Reports on the Observance of Standards and Codes (ROSC)

1. Reports on the Observance of Standards and Codes (ROSC) Azerbaijan John Hegarty Manager, Financial Management Jon Hooper Financial Management Specialist Europe and Central Asia Region THE WORLD BANK

2. Philippines Malaysia Hong Kong East Asia (Thailand) Indonesia Taiwan South Korea ROSC - Azerbaijan Background: The Need for a Strengthened International Financial Architecture 1990s – Emerging Market Crises and contagion effects

3. ROSC - Azerbaijan Background: The Need for a Strengthened International Financial Architecture Shift from reactive crisis resolution Pre-emptive crisis prevention

4. ROSC - Azerbaijan Background: Origins of the ROSC program The G-22 Reports: focus on crisis prevention • Transparency and Accountability (Led to ROSC program) • Strengthening National Financial Systems • Government guarantees to the private sector

5. ROSC - Azerbaijan The ROSC program: Comprises 12 Fundamental Standards Insolvency & Creditor Rights Corporate Governance Insurance Supervision Banking Supervision Securities Regulation Accounting & Auditing

6. ROSC - Azerbaijan Importance of High Quality Accounting and Auditing ECONOMIC GROWTH Development of Capital Markets Improved Access to Credit Job Creation Accounting and Auditing Private Sector Growth Financial Sector Development Financial Information Financial Stability

7. ROSC - Azerbaijan A&A ROSC: Assessing the Quality of the A&A Framework Economic Context Factual Assessment Perceptions Legal & Institutional Framework Accounting in Practice Auditing in Practice FINDINGS Recommendations

8. ROSC - Azerbaijan Azerbaijan ROSC A&A: Key Findings Avoid: Promote: - Access to credit, particularly for SMEs - Development of capital markets - Development of the private sector - Implementation of international best practice regulation

9. ROSC - Azerbaijan A&A ROSC: Assessing the Quality of the A&A Framework Benchmarks: Good international practice International Standards on Auditing Acquis communautaire International Financial Reporting Standards

10. ROSC - Azerbaijan A&A ROSC: Global Coverage Europe and Central Asia East Asia Middle East and North Africa South Asia Latin America and the Caribbean Africa

11. ROSC - Azerbaijan A&A ROSC:in Europe and Central Asia

12. ROSC - Azerbaijan ROSC is a the first step in the process of reform Monitoring & Enforcement Accounting Standards Statutory Framework Education & Training Auditing Standards Accounting Profession & Ethics

13. ROSC - Azerbaijan All supporting pillars need to be strengthened Monitoring & Enforcement Accounting Standards Statutory Framework Education & Training Auditing Standards Accounting Profession & Ethics

14. ROSC - Azerbaijan Azerbaijan ROSC A&A: Key Findings • Azerbaijan’s increasing global integration and access to global financial markets makes increased transparency essential • Significant recent progress, in particular, the new Law on Accounting of 2004 • Implementation of Law on Accounting poses very significant challenges • Fragmented regulation and enforcement of accounting regulations must be harmonized • Statutory framework for audit is outdated and inconsistent • Major need for re-tooling, education and training of accountants and auditors

15. ROSC - Azerbaijan Azerbaijan ROSC A&A:Key Recommendations • Measures to assist the implementation of Law on Accounting including: • embedding IFRS in Public Interest Entities • permanent resource to translate IFRS, develop National Accounting Standards and support both • Transition training program for IFRS and NAS • Harmonization program of fragmented regulation and enforcement of accounting regulations • Introduction of a new, coherent, Law on Audit; reform and development of Chamber of Auditors • Major program of re-tooling, education and training of accountants and auditors

16. ROSC - Azerbaijan Implementing the ROSC Recommendations IAIS World Bank IFAC National Steering Committee, led by MoF IASB Development Partners European Commission & Committees Basel Committee

17. ROSC - Azerbaijan Azerbaijan ROSC A&A: Implementation • Ministry of Finance and World Bank initiative, the Corporate and Public Sector Accountability Project (CAPSAP) • Will include 3 main components: • Corporate sector accounting reform, including embedding IFRS in Public Interest Entities, assisting the introduction of a new Law on Audit; reform and development of Chamber of Auditors • Public sector accounting reform (separate to this report) • Azerbaijan Center for Professional Accounting Training, Education and Research (ACPATER), a permanent resource to translate IFRS, develop National Accounting Standards, support a transition training program for IFRS and NAS and support a major program of re-tooling accountants, auditors and accounting education and training providers