Albania started moving towards a market economy after the fall of the communist government in 1991. A wide range of reforms were implemented, including steps towards setting up a national system for corporate financial reporting. The first World Bank report on the observance of standards and codes in accounting and auditing (A&A ROSC in English) in Albania was published in June 2006 and made a range of recommendations for improving the frameworks for accounting and auditing and for raising the quality of the work of accountants and auditors in Albania.
Following this report Albania received funding from a World Bank FIRST initiative funded project (firstinitiative.org) and adopted a Country Action Plan to strengthen corporate financial reporting in February 2009. New laws on accounting and auditing were adopted in 2004 and 2009, respectively.
Albania's Stabilization and Association Agreement (SAA) with the EU came into force in April 2009 and the country submitted a formal application to join the EU later that month. It was granted EU candidate status in June 2014. In order to join the EU, Albania is required to align its legal and institutional framework with the EU acquis communautaire, including in corporate financial reporting.
The Republic of Albania is part of the following programs at the CFRR:
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Executive Summary of the 2006 A&A ROSC for the Republic of Albania
During the transition to a market economy, Albania successfully put in place several important elements of the institutional and statutory framework on financial reporting. However, this assessment demonstrates that Albania needs to take further steps in order to achieve its goal of a sound financial reporting framework tailored to the needs of the Albanian economy and aligned with the EU acquis communautaire and international standards and practices. The existing framework is not always consistent and complete and limited technical and financial resources contribute to institutional weaknesses in several areas. International financial reporting and auditing have recently become more complex and rigorous. The EU body of law (acquis communautaire) on financial reporting and auditing has evolved significantly over the last years. In such a dynamic international regulatory environment, national financial reporting requirements can easily become out of line. The introduction of a new accounting law in 2004 with the objective of improving the quality of financial reporting in Albania also lays the foundation for improved alignment with the acquis communautaire and international standards and practices. The Albanian government is fully determined to undertake the necessary further steps and to give proper support to improve the financial reporting framework in Albania.
The introduction of a new accounting law is indicative of the current desire for change but more needs to be done to address existing shortcomings. Over the years, various stakeholders have done substantial work on an ad hoc basis to enhance the financial reporting and auditing environment. However, this needs to be accompanied by clear leadership from the government to set the tone for reform and coordinate the process. Otherwise, it will continue to proceed in an ad hoc manner with little gain. Due to recent reorganizations within the Ministry of Finance there is no longer a department responsible for private sector accounting and auditing activities. This should be addressed as some initiating and guiding capacities are necessary. In addition, building appropriate institutional capacity and further enhancements to the statutory framework governing financial reporting will be essential. The linkages to private and financial sector development and the Government’s commitment to the recently concluded Stabilization and Association Agreement (SAA) with the European Union (EU), as a first step toward European integration, could serve as drivers for change.
There is a need to strengthen institutional and professional capacity and to remove excessive demands on existing capacity. Specifically, there is limited human capital in many key areas such as accounting and auditing standard setting, monitoring and enforcement, and in the preparation and auditing of financial statements. Albania has made several policy choices that put a strain on scarce institutional and professional resources. Some of these policies include: short mandatory audit firm rotation periods for some sectors; requirements for the appointment of two auditors for audits of certain types of joint stock companies; and the scope of IFRS application in the new accounting law. Several of these choices are not strictly needed for alignment with the acquis and for achieving high quality financial reporting. Therefore, they should be reconsidered in order to make them more proportional in relation to the existing institutional and professional capacity. The expansion of financial reporting and auditing requirements should be supported by parallel institutional and professional capacity building so that credible high quality financial reporting can be ensured and sustained.
The financial information provided by most small and medium size enterprises is not considered reliable. This is often attributed to the weakness on of enforcement and, to some extent, the limited capacity in the country to prepare and audit financial statements, as well as the high levels of informality in the economy and the strong desire to evade taxes.
The perceived level of financial transparency in Albania is not conducive to domestic or foreign investment. In general, low levels of transparency affect the ability of small and medium- sized enterprises (SMEs) to access credit from the formal financial sector. This is important in the context of Albania where it is estimated that 92 percent of all business enterprises are SMEs. Further, in the absence of reliable financial information shareholders and third parties cannot assess management performance thus hindering market based monitoring of companies and efficient allocation of scarce resources.
Andrei Busuioc has over 15 years of experience in the accounting and auditing area in both, the private and public sectors, as well as in lecturing accounting and auditing in university. He joined the the World Bank Centre for Financial Reporting Reform (CFRR) in Vienna, Austria, in 2008 and was responsible for various countries’ financial reporting reforms agenda, was part of Accounting and auditing ROSCs teams, and thematic area of audit regulation in Western Balkan countries.
Prior to joining the CFRR, Andrei worked in the World Bank Country Office in Moldova as a Financial Management Specialist, covering fiduciary activities, public finance management development, and corporate financial reporting development. He is an accountant by training, and a member of the UK Association of Chartered Certified Accountants. Andrei holds a university degree in economics from the Moldova State Agricultural University, and a Ph.D. in economics from the Academy of Economic Studies of Moldova. He also holds a postgraduate diploma in public financial management from the Centre for Financial and Management Studies, University of London. He speaks Russian, Romanian, English and basic Bulgarian.