Accounting system and practice in Ethiopia Construction Works Corporation

1. Introduction

1.1 Background of the study

The study focused on the Accounting System for Ethiopia Construction Works

Corporation (ECWC). The Study aimed to find some limitation and recommend the best way

that can provide efficient and economical utilization of ECWC’s resources, ensuring the profitability of

the various business units, supporting the strategy of ECWC.

ECWC is expected to operate according to Generally Accepted Accounting Principles/GAAP and to

gradually adopt International Financial Reporting Standard /IFRS for SMEs.

Accordingly, this accounting system assessment serves as a guide in the process of financial management

recording, analyzing and summarizing, accounting transactions in such a way that it enables the

generation of financial information for both internal and external users and for the efficient management

of financial resources of ECWC.

This study contains accounting system and guiding principles on the financial management of ECWC

including cash, receivables, inventory, property and equipment, payables, reporting and auditing. The

system part contains details of steps to be followed as a consistent and repetitive approach to accomplish

various financial management activities. Accordingly, the system on collection, disbursement, inventory

and fixed asset valuation, recording, disposal, financial report preparation, financial analysis and the

accounting and internal controls are explained in the accounting system part of this study.
1.2. METHODOLOGY

As research approach case study is taken to make an empirical inquiry that investigates a phenomenon
within its real life context. Here the accounting system of Ethiopia Construction Works Corporation
is described in a framework within an organizational environment. The events are described in
some detail with the main and subsidiary points highlighted. The accounting system is identical in
every outlet and for every project. The information used in this case study is both primary (collected
from field) and secondary.

2.2.1. Primary data:

The information was taken from the Head office (ECWC) by interviewing the staff and management.

2.2.2. Secondary data:

The secondary sources of information used in this case study are

• Annual report,

• Progress report

• Code of conduct

• Statements

• And written Financial Policy and Procedure Manual of Ethiopia Construction Works Corpoaration.

2. Discussion
2.1. ANALYSIS OF ACCOUNTING SYSTEM
2.1.1. The Chart of Accounts.
The first step taken by ECWC is to choose an accounting software package which is clear and concise and
easy to operate and maintain the Construction accounting. The second step of ECWC was to clarify
purpose of organization and reflect that in a clear and concise chart of accounts. It is important that a chart
of accounts reflect all the major functions and project operation of the organization in a concise and
systematic manner.
ECWC has more than twenty projects and ten districts, it prepares charts of accounts and code them for
computer aided soft ware. The coding of the account head represents the specific project, district
office, and lastly the respective income, expenditure, liabilities or assets. The Chart of account will be
designed in such a way that it suits the internal reporting requirement, cost accounting and IFRS.
The structure of the chart of accounts of ECWC has the following structure:

Controlling/General Subsidiary/ Sub Item/ Location Codes

Ledger Account Activity Code Expense code

Account XXXX XXXXXX XXX XXXXX

Length

Subsidiary accounts for account receivables, inventory, account payables and projects shall be handled
using the relevant modules of the ACCPAC (Accounting Package) system. The project cost accounts
includes activity costs.

2.1.2. Interim Financial Reports

Districts and projects are required to submit interim financial reports on a monthly and quarterly basis.
Before, districts and projects or branch shall reconcile their branch accounts against the head office
account on a monthly basis through exchange of statement of accounts.

Finance Department has to deliver the interim financial reports with the minimum content requirement as
indicated in the following section together with financial analysis to managers of ECWC at all levels,
monthly and quarterly, including the Board of Directors through the CEO.

Minimum content of interim financial reports includes:

 Consolidated statement of financial position;
 Consolidated Profit and Loss presented either as a condensed single statement or a condensed
separate income statement and a condensed statement of comprehensive income;
 Consolidated statement of changes in equity;
 Consolidated statement of cash flows; and
 Selected explanatory notes.

When it is not possible to produce a Consolidated interim financial reports on a monthly basis, branches
and the head office may submit monthly Profit and Loss income statements only until such time that the
efficiency is gained.

2.1.3. Annual Financial Reports

Financial statements of ECWC should be prepared based on fundamental principles established for the
preparation of financial statements includes going concern assumption, consistency in presentation and
classification, accrual basis of accounting, and materiality.

Assets and liabilities, and income and expenses, are not offset Comparative prior-period information is
presented for amounts shown in the financial statements and notes.

A complete set of financial statements comprises:

 Balance Sheet;
 Income Statement and other comprehensive income;
 a statement of changes in equity;
 a statement of cash flows;
 notes;

2.1.4. Disclosure
Sufficient disclosure provided on information about the significance of financial assets and liabilities to
ECWC’s financial position and performance. Information on revenue and expenses of its operating
segments (e.g Construction, maintenance and others) which constitute at least 10% of the total revenue
and expenses to disclosed users of ECWC’s financial statements to evaluate the nature and financial
effects of the business activities in which it engages and the economic environments in which it operates.

The financial statements of ECWC adjusted to reflect events after the balance sheet date that provide
evidence of conditions that existed at the end of the reporting period (such as the resolution of a court
case after the end of the reporting period). The financial statements however are not adjusted to reflect
events that arose after the end of the reporting period (such as a decline in market prices after year end,
which does not change the valuation of investments at the end of the reporting period). The nature and
impact of such events are disclosed.

2.1.5. Submission of Financial Reports

Finance Manager of at corporate level has to deliver the required financial reports to Board of ECWC
through the CEO timely.

Annual Financial statements should be prepared within three months from ending date of the fiscal year.

2.2. Auditing
The accounts of ECWC shall be audited annually by External Auditor.
External Auditor shall be appointed by the supervising authority. The Board of Director may appoint
External Auditor if delegated by the Supervising Authority.

Draft Financial reports shall be delivered to auditor in four months time from the end of the fiscal year
(not later than Tikimt 20).

The final audit report should be delivered to the Board before Tahisas 30 (end of the six month from the
end of the fiscal year).

The CEO shall issue copies of the audit report to the relevant stakeholders.

2.3. Accounting System

 The accounting system of ECWC is based on Generally Accepted Accounting Principles and the
accounting basis adopted is accrual basis accounting.
 In the meantime, ECWC will adopt International Financial Reporting Standards (IFRS) on a
gradual basis.
 The existing tax proclamations of the Government of Ethiopia and coming into force in the future
shall be followed strictly.
 The accounting recording and reporting is at ECWC head office, WIS (water infrastructure
sector, TIS (transport infrastructure sector) Road Maintenance and Construction Projects level.
However, consolidation and certain financial management issues, including the management of
financial resources will be mainly conducted at ECWC Head Office level. Districts/branch/ and
project offices are responsible for the preparation of interim and annual financial reports to be
submitted to the head office of ECWC. Branch and home office accounting relationship should be
captured with appropriate document exchange.

2.4. Computerized Accounting System

For a large organization such as ECWC, which has large number of Construction and Maintenances
projects and many other cost centers in which huge number of transactions occur constantly; it is
inevitable to have IT based financial system that shall be automated and interlinked.

ECWC wishes to adopt Enterprise Resource Planning (ERP) software for the execution of the financial
management system in line with the envisaged financial activities of the corporation, including all of the
ECWC business processes. This system enables the Corporation to capture costs and other financial
information timely in an integrated manner, and this intern increases the capacity of compiling and
Utilizing Financial Management Information System (FMIS) effectively.
2.5. Accounting Document & Recording

2.5.1. Accounting Document

 ECWC has accounting documents are kept where appropriate to be in electronically generated
system. Until full application of electronically generated system, the manual system will
continue. Additional procedures, as a result of introduction of online system, will be provided by
the operation manual of the software supplied as detailed user manual.
 The purposes of accounting documents are to evidence the movement of organizational resources.
This includes cash collection and disbursement documents, stock and property receiving, issuing
and disposal documents.

2.5.2. Cash
Cash includes cash in hand, in bank and cash equivalents.

2.5.3. Optimum Cash Balance

Only optimum cash necessary to meet anticipated operational expenditures, to meet short term liabilities
(obligations) and to pay for capital expenditures to be effected in the coming six months plus reasonable
minimum cash for emergencies shall be kept available. Any excess cash shall be invested in a liquid,
income - producing instrument, as approved by the Chief Executive Officer (CEO) of ECWC. Likewise,
temporary cash deficits may be financed by short term borrowings when approved by the CEO. To ensure
that no unused cash balance is accumulated in any of its projects and districts accounts’, the Finance
Department shall maintain a consolidated cash balance record, which is to be updated on a daily basis.

2.5.4. Cash Receipt

Cash collected from any source shall be collected as follows:

 Cash and Cheque collected for the settlement of credit sales of Construction project and
Maintenance services and others should be evidenced by pre-numbered and serially sequenced
Cash Receipt Voucher.
 Cash collected from other sources, such as settlement of staff advances, collection of insurance
claim, grant received, additional investment and others shall be evidenced by Cash Receipt
Voucher if received in cash or cheque.
  All cash sales, such as rent of building and equipment, sales of construction materials and
goods…, shall be evidenced by VAT invoice. Payment certificates issued to customers should be
supported by Credit VAT Invoices that serves as Credit sales invoice.
 Cash Receipt Voucher should be prepared for collection directly transferred to ECWC’s account.

2.5.5. Depositing to Bank

 Cash and cheque received must be deposited to the Bank intact daily, the making of any payment
or advance out of cash received being expressly forbidden. Cash collected after the Bank closing
hours, shall be deposited on the following working day.
 Any cash and cheque collected from rent of building and equipment , equipment maintenance,
sales of materials, sales of scrap, obsolete, disposed assets etc should be deposited or transferred
(if collected by districts and project) to head office bank account in the following working day
from the date of collection.

2.5.6. Safe-box Limit

 Cash and cash equivalents shall not be kept in the safe box in excess of the sum insured.

2.5.7. Disbursement
 Disbursements are made out of cash funds and bank accounts. Cash funds include petty cash
funds, cash withdrawn for payments at project sites and purchase funds.
 Payment Request shall be approved if supported by adequate budget.
 Payments made in cash and cheque shall be evidenced by pre-numbered payment voucher, which
shall be approved by designated officials.

2.5.7.1. Cheque Payments

 Cheque payment eventually will be transformed into online cheque payment.

 A single payment in excess of Birr 3,000 shall be paid in cheque, except per diem payments to be
effected at project sites. However, depending on the size and frequency of operation, the
minimum amount of a single transaction to be paid in cheque may be revised with the approval of
the DGM for Support, per the proposal of the Finance Manager.
 Payment to be made from bank account has to be approved by two signatories where one of the
signatory is from Finance Department / Team and the other signatory from the engineering
department.
 Authorized cheque not collected in six months shall be cancelled.
  If cheques are to be prepared in the name of individuals with the exception of staff payment it
shall be marked ‘PAYEE ONLY’ so that it will not be withdrawn by others rather than the person
stated in the check. However, the Finance Manager of ECWC should permit a cheque payment
without “PAYEE ONLY” mark if requested by a client.

2.5.7.2. Petty Cash Fund

 Petty cash fund shall be established on imprest system and the fund shall be used for effecting
single payments below Birr 3,000.
 Petty cash float at the level of head office is Birr 60,000 and Birr 50,000 at the level of
district/Project/. The size of the float may be revised in accordance with the volume of
transaction, when approved by the Finance Manager

2.5.7.3. Transfers

 Bank transfers shall be used when it is found to be efficient than cheque and cash payments.
 Bank transfers are made using letter requests to the bank by mentioning the name of the
beneficiary and the name of the Bank branch and of the bank account (when applicable).
 Bank transfer payments should be evidenced by Disbursement Payment Vouchers and transfer
request of a requesting Department/ project which initiates the transfer. The requester shall fill in
the request for payment form and get the approval from the designated officials.

2.5.7.4. Payroll
 Payroll shall be paid on a monthly basis.
 Payroll preparation and payment is decentralized at district/project levels. However, the personnel
database of ECWC is centralized in Head Office. Districts and projects access to the central
database regarding their respective staff members.
 Human Resource & Facility Management Department is responsible for maintaining and
updating of personnel database. The personnel data, among other things, should include
information on employment, transfer, promotion, change in salary and benefits, penalty, pension
registration, termination and retirement. Whenever such issues are initiated the Human Resource
Department should send copies of the information to Finance Department/Finance Team. Finance
should maintain the files for reviewing that the personnel records in the payroll system is in line
with the hard copies.
 All employees shall be provided with a unique identification number (i.e.; badge no) centrally by
the Human Resource Division.
  Payroll payment may be paid to employees in cash only when employees do not have yet their
bank account or no bank branch in close proximity to their duty station. Otherwise, payroll
payment has to be transferred to the account of the employees on a monthly basis.

2.5.8. Revenue
 Revenue is generally recognized when it is possible that the economic benefits will flow to the
entity, and when the amount of revenue can be measured reliably, and when the following
conditions are met:
 From sale of Construction Material and Goods: when significant risks and rewards have been
transferred to buyer, seller has lost effective control, and cost can be reliably measured.
 From rendering services: percentage of completion method (See section on Construction
accounting). Interim Payment Certificate (IPC), which is approved by a consultant IPC) is a basis
for revenue recognition which is basically in line with percentage completion method.
 From interest revenue: using the effective interest rate as per agreed with the bank or borrower.
 From dividend revenue;-when the dividend declared from shareholding.
 From Rental of building: As per agreement stated in the contract.

2.5.8.1. Construction Revenue

 A construction contract is a contract specifically negotiated for the construction of an asset or a
combination of assets that are closely interrelated or interdependent in terms of their design,
technology and function or their ultimate purpose or use. Contract revenue shall comprise:
a. the initial amount of revenue agreed in the contract; and
b. variations in contract work, claims and incentive payments:
c. to the extent that it is probable that they will result in revenue; and
d. they are capable of being reliably measured

2.5.8.2. Construction Cost

 Costs are accumulated at the level of cost and revenue centers with the ultimate objective of
measuring the revenue and cost of each project of ECWC.
 Overhead costs are allocated across projects based on a representative basis of allocation.
 The lowest level of cost accumulation unit for projects is a crew activity which has the following
sub category of cost components:
 Equipment (overhead applied based on the level of effort or machine hours)
  Manpower (based on hours worked and labor rates)
 Materials (based on actual material consumptions to the extent it is measurable)

Contract costs shall comprise:

a. costs that relate directly to the specific contract;
b. costs that are attributable to contract activity in general and can be allocated to the contract; and
c. Certain other costs as are specifically chargeable to the customer under the terms of the contract.

2.6. Credit Sales and Receivables

Credit Sales of water and transport infrastructure construction service, sales of construction materials and
goods, or provision of rental services on credit shall only be made on approved credit customers
following assessment of the customer’s credit worthiness.

 Customers shall be designated as credit customers based on approval of the CEO/DGMs of

ECWC.
 Payment terms of construction contracts should be evaluated before signing of the agreement so
that the project accomplishment will not be hampered by liquidity problems. Advance payments
and invoicing has to be processed immediately in line with the milestones indicated in the
contractual agreement.
 Construction revenue receivables should be followed up based on the approved payment
certificates.
 Advance payments to staff and suppliers shall be recorded as a receivable and shall be settled in a
reasonable period of time depending on the purpose for which the money is advanced.

2.7. Property and Equipment

2.7.1. Fixed Asset Capitalization Policy
 Fixed assets are in-house constructed or manufactured or purchased goods items that:-

- cost Birr 5000.00 and above for goods and Birr 50,000 and above for Construction / Works for
own use

- are not bought for resale;

- have a useful life of over one year and which shall be capitalized.

 Any purchase of a fixed asset whose cost/value lower than Birr 5000.00 shall be recorded as
expense of the period.
  Nominal value of Birr10.00 shall be maintained for fixed assets that are fully depreciated, until
the asset becomes out of use or sold as scrap and is written off the books.
 Fixed assets of ECWC shall be classified as follows:

 Land ,building and structures

 Computers and related software

 Construction machineries and equipment

 Motor vehicles and other transport vehicles

 Shop equipment and tools

 Engineering and laboratory equipments

 Office furniture and other equipments

 Other fixed assets

 Fixed assets received by the store and kept up to delivery shall be recorded as inventory and when
issued from store to the user, it shall be recorded as fixed asset.

2.7.2. Acquisition of Fixed Asset

 Fixed Asset shall only be purchased or constructed when supported by approved budget or
supplementary budget approved by the Board of Directors.

2.7.2.1. Record and Measurements

 The value of the Fixed Asset is the purchase price plus direct costs incurred to bring the asset to
the premises of the organization in a usable condition. Fixed Asset acquired in the form of gift,
shall be recorded at a price for which the donor paid for it.

2.7.3. Fixed Asset in the Financial Statements

Fixed Assets are recorded as an asset in the period of purchase and depreciated in accordance with the
following depreciation rate.
Depreciation
Fixed Asset Category Depreciation Rate
Method

1 Buildings and structures SL-FM 5%

 Acquisition or construction cost, and the cost of
2 improvement, renewal and reconstruction, of intangible SL-FM 10%
assets

3 Construction Machinery and Equipments SL-FM 20%

4 Motor Vehicles & other Transport Vehicles SL-FM 20%

5 Shop Equipment and Tools SL-FM 20%

6 Engineering laboratory and radio equipment SL-FM 20%

Computers, information systems, software products and

7 SL-FM 25%
data storage equipments

8 Office furniture and equipment SL-FM 20%

9 Other fixed assets SL-FM 20%

Note: Methods of depreciation

 SL-FM- Straight line full month: Depreciation will be computed for the full month in the
month of purchase
 SL – Straight line

Minimum book value for fixed asset in use but completed its depreciation life shall retain Birr 10 as a
book value until its disposal.

2.7.4. Revaluation
Revaluation may be conducted for the following reasons
 When the book value of the properties of ECWC is significantly lower than its market value
 When ECWC considers merger or transform into a share company
 When ECWC financial statement presentation required to be adjusted to reflect the current values
by financiers and other stakeholders

2.7.5. Physical Count

In order to ascertain the existence of fixed assets and ensure that they are in working condition, all fixed
assets of the Corporation shall be counted at least once a year. The count shall be compared with the
records in the Fixed Asset Register.

2.7.6. Fixed Asset Identification Number

Each fixed asset should be tagged with a unique systematically designed identification number where this
number is also recorded in the fixed asset register. Fixed Asset has to be identified with the following
coding scheme:

Owner’s name- category -sub category-and item number

2.7.7. Disposal of Fixed Asset

 A fixed asset may be disposed for the following reasons:
 When the asset is not more usable in ECWC
 When cost of retaining of the fixed asset outweigh the benefit
 When the level of efficiency of the fixed is below the acceptable level and totally out of
order or service.
 When the asset is surplus from short and medium term perspectives of ECWC operations.

 Fixed asset should be disposed in accordance with the Property and Equipment Disposal manual
of ECWC. The manual describes the manner in which users request for disposal, the role of
property team, the disposal committee, the DGMs - Support and Chief Executive Officer and
Board of ECWC.
 Fixed Asset segregated and held for sale shall be measured at the lower of carrying amount and
fair value less costs to sell.
 The record of the fixed asset should be adjusted by the value of the disposed assets. Such non-
current assets held for sale (whether individually or as part of a disposal group) are not
depreciated. Fixed assets held for sale are classified separately in the balance sheet.
 If an asset segregated for disposal is sold, it shall be evidenced using a VAT invoice.

2.8. Intangible Assets

 An intangible asset, whether purchased or self-created, is recognized if:

- it is probable that the future economic benefits that are attributable to the asset will
flow to the entity; and

- The cost of the asset can be measured reliably.

 - All research costs are charged to expense when incurred. Development costs are
capitalized only after technical and commercial feasibility of the resulting product or
service are established and registration of the patent right at the appropriate recording
agency are carried out.

 Intangible assets at ECWC are accounted for using a cost model. Under the cost model, assets are
carried at cost less any accumulated amortization and any accumulated impairment losses.

2.9. Inventory
Inventories are consumable materials/stock items which are not qualified for definition of fixed asset.

2.9.1. Recording
 Inventories purchased are recorded as Inventory (inventory) at the time of purchase, and receipt at
store. The value of Inventory is adjusted perpetually for a change in Inventory position.
 Inventory of stock items shall be valued using moving weighted average method.
 Costs include purchase cost, conversion/manufacturing cost (materials, labour and overheads),
and other costs to bring inventory to its present location and condition, but not foreign exchange
differences.
 Transportation, handling and other related costs incurred to transfer stock item from head office
to project offices and within project offices shall be recorded as periodic expense.

2.9.2. Physical Count

Stock items have to be counted at least once in a year by a team which is not directly involved in the
keeping of stock items. For certain sensitive stock items, including fuels have to be counted more
frequently as required.

2.9.3. Disposal
Obsolete and deteriorated or damaged supplies shall be disposed of timely when approved by the disposal
committee and the Chief Executive Officer in accordance with the property and disposal guideline.

2.10. Payables
2.10.1. Account Payables
 Account payables are those arising from credit purchases of goods and services.
  Liabilities are recognized when goods or services are received from a vendor or service provider
based on a valid contractual agreement entered into by ECWC and/or authorized purchase order
issued by ECWC in line with the procurement manual of ECWC.
 Evidence of receipts of goods and services should be supported by the required documentation
before recognizing account payables.
 Separate subsidiary records shall be maintained to each creditor using the ACCPAC system.

2.10.2. Provisions, contingent assets and liabilities

A provision is recognized only when a past event has created a legal or constructive obligation, an
outflow of resources is probable, and the amount of the obligation can be estimated reliably and the
amount recognized as a provision is the best estimate of the settlement amount at the end of the reporting
period.

2.10.3. Taxes and Other Legal Liabilities

Taxes to be collected by ECWC on behalf of the government (including tax on employment, withholding
taxes, VAT, Cost Sharing, Pension) and other similar obligation should be performed according to the
law and paid in time to the relevant government body.

2.10.4. Deferred Tax Liabilities and Assets

 A deferred tax asset should be recognized for deductible temporary differences, unused tax losses
and unused tax credits to the extent that it is probable that taxable profit will be available against
which the deductible temporary differences can be utilized. A deductible temporary difference is
a temporary difference that will result in amounts that are tax deductible in the future when the
carrying amount of the asset is recovered or the liability is settled.
 Deferred tax liabilities should be recognized for all taxable temporary differences as per which is
a difference that will result in taxable amounts in the future when the carrying amount of the asset
is recovered or the liability is settled.

2.11. Capital
 The supervising Authority may increase the capital of ECWC to be allocated by the Government
or to be paid out of the net profits of ECWC. Proposal for the increase in capital may be
 submitted by the CEO of ECWC to the Board of Directors of ECWC who in turn will pass it to
the Supervising Ministry.
 The Authorized and Paid up capital of ECWC may be decreased with the approval of the
Supervising Authority for the following reasons:

 When requested by the CEO and Board of Directors of ECWC and approved by the
Supervising Ministry;

 If the external auditors proposed that the capital shall be decreased;

 The authorized capital of the enterprise has not been fully paid in five years time from the
date of authorization.

 The authorized capital of ECWC shall be fully paid up within 5 years from the date of its
establishment in accordance with the proclamation of public enterprise (25/1992). Where
the authorized capital is not fully paid up as stated above, the Supervising Authority shall,
without prejudice to the rights of third parties, adjust the capital to the level of the paid up
capital.

2.12. Legal Reserve and State Dividend

 The supervising Authority will determine, based on the proposals of the board of Government,
the amount of sale dividends to be paid to the Government from the net profits of each financial
year.
 ECWC shall pay to the Government state dividend within seven months following the end of the
financial year.
 ECWC shall annually transfer 5% of its net profits to the legal reserve fund until such reserve
fund equals 20% of the capital of the Corporation.
 The legal reserve fund may be utilized for covering:

a) Losses and

b) Unforeseeable expenses and liabilities.

3. FINDINGS

The accounting system of ECWC is well planned and contemporary and it is highly eulogized by
the Board of director and Government body. It assists the internal control, cash control, internal
auditing process, budget formulation and execution, facilities or property management, financial
operations and analysis, grants management and information resources management. But there are
some weaknesses in this financial Accounting system when we see practically. Like:

1. The project grass roots links are not efficient enough so the generation of information in that level is
weak and sometimes not supported by documents.

2. The field based development expertise sometimes fails to develop innovative measures to
support modern financial Management.

3. The project doesn’t give more emphasis on long-term commitment and sustainability; which could
assist the progress and accountability of the project.

4. The cost effectiveness of the project is not used uniformly in every outlet

5. For generation of accounting information and reporting the project authority don’t have
modern process oriented approach and they failed to increase institutional capacity.

6. The organization still not implements ERP system they are only wish to implement.

7. Different loan loss provision is not maintained properly to control customer loss provision.

8. The organization not prepared customers and vendors age analysis.

9. District office and Project office don’t maintain the full form of accounts book.

For the above lacking, dissimilarities and some specialties, the accounting system of Construction
Company is not clear to all.

4. CONCLUSIONS AND RECOMMENDATIONS

4.1. CONCLUSIONS

From the above analysis and findings, it can be concluded that the accounting system and financial
reporting of Ethiopian Construction Works Corporation(ECWC) would be clear to all if there is
uniform accounting system and specially separate IAS/IFRS be introduced.
 4.2. RECOMMENDATIONS

ECWC is one of the largest Construction Company in Ethiopia which is financed by the
Ethiopian Federal Government; the accounting system of this corporation is well organized and
transparent. The processes of presenting the financial statements are unique and very systematic.

ECWC after all these limitations; could give the other construction Companies some guidelines for
preparing and installing accounting systems, making assumptions about accounting principles and
lastly but not the list to prepare and present financial statements and submit financial reports.

In order to make the project accounting process some recommendations could be considered:

1. Policy for uniform accounting standard, internal and external audit, should be introduced for all other
construction companies.

2. The corporation should hire more expertise and modern management technique;

3. The organization must implements ERP system as much as possible.

4. The corporation must prepare aging analysis and write-off payables

 Creditors have to be communicated to issue statement periodically as to their balance with

corporation for reconciliation.
 All payable accounts have to be periodically reviewed, reconciled with the creditors and settled to
the creditors when they are due.

Long outstanding creditors’ balances, which exceeds more than 5 years should be transferred to other
income in consultation with the legal division of corporation and against the approval of the Board of
Directors after a failed reasonable effort to settle the liabilities, especially when the creditors are diseased
or his/her inheritor could not be identified or his/her address could not be located and the period of
limitation has elapsed according to relevant laws.

 At the end of the fiscal year, provisions for doubtful accounts shall be established with the
following rates. These rates may be revised based on experiences (trends) when approved by the
General Manager of ECWC.
 One year old – 15%
 Two years old – 40%
 Three years and above - 70%
Long outstanding debtors’ balances shall be written off in consultation with the Legal Division of ECWC
against approval of the delegated body, after reasonable effort to collect the money, especially when the
debtor is diseased, the organization liquidated because of bankruptcy or his/her address is no more
traceable.

5. Separate accounting standard should be introduced and implemented.

6. It should be more participative and transparent;

7. The information should be modernized by use of internal network and of process oriented approach
and value based management approach should make the accounting process efficient.