Improving The Czech Republic’s Financial Reporting Framework
Czechs Join CFRR's FRTAP Program
The Czech Financial Reporting Assistance Project (FRTAP) is the fifth in a regional program, funded by the Swiss government, to improve the frameworks for accounting and auditing in the countries from Central and Eastern Europe that joined the EU in 2004. Read more about how the program, which is managed by the World Bank’s Centre for Financial Reporting Reform (CFRR), is helping to reduce the uncertainties surrounding investment in the EU’s new member states.
The eight countries from Central and Eastern Europe that joined the EU in 2004 had to align their accounting frameworks with the EU’s legal requirements as part of their preparations for joining the Union. However, although the required legal structure has now been in place for several years, the practical implementation of accounting and auditing standards has tended to lag behind, making it more difficult for companies in these countries to access external capital in the EU’s single market. For the first few years after they joined the EU, reducing the barriers to outside capital was not a priority as financial institutions were eager to pour funds into what were seen as the EU’s tiger economies. However, since the international financial crisis, access to foreign capital has become much more difficult across the region, making it much more urgent to remove the remaining barriers to efficient use of scarce investment resources.
The growing recognition in the new member states that their new financial reporting frameworks required more institutional underpinning in order to operate effectively made them receptive to the idea of a program which would allow them to learn from each others’ experience in applying and enforcing the EU’s rules on corporate financial reporting. This led to the creation of the Financial Reporting Assistance Program (FRTAP), which was launched in Slovenia in October 2008, and has since then been extended to Estonia, Latvia and Poland. FRTAP is funded by the Swiss government as part of its contribution to the enlargement of the EU. Services under the program are provided by the World Bank’s Centre for Financial Reporting Reform (CFRR) in Vienna.
Under the program, participating countries work with the CFRR and their peers from both established western European economies and other “new” EU member states to put in place a sustainable institutional framework for implementing and enforcing the body of EU rules (the acquis communautaire) on financial reporting in the corporate sector. The program puts heavy emphasis on the participants’ active involvement in the design of the project. It aims to develop joint responses to shared problems, with participants learning from each others’ experiences and from the lessons learned by other, more established members of the EU in their operation of the acquis. FRTAP is a multi-year program, and is implemented flexibly, allowing the program’s content to be adjusted as the needs of the participants evolve and in response to changes in the EU acquis itself.
The focus of the Program is on designing appropriate institutions and then strengthening their capacity to monitor and enforce the EU’s rules on financial reporting, especially auditing. The program is also helping to develop a toolbox of tools and training curricula for the national bodies that are responsible for oversight and enforcement, which goes beyond providing conventional training on international standards for financial reporting and auditing. In this respect, the CFRR’s position as a leading authority on emerging financial reporting issues in the ECA region allows program participants to benefit from insights that are not available elsewhere.
The program is already making significant progress, with audit regulators in Slovenia using the experience of their equivalents in Switzerland and Germany as an important input in designing the initial approach of the Slovenian body responsible for overseeing auditors, the Agency for the Public Oversight of Auditing.
The project passed another milestone on July 2nd, when the Czech Republic formally joined the program. The Czech Deputy Minister of Finance, Tomásˇ Zídek, and John Hegarty, the Head of the CFRR, signed a CHF 2 million agreement for the CFRR to provide advisory services on improving the structure of accounting and auditing in the Czech Republic. The project will strengthen the system for overseeing auditing in the Czech Republic, including the provision of training on the latest “clarified” international standards on auditing (ISAs) and assistance in setting up a quality assurance system for auditing. It will also help to strengthen the capacity of the financial regulators in the Czech Republic to supervise the insurance sector, to enforce corporate governance rules and to carry out its consumer protection activities. In addition, the CFRR will update the previous Report on Standards and Codes (ROSC) on accounting and auditing in the Czech Republic in order to provide a comprehensive and up to date picture of the state of the accounting and auditing systems in the country.
Bulgaria and Romania, which joined the EU in 2007, are expected to sign framework agreements with the Swiss government in the next few months and preparatory work for both countries to join FRTAP is already under way.