World Bank Centre for Financial Reporting Reform - Newsletter February 2013

Welcome to the CFRR’s winter 2013 Newsletter!

Welcome to the CFRR’s first newsletter of 2013. In this edition, we present the highlights of the CFRR’s activities over the past three months, including a conference on the latest developments in International Financial Reporting Standards (IFRS), a discussion of the effectiveness of audit committees and a workshop providing practical support for countries seeking to bring their legal frameworks for financial reporting into line with the EU acquis. We also present the results of the survey that we sent out last November to readers of the newsletter.

Key recent activities

A Polish perspective on the latest developments in IFRS

As part of the FRTAP program for Poland, the CFRR and Poland’s Ministry of Finance organized a conference on 6 December 2012 on the latest developments in IFRS, with a particular focus on the implications for financial reporting in Poland. Speakers from the IASB and the Polish Accounting Standards Committee described the latest amendments to IFRS and also outlined the further changes which are likely to be implemented in 2013 or 2014. Other speakers focused on the practical implications for reporting companies of the increased emphasis on “fair value” approaches to valuation in the newly issued IFRS 13, and on how stock market regulators, both in Poland and at the European level, approached the enforcement of IFRS.

One of the highlights of the Conference was a demonstration of framework-based teaching by Michael Wells, Director of the IFRS Foundation Education Initiative. Mr Wells used an invented case study to illustrate the challenges of applying IFRS in valuing company assets. The diverse audience of practitioners, users, regulators and other stakeholders was able to vote electronically on a range of technical valuation issues raised by the case study, with the results of the electronic voting being immediately displayed on presentation screens. This innovative approach to teaching and assessment proved very popular with the audience. It also gave valuable insights into those areas of valuation where practitioners found applying IFRS most difficult or where the wording of the standard meant that there was no single "right answer", highlighting the need for the use of professional judgment. A more detailed summary of the conference, with full supporting materials can be found on the CFRR website.

Bringing financial reporting frameworks into line with the EU acquis

Corporate Financial Reporting Workshop,
29-30 November 2012, Vienna

Helping participant countries bring their corporate financial reporting frameworks into line with the EU’s system of laws and regulations - the acquis communautaire – is one of the main objectives of the REPARIS program. As part of this program, the CFRR organized a workshop on 29-30 November 2012 bringing together those responsible for drawing up new accounting and auditing laws in the REPARIS countries with experts from the European Commission (EC). The officials from the EC described how the Commission draws up the annual progress reports and, in particular, how it uses concordance tables to assess candidate countries’ progress in aligning their legal systems with the acquis. Participants found the example of a concordance table that the Commission staff provided especially useful. Presentations from Croatia and Albania gave a complementary view of the process of alignment, describing their own experiences of bringing their legal frameworks into line with the acquis. Staff from the CFRR completed the picture by summarizing the current status of the Commission’s proposals to modify the acquis in accounting and auditing.

A more detailed summary of the workshop, together with supporting materials and presentations, is available on the CFRR website.

Drawing lessons about the role of Audit Committees from recent experience

As part of the FRTAP program for Poland, the CFRR, in co-operation with the Polish Audit Oversight Commission, organized a conference on the lessons for Audit Committees from recent Polish and international experience. The conference was hosted by the Warsaw Stock Exchange. A range of speakers discussed how the set of responsibilities given to Audit Committees had widened, the challenges in finding individuals who were both independent and sufficiently aware of financial reporting issues to be effective members of Audit Committees, and the role that Audit Committees could play in improving business performance, while also representing shareholders’ interests. In this respect, several speakers judged that WSE-listed businesses were now more favorably disposed to the creation of Audit Committees than they had been when the requirement for most listed firms to have an Audit Committee had been imposed.

The Polish Ministry of Finance has posted a short summary of the event on its own website (in Polish only). A more detailed summary of the conference, together with links to several studies analyzing the effectiveness of Audit Committees is posted on the CFRR website.

Improving accounting education in Moldova: learning from Romanian experience

Study trip for accounting educators from Moldova, 2-8 December, Bucharest

Improving the quality of professional education for accountants and auditors is a key element in raising the quality of financial reporting. As part of a South-South knowledge exchange project, the CFRR organized a study trip from 2-8 December for accounting educators from Moldova, including members of the accounting faculty of the Academy of Economic Studies of Moldova (ASEM), the Association of Professional Accountants and Auditors of Moldova (ACAP), and staff from the Certification Commission of Auditors (part of the Ministry of Finance), to Bucharest in order to learn from Romanian experience in modernizing accounting curricula and teaching and assessment methods.

The visitors spent several days with the faculty of Accounting and Management Information Systems in the Academy of Economic Studies of Bucharest (ASEB), studying ASEB’s curriculum and taking part in several classes for students. They also met Romanian PAOs – the Chamber of Financial Auditors of Romania (CAFR) and the Body of Expert and Licensed Accountants of Romania (CECCAR) - and representatives of ACCA, which accredits many university accountancy courses in Romania and South-East Europe, to discuss how arrangements for initial and continued professional development were implemented in Romania.

The knowledge gained during the trip will be disseminated to a broader range of those involved in accounting education in Moldova and will contribute to ASEM’s plans to modernize its accounting curricula. ASEM hopes to have the new curricula accredited by ACCA later this year.

A more detailed summary (in Romanian) can be found on page 11 of the December issue of the ASEM Newsletter.

Sharing information to improve audit oversight

Under the EU's Statutory Audit Directive, public oversight bodies (POBs) are responsible for overseeing the work of statutory auditors. One important element of the FRTAP program is technical assistance to improve the functioning of POBs in the countries that joined the EU in 2004.

Exchange of experiences with the FAOA,
10-11 December, Bern

As part of this program, the CFRR organized a visit for eleven staff from public oversight bodies in Latvia, Poland and Slovenia to learn from the experiences of their counterpart in Switzerland, the Federal Audit Oversight Authority (FAOA). The visit, which took place on 10-11 December, was designed to familiarize the participants with the FAOA's approach to audit oversight and, in particular, its approach to conducting quality assurance inspections. The visitors benefitted from in-depth presentations on the more practical details of how the FAOA organizes itself and how it carries out reviews of audits and inspections of audit firms "in the field".

A summary of the visit also appears on the website for the Swiss Contribution to EU enlargement.

Using IFRS to improve bank supervision in Montenegro

As part of a technical assistance program funded by the World Bank’s Private and Financial Sector Development unit for Europe and Central Asia (ECSPF), a team from the CFRR and FINSAC travelled to Podgorica, Montenegro from 10-12 December to update staff from local commercial banks and the Central Bank of Montenegro (CBM) on the use of International Financial Reporting Standards (IFRS) in bank accounting and the prudential supervision of banks. From January 2013, IFRS has replaced national accounting standards as the accounting framework for banks in Montenegro. During the discussion with CBM supervisors and local banks, there was debate over whether the methods for providing for loan loss prescribed by the CBM (the "ABCDE" method) were consistent with IFRS.

The treatment of loan loss provisioning under IFRS was the topic of a REPARIS Global Distance Learning Network (GDLN) virtual seminar for banking supervisors on February 13, 2013. A summary of this event will appear shortly on the CFRR website.

Survey of CFRR website and Newsletter

In November 2012, the CFRR asked recipients of the CFRR newsletter to complete a short survey asking for their assessment and suggestions for improvement for the newsletter and the CFRR website. 237 respondents took part in the survey, an overall response rate of around 5%. Among contacts from the REPARIS countries, the response rate was 16%, reflecting the closer links between the CFRR and its partners in the REPARIS countries.

The survey found that respondents generally had a positive view of the newsletter and the website: 90% of them either "agreed" or "strongly agreed" that the newsletter was useful and relevant to their work and provided links to interesting information; over 95% of respondents were either "satisfied" or "very satisfied" with their experience of the CFRR website. These satisfaction levels were slightly higher among respondents from the REPARIS countries.

There were several suggestions for improvements to the website and the newsletter, including some requests for the designs of the website and the newsletter to be made more user friendly (especially for mobile devices) and calls to make the content more interactive by bringing in voices from the target audience, as well as covering a broader range of topics.

The CFRR will take these suggestions into account as it reviews how to develop its website. In particular, the CFRR website is due to move to the World Bank’s new platform in the next year or so, and this will give us the opportunity of improving the design and structure of the website.

Tax reporting and financial reporting in Kazakhstan

As part of the Joint Economic Research Program (JERP) in Kazakhstan, the CFRR managed a technical assistance project to investigate the potential for Kazakhstan to introduce the IFRS for SMEs reporting standard. One important aspect of this project was a study investigating the relationship between reporting for tax purposes in Kazakhstan and general purpose financial reporting, as laid down either in Kazakh national accounting standards or in the IFRS for SMEs. The completed study finds that the adoption of the IFRS for SMEs is likely to have only a minor impact on the differences between tax and financial reporting and makes a number of recommendations for reducing these differences.

News from the region, the EU and beyond

The CFREP project in Albania: a national program to improve all aspects of corporate financial reporting

As part of the REPARIS program, the CFRR is assisting the Albanian government in managing a national technical assistance project on implementing reforms to corporate financial reporting in Albania. This national program, the Corporate Financial Reporting Enhancement Program (CFREP) is funded by the government of Switzerland through the REPARIS program and was launched in April 2011. The project adopts a broad approach to the reform of corporate financial reporting (CFR), seeking to support the government, professional accounting bodies and teachers of accounting in their efforts to introduce a legal framework for CFR that is aligned with the EU acquis, to increase the effectiveness of the official and professional institutions implementing this framework, and to raise the quality of accounting education. The CFREP project has already made significant progress in all these areas and is on track to meet most of its objectives by the planned end of the program in December 2013.

IFRS Foundation disseminates teaching material on IFRS

The IFRS Foundation, which acts as the secretariat for the International Accounting Standards Board (IASB), has published a first set of teaching materials to support the effective teaching and implementation of IFRS. This batch of material focuses on the treatment of non-financial assets, especially plant, property and machinery. Extracts from this teaching material have already been used at past CFRR events and have proved to be very popular with participants. The IFRS Foundation is currently working on producing similar material on liabilities and business combinations and consolidations, with the aim of publishing it in the second half of 2013.

Upcoming Events

The CFRR is planning a full program of events for 2013, including several distance learning seminars (GDLN events) to provide technical updates on financial reporting and regulatory issues, as well as workshops allowing participants to learn from each others’ experiences in implementing reforms.

Individual events, most of which are open to invited participants only, are listed on the CFRR Events page of the CFRR website.

Latest developments at the Centre

New face at the CFRR

Piotr Pyziak

In January, the CFRR welcomed Mr. Piotr Pyziak as a consultant, working on the FRTAP Poland program. Piotr is a Polish national who has worked as an auditor for Ernst & Young and for PwC and also as a financial controller in Poland and Russia in the construction and media sectors. He is fluent in English and Russian and has a basic understanding of German.

.

Knowledge Brief on REPARIS

In order to help disseminate the insights gained from the REPARIS program to a broader audience, the CFRR has produced a Knowledge Brief summarizing the program’s objectives and activities, as well as the lessons learned from the first four years of REPARIS. The Knowledge Brief was the subject of a feature story last month on the World Bank’s main external website.

Let us know what you think

We hope you find this issue of the newsletter interesting and useful. Please let the editor (jfowen@worldbank.org) know if you have any comments or suggestions for topics that could be featured in future editions.

We plan to send out the next edition of the CFRR Newsletter in May or June.

Partners of the CFRR