The Finance Ministry announced Tuesday that at least 400 private and state enterprises will be required to prepare their financial statements for auditing and submit their results to the government next year, officials said.
The auditing requirement marks the government’s first attempt to enforce the auditing law passed back in 2002, which stipulates that both Cambodian and foreign enterprises of a certain magnitude must be audited.
The prakas issued by the Finance Ministry states that companies must be audited if they fulfill two of three criteria: an annual turnover of more than $750,000, total assets averaging $500,000 and above, and an employee base of more than 100.
The ministry has determined that 400 enterprises out of an estimated 10,000 in Cambodia meet the criteria for a required audit, the results of which must be submitted to the government by June 30, 2008, according to Ngy Tayi, chairman of the ministry’s National Auditing Council.
Twelve auditing firms selected by the government are authorized to conduct the audits, Ngy Tayi said.
He added that requiring clear financial statements would help officials collect taxes from private firms, and increased transparency will elevate public confidence in private enterprises.
“If any auditor tries to bloat numbers in the financial reports, they will lose trust from the public…and it will affect the businesses,” Ngy Tayi said.
“To issue financial reports and having an audit of [the company’s] financial situation is an obligation of every legal enterprise.”
Bretton Sciaroni, chairman of the International Business Club, said the audits would help improve transparency for the country’s businesses and are a prerequisite to being listed on Cambodia’s planned stock exchange, which government officials have projected to open in 2009.
Sciaroni added that the auditing firms selected by the government operate according to international standards and would provide reliable data.
SRP lawmaker Son Chhay said he hoped the audits would also reduce corruption within Cambodia’s state-owned enterprises.
“This kind of process should have been introduced a long time ago…. There has been a lot manipulation of state revenues for many years,” Son Chhay said.
He added that the measure will only be successful if the auditing firms are in fact independent.
Key Kak, chairman of Morison, Kak & Associes, a certified public accounting firm, said that his auditors were prohibited from accepting work from close friends’ or relatives’ companies in order to avoid a conflict of interest.
He added the required audits would help bolster the economy by providing clear financial reports to the government and the public, as well as assisting businesses in securing bank loans.
“If an enterprise operates a business without a clear financial report, foreign partners or moneylenders won’t trust it,” he said.
Key Kak added that some domestic enterprises would have to be educated about the auditing process and learn that hiding a potential problem in the records would be worse than revealing it.
“If everyone wishes to fight corruption, you must not hide any secrets,” he said.
Mong Reththy, president of the Mong Reththy Group, said Tuesday that his company would happily submit its financial reports for auditing. “I can reveal what I have done because my firm is a legal business,” he said.
Uong Kim Seng, adviser to the Phnom Penh Chamber of Commerce, said he believed the law could be implemented successfully, as Cambodian enterprises seem to understand the standards required for running a successful operation. He added that some smaller enterprises with as little as $70,000 in capital are already willing to submit their auditing reports to the National Bank of Cambodia.
So Nguon, president of So Nguon Dry Port, said Tuesday that his company had been audited since 1996. He added that the Finance Ministry should require more enterprises to submit their financial statements for auditing, alleging that there was widespread cheating on taxes.
“Any enterprises that do not issue financial statements and declare [them] with the tax department are stealing taxes,” he said.
(Additional reporting by Suzy Khimm)