Can you tell us why reliable financial information is an important pillar for effective, well developed capital and financial markets?
Wiesław Janczyk: The right decisions, particularly economic ones, require proper information. This statement is true not only at the entity level where management decisions are taken, but also at the market level where people decide on their investments, as well as at the country level where regulators and law-makers set up the regulatory framework. It is impossible to make proper decisions if information is not presented in an aggregated, fair and ─ most importantly ─ understandable form.
And it is the role of financial reporting ─ based on IFRS and EU legislation ─ to ensure that information of the highest possible quality is available and that all entities, often located in different countries, speak the same financial language and understand each other well. Without reliable financial information there might be no trust and no sound and long-term financial cooperation. Consequently, reliable financial information prepared in line with high quality standards forms the foundation for financial markets.
What are the most recent developments in enhancing corporate accounting and auditing in Poland?
Wiesław Janczyk: As a member of the European Union, Poland is required to comply with the acquis communautaire. Thus the most recent changes to the corporate sector accounting and auditing law were aimed at keeping Polish legislation in line with developments at the EU level. First of all, I should mention the implementation of the new accounting directive (2013/34/EU) under which we have introduced substantial reporting simplifications for micro and small companies.
We are also well advanced in transposing directive 2014/95/EU on reporting non-financial information by certain large public interest entities. In the area of audit, we are heading towards the finalization of the legislative process aimed at strengthening our public oversight system over statutory auditors.
This is a result of the improved EU audit package adopted in 2014. Once all these processes are completed, we hope to maintain a "period of calm" to assure we have a stable platform of regulations and that all entities have enough time to adjust their operations to the new legal requirements.
Eurostat is continuing its initiative to harmonize public sector accounting standards through European Public Sector Accounting Standards (EPSAS), and has launched a working group on EPSAS with the participation of Poland as well. Do you have any agenda related to modernizing the public sector accounting system with a view to the eventual implementation of EPSAS?
Wiesław Janczyk: The Eurostat initiative should be appreciated for inspiring discussions on the quality of public sector accounting in all countries. However, there are some doubts as to whether EPSAS are the proper solution to the problem identified by the European Commission. From the Polish perspective, increased transparency of public sector finances and better comparability of public sector financial statements have an indisputable value.
However, these aims could be reached in a much simpler way, for example by harmonizing the public sector accounting principles on the basis of a directive or recommendations. This might offer a sufficient level of comparability with a much better cost-benefit ratio. Such a solution would also be much easier to implement, leaving particular Member States with flexibility in adjusting the adopted provisions to their specific situation.
Having said that, I should mention that we are currently analyzing our public sector Generally Accepted Accounting Principles (GAAP) in order to find out what advantages we could achieve by aligning them with International Public Sector Accounting Standards (IPSAS).
This activity could lead to some modifications of the law in the future, although it should be underlined that public sector entities in Poland already apply accrual accounting. Still, there are many aspects which should be taken into consideration so now it is premature to determine in which direction our reform will evolve and how deep the potential changes would be.
How has the World Bank CFRR supported Poland in the enhancement of accounting and auditing?
Wiesław Janczyk: The CFRR is running a project aimed at building institutional capacities with respect to financial reporting and auditing. This project is financed under the Swiss Contribution Programme and it provides substantial support to Poland. First of all, it offers us advice on the best international practices applied in the field of accounting and auditing all over the world.
Additionally, from 2010 it has continuously supported the functioning of the Polish public oversight system over auditors and audit firms. It is also important to note that the project has contributed to increasing knowledge and understanding of IFRS and International Standards on Auditing (ISA) amongst statutory auditors, accountants, students and public servants in Poland.
Furthermore, a comparison of tax and accounting laws carried out under the project inspired an interesting initiative aimed at aligning Polish regulations in these areas, which could eventually result in a further reduction of administrative burdens for small entities.
It should also be noted that the project on aligning Polish public sector accounting GAAP with IPSAS is also supported by the Swiss Contribution. The project run by the CFRR is to be completed by the end of this year, but we hope the results reached during its implementation will be sustainable.
What kind of message/advice would you like to convey to participants who attended the conference on "Financial Information: Catalyst for Growth" in April 2016 regarding the implementation of financial reporting reform in their countries?
Wiesław Janczyk: Over the last few years, Poland has significantly modified its accounting and auditing law to keep it in line with EU legislation. As for the issues to which most attention was paid during the implementation process, I should mention the difficult task of finding the right balance.
On the one hand, the acquis communautaire must be implemented, but on the other hand, the needs of the domestic market must also be addressed. It is worth introducing reporting simplifications for smaller companies as the resulting potential savings could boost additional economic growth. However, one must be cautious not to go too far because providing sufficient financial information is vital in terms of ensuring a secure business environment.
In this context, it is important to give careful consideration to the size of the thresholds defining entities which are to be entitled to use simplifications; these thresholds should be tailored to the size of the domestic market. It is also important to keep this acquis implementation process transparent.
All changes should be justified, explained and communicated to the stakeholders in advance so that they have enough time not only to understand the new law but also to adjust their reporting systems.
Interview with Polish Deputy Finance Minister Wiesław Janczyk, originally published in the Centre for Financial Reporting Reform (CFRR) Newsletter on July 12, 2016.