World Bank helps Georgia improve auditing, accounting standards

Georgia is developing its accounting and auditing standards to help shape the country into a 21st century nation meeting European standards.

The changes to make Georgia’s financial services more transparent will help local businesses to go beyond borders and allow external investors to easily become part of the local business environment, said the World Bank Group, which is assisting Georgia improve its auditing and accounting framework.

On September 24 the World Bank Centre for Financial Reporting Reform (CFRR) launched an updated report which pointed to major developments in Georgia’s accounting and auditing environment and offered recommendations for further improvements.

Improvement of auditing and financial accounting and reporting is one of the key priority areas for the Government of Georgia,” said Georgia’s Deputy Finance Minister Giorgi Tabuashvili.

The concept aiming to fulfil all of the contractual obligations of the Association Agreement (AA) and harmonisation of Georgian legislation with that of the EU has already been prepared by an inter-agency group working on the mentioned reform,” he stressed.

Industry experts, government officials and business representatives planned the strategy to develop a united approach, which will ultimately be reflected in the law amendment package.

Those involved believed good financial reporting would promote investment, develop capital markets, help businesses access credit and improve tax compliance. Strong auditing systems, quality assurance and oversight will help ensure financial stability and avoid economic shocks, they said.

The collective benefits will enable and enforce globally accepted standards for high quality financial reporting. These underpin economic growth, transparency and confidence in the private sector. Increased capacity in accounting and auditing also benefits the public sector through increased accountability and information flow,” said the task team leader of the ROSC assignment in Georgia Galina Alagardova.

The Government took the leadership in reforming its statutory framework for corporate financial reporting. The recently created Working Group led by the Ministry of Finance is now in the process of revising Accounting and Auditing legislation to adapt and align it with the respective Accounting and Auditing Directives in particular,” Alagardova added.

The World Bank and Georgia's Finance Ministry representatives introduced Georgia's accounting and auditing environment to the audience. 

Meanwhile, Georgia’s Deputy Finance Minister said: "Within the AA we have a commitment to approximate our legislation with European directives including accounting and auditing regulations. The Ministry of Finance decided to take a lead in this initiative; [we] established an inter-governmental working group that includes representatives from the National Bank of Georgia, insurance bodies, fiscal committee and budget office of the Parliament of Georgia,” Tabuashvili said.

Our goal is to increase transparency, increase the efficiency of the financial services, improve the investment environment and current practice of the corporate governance, advance quality in performance of the professional services and more,” he added.

Achievements vs Challenges

In 2007 the CFRR’s initial assessment of the accounting and auditing environment in Georgia revealed some weaknesses and inconsistencies. To address the weaknesses CFRR offered a number of recommendations to improve the country’s business environment and investment climate. The updated report launched on September 24 assessed the progress made since then.

The report also highlighted improvements in the accounting and auditing profession and the adoption of an effective new legal framework. However, it was also acknowledged that there was a need for further work in this direction.

I would like to congratulate you for what you have already achieved, including in the legislative framework and this is an important step and an important move but now you also have other challenges to manage. [You must] continue with this trend and continue walking on the road that you have well defined,” said World Bank Governance Global Practice Director Samia Msadek.

Experts believe Georgia’s new legislation needed to be fully implemented with gaps and inconsistencies eliminated. Improving the governance of state owned enterprises was important, they said.

It was also noted more work could be done to further help Small and Medium-Sized Enterprises (SMEs). Industry insiders agreed on the need to simplify the existing financial reporting requirements and promote the benefits of good book-keeping to small businesses. This would enable greater access to loans and investments based on business cash flows and less on collateral.

The World Bank Group vision

The vision of the World Bank is to reduce extreme poverty andto boost shared prosperity. Effectiveaccounting and auditing practices are contributors to these twin goals,” said Msadek.

The World Bank’s Governance Global Practice puts all efforts toward building economies that are citizen centric, and our roles as accountants and auditors is important in producing reliable information and ensuring that the rights of citizens for getting accurate and timely information are secured,” she said.

In Msadek’s opinion Georgia had two opportunities to meet the needs of citizens. The first was Georgia’s socio-economic development strategy 2020 and the second opportunity was for the country to have access to the EU and the AA, which was an "opening for investors to enter the Georgian market”.

One other element that I would like also to congratulate you for is the effort you are putting for education. Investing in people in my view is the best investment. While we see that it is the profession that is in place, we need to think today what we need to do for the next 20 years to prepare future generations,” Msadek said.

Push the frontier, dare to think 20-30 years ahead, your responsibility is to think of future generations,” she said.

Reports on the Observance of Standards and Codes on Accounting and Auditing (A&A ROSC), compiled by the World Bank Centre for Financial Reporting Reform, analyse the comparability of national accounting and auditing standards with international standards, determine compliance with national standards, and assess the institutional framework supporting financial reporting.

The World Bank supported Georgia’s financial reporting reform as part of the regional program on Strengthening Auditing and Reporting in the countries of the Eastern Partnership (STAREP).

The program began in October 2013 and will run until 2018.