Rise to the challenge

Accountancy and audit reform is a key priority for Laos, one of the world’s fastest growing economies, as LCPAA president Phirany Phissamay explains

Bennett Murray, journalist

When Phirany Phissamay, president of the Lao Chamber of Professional Accountants and Auditors (LCPAA), started her career in the 1990s, the former Soviet client state was getting to grips with the new global market economy. Today, the computer scientist-turned-accountant is leading an ambitious initiative to bring accounting and audit in the landlocked country into line with global standards.

With a population of 6.8 million, Laos is among the world’s least developed countries. Located in mainland South-East Asia, it ranks alongside Ghana and Vanuatu at 139 on the UN’s 2018 Human Development Index. In the World Bank’s 2018 ease of doing business survey it comes in at 141 out of 190 countries. But with the Asian Development Bank predicting 2018 GDP growth of 6.8%, Laos has emerged as one of the world’s fastest growing economies. Much of the growth centres on the use of the country’s natural resources of hydropower, minerals and forests and the development of the agriculture sector. Neighbours China, Vietnam and Thailand are the leading sources of investment, followed by France and Japan.

‘The international system is new for most accountants in Laos; to train them we need support and funds’

Following the Vietnam War, the country found itself under the patronage of the Soviet bloc. A planned economy persisted through the 1980s until the reforms sweeping the rest of the communist world caught up with Laos. While still ruled by a single-party communist state, the country – officially known as Lao People’s Democratic Republic – has come a long way since the Cold War and today welcomes private enterprise in line with a policy of liberalisation.

From rules to principles

With the arrival of open markets, Laos found itself in need of financial reporting and auditing systems to suit the requirements of a capitalist economy. Some progress was made, but in 2009 a World Bank/International Monetary Fund Report on Observance of Standards and Codes (ROSC) found that a significant strengthening exercise was required if the country was to create a strong corporate financial reporting infrastructure.

Shortcomings were also noted in the Lao Institute of Certified Public Accountants, the professional body that had been set up in 1998: as well as a shortage of capacity, there was no effective system of auditor certification or licensing and no oversight of practising auditors and accountants.

Following the report’s recommendations, strategic and action plans for accounting and audit reform were established in 2013, with the objective of enhancing the legal framework and strengthening human resources and institutional capacity. In 2015, the existing professional body was replaced by LCPAA, which is now working towards associate membership of the International Federation of Accountants (IFAC).

Path to success

Through her work at the Ministry of Finance and Lao Chamber of Professional Accountants and Auditors (LCPAA), Dr Phirany Phissamay has played a significant role in developing reforms to the rules and regulations governing financial reporting, accounting and the profession in the country.

Trained as a computer scientist at Moscow’s State University of Management, Phissamay later studied business administration in Laos and Thailand, gaining an MBA, and completed a PhD at the Université Paris II (Panthéon-Assas) in France.

She joined the accounting department of the Ministry of Finance in 1997, rising through technical roles to head the department’s general division in 2006 before taking up her current position as deputy director-general in 2013. She became president of LCPAA in mid-2014.

Phissamay, who in her day job is deputy director-general of the Ministry of Finance’s accounting department, the body charged with leading the reforms, is in no doubt that the establishment of credible accounting and audit standards will go a long way to maintaining and increasing the flow of foreign direct investment into the fledgling economy.

‘Accountants can help the economy by ensuring that finances are properly organised and that proper accounting and reporting standards are in place,’ she says. ‘Once we have these, investors will be able to have more confidence in the financial information and can therefore make the decision to invest in Laos.’

Phissamay trained in the former Soviet Union as a computer scientist, with an emphasis on economic modelling. It was early on in her studies, she says, that she became aware of the critical role that accountants can play in socioeconomic development. ‘I learned how to make financial models, which I enjoyed, but I thought if the data is not reliable, it makes no sense to have a good financial model,’ she says. ‘You need accurate data. If you don’t have reliable source data, then the output data makes no sense.’

A continuing lack of technical capacity in government has, however, hampered progress. The transition is still ongoing, overseen by Phissamay, who notes that one of the most significant challenges has been how to switch from an outdated, Soviet-inspired, rules-based system of accounting to a more internationally aligned principles-based system. ‘People were used to the simplicity of a rules-based system. A principles-based system requires more consideration and more work to make a judgment, so it’s not easy for people,’ she says.

Phissamay first encountered this issue in 2015, when she assisted in the development of the country’s code of ethics to bring it into line with best practice and international standards. ‘The IFAC Code of Ethics for Professional Accountants approaches ethics reform from a principle-based standpoint. Reconciling the two systems was difficult,’ she admits.

Laos’s agriculture sector has helped boost the country’s GDP, predicted to hit 6.8% in 2018.

Building capacity

Phissamay’s work is also complicated by lack of capacity for training accountants keen to enter the profession.

‘The international system is new for most accountants in Laos; to train them we need support and funds,’ she says. The Big Four firms currently fulfil 98% of audit work in Laos, but Phissamay says that ‘there is still a lot of work to do – more work than the Big Four can handle’.

An agreement signed earlier this year between ACCA and the Ministry of Industry and Commerce to assist the Ministry of Finance and LCPAA with capacity building and training is, Phissamay says, ‘a useful step forward’. The World Bank-funded project is focused on strengthening financial information and building skills in a sustainable way, in line with international standards. It has helped to ensure that students have access to effective tuition and to build confidence in existing finance professionals, which is central to LCPAA’s mission. ACCA and LCPAA are committed to working together to build on this important work, which, as Phissamay highlights, is key to ensuring continued economic growth – and building on the achievements made to date.

Phissamay acknowledges that there is still a long way to go, however, particularly on enforcement. ‘Laotian law is essentially up-to-date with international norms, but much more needs to be done to enforce proper bookkeeping among state-owned and private enterprises alike.

‘Laotian law is up-to-date with international norms, but more needs to be done to enforce proper bookkeeping among state-owned and private enterprises alike’

‘We can develop and promote a particular law, but we cannot guarantee enforcement, so we start with the big entities and encourage them to be audited,’ she says. Initiatives in respect of smaller entities will follow in due course, she hopes.

Language is also an issue, as training courses need to be translated into Laotian. ‘It’s not easy; sometimes we just don’t have the technical terms in our language,’ Phissamay says.

On Transparency International’s 2017 Corruption Perceptions Index, Laos is ranked 135th out of 180. Phissamay believes it can improve its position if the next generation of accountants reject graft and remain objective when auditing enterprises.

‘It’s hard to make effective decisions without reliable data and to produce reliable data, accountants need a high level of ethics and objectivity,’ she says. ‘With proper standards, accountants can help the economy grow.’