Estonia started moving towards a market economy after it regained its independence 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 Estonia was published in May 2005 and made a range of recommendations for improving the frameworks for accounting and auditing in Estonia.
Estonia has been a member of the European Union since May 2004 and will adopt the euro as its currency in January 2011. Estonia's legal and institutional framework for financial reporting is already aligned with the EU acquis. However, there is still room for progress in implementing the provisions of the acquis. In particular, there is a need to improve the operation of the system of public oversight and to strengthen the capacity of the auditing profession to implement the provisions of the Statutory Audit Directive. The projects organized under Estonia's FRTAP program are designed to address these issues.
Estonia is part of the following programs at the CFRR:
The World Bank's annual "Doing Business" reports provide objective measures of the impact of business regulations and their enforcement in 183 economies across the world. Please, visit doingbusiness.org for more information.
All the data is taken from World Development Indicators (WDI), which is the primary World Bank collection of development indicators, compiled from officially recognized international sources. It presents the most current and accurate global development data available, and includes national, regional and global estimates.
This report provides an assessment of accounting, financial reporting and auditing requirements and practices within the enterprise and financial sectors in Estonia. The report uses International Financial Reporting Standards (IFRSs), International Standards on Auditing, and the relevant portions of European Union (EU) law (also known as the acquis communautaire) as benchmarks and draws on international experience and good practices in the field of accounting and audit regulation.
In the area of financial reporting and auditing law, Estonia implemented the Fourth, Seventh, and Eighth EU Company Law Directives, the EU Regulation on use of International Accounting Standards, and International Standards on Auditing. The law requires that banks, insurance companies, and listed companies prepare legal and consolidated financial statements in conformity with IFRSs from 2005, but permits earlier adoption. Others may continue to apply Estonian Accounting Standards, which are basically summarized from the principles underlying IFRSs and generally meet the identified needs of users of small- and medium-sized enterprises’ financial statements. Estonian enterprises face significantly greater audit burdens than enterprises in most EU Member States. While these audit requirements should be conducive to greater compliance with accounting standards, Estonian auditing guidelines are seriously deficient for any regulatory role. This significant weakness in audit standards, however, does not affect the audit of most public interest entities, which must be conducted in accordance with International Standards on Auditing. Audit regulation lags behind and falls short of the European Commission Recommendations on quality assurance and auditor’s independence. The authorities have recognized this issue, and audit legislation, currently in discussion, would align audit regulation with EU best practices.
As the new regulations come into force, priorities are turning toward building the monitoring, supervisory, and disciplinary regimes necessary to ensure effective compliance. This assessment demonstrates that enforcement of accounting, auditing, and ethical standards in both public interest entities and small- and medium-sized enterprises is the next challenge for Estonia. This report draws upon recent international experience in developed economies and accession countries, as well as expected amendments to the acquis communautaire, and recommends that Estonia enhance audit regulation and practices (e.g., by reviewing professional education, quality assurance, and disciplinary mechanisms) and that the Financial Supervisory Authority pursue its efforts to strengthen the enforcement of auditing and accounting standards in public interest entities.
John Carchrae is a Senior Financial Management Specialist, and has 39 years of experience in securities regulation, accounting standards-setting and public accounting.
Before joining the World Bank, John was Chief Accountant of the Ontario Securities Commission in Toronto, Canada and served on the International Organization of Securities Commissions Standing Committee dealing with financial reporting and disclosure.
Previously he was Assistant Director, Accounting Standards, with the Canadian Accounting Standards Board where he worked closely with the International Accounting Standards Committee. Before moving to Canada, John worked in the audit practice of Thomson McLintock & Co in London, England.
He currently serves as a member of the Standards Advisory Council of the International Accounting Standards Board and has also served on the Consultative Advisory Group of the International Auditing and Assurance Standards Board. John is a Chartered Accountant.