Lesotho’s Audit Oversight Arrangements Lag Behind International Standards

A recent review of Lesotho’s audit oversight arrangements has revealed that the country lacks an independent audit oversight body, leaving auditors regulated by the Lesotho Institute of Accountants (LIA) under the Accounting Act 1977. This lack of independence raises concerns about accountability and effectiveness in ensuring high-quality audits.

The Current State of Affairs

According to the review, LIA’s mandate includes setting auditing standards, determining initial professional development and continuing professional development requirements, establishing a code of ethics for professionals, and monitoring member compliance with laws and regulations. However, the absence of an independent oversight body means that there is no separate entity to ensure that audits are conducted in accordance with international standards.

International Standards

Lesotho has made some progress in adopting international standards on auditing (ISA) and public sector accounting (IPSAS), but there is still room for improvement. The country’s financial statements are currently prepared on a modified cash-basis, with plans to transition to an accrual basis in the future.

Recommendations

The International Federation of Accountants (IFAC) has urged Lesotho to take several steps to strengthen its audit oversight arrangements:

• Establish an independent audit oversight body: This would ensure that audits are conducted in accordance with international standards and best practices.
• Adopt an accrual-based accounting system: This would provide a more accurate picture of the country’s financial situation and improve transparency.
• Improve financial reporting standards: Lesotho should aim to meet international best practices in financial reporting.
• Enhance LIA’s role as a standard-setter and regulator: LIA should be strengthened to ensure that it can effectively regulate the accountancy profession.

Conclusion

Lesotho’s audit oversight arrangements are in need of reform to ensure that audits are conducted in accordance with international standards and best practices. While some progress has been made, there is still much work to be done to address the concerns raised by IFAC and other stakeholders. The establishment of an independent audit oversight body and adoption of an accrual-based accounting system are essential steps towards strengthening Lesotho’s financial reporting framework.

Key Recommendations

• Establish an independent audit oversight body
• Adopt an accrual-based accounting system for government financial statements
• Improve financial reporting standards in line with international best practices
• Enhance LIA’s role as a standard-setter and regulator of the accountancy profession