EU Progress Reports assessing and monitoring progress on the Road to Europe

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1 EU Progress Reports assessing and monitoring progress on the Road to Europe Liam Coughlan Centre for Financial Reporting Reform (CFRR), World Bank CFR Workshop: Transposing the EU acquis communautaire: status and perspectives, Vienna 29/30 Nov 2012

2 Outline of presentation Nature of EC progress reports Preparation and scope Areas covered Challenges Trends revealed by EC Progress Reports for REPARIS countries Topics for discussion, including follow up actions 2

3 Nature of EC Progress Reports Published since 2002 for WB countries Covers four broad areas: Relations between country and EU Analysis of political criteria Analysis of economic criteria Reviews capacity to assume obligations of membership (chapters of acquis) Annual reports prepared by EC (Oct-Sep) Based on laws and decisions adopted and implemented Makes conclusions to Council and EU Parliament

4 EU acquis Communautaire chapters Chapter Topic Chapter Topic 1 Free movement of goods 12 Food safety and related issues 2 Free movement of workers 13 Fisheries 3 Right of establishment and freedom to provide services 14 Transport 4 Free movement of capital 15 Energy 5 Public procurement 16 Taxation 6 Company Law (19 directives, several regulations and recommendations) 07 Intellectual property law 18 Statistics 17 Economic and Monetary policy 08 Competition policy 19 Social policy and employment 09 Financial services 20 Enterprise and industrial policy 10 Information society and media 21 Trans European Networks 11 Agricultural and rural development 22 Regional policy and coordination of structural funds

5 EU acquis Communautaire chapters Chapter Topic 23 Judiciary and fundamental rights 24 Justice, freedom and security 25 Science and research 26 Education and culture 27 Environment and climate change 28 Consumer and health protection 29 Customs Union 30 External relations 31 Foreign security and defense policy 32 Financial control 33 Financial and budgetary provisions

6 EU acquis communautaire A&A chapters Main CFR elements of the acquis include Accounting Directives (EUD 4 th and 7 th ) IAS Regulation Statutory Audit Directive (SAD/EUD 8 th ) Other elements are relevant, some directly, others indirectly in implementation, including Transparency directive of Chapter 6 Aspects of chapters 2 (freedom of movement of workers), chapter 3 (right of establishment to provide services) chapters 4, 9 and 32 (indirect, relating to free movement of capital, financial services, and financial control).

7 REPARIS goals for transposition: The Road to Europe: Program of Accounting Reform and Institutional Strengthening: Transposition goal Encourage and assist the participating countries of the Western Balkans 1 and Moldova to transpose the core accounting and auditing directives and Regulation of Chapter 6 Facilitate shared and peer learning in fostering the confidence, knowledge in effecting this important aspect of transition from former accounting and audit systems 1 Albania, Bosnia and Herzegovina, Croatia, Kosovo, FYR Macedonia, Montenegro and Serbia

8 Status Road to Europe Nov 2008 Oct 2012 Croatia <Negotiations on acquis ongoing> Last progress report adopted 2011, recommendation to join EU 1/7/13 Montenegro <Candidate country 2010> Macedonia Serbia <Candidate country 2008> <EC recommended accession talks 09> <SAA country 2008> <Candidate status recommended 2011> <Negotiations on accession started 6/2012> <Still awaiting date> <High level EC dialogue 2012> <Candidate status confirmed> Albania <SAA country 2009> <Candidate status recommended> Moldova <ENA> <ENA/ENP> BiH <SAA> <SAA> Dialogue to encourage application for membership Kosovo No ENP/SAA, EC commitment to WB European perspective <EU assistance programs>

9 Status reports (Montenegro) Nov 2008 Oct 2012 Montenegro SMEs continue to find it more difficult to obtain loans, given the lack of sound financial statements or collateral. There has been some legislative progress, with the adoption of amendments to the Company Law in December Imprecision and gaps in the law were eliminated, enabling further alignment with the first, second, third sixth, eleventh and twelfth Company law directives (not A&A). Little progress can be reported in the field of company law. New amendments to the Law on Accounting and Auditing, establishing an independent public oversight body for auditors and a related quality control system, are yet to be adopted. Overall, preparations are moderately advanced. Report was quite general, reflecting new country

10 Status reports (FYR Macedonia) Nov 2008 Oct 2012 Macedonia modest progress in A&A. ICA has taken initial steps towards establishing an oversight system for statutory auditors and audit firms. However, this initiative is not in line with the Directive 2006/43/EC on statutory audit, which puts an end to self-regulation,. ICA still has only one full-time employee. The ICA has not yet begun to implement the program for the education, training and examination of auditors. The program for effective and independent quality assurance for audit reporting is not being carried out Good progress.. corporate accounting. The Law on performing accounting activities was enacted, IFRS SME were translated and are now being applied. Little progress..auditing. The Council of Audit Promotion and Supervision was established to promote the audit profession, ensure quality control and supervise the Institute for Chartered Auditors (ICA); meetings were held regularly. The number of staff in ICA increased to 3 people, but remains insufficient to perform an effective quality assurance control. Chartered auditors qualifications obtained abroad are not yet recognized. Overall.. moderately advanced.

11 Status reports (Croatia) Nov 2008 Oct 2012 Croatia Good progress in area of corporate accounting. IFRS/IAS and statutory audit for Medium/Large enterprises mandatory from date of accession. Overall progress on accounting acquis satisfactory There has been limited progress in the field of auditing. Work on the new Audit Act is at the final stage. The Chamber of Auditors needs further strengthening to be able to ensure proper implementation of financial reporting standards. Monitoring report (not progress report) did not flag outstanding issues on A&A acquis, and overall, reported that Croatia well on track to join EU from July 1 st. (Last Report stated in January 2011, the European Commission recognized the equivalence of the audit oversight system in Croatia. Member States can now choose to rely on the supervisory work of the Croatian oversight system )

12 Status reports (Serbia) Nov 2008 Oct 2012 Serbia No progress was made on company law. Law on accounting and auditing from June 2006 is only partly harmonized with the acquis, while the adoption of the new law that should be fully harmonized is still pending. However, Serbia won the Eurovision Song Contest with the unforgettable Marija in 2007 There was no progress reported in the areas of corporate accounting and auditing. Full alignment with the Eighth Company Law Directive and with the acquis in the area of independent public oversight, quality assurance and investigations remains to be achieved. For corporate accounting and auditing, efforts should be stepped up in the areas of independent public oversight, quality assurance and investigations. Overall, alignment in the area of company law is well advanced

13 Status reports (Albania) Nov 2008 Oct 2012 Albania Some progress can be reported in the case of accounting. Translation of the international accounting standards (IAS) was completed, and they entered into force in January Further efforts are needed to build a credible and properly functioning financial reporting framework, especially for small and medium-sized enterprises. Enforcement of financial reporting needs to be tightened up. There was no progress reported in the areas of corporate accounting and auditing. Full alignment with the Eighth Company Law Directive and with the acquis in the area of independent public oversight, quality assurance and investigations remains to be achieved. Little progress: auditing. Regulations on investigation and discipline and on quality control of statutory auditors have been adopted, but the overall legislation has not yet been fully aligned with the acquis. Further efforts are required to strengthen the human and financial resources of the Public Oversight Board (POB) and to guarantee its independence

14 Status reports (BiH) Nov 2008 Oct 2012 Bosnia and Herzegovina No progress can be reported in the area of mutual recognition of professional qualifications. No progress has been made on developing State-level company law The legislation on corporate accounting and auditing is broadly aligned with the acquis and almost fully harmonized between the Entities. FBiH : implementing legislation on the consolidation of financial statements in line with the Seventh Company Law Directive. The entities apply (IFRS) to all companies, irrespective of their size. In Republika Srpska IFRS for Small and Medium Enterprises may be used by small and medium-sized companies if they provide justification in their accounting policies. Discussion of yet to be implemented QA and PO issues at entity level.

15 Status reports (Kosovo) Nov 2008 Oct 2012 Kosovo There have been no developments in the area of company law Some progress has been made in the area of company law. The law on business organizations adopted in June brings the legal framework closer to EU standards and strengthens provisions on avoiding conflicts of interest and requirements with regard to external audits of companies. The law on accounting and audit has been implemented.

16 Status reports (Moldova) Nov 2008 Oct 2012 Moldova Legislation such as the law on limited liability companies, was adopted in the area of company law and contributed to improving the business climate. The law on state registration of legal entities and individual enterprises was adopted. It essentially simplifies the procedure of registration in the State Register. To fully align with EU rules on disclosure of companies information and to ensure a more predictable and transparent business climate, further efforts would be required. Company law, movement of capital and accounting rules did not undergo substantial changes. Amendments to the Law on auditing introduced the International Standards on Auditing and the Code of Ethics as of 1 January 2012.

17 Observations EU progress reports represent snapshot Slides so not capture what happened between 2008 and 2012 Not ROSC A&A Reports Considerable progress made by PAOs in region between 2008 and 2012, not reflected in EC reports (not elements of acquis), leading to potential to improve capacity Transposition challenges significant

18 Observations on tables of concordance EC responsible for progress reports Incremental approach no longer valid for candidate countries Considerable effort and resources need for full harmonization, as focus on quality of transposition as well as quantity Capacity challenges exacerbated because of fragmentation of roles and responsibilities within countries Importance of communication with EC highlighted

19 Challenges and opportunities Limited capacity technical and financial assistance difficult to source in this climate, note success factors for Montenegro (2013 IDF) Some inconsistency in messages contained in progress reports when viewed across region Most recent experiences of Montenegro and Serbia contain valuable lessons learned for the other countries. The conditions and process has tightened

20 Q&A Thank you! REPARIS is implemented with the generous support of The views expressed in this presentation do not necessarily reflect those of the Executive Directors of The World Bank or the governments they represent.