Reports on the Observance of Standards and Codes ROSC

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Reports on the Observance of Standards and Codes
(ROSC)
LATVIA

• Frédéric Gielen
• Lead Financial Management Specialist
• Europe and Central Asia Region

THE WORLD BANK
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Background
ROSC - LATVIA
The Need for a Strengthened International
Financial Architecture
1990s Emerging Market Crises and contagion
effects
Brazil
Mexico
Argentina
Philippines
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ROSC - LATVIA
Background
The Need for a Strengthened International
Financial Architecture
1990s Emerging Market Crises and contagion
effects
Philippines
Malasya
Hong Kong
East Asia (Thailand)
Indonesia
Taiwan
South Korea
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ROSC - LATVIA
Background
The Need for a Strengthened International
Financial Architecture
Shift from ex-post crisis resolution
Ex-ante crisis prevention
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ROSC - LATVIA
Background
Origins of the ROSC program
The G-22 Reports focus on crisis prevention

• Transparency and Accountability (Led to ROSC
  program)
• Strengthening National Financial Systems
• Government guarantees to the private sector

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The ROSC program Comprises 12 Fundamental
Standards
ROSC - LATVIA
Securities Regulation
Banking Supervision
Corporate Governance
Insurance Supervision
Insolvency Creditor Rights
Accounting Auditing
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Importance of High Quality Accounting and Auditing
ROSC - LATVIA
ECONOMIC GROWTH
Development of Capital Markets
Improved Access to Credit
Job Creation
Accounting and Auditing
Private Sector Growth
Financial Sector Development
Financial Information
Financial Stability
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AA ROSC Assessing the Quality of the AA
Framework
ROSC - LATVIA
Economic Context
Factual Assessment
Perceptions
Legal Institutional Framework
Accounting in Practice
Auditing in Practice
FINDINGS
Recommendations
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ROSC - LATVIA
AA ROSC Assessing the Quality of the AA
Framework
Benchmarks
International Standards on Auditing
International Financial Reporting Standards
Acquis communautaire
Good international practice
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AA ROSC Global Coverage
ROSC - LATVIA
Europe and Central Asia
East Asia
Middle East and North Africa
South Asia
Latin America and the Caribbean
Africa
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AA ROSC in Europe and Central Asia (August 5,
2005)
ROSC - LATVIA
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The Case of Latvia Economic Goals
ROSC - LATVIA
Promote
Avoid
- Access to credit, particulary for SMEs -
Development of capital markets - Development of
the private sector - European Union Integration
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ROSC - LATVIA
How can AA help?
ECONOMIC GROWTH
Development of Capital Markets
Improved Access to Credit
Job Creation
Accounting and Auditing
Private Sector Growth
Financial Sector Development
Financial Stability
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ROSC is a the first step in the process of reform
ROSC - LATVIA
Statutory Framework
Monitoring Enforcement
Education Training
Accounting Standards
Auditing Standards
Accounting Profession Ethics
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All supporting pillars need to be strengthened
ROSC - LATVIA
Statutory Framework
Monitoring Enforcement
Education Training
Accounting Standards
Auditing Standards
Accounting Profession Ethics
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Latvia AA ROSC Findings
ROSC - LATVIA
Substantially adopted and implemented Acquis
Communautaire regarding Company Law
()
(-)
IFRS
ISA
Acquis Communautaire
Good International Practice
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ROSC - LATVIA
Latvia AA ROSC Findings
Financial information is not always readily
available (45 of companies do not comply with
reporting requirements)
()
(-)
IFRS
ISA
Acquis Communautaire
Good International Practice
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Latvia AA ROSC Findings
ROSC - LATVIA
High quality at entry into the audit profession
()
(-)
IFRS
ISA
Acquis Communautaire
Good International Practice
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Latvia AA ROSC Findings
ROSC - LATVIA
Possible shortage of auditors (Supply / Demand
imbalance)
()
(-)
IFRS
ISA
Acquis Communautaire
Good International Practice
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Latvia AA ROSC Findings
ROSC - LATVIA
Lack of external quality control for auditors
lack of public oversight over the audit profession
()
(-)
IFRS
ISA
Acquis Communautaire
Good International Practice
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Latvia AA ROSC Findings
ROSC - LATVIA
Existence of a multi-disciplinary regulator (FCMC)
()
(-)
IFRS
ISA
Acquis Communautaire
Good International Practice
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Latvia AA ROSC Findings
ROSC - LATVIA
Enforcement of accounting standards is not high
on FCMCs agenda
()
(-)
IFRS
ISA
Acquis Communautaire
Good International Practice
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Latvia AA ROSC Findings
ROSC - LATVIA
Potentially material departures from IFRS might
go undetected
()
(-)
IFRS
ISA
Acquis Communautaire
Good International Practice
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Latvia AA ROSC Findings
ROSC - LATVIA
The quality of IFRS financial statements of
listed companies is generally high
()
(-)
IFRS
ISA
Acquis Communautaire
Good International Practice
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ROSC Recommendations Promoting Confidence in
Latvian Markets
ROSC - LATVIA
Financial Information that Meets Users Needs
Trust in Audit Quality
Availability of Financial Information
Monitoring Enforcement
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Financial Information that Meets the Needs of
Users
ROSC - LATVIA

• Good financial information promotes better
  business and investment decisions

- Full transposition of acquis communautaire
- Remove potentially conflicting or ambiguous
financial reporting requirements
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Trust in Audit Quality
ROSC - LATVIA
If users cannot trust audit reports, the cost of
doing business increases.
- Continuing professional education, quality
assurance and discipline
- Public oversight of the audit profession
- Relevant statutory audit requirements
- Ethics
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Availability of Financial Information
ROSC - LATVIA
Information that is readily available makes
business and investment more efficient.
- Audited financial statements of listed
companies and limited liability companies should
be readily and publicly available.
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Monitoring and Enforcement
ROSC - LATVIA
Essential to guarantee the quality of financial
information.
- Enhance the authority of FCMC
- Enhance institutional capacity of FCMC
- Promote a healthy but challenging dialogue
between FCMC and auditors
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Implementing the ROSC Recommendations
ROSC - LATVIA
IAIS
World Bank
IFAC
National Steering Committee
IASB
European Commission Committees
Development Partners
Basel Committee