Developments in the global and Egyptian economy have meant a growing role, and challenge, for the auditing and accounting services essential for businesses operating in a free market economy. Today, thousands of Egyptian auditing companies, big and small, have had to come to terms with the stringent standards to which they must adhere, in the wake of the Enron scandal in the US. Hazem Hassan, head of the Egyptian Society of Accountants and Auditors (ESAA) and a long-standing veteran in the field, speaks to Al-Ahram Weekly of the ongoing economic reforms, the new tax law, and challenges faced in his line of business. He also gives his prediction on the state of the Egyptian accountancy profession, and what he believes will be the position of the thousands of small auditing firms in the face of global competition By Niveen Wahish Driving up the tiny hill on the Cairo-Alexandria road where the Hazem Hassan-KPMG offices are located, and coming to a halt in the parking area behind the ultra-modern edifice, one might think that this could well be an office building in the US. Inside, the third floor housing the office of the chairman is no less impressive. The office, devoid of clutter, with elegantly understated furniture is wood-lined with dark olive- coloured leather furnishing. In the span of more than 60 years since Hassan's firm was established in 1942, under the name of Zaki Hassan, his father, it survived the major economic developments of the Egyptian economy: nationalisation in the 1960s, the open-door policy of the 1970s, and the economic reforms launched in the 1990s. The last, and not least important of these are the recent reforms introduced by Ahmed Nazif's cabinet targeting customs and taxation. The latter in particular lies directly within Hassan's area of expertise, and the veteran accountant assesses that the latest reforms manifest in the new tax law could actually transform the economic environment. A major development in the new law has been its objective to establish a basis of mutual trust between tax payers and the government. "The former law was burdensome and unfair," asserts Hassan. "It did not provide tax payers the right to revert to a neutral agency if they felt they had been unjustly taxed. Even the much-touted tax exemptions given investors were temporary, because they would be granted for a limited period of time." Hassan's optimism regarding the new law is based on actual developments and not, he asserts, wishful thinking. "The effects of the new law are already apparent. Clients who would previously request us to present a case for tax avoidance (not tax evasion) schemes, are now actually asking that their tax forms be filled in so as to reflect their real position. This is the idea behind the new tax law," he explains, "to broaden the tax base and encourage honesty" Hassan predicts that tax revenues could double within the span of the next three years as a consequence of the new reform. Egypt's new tax law, however, is not the only thing that had to be aligned with global standards. The very guidelines governing Hassan's business are now being updated to fit international standards. The 2001 corruption case involving Enron, the US energy firm and Arthur Anderson, formerly one of the big global names in accounting and auditing placed all such firms worldwide under the spotlight. Even Egypt felt the pinch. "Auditing and accounting standards are becoming stricter and more complicated" says Hassan. "Our challenge as Egyptian offices is how to develop ourselves to meet these complicated requirements." This task is currently being undertaken by the ESAA headed by Hassan. The society is working on modifying Egyptian standards and is expected to finish its work "within six months". One year ago, ESAA completed a code known as the "independency standard" establishing the ethics of the profession, in the wake of the Enron scandal. "The idea is that firms should not take any action that might jeopardise their impartial judgement of a company they are auditing" says Hassan. "For instance, they must not invest in such a company or offer a service that would be liable to their own scrutiny." The code also necessitates that an accountant should not audit a company for more than five years, or accept expensive presents from companies, thus impairing his independence. Employees of an auditing firm must also not work for a company they had been auditing before three years have passed since the date on which they left their auditing job. "Integrity is important for our work. If we lose our independence then we lose our credibility." Hassan underscores, however, that the funding of accountancy firm remains problematic. "This is a profession that needs large capital, yet we cannot take any loans. When our company wanted to set up its current headquarters, it could not find a bank from which to borrow since we are auditing 60 per cent of the banks. When we were finally able to take a loan it had to be repayed within a week, because it so happened that we started auditing the bank which had provided us with the loan." Abiding by a code of ethics is also necessary for Egyptian accountancy firms to be able to compete in an increasingly open economy. With the liberalisation of services, local firms will have to eventually compete head-on with their international counterparts. But the prospect does not worry Hassan. "Accounting services have already become indirectly liberalised. International companies are already present in Egypt since they operate through local representatives. Hassan, whose venture has been set up with a multinational firm, opines that "global accountancy firms are actually not interested in operating in Egypt for the sake of profit. For instance, KPMG's annual revenue is some $15 billion per year. They will not come to Egypt for a mere $5 million." What then motivates such firms to work in the Egyptian market? "They are interested in Egypt because it increases their coverage internationally. Their presence here is significant because it means they have a representation, and are serving clients globally." Nor does globalisation posit a threat to Egyptian firms, whether they are large or small. "Actually, international firms would prefer not to come into the Egyptian market on their own because of their lack of knowledge of the language, laws and business community. Moreover, they are not interested in auditing small companies. They want to serve their multinational clients and so will not compete with local accountants for local work." Globalisation is not the first economic challenge Hassan's firm has had to face. In the late 1950s -- the period of socialist nationalisation undertaken under the late President Gamal Abdel-Nasser -- the firm's accountancy business came "almost to a standstill". Hassan recalls that the Central Auditing Agency (CAA) was established then and 90 per cent of the company's business went to CAA. "Whatever firms were left unnationalised were too small to keep their businesses running. The CAA actually recruited all those working in accounting offices to come and work in its different departments". Hassan's firm did not escape these developments: he himself, and other employees in the company went to work as civil servants for the CAA for at least 10 years. In 1969, Hazem Hassan resigned his position at the CAA, leaving for the Gulf and establishing his accountancy firm in Dubai, Abu Dhabi and Beirut. He was able to sustain the Cairo firm, which barely made any profit, by means of the revenue obtained through his other companies. The liberalisation policies initiated by the late President Anwar El-Sadat in the mid-1970s, however, augured a rebirth for Hassan's work inside the Egyptian market. "When El-Sadat started the open-door policy, our hopes for setting up businesses in Egypt again ran high." Hassan decided to come back and concentrate on the Egyptian market, in anticipation of the demand which he expected would be brought about by new ventures opening up in Egypt. "We thought we should have two hats; local and foreign. That is why we contacted Peat, Marwick, Mitchell & Co, now called KPMG, and asked to represent them. The foreign hat meant that we had to be able to provide the same quality of services that the company we are representing was providing abroad." The move to build up his business has given Hassan leeway to build a client base. "Not only did we get Peat, Marwick, Mitchell & Co clients, but as well clients of the other major accounting firms worldwide." Circumstances changed with international companies now investing in their own local representatives. The four major global auditing firms now working in Egypt are Deloitte & Touche, Price Waterhouse Coopers, KPMG, and Ernst & Young. "We no longer get their clients, but we had 20 years in which we got some of the clients that should have gone their way." Hassan left the Beirut office to a local partner during the 15-year Lebanese civil war which started in 1975-76. His company still owns half the office, but does not collect any profit, "so as to compensate our local partner for the time he kept the office open during the war". Hassan's business has grown with the economy. Today, auditing and accounting services have become essential for companies operating in a free-market global economy. "The growing role of the capital market, the increasing number of Egyptian companies wishing to borrow from abroad, get listed on international stock exchanges or issue bonds all have to have their accounts in order, and audited by a credible firm." With the increased importance of auditors, companies are being well-paid; they can recruit staff and provide them with the necessary training. One floor below the ground of Hassan's firm houses a number of training rooms where "training takes place every day around the year to enable employees to keep up with the constant changes in the profession." Moreover, employee remunerations are improving and they can work their way up to become partners. For his part Hassan believes that this helps create an institution that "ensures continuity". This also guarantees an accumulation of experience and loyalty by employees "who believe that they too can become partners one day". At Hassan's firm, employees may become partners within 10 years. "Employees excel because they know it is their own company." The name of the company is actually owned by partners, he says "since in the partnership agreement it states that owners cannot take the name and put it in another venture. This ensures the sustainability of the company." Although Hassan today only plays a supervisory role over the firm, he continues to cherish his work as much as ever. "Nobody can do anything without hard work." He remembers the days when he first opened the office in Dubai, "we slept in the garage, for a whole year, and we were away from our families for long weeks." His wife once asked him why he married her since she hardly ever saw him. Today, however, he feels that the effort has paid off. "We are proud that we have an institution that is serving the economy. The success of an individual lies in what he can give, not what he can take."
