By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

Mandatory Business Licence audits have “cracked open” control and process flaws among companies viewed as “blue chip” in The Bahamas, a senior accountant revealed yesterday.

Pretino P. Albury, the Bahamas Institute of Chartered Accountants (BICA) president, told Tribune Business that his members had seen “quite a bit” of these deficiencies among firms with annual turnovers exceeding $5m and had made recommendations on how these could be remedied.

Speaking after the Department of Inland Revenue revealed three-quarters, or 75 percent, of such companies had requested extensions for the filing of the Business Licence audits, he added that accountants are hoping the tax authorities will “leave the door a little open” to similar flexibility in 2025.

BICA and the Bahamas Chamber of Commerce and Employers Confederation (BCCEC) had both previously urged the Government to delay the mandatory Business Licence audit requirement for a year on the basis that neither the private sector nor accounting profession were ready to cope with the extra workload and compliance this would demand.

Now, with some companies gaining extensions until October and November, which represent a further six-seven months beyond the Department of Inland Revenue’s initial end-April target deadline, Mr Albury told this newspaper that they were in a position “to say: ‘I told you so’”.

He added BICA was readying to go back to the tax authorities and “make a proposal for next year”, arguing that the initial deadline needs to be pushed back from April to end-June and “we work our way back from that” with no earlier ambitions.

“What I am hearing from most of my folks is actually there are businesses, because they are private and now subjected to this audit, it sort of cracked open some problems where they may not have had the best controls and best processes in place,” the BICA president told Tribune Business of the Business Licence audit filings.

He added that some businesses had failed to keep pace with International Financial Reporting Standards (IFRS), and upgrades to these, instead following the same accounting practices they have become accustomed to for the past 15-20 years. 

“The standards are now outdated,” Mr Albury explained. “A lot of folks have been experiencing that, and we’ve been trying to do some recommendations around improvements even from those audits. We’ll probably see a lot of that happening where we find ourselves making a lot of improvements even over $5m.”

He said some of the delays, and subsequent need to obtain Business Licence audit extensions, resulted from companies themselves not being ready to undergo an audit as the necessary data and reporting mechanisms were not in place.

“We had to make recommendations that someone else come in, get them ready and then we came back and did the audit,” Mr Albury said. “Even after we did the audit, further recommendations came out of it regarding the quality of the controls and quality of the processes they’re using. We’ve seen quite a bit of that.....

“Everyone’s sort of relieved that we’ve gone through this, but everyone is kind of surprised at the same time. When you think of the US, these are Bahamian ‘blue chip’ type companies, but you are going in and being surprised. Blue chips in the US, the systems should be good, the processes should be good, but we found for some of them not so much.”

Asserting that the deficiencies identified, along with the remedies recommended, will impact companies positively if implemented, Mr Albury said BICA’s attention was now turning to discussions with the Department of Inland Revenue over how next year’s Business Licence audits will work.

“It has the feel, with a lot of our accountants, a lot of our licensees right now, that if we do this for another year it will be overwhelming,” he revealed. “The Department of Inland Revenue said they will not be as liberal next year but we’re hoping they can leave the door a little open.”

Arguing that end-June, rather than April’s close, should be the deadline for Business Licence audit submission, Mr Albury continued: “We have to start there and work our way back. It can’t be no sooner than that. No way. It’s not going to work. It’s pretty much across the board.

“Everyone told me we have to go back to the Department of Inland Revenue and make a proposal for next year. We have to start discussions with them soon to open that up.... We’ve still got a lot to do. There’s still a lot of work ahead with the Department of Inland Revenue. It’s back to them for us. We have to get back into that mode of starting negotiations again.”

Mr Albury said corporate income tax - its imminent implementation for companies part of groups with annual turnover exceeding 750m euros, and potential wider application to all companies at a later date - has “to be on the table too” regarding how this will operate and its impact on the accounting profession’s work.

Craig A. ‘Tony’ Gomez, the Baker Tilly Gomez accountant and managing partner, backed Mr Albury in yesterday telling Tribune Business that the requirement for a full audit based on international financial reporting standards was “new” for many companies who are either not publicly-owned or did not previously have to produce their statements for a regulator.

“Clearly, most of these companies have had management prepare financial statements, and many of them are self-regulating from that perspective with financial data that allows them to manage their businesses but, when you step it up to the level of an audit and even a review....,” he said.

“Look at the large companies with $5m or more turnover. Many of them have financial data that is available. They only problem now is that they have to report to the Government regarding the Business Licence mandate, and therein lies the problem for a number of them. It involves independent verification and filing processes that many of them are new to.

“If you were to ask many of those companies what were their profits and losses over the years, they could tell you, but were those numbers independently verified? No. These audit processes are new processes for many of these companies.”

Mr Gomez agreed that the “short window deadline” of having to submit audited financial statements by end-April had exacerbated these challenges, especially for those undergoing audits for the first time, but praised the Department of Inland Revenue for granting extensions where justified to enable companies to become compliant and obtain their Business Licences.

“It was too short to ready them for a first-time audit process,” he said. “For the most part, businesses have responded well. Unfortunately, not all have crossed the finish line but every effort is being made to do so and I think most of them will.

“Going forward, unless there’s another change to the Business Licence filings, if all other things remain the same I think we will see better results in the next filing period. It has been a step up for a number of them. I think it will be interesting to see, or determine, whether or not there has been a tremendous jump in Business Licence revenue or that the regulations ensure everyone submits filings.

“The question is: Has there been a significant increase as a result of the audits, or have they merely confirmed that the majority of businesses were already filing - and filing at the level they ought to have been. I think that will be the key number.. if, at the end of the day, most businesses were already compliant. But it has allowed businesses to meet the best practice standards by having an audit.”

Simon Wilson, the Ministry of Finance’s financial secretary, in a previous interview with Tribune Business signalled that the Business Licence audit requirement was a precursor to the introduction of corporate income tax in The Bahamas although this is unlikely to happen before the next general election.

He also voiced scepticism over the accounting profession’s concerns that it lacked the manpower to do what the Government was asking in the timeframe given, arguing that those businesses requiring an audit numbered only around 141 or less than 1 percent of the 50,000-plus Business Licence applications submitted annually.