IMPROVING ACCOUNTING AND AUDITING PRACTICES IN AZERBAIJAN

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IMPROVING ACCOUNTING AND AUDITING PRACTICES IN
AZERBAIJAN

• Elchin Ibadov
• Muskie Alumnus 2003
• PricewaterhouseCoopers

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Historical Overview

• Accounting in the Soviet Union, including
  Azerbaijan, was designed to satisfy the needs of
  mostly statistical and tax authorities. It failed
  to present necessary information for market
  economy purposes.
• In order to understand the magnitude of any
  improvements since the collapse of the USSR, it
  is crucial to view the deficiencies in accounting
  practices back in 1991

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Deficiencies in Soviet Period

• There was no qualified Certified Accountants
  body.
  
• Financial information on the performance and
  position organizations was not publicly
  available.
  
• Users of financial information were unfamiliar
  with what they should demand from organizations.
  
• Financial information was not independently
  verified (audited) to international standards and
  could not be relied upon.
  
• The entire legal framework was geared to central
  planning and specified exactly what information
  should be provided.
  
• The regulatory entities that generally exist in
  market economies to oversee financial disclosure
  practices, such as securities exchange
  commissions, did not exist.

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Preliminary Improvements in Accounting

• Azeri accounting system was brought relatively
  closer to International Accounting Standards
  after the adoption of Accounting Law in 1995.
  
• The introduction of new Uniform Accounting
  System paved the way to embellishment of this
  approach. After the adoption of aforementioned
  laws and regulations, market-based accounting
  concepts were introduced
• enterprises were allowed some freedom over asset
  accounting
  
• enterprises may provide for doubtful debts
• financial statement formats were revised.

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Preliminary Improvements in Auditing

• The Auditing Services Law ratified in 1995 reigns
  auditing practices in Azerbaijan.
  
• There are also other relevant laws and
  regulations that lay down audit requirements.
  
• In general all organizations are required to be
  audited. However, with the exception of a few
  large international firms, and resident banks,
  auditing in accordance with International
  Accounting Standards on Auditing (ISAs) is a
  relatively new concept.

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Improving Professional Accounting Infrastructure

• The Government of Azerbaijan has established the
  Association of Certified Accountants of
  Azerbaijan (ACAAz) in 2000.
  
• The ACAAz has 18 active members.

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Improving Professional Auditing Infrastructure

• The Chamber of Auditors of Azerbaijan (COAA) was
  established in 1996 as a result of the Auditing
  Services Law ratified in 1995.
  
• By today, the Chamber has issued auditing
  licenses to more than 160 individuals and 33
  firms.
  
• The Chamber of Auditors of Azerbaijan (COAA) has
  issued audit license to 29 local firms and 4
  foreign firms known as Big Four including
  
• PricewaterhouseCoopers
• Ernst and Young
• KPMG and
• Deloitte Touche Tohmatsu.
• It is worth to cite that the aforementioned 4
  foreign firms earn 78 of total auditing fees
  during a financial year and their fee structures
  are about 23 times higher than domestic
  counterparts.

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Further Improvements Needed in Professional
Infrastructure

• Further cooperation with following entities is
  crucial to attain a sustained professional
  infrastructure in accounting and auditing
  
• Institute of Internal Auditors (IIA)
• International Regional Federation of Accountants
  and Auditors Eurasia (IRFAA Eurasia)
  
• The International Federation of Accountants
  (IFAC)
  
• Economic Organization of Supreme Audit
  Institutions (EOSAI)
  
• Asian Organization of Supreme Audit Institutions
  (ASOSAI)

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Adopting International Accounting and Auditing
Standards

• Accounting and auditing standards used in
  Azerbaijan significantly differ from those of
  stated in International Accounting Standards
  (IAS) and International Standards on Auditing
  (ISA).
• Main differences arise in following areas
• Financial statement formats
• Fixed assets revaluations
• Disclosure of contingent liabilities
• Accounting bases (cash versus accrual)
• The Accounting Standards Committee of IRFAA
  Eurasia has issued guidance on IAS adoption in
  Azerbaijan and in other CIS countries.
  
• All reforms and improvements with respect to
  implementing IAS and ISA in Azerbaijan are based
  on the aforementioned recommendations.
  

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Adopting International Accounting and Auditing
Standards (cont.)

• Implementing generally accepted accounting
  principles and international accounting standards
  in Azerbaijan can pave the way to more
  efficiently integrating our economy to the global
  economy.
• Although the National Bank of Azerbaijan has made
  periodic attempts to develop a framework of
  fundamentals on which the aforementioned
  implementation could be based, these attempts
  were too feeble to have a significant impact.
• However, the National Bank of Azerbaijan is
  making strong commitments in implementing
  aforementioned standards in 2004, especially in
  the banking sector.
• In addition to that, Ministry of Finance has
  prepared an Accounting Reform Plan which is
  currently being reviewed and considered by the
  Cabinet of Ministers. The aim of this plan is to
  bring Azeri accounting and auditing standards
  closer to those of international ones.

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External Assistance in Improving Accounting and
Auditing Practices in Azerbaijan

• Organizations listed below provide substantial
  financial and advisory assistance to Azerbaijan
  with respect to developing and improving local
  accounting and auditing practices
• The World Bank (WB)
• European Bank for Reconstruction and Development
  (EBRD)
  
• European Union (EU-TACIS)
• International Monetary Fund (IMF)
• Japan and the Netherlands are the main bilateral
  donors.

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Key Areas for Development

• External assistance mainly focuses on the
  following issues
  
• Establishing coordination group and developing
  strategic plan for a smoother transition to
  international accounting and auditing standards.
  
• Achieving necessary amendments in laws and
  regulations related to accounting and auditing
  practices.
  
• Clarifying accounting standard-setting
  arrangements.
  
• Clarifying legal status of auditing standards.
• Clarifying auditing standard-setting
  arrangements.
  
• Broadening and strengthening accounting
  qualifications through ongoing training and
  education.
  
• Developing up-to-date training materials in local
  language.
  
• Developing accounting curriculum and materials in
  local language.
  
• Providing continuing training to professors and
  lecturers in accounting and auditing.
  
• Establishing government accountant and auditor
  certifications.
  
• Adapting local certification requirements to
  international ones.

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• QUESTIONS AND COMMENTS

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EVERYTHING WE DO WE DO IT FOR AZERBAIJAN!!!