IFRS & International Tax in Africa: 10 Technical Focus Areas for IPOs, M&A, and Audit

Accounting and tax standards in Africa are evolving rapidly. Local and multinational companies must navigate a landscape where IFRS, international taxation, and sustainable reporting directly impact valuation, solvency, and funding strategy.

For IPOs, M&A transactions, or capital raises, mastering these aspects has become a strategic necessity. This article outlines 10 essential technical focus areas, providing African context, practical recommendations, and insights specific to the South African market.

1. IFRS 17 – Insurance Contracts

Issue: IFRS 17 fundamentally changes the recognition of insurance revenues and liabilities, affecting key investor metrics such as profitability and solvency.
Key Action: Produce an IFRS 17 bridge with discount rate sensitivity and document accounting policies and actuarial assumptions.
Strategic Comment: In Africa, local practice variations may cause post-IPO surprises. Robust documentation mitigates investor disputes.

2. IFRS Disclosure Quality

Issue: M&A and IPO transactions require a full Local GAAP → IFRS bridge over the past three years.
Key Action: Provide a reconciliation pack including the top-10 adjustments and extracts from accounting policies, along with a disclosure checklist aligned with African and international exchanges.

3. IFRS 9 – Financial Instruments and ECL

Issue: Misclassification or mis-provisioning of financial instruments distorts solvency ratios and valuations.
Key Action: Prepare a classification memo, develop a simple ECL model, and back-test probability of default (PD) and loss-given-default (LGD) assumptions.

4. IFRS 15 – Revenue Recognition

Issue: Complex contracts (bundles, multiple performance obligations) directly influence revenue timing and valuation multiples.
Key Action: Map performance obligations and produce pro forma revenue adjustments.

5. IFRS 16 – Leases and Covenants

Issue: Capitalizing leases affects EBITDA and leverage ratios, with potential covenant breaches.
Key Action: Maintain a detailed lease register and prepare a covenant impact memo with renegotiation recommendations if necessary.

6. Fair Value & Impairment Testing (IAS 36 / IFRS 13)

Issue: Insufficient documentation of fair value or impairment tests increases post-IPO impairment risk.
Key Action: Provide Level 3 valuation summaries with sensitivity analysis and transparent assumptions reporting.

7. Deferred Tax (IAS 12)

Issue: IFRS adjustments often create unexpected temporary differences affecting equity and cash flows.
Key Action: Model the effective tax rate (ETR) and project impacts over future periods.

8. Currency Volatility & Hedging

Issue: African markets are exposed to FX shocks; investors demand transparency on hedging strategies.
Key Action: Map FX exposures, document IFRS 9 hedge accounting, and simulate P&L impact.

9. Digital VAT & Place-of-Supply Rules

Issue: Rapid expansion of VAT on digital and cross-border services may cause significant cash leakage.
Key Action: Conduct a VAT cash leakage scan and develop a remediation plan, including historical provisions if material.

10. International Tax, Transfer Pricing, DTTs & MLI

Issue: Withholding taxes, TP audits, and Pillar Two rules impact net cash flows and valuation.

• Limited DTT coverage: Only 27 out of 54 African countries have active double taxation treaties, increasing cross-border tax risk.

• MLI – Multilateral Instrument: Allows signatory countries to update existing DTTs and implement BEPS measures. Some African countries (Morocco, Kenya, South Africa) ratified it, but usage remains limited.

Key Action:

• Map cross-border tax exposures, including missing DTTs and MLI jurisdictions.

• Prepare transfer pricing documentation and Pillar Two modeling.

• Identify flows exposed to double taxation and plan mitigation (tax credits, legal planning, MLI use where applicable).

Strategic Comment: Ignoring DTT gaps or MLI opportunities can reduce cash availability and negatively affect IPO valuation or capital raise.

Current Trends in Africa

• IFRS Adoption: 75% of African countries apply or converge toward IFRS, but technical capacity limits disclosure quality.

• International Tax: ATAF reports a 20% increase in transfer pricing audits since 2020 and growing adoption of OECD rules, particularly for digital services.

• ESG & Sustainable Reporting: IFRS S1/S2 introduce climate and sustainability reporting requirements integrated into financial statements.

Strategic Recommendations

1. Integrate IFRS and tax into every IPO readiness roadmap.

2. Standardize accounting bridges to facilitate fast due diligence (DD-light packages).

3. Anticipate digital taxation, Pillar Two, and the impact of DTTs/MLI for multi-jurisdictional groups.

4. Train local teams on IFRS and international tax compliance.

5. Align ESG reporting with IFRS S1/S2 to meet international investor expectations.

Mastering IFRS and international tax in Africa is now a strategic lever. From IFRS 17 restatements to DTT and MLI management, every accounting and tax decision directly affects valuation, cash flow, and investor confidence. CFOs and finance teams who proactively address these issues enhance credibility and efficiency during IPOs, capital raises, and M&A transactions.

To secure your transactions and optimize IPO or audit readiness, contact Luca Pacioli experts. We support African subsidiaries and groups with:

• IFRS restatement and Local GAAP → IFRS bridges.

• Cross-border tax mapping, including DTTs, MLI, and Pillar Two.

• Digital VAT and tax risk scans.

• DD-light packages to accelerate due diligence.

Schedule a consultation today and ensure your company is fully prepared for African and international financial markets.

Feel free to reach us by Email : contact@lucapacioli.com.tn