and family 13 % 15 % 16 % 14 % 18 % 9 % 8 %
Books and magazines 7 % 9 % 5 % 7 % 8 % 8 % 4 %
Attorney 6 % 5 % 5 % 11 % 8 % 7 % 2 %
Internet resources 6 % 10 % 6 % 6 % 5 % 6 % 4 %
Government resources 6 % 8 % 5 % 7 % 9 % 5 % 2 %
Do not seek outside advice 20 % 26 % 8 % 21 % 18 % 12 % 30 %
Total 100 % 100 % 100 % 100 % 100 % 100 % 100 %
(Source: Forbes Insights (2010) Small and Medium Sized Enterprises: Rebuilding a Foundation for Post-Recovery Growth)

14. Compliance Challenges
• The ISAs contain the basic principles and related
guidance applicable for an audit of any entity regardless
ofsize.
• Theissuethathasraisedmuchattentionishowrelevant
arethesestandardstoSMEs.
• IAASBmaintainstheviewthat“anauditisanaudit”.
• EvenwiththepublishedIFACguide[GuidetoUsingISAs
in the Audits of Small and Medium-Sized Entities], the
volume remains too big for SMPs and not relevantly
tailoredforMicro-entities
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15. “An Audit is an Audit”
• The objectives of each audit are the same and
the requirements to achieve the objectives are
also the same.
• At the time of expressing the opinion, the
auditor is not aware of all the users of his
opinion and must design his/her audit to
provide reasonable assurance to any potential
users.
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16. “An Audit is an Audit”
• The users believe that the auditor has taken
similar care while auditing the SME as he/she
would have taken while auditing a large entity.
• It is similar to a situation of a doctor who
treats his patients, where both rich and poor
patients expect the application of similar
professional skills.
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17. Features of an SME Audit
The following features of SMEs impact on the audit:
• Concentrationofownershipandmanagementinasmall
numberofindividual(s)
• Fewsourcesofincomeanduncomplicatedactivities;
• Simpleandpersonalizedrecord–keeping,and
• Limitedinternalcontrolstogetherwiththepotentialfor
managementoverrideofcontrols.
• Unwillingnesstopaytheactualpriceoftheauditandthereforegetting
lessvalue
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18. Features of an SME Audit
• If SMEs are required to audit their financial
statements, the SMPs will have little choice in
ensuring proper compliance of ISAs.
• This is inspite of the fact that such a level of
assurance may be unwarranted since a majority
of SMEs are owner-managed, have simple and
limited volume of transactions and the financial
statements are used only by the owners.
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19. Features of an SME Audit
• However, legal requirements in many African countries
aresuchthattherearenoauditthresholds.
• AllregisteredcompaniesundertheCo’sActarerequired
tohaveanaudit.
• Yet in a numbers of cases a review engagement would
suffice.
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20. Features of an SME Audit
• A nucleus of competent and qualified staff in SMPs is
yet to be attained. Most qualified persons are absorbed
in employment and very few are available to the SMPs
to practice making compliance with ISQC1 such a hard
objectivetoachieve.
• SMPs are often too small to taken on large assignment
thatwouldhaveotherwisepropelledtogreaterlevelsof
investment in infrastructure for future survival and
efficiency
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21. Conclusion
• Many SMPs face challenges in ensuring
proper compliance with ISA.
• This is partly a capacity problem.
• But ensuring such compliance and building
the require capacity increases the cost and
makes the audit unviable for some of their
SME clients.
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22. Conclusion
• In auditing an SME the auditor needs to
modify his/her approach and adapt to the
address SME-specific requirements.
• The basic principles prescribed in different
ISAs will remain the same for the audit of
SMEs.
• Proportionate application of the ISAs is
possible in auditing SMEs.
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