From Diagnostic to Reform The World Bank’s Accounting and Auditing ROSC Program Frédéric Gielen, Senior Financial Management Specialist, World Bank Baku, May 17, 2005

Financial System Stability Indonesia Argentina Brazil Thailand South Korea Russia Mexico Hong Kong

Parmalat Tyco Ahold Worldcom Enron And then… “If the confidence of the public in the integrity of accountants’ reports is shaken, their value is gone.” Mr. Arthur Andersen, 1932

Path of financial development Private Sector Growth Effective functioning of the market economy requires a supporting infrastructure for information disclosure. Path of financial development Productivity y/l4 y/l3 y/l2 Output Levels y/l1 Capital Intensity Source: Based on the econometric findings of Levine, Loayza, and Beck (2000)

International Financial Architecture IFA Objectives ROSC Objectives FSAP Objectives Data Dissemina-tion Fiscal Transparen-cy Transparency in Monetary & Financial Policies Banking Supervision Insurance Supervision Securities Regulation Anti-Money Laundering & Combating Financial Terrorism Payments & Settlements Auditing Accounting Corporate Governance Insolvency & Creditor Rights ROSC Accounting & Auditing Analyse the comparability of national accounting and auditing standards with international standards, determine the degree of compliance, assess strengths/weaknesses of institutional framework to support financial reporting Assist the country develop/implement a Country Action Plan.

The ROSC Program in Europe and Central Asia Assessment Completed Bosnia and Herzegovina Bulgaria Croatia Czech Republic Estonia former Yugoslav Republic of Macedonia Hungary Lithuania Poland Romania Slovak Republic Slovenia Ukraine Assessment in Progress Latvia Poland (update after accession) Serbia Turkey Requested Assessments Azerbaijan Kazakhstan United Kingdom Illustrative Examples in the Rest of the World Brazil Chile India South Africa South Korea

Accounting and Auditing ROSC Process 1. Assessment of the accoun- ting and auditing environ- ment: collection of data (overview of statutory and institutional frameworks) input from NSC (account of strengths/weakness) Accounting Due Diligence Review Final Report 2. Comparison of National Accounting Standards and IAS/IFRS 3. Assessment of actual accounting practices Review of data collected using the diagnostic tool, interviews Inception/closing meeting with NSC, etc Gap identification Gap closing options in the form of Policy Recommendations Comparison of national auditing requirements and ISA. Assessment of actual auditing practices 4. Auditing NSC Preparation of Country Action Plan Azerbaijan A&A ROSC Team Ida Njeri Muhoho, Financial Management Specialist Svetlana V. Klimenko, Financial Management Specialist Frederic Gielen , Sr. Financial Mgt Specialist, U.S. CPA, Reviseur d’Entreprises David Cairns, former Secretary General, IASC Leyla Nabiyeva, Financial Specialist Alfred Borgonovo, Certified General Accountants Association of Canada

A Necessary Reform Agenda

A Basic Building Block