The country’s basic requirements for accounting, financial reporting and auditing were set out in 2002 with the Law of Commercial Enterprises and the Law on Corporate Accounts, their Audit and the Accounting Profession. The latter, also known as the Accounting Law, mandates the use of an accounting system based on international accounting standards for all enterprises.
In 2009, Cambodia became one of the earlier adopters of the International Financial Reporting Standards (IFRS) and IFRS for SMEs, beating a number of major global leaders to it. The standards were thereby renamed Cambodian International Financial Reporting Standards (CIFRS) and CIFRS for SMEs.
A system both simple and complex
Small and Medium Enterprises (SMEs) in the Kingdom, which number over half a million, operate within a legal and tax system that is still relatively lax. On their Annual Profit Tax Return, for example, companies are only required to provide basic financial statements. “Regulations regarding the burden of financial reporting are pretty light for SMEs,” says Anthony Galliano, CEO of Cambodian Investment Management. Galliano also believes that, compared to that of other countries, the Tax Code in Cambodia is relatively simple: “SMEs don’t really have it all that bad,” he argues.
While our contributors point out there isn’t really a need for simpler accounting standards, they believe there is a need for simpler reporting and tax filing requirements. IFRS, adopted some seven years ago, can be too complex for many of Cambodia’s SMEs. “With under 200 qualified accountants in the entire country, businesses that must follow these rules can find it difficult,” says David Benaim, Chartered Accountant and Founder of consulting firm Xlconsulting.
Ronald Almera, CEO and Partner at Grant Thornton Cambodia, notes that the General Department of Taxation (GDT) is already working to streamline this process. The push to bring all businesses under the Real (taxation) Regime (an element of the Law on Financial Management 2016), and the creation of an online tax registration system are good examples of this, he says.
Improvement versus enforcement
The Accounting Law requires all enterprises to keep books and accounts and to prepare financial statements on a yearly basis. However, many businesses in Cambodia do not comply with this law or bother to keep proper accounting records because of unawareness of the law or apathy towards it.
Being conscientious in your accounting and reporting practices is important: not only is it necessary for taxation reporting purposes, it also helps you understand how your business is performing. “[Maintaining] proper accounting and financial records should not be seen as a necessary way to tick the boxes for legal requirement; it should be seen as the main tool that businesses use to decide how to grow and expand their business,” explains Benaim.
“The issue is not improvement but enforcement,” adds Galliano. According to him, the GDT could do more to enforce the requirement to maintain basic financials set out in the Law on Taxation. “In the absence of this the country will never truly broaden its tax base and instill international financial record-keeping standards which mitigate tax avoidance,” he asserts.
According to Almera, one of the things that the GDT could do to help ensure taxpayer’s compliance is to organise more training sessions for businesses. “This will help disseminate the new regulations currently issued,” he says.
Simplifying accounting and getting everyone on board
Keeping up with IFRS standards can present a problem for SMEs, who may have limited resources available and no access to a certified accountant. Benaim recommends that companies keep it simple by working on a cash basis of accounting instead of accruals, as this should provide more accurate solutions. A cash accounting basis is where transactions are recorded only as cash changes hands, rather than when the transaction happens.
Benaim has other tips to facilitate accounting and administrative processes for SMEs. He recommends that business owners make full use of recent technological advances. There are free or cheap accounting systems on the market that, according to Benaim, can reduce data entry by 70 percent and provide analytic insights that were previously only available to data scientists.
“One such tool is Receipt Bank,” says Benaim. This is an application that removes the hassle of receipts and invoices. It extracts the information from your invoices and enters it directly into your accounting software. The only thing the user has to do is take pictures of the receipts with a smart phone and set some parameters. “No data entry, plus all your receipts are instantly searchable by amount,” Benaim comments.
The local talent: a growing pool
The accounting profession has developed in spectacular fashion in the Kingdom in recent years. Major international accounting firms have been present in Cambodia for decades, endeavouring to train Cambodians who want to become accountants and tax professionals. Many of them have gone on to establish their own successful legal and accounting firms.
Benaim tells us that accounting is a popular major in Cambodian universities, with a good number of students that get jobs and eventually becoming extremely competent in the profession. However, in terms of professional certified accountants, Benaim reminds us that the country currently counts no more than 200 qualified professionals. “This is an issue,” he says.
The Association of Chartered Certified Accountants (ACCA) is well-established within the country, but there is no Cambodian-specific accounting qualification. In other words, accountants can only become “qualified” by passing the ACCA exam. This is an issue because the test can be too expensive for the average Cambodian student; additionally, the exam can only be taken in English. “Establishing a local qualification in Khmer would be a great way to improve the reputation and competency of the local talent,” remarks Benaim.
This notwithstanding, accounting firms registered with the National Accounting Council and the Kampuchea Institute of Certified Public Accountants and Auditors are very capable in helping ensure that business entities fairly comply with IFRS, as Almera points out.
Almera, however, does see a need to bolster training for private sector accounting professionals to ensure that they are well versed in identifying accounting issues and in resolving them using CIFRS and CIFRS for SMEs. He suggests that private sector accountants and bookkeepers tap on the resources and experience presented by accounting firms by seeking training with them, or, in the very least, by reaching out to them to consult any accounting issues that may come their way. “When properly trained, and if they receive the appropriate consultation, the accountants will technically be better equipped to identify and resolve accounting issues in every business transaction,” he says.
As suggested by our contributors, the accounting profession enjoys a very competitive environment in the Kingdom. The number of schools that offer quality education in Cambodia is growing quickly, and we can only expect future generations of Khmer accountants and tax professionals to be increasingly well-prepared.