World Bank engages with global accountancy profession in support of shared prosperity

The CFRR team was joined by members of World Bank management and other colleagues from around the world to host the second Accountancy Development for Results (ADR) conference “Accountancy: Framing the Future” on November 10, 2014. ADR represents an important element of World Bank Group engagement with the global accountancy profession in support of partner countries development.

Organized in cooperation with the International Federation of Accountants (IFAC) on the occasion of IFAC’s World Congress of Accountants in Rome, the conference was attended by more than 160 participants from 60 countries. Four important and interrelated themes with global relevance were addressed, seeking to share ideas and innovative approaches to help build robust economies with effective systems of governance in developing countries. While there were clear individual differences in accounting and auditing agendas there was also much common ground among developing nations. Participants shared experiences of developing public oversight systems and agreed on the importance of developing people, improving skills and encouraging an inclusive profession to attract and retain the best individuals. There was a focus on the opportunities offered by information technology, and on the potential for improved public and private dialogue and interchange, especially beneficial in ensuring the complex financial transactions involved in modern public financial management are effectively captured and understood.

ADR and the ideas discussed in Rome make a valuable contribution to World Bank efforts to support capacity development and promote improvements in the quality and transparency of public and private sector accounting and reporting. CFRR will continue to work with our colleagues in the World Bank Governance Global Practice to facilitate engagement among partner countries, including technical assistance and peer exchange in areas such as the development of sustainable systems of quality assurance, and to work with PAOs to strengthen the professional skills of accounting practitioners at all levels, including the development of practical tools and relevant software.

Raising the profile of corporate financial reporting in Georgia

As part of efforts to promote the benefits and requirements of corporate financial reporting reform in Georgia, a CFRR team met with key stakeholders, including representatives of the Ministry of Economy and the Georgian Federation of Professional Accountants and Auditors, in Tbilisi on 22 October. Natalie Manuilova, Senior Financial Management Specialist, also took part in a Panel on SME Policy organized by the European Commission in Kvareli, on October 23-24, outlining the STAREP program and its role in promoting the implementation of appropriate and effective financial reporting systems which helped SMEs access finance.

Distance-learning events for STAREP countries on EU accounting and auditing

A series of distance learning events, looking at accounting and auditing in the EU for STAREP countries, is proving popular among policy makers and key stakeholders from the six participating countries (Armenia, Azerbaijan, Belarus, Georgia, Moldova and Ukraine).

At the first event “Overview of the European Union and the internal market”, on October 30, Malgorzata Krusiewicz, DG MARKT, International Affairs Unit, European Commission, gave a brief history and overview of the EU, its institutions and legislative processes and the development of the Internal Market, particularly in the areas of financial market integration and company law harmonization, for an audience with limited prior knowledge of the European Union and the acquis communautaire.

The second event on November 6, 2014 addressed “Key features of the accounting directive”. Jean-Philippe Rabine, Unit MARKT F3, Accounting and Financial reporting Unit, European Commission, outlined the key requirements and features of each chapter of the EU accounting directive (2013/34/EU). This increased awareness of EU requirements and helped participants identify areas of domestic legislation which could be revised to better align with the EU.

To enable maximum participation events were available through video-conference connections in World Bank offices (with local language translation) and from any computer through a WebEx connection (in English).

Reinforcing the importance of ethical practice in business and financial reporting

A conference in Warsaw on 24 November 2014 brought together business leaders, accountants, government officials, academics and other financial reporting experts to raise awareness and encourage greater efforts to incorporate ethics into business practices. Organized by the Polish National Chamber of Statutory Auditors (KibR), with support from the CFRR and the Swiss Contribution to the EU, the conference heard from a range of perspectives why implementing clear ethical frameworks makes sense in human and in business terms, developing honesty, integrity and commitment in the workplace, reducing fraud or errors, and producing transparent and trustworthy financial information.

Annual conference considers impact of IFRS implementation in Poland

The 4th annual conference to discuss International Financial Reporting Standards (IFRS) and their impact on future financial reporting took place in Warsaw on 4 December 2014. An invited audience of 155, representing all those with an interest in accurate, transparent financial information in Poland, attended this event organized by CFRR, in association with the Accountants Association in Poland (SKwP) and the International Accounting Standards Board (IASB).

The positive changes implemented in corporate financial reporting in Poland were building the trust and confidence of market participants, and helping facilitate access to affordable credit. Recent and forthcoming IFRS changes and major IASB projects were discussed, especially how these changes will impact Polish financial statements, and there was consideration of the practical implementation of IFRS from a range of perspectives including regulators and business.

Improving accounting and auditing in Ukraine in support of SMEs

As part of broader efforts to support small and medium-sized enterprises (SMEs) in Ukraine, the CFRR and the European Bank for Reconstruction and Development (EBRD) joined forces with Ukrainian government officials, regulators, business representatives and accounting professionals for a one day workshop in Kyiv on 16 December. The workshop discussed the latest accounting and auditing developments among EU member states and highlighted good international practices, such as the use of international standards. Specific reforms were identified which would help Ukraine further improve the country’s frameworks for financial reporting, both legislative and institutional capacity building, and the need to broadly promote the benefits of effective financial reporting was agreed. The workshop reinforced the importance of maintaining private-public dialogue among government officials, regulators, businesses, investors, creditors and shareholders.

French insight assists countries developing oversight systems

France’s audit regulator, H3C, hosted two days of technical study sessions from September 29, 2014 for representatives from the audit oversight bodies of the Czech Republic, Poland, Romania, Slovenia, and Turkey, facilitated and moderated by the CFRR. These sessions looked in detail at the structure and operation of France’s system of audit oversight to help inform the further reform and development of oversight systems in participant’s countries, particularly in response to recent changes in governing EU law. An effective audit oversight system needs a number of, mutually reinforcing and well-coordinated, component parts including system structure and funding; quality-control inspections; interaction with and oversight of the professional body; and enforcement. Effective risk targeting was essential in selecting which firms, audits, quality-control features, and activities to focus on in the inspections process, and there was much discussion of the protocols and techniques H3C has developed to identify, assess, and target risk.

While in Paris the CFRR team also met with the French Institute of Statutory Auditors (CNCC) to learn more about the CNCC’s role, methodology, and software in conducting quality-control inspections as well as its division of labor with H3C, to help inform the CFRR’s technical advice to client countries putting in place similar structuring of responsibilities between the independent oversight body and the professional body.

Latvian audit oversight commission fact-finding visits to the UK and Germany

Audit oversight was also the theme of recent visits by representatives of the Latvian Audit Oversight Commission to the UK’s Financial Reporting Council (FRC) on 9 and 10 October, and to the German Audit Oversight Commission (GAOC/APAK) on 11 and 12 December, to better understand how they exercise public oversight responsibilities to help inform the development of the AOC’s own working practices and methodologies.

Discussions in London focused on key issues including methodologies for the review of audit firms, audit engagements performed by statutory auditors and audit firms, the FRC’s approach to professional discipline; monitoring of professional bodies to ensure the implementation of appropriate admissions, qualifications and supervisory policies and procedures for their members, and the FRC’s international initiatives to foster common approaches to public oversight.

In Berlin two representatives from the Slovenian Agency for Public Oversight of Auditing (SAPOA) joined their Latvian colleagues for discussions with GAOC/APAK. GAOC/APAK is charged with the direct oversight of audits of PIEs as well as the oversight of quality assurance arrangements in respect of the audits of non-PIEs and shared methodologies for the reviews of audit firms and audit engagements performed by statutory auditors of PIEs. The visitors learnt about the workflow software GAOC/APAK uses to manage inspection work; the relationship with other regulators; and the operation of Germany’s professional disciplinary scheme. Issues of staffing, budget, organization and legal status were also discussed.

Exploring the role of corporate sector auditors in local public sector audits

A seminar in Riga on 23 and 24 October addressed Latvian municipalities’ financial reporting and auditing framework. Organized by the CFRR and Latvian Ministry of Finance and attended by representatives of the Ministry of Finance; the Latvian State Audit Office; existing and prospective corporate sector auditors of municipalities; municipalities; and the Latvian Association of Sworn Auditors, this was a first step in exploring the main issues related to the audits of municipalities.

Drawing on international and European experiences, the seminar explored six topics of particular interest: financial reporting and auditing framework; procurement of auditors; application of ISA 600, audits of groups of financial statements; public sector issues and auditing risks; audits of EU funds; performance and compliance auditing. An important initial dialogue in the effort to address audit and fiscal risks, the seminar highlighted a number of areas which will be the subject of further detailed consideration and follow up.

Workshop in Belarus showcases practical aspects of an audit

As part of its in-country engagement with Belarus to improve financial reporting under the STAREP program, a CFRR team delivered an audit training course in Minsk on 20 and 21 November, 2014. The workshop gathered over thirty representatives of the audit profession and specialists from the Ministry of Finance.

Topics discussed included audit planning, risk assessment and proper audit documentation. Participants looked at the principles governing audits of financial statements, and used practical examples of carrying out the audit process to help illustrate the topics and encourage interactive discussion. The workshop helped enhance understandings of International Standards on Auditing (ISAs) and their practical implementation as part of efforts to increase the quality of financial statements audits in the country.

Supporting audit education in REPARIS countries

The Audit Training of Trainers series of workshops supports organizations responsible for providing continuing professional education/development in REPARIS countries to design and deliver modern, high quality training for statutory auditors and audit firms.

The fifth workshop in this series was held in Vienna on 18 and 19 November 2014. It focused on internal controls which, if implemented properly and consistently, prevent fraud more effectively than any external audit, and increase the efficiency of audits. Workshop participants shared their experiences of issues with internal controls and there was discussion of the risk of fraud as a result of poor systems or where management override controls. The workshop reviewed the ISA and COSO requirements and guidance related to internal control, and the need to adapt to the growth of IT controls. There was a particular focus on the importance of small and medium sized audit practices in the development of firm-level and engagement level quality assurance procedures.

Accountancy education and corporate financial reporting discussions in Moldova

As part of the STAREP program, the CFRR co-organized events in Chisinau in November to cascade knowledge from regional communities of practice (CoP) in education and accounting and auditing held in April 2014 in Chisinau and October 2014 in Tbilisi to Moldovan CoPs.

50 members of the Moldovan Accounting Education Community of Practice (EduCoP) met on 26 November. Organized in cooperation with the Faculty of Accounting in the Academy of Economic Studies of Moldova (ASEM) and the Association of Professional Accountants and Auditors of the Republic of Moldova (ACAP), participants included representatives of universities and the profession. They discussed the key challenges in implementing effective accounting and auditing education, including developing capacity to meet the needs of the economy and promoting the skills and services of accounting graduates and members of PAOs. A university profiling tool, developed by the CFRR, was introduced which benchmarks the content of university accounting courses to reduce duplication between syllabus planning, benchmarking and accreditation, monitors syllabus changes and highlights gaps.

A roundtable, organized in cooperation with the Ministry of Finance, for 30 participants from various Moldovan institutions took place on 26 November following up on the STAREP Accounting and Auditing Standards Community of Practice (A&ACoP) workshops. It looked at the key provisions of EU accounting and auditing legislation and how these need to be transposed into local legislation, in the context of the Moldova/EU Association Agreement. The use and importance of transposition tables for implementing the provisions of the Accounting and Audit Directives into local legislation was also addressed. The Ministry of Finance confirmed its intention to begin developing the necessary legal framework in 2015.

OECD reviews the Principles of Corporate Governance

The OECD Corporate Governance Committee is currently conducting a review of the Principles of Corporate Governance, implemented in 1999 and last reviewed in 2004. The OECD Principles of Corporate Governance are one of the 12 key standards for international financial stability of the Financial Stability Board. They also constitute the foundation for the corporate governance component of the Report on the Observance of Standards and Codes (ROSC) of the World Bank Group. This second review of the Principles aims to ensure the continuing high quality, relevance and usefulness of the Principles taking into account recent developments in the corporate sector and capital markets.

An online public consultation between November 14, 2014 and January 4, 2015 invited comments on the revised draft text. In the area of transparency and disclosure, which is most closely related to the corporate financial reporting agenda, the proposed revised principles note that the designation of a public oversight body for statutory auditors, consistent with the Core Principles of IFIAR, can be an important factor in improving audit quality.

New standard on audit report

The International Auditing and Assurance Standards Board (IAASB) issued new and revised auditor reporting standards on January 15, 2015, effective for audits of financial statements for periods ending on or after December 15, 2016.

Revisions include to ISA 700, which deals with the auditor forming an opinion on the financial statements and with the form and content of the auditor’s report. In response to demand from investors and other users, it now aims to make the auditor’s report more informative and therefore enhance understandings of an entity and its financial statements.

A key addition, ISA 701, introduces a new section in the auditor’s report to address Key Audit Matters (KAM), highlighting matters that, in the auditor’s professional judgment, were of most significance in the audit. The change applies only to audits of financial statements of listed entities, but auditors of non-listed entities who are required by law or regulation (audits of financial statements of public listed entities for example) or who voluntarily choose to communicate KAM would be required to so in accordance with ISA 701. The inclusion of KAM will allow more transparency about the audit and this might improve audit quality overall.

Survey on the relationship between banking supervisors and external auditors

On March 31, 2014, the Basel Committee on Banking Supervision (BCBS) published “External Audits of Banks” which links enhancement of the relationship between regulators and external auditors of banks with improved audit quality. A good relationship between regulators and auditors also benefits the quality of banking supervision.

The CFRR is working with regulators to identify how they can make better use of information provided by external auditors and positively influence audit quality of banks’ financial statements. To deepen understandings of existing relationships with auditors, the CFRR has surveyed banking supervisors from EU member states, EU accession countries (countries participating in the REPARIS program) and countries taking part in the EU neighborhood policy initiative (countries participating in the STAREP program), on (i) current practices of banks’ external audits, (ii) exchange of information between auditors and regulators, and (iii) the involvement of banking regulators in institution that oversee the external audit function. The results of the survey will be published in April 2015 by the CFRR.

The Future of the International Public Sector Accounting Standards Board (IPSASB)

Effective financial reporting is critical to governments’ understanding of their fiscal position and prospects, and to provide legislators, markets, and citizens with the information they need to make efficient financial decisions and to hold governments accountable for their performance.

The IPSASB is an independent standard setting board, supported by the IFAC, which provides guidance and other resources to improve governmental transparency and accountability, as well as standardizing public sector financial reporting globally.

The World Bank Group actively participates on the IPSASB to help improve public sector accounting and further raise awareness of the positive impact of sound government financial reporting. The WBG has been actively involved in a recent review addressing future governance and oversight arrangements for the IPSASB. A public consultation between January and April 2014 received 43 responses from a broad range of stakeholders, including the public sector, ministries of finance and supreme audit institutions, and standard setters. All supported the idea of strengthening IPSASB Governance to enhance its legitimacy and increase adoption of IPSAS. The majority of the respondents recommended separate monitoring and oversight boards for the IPSASB, while it remains under the auspices of the IFAC. The Review Group is now considering its recommendations in light of these responses. Any questions may be addressed to Brian Quinn (bquinn@worldbank.org).

Assessing public sector accounting standards in Poland

An initiative to promote the harmonization of public sector accounting across the EU and improve the comparability of financial reporting in EU member states, including the expected introduction and adoption of European Public Sector Accounting Standards (EPSAS), is being led by Eurostat.

The Government of Poland has expressed concern about the possible short timescale for the adoption of the new standards and issuance of the first set of consolidated EPSAS financial statements. To help determine the potential impact of the introduction of new standards, the Polish Government has requested assistance, through the FRTAP, to compare International Public Sector Accounting Standards (IPSAS) with Polish public sector Generally Accepted Accounting Principles (GAAP).

Project extension provides further assistance to Latvia

The FRTAP Latvia has been extended, with a new completion date of September 30, 2015, to enable completion of the final two components “Enhancement of the relationship between tax and accounting in an EU Member State”, and “Accounting and Auditing ROSC report”.

Dissemination of the Czech Republic ROSC Accounting and Auditing Update

On November 19, 2014 a CFRR team organized the dissemination of the 2013 Czech Republic Accounting and Auditing Report on the Observance of Standards and Codes (A&A ROSC) update, financed under the FRTAP for the Czech Republic by the Swiss Enlargement Contribution. The CFRR presented the key ROSC findings to representatives of the Ministry of Finance, the Czech Chamber of Auditors (KACR), the Union of Accountants, the University of Economics of Prague, and the Audit Public Oversight Body. Policy areas identified in the ROSC for further consideration included simplifying reporting for small entities, enhancing compliance for filing of financial statements at the commercial registries, and strengthening the capacity of the Audit Public Oversight Body to supervise statutory audits and auditors.

The event also looked at the implementation of new EU audit legislation in the Czech Republic, particularly related to the definition of Public Interest Entities (PIEs). Under the new legislation auditors of PIEs have several additional reporting obligations, and will be reviewed directly by the Audit Public Oversight Board. The FEE presented their survey findings which highlighted wide diversity in the definition and number of PIEs in European countries, suggesting that individual Member States, including the Czech Republic, will need to make adjustments to address EU requirements and specific local factors.

Work begins to update Serbia A&A ROSC

A CFRR team has begun work to update the Serbia Report on the Observance of Standards and Codes on Accounting and Auditing (A&A ROSC). Serbia has been undertaking an overhaul of its accounting and auditing legislation in recent years and the ROSC will assess the quality and demand for financial information in the corporate sector in Serbia since publication of the last ROSC in 2005.

Launch of new EU-REPARIS program, April 2015

A new program for countries of Southeast Europe, including Albania, Bosnia and Herzegovina, Kosovo, FYR Macedonia, Montenegro and Serbia, launches in April. EU-REPARIS, implemented by CFRR, is funded by the European Union as part of the Technical Assistance Facility of the Western Balkans Enterprise Development and Innovation Facility (WB EDIF) to encourage SME development and growth through finance and technical assistance services. EU-REPARIS supports the enhancement of well-functioning business and investment climates and aims to promote transparency, strengthen corporate financial reporting practices, and help enhance tertiary education and continuous professional development. Building on the work of REPARIS from 2008 to 2014, the new program will help achieve closer integration with the EU and the EU’s internal market, and align legislative frameworks with the EU acquis communautaire.

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