Warsaw, 7 th June 2005 Adopting, Implementing and Enforcing the Acquis Communautaire relating to Accounting Jacek Gdański Accounting Department, Ministry of Finance

Jacek Gdański Accounting Department, Ministry of Finance Initial conditions zCollapse of communism - beginning of economical transition in Poland (1989) zNo capital market zOne-tier banking system zBook-keeping instead of accounting as a source of information in the command economy zFinancial control instead of auditing zSimplified financial reporting requirements zSimplified aggregation of subordinate companies’ financial statements

Jacek Gdański Accounting Department, Ministry of Finance zReorganising the banking and insurance sectors zStarting the process of privatisation zCreating a stock exchange zChanging approach to accountancy as a management tool of independent entities zDifferent companies emerging rapidly on a large scale (clear distinction between capital owners [investors] and managers) zNeed for preparing reliable, objective and independent financial statements Why was the accounting reform needed?

Jacek Gdański Accounting Department, Ministry of Finance Direction EU (stage 1) z15 th January 1991 – adoption of the Regulation on Accounting issued by the Minister of Finance covered all enterprises except financial institutions first regulation incorporating many (but not all) of the requirements of the Fourth EU Directive introduction of accrual accounting, going concern, historical cost, materiality, prudence, consistency

Jacek Gdański Accounting Department, Ministry of Finance Direction EU (stage 2) z29 th September adoption of the Act on Accounting based on the Fourth and Seventh EU Directive - covered commercial and non profit entities clear distinction between tax and accounting requirements new regulations introduced concerning: accounting policies deferred tax scope of financial statements (cash flow statement and the notes as new elements) consolidated financial statements annual report auditing and publication of financial statements (earlier in separate regulations) z30 th April amendment of the Act on Accounting - full compliance with the current versions of Accounting Directives

Jacek Gdański Accounting Department, Ministry of Finance Direction IAS/IFRS (stage 1) z9 th November modernisation of the Act on Accounting towards International Accounting Standards (IAS) new regulations introduced concerning mergers, financial instruments, leasing, long-term contracts some improvements concerning consolidation, deferred tax, scope of disclosure voluntary fallback to: national accounting standards (the National Accounting Standards Committee established in 2002) IAS/IFRS

Jacek Gdański Accounting Department, Ministry of Finance Direction IAS/IFRS (stage 2) z27 th August amendment of the Act on Accounting -direct implementation of IAS/IFRS definition of IAS shareholders’ decision on application of ISA/IFRS the scope of application of IAS/IFRS mandatory basis: - consolidated accounts of listed companies - banks permissive basis: - annual accounts of listed companies - annual and consolidated accounts of companies having filed for admission to public trading - annual and consolidated accounts of companies whose parent undertaking prepares its consolidated accounts in accordance with IAS postponement until 2007: - companies whose debt securities only are admitted on a regulated market z Interaction between IAS/IFRS and Act on Accounting - fallback to Act on Accounting

Jacek Gdański Accounting Department, Ministry of Finance Issues not covered by international regulations zThere will always be areas beyond the scope of EU regulations and international standards: inventory keeping accounting records bookkeeping vouchers penal liability data protection

Jacek Gdański Accounting Department, Ministry of Finance Benefits zIncrease in reliability of enterprises for domestic and foreign investors zAttracting investors zConfidence in financial statements zComparability of financial statements on the international level

Jacek Gdański Accounting Department, Ministry of Finance Challenges zTransition from rules based accounting to principles based accounting zClear separation from tax regulations zTranslation zComplexity of IAS/IFRS zEducation

Jacek Gdański Accounting Department, Ministry of Finance Lessons learned zTake decisions well in advance before introducing any changes zAttach particular care to capacity building zEnsure the political support zPrepare for the reform all stakeholders: accountants, auditors, regulators, prepares and users of the financial statements zTake into account the size and character of the economy (ambitious but realistic target) zConsider how to implement the EU law (e.g. adjusting to national legislation procedure and tradition) zEngage in the international co-operation zDo not hesitate to ask the World Bank for assistance

Jacek Gdański Accounting Department, Ministry of Finance Modern, robust accounting standards are an indispensable element of creating reliable, transparent and open economy