Welcome to the autumn edition of the CFRR Newsletter. Highlights include news of a new program extending the approach pioneered in the REPARIS program to countries of the EU’s Eastern Partnership, the first in a series of workshops to develop teaching tools for continued professional development for auditors and an update on the progress of reforms to the EU’s accounting and auditing directives.

Building on the success of the REPARIS program, the CFRR is developing a similar program for the six countries of the EU’s Eastern partnership (Armenia, Azerbaijan, Belarus, Georgia, Moldova and Ukraine). The new program, titled “STAR-EaP” (Strengthening Auditing and Reporting in the Eastern Partnership countries), is expected to emphasize peer learning in combination with tailored in-country support for the participating countries.

As part of the preparations for STAR-EaP, teams from the CFRR have held discussions with official and private-sector stakeholders in financial reporting, including meetings in Moldova (21-23 June 2012), Azerbaijan (24-27 July), and Ukraine (26-29 September) to confirm their support for the new program and to discuss its scope and approach.

The new program is expected to be launched in March 2013. Funding for its initial stages is being provided by Austria through the Austrian Development Agency (ADA).

As part of the FRTAP program managed by the CFRR, the Dutch Institute for Registered Professional Accountants and Auditors, Royal NIVRA, organized two workshops on audit quality reviews for the Czech Chamber of Auditors (KACR) in Amsterdam on 21-22 May 2012 and in Prague on 5-6 June 2012. The main objective was to assist KACR and the Czech Audit Public Oversight Council, RVDA, in improving the effectiveness of their staff and members in carrying out their responsibilities for reviewing the quality of audit work.

The CFRR website has a full summary of the event, with detailed presentations on the Dutch systems for audit oversight and for reviewing audit quality.

As part of the FRTAP program for Poland, the CFRR organized a series of six technical workshops between October 2011 and May 2012 for staff from the National Bank of Poland, the financial supervision authority, ministry of finance and major Polish companies listed on the Warsaw Stock Exchange. The workshops sought to improve participants’ understanding of the principles behind IFRS through the use of case studies drawn from Polish and international companies. Key topics discussed included the adoption of fair value methods for measuring financial assets and liabilities and practical issues surrounding judgments on whether a firm can continue as a "going concern".

As part of the REPARIS program, the CFRR organized a workshop from 24-26 September for Professional Accountancy Organizations (PAOs) and others providing CPD training for auditors. The event was the first in a planned series of three workshops, which ultimately aim to produce a "Client File Simulation" – a set of materials, including all the necessary supporting documentation, which will allow audit educators to take their students through all the stages of an audit of a small- or medium-sized non-financial entity carried out in line with International Standards on Auditing (ISA). This first workshop focused on the ethical, professional and other issues surrounding the acceptance of an audit engagement, and on how the various dimensions of risk in ISA’s risk-based system of audit can be applied in practice.

A summary of the event, with supporting presentations, is available on the CFRR website.

Staff from the CFRR visited Tashkent in September 2012 to launch a new project to raise the quality of financial reporting and auditing in the Uzbek banking sector. The project, which is planned to last 12 months and is funded by the FIRST initiative, will help the Uzbek authorities to make the legal and institutional changes needed for the Uzbek banking sector to adopt IFRS and ISA. It also aims to improve the capacity of the banking regulator, the Central Bank of Uzbekistan (CBU), to use the information in bank financial statements to its regulatory activities.

The CFRR team presented the project at a workshop on 11 September to about 300 stakeholders from the CBU, local commercial banks, the banking association, the Ministry of Finance and Uzbek professional accounting bodies.

European Commission recommends that FYR Macedonia and Albania move nearer towards EU accession
In its latest assessment of the progress of candidate and potential candidate countries towards EU accession published on 10 October, the European Commission again recommends that the EU should formally open accession negotiations with FYR Macedonia. This is the fourth time that the Commission has recommended the start of accession negotiations with FYR Macedonia but, up to now, the European Council (which represents the EU member states) has not agreed, largely because of continuing disagreement over the country’s name.

In addition, the Commission has recommended that, provided specific reforms in the area of justice, public administration and parliamentary procedure are implemented, Albania should be moved up from its current position of being a "potential candidate" for EU accession and be given the formal status of a candidate for EU accession.

Currently, among the REPARIS countries, Croatia has completed accession negotiations and, provided all EU member states complete the necessary ratification procedures, it is expected to join the EU on 1 July 2013. FYR Macedonia, Montenegro and Serbia are candidate countries but have not yet started EU accession negotiations, while Albania, Bosnia and Herzegovina and Kosovo are potential candidates. The EU does not see Moldova as a potential candidate; instead it is part of the EU’s Eastern Partnership.

New EU accounting directive making progress through the legislative process
The European Commission published its proposals for a new accounting directive for limited liability companies in November 2011. The main aims of the Commission’s proposals were to consolidate the texts of the Fourth and Seventh directives, to simplify reporting requirements for small firms, and to require more disclosures of payments made to host governments by companies operating in the extractive industries (the CFRR website has further details). The Commission’s proposal did not endorse the idea of adopting the IFRS for SMEs as a common EU-wide reporting standard for smaller firms, but it left it open to individual member states to adopt the IFRS for SMEs if they wished, although it noted that EFRAG had found that there were still some limited obstacles to voluntary adoption of the IFRS for SMEs.

The new accounting directive has been gradually making its way through the EU’s legislative process. It was approved with some modifications by the European Council (representing the governments of EU member states) in June 2012. It was then passed on to the European Parliament for its consideration. The Parliament’s Committee on Legal Affairs ("Juri") completed its review of the draft directive in September. The Parliament and the European Council, assisted by the Commission, have to agree a version of the directive before it can be written into European law. Many observers judge that the issue of the new reporting requirements to be imposed on the extractive industries could make the legislative process lengthier than initially expected.

In February 2012, the lower house of the Dutch parliament approved an act requiring the compulsory rotation of auditors of Dutch public interest entities (PIEs) after eight years and restricting the other services that audit firms could offer to PIEs which they are auditing. Before it can become law the proposal has also to be approved the Senate, which did not consider the act before parliament was dissolved ahead of the parliamentary election in September.

Although it is not yet clear whether the act will be adopted by the new Dutch parliament, the vote in favor of compulsory rotations of auditors in the Netherlands has fuelled the debate on the European Commission’s proposals for a new Audit Directive and Regulation. Some of the provisions of Commission’s proposed directive and regulation, especially the compulsory rotation of audit firms, and tighter controls on audit firms’ ability to offer some non-audit services have been met with strong resistance from audit firms, industry groups and national institutions. In its draft report on the proposed Regulation and its draft report on the proposed Audit Directive, the Juri Committee of the European Parliament put forward a number of changes which, if adopted, would significantly water down the Commission’s proposals. In particular, Juri’s amendments would require the compulsory rotation of auditors only after 25 years (the Commission proposed that auditors be rotated after six years) and would allow PAOs to retain much more of a role in the quality assurance of audits than the Commission’s proposals would permit.
 

The differences between the Commission's proposals and the Parliament's possible amendments, as well as the wide range of opinions among EU member states on these issues (the European Council is due to discuss the Commission’s proposals later this year), suggest that it could take significantly longer than anticipated for a compromise measure to be reached.

The IASB is reviewing the IFRS for SMEs
In July 2009 the IASB issued the IFRS for SMEs, a simplified version of IFRS designed for use by small and medium-sized entities. According to the IFRS Foundation, approximately 80 jurisdictions around the world now either use the IFRS for SMEs or are planning to adopt it. Two countries participating in the REPARIS program – Bosnia and Herzegovina and FYR Macedonia – have already adopted the standard and several other countries in Europe and Central Asia are considering doing so.

In June 2012, the IFRS Foundation announced that its SME Implementation Group (SMEIG) would carry out a full review of the IFRS for SMEs. This review is expected to lead to the issue of an exposure draft (ED) of a revised text of the standard in the first half of 2013, followed by the publication of the revised standard in late 2013 or early 2014. The group carrying out the review has asked for comments from users of the current IFRS for SMEs on their experience of using the standard, with a deadline for comments of 30 November 2012.

In parallel with this review, the SMEIG is also developing guidance on how the smallest businesses (“micro entities”) should apply the IFRS for SMEs. The IFRS for SMEs was originally developed to meet the needs of larger and more established SMEs and much of the standard is not very relevant to the needs of the smallest firms. The SMEIG plans to extract those requirements from the IFRS for SMEs that are useful for micro entities with the aim of publishing the new guidance in early 2013.

REPARIS Workshop on EU acquis transposition, 29 November 2012 in Vienna
As part of the REPARIS program, the CFRR is hosting a workshop on aligning financial reporting requirements with the EU acquis communautaire and the use of concordance tables. The workshop will take place on Thursday 29 November 2012 in Vienna. Attendance at the workshop is by invitation only and further details, including information on how to register for the event, will soon be available on the CFRR website.

As part of the FRTAP Poland program, the CFRR, the IFRS Foundation and Poland’s Ministry of Finance are jointly organizing a conference for professional accountants and bussinesses in Poland and the rest of the region on the practical application of IFRS. The conference will be held on 6 December 2012 in Warsaw and will cover changes that the IASB is planning to make to IFRS, detailed technical discussion of topical issues, including the valuation of assets and the treatment of impairment as well as keynote presentations from capital market regulators on how their approach to the enforcement of standards has evolved as a result of the financial crisis. Information on how to register to attend the conference will soon be available on the CFRR website.

The CFRR currently has two vacancies for Senior Financial Management Specialists. Both posts are based in Vienna. Full details of both positions are available on the recruitment pages of the World Bank’s website under job numbers 122405 and 122406, respectively. The closing date for applications for both positions is 10 November 2012.

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