Implementation of IAS in
Macedonia
Verica Hadzi Vasileva-Markovska
ERNST & YOUNG
OECD Roundtable, Ohrid
June 9-10, 2004
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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
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IAS in Macedonia
•Nominal acceptance of IFRS by laws
•Several studies on factual
incompliance
•Macedonian transparency and
disclosure framework best described
as
inconclusive
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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
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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.
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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.
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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 don’t 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.
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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.
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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.
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