The World Bank Office, Croatia
Contact: Vanja Frajtic
Phone: 01/ 2357 297
E-mail: vfrajtic@worldbank.org
www.worldbank.hr Ministry of Finance
Contact: Sanja Bach
Phone: 01/ 4591 198
E-mail: sanja.bach@mfin.hr
www.mfin.hr Zagreb, April 22, 2008 – The Ministry of Finance and the World Bank hosted a conference to present the findings of two World Bank reports. These two publications, Corporate Governance, and Accounting and Auditing Reports on the Observance of Standards and Codes (CG and A&A ROSCs), reviewed corporate financial reporting and corporate governance in Croatia in comparison with internationally recognized standards. The ROSC conference informed public and market participants about significant progress made by Croatia during the past seven years and recommended policy measures to overcome the remaining challenges. The conference included senior government officials, international experts from the World Bank, International Federation of Accountants (IFAC), International Finance Corporation (IFC), as well as private and financial sector companies, the accounting and auditing profession, academia, and the donor community. Main Findings of Corporate Governance and Accounting & Auditing ROSCs: Since 2001 CG ROSC, Croatia has undertaken substantial legal and regulatory changes, leading to numerous improvements in the framework for corporate governance: Croatia has introduced Acts on Takeover and the Securities markets, substantial amendments to the Companies Act, creation of a single supervisory agency for capital markets, insurance, investment and private pension funds (HANFA); Two stock exchanges merged recently and a Code of Corporate Governance was introduced.
Since the publication of the first A&A ROSC in 2002, Croatia has made considerable progress in developing its regulatory and institutional framework for corporate sector financial reporting and auditing: The alignment of the revised regulatory framework with the acquis communautaire has been significantly improved and lays the basis for reinforcing the institutional capacity for financial reporting and auditing; The Financial Reporting Council and the new Chamber of Auditors were established in 2006 on the basis of the new Accounting and Audit Acts.
Remaining challenges in Corporate Governance and Accounting & Auditing; The legal framework has room for improvement especially with regard to conflict of interest; Many companies are not meeting legal requirements for disclosing financial and other information, including related party transactions and ultimate (beneficial) ownership; Supervisory boards play a secondary role in the companies they are supposed to oversee; Further capacity building relating to monitoring, enforcing and strengthening supervision is needed to ensure proper application of International Financial Reporting Standards (IFRS) and national accounting standards; Public availability of legally mandated financial statements for companies in Croatia -other than banks - is very limited; Except for banks, there is no systematic enforcement of the quality of financial statements other than the statutory audit function; There is no system of external quality assurance to ensure the quality of statutory audits in practice.
“It is important to emphasize that the World Bank and its experts have always cooperated closely with the representatives of the Government of the Republic of Croatia, the line ministries, domestic experts, the business community and stakeholders on the reports and that the results of the Bank’s studies and publications gave a realistic assessment of a particular situation. They have also offered recommendations and guidelines for improvement”, said Vladimira Ivandić, Assistant Minister of Finance. “Croatia has made great progress in the last seven years. However, there are sill gaps in the protection for shareholders and those who hold equity through pension funds,” noted David Robinett, Private Sector Development Specialist and author of the CG ROSC. “A strengthened corporate financial reporting framework in Croatia will foster private and financial sector development as well as help mitigate the risk of potential financial disturbances,” explained David Nagy, a World Bank’s Corporate Financial Reporting Specialist and co-author of the A&A ROSC report. The World Bank has approved an Institutional Development Fund (IDF) grant in the amount of US$ 350,000 to follow-up on the A&A ROSC. The IDF grant will help Croatia to implement the ROSC recommendations to be fully compliant with the best international practices and the relevant portions of the EU’s acquis communautaire. “Croatia has already made tremendous political and economic progress over the past fifteen years: incomes have doubled, economic and social opportunities have dramatically improved, and Croatia’s EU membership is within reach,” concluded Andras Horvai, World Bank’s Country Manager for Croatia. “The World Bank is proud to have accompanied Croatia throughout its reforms and will continue to remain actively engaged through the World Bank’s IDF grant on corporate financial reporting,” Since Croatia joined the World Bank in 1993, the organization has been active in providing financial and technical assistance, policy advice and analytical services to Croatia. To date, the Bank has offered support for 38 operations with a total value of US$2.3 billion, and it has approved 49 grants at a total value exceeding US$58 million. - ### - For more information about the World Bank's work in Croatia, visit
http://www.worldbank.hr
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