The 2002 World Bank assessment of accounting and auditing practices in Egypt concluded that significant progress has been made in eliminating differences between Egyptian Standards on Auditing (ESAs) and Internationals Standards on Auditing (ISAs). Auditors are required to follow six ESAs which, according to the World Bank, cover only reporting requirements and are silent on other issues. However, in the absence of the local standard, ISAs must be used. The World Bank noted, however, that the compliance with existing requirements is weak, and that consultations with auditing practitioners and other market participants revealed that, overall, the quality of audits in Egypt is perceived to be low by the "investor community." Moreover, the audit profession and its oversight raised concerns. The World Bank identified weaknesses in the auditing framework in Egypt and proposed an action plan for the accountancy reform. The proposed amendments to Accounting Practice Law No. 133/1951 were expected to address some of the shortcomings identified in the World Bank assessment.

General Overview

In 2002, the World Bank conducted an assessment of accounting and auditing practices in Egypt as part of the Word Bank and International Monetary Fund's (IMF) Report on the Observance of Standards and Codes (ROSC). The ROSC evaluated the weaknesses and the strengths of the Egyptian accounting and auditing requirements, and involved a review of the reporting standards against actual practices. International Financial Reporting Standards (IFRSs) and International Standards on Auditing (ISAs) were used as the benchmarks for assessing national standards. It was concluded that significant progress has been made in eliminating differences between Egyptian Standards on Auditing (ESAs) and ISAs. Auditors are required to follow six ESAs which, according to the World Bank, cover only reporting requirements and are silent on other issues. However, in the absence of the local standard, ISAs must be used. The 2002 World Bank ROSC noted, however, that the compliance with existing requirements is weak due to the "lack of capacity among those who prepare and audit financial statements and by inadequate regulatory enforcement mechanisms" (p. 8). The World Bank further stated that consultations with auditing practitioners and other market participants revealed that overall the quality of audits in Egypt is perceived to be low by the investor community.

Mohamed Wahdan et al, the authors of "Auditing in Egypt: A Study of the Legal Framework and Professional Standards," presented at the 2005 Partners' conference at the Maastricht School of Management, also came to the conclusion that there is a compliance gap between auditing requirements and actual practices in Egypt. As a part of the study, Egyptian auditors answered a questionnaire and participated in a number of interviews. The results of this exercise demonstrated that the noncompliance with auditing standards in Egypt was mainly caused by the following: "(1) the lack of experience and expertise in the profession; (2) the weaknesses in the required apprenticeship; (3) the lack of accounting and auditing education; [and] (4) the lack of competitiveness of the profession in terms of salaries and incentives" (2005, p. 1). The authors further noted that some of these shortcomings were expected to be addressed by the revised Accounting Practice Law, No. 133/1951, which, at the time the paper was written, was yet to be finalized by the People's Council.

The major changes proposed to the Accounting Practice Law, No. 133/1951, as indicated in the 2004 World Bank's assessment of corporate governance in Egypt, include (1) all corporate auditors must pass two exams to ensure that they understand accounting and auditing standards and know how to apply them; (2) firms will be allowed to audit financial statements (the previous law only allowed individuals to perform this function; (3) establishment of a Supreme Council for Accounting and Auditing; (4) establishment of an Accounting Oversight Board; and (5) auditors will generally not be allowed to provide consulting services to the companies they audit.

The Accounting Practice Law, No. 133/1951, sets the broad framework for financial reporting in Egypt, and it is supplemented by a number of other pieces of legislation. Company Law No. 159 of 1981 requires all companies registered under the law to prepare annual audited financial statements. Audits must be prepared in accordance with the Accounting Practice Law, and the accounting and auditing standards are not specified. The Capital Market Law, No. 95/1992, along with the Listing Rules, mandates auditing and disclosure requirements for listed companies. The Banking Law sets legal foundations for banks and mandates the use of accounting and auditing standards prescribed by the Central Bank of Egypt (CBE).

The 2002 World Bank ROSC noted that the Capital Markets Authority (CMA) and the CBE monitor compliance with reporting requirements. While the CMA has the power to request information and impose sanctions in case of non-compliance, the CBE relies on bank auditors' to verify the accuracy of the information provided by the regulated entities. The Cairo Stock Exchange (CASE) enforces its listing rules; however, it has no powers to ensure compliance with the reporting requirements. Egyptian accounting and auditing standards are adopted by the Permanent Committee for Standards of Accounting and Auditing, which was established by the Ministerial Decree 478/1997 issued in 1997 by the Ministry of Economy and Foreign Trade (now Ministry of Trade and Industry, or MTI). According to the World Bank's ROSC, the Committee adopts the standards drafted by the Egyptian Society of Accountants and Auditors (ESAA). According to the self-assessment prepared by the ESAA as a part of the International Federation of Accountants' (IFAC) Member Body Compliance Program in 2006, the draft standards are exposed for comments from industry experts and practitioners. The standards are modified (if necessary) and are submitted to the Committee for final adoption. The 2002 World Bank ROSC noted that the MTI issues the final standard by a ministerial decree. The ESAA is a member of the International Federation of Accountants. (IFAC website)

The Principles

ISA 200 Objective and General Principles Governing an Audit of Financial Statements (effective 2006)

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There is insufficient information publicly available as to Egypt's compliance with this principle.

ISA 210 Terms of Audit Engagements (effective 2006)

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There is insufficient information publicly available as to Egypt's compliance with this principle.

ISA 220R Quality Control for Audits of Historical Financial Information (effective 2005)

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There is insufficient information publicly available as to Egypt's compliance with this principle.

ISA 230R Documentation (effective 2006)

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There is insufficient information publicly available as to Egypt's compliance with this principle.

ISA 240 The Auditor’s Responsibility to Consider Fraud in an Audit of Financial Statements (effective 2004)

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There is insufficient information publicly available as to Egypt's compliance with this principle.

ISA 250 Consideration of Laws and Regulations in an Audit of Financial Statements (effective 2004)

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There is insufficient information publicly available as to Egypt's compliance with this principle.

ISA 260 Communications of Audit Matters With Those Charged With Governance (effective 2004)

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There is insufficient information publicly available as to Egypt's compliance with this principle.

ISA 300 Planning an Audit of Financial Statements (effective 2004)

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There is insufficient information publicly available as to Egypt's compliance with this principle.

ISA 315 Understanding the Entity and Its Environment and Assessing the Risks of Material Misstatement (effective 2004)

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There is insufficient information publicly available as to Egypt's compliance with this principle.

ISA 320 Audit Materiality (effective 2004)

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ISA 330 The Auditor’s Procedures in Response to Assessed Risks (effective 2006)

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There is insufficient information publicly available as to Egypt's compliance with this principle.

ISA 402 Audit Considerations Relating to Entities Using Service Organizations (effective 2004)

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There is insufficient information publicly available as to Egypt's compliance with this principle.

ISA 500 Audit Evidence (effective 2004)

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There is insufficient information publicly available as to Egypt's compliance with this principle.

ISA 501 Audit Evidence - Additional Considerations for Specific Items (effective 2004)

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There is insufficient information publicly available as to Egypt's compliance with this principle.

ISA 505 External Confirmations (effective 2004)

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There is insufficient information publicly available as to Egypt's compliance with this principle.

ISA 510 Initial Engagements — Opening Balances (effective 2004)

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There is insufficient information publicly available as to Egypt's compliance with this principle.

ISA 520 Analytical Procedures (effective 2004)

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There is insufficient information publicly available as to Egypt's compliance with this principle.

ISA 530 Audit Sampling and Other Selective Testing Procedures (effective 2004)

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There is insufficient information publicly available as to Egypt's compliance with this principle.

ISA 540 Audit of Accounting Estimates (effective 2004)

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There is insufficient information publicly available as to Egypt's compliance with this principle.

ISA 545 Auditing Fair Value Measurements and Disclosures (effective 2004)

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There is insufficient information publicly available as to Egypt's compliance with this principle.

ISA 550 Related Parties (effective 2004)

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There is insufficient information publicly available as to Egypt's compliance with this principle.

ISA 560 Subsequent Events (effective 2006)

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There is insufficient information publicly available as to Egypt's compliance with this principle.

ISA 570 Going Concern (effective 2004)

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There is insufficient information publicly available as to Egypt's compliance with this principle.

ISA 580 Management Representations (effective 2004)

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There is insufficient information publicly available as to Egypt's compliance with this principle.

ISA 600 Using the Work of Another Auditor (effective)

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There is insufficient information publicly available as to Egypt's compliance with this principle.

ISA 610 Considering the Work of Internal Auditing (effective 2004)

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There is insufficient information publicly available as to Egypt's compliance with this principle.

ISA 620 Using the Work of an Expert (effective 2005)

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There is insufficient information publicly available as to Egypt's compliance with this principle.

ISA 700 The Auditor’s Report on Financial Statements (effective 2006)

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There is insufficient information publicly available as to Egypt's compliance with this principle.

ISA 701 Modifications to the Independent Auditor's Report (effective 2006)

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There is insufficient information publicly available as to Egypt's compliance with this principle.

ISA 710 Comparatives (effective 2004)

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There is insufficient information publicly available as to Egypt's compliance with this principle.

ISA 720 Other Information in Documents Containing Audited Financial Statements (effective 2004)

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There is insufficient information publicly available as to Egypt's compliance with this principle.

ISA 800 The Auditor’s Report on Special Purpose Audit Engagements (effective 2006)

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There is insufficient information publicly available as to Egypt's compliance with this principle.