CASE 8.3
REPUBLIC OF SOMALIA
Synopsis
Among the most vexing problems facing the United States and other major democracies is the
threat posed by terrorists around the globe. In recent years, Somalia has become a major breeding
ground for the highest profile terrorist organization, namely, al Qaeda. In 1991, Somalia’s federal
government collapsed, plunging the country into anarchy. Al Qaeda took advantage of the resulting
power vacuum to set up military training operations in the arid country that wraps around the “Horn
of Africa,” the large African peninsula along the continent’s eastern coast. Shortly after the turn of
the century, every major country in the world was drawn into the Somalia crisis when Somali pirates
began commandeering commercial ships plying the heavily trafficked ocean trade routes that parallel
the Horn of Africa.
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Republic of Somalia—Key Facts
1. The Republic of Somalia’s central government collapsed in 1991 plunging the country into
anarchy that resulted in a massive humanitarian crisis for its citizens.
2. The Somali crisis impacts the United States and other western powers because of the growing
3. In 2004, the United Nations, the African Union, and the United States organized the Transitional
5. Since Somalia did not have a functioning banking system, TFG found it difficult to perform
6. The absence of a banking system and the lack of reliable accounting and control procedures
7. In 2009, the U.N. brokered an agreement between TFG and PricewaterhouseCoopers (PwC)
8. The TFG-PwC agreement was controversial and resulted in criticism of both parties.
10. Other parties questioned PwC’s ability to provide for the physical safety of those individuals
who would staff the engagement.
12. Allegations that Somalia governmental officials and other parties embezzle much of the foreign
aid pouring into the country each year have continued largely unabated since PwC was retained to
help manage the nation’s cash resources.
Case 8.3 Republic of Somalia 393
Instructional Objectives
1. To make students aware that professional service engagements in the accounting profession may
2. To require students to identify the professional standards that apply to specific types of
professional service engagements.
Suggestions for Use
Here is another case that can be somewhat sensitive or “ticklish” to discuss since the peripheral
issues in the case have political and ethnic undertones. If you have students of the Islamic faith in
your classes, you may want to make a special effort to ensure that the focus of the case discussion
remains on the accounting and ethics-related issues rather than those peripheral issues.
class.
Suggested Solutions to Case Questions
1. In general, the PwC-TFG engagement was an assurance services engagement. [Note: I am
using the past tense here because technically the PwC-TFG relationship has ended, as noted in the
case epilogue. However, as also noted in the case, PwC is apparently providing the same type of
services to the new Somali government.] The AICPA’s Special Committee on Assurance Services
defined those services as follows: “independent professional services that improve the quality of
394 Case 8.3 Republic of Somalia
Auditing standards, of course, apply only to audit engagements, so they would not be relevant to
the PwC-TFG engagement. If that engagement qualified as an attestation engagement, then
obviously the attestation standards issued by the AICPA would have applied. The broadest set of
professional standards applicable to the PwC-TFG engagement would be those included in the
AICPA Code of Professional Conduct. Particularly relevant would be the general standards
discussed in ET Section 201 that include “professional competence,” “due professional care,”
“planning and supervision,” and “sufficient relevant data” (the latter standard refers to the need for a
CPA to “obtain sufficient relevant data to afford a reasonable basis for conclusions or
recommendations in relation to any professional services performed”). The AICPA’s standards for
consulting services identify three additional general standards that apply to consulting engagements:
“client interest,” “understanding with the client,” and “communication with client” (CS Section
100.07). For example, the “client interest” standard requires a CPA to “serve the client interest by
seeking to accomplish the objectives established by the understanding with the client while
maintaining integrity and objectivity.”
2. Certainly, Rule 301 of the AICPA Code of Professional Conduct, “Confidential Client
Information,” prevented PwC from disclosing contractual details of its agreement with TFG. The
3. The nature of PwC’s compensation presented an ethical challenge for the firm. Recall that PwC
received a percentage commission of all funds disbursed for a legitimate purpose. Consequently,
4. Listed next are key “risks” that PwC faced on the Somalia engagement:
—The high profile nature of the engagement meant that any mistakes or perceived mistakes made by
PwC would cause the resulting negative publicity to be magnified by the international media.
—Some degree of litigation risk is present on every professional services engagement. Given the
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—As established in the Shari’a (Case 8.5) case in this textbook, each of the Big Four accounting
firms has made a strong effort in recent years to establish a presence in the rapidly developing
“Islamic sector” of the world economy. One could reasonably argue that by interjecting itself into
the volatile and highly political Somali “situation,” PwC may have offended one or more factions
within the Islamic world, which could pose a barrier to client development activities in the Islamic