Katerina Psareli

1
Implementation of IAS in MacedoniaVerica
Hadzi Vasileva-Markovska ERNST YOUNGOECD
Roundtable, OhridJune 9-10, 2004
2
 
Ownership structure

• Difuse ownership structure (insiders)
• Principal agent problem in Macedonia
• Management shareholders
• Higher information asymmetries insiders have a
  complete grasp of information proper regulation
  is needed
• Obvious need for internationally recognized
  accounting language IFRS

 
3
IAS in Macedonia

• Nominal acceptance of IFRS by laws
• Several studies on factual incompliance
• Macedonian transparency and disclosure framework
  best described as

inconclusive
4
Legislative framework

• Law on Trade Companies IFRS
• Banking Law
• Law on Supervision of Insurance
• Reference to GAAP
• Law on National Bank IFRS
• Securities Law no reference
• Law on Accounting for Budgets and Budgetary
  Users IFRS
• Law on Audits and Law on State Law ISA

5
Legislative framework - continue

• Laws covering the accounting, audit and reporting
  requirements are nominally converging towards the
  adoption of IFRS as national standards.
• Several things can be observed
• Laws use different terminologies, not always in
  compliance with the IFRS,
• Not always in full compliance to one another,
• There are some redundant forms of
  over-regulations,
• Some other deficiencies, which need refinement.
• Still, a noticeable progress is visible
• Trade Company Law IFRS as national standards
  with yearly updating of the published IFRS.

6
Legislative framework - conclusion

• It seems that what is in the Laws may be not
  perfectly and consistently spelled out, but the
  intention is clear and it allows the professional
  bodies in the country to act and fine-tune the
  additional regulation and the institutional
  set-up, in order for the international financial
  reporting standards to be fully embraced and
  truly become the main reporting framework in the
  country.

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Accounting Profession in Macedonia

• The weakest link in the institutional framework
  for the accountng, auditing and reporting
  structures.
• Absence of an appropriately organized
  professional organization of accountants and
  auditors, although three times efforts have been
  made
• The first and the oldest organization
  Association of Accountants, Financial Workers,
  and Auditors.
• Macedonian Association of Certified Auditors and
• Council of Certified Auditors.
• For the time being, none of the organizations
  seems to work and the process of organizing the
  profession seems to be at a worst stage than
  ever. Professionals have not proved so far to be
  either willing or able to put sufficient effort
  in building the professional quality assurance
  process and any novel processes in this respect
  will have to be backed fully and openly either by
  the Government or the international community (or
  both). Embarassing acknowledgment for the
  profession.

8
Ministry of Finance - regulator

• Ministry of Finance acts as the main agent
  regulating the auditing profession
• legislation drafting activity,
• regulation of professional performance of the
  audit professionals and audit companies,
• organization and conduct of professional
  examinations
• licensing of auditors.
• Most recent developments the new draft law on
  audit has entered the Government procedure. Main
  novelty it insists on the establishment of a
  self-regulatory body Institute of professional
  accountants and auditors, which will take over
  the common activities of such an Institute
  licensing, quality control, care about permanent
  training of accountants, auditors, but also
  regulators, adherence to professional code of
  ethics etc.

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Auditors in Macedonia

• For the time being there are around 15 licensed
  audit firms in Macedonia.
• All the big four are present in the country.
• There are also not more than 150 licensed
  auditors, but not all of them are in public
  practice.
• They dont seem to be sufficient to efficiently
  respond to the massive requirement for audit of
  what is estimated to be a pool of 900 companies
  that need to be audited
• Fundamental improvement the first young holders
  of internationally recognized certificates are
  emerging in Macedonia and they are expected to be
  the major proponents for adherence to quality
  standards. Still, there is not yet a system of
  recognizing their certificates nationally and
  transferring them into national certification.

10
Enforcing Accounting Standards

• There are practically no effective mechanisms
  enforcing the implementation of the international
  financial reporting standards.
• Institutions
• Ministry of Finance,
• The Central Registry
• Securities and Exchange Commission and the Stock
  Exchange
• National Bank of the Republic of Macedonia
• Insurance Supervision Department of the Ministry
  of Finance
• The real enforcement agent for enforcing the
  financial reporting standards should be the
  professiomal association of auditors. No external
  quality assurance process, this needs immediate
  address and action.

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Areas of Difference

• Conceptual Framework.
• Interpretations of IFRS.
• Investment property. IFRS 40 had not been adopted
  in Macedonia, because of the implementation of
  the 1999 translation of IFRS. Fixed assets and
  intangiblke assets. Provisions.
• Bank regulatory reporting requirements dominate
  over the standards prescribed for the
  general-purpose reporting.
• Studies found reports including only balance
  sheet and income statements, without cash flow
  statement, statement of changes of equity,
  accounting policies and notes disclosures.
• General purpose financial statements are often
  influenced more by taxation rules, rather than by
  the IFRS requirements.
• Several variations were noticed in the reviewed
  of a sample of IFRS based financial statements.

12
Policy implications

• Legal framework is not the major hindrance to
  embracing the IFRS.
• The weakest link in the institutional framework
  is the absence of an appropriately organized
  professional organization of accountants and
  auditors. Once the Institute is in place and
  operational, a project of refreshing and
  harmonizing all legislation.
• A system of recognizing the international
  certificates nationally.
• Larger authority for monitoring and enforcement
  of the general-purpose reporting should be given
  to the SEC, SE, Central Bank, Insurance
  Supervisory Department in the Ministry of Finance
  and especially to the professional association.
• More profound and permanent professional
  education and training University curricula,
  professional education and training of
  accountants and auditors, training of regulators.
• A well-designed and implemented public awareness
  program that would increase the public demand for
  good corporate disclosure and transparency.