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

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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