Mohamed Farid – FRA Chairman:
- To align with global best practices and address evolving circumstances, the Authority has launched a comprehensive plan to develop and update the Egyptian Accounting Standards (EAS).
- Continuing education programs are fundamental for developing and qualifying professionals, ensuring the profession’s efficiency and sustainability.
- The accounting interpretation for CERCs marks an unprecedented development in the field.
- Auditors play a critical role in ensuring the accuracy and reliability of financial reports, which are essential for investment and financing decisions
Dr. Mohamed Farid, FRA Chairman delivered a keynote speech at the 120th anniversary of the Association of Chartered Certified Accountants (ACCA). Dr. Farid, as FRA Chairman, leads the Egyptian Standards on Auditing Review and Other Assurance Services (ESAROAS). This committee, comprised of distinguished experts in accounting and auditing, regularly develops and revises Egyptian Accounting and Auditing Standards.
The Association of Chartered Certified Accountants (ACCA) is an international professional accounting organization with a global membership of 455,000 students and 178,000 qualified members spanning 11 countries. The ACCA’s mission includes supporting public sector institutions worldwide by developing the capacity of current and future financial leaders through its network of 91 offices and centers. The ACCA currently serves over 64,000 trainees and members working in the public sector across more than 135 countries.
The event was attended by prominent figures including Dr. Ahmed Kojak, Minister of Finance; Hazem Hassan, Chairman and President of the Egyptian Society of Chartered Accountants and Auditors. In addition to, Kush Ahuja, ACCA’s Head of Eurasia and Middle East, Nourhan Abdel Bari, Market Development Manager for ACCA Middle East; and numerous legal accountants and representatives from accounting firms operating in Egypt.
Dr. Mohamed Farid, FRA Chairman announced that Egyptian Accounting Standards have been developed to flexibly accommodate evolving economic conditions. This allows companies to revalue assets at market value, rather than book value, and present them accordingly in financial statements. This updated approach provides a more accurate reflection of a company’s performance and financial position, supporting the Egyptian government’s broader initiatives to create a business-friendly environment that stimulates economic activity, fosters sustainable growth and attracts investment.
Dr. Farid explained that the Egyptian Accounting Standard No. 13 “The Effects of Changes in Foreign Currency Exchange Rates” has been amended to align with international accounting standards. He noted the groundbreaking development of a new accounting interpretation – a pioneering first for Egypt and the region – providing clear guidance for carbon credits accounting. This interpretation clarifies the accounting procedures for four distinct carbon credit scenarios: (1) Initial issuance to the project developer and owner; (2) Issuance to a project developer or financier other than the owner; (3) purchase of carbon credits for offsetting purposes and for trading purposes and (4) purchase of carbon credits for trading purposes.
He explained that the Egyptian Accounting Standards play a crucial role in enabling companies to accurately present their financial position and operating results, thereby strengthening the basis for sound financing and investment decisions. He highlighted the comprehensive overhaul of Egyptian Accounting Standards, emphasizing the shift to fair value asset valuation and improved accounting for real estate investments and equity.
In his address, Dr. Farid affirmed the Authority’s ongoing commitment to develop accounting standards, with the explicit aim of achieving full integration with all applicable international standards. He then detailed the extensive efforts undertaken to enhance the Egyptian Accounting Standards, driven by the need to keep pace with leading global developments and best practices. These efforts are also closely aligned with the broader reform initiatives pursued by the Egyptian government to bolster sustainable growth and development. He emphasized the continuous commitment to development, acknowledging that significant work remains to be done to truly support the national economy.
FRA Chairman expressed his sincere gratitude and appreciation to the Association of Chartered Certified Accountants (ACCA) for organizing the ceremony and for their ongoing commitment to develop and enhance the skills of professionals involved in financial reporting—including preparers, auditors and users. He emphasized that investing in training and qualification of professional staff through continuing education programs is essential for improving the efficiency and long-term viability of the accounting profession, cultivating future generations of skilled professionals and ultimately ensuring the lasting positive impact of current reforms.
Dr. Farid highlighted that the current state of Egyptian accounting standards represents a significant transformation, achieved through numerous decisions aimed at their progressive development. He cited Prime Minister’s Decree No. 883 of 2023 as a key milestone in this process, mandating amendments to Egyptian Accounting Standard No. (34) concerning real estate investment. Specifically, the fair value model was incorporated into this standard, requiring entities to select either the fair value model or the cost model as their accounting policy and to consistently apply that chosen policy to all their investment properties.
Furthermore, Paragraph 35 of the standard stipulates that any increase in the carrying amount of an investment property due to fair value valuation must be recognized in other comprehensive income and accumulated in equity as “surplus from the revaluation of investment property at fair value.
To better align with international financial reporting standards, Egypt has revised its accounting treatment of investment property valuations. Fluctuations in the value of such properties are now recognized directly within the profit or loss statement, offering a more transparent view of a company’s financial performance, especially considering recent exchange rate volatility. While this is the new standard, companies retain the option of recognizing these valuation changes in comprehensive income, but only once over the asset’s or investment’s lifetime.
In addition, Egypt has also updated its accounting standards related to foreign exchange. Specifically, Egyptian Accounting Standard No. 13, which deals with the effects of changes in foreign currency exchange rates, has been revised to align with international best practices. This update follows amendments made by the International Accounting Standards Board (IASB) on August 15, 2023, to International Accounting Standard (IAS) 21, titled “The Effects of Changes in Foreign Exchange Rates.” These changes to IAS 21 require companies to provide more detailed and useful information within their financial statements about the specific exchange rates used in their various business transactions. Furthermore, the updated standard required companies to estimate foreign currency exchange rates, as well as related disclosure requirements.
Prime Ministerial Decree No. 4575 of 2023 introduced amendments to the Egyptian Accounting Standards, specifically adding Annex (C) concerning “Financial Instruments.” This change addresses concerns raised by companies regarding the application of Egyptian Accounting Standard No. 47 (2019), “Financial Instruments,” which is aligned with IFRS 9. This includes evaluating the need for an allowance for expected credit losses on financial instruments issued by the Egyptian state and the Central Bank of Egypt in local currency. The justification for not recognizing a credit loss allowance for these debt instruments, deemed to be without credit risk, is based on the principles of Egyptian Accounting Standard No. (47) Financial Instruments.
Following this, annex (C) to Accounting Standard No. (47) Financial Instruments 2019 was approved, specifying permissible exceptions for measuring credit risk and expected credit losses.
Then, Prime Ministerial Decree No. 636 of 2024 replaced the following Egyptian Accounting Standards: (EAS 13) “The Effects of Changes in Foreign Exchange Rates, (EAS 17) “Consolidated and Separate Financial Statements” and (EAS 34) “Investment Property”. The decree also added Accounting Interpretation No. 2 regarding the accounting treatment of Carbon Emission Reduction Certificates (CERCs).
Following the amendment to IFRS 21, the complexities of foreign currency exchange for financial reporting are now addressed. This aligns with Minister of Finance’s Decree No. (34) of 2024, which permits the use of observed exchange rates, rather than spot rates, and the calculation of percentage changes in exchange rate differences when determining the income tax base. Consequently, Egyptian companies’ financial statements now better reflect the economic impact of currency exchange and its volatility.
Egyptian Accounting Standard (EAS 17) “consolidated and separate financial statements” was subsequently updated to include the equity method. This aligns with International Financial Reporting Standards, which introduced the equity method for valuing subsidiary and associate investments in separate financial statements in August 2014, thereby improving the quality of companies’ financial reporting.
To align with International Financial Reporting Standards, (EAS 34) “Investment Property” which already included the fair value model, was amended. The amended standard requires companies to recognize investment property valuation differences in profit or loss, enhancing the portrayal of their financial standing, particularly considering the current economic climate and exchange rate volatility. Companies retain the option to record these differences in other comprehensive income once during the asset’s life.
To support the newly established African Voluntary Carbon Market in Egypt (launched at the 2022 Sharm El-Sheikh Climate Summit), a collaborative effort between FRA, EGX, and the Ministry of Environment culminated in the launch of the continent’s first regulated voluntary carbon market. This market facilitates the trading of carbon emission reduction certificates (CERCs) on the Egyptian Exchange. This development was enabled by Prime Ministerial Decree No. 4664 of 2022 that amends provisions of the Executive Regulations of the Capital Market Law (Law 95 of 1992), classifying CERCs as financial instruments eligible for listing and trading. To encourage market participation, a draft accounting treatment for CERCs was developed after being presented and reviewed by a Committee established by the Authority’s Board of Directors. This committee comprised representatives from FRA, Ministry of Environment and the private sector. The draft was then submitted to Standards Committee which subsequently issued Interpretation No. ( 2).
Furthermore, Prime Minister’s Decree No. 1711 of 2024 amended (EAS 13) “The Effects of Changes in Foreign Exchange Rates” by adding Annex (E). This annex sets forth optional accounting treatments available to companies for managing the financial consequences of exceptional economic decisions promulgated by the Central Bank of Egypt.
Dr. Farid explained that sound accounting standards enhance financial management efficiency and proper reporting provides crucial information for creditors and investors, enabling sound investment decisions.
He emphasized the importance of aligning with International Accounting Standards (IAS), given their global adoption. This international harmonization regulates accounting practices, improving the quality of financial statements and reports, particularly given the interconnectedness of international financial markets. These markets rely heavily on companies’ financial information for informed investment and economic decisions.
He emphasized the critical role of auditors as the primary safeguard of companies’ financial reporting quality and integrity, which is essential for informed investment and financing decisions. This alignment with international standards can be achieved by directly applying those standards or by developing national standards consistent with them. The latter approach may involve adopting international accounting treatments with specific exceptions or modifying certain provisions to accommodate local circumstances.
Last modified: February 3, 2025