The Tribune

By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

Bahamian accountants had urged the Government to delay the Business Licence audit requirement for firms with an annual turnover of $5m or more by one year, it was revealed last night.

Pretino P. Albury, the Bahamas Institute of Chartered Accountants (BICA) president, in a statement sent to Tribune Business said the body and its members called for implementation to be pushed back to ease “the burden on businesses that are not audit-ready”.

While the Government has not agreed to a year’s deferral, this newspaper revealed earlier this week that it will give companies until end-April 2024 to submit their audited financial statements. And, once they apply and it is justified, a further two-month extension will be given until end-June 2024. However, once that deadline has passed, potential sanctions and penalties may be enforced.

“While we understand the Government’s objectives in implementing the new audit requirements, we advocate for a pragmatic approach that considers the challenges faced by businesses,” Mr Albury said. “Our proposal for a one-year delay is aimed at ensuring a smoother transition without adversely affecting businesses with turnovers of $5m or more.”

BICA, in its statement, said it has been “actively engaged” with the Ministry of Finance and Department of Inland Revenue ever since the new Business Licence Act and regulations were passed last summer to “champion the need for a balanced and strategic implementation of the new regulatory framework”.

“Recognising concerns within the industry, BICA proposed the formation of a working committee comprising members from the big four accounting firms, co-chairs from small and medium practices, and key representatives from the Department of Inland Revenue (DIR),” it added.

“Since July 2023, BICA has met with the Department of Inland Revenue on a regular basis and worked collaboratively to address concerns surrounding the new Act. The meetings of the working committee have been pivotal in facilitating dialogue and finding common ground on critical issues.

“While initial negotiations faced challenges, particularly with the Department of Inland Revenue maintaining a firm stance, BICA successfully advocated for compromises that ensure fair treatment of businesses through the upcoming release of the new guidance notes, proposing and assisting in designing a Business Licence Tax Return, and submitting templates for review and audit reports.”

The Prime Minister, back in June 2023, said the Government through the enhanced Business Licence reporting regime was “encouraging better record-keeping within businesses and encouraging proprietors to be responsible for honest reporting”.

But micro, small and medium-sized enterprises (MSMEs) with annual turnovers below $250,000 will be exempt from having to maintain electronic records and have an independent accountant certify their turnover for Business Licence renewals. This threshold was raised from $100,000 to ease the burden on more such firms, who will submit management accounts as verification of their turnover sums.

However:

• Businesses with annual revenue between $250,000 and $499,000 will require accounting certification by an independent accountant

• Businesses with turnover between $500,000 and $2.499m will require a compilation report by an independent accountant

• Businesses with revenue between $2.5m and $4.999m will require a review statement by an independent accountant

• And large taxpayers, namely businesses with turnover above $5m, will require audited financial statements produced by an independent accountant

BICA acknowledged that the audited financial statements requirement was potentially problematic for privately-owned companies that may never have been subjected to such scrutiny, and are unfamiliar with the processes involved and lack the necessary resources.

“One key area of contention pertains to the audit requirement for businesses with a turnover of $5m or more. Recognising the potential burden on businesses that are not audit-ready, BICA proposed a delay in implementing this requirement for the current year,” it added.

“Despite the proposal, the Government has indicated a willingness to allow businesses to apply for a reporting deadline extension until April 30, 2024, with a final extension to June 30, 2024. Any further extension beyond this date would be subject to fines.

“BICA acknowledges the government’s commitment to fiscal responsibility. However, it emphasises the importance of a pragmatic and measured approach to avoid undue penalties on businesses, especially those facing challenges in meeting the audit requirement,” the BICA statement continued

“The Institute believes an extra year would give businesses the necessary time to adequately prepare for compliance and, in the interim, the independent review of financial statements in accordance with International Standard on Review Engagements (ISRE) may be performed.”

BICA also warned against penalising the entire accounting industry over one or two incidents. “Expressing concern about the perception that the new Act primarily targets under-reporting businesses and accountants, BICA highlights the need for a nuanced approach to legislation without penalising the broader industry due to isolated instances,” it said.

“Moreover, BICA highlights its commitment to international best practices by signing on as an institute and as a country to the International Federation of Accountants (IFAC). Adhering to IFAC’s rules, BICA members and licensees are required to maintain the highest level of ethics and reporting standards to both obtain and maintain their licenses.

“The Institute has implemented a practice monitoring group responsible for inspecting and reviewing practices engaged in attestation engagements to ensure adherence, especially to the International Standard on Quality Management (ISQM).

“Additionally, BICA has undertaken initiatives to update leadership and enhance the effectiveness of its Investigations and Disciplinary Committees, making them more proactive in addressing cases as they arise.”

Simon Wilson, the Ministry of Finance’s financial secretary, earlier this week said he is hopeful that the Government, accounting industry and private sector can shortly finalise and publish an agreed framework that has “built-in flexibility” over the deadlines by when companies with annual turnover exceeding $5m must submit their audited financial statements.

While many in the accounting and private sectors view the demand for audited financial statements as too onerous and unnecessary, given that only top-line turnover needs to be verified as this is what the annual Business Licence fee is based on, Mr Wilson explained that the Ministry of Finance has a broader objective.

Rather than a narrow focus on Business Licence fee certification and collection, he told this newspaper that the exercise is a wider “revenue intelligence tool” designed to ensure “integrity across all tax types” and said the tax authorities “see no reason why there won’t be a high level of compliance from year one”.

Pointing to the better-defined guidelines in the new Business Licence Act, which set out what is expected of auditors/accountants in verifying a company’s annual turnover, Mr Wilson said the Government had previously discovered some “did not do the basics” in checking the accuracy of disclosures by corporate clients subsequently found to have under-reported revenues to avoid paying the full tax liability.