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The ROSC A&A Findings and Recommendations
Bosnia & Herzegovina 2011 ROSC dissemination
Pascal Frèrejacque, Sr. Operations Officer, CFRR
Sarajevo, 27 June 2011
Acronyms
A&A: Accounting and Auditing
IFRS: International Financial Reporting Standards
ISA: International Standards on Auditing
ROSC: Report on the Observance of Standards
and Codes
QAS: Quality Assurance System
POS: Public Oversight System
Introduction
2
Overview
Key characteristics of the A&A Framework in Bosnia Herzegovina
Recent achievements
2010 A&A ROSC
Findings and Recommendations
Introduction
3
The 2010 A&A ROSC
Updates the report published in 2004
Benchmarks the statutory framework with the EU acquis
Reviews the harmonization of Entity level laws
Reviews the quality of accounting and auditing through the review of a sample of financial statements
Presentation overview
4
Challenges are changing from:
Having harmonized frameworks and laws in both
Entities…
Towards…
Aligning the laws with the EU acquis and having a
high quality implementation of the acquis
Key characteristics of the A&A Framework
5
The 2005 Framework Law provides for the Accounting and Auditing (A&A) standards: Accounting Standards: International Financial Reporting
Standards (IFRS)
Auditing Standards: International Standards on Auditing (ISA)
A&A statutory competency is at Entity level The accounting and auditing laws are drafted and passed at Entity
level
Several requirements: harmonization between entities, alignment with the provisions of the acquis….
The A&A profession gathers mainly in two associations For RS: The Association of Accountants and Auditors (RS-AAA)
For FBIH: The Union of Accountants, Auditors and Financial Workers (SRRF-FBiH)
Key Characteristics of the A&A Framework
6
Professional bodies: increased IFAC
recognition
RS AAA full member of IFAC since November
2010, and SRRF-FBiH associate membership
Implementation of the recent laws on accounting
and auditing
Establishment of the audit quality assurance
systems
Recent Achievements
7
Review of Financial Statements
Sample of financial statements for the non-financial sector, banks, and insurance companies
Findings• Several instances of non-compliance with IFRS
even for Public Interest Entities F/S
• Use of boiler plate language in the notes rather than description of accounting principles adapted to companies’ transactions
• Several instances on non-compliance with ISAs
2010 ROSC A&A for Bosnia and Herzegovina
8
The financial reporting infrastructure
2010 ROSC A&A for Bosnia Herzegovina
9
StatutoryFramework
Monitoring&
Enforcement
Education& Training
AccountingProfession& Ethics
Accounting Standards
AuditingStandards
Statutory Framework Findings
• Requirement for the use of “full” IFRS is not in line with the spirit of the EU Fourth and Seventh Directives
Recommendations• IFRS to be used only for PIEs financial statements
• Governments to adopt a financial reporting framework based on IFRS for SMEs for SMEs
• Quality Assurance focus on PIEs
• Design operational policies for Quality Assurance and Public Oversight
• Raise awareness about the benefit of implementing audit committees
• Require the publication of transparency reports
2010 ROSC A&A for Bosnia and Herzegovina
10
Statutory Framework (2)
Findings
• Several instances of non-compliance in financial statements
and related audit reports
Recommendations
• Public oversight mechanism remains to be established in
FBiH
• Design operational policies for Quality Assurance and Public
Oversight
• Quality Assurance systems to focus first on PIEs and them
on audits of other large and medium-sized companies
• Require the publication of transparency reports
• Raise awareness about the benefit of implementing audit
committee
2010 ROSC A&A for Bosnia Herzegovina
11
Publication Findings
• Most of the deadlines for filing harmonized between RS
and FBiH
• Deadlines not aligned with prudential requirements
• F/S not available on line
Recommendations
• Harmonize deadlines for the filing of consolidated
financial statements
• Require electronic publication
• Ensure timely availability of PIEs
2010 ROSC A&A for Bosnia Herzegovina
12
Accounting
Findings
• Up to date translations are available but sustainability
remains an issue
Recommendations
• Ensure that institutions in charge of the translation
make available continuously updated translations
• Harmonize format for financial statements in
compliance with the Fourth and Seventh Company Law
Directives
2010 ROSC A&A for Bosnia Herzegovina
13
Auditing
Findings
• External Quality Assurance Systems are established;
but implementation poses several challenges
• Additional reforms are necessary to transpose the
Statutory Audi Directive
• Need for continuous availability of ISAs
Recommendations
• Transparency reports to be required, and further
alignment need with the directives
• Ensure that institutions in charge of the translation
make available continuously updated translations
2010 ROSC A&A for Bosnia Herzegovina
14
Monitoring and Enforcement Findings
• Supervisors do not monitor compliance with accounting standards systematically
• Supervisors more focused on prudential reports than in annual financial statements
• Key role of the auditor
Recommendation
• Securities Commission to be provided with more resources and step up monitoring and enforcement
• Financial Supervisors to take action in case of material misstatements in financial statements of a supervised entity
2010 ROSC A&A for Bosnia Herzegovina
15
Education and Training
Findings
• Some of the international material outdated
• New standards and benchmark available
Recommendations
• BH A&A Commissions to conduct a review of the
accounting curricula, reading and examination
strategies for updating them with current needs
• training arrangements require improvement
2010 ROSC A&A for Bosnia Herzegovina
16
REPARIS
17
» The Road to Europe: Program of Accounting Reform
and Institutional Strengthening
– Covers 8 countries: Western Balkans + Moldova
– Thematic focus: Corporate Financial Reporting (CFR)
– Holistic approach: institutional building, education systems,
accounting standards, enforcement of financial reporting obligations,
audit quality assurance, etc.
» Priorities:
1. Creating reform momentum and ownership
2. Knowledge transfer and peer learning
3. Technical implementation support
» Program beneficiaries include MoF, financial regulators,
universities and professional accountants and audit
practitioners
www.worldbank.org/cfrr
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