Economy

Treasury on the spot over accountants’ fees

Yatani

National Treasury Cabinet Secretary Ukur Yatani during a past interview at his office. FILE PHOTO | NMG

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Summary

  • The Treasury Monday began receiving views on the proposed regulations, which include setting the minimum fees charged by accountants.
  • The Competition Authority of Kenya (CAK) has previously shot down the proposed minimum fees for accountants, saying it would limit competition.
  • The Institute of Certified Public Accountants of Kenya (ICPAK) had in 2015 requested to be exempted from competition rules.

The Treasury has come under the spotlight for entertaining proposals by accountants to set minimum fees they can charge for advisory services, setting businesses up for a possible escalation of compliance costs and undermining competition rules.

The Treasury Monday began receiving views on the proposed regulations, which include setting the minimum fees charged by accountants in an attempt to curb price under-cutting and boost professionalism.

The Competition Authority of Kenya (CAK) has previously shot down the proposed minimum fees for accountants, saying it would limit competition—raising questions on the Treasury’s renewed dalliance with the accountants over the matter.

The Institute of Certified Public Accountants of Kenya (ICPAK) had in 2015 requested to be exempted from competition rules – a move that would allow it to set minimum professional fees for accounting services.

The CAK rejected the request in a November 2016 decision, arguing that the benefits of minimum fees were outweighed by the potential harm they would cause in the marketplace.

“Introduction of fee guidelines will decrease competition, increase costs, reduce innovation and efficiencies and limit choices to customers and is, in fact, likely to raise the cost of accountancy services beyond the reach of some consumers,” the CAK said.

Fresh public consultations on the proposed regulations began yesterday,

with non-practising members of the accountants’ lobby ICPAK presenting their views amid concern that setting minimum prices could limit options of affordable services to the public.

Practising members of ICPAK and regulators such as the Central Bank of Kenya, the Capital Markets Authority, the Retirement Benefits Authority, the Insurance Regulatory Authority, and the Commission for University Education are set to give their views this week.

The proposed fee schedule shows an individual will pay an accountant a minimum of Sh2,000 to seek the services of application for Kenya Revenue Authority (KRA) PIN, obtaining a tax compliance certificate (TCC), filing of return of income with salary, other sources/share of profit and taking instruction as a tax agent.

A business partnership will pay Sh7,500 for the same services while a local firm will pay Sh10,000. Filing of return of income with preparation of bank summary, capital accounts, and balance sheet will cost an individual Sh5,000 and a medium-sized company Sh10,000.

Any other tax consultancy will see an individual part with Sh10,000 and a medium-sized company Sh50,000.

“Taxation services, include tax advisory services and related work for organisations and individuals provided to assist clients to comply with tax laws, with respect to tax administration procedures,” say the guidelines.

It will cost one Sh100,000 to get consultancy from an accountant in a tax dispute where the value is below Sh500,000.

Filling a tax appeal will see an individual part with Sh1,000 to get the services of an accountant and Sh20,000 for a small business.

Proponents of the proposed regulations say setting minimum charges would arrest price undercutting and promote ethics.

“Overall, the net impact of the proposed regulatory rule is positive on practice of the accountancy profession in Kenya and beyond including qualifications for the profession,” said Treasury Cabinet Secretary Ukur Yatani.

Under the new schedule, fees paid to accountants will be pegged on hourly rates and generally represent multiple parameters for compensation, including the skills and scope of work being done.

“An accountant in practice shall before the commencement of any assignment, agree with the client on the fee scale to be applied and fees payable in accordance with the Schedule,” say the draft guidelines.

“An accountant in practice shall not agree or accept any remuneration less than as provided by this Order and any such action shall amount to misconduct as defined in the Accountants Act.”

A small-medium enterprise with revenue of less than Sh5 million shall be charged Sh50,000 per hour for audit and assurance services while a medium-sized company with revenue of below Sh100 million but above Sh5 million will have to part with a minimum of Sh200,000 for a similar task.

Large firms with revenue of above Sh100 million will pay a minimum of Sh1 million for audit and assurance.

Institute members will be paid Sh500 per hour while audit partners responsible for signing off the audit report and who take overall responsibility for the audit work performed and the opinion will take home Sh14,500 an hour. Small firms will part with a minimum of Sh100,000 to be advised on business partnerships.

Under the draft guidelines, the minimum scale fees will be calculated on the basis of the time taken to undertake the assignment or engagement period.

Accountants and their clients currently negotiate and agree on fees without any price guides.

The minimum fees come at a time when new laws and business realities have entrenched the use of external and internal auditors, setting the stage for an earnings bonanza for accountants whose typical monthly compensation is way above the national average.