Good progress but further reform needed to develop Kosovo’s financial reporting infrastructure, to support economic growth through enhanced competitiveness, and governance, says new World Bank report
PRISTINA, May 7, 2013 – Reforms in accounting and auditing in the Republic of Kosovo need to be continued in order for the alignment with the EU acquis communautaire to succeed, says the new Report on the Observance of Standards and Codes (ROSC) on Accounting and Auditing in the Republic of Kosovo, released today in Pristina by the World Bank.
“In the context of Kosovo’s aspiration to join the EU, the new report assesses the corporate financial reporting framework in Kosovo with reference to the acquis communautaire and international good practice,” said Henri Fortin, head of the Centre for Financial Reporting Reform (CFRR), the unit of the World Bank that prepared the report.
The report notes significant changes, including the passing of a new financial reporting law in July 2011 and the increase in the threshold for statutory audit requirement. The new law brings Kosovo’s legal framework closer to the acquis, but further changes will be required to achieve full alignment with EU law. The report also notes that, in the financial sector, prudential regulations and supervision have been substantially strengthened. Moreover, Kosovo’s accounting and audit profession has developed rapidly over the last few years, although Society of Certified Accountants and Auditors of Kosovo (SCAAK) continues to face a number challenges in meeting its international obligations as a member of International Federation of Accountants (IFAC). While there has been some progress in integrating accounting education in the universities with professional qualifications, more effort is needed in this area.
On the compliance side, the most significant change since 2006 is the improvement within the banking sector. Enforcement of accounting requirements among non-banking entities remains a challenge as in many other countries. In addition, the report notes that many companies still do not file their annual financial statements, which would be essential to achieve the desired level of transparency in the private sector. Lastly, the report notes the central role of the Kosovo Financial Reporting Council, but acknowledges the many capacity constraints it faces to fulfill its role. The report advocates maximum cooperation among the key institutions concerned. The CFRR is supporting Kosovo in its reform efforts through the Program of Accounting Reform and Institutional Strengthening (REPARIS).
“Business relations are built on confidence,” said Jan-Peter Olters, World Bank Country Manager for Kosovo, concluding that, “auditing and accounting are the foundation of a functioning market economy, enabling firms to cooperate successfully with one another.”
The report makes several recommendations critical for the development of reliable and efficient financial reporting, economic growth through enhanced competitiveness, and governance. It says it is critical that the gaps are identified and appropriately addressed by amending relevant legislation, with a view to bringing it in alignment with the acquis. According to the authors, legislation needs to be implemented and enforced, while institutions – designed to supervise and enforce compliance with the law – need to be adequately staffed and technically competent.