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

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

Andrzej Jacaszek Undersecretary of State, Ministry of Finance  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 Initial conditions

Andrzej Jacaszek Undersecretary of State, Ministry of Finance A&A Reform - first stage  Transition process from a command to a market driven economy  collapse of communism, introduction of free market economy  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

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

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

Andrzej Jacaszek Undersecretary of State, Ministry of Finance Application of 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

Andrzej Jacaszek Undersecretary of State, Ministry of Finance 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

Andrzej Jacaszek Undersecretary of State, Ministry of Finance Auditing - future regulations  Proposal for a Directive on statutory audit  currently under 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

Andrzej Jacaszek Undersecretary of State, Ministry of Finance  Without sound accounting and auditing it wasn't possible to:  develop capital market  attract foreign investments  strengthen the credibility of SMEs’ reporting  ensure the security 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 A&A and the modern market economy

Andrzej Jacaszek Undersecretary of State, Ministry of Finance Policy statement Creating reliable, transparent, safe and open for investment economy in Poland