CASE 8.7
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
338 Case 8.7 Republic of Somalia
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.
5. Since Somalia did not have a functioning banking system, TFG found it difficult to perform
some of the most fundamental administrative functions, such as, disbursing payroll funds to its
workforce.
6. The absence of a banking system and the lack of reliable accounting and control procedures
resulted in corrupt TFG officials embezzling much, if not most, of the foreign aid intended to
support its operations.
7. In 2009, the UN brokered an agreement between TFG and PricewaterhouseCoopers (PwC)
under which the large accounting firm would manage TFG’s cash receipts and disbursements; PwC
would receive a commission of two – four percent for those funds that were used for legitimate
purposes.
Instructional Objectives
Case 8.7 Republic of Somalia 339
1. To make students aware that professional service engagements in the accounting profession may
involve a wide range of unusual responsibilities and risks, particularly for the major international
accounting firms.
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.
When it comes to headline-grabbing international affairs and controversies, the general public,
including students, typically don’t expect accountants and auditors to be front and center in those
Suggested Solutions to Case Questions
1. In general, the PwC-TFG engagement is an assurance services engagement. The AICPA’s
Special Committee on Assurance Services defined those services as follows: “independent
professional services that improve the quality of information, or its context, for decision makers.”
The principal assurance being provided by PwC is the fact that TFG funds are being used for a
legitimate purpose. A relevant question is whether the PwC engagement also qualifies as an
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Auditing standards, of course, apply only to audit engagements, so they would not be relevant to
the PwC-TFG engagement. If that engagement qualifies as an attestation engagement, then
obviously the attestation standards issued by the AICPA would apply. The broadest set of
professional standards applicable to the PwC-TFG engagement would be those included in the
AICPA’s Code of Professional Conduct. Particularly relevant would be the general standards
2. Certainly, Rule 301 of the AICPA Code of Professional Conduct, “Confidential Client
3. The nature of PwC’s compensation presents an ethical challenge for the firm. Recall that PwC
receives a percentage commission of all funds disbursed for a legitimate purpose. Consequently,
4. Listed next are key risks that PwC faces on the Somalia engagement:
—The high profile nature of the engagement means that any mistakes or perceived mistakes made by
PwC would cause the resulting negative publicity to be magnified by the international media.
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—As established in the Shari’a (Case 8.12) 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 has likely offended one or more factions