Ministerial conference reaffirms importance of financial reporting reform to SME development

The 5th Ministerial Conference hosted in Vienna by the CFRR as part of the REPARIS and STAREP programs on June 3 addressed the importance of effective financial reporting frameworks, especially in relation to improving the business environment for SMEs. Economies depend on SMEs to create jobs, and to do so, these firms need access to credit. Lending decisions are made easier when accurate, transparent and reliable financial information is available.

More than 200 participants from 30 countries reviewed progress in the implementation of sound systems of financial reporting - critical to providing confidence in economies and encouraging investment - in CFRR partner countries in Europe and Central Asia. Those attending included Ministers of Finance from Serbia, Albania and Moldova, and other senior representatives of governments; banking; business; accountants; auditors; regulators; standard setters; and academics.

Wide ranging discussions considered the issues from various perspectives including the challenges faced by governments in building and enforcing effective frameworks; efforts to develop and adapt standards which meet the needs of SMEs; the role and potential future role of the accounting profession, particularly small and medium practices, in helping SME clients; and the need for increased financial literacy and improved education and skills development to encourage entrepreneurship and leadership. CFRR confirmed its ongoing commitment to help address these challenges by working with governments and the profession and, increasingly, with the business community to achieve smart reform.

More details on the conference, with copies of the presentations and photographs from the event, are available on the CFRR website.

Regional accountancy profession look beyond traditional accountancy practices

Representatives of Professional Accountancy Organizations (PAOs) and experts in accounting practices from over 20 countries of central, southeast and eastern Europe met in Vienna on 2 June for the 2nd Regional Forum for PAOs.

“Tools for Small and Medium Practices to Achieve Excellence and Innovation in a Dynamic Business World - Moving Beyond Traditional Accounting”, jointly hosted by CFRR and IFAC, considered how the profession could look to enhance their services, creating new business opportunities, and make greater use of modern technological tools. Working with SMEs offered potential, particularly for small and medium practices, to build mutually beneficial relationships. Adapting to changing circumstances might require new strategies, reorganizations and additional resources, or changes of outlook, marketing and training, but would be essential to stay relevant. A particular feature of the Forum was its interactivity, with participants able to address issues of interest or concern directly with IFAC and other experts attending.

More details on the forum, with copies of the presentations and photographs from the event, are available on the CFRR website.

REPARIS and STAREP senior government officials review progress in financial reporting reform

Two groups of senior government officials met on 4 June in Vienna to discuss financial reporting reform. One workshop was with representatives of the seven Western Balkan countries taking part in the REPARIS program and the other workshop was with representatives of the six Eastern Partnership countries taking part in the STAREP program.

Both events sought to familiarize participants with relevant recent developments in corporate financial reporting at the EU level - notably the 2013 Accounting and Auditing Directives - and to sustain momentum for financial reporting reforms and foster peer-to-peer exchange and cooperation among the participating countries.

More details on the REPARIS Workshop and the STAREP workshop, with copies of the presentations and photographs from the event, are available on the CFRR website.

20 ECA countries exchange views and experience on the contribution of IFRS to effective supervision

Financial regulators from 20 countries in ECA (EU Member states, EU accession countries, and countries of the South Caucasus) met for the second Executive IFRS Workshop organized in Vienna by the CFRR in June; this annual workshop is jointly organized by the CFRR and the IFRS Foundation, which hosts the International Accounting Standards Board.

This three day workshop brought together 70 senior staff of regulatory agencies responsible for supervising banks, insurance companies and listed companies, and those in charge of drafting accounting and prudential regulations, from over 20 countries for detailed discussions with a range of experts including from the International Accounting Standards Board (IASB), the IFRS education initiative, the European Banking Authority (EBA), and the European Insurance and Occupational Pensions Authority Attention (EIOPA).

A panel formed by regulators, auditors, and preparers reiterated the importance of financial reporting for preparing and controlling prudential returns. Audited IFRS financial statements are a key element for supervisors to assert the quality of prudential data. Financial Reporting is also a key responsibility of banking supervisors: since 2012 the new BCP 27 spells out more clearly the responsibility of banking supervisors in enforcing high quality financial reporting.

Designed to help supervisors confidently engage with IFRS-based financial information and understand how it is used in monitoring and supervision, the workshop updated participants on the latest changes to IFRS and advised them of ongoing IASB projects. Focusing on the standards and regulation applicable to financial instruments, IAS 39, the nearly completed IFRS 9 and CRD IV, and on the insurance contract project IFRS 4 and Solvency II, the workshop used case studies and worked examples and encouraged participants to exchange experiences and take advantage of the expert knowledge present to address issues of concern.

The workshop is also an opportunity for Board members to get feedback from regulators: discussions between regulators and IASB Board Members during the first workshop contributed to changes in IFRS 9 notably on disclosures of NPLs.

More details on the workshop, with copies of the presentations and photographs from the event, are available on the CFRR website.

Ukraine reviews policy options for audit public oversight

Ukraine's Association Agreement with the European Union, signed in June 2014, commits to a significant reform agenda including financial reporting and audit regulations. Public oversight is a key EU policy area which was significantly strengthened and formalized by changes introduced in the 2014 Statutory Audit Directive. In September a CFRR team met in Kyiv with Deputy Minister of Finance Fudashkin, representatives of the Ministry of Finance, and other stakeholders - including from regulatory agencies and representatives of the audit profession - for initial consultations on options for Ukrainian public audit oversight institutional arrangements and functions. Audit regulation, and public oversight in particular, are complex and involve multiple agency engagement. The CFRR is encouraging Ukraine's plans for the development of a manageable and effective public oversight function, compliant with the EU Association Agreement, and will support the process under the regional STAREP program.

High level discussion of Georgia's Accounting and Audit Reform Priorities

On October 9, 2014, the World Bank office in Tbilisi hosted a roundtable discussion of Georgia's financial reporting framework as part of its update on the Accounting and Audit ROSC Report. Key note speakers included David Onoprishvili, Chairman of the Budget and Finance Committee of the Parliament of Georgia, and Giorgi Tabuashvili, First Deputy Minister of Finance of Georgia, with valuable input from representatives of the Ministry of Economy, National Bank of Georgia, Insurance State Supervision Service, audit profession and professional associations. Participants agreed to develop a country action plan over the next three months, addressing the key priorities arising from the ROSC, to enable Georgia to meet its obligations under the Association Agreement with the European Union. A key element would be the development of a public audit oversight mechanism to ensure proper audit quality in the country, including through the use of software. Other important issues to be addressed by the country action plan are the simplification of reporting requirements for small, medium and micro enterprises, and increasing the capacity and financial literacy of preparers of financial statements, the audit profession and educators. The main outcomes of the roundtable discussion and country action plan will be included in the Accounting and Audit ROSC Report on Georgia to be published later in 2014.

Pilot training scheme helps tax inspectors in Poland work with financial statements

To help increase the effectiveness of the tax accounting system in Poland the CFRR, with the Polish Ministry of Finance, ran a training program from April to June 2014 for tax inspectors working on tax administration and tax control. The pilot program, part of FRTAP, delivered modular training in six relevant areas, addressing different aspects of working with and understanding financial statements, and looking at relevant regulations and standards. The 50 participants, who all work in tax administration, tax control, tax offices or tax monitoring, gave very positive feedback about the concept of the training and offered valuable input on how the program could be further improved. These suggestions, and the experience of the implementation team, are being used to develop a larger scale training program to reach many more Polish tax inspectors which will begin in 2015.

New requirements for calculating and disclosing own funds will influence banks' businesses

60 banking regulators and supervisors from 14 countries participated in a virtual seminar in May on current regulatory changes on own funds and their impact on banks' businesses. Discussion focused on the new requirements for calculating and disclosing Own Funds compared to IFRS requirements, and the impact of the Basel III framework on banks' business. The webinar highlighted possible unwanted consequences of the Basel III reform - as banks move out of specific areas of business some banking operations are pushed onto entities unregulated by banking supervisors. The webinar is available to view on the CFRR website.

Serbia and CFRR meet for talks on future financial reporting reform cooperation

A CFRR team met with the Ministry of Finance, Audit Oversight Body, Chamber of Auditors and regulators to review current priorities and future focus for reform. Serbia has made significant improvements to its legislative framework governing accounting and auditing and is committed to further improvements in the years ahead. Areas of focus include further legislative adjustments governing audit oversight, consistent with the EU's new directive and regulation; increasing the transparency of reporting and monitoring of state-owned enterprises; and strengthening accounting and auditing education for students and professionals to help assure sustainable long-term improvements in the profession. There will also be continued efforts to ensure that the reformed legal framework for financial reporting is reflected in actual practices by corporate accountants, outside auditors, professional bodies, and regulators. The CFRR will continue to offer input and support to the various stakeholders to bolster Serbia's reform efforts.

How to recognize audit quality?

The audit quality framework developed by the IAASB is a much broader and richer concept than quality at the level of an individual audit engagement. It encompasses the key factors that create an environment which maximizes the likelihood that quality audits are performed on a consistent basis. Audit quality can be examined at three levels: the engagement team level, the firm level, and the national level. During a recent webinar the CFRR invited Jon Grant, recently Task Force Chair on Audit Quality at the International Auditing and Assurance Standards Board (IAASB), to explain why it is important to think wider than just compliance with auditing standards. Jon Grant discussed with World Bank Governance Practice colleagues the importance of the environment and the ability of the system to make use of the results of the audit. Discussion focused on the critical interaction between the governance context in which the audit took place; the relationships between auditors, users and regulators; as well as the audit inputs, outputs, and processes- from professional skepticism demonstrated by audit staff, the proper application of standards on auditing, and the usefulness of reports to users of financial statements. The webinar is available to view on the CFRR website.

Practitioners from Eastern Partnership Countries Share Experiences of Accounting and Auditing Reform in Tbilisi

As part of the STAREP program, the CFRR facilitates communities of practice (CoP), bringing together groups of practitioners from participating countries to share knowledge, experiences and ideas on specific accounting and auditing themes. Workshops for two accounting and auditing communities of practice (CoP), focused on standards and on education, took place in Tbilisi in October.

The accounting and auditing standards CoP met on October 6 & 7 to consider improving audit quality by transposing relevant EU requirements. Workshop participants discussed recent EU statutory audit reform, which includes significant amendments to the Statutory Audit Directive (2006/43/EC), and the public oversight function, particularly the new EU Regulation on specific requirements regarding statutory audit of public-interest entities (No 537/2014). The new rules are expected to considerably improve audit quality across the European Union and ensure that auditors are key contributors to economic and financial stability. STAREP countries were encouraged to consider their transposition into national laws for similar benefits. Zurab Lalazashvili, Chairman of the Supervisory Board of Georgian Federation of Professional Accountants and Auditors (GFPAA), shared Georgia's experience of modernizing accounting legislation and adopting the International Financial Reporting Standards (IFRS) as the generally accepted accounting standards for Georgian economy. More details are available on the CFRR website.

The education CoP is seeking to improve professional education with the development of a timetable to overhaul accounting education across the STAREP countries. Their workshop, on October 8 & 9, built on initial discussions in April 2014 in Chisinau, Moldova about beginning the process of change. The October workshop addressed the learning outcomes appropriate to bachelor level accounting programs and discussed establishing a regional benchmark for undergraduate courses. The CoP were also introduced to a profiling tool, for them to pilot in STAREP countries, which seeks to reduce the duplication between syllabus planning, benchmarking and accreditation that currently exists for Universities, whilst also providing a useful monitoring tool for syllabus changes and gaps. Maia Amashukeli, Professor of School of Business, Management and Administration, University of Georgia, and Temuri Partskhaladze, Professor of Accounting, Caucasus School of Business, shared the experience of their institutions on becoming accredited to an internationally recognized accountancy body. More details are available on the CFRR website.

Slovenia A&A ROSC update takes stock of progress and highlights areas for further improvement

The World Bank published an updated ROSC Accounting and Auditing report for Slovenia in May 2014. Slovenia has introduced significant reforms since the first Report and the update confirmed that most EU membership obligations related to financial reporting and auditing are met. A reasonably good legislative framework is now in place; provisions to strengthen audit quality have been introduced; and there have been improvements to academic accountancy education. The reform process continues and the update pointed to a need for further attention and capacity strengthening of the regulatory and oversight functions, and for better monitoring and enforcement of legislative provisions and standards. A general lack of confidence in the reliability of financial information was identified, which leads to relatively little demand for high quality general purpose financial statements in Slovenia. The new report recommends simplifying reporting requirements for smaller entities, strengthening public oversight and quality assurance governance arrangements, and promoting demand for high quality financial information among the local business community.

Corporate financial reporting in Austria: an Overview

The CFRR published a report on the key features of the Austrian corporate financial reporting environment in July. Intended for policy makers, regulators and practitioners looking for examples of how to formulate or implement the financial reporting elements of the EU acquis communautaire, this report provides an introduction to Austria's corporate financial reporting system, with a particular focus on SMEs and specific features of the Austrian environment. Further changes to the Austrian framework are likely as a result of the two new EU directives on Accounting and Auditing.

Association agreements bring closer EU relationship with Eastern Partnership countries

Three STAREP countries, Georgia, the Republic of Moldova and Ukraine, signed Association Agreements with the EU on 27 June 2014. These Agreements deepen political and economic ties with the EU in the framework of the Eastern Partnership. The EU will work with all three partner countries' governments and businesses to bring about reforms and help them achieve the agreed standards.

Agreement on new EU-REPARIS program

Since 2008, countries of Southeast Europe have been supported by the Road to Europe - Program of Accounting Reform and Institutional Strengthening (REPARIS). This program is now ending but, responding to demand from partner countries for support in completing alignment of national frameworks for financial reporting with the relevant provisions of the acquis communautaire, a new three year program has been agreed and activities will begin formally in 2015. Funding of Euro 3.6 million is being provided by the European Union as part of the Technical Assistance Facility of the Western Balkans Enterprise Development Innovation Facility.

EU-REPARIS, managed by the CFRR, will deliver policy advice and technical support in partnership with EU institutions responsible for financial reporting, and national institutions supporting private sector and SME development in the region. It aims to help achieve regulatory environments and investment climates supportive of SMEs. With its capacity building and client-driven approach the program will provide just-in-time country-specific technical assistance; facilitate regional cooperation, including peer- learning sessions and communities of practice exchanges; and offer convening services.

EU accounting and auditing legislation includes measures to lighten burden on SMEs

After four years of intense discussion, landmark reform to EU audit legislation was finally approved in April 2014 and includes measures to lighten the burden for SMEs.

With SMEs making up more than 99% of EU businesses, and creating 85% of new jobs, the EU has put their needs at the heart of policy making with the small business act - improving policy approaches to entrepreneurship and anchoring “thinking small first” in policy making. This focus is reflected in the new EU legislation on accounting and auditing. Work is already underway in EU Member States to transpose the 2013 Accounting Directive into national legislation before the July 2015 deadline. The new audit Directive and Regulation gives Member States the option to simplify some requirements for the audits of small undertakings in the areas of independence, auditor's internal organization and record keeping. The legislation also includes specific provisions for small undertakings in the areas of the application of ISAs, audit committee, quality assurance and appointment of the auditor. EU Member States have two years to transpose the legislation into national law.

Review of the IFRS for SMEs initial implementation near completion

The new EU accounting directive seeks to simplify and reduce the administrative burden for SMEs so does not include reference to the, more demanding, IFRS for SMEs. Member states may, however, choose to use them as the basis for their standard for medium-sized entities or offer them as a voluntary option for small companies. If IFRS for SMEs are adopted by a member state some minor incompatibilities with the new accounting directive need to be resolved, relating to the treatment of amortisation periods and to the treatment of unpaid subscribed share capital.

The IFRS for SMEs (issued in 2009 for entities without public accountability that are required, or choose to, produce general purpose financial statements) have been widely taken up globally, with over 80 jurisdictions already using or planning to adopt them. The initial implementation is under review to address any errors or omissions and consider improvements. An exposure draft was issued and is being reviewed by the SMEIG with a revised standard expected in early 2015.

OECD revises its guidelines on the governance of state-owned enterprises

On October 22-23, the OECD ‘s Corporate Governance Committee's Working Party on State Ownership and Privatisation Practices will discuss proposed revisions to the OECD Guidelines on Corporate Governance of State-Owned Enterprises (SOEs). SOEs account for large portion of the economy in many countries and provide essential services or goods for citizens and businesses. The Guidelines are highly relevant to financial reporting and audit reform as they emphasize the central role that financial and non-financial information/disclosures and financial controls/audits in the governance framework. Key issues to be addressed by policymakers and governance practitioners include -- to name a few -- financial reporting standards, the selection and nomination of independent auditors, how audit reports are used to improve SOE reporting, the contribution of audit committees, the role of Supreme Audit Institutions, and how civil society organizations, businesses and other in-country stakeholders can contribute to making SOEs are accountable and well managed.

The OECD Code of Good Corporate Governance is also currently being revised (more to come in the next issue of the CFRR newsletter).

2^nd World Bank Accountancy Development for Results Global Event -
Accountancy: Framing the Future

On the occasion of the World Congress of Accountants in Rome, the Governance Global Practice of the World Bank Group will be hosting an event for leaders of the global accountancy profession on 10 November. Recognizing the profession's role in helping frame the financial landscape of the future, the event will look at issues and problems faced by PAOs in developing countries on four interrelated dimensions of public/private sector; strong governance systems; people and developing talent; and tools and technology, and try to identify achievable solutions.

Training REPARIS audit trainers to teach effective evaluation and testing of companies internal control systems

The 5^th and final workshop for audit trainers from REPARIS countries will take place on 18 & 19 November in Vienna. This series of workshops helps develop the capacity of audit trainers to deliver high-quality training based on ISA, following a Training-of-Trainers (ToT) approach. They aim to facilitate shared learning and peer exchange on the design, content, implementation, teaching and quality control arrangements for successful and effective continuing professional education/development (CPE/CPD). Using worked examples and practical materials, the final workshop will consider companies' internal control systems and how these can best be evaluated and tested.

Fourth CFRR-hosted IFRS Conference in Poland under FRTAP

An IFRS learning event will take place in Wroclaw, Poland on 28 October organized by the CFRR in partnership with the Accountants Association in Poland (SKwP) and the IFRS Foundation. Since 2010 the IFRS Foundation's Education Initiative has developed an innovative “framework based teaching” approach to learning effective application of the global International Financial Reporting Standards (IFRS). This third workshop focuses on hedging accounting and other issues of IFRS standard no 9 Financial Instruments and offers a further “hands-on” opportunity for Polish accounting academics and faculty and SKwP educational institutions to assess the potential for using this new student-centred method in Poland.

FRTAP workshop in Poland considers the concept of ethics in audit

The importance of ethics in audit is the focus of a conference on 24 November in Warsaw being organized with the Polish National Chamber of Statutory Auditors (KibR). Participants, including from government, business, academia and the audit profession, will address the concept of ethics from a range of perspectives - the nature and impact of ethics in audit practice; expectations and experiences of ethics in relation to audit and audit independence; and the ethical problems in business, including financial institutions.

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.