Contributors from Colombia were asked three questions: What were the highlights/trends in your market last year? (i.e. important mergers, regulatory changes, economic situation etc.); What are the opportunities and challenges for accounting firms in the market?; What are the expectations for the future short/medium/long term?
By Vivian Amézquita, managing partner PKF Colombia
During the last years, Colombia has been migrating to IFRS and this has created a lot regulatory changes for the accountants. At the same time, the ISA’s adoption in the country has increased the training requirements for accountants.
2017 has been a very complex year from an economic perspective. The government increased the VAT by the end of last year (from 16% to 19%) and the income statement went up again, affecting profits during a very difficult year.
Auditing in the local market is still recognized as fundamental to develop business in the country, nevertheless, audit firms face challenges to operate in Colombia. In the last months Colombia has been witnessing a series of adverse events that have had big firms involved. The risk for audit firms in the country has increased due to corruption investigations. Controlling entities have focused on the firms that were auditing companies involved in local corruption scandals.
Thus, the challenge is clear: the only way to guarantee audits are being carried out properly is by having a strong quality system and zero tolerance with companies that are not 100% correct.
Currently, there are opportunities in helping companies with the new tax scenario. The Colombian tax system is very complex, and thus, a good advisor will always be welcome under such circumstances.
On the other hand, The International Standards on Auditing (ISAs) came to Colombia to stay and be implemented from 2016. It is an exciting and extraordinary moment for the accounting profession, especially for the professionals who play a role in the information assurance. At this juncture audit firms are being relevant actors in a significant change that will improve the way we do things and how companies present financial information.
To put everything in a nutshell, the future of the audit is to reinforce the role of the auditor as a generator of trust, so that the auditor must adapt their activity to a more complex context. Expanding the scope and depth of its work is revealed as a necessary step to fully understand a business world conditioned by multiple dimensions.
The future also provides us with a more complete, integrated and, above all, understandable information model. It is useless to gather information if it is not processed and structured for its recipients to understand. The time has come to look beyond the balance sheet and a company's bottom line, because there are other elements that also influence their results, their functioning or their own survival.
By Paola Andrea Vacca Buitrago, international liaison partner, BDO Colombia
In 2016, peace talks between Juan Manuel Santos Calderón’s government and the FARC leaders finally came to an end after more than 50 years of armed conflict with the signing of a peace deal. The post-conflict situation in Colombia has created both challenges and opportunities for its growth and development.
The pace at which the economy accelerates over the coming years will depend on the government’s success in implementing the peace agreement and new tax reforms across the country.
The Colombian peace deal has renewed optimism both internally and externally, and is expected to significantly benefit the national economy and encourage more foreign investment.
Thanks to the government’s efforts and the recent optimism with the peace treaty, Colombia is and will be an attractive market for consulting firms in future years. It has a growing, diversified economy that offers legal and institutional framework opportunities for business development.
With the new pipeline and fourth generation project came great expansion prospects for investment in the construction, infrastructure, logistics, retail and transport industries. This has produced advantages not only for the country and local companies in these sectors, but also for overseas companies, bringing a new and broader market for accounting firms.
Strategic consulting services are global businesses that continue to grow as companies in all industries face the increasing challenges of a changing and dynamic world, which undeniably affects the accounting profession. This is the case in Colombia and new international and local consulting business are joining the already large number of companies that continually need specialist advisory services.
Professional services firms make up a very homogeneous and competitive industry that is growing in Colombia, making it hard to differentiate from the rest within a divided market.
Businesses have a great portfolio of international and local consultancy firms to choose from, but the operations of many consulting firms are still modest, which makes it hard for them to benefit from the economies of scale achieved in other markets.
In addition, accounting firms are often subject to the business cycles of their client companies, which sometimes prevents an optimal use of their resources, so they cannot rely on providing only one service to the same client. This leads firms to redouble their efforts to maintain market share and, above all, to support companies that seek out to avoid failure in difficult times.
In the short term, we need to embrace change and internal transition. This will help us consolidate a solid, innovative base of managers and partners with the skills to adapt to and challenge the market with an approach that brings in new services and leads people to focus on delivering value and something different to all our clients.
By Rodolfo Uribe R, partner at ECOVIS Colombia
During 2016 the government took actions in order to reach a peace agreement treaty with the more than 50 years old terrorist group known as FARC. This disturbed the macro economic environment particularly after the government proceeded with its aim despite having getting a disapproval in the referendum conducted on that regard. Furthermore, at the end of the year, a tax reform promoted by the government was enacted by the congress, reform that additional to the expected income tax increase, included a very unpopular increase of VAT from 16 to 19% and a new tax on dividends paid to the final investor.
Starting 2016 Colombia has formally adopted the International Auditing Standards (IAS) and a government bureau with faculties to regulate the accounting profession. The bureau has prepared a review guidance and a schedule to visit audit/accounting firms in order to verify and enforce IAS compliance. For all accounting firms but those belonging to international accounting firms (TIER 1 AND 2), the latter represents a big challenge as fewer local training has been deployed in the related subject due to the timeframe provided. Thus, the most important challenges in terms of business opportunities are related to helping customers to adapt or accommodate to the new macro economics and global geopolitics, despite the fact that uncertainty still continues.
Considering that innovation is less about changing everything companies have, new challenges and opportunities have arisen, such as The Four Industrial Revolutions and also Digital Transformation which oblige CEOs to be more flexible and agile. In Colombia, we consider there are business opportunities in terms of Electronic Invoicing, Information Security and ERPs´ implementations.
In regard to accounting and auditing services and due to the recent IFRS implementation in Colombia for all companies and the obligation to use IASs, we foresee a big change in the accounting profession that certainly will benefit all the customers and will reduce the number of players as they would not be able to cope with all new requirements. We expect several local M&A‘s, business transformations and of course new payers coming in different sectors.
By Vicky Tzimiropoulou, Latin Hub country manager for Colombia and Ecuador at 3e Accounting
Colombia has the fourth largest economy in Latin America, and in recent years it has diversified its economy leading to macroeconomic stability. GDP growth should accelerate in 2018 thanks to infrastructure spending, higher oil prices and some pick-up in private investment. However, the implementation of a peace accord with the FARC guerilla will dominate the political agenda.
Regarding regulatory changes congress in Colombia enacted Law 1819 of 2016 on 29 December to reform the Colombian tax code. This law added processes intended to align the Colombian tax system with the OECD’s Base Erosion and Profit Shifting (BEPS) guidelines. It has also increased the general corporate income tax rate, added a new income tax withholding on dividends, and eradicated the income tax for equality (CREE) and related CREE surcharge.
Compliance with IFRS should be seen as an opportunity for companies to present their financial statements in the same language as the rest of the world, and stay ahead in business management. These newly adopted accounting standards in Colombia opens the country to other markets in the world, and at the same time, helps with strategic and innovative tools of financial information.
However, a challenge for Colombia is the country’s legal and regulatory requirements on accounting, which are not always in line with high-quality financial reporting standards. Colombia has multiple legally established sources of accounting standards and rules, and some of the accounting requirements conflict with each other. As a result, preparers and auditing/accounting firms are often confused about the applicability of particular accounting methods and disclosure obligations, which can lead to the deterioration of the quality of the financial statements.
In many cases, tax accounting rules require accounting treatments that conflict with financial reporting requirements in such areas as inventory costing, valuation of inventories under the retail method, accounting for leasing contracts, depreciation of fixed assets, provision for bad debt, and inflation adjustments. As a result, accounting/auditing firms that prepare/audit such financial statements face a challenge when they are trying to avoid triggering a difference of opinion and a misinterpretation of the statements with taxation authorities.
By representatives of Kreston RM S.A (Colombian member for Kreston International)
The convergence to International Financial Reporting Standards (IFRS) or Law 1314 of 2009 reflects the materialisation in the disclosures in the Financial Statements resulting from the impacts and adjustments determined by the entities in the Statement of Financial Position January 1, 2015, Transition Financial Statements as of December 31, 2015 and the comparative year as of December 31, 2016, for companies classified as group 2 (IFRS for SMEs) which represent more than 60% of total of the companies incorporated in the country, undoubtedly represented a major challenge for the profession.
For the year 2017 and in the development of the project for the modernization and harmonization of public accounting regulation and in accordance with the objectives of the principles of international financial reporting standards, the National Accounting Office issued the following regulations for the entities that conform the Colombian Public Sector;
- Resolution 628 of 2015, which incorporates in the Public Accounting Regime (RCP), the theoretical and methodological reference of the public accounting regulation.
- Resolution 037 of 2017 (which repealed Resolution 743 of 2013); Resolution 414 of 2014 and its amendments; and Resolution 533 of 2015 and its amendments, are incorporating, in the RCP, the regulatory frameworks for state-owned enterprises and for government entities.
- Resolution 037 of 2017 (which repealed resolutions 117 of 2015 and 467 of 2016), and resolutions 139 and 620 of 2015 and their modifications, incorporating in the RCP, the General Catalogues of Accounts to be used by public entities.
- Resolution 192 of 2016, which incorporates, to RCP, the Transversal Procedures.
- The Resolutions that incorporate the Accounting Procedures; and
- Resolution 525 of 2016, which incorporates into the RCP, the Standard of the accounting process and the documentary accounting system.
In fiscal / tax matters Colombia at the end of 2016, the structural tax reform issued under Law 1819 represents important challenges for the country's economy, due to its impact on changes in rates in national and district taxes.
With the tax reform entering into force it can highlight the changes in the general VAT rate from 16% to 19%, the creation of the monotributo (self-employment tax) for the simplified regime, the ratification of the consumption tax, elimination of the CREE and creation of the new self-retention of income, on the other hand for natural persons required to file income tax returns are eliminated IMAN and IMAS settlement methods.
In terms of opportunities, the year 2017, started with great expectation not only for audit firms, but for all sectors of the economy, Colombia presents important changes in political, economic and social.
The challenges of our accounting profession lie mainly with the changes in the implementation of international financial reporting standards and changes in auditing techniques under international standards of information assurance.
The main alternatives and opportunities for accounting firms are concentrated in the fields of consulting (accounting, tax), the advice on the implementation of risk management systems.
Undoubtedly one of the most anticipated changes and the greatest uncertainties facing our profession, is the continuity of the figure of Fiscal Auditor/Reviewer "Revisor Fiscal" who until now was only exercised by public accountants, this figure is destined to be replaced in time by a permanent external audit as it is known in the rest of the world.
The country's projection is based on a significant contribution of capital investment associated with the fourth generation (4G) road infrastructure projects, capital investment of oil companies to GDP growth; keep a more stable dollar; stabilization and increase in the cost of a barrel of oil, which will undoubtedly boost the entire Colombian economy.
In economic terms, Colombia hopes that with the signing of the peace agreement foreign investment will increase. However, it is clear that the tax reform in terms of income generation, causes counterbalance the positive effect on foreign investment; however in general terms the country is implementing strategies to be competitive internationally with the application of international standards and standards and adherence to different international bodies such as the OECD, in search of benefits and best practices of economic, political and social development.
As a firm the main expectation in the short term is to control and avoid the high turnover of professionals who today are suffering all the audit firms at the national level. The technological changes that are being carried out are expected in the medium term to represent a better quality in the audit tasks performed by the Firm, and in this way the brand will increase its position in the national territory. In the medium and short term, it is hoped to strengthen the training and training programs for professionals who wish to pursue their professional career in the Firm.