17 May 2005, Baku

1. * Source of information: National Bank of Poland Ministry of Finance Private Sector Accounting and Auditing Reform and its Importance in the Transition to a Market Economy The Polish Experience 17 May 2005, Baku

2. POLAND - basic figures Population - 38.5 million  GDP real growth rate - 5.9 %  GDP per capita - 11,100 USD  Capitalisation of Warsaw Stock Exchange - 94 billion USD - largest in CEE  SME - ca 3.5 million Undersecretary of State, Ministry of Finance

3. Initial conditions - 1989 • There was no capital market • There was a monobank – a one-tier banking system • In the command economy, accounting was treated rather as book-keeping • Financial control instead of auditing • Simplified financial reporting requirements • Simplified aggregation of subordinate companies’ financial statements Undersecretary of State, Ministry of Finance

4. A&A Reform - first stage • Transition process from a command to a market driven economy • 1989 - collapse of communism, introduction of free market economy • 1991 - adoption of the Ordinance of the Minister of Finance on Accounting - first Polish accounting regulations in a market economy (complete change in the attitude to the accounting regime - introduction of accrual accounting, going concern, historical cost, materiality, prudence, consistency )  Clear distinction between tax and accounting requirements - adoption of the Act on auditing and the publication of financial statements as well as on auditors and their self-regulation  foundation of the National Chamber of Statutory Auditors setting professional standards for auditing  prescribing practical requirements and ethics principles Undersecretary of State, Ministry of Finance

5. A&A Reform - second stage • 1994 - adoption of the Act on Accounting based on EU Fourth and Seventh Accounting Directives covers commercial and non profit entities modern regulationsperceived as investors-friendly - adoption of the Act on Auditors and their Self- Governing Body - based on EU Eighth Directive • 2000 - modernisation of the Act on Accounting towards International Accounting Standards (IAS) • 2001 - ROSC Accounting & Auditing useful diagnostic tool of summarising countries’ observance of internationally recognised standards Undersecretary of State, Ministry of Finance

6. A&A Reform - third stage • 2004 - Poland’s accession to the European Union (1st May) Poland’s membership in the EU entailed the obligation to apply IAS to consolidated financial reporting by companies listed on the stock exchange full transposition of the Accounting Directives • 2004 - amendment of the Act on Accounting - direct implementation of IAS/IFRS Undersecretary of State, Ministry of Finance

7. Application of IAS/IFRS in Polish law • The scope of entities applying IAS/IFRS beyond the minimal requirement of the EC Regulation 1606/2002: mandatory basis: consolidated accounts of listed companies and banks permissive basis: annual accounts of above mentioned entities annual and consolidated accounts of companies within the capital group postponement until 2007:  companies whose debt securities only are admitted on a regulated market • Shareholders’ decision on application of ISA/IFRS • Definition of IAS • Interaction between IAS/IFRS and Act on Accounting - fallback to Act on Accounting Undersecretary of State, Ministry of Finance

8. Auditing - current regulations • Approval of persons responsible for carrying out the statutory audits of accounting documents - consistent with current EU regulations • Auditing standards based on International Standards on Auditing (ISA) • Code of Ethics based on IFAC’s Code Undersecretary of State, Ministry of Finance

9. Auditing - future regulations • Proposal for a Directive on statutory audit  currentlyunder discussion in the European Parliament • Objectives  ensuring the credibility and reliability of audited financial statements  reinforcing the statutory audit  improving co-operation between oversight bodies in the EU • New elements public oversight over the audit profession  adopting ISA under the comitology procedure quality assurance mandatory rotation of auditors/audit firms  audit committees  independence and professional ethics liability of the statutory auditor Undersecretary of State, Ministry of Finance

10. A&A and the modern market economy • Without sound accounting and auditing it wasn't possible to: develop capital market  attract foreign investments  strengthen the credibility of SMEs’ reporting ensure thesecurity of market transactions • Co-operation with the World Bank as an important factor of the reform  ROSC Accounting & Auditing update  World Bank grant for A&A reform Undersecretary of State, Ministry of Finance

11. Policystatement Creating reliable, transparent, safe and open for investment economy in Poland Undersecretary of State, Ministry of Finance