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Accounting Reform in Azerbaijan
CGA-Canada provides expertise to the World Bank and Azerbaijan as the country’s economy takes off.
FROM: MAY-JUN 2007 ISSUE | BY ALFRED BORGONOVO
Located at the crossroads of Eastern Europe and Western Asia, Azerbaijan is a country with an emerging economy and striking contrasts between traditional and modern ways of life. Bounded by the Caspian Sea to the east, Russia to the north, Georgia to the northwest, Armenia to the west, and Iran to the south, Azerbaijan is currently undergoing major structural reforms, and recently established its own stock exchange.
In the first years of the 20th century, half the entire world’s production of oil was supplied from this part of the world. Today, thanks to another oil boom, Azerbaijan is the world’s fastest growing economy, experiencing real economic growth of 34.5 per cent in 2006. However, current forecasts indicate oil production will begin to decline in 2012. Mindful of the limited window of opportunity to generate jobs and sustainable growth, the government of Azerbaijan embarked on an ambitious program of economic reform, in which the World Bank is participating by providing loans and expertise.
The government of Azerbaijan recognizes the importance of providing quality financial information to attract international investors, and adopted a new accounting law in 2004, mandating the use of International Financial Reporting Standards for public entities effective January 1, 2008. To support this important change, and as part of its ongoing efforts to assess financial sector vulnerability and development needs, the World Bank commissioned a report on the current state of accounting and auditing standards and practices, and approached CGA-Canada at the beginning of 2005 to participate as an international consultant on the project.
CGA-Canada was part of a team that included several financial specialists from the World Bank, and a consultant based in Baku, Azerbaijan’s cosmopolitan capital. After months of research and preparatory work, the team spent three weeks in Baku to validate the findings of the local consultant, and to meet with various stakeholders involved with the accounting reform projects, such as the State Committee for Securities and the head of the Financial Economic Department of the Azerbaijan Republic State Oil Company. Meetings also took place with representatives of the Big Four accounting firms.
CGA-Canada contributed key sections on auditing standards and practices, education, and training to the final report, which was published in September 2006. The Report on the Observance of Standards and Codes (ROSC) in Azerbaijan highlights the strengths and weaknesses of the country’s institutional framework, and provides recommendations for strengthening the financial reporting regime.
Given its role in the project, CGA-Canada had access to extensive resources provided by the World Bank and other international financial institutions, as well as the research completed by the Baku-based consultant. The local knowledge gained during the ROSC project allowed CGA-Canada to win a bid on a second, related initiative. The Institutional Capacity Building of the Chamber of Auditors of the Republic of Azerbaijan project was undertaken in 2005 to start the process of implementing accounting and auditing reforms.
As part of the contract, CGA-Canada provided policies, procedures, and other training materials. In addition, CGA-Canada produced an action plan for reforming the Chamber of Auditors, and organized a study tour to France to acquaint the Chamber’s leaders with some of the activities and structures of established audit regulators and professional institutes in Western Europe. The project was successfully completed several months ago.
Through these innovative projects CGA-Canada has gained unique knowledge and experience. Furthermore, the association has built a reputation amongst international financial institutions and regulators as having the expertise to complete challenging projects in countries with emerging economies. Building on its familiarity with, and understanding of, this rapidly developing part of the world, CGA-Canada is currently bidding on a third project to establish education standards for training professional accountants in Azerbaijan.
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Alfred Borgonovo, CGA, is CGA-Canada’s manager of international development.