Azerbaijan started moving towards a market economy after it declared its independence in 1991. A wide range of reforms were implemented, including steps towards setting up a national system for corporate financial reporting. Azerbaijan adopted a new Accounting law in 2004.
These recommendations influenced the World Bank Group's Country Partnership Strategy for Azerbaijan, which emphasizes the importance of strengthening financial management systems and establishing proper accounting and auditing frameworks. As a response to these needs, the Corporate and Public Sector Accountability Project (CAPSAP) was launched in February 2009. CAPSAP, which is managed by the CFRR, aims to improve the quality of financial reporting in both the corporate and public sectors in Azerbaijan and to develop training materials for accounting, auditing and financial management.
Azerbaijan is part of the following programs at the CFRR:
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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.
Executive Summary of the 2006 A&A ROSC for Azerbaijan (extract)
Enhancing the reliability and availability of financial reporting is conducive to economic growth and helps mitigate against financial system instability. In furthering these objectives, this report provides an assessment of accounting and auditing standards and practices in Azerbaijan. It uses International Financial Reporting Standards (IFRS) and International Standards on Auditing (ISA) as benchmarks and draws on good practices in the field of accounting and audit regulation to assess the quality of financial information and provide policy recommendations.
The role and regulation of corporate sector accounting and auditing are shaped by the economic context in which they take place, and the structure of the market which they serve. With less than 15 years of history, Azerbaijan's modern economy is still very young. The privatization process, which started in the mid- nineties, is still far from being complete: some of the most important sectors of the economy (such as oil and gas) still mostly remain state property. Thus, the current Azerbaijani economy includes a spectrum of economic subjects. This spectrum ranges from newly established, privately financed enterprises with little or no experience in using the tools offered by the market economy, to State Owned Enterprises (SOEs), which continue to depend on government subsidies.
Previously in Azerbaijan, financial reporting information was not considered a public good provided to meet the needs of business, but rather a resource to which access was restricted to those having the power to require its provision. Bank lending decisions were not dependent on a borrower's financial statements, but rather on collateral and other sources of information about the enterprise. These circumstances do much to explain the current state of accounting and auditing practices in Azerbaijan.
Until recently, accounting and auditing requirements were uncoordinated. Different agencies (e.g., the tax authorities, banking regulators) had been independently developing accounting and auditing requirements based on each agency's specific needs. There were minimal requirements for the publication of financial information, and the concept of general-purpose financial statements that met the needs of several stakeholders was effectively unknown. Likewise, there was little recognition that an independent financial statement audit performed by qualified professionals could lend credibility to the financial information provided to the marketplace.
At the same time, progress is being made: Azerbaijan is transitioning from a country in which state intervention in the economy was very significant to one in which the market plays a much greater role. Finally, Azerbaijan's increased global economic integration and access to global financial markets has made essential greater transparency of financial information and its consistency with international standards. To adequately serve the emerging needs of the market and help the economy grow, the accounting and auditing professions will need to change accordingly, and radically. Adoption of the new Law on Accounting in 2004 could signify the beginning of reform; however, much remains to be done for Azerbaijan to achieve compliance with international standards and practices.
Alex Fawcett has been a member of the CFRR’s assessment and advisory team since January 2012. A member of ACCA, Alex has extensive experience in designing and implementing accounting reform programs in transitional and developing economies, including the new EU member states, Central Asia and the REPARIS region. Alex is responsible for the STAREP program in Armenia, Azerbaijan and Georgia, as well as the many of the Centre’s activities under the FRTAP program in Poland.