Savings and credit societies (saccos) risk having accounts qualified and credit rating downgraded if they do not meet the requirements of international financial accounting standards (IFRS-9) that took effect in January.
The Institute of Certified Public Accountants of Kenya (ICPAK) said members were still awaiting direction from the saccos regulator — the Saccos Societies Regulatory Authority (Sasra) — in the form of guidelines similar to those the Central Bank of Kenya issued to commercial banks on the new standard last November.
The IFRS-9 requires that lenders provide for the probability of default on a loan in advance rather than after a customer has actually defaulted.
“We are urging saccos to embrace the IFRS-9 standard because auditors will be left with no option but to qualify their accounts for this year if they find out that the societies have not used the new method,” said ICPAK head of professional services Nerbat Avutswa.
“This can affect the credit rating of the saccos when they are dealing with third parties such as banks that provide loans to saccos for onlending to members.”
Sasra is understood to have held a meeting in Mombasa between June 20 and June 22 on IFRS-9 during which it came to the conclusion that the current regulatory regime shares the same objective with the new standard.
This means that implementation of the current sacco regulations “will enable saccos to reasonably comply with the requirements of the IFRS-9”.
The meeting outlined several challenges including a lack of capacity by saccos to implement IFRS-9 but left the option open for further fine-tuning of its position with the possibility of coming up with the guidelines.
Mr Avutswa said: “Already saccos that follow the law on loan provisions should not find it too difficult changing from providing for default in advance instead of the old standard where provisions were made after the fact.”
However, the saccos meeting was of the opinion that data to determine whether a default was likely was not always easily available or accurate as impairment of an asset only becomes evident when a borrower has actually failed to pay.