Prepared for change: OBG talks to Habib Jawad Habib, Partner, BDO

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Habib Jawad Habib, Partner, BDO

Interview: Habib Jawad Habib

What is the biggest discrepancy in accounting principles between the region and the West?

HABIB JAWAD HABIB: This is difficult to say as there are many differences. We simply never see the scale of failure in the Arab world that seems to characterise the Anglo-American economy and the 2012 trading loss at JP Morgan is an example of this. It is further the case that the ‘Western’ category is too broad. I think it makes more sense to refer the Anglo-American world in this instance.

Nonetheless, the key differences are in terms of coverage and application. That is to say, like much else in the Arab economy, there remains a high degree of informality in the application of accounting principles. It is also the case that there are fewer qualified professionals here than in the US or UK, and the history and heritage of these principles are far less embedded in the business culture of the region. Lastly, I would cite the specificity of these accounting principles as a key difference, in that we have notions of sharia finance and thus a far less convoluted banking system. This means that the more complex side of certain accounting principles are largely irrelevant to us.

What challenges are encountered by converting to International Financial Reporting Standards (IFRS) and how does this affect businesses?

HABIB: The challenges have been no different to most contexts in the West. I would say that a conversation between me and a Portuguese or a Polish accountant would see a lot of overlap in terms of the common challenges. Thus, the challenges worth noting include engaging and advising the management of our clients on the need to convert to IFRS and then going through the actual process of making the conversion happen in terms of staff training, reconciliations and data input. This is not different to what accountants in Western countries have confronted. I think that the challenges in larger Arab countries are more serious. In Bahrain, the context is smaller, very developed, and, thus, implementing such change is much more straightforward.

How are accounting and auditing standards being changed to match Islamic financing regulations?

HABIB: This is ongoing and there are a variety of organisations working through this on an ongoing basis. There is real commitment on the part of the Islamic finance industry for this to happen as it recognises that, rightly or wrongly, such integration will add to the credibility and perceptions of security in the sector. I would add that while in the past the industry tended to operate from its own exclusive principles with little concern for other regulatory contexts, this has changed and now when new policies and standards are devised they are done so in a context where the default position is to ensure they are consistent with IFRS. It is only in exceptional circumstances that this would not be the case and that a new standard would emerge that contradicts the ethos or substance of the IFRS.

How will Basel III impact risk management practices in Bahrain and the role of risk managers?

HABIB: I would think probably not a great deal. This is not because the provisions in Basel III are not serious or necessary, but because they are so well known now and the emphasis on combating risk in banking has such a high profile that I think these provisions are largely in place and operating in many of the financial institutions in the country. Therefore, I believe it is likely that we have moved along the implementation process already and I do not expect a sudden jolt on a particular date. It is also the case that, in my experience, the regional offices of large financial institutions tend not to be as exposed to high-risk activity as compared to their sister firms in New York and London. There is probably a greater emphasis on risk management in regional territories as there is a perception of greater risk already. Additionally, there is likely a restriction on the activities of these offices and the financial quantities they are allowed to trade to. As a result, I have confidence in the quality of the risk management practices in Bahrain and the effectiveness of risk managers here.


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The Report: Bahrain 2012

Accountancy & Tax chapter from The Report: Bahrain 2012

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