Lesotho

The corporate financial reporting framework in Lesotho is governed by two main laws that outline applicable standards for the preparation and audit of financial statements and the scope of entities that are subject to the requirements of the law: the Companies Act 2011 and the Financial Institutions Act 2012.

Accounting Framework

The Companies Act 2011 establishes financial reporting requirements for all companies and requires the application of accounting standards issued by the Lesotho Institute of Accountants (LIA). In 2005, the LIA Council adopted IFRS and IFRS for SMEs as issued by the IASB. That Council decision requires the automatic adoption of all new and revised IFRS. Except for financial institutions, which are required to apply full IFRS, companies may choose to apply either IFRS or IFRS for SMEs.

Auditing Framework

The Companies Act 2011 requires mandatory annual audits of financial statements except for private companies having (i) fewer than 10 shareholders; (ii) none of the shareholders is a company; and (iii) 75% of the shareholders agree that an auditor will not be appointed; or (iv) the company is a single shareholding company.

The Companies Act 2011 grants auditing standard-setting authority to LIA, that is, LIA will adopt, issue, and publish all auditing standards. It also states that the performance of audits must be governed by the rules and regulations prescribed by the institute. LIA has adopted and published ISA as issued by the IAASB without modifications and on an ongoing basis for application in Lesotho.

Section 97 of the Companies Act 2011 stipulates that auditors must be members of LIA, or a professional accountancy organization recognized by LIA, and hold a valid LIA-issued practicing certificate.

The Financial Institutions Act 2012 grants the Central Bank of Lesotho (CBL) the authority to approve auditors of financial institutions. The Act mandates mandatory audit firm rotation after five consecutive years unless the CBL grants an exemption. Additionally, financial institutions are required to appoint an audit committee.

The Accountants Act 1977 establishes the Lesotho Institute of Accountants (LIA) as the national professional accountancy organization and the regulator of the accountancy profession.

LIA has established a three-tier qualification framework for entry into the profession: (i) Technician Accountant; (ii) General Accountant; and (iii) Chartered Accountant, each with specified educational background and practical experience. LIA only began offering its own local professional accountancy qualification (Lesotho Professional Accountancy Programme (LePAP)) in 2018.

Accordingly, the accountancy profession in Lesotho has historically grown through the inclusion of professional accountants qualified abroad based on the fulfillment of academic programming, practical experience, and passing final examinations. Technician Accountants must either (i) hold a technician qualification recognized by the LIA; or (ii) hold a bachelor’s degree in accounting. Technician Accountants must have one year of practical experience. General Accountants must (i) have completed the fundamental papers of the LIA / ACCA Joint Examination Scheme; (ii) hold a graduate qualification in accounting; or (iii) hold a qualification from a Chartered Institute of Secretaries and Administrators. General Accountants need two years of relevant work experience. Finally, candidates for Chartered Accountant must pass the full professional LIA – ACCA Joint Examination Scheme or other professional qualification recognized in Schedule II of the Accountants Act and have a minimum of three years’ work experience. To offer public practice services, all individuals – regardless of designation – must pass LIA competency examinations and hold a practicing certificate.

The LePAP framework offers the same designations with pathways (i.e. initial education) that are locally tailored for private or public sector specialization.

The three designations are protected under the Accountants Act, and only Chartered Accountants in public practice can conduct audits and prepare the financial statements of large companies. Under the Companies Act 2011, all statutory auditors must be LIA members. General Accountants may prepare financial reports at medium-sized institutions, while Technician Accountants are qualified for senior bookkeeping positions.

The institute is responsible for: (i) promoting the interest of the profession of accountancy in Lesotho; (ii) setting private and public sector accounting and auditing standards; (iii) determining initial professional development and continuing professional development requirements; (iv) setting ethical standards for members; (v) establishing an investigation and disciplinary system to investigate complaints against its members; (vi) maintaining a publicly available register of auditors and audit firms on its website; and (vii) establishing a quality assurance review system for members.

There is no independent audit oversight arrangement in Lesotho. Auditors are regulated by the Lesotho Institute of Accountants (LIA) in accordance with the Accounting Act 1977. Section 97 of the Companies Act 2011 stipulates that auditors must be members of LIA, or a professional accountancy organization recognized by LIA, and hold a valid LIA-issued practicing certificate.

LIA’s mandate covers: (i) setting auditing standards; (ii) determining the initial professional development and continuing professional development requirements; (iii) setting ethical standards for members; (iv) establishing an investigation and disciplinary system to investigate complaints against its members; (v) maintaining a publicly available register of auditors and audit firms on its website; and (vi) establishing a quality assurance (QA) review system for members.

In addition, auditors of financial institutions are subject to regulations outlined in the Financial Institutions Act 2012. The Act grants the Central Bank of Lesotho (CBL) the authority to approve auditors of financial institutions. The Act mandates mandatory audit firm rotation after five consecutive years unless the CBL grants an exemption.

Lesotho Institute of Accountants (LIA)

The LIA was established in 1977 in accordance with the Accountants Act 1977. Its membership comprises (i) Technician Accountant; (ii) General Accountant; and (iii) Chartered Accountant. Under the Companies Act 2011, all statutory auditors must be LIA members. The institute’s mandate covers: (i) promoting the interest of the profession of accountancy in Lesotho; (ii) setting private and public sector accounting and auditing standards; (iii) determining initial professional development and continuing professional development requirements; (iv) setting ethical standards for members; (v) establishing an investigation and disciplinary system to investigate complaints against its members; (vi) maintaining a publicly available register of auditors and audit firms on its website; and (vii) establishing a quality assurance review system for members.

In addition to being a Member of IFAC, LIA is a member of the Pan African Federation of Accountants.

The Accountants Act 1977 is being re-drafted to strengthen the authority of the institute with respect to the quality assurance and investigation and discipline systems in the jurisdiction.

Although there is no legal mandate to establish a quality assurance (QA) system, the Lesotho Institute of Accountants (LIA), in accordance with the Accountants Act 1977, may take steps as needed to regulate the profession in the public interest.

Therefore, LIA introduced mandatory practice reviews in 2009 for audit firms that provide audit services to public interest entities. Under a contractual arrangement, the Association of Chartered Certified Accountants (ACCA) conducted practice reviews from 2012–2014. Throughout 2017, LIA arranged a partnership with the Public Accountants and Auditors Board (PAAB) of Zimbabwe to continue conducting QA reviews. LIA reports that the PAAB’s first reviews were done in June 2018 with the second round being conducted in December 2018. The LIA affirms that QA reviews are carried out in accordance with SMO 1 requirements.

The Accountants Act 1977 is being re-drafted to provide legal backing to the institute’s role in running the QA system in the jurisdiction. The timeline for the passage of the Act is tenuous.

Current Status: Adopted

Section 6 of the Accountants Act 1977 establishes that Lesotho Institute of Accountants (LIA) is responsible for determining initial professional development (IPD) and continuing professional development (CPD) for professional accountants.

LIA has established a three-tier qualification framework for entry into the profession: (i) Technician Accountant; (ii) General Accountant; and (iii) Chartered Accountant, each with specified educational background and practical experience. LIA only began offering its own local professional accountancy qualification (Lesotho Professional Accountancy Programme (LePAP)) in 2018.

Technician Accountants must either (i) hold a technician qualification recognized by the LIA; or (ii) hold a bachelor’s degree in accounting. Technician Accountants must have one year of practical experience. General Accountants must (i) have completed the fundamental papers of the LIA / ACCA Joint Examination Scheme; (ii) hold a graduate qualification in accounting; or (iii) hold a qualification from a Chartered Institute of Secretaries and Administrators. General Accountants need two years of relevant work experience. Finally, candidates for Chartered Accountant must pass the full professional LIA – ACCA Joint Examination Scheme or other professional qualification recognized in Schedule II of the Accountants Act and have a minimum of three years’ work experience. To offer public practice services, all individuals – regardless of designation – must pass LIA competency examinations and hold a practicing certificate.

The LePAP framework offers the same designations with pathways (i.e. initial education) that are locally tailored for private or public sector specialization. The LIA states that the LePAP subscribes to the IES requirements and includes learning outcome approaches.

The LIA - ACCA joint qualification scheme runs through September 2023 and LIA works with the Council on Higher Education—which accredits tertiary education programs—to ensure that the accountancy education in universities complies with the latest IES. Practical training experience is monitored by the institute’s technical department. LIA also operates a compulsory CPD program for its members which is aligned with the IES 7 and 8 requirements and monitors non-compliance.

Current Status: Adopted

The Companies Act 2011 grants authority to the Lesotho Institute of Accountants (LIA) to set auditing standards and rules and regulations for the conduct of audits. The LIA states that it adopts and publishes ISA as issued by the IAASB without modifications on an ongoing basis for application in Lesotho.

Current Status: Adopted

A 1984 amendment to the Accountants Act 1977 grants the Lesotho Institute of Accountants (LIA) the authority to set ethical standards for the profession. LIA adopted the IESBA’s Code of Ethics in 2010 with minor modifications and implemented processes to adopt subsequent amendments to the Code on an ongoing basis. LIA reports its members are required to adhere the 2020 International Code of Ethics.

Current Status: Adopted

The Financial Management and Accountability Act 2011 establishes the Lesotho Institute of Accountants (LIA) as the public sector accounting standard setter. The Act requires government financial statements to be prepared in accordance with IPSAS. LIA states that presently statements are prepared on a modified cash-basis and eventually transitioning to accrual basis (IFAC, CIPFA 2018).

Current Status: Partially Adopted

The Accountants Act 1977 requires the Lesotho Institute of Accountants (LIA) to establish an investigation and disciplinary (I&D) system for the profession. The institute established a Risk and Compliance Committee to monitor member compliance with laws, regulations, the Code of Ethics, and professional standards and an adhoc investigations committee to investigate reported cases of noncompliance. Subsequently, the Disciplinary Committee is empowered to conduct disciplinary processes and issue sanctions for members that are found guilty of misconduct.

LIA reports that it amended its Disciplinary Procedures to incorporate the revised SMO 6 requirements and put forth the amendment for approval and adoption of by its Council and general membership in 2017.

Current Status: Adopted

The Companies Act 2011 requires companies to prepare financial statements in accordance with the accounting standards prescribed by the Lesotho Institute of Accountants (LIA). In 2005, the LIA Council adopted IFRS and IFRS for SMEs as issued by the IASB. This Council decision requires automatic adoption of all new and revised IFRS. Except for financial institutions, which are required to apply full IFRS, companies may choose to apply IFRS or IFRS for SMEs.

Current Status: Adopted

Relevant Organizations

• Center for Accounting Studies
• Council on Higher Education
• Lesotho Institute of Accountants (LIA)

Relevant Legislation

• Companies Act, 2011
• Financial Institutions Act, 2012

Relevant Publications

• European Union, Public Expenditure and Financial Accountability (PEFA): Lesotho, November 2012.
• IFRS Foundation, IFRS Application Around the World—Jurisdictional Profile: Lesotho, 16 June 2016.
• LIA, Lesotho Professional Accountancy Programme (LePAP), May 2017.
• LIA, SMO Action Plan, January 2019.
• World Bank, Report on the Observance of Standards and Codes—Accounting and Auditing: Lesotho, May 2010.