Chapter five: Corporate governance Institute of Chartered Accountants. As a member of these bodies, LIA is expected to promote the adoption and use of international standards and best practices in the country. 510. LIA previously issued national accounting guidelines for use in Lesotho. Allowance was made to use the International Accounting Standards (IAS) issued by IFAC if there were no such guidelines. However, alongside global developments, Lesotho adopted the International Financial Reporting Standards (IFRS) issued by the International Accounting Standards Board (IASB) in 2005. Evidence on the ground, however, is that the IAS are still being used if they apply. However, there are no material differences between the standards being used in Lesotho and international standards on the whole. LIA no longer issues national accounting guidelines. Instead, it relies on the IFRS. There are no simplified accounting guidelines for SMEs at the moment. 511. Auditing is done in accordance with the Generally Accepted Accounting Principles (GAAP). None of the large international auditing firms, like Ernst and Young, PricewaterhouseCoopers and KPMG, are present in Lesotho. The reason given is that the market is too small to sustain their operations. The firms do, however, operate in the country through their offices in South Africa. Entities, which indicate that they need auditing by international firms for operational reasons, are allowed to use them (provided that they do so in association with local firms). Core Principles for Effective Banking Supervision 512. The FIA of 1999, which repealed the FIA of 1973, empowers the Supervision Department of the CBL to monitor the activities of the licensed institutions so as to safeguard the soundness of the financial system and to ensure compliance with laws and regulations. The Act provides the legal framework, inter alia, for the licensing, organisation, administration, financial accountability, supervision, prudential regulation, and insolvency and liquidation of banks and financial institutions. It therefore allows sufficient flexibility for establishing minimum capital, liquidity requirements and loan limits, and for issuing other prudential regulations aimed at achieving full compliance with the Basel Core Principles for Effective Banking Supervision. Box 5.1: Some of the regulations issued by the CBL for financial supervision The Financial Institutions (Licensing Requirements) Regulations of 1999 were intended to establish clear and objective criteria for reviewing applications to engage in banking or credit business and to outline the procedure to be followed in the licensing process. The Financial Institutions (Risk-based Capital Requirements) Regulations of 1999 were intended to ensure that each bank maintains an adequate level of capital to protect its depositors and creditors and to promote public confidence, among other things. The Financial Institutions (Loan Portfolio Classification) Regulations of 1999 were intended to ensure that all loans and advances from financial institutions are regularly evaluated using objective classification criteria; that the accounting treatment of accrued, but uncollected, interest on nonperforming accounts of financial institutions complies with internationally accepted accounting principles; and that the allowance for loan losses or provisioning is maintained at an adequate level at all times. 140