The Average Ghanaian Owned/Managed Company In The Eyes Of Accounting
Being an ardent lover of entrepreneurship, I have always wondered why several indigenous Ghanaian businesses remain small, unable to expand to other jurisdictions, and scarcely survive after the demise of their founders, unlike companies that have some amount of foreign ownership or management. There will obviously be varying reasons for this phenomenon but being an accountant in practice, I will share my thoughts and experiences from an accounting perspective.
The Companies Act of Ghana, 2019 (Act 992) provides guidance on the formation of companies in Ghana. For the purpose of this writing, I will limit myself to companies limited by shares. A company (limited by shares) has the liability of shareholders limited to such amount, if any, unpaid on the shares respectively held by them. The company is a separate legal entity distinct from its owners, have well-structured management, relatively easier to raise capital, strict regulation and requires extensive record keeping.
Companies are required by law to produce audited accounts and file same with relevant state agencies. On the other hand, the Registration of Business Names Act 1962 (Act 151) also provides guidance on the formation of sole proprietorship business in Ghana. Sole proprietorship business is owned by one person who is not distinct from the business, has unlimited liability, the owner makes all the decisions, bears all the loses and enjoys all profits from the business. The owner exercises direct control over the business and is not required by law to produce audited accounts. There’s usually lack of continuity and difficulty in raising capital.
My experience in accounting practice largely points to the fact that several indigenous Ghanaian businesses registered as companies are practically managed as sole proprietorships. The companies are not well structured, they have no functioning boards, no record of meetings, lack of internal controls and the owners seem to have direct control of the company as though it was a sole proprietorship. The owner of the company is the CEO, board chairman, accountant, operations manager etc. In situations where there is some sort of controls, the owner overrides them. The owner becomes the company, and the company, the owner, their absence will mean that a lot of things come to a standstill. The owner has absolute access to the funds and other resources of the company as if it was his personal resources.
The only reason that may compel such a company to keep some sort of accounting record is the fear of tax authorities, the mention of Ghana Revenue Authority (GRA) sends shivers down the spine of management. Nonetheless, the absence of proper accounting records exposes the company to huge tax liabilities that could have been easily avoided.
On the contrary, my experience with companies that have some amount of foreign ownership/management is in sharp contradiction with indigenous Ghanaian companies, several of them are ‘companies’ in the true sense of the word. They have well-functioning boards; meetings are documented, and accounting systems conform to best practices. Monthly management account is such an important report in these companies, they serve as the basis for management decision making. Management letters issued by auditors are treated with all seriousness and efforts are made to ensure that issues raised are addressed.
It is therefore not surprising that a lot of these foreign-owned/managed companies perform better in GIPC’s Club 100 compared to indigenous companies. It can be said without any equivocation that the collapse of microfinance institutions and some indigenous banks in Ghana is largely due to poor corporate governance structures. They were only exposed because of strict regulation of the financial services industry and it came as no surprise to me because by my experience, the average Ghanaian owned company is poorly managed.
Entrepreneurship is essential for the growth of every economy, but the absence of the right approach and structures will stifle expected results. Putting together a strong accounting team, investing in the accounting function and the right corporate governance structures are crucial elements that will determine the success of every company.
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