Warsaw, 7 th June 2005

1. Adopting, Implementing and Enforcing the Acquis Communautairerelating to Accounting Jacek Gdański Accounting Department, Ministry of Finance Warsaw, 7th June 2005

2. Initial conditions - 1989 • Collapse of communism - beginning of economical transition in Poland (1989) • No capital market • One-tier banking system • Book-keeping instead of accounting as a source of information in the command economy • Financial control instead of auditing • Simplified financial reporting requirements • Simplified aggregation of subordinate companies’ financial statements Accounting Department, Ministry of Finance

3. Why was the accounting reform needed? • Reorganising the banking and insurance sectors • Starting the process of privatisation • Creating a stock exchange • Changing approach to accountancy as a management tool of independent entities • Different companies emerging rapidly on a large scale (clear distinction between capital owners [investors] and managers) • Need for preparing reliable, objective and independent financial statements Accounting Department, Ministry of Finance

4. Direction EU (stage 1) • 15th January 1991 – adoption of the Regulation on Accounting issued by the Minister of Finance covered all enterprises except financial institutions first regulation incorporating many (but not all) of the requirements of the Fourth EU Directive introduction of accrual accounting, going concern, historical cost, materiality, prudence, consistency Accounting Department, Ministry of Finance

5. Direction EU (stage 2) • 29th September 1994 - adoption of the Act on Accounting based on the Fourth and Seventh EU Directive - covered commercial and non profit entities clear distinction between tax and accounting requirements • new regulations introduced concerning: • accounting policies •  deferred tax •  scope of financial statements (cash flow statement and the notes as new elements) •  consolidated financial statements •  annual report •  auditing and publication of financial statements (earlier in separate regulations) • 30th April 2004 - amendment of the Act on Accounting - full compliance with the current versions of Accounting Directives Accounting Department, Ministry of Finance

6. Direction IAS/IFRS (stage 1) • 9th November 2000 - modernisation of the Act on Accounting towards International Accounting Standards (IAS) new regulations introduced concerning mergers, financial instruments, leasing, long-term contracts  some improvements concerning consolidation, deferred tax, scope of disclosure  voluntary fallback to: national accounting standards (the National Accounting Standards Committee established in 2002) IAS/IFRS Accounting Department, Ministry of Finance

7. Direction IAS/IFRS (stage 2) • 27th August 2004 - amendment of the Act on Accounting -direct implementation of IAS/IFRS definition of IAS shareholders’ decision on application of ISA/IFRS the scope of application of IAS/IFRS mandatory basis: - consolidated accounts of listed companies - banks permissive basis: - annual accounts of listed companies - annual and consolidated accounts of companies having filed for admission to public trading - annual and consolidated accounts of companies whose parent undertaking prepares its consolidated accounts in accordance with IAS postponement until 2007: - companies whose debt securities only are admitted on a regulated market • Interaction between IAS/IFRS and Act on Accounting - fallback to Act on Accounting Accounting Department, Ministry of Finance

8. Issues not covered by international regulations • There will always be areas beyond the scope of EU regulations and international standards:  inventory keeping accounting records bookkeeping vouchers  penal liability data protection Accounting Department, Ministry of Finance

9. Benefits • Increase in reliability of enterprises for domestic and foreign investors • Attracting investors • Confidence in financial statements • Comparability of financial statements on the international level Accounting Department, Ministry of Finance

10. Challenges • Transition from rules based accounting to principles based accounting • Clear separation from tax regulations • Translation • Complexity of IAS/IFRS • Education Accounting Department, Ministry of Finance

11. Lessons learned • Take decisions well in advance before introducing any changes • Attach particular care to capacity building • Ensure the political support • Prepare for the reform all stakeholders: accountants, auditors, regulators, prepares and users of the financial statements • Take into account the size and character of the economy (ambitious but realistic target) • Consider how to implement the EU law (e.g. adjusting to national legislation procedure and tradition) • Engage in the international co-operation • Do not hesitate to ask the World Bank for assistance Accounting Department, Ministry of Finance

12. Modern, robust accounting standards are an indispensable element of creating reliable, transparent and open economy Accounting Department, Ministry of Finance