Happy New Year!

Welcome to the first Newsletter of the year from the CFRR. We hope you enjoyed the holiday break and look forward to working with you in 2012.

The CFRR has prepared a full program of events for 2012, with the ministerial conference for REPARIS as the highlight of the first half of the year. The last few months have also been a busy period for financial reporting, especially in Europe, with the European Commission publishing its proposals to reform audit regulation and to simplify accounting rules for small and medium-sized firms. This newsletter reviews these recent developments, recaps the most important events and other news from the CFRR and previews some of the events that the CFRR will be organizing in the next few months.

In focus

European Commission proposes changes to the EU's framework for accounting and auditing

The European Commission announced a series of proposals to reform the framework governing accounting and auditing in the EU in November and December 2011. If these proposals become EU law, they will lead to significant changes in the EU’s legal framework for corporate financial reporting.

The Commission’s proposals on accounting have generally received a warm welcome. Under the proposals, the reporting requirements on small- and medium-sized firms (SMEs) and, especially on the very smallest (micro) firms will be significantly reduced. In addition, the Commission is proposing to replace the two existing Accounting Directives with a single, modernized Accounting Directive with the aim of improving the transparency and comparability of financial statements in the EU.

The Commission’s proposals on auditing have provoked more debate. They seek to increase competition in the audit market by encouraging joint audits and requiring companies to change auditors after six years (nine years if audits are carried out jointly). In addition, the proposals seek to reduce perceive conflicts of interest for auditor firms by prohibiting them from providing non-audit services to their audit clients. Large audit firms will also be obliged to separate their audit activities from their non-audit activities. If implemented, these proposals would lead to major changes in the audit market.

The pages on the CFRR website on accounting for public interest entities, accounting for SMEs and auditing have been updated to cover the Commission’s proposals in more detail, with links to the proposed legal texts and background material from the Commission.

Highlights of recent CFRR events

Senior officials from the REPARIS countries review progress and commit to continuing reforms

Senior Officials Workshop, Vienna, 10-11 November 2011

Senior Officials Workshop, Vienna, 10-11 November 2011

Deputy Finance Ministers, heads of the accounting and auditing departments within Ministries of Finance and other senior officials from the eight countries taking part in the REPARIS program met in Vienna on 10-11 November for the 2011 Senior Officials Workshop. The participants met with leading European and international stakeholders in financial reporting, discussed the implications for the region of the latest policy developments in the EU, reviewed the recent progress of the REPARIS program and provided updates on the status of corporate financial reporting reforms in each country.

You can read a full summary of the workshop, including the presentations made at the workshop, on the CFRR website.

Austrian investors praise progress in financial reporting
in the Western Balkans

Outreach event for the Austrian business community, Vienna, 14 November 2011

Outreach event for the Austrian business community, Vienna, 14 November 2011

One of the main aims of corporate financial reporting is to reduce the barriers between businesses and banks and other sources of finance. The CFRR has therefore always regarded the views of investors on the quality of financial reporting as shedding an important light on the progress of reforms to accounting and auditing. At an outreach event for the Austrian business community on 14 November 2011 and at a special session of the recent Senior Officials Workshop, foreign investors in South-East Europe welcomed the recent progress in implementing financial reporting reforms in the region. However, they stressed that local understanding of International Financial Reporting Standards often lagged behind the legal framework implementing them, so that measures to raise the capacity both of financial reporting professionals and of industry regulators were a priority.


Providing the tools for modern accounting education: CFRR and the IFRS Foundation train the trainers on the IFRS for SMEs

IFRS for SMEs Train the Trainers Workshop, Sarajevo, 18-20 October 2011

IFRS for SMEs Train the Trainers Workshop, Sarajevo, 18-20 October 2011

The CFRR, in conjunction with the IFRS Foundation, organized a three-day intensive "Train-the-Trainers" course on the IFRS for SMEs in Sarajevo from 18-20 October, 2011. The IFRS for SMEs reporting standard was designed for countries seeking a less complex and burdensome financial reporting requirement than full IFRS for non-public interest companies. Some REPARIS countries, including Bosnia and Herzegovina and Macedonia, have already adopted the IFRS for SMEs and others are considering doing so. Even in countries which do not adopt the standard, training in the IFRS for SMEs provides a valuable introduction to the practical application of principles-based accounting. It therefore represents a stepping stone towards full IFRS for those who are learning financial reporting. The presentations and other materials provided at the event are available on the CFRR website in English, Albanian, Romanian and Bosnian/Croatian/Serbian.


Building Serbia's capacity to enforce financial reporting requirements: CFRR trains insurance supervisors in Serbia on IFRS

The CFRR conducted a training course in Belgrade from 12-13 December 2011 on IFRS for insurance supervisors of the National Bank of Serbia. The course, which was implemented in cooperation with the Financial and Private-Sector Development unit (FPD) of the World Bank's ECA region, covered the core concepts of accounting for insurance and financial instruments under IFRS, the IASB’s projects to develop new reporting standards in these areas (IFRS 4 Phase II and IFRS 9) and the relationships between these standards and the EU’s Solvency II system for regulating insurance undertakings. Background material on all these subjects can be found on the Topics section of the CFRR website.

CFRR reports on options for SME financial reporting in Kazakhstan

As part of the Joint Economic Research Program, the CFRR published a report on 9 December 2011 summarizing the options for the reform of financial reporting for SMEs in Kazakhstan.

The report describes the current reporting framework for SMEs in Kazakhstan and, drawing on recent international experience to simplify financial reporting for smaller firms, makes several recommendations to align financial reporting requirements more closely with the needs of different types and sizes of businesses. It considers that adopting the IFRS for SMEs could be a good policy option for large and medium-sized entities that are not required to use full IFRS. However, the IFRS for SMEs would not be appropriate for small firms. Further details, including the full report, are on the CFRR website.


Improving the quality of auditing: CFRR participates in Polish Chamber of Auditors' annual conference, 26 October 2011

Swiss Contribution

As part of the Polish FRTAP program financed by the Swiss Contribution, staff from the CFRR took part in the annual conference of the Polish Chamber of Auditors (KIBR) in Jachranka on 26 October 2011. CFRR representatives described how the Centre was working closely with the KIBR and other professional bodies in Poland to improve the quality of auditing. They also introduced a session at the conference exploring the use of computer software as a tool for auditors carrying out audits in line with International Standards on Auditing (ISA). A report of the conference, including presentations, can be found on the CFRR website.

Implementing International Standards on Auditing (ISAs): CFRR organizes auditor training in the Czech Republic

Under the FRTAP program, the CFRR is organizing a range of training courses for practicing auditors and staff of the tax authority in the Czech Republic. These include training on the differences between IFRS and Czech accounting standards and courses on clarified International Standards on Auditing (ISAs) with an emphasis on their application by small- and medium-sized audit practices (SMPs). In addition, the CFRR has launched work on a new Report on the Observance of Standards and Codes in accounting and auditing (A&A ROSC) in the Czech Republic. The report, which is due to be completed in the first half of 2012, is part of the monitoring and evaluation framework for the FRTAP program in the Czech Republic and will update the 2003 A&A ROSC, which was prepared before the Czech Republic joined the EU.

Country highlights

European Commission acknowledges Macedonia's and Montenegro's financial reporting reforms

The European Commission praised Macedonia for its recent reforms to the legal framework for auditing. In its latest Progress Report assessing Macedonia’s progress in adopting the EU acquis, the Commission said that “good progress can be reported as regards auditing”. The CFRR is helping Macedonia design and implement reforms to its system of financial reporting and has just started work on an updated Report on Observance of Standards and Codes in accounting and auditing (A&A ROSC), which will help to identify remaining gaps between Macedonia’s legal framework for financial reporting and the EU acquis.

The European Commission's lastest round of reports also praised Montenegro for the progress made in developing its financial reporting system and noted the reforms carried out in the corporate financial systems of the other accession countries.

Kosovo Financial Reporting Council starts work in November 2011

The Kosovo Financial Reporting Council (KFRC) started operations in November 2011. KFRC is a successor to the Kosovo Board for the Standards on Financial Reporting (KBSFR). The CFRR provided some technical assistance to KBSFR and will continue to provide support to the KFRC, The Centre has also started work on updating the A&A ROSC for Kosovo. This will be completed by the end of June 2012 and will provide valuable information for the design of the next stage of reforms to the country's financial reporting framework.

Latest developments at the Centre

In November 2011, the donors to the REPARIS program (the Austrian Development Agency, the Austrian Finance Ministry, the Government of Luxemburg and the Government of Switzerland) reviewed the progress of the program and the CFRR's plans for REPARIS in 2012. Following the meeting, the Austrian Development Agency and the Government of Luxemburg confirmed that they will be providing additional funds to REPARIS, taking the total funding for the program to €8,090,200 (regional activities: €6,800,000, Albania country actions: €1,290,200). The additional funds will be used to finance activities under the REPARIS program in 2012 and 2013.

In parallel, the Centre is continuing to work with senior officials and European Integration departments in each REPARIS country to support the development of a new “EU REPARIS” program. EU REPARIS will build on the success of the present REPARIS program by assisting the EU candidate and potential candidate countries from the Western Balkans to adopt and implement the EU acquis communautaire in corporate financial reporting. Staff from the CFRR presented the main features of EU REPARIS to a meeting of private-sector experts from the region organized by the OECD and the Regional Co-operation Council (RCC) in Sarajevo in December 2011. Following this meeting and earlier discussions with the European Commission and potential participants in the program, the Centre is planning to apply for funding for EU REPARIS from the EU’s Multi-Beneficiary Instrument for Pre-Accession (IPA).

Alex Fawcett

Alex Fawcett

In January 2012 the CFRR welcomed Mr Alex Fawcett as a new member of its assessment and advisory team. A member of ACCA, Alex brings extensive experience of designing and implementation of accounting reform programs in transitional and developing economies, including the new EU member states, Central Asia and the REPARIS region. He will be working on the FRTAP program, especially in Poland, and on the Centre's activities in the countries around the Black Sea.

Upcoming Events

Workshop on Audit Regulation and Education,
Vienna, 7-8 February 2012

As part of the REPARIS program, the CFRR is organizing a workshop on building audit quality and education on 7-8 February, 2012 in Vienna. The workshop, for which attendance is by invitation only, will allow participants to review progress in implementing the requirements of the EU’s Statutory Audit Directive and to learn from each other’s experience in arranging appropriate education and training in the area of statutory audit. The CFRR website gives further details of the event, including how to register.

Workshop on IFRS in the Banking Sector,
Zagreb, 26-27 March 2012

As part of the REPARIS program, the CFRR is organizing a regional workshop on the application of IFRS to the banking sector on 26-27 March, 2012 in Zagreb. The workshop, which will be hosted by the National Bank of Croatia, is organized as part of the IFRS for Prudential Regulators seminar series. Attendance at the workshop is by invitation only.

REPARIS Ministerial Conference,
Vienna, May 31 2012

The CFRR’s main event this year will be a Ministerial Conference for the countries participating in the REPARIS program. The Conference, which will be held in Vienna on May 31, 2012 will bring together Ministers and other senior decision-makers from the eight REPARIS countries to discuss recent developments in financial reporting, what lessons can be learned from each other’s experience and to review the next stage of the REPARIS program.

Let us know what you think

We plan to send out the next edition of the Newsletter in a few months' time. In the meantime, we would be very interested to receive your views on the Newsletter and how you think it could be improved. Please send all your comments and suggestions to cfrr@worldbank.org.

Partners of the CFRR


                    Development Cooperation Ministry of Finance, Austria SECO Switzerland Ministry of Finance, Luxemburg