West and Central Africa Financial Reporting – OHADA – Organisation pour l’Harmonisation en Afrique du Droit des Affaires
This blog details the key statutory requirement of Chart of accounts harmonization as specified under “Organisation pour l’Harmonisation en Afrique du Droit des Affaires” or OHADA for its 17 member states from West & Central Africa.
Live SAP project insights from deployments done in the regions have been summarized for reference and reuse in this blog.
- Harmonize accounting language and practice of member states
- Improve the quality of the financial information communicated to users
- Adapt the accounting principles of companies of member states to international accounting standards and
- Improve the efficiency of review and certification of the company’s accounts.
- Chart of account needs to be setup and financial reporting done in accordance with the OHADA guidelines
SAP has provided a Country Specific Chart of Account – special care in account codification and financial statement design helps address the OHADA requirements for west and central African countries.
Compliance to mandatory local statutory requirements for 17 member states
Detailed SAP Solution :
OHADA guidelines suggest the following 9 classes of accounts:
- 1 to 5 -: Balance Sheet accounts
- 6 to 7-: Income & Expenses from Ordinary activities
- 8 -: Income & Expenses from Non-Ordinary activities
- 9 -: Cost accounting and off balance sheet memorandum account
These broad categories are broken down into the following classes:
- Classes 1 to 5-: Balance sheet accounts
- Class 1 – capital and long term liabilities
- Class 2 – fixed and long term assets
- Class 3 – stocks
- Class 4 – third party transactions (clients, vendors, state, intercompany and other receivables and payable balances)
- Class 5 – cash, bank and near cash items
- Classes 6 to 7: Income and expenses from ordinary activities
- Class 6 – Expenses and losses
- Class 7 – Income and gains
- Class 8: Income and expenses from extra- ordinary activities
- Class 9: Cost accounting and off-balance sheet memorandum accounts.
Analysis of operations is more pronounced in OHADA as there is a need to adhere strictly to the coding of accounts (number and title) .The accounts are more analytical and provide more detailed information.
Account Codification: The codification in OHADA accounting plan is presented as follows:
- First Number the class of account
- Second number the principal account
- Third Number the secondary account
- Fourth Number the sub-account
Accounts must have 4 digits before the possibility of subdivision
|441 000||Impôts sur les bénéfices|
|444 100||Etat, T.V.A due|
|447 200||Impôts sur salaires|
There are certain constants and symmetry in the OHADA principles of codification. For example the first and the last numbers of an account could have certain significance.
Some constants could be noted as follows:
- The digits of each of the classes from 1 to 9 represents the first digit of the accounts class being considered;
- The other digits starting from left to right reflects further a more detailed account analyses based on the main accounts, sub accounts and detailed accounts;
- For accounts with 2 digits the digit ending other than with a 9 serves to regroup accounts by type of transactions
In the balance sheet accounts with two digits ending with nine are generally in respect of depreciation and provisions for the account classes concerned
- A/C 19-Provisions for liabilities and charges,
- A/C 39- depreciation of stocks
In the P&L accounts with two digits ending with a 9 concerns provisions.
- The digit 9 coming in third or fourth positions for accounts with 3 or more digits signifies, for balance sheet and P&L accounts, the debit or credit balance with respect to transactions with account balances in the same direction.
- A/C 6059- discounts and rebates on purchases v/s
- A/C- 605 purchases
- A/C 409-Vendors debit balances as opposed to A/C 40- Vendors
The digit 9 coming in third or fourth positions for accounts with 3 or more digits signifies, for balance sheet and P&L accounts, the debit or credit balance with respect to transactions with account balances in the same direction.
- A/C 6059 – discounts and rebates on purchases v/s
- A/C 605 – purchases;
- A/C 409 – Vendors debit balances
- A/C 40 – Vendors.
The digit 3 is generally used for inventory and is used in the P&L accounts to reflect stock variations for goods purchases (A/C 603) and finished goods stocks (A/C 73)
Valuation Rules under OHADA
- OHADA adopts the historical cost principles in the measurement of assets and liabilities although it permits the revaluation of assets in certain circumstances under certain conditions.
- The going concern and prudence principles are fundamental in valuation approach adopted under OHADA
- Transactions generally are recorded at cost on the date of posting into the accounting records.
- OHADA also recognizes that assets should be measured at net realizable value (NRV) where cost compared to NRV is higher
- OHADA does not allow fair value or market value to be used in the measurement of assets and liabilities.
Valuation of fixed assets:
- The principle supposes that goods are recorded in a company’s accounting records at cost of purchase or production at the date of the transaction.
- The costs of fixed assets is determined as follows:
- The total cost price bought from a third party, value of shares for those from the state or shareholders, market value for assets acquired through donations or barter value depending on which of the two values is the most reliable;
- Costs of production of assets produced by enterprise for own use;
- Capital subsidies are not to be taken into account in determining the cost of fixed assets acquired.
- Full costs is made up of the final purchase price, incidental costs and installation costs necessary to bring the assets into operating conditions.
- Production costs for goods for own use is determined as follows:
- Costs of materials and stores used in the production of the asset;
- Direct production costs such as labor and indirect costs that can reasonably be allocated to the production of the asset.
- When distinct assets are acquired or produced together for total acquisition or production costs, the costs of each assets is arrived at as follows:
- if the assets are individually componentized, the total acquisition or production costs is allocated to each of the assets in proportion to the value attributable to each of the assets after having determined the method of valuation;
- In a situation where the assets cannot be valued individually by reference to a market value or on a notional basis if no market value exists, those assets that would not have been individually valued will be valued on the basis of the difference between the total cost price and the value of the other asset components.
- If the going concern assumptions is no longer valid, consideration should be given to reviewing the values initially attributed to assets and liabilities. This is equally applicable to specialized assets which may be rendered obsolete through changes in economic and technological factors.
- At year-end company should restate its assets and liabilities based on present or current value. The present or current value should be determined within the framework of going concern principles or the value in use as the case may be.
- Where the present or current value is higher than initial cost the initial costs is maintained as the value of the assets except for cases specifically envisaged in the legislation. If the present or current value is lower than the initial costs the fall in value is recognized separately by way of a depreciation or a provision depending on whether or not the fall in value is irreversible.
- For inventories they should be valued on the basis of first-in, first-out or weighted average unit costs of acquisition or production.
- Depreciation is the mandatory recognition of the reduction in the value of assets which is depreciating in a permanent and irreversible manner with the passage of time, usage, technological changes and market conditions. It is the process of allocating the cost of the assets through its useful economic life following a pre-established depreciation plan. The depreciable costs is the difference between the initial costs and the residual value.
- Any significant modification in the legal, technological and market condition of the company may warrant a revision in the depreciation plan.
- Fall in value of an asset resulting from a cause if not considered to be irreversible but is recognized by way of a provision for fall in value. In respect of fixed and long term assets this fall in value is recognized by means of allocation whilst for current assets it is through a loss provision.
- Fixed assets acquired in foreign currency are translated to the reporting currency using the exchange rate ruling on the date of transactions or contracted rates.
- Assets and liabilities are translated at contracted rates for commercial transactions and at rates ruling on the date the funds are made available for financial transactions. Exchange gains and losses arising from foreign currency transactions initiated and settled in the same accounting period are included in the income statements. The same applies for foreign currency transactions that are hedged irrespective of their maturity.
Chart of Accounts organization under OHADA
Member states under OHADA can comply with the statutory requirements using SAP provided solution as detailed in this document.