The Tribune

• Chamber backs BICA calls for 12-month delay

• And give $5m firms time to ‘put house in order’

• ‘Nearly impossible’ for some to comply in time

By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

The Chamber’s newly-elected chairman last night voiced “serious concern” that firms may be exposed to “severe penalties” for Business Licence infractions due to inadequate time to ready for full audits.

Timothy Ingraham told Tribune Business it would “be nearly impossible” for companies to adjust to the enhanced Business Licence verification requirements part-way through their financial year as the Bahamas Chamber of Commerce and Employers Confederation (BCCEC) joined the accounting industry in calling for a year’s delay to full audits for those with annual turnovers exceeding $5m.

Asserting that the extra 12 months will give sufficient time for privately-owned companies, unfamiliar with full audit requirements, to “get their house in order”, he added that the extra cost associated with this process could also “stress” firms struggling with thin margins and cause unnecessary “upheaval”.

“It’s something that, from when we first became aware of this, we have held our position that companies that are new to full audits will need at least an extra year to get themselves prepared,” Mr Ingraham told this newspaper.

He added that the Bahamian private sector only became aware of the enhanced Business Licence verification requirements mid-way through 2023, when the Budget was unveiled, and at a time when they would have been preparing for less stringent certification and verification. As a result, the Chamber chair said many firms with annual turnover exceeding $5m have simply been given insufficient time to ready.

“The problem is that you are midway through most companies’ financial years and, at that point, a company would have been preparing itself for an audit review,” Mr Ingraham explained. “They would have been organising at one level of financial documentation, and the audit requires a far more extensive level of documentation.

“It would be nearly impossible for some companies not expecting it to now have to meet the requirements of an audit. What then ends up happening is an audit firm is unlikely to given them a clean opinion, and that in itself can be an issue. We asked the Government to seriously consider delaying it and give companies an extra year to get their house in order, so to speak.”

Asked about the potential consequences if there is no delay, Mr Ingraham told Tribune Business: “There are some severe penalties in the Act for non-compliance with certain segments. We’d be very concerned that the Government, having not allowed firms sufficient time to prepare for a full audit, then penalises them because they are unable to meet the full requirements of the Act as they were unable to get ready for the audit.

“That is a very serious concern; that they impose a fine on businesses who simply did not have time to prepare for this.” The Government has thus far not agreed to a 12-month delay, and is presently giving companies until end-April 2024 to submit audited financial statements that will verify their Business Licence filings.

And, once they apply and it can be justified, it may grant a further two-month extension until end-June 2024. Mr Ingraham, though, voiced scepticism that this will give impacted companies enough time. “If you don’t have the financial documentation an auditor requires, because you have been preparing for the first six months of this year for a review, I’m not sure six months is going to cure it,” he argued.

Mr Ingraham spoke to this newspaper ahead of today’s four-hour event, variously described as a seminar, workshop and meeting, that the Bahamas Institute of Chartered Accountants (BICA) is hosting to address concerns specific to the enhanced Business Licence verification. It is understood that officials from the Department of Inland Revenue will be present as they seek to finalise the reporting guidelines.

Meanwhile, other prominent private sector figures voiced similar concerns to Mr Ingraham’s and the Chambers. Fred Albury, the Auto Mall chief and a past Bahamas Motor Dealers Association (BMDA) president, said his Business Licence fee verification costs will double through the need for audited financial statements as opposed to the less-stringent audit review previously conducted at his firms.

As a price-controlled industry, Mr Albury explained he is unable to pass the increased costs on to consumers and will either have to absorb them or slash other expenses, such as staffing. And he also questioned whether there are sufficient Bahamian accountants to meet the Government’s demands within the stipulated reporting timelines.

“Even the audit firms say they don’t have enough staff to be able to do this,” Mr Albury told Tribune Business. “We do an audit review on all of our companies, which is performed by a chartered accountant. If they find he has screwed up, the penalty in the new Act is $150,000. That’s enough deterrent right there, and the Business Licence is based on turnover, not profit.

“I’d be more in favour of doing an audit review and let them increase the penalties to $250,000 if they find someone screwed up. For me, to do an audit review, that would be $20,000 to $25,000 per company. I have three companies. If I had to do an audit for each company, that’s now $50,000 to $60,000 per company.

“I cannot pass that on because we’re under price control. That might mean I have to cut a person or two to keep within my budget and other expenses.” Tribune Business also verified that concerns over whether there is a sufficiently large pool of accountants to meet the Government’s verification requirements is accurate.

One senior accountant, speaking to this newspaper on condition of anonymity, said the number of accountants certified and qualified to perform full audits is around half that able to perform the current, less stringent Business Licence verification.

“Only half that number are qualified to do a full audit,” they confirmed. “Not everybody has a certification to do an audit. Either they don’t have the insurance or don’t want to go through the peer review. If you eliminate that part, there’s going to be a limited number of accountants available to provide the two-steps - the review and the audit, and the attestation required for businesses under the new regime.”

Mr Ingraham, meanwhile, said the Ministry of Finance and Department of Inland Revenue (DIR) have sufficiently strong legal powers to target companies they suspect of tax evasion/avoidance via tools such as audits of their own. These techniques, he added, are at their disposal until all firms with $5m annual turnovers or more can meet the Government’s full audit mandate.

“The Government has the ability to go in and audit persons where they think there may be an issue,” the Chamber chairman said. “They can use that to ensure they are getting the tax revenue they think they should be getting and allow businesses to get ready for a proper audit.

“BICA’s position is that, in many jurisdictions similar to ours, there’s no requirement for an audit because of the stress it could put on businesses, but they must have their revenues certified by an accountant. You need to confirm those companies are reporting the revenue they are supposed to be reporting. We feel that would be the best route to go rather than subject companies to a full-scale audit.

“We’re also concerned about the resources of local audit firms,” Mr Ingraham continued. “It’s a matter of giving companies time to prepare for an audit. You can’t, in the middle of a company’s financial year, change the rules under which they are preparing for a review.

“There are a lot of things to consider beyond saying: ‘Go get an audit’. It’s not a cheap process. The audit fees, for some businesses with thin margins, could impact their business especially if the auditor has more work to do.” Auditors also have to consider factors such as reputational risk and insurance when signing off on an audit assignment.

Mr Ingraham also voiced concern that the full audit requirement may “stress businesses even further”, especially those “under pressure from the normal rules of doing business”. The Chamber, justifying its call for a 12-month delay to an audit timeline it branded “too aggressive”, said that “many Bahamian companies have not traditionally maintained this detailed level of financial records” the process requires.

“To force some businesses into an audit at this time could lead to a failed audit,” the Chamber added, reiterating that it was now renewing a call that it first made to the Government in the 2023-2024 Budget run-up to hold-off. It also pointed to the “significant expense” involved, with audits costing $20,000 and upwards and this likely to be passed on to consumers when living costs are already high.

“Many questions remain which must be properly discussed and addressed prior to full implementation,” the Chamber added. 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

Business Licence filings are due by end-January 2024, with payment of the correct fee required by end-March.