Reports on the Observance of Standards and Codes (ROSC)

John HegartyManager, Financial Management

Jon HooperFinancial Management SpecialistEurope and Central Asia Region

Azerbaijan

THE WORLD BANK

Background:

The Need for a Strengthened International Financial Architecture1990s – Emerging Market Crises and contagion effects

East Asia (Thailand)

Philippines

Malaysia

Hong Kong

Indonesia

Taiwan

South Korea

ROSC - Azerbaijan

Background:

The Need for a Strengthened International Financial Architecture

Shift from reactive crisis resolution

Pre-emptive crisis prevention

ROSC - Azerbaijan

Background:

Origins of the ROSC program

The G-22 Reports: focus on crisis prevention

- Transparency and Accountability (Led to ROSC program)

- Strengthening National Financial Systems

- Government guarantees to the private sector

ROSC - Azerbaijan

The ROSC program: Comprises 12 Fundamental Standards

Securities Regulation

Banking Supervision

Accounting & Auditing

Corporate Governance

Insurance Supervision

Insolvency & Creditor Rights

ROSC - Azerbaijan

Importance of High Quality Accounting and Auditing

Accounting and

Auditing

Development of Capital Markets

Job Creation

Financial Stability

Private Sector Growth

Financial Sector Development

Improved Access to Credit

Financial Information

ECONOMIC GROWTH

ROSC - Azerbaijan

A&A ROSC: Assessing the Quality of the A&A Framework

Economic Context

Legal & Institutional Framework

Accounting in Practice

Auditing in Practice

RecommendationsFINDINGS

Factu

al A

ssessm

en

t

Perc

ep

tion

s

ROSC - Azerbaijan

Azerbaijan ROSC A&A: Key Findings

- Access to credit, particularly for SMEs

- Development of capital markets

- Development of the private sector

- Implementation of international best practice regulation

Promote: Avoid:

ROSC - Azerbaijan

A&A ROSC: Assessing the Quality of the A&A Framework

Benchmarks:

International Financial Reporting Standards

International Standardson Auditing

Acquis communautaire

Good international practice

ROSC - Azerbaijan

A&A ROSC: Global Coverage

Latin America and the Caribbean

Europe and Central Asia

Middle East and North Africa

Africa

South Asia

East Asia

ROSC - Azerbaijan

A&A ROSC: in Europe and Central Asia

ROSC - Azerbaijan

ROSC is a the first step in the process of reform

Statutory Framework

Monitoring & Enforcement

Education & Training

Accounting Profession &

Ethics

Accounting Standards

Auditing Standards

ROSC - Azerbaijan

All supporting pillars need to be strengthened

Statutory Framework

Monitoring & Enforcement

Education & Training

Accounting Profession &

Ethics

Accounting Standards

Auditing Standards

ROSC - Azerbaijan

Azerbaijan ROSC A&A: Key Findings

- Azerbaijan’s increasing global integration and access to global financial markets makes increased transparency essential

- Significant recent progress, in particular, the new Law on Accounting of 2004

- Implementation of Law on Accounting poses very significant challenges

- Fragmented regulation and enforcement of accounting regulations must be harmonized

- Statutory framework for audit is outdated and inconsistent

- Major need for re-tooling, education and training of accountants and auditors

ROSC - Azerbaijan

Azerbaijan ROSC A&A: Key Recommendations

- Measures to assist the implementation of Law on Accounting including:

- embedding IFRS in Public Interest Entities

- permanent resource to translate IFRS, develop National Accounting Standards and support both

- Transition training program for IFRS and NAS

- Harmonization program of fragmented regulation and enforcement of accounting regulations

- Introduction of a new, coherent, Law on Audit; reform and development of Chamber of Auditors

- Major program of re-tooling, education and training of accountants and auditors

ROSC - Azerbaijan

Implementing the ROSC Recommendations

National Steering

Committee, led by MoF

IAIS

IFAC

IASB

Basel Committee

European Commission &Committees

World Bank

ROSC - Azerbaijan

DevelopmentPartners

Azerbaijan ROSC A&A: Implementation

- Ministry of Finance and World Bank initiative, the Corporate and Public Sector Accountability Project (CAPSAP)

- Will include 3 main components:

- Corporate sector accounting reform, including embedding IFRS in Public Interest Entities, assisting the introduction of a new Law on Audit; reform and development of Chamber of Auditors

- Public sector accounting reform (separate to this report)

- Azerbaijan Center for Professional Accounting Training, Education and Research (ACPATER), a permanent resource to translate IFRS, develop National Accounting Standards, support a transition training program for IFRS and NAS and support a major program of re-tooling accountants, auditors and accounting education and training providers

ROSC - Azerbaijan