ADOPTION AND IMPLEMENTATION OF A PROFESSIONAL CODE OF ETHICS IN MOLDOVA

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ADOPTION AND IMPLEMENTATION OF A PROFESSIONAL
CODE OF ETHICS IN MOLDOVA

• Marina Shelaru, Executive Director, Association
  of Professional Accountants and Auditors of the
  Republic of Moldova (ACAP RM)

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AGENDA

• I. Accounting Profession in Moldova ACAP
  Overview
• II. Legal Framework on Auditing - Current status
• III. Implementation of Ethics Code in Moldova
• IV. Difficulties solutions
• V. Future Actions, Developments Issues to
  Consider

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I. ACCOUNTING PROFESSION in MOLDOVA

• ACAP - Association of Professional Accountants
  and Auditors of Moldova, est.1996, IFAC member
  1998, CIPA based full membership. Acting as NGO.
  (Over 800 members coverage 14 of accountants
  and 15 of licensed auditors )
• AFAM - Association of Audit Organizations of
  Moldova, est. 1997, around 30 audit firms, MoF
  approved auditors acting as trade association.
  (Coverage 30 of audit firms)
• AACM Association of Auditors Consultants in
  Management, est.2003, individuals (43) NGOs
  (2) acting as NGO.
• Conclusion Coverage is very low. No market
  demand.

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ASSOCIATION OF PROFESSIONAL ACCOUNTANTS AND
AUDITORS OF THE REPUBLIC OF MOLDOVA UPDATE
August, 1996- March, 2006
MISSION ACAP RM

• To grant the assistance in developing the
  professional accounting and auditing in the
  Republic of Moldova, to provide its members with
  information and guidance, as well as to render
  services at the highest professional level
• ACAP commonly shared goal The development of a
  sustainable accounting and auditing profession in
  the Republic of Moldova

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ACAP MEMBERSHIP
Four categories (760 members as of February,
2006) Full member is CIPA based Note
Coverage 20
Full member (114)
Student member (144)
Associate member (500)
Honoree member (2)
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MEMBER SERVICES

• Certification program
• various training programs,
• social and educational events,
• the exclusive distribution of specialized
  literature (members of ACAP are offered
  substantial discounts),
• editions of information and normative bulletins,
  affinity program,
• rich library and the legislative database

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ACAP PERMANENT COMMITTEES

• CERTIFICATION, EDUCATION AND TRAINING
• PUBLIC RELATIONS PUBLICATIONS
• MEMBERSHIP, NOMINATIONS AND REGIONAL DEVELOPMENT
• LEGISLATION STANDARDS
• FINANCE TREASURY
• ETHICS COMMITTEE

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ACAP STRATEGY
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ACAP Relationships
AWG - Accounting Working Group SRO Self
Regulatory Organizations (IFAC, ECCAA, SEEPAD,
CECCAR, UFPA,, etc.) ASWG - Auditing Standards
Working Group SCSM - State Commission for
Securities Market NB - National Bank  
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ACAP ACCOMPLISHMENTS

• Increased membership of ACAP from 33 on 1996 to
  over 1900 members in 2002
• International Federation of Accountants (IFAC)
  accepted ACAP as an Associate (1998) and then as
  an Full Member (2004). ACAP Chair -member of IFAC
  Developing Nations Permanent Task Force (DNPTF)
• Full Membership with South Eastern Partnership on
  Accountancy development (SEEPAD) and Eurasian
  Council of Certified Accountants and Auditors
  (ECCAA), IFAC Regional Grouping
• Organized the Three National Conferences of
  Professional Accountants and Auditors (1998-2000)
• Completed the Enterprise Manual, which
  facilitated the conversion to NAS of an estimated
  20,000 enterprises, the Tax Manual, the Financial
  Accounting Manual (in partnership with Academy of
  Economic Studies of Moldova)
• Prepared for approval 36 National Standards on
  Auditing based on ISA, Code of Ethics

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ACAP ACCOMPLISHMENTS (CONT.)

• Implemented national and international (CIPA)
  certification programs and exams for accountants
  based on IFAC education standards (88 CAPs, 1
  CIPA)
• Assisted in strengthening partnership with the
  University of Nebraska at Omaha (UNO) in
  developing new accounting curriculum and
  exchanges of professors (2001-2003)
• Held over 400 seminars in various accounting
  disciplines which were attended by 6,900
  participants in past three years
• Held Training Sessions for over 80 of the
  licensed audit firms in the Audit of Financial
  Statements According to the National Standards on
  Auditing (in Fall 2000)
• Held Roundtables on IFAC IES, on discussions of
  new drafts on Accounting and Auditing Laws, on
  CIPA Program Promotion, etc.

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ACAP GOALS PERSPECTIVES

• One of the main goal to cover substantial number
  of accountants in the country Increase Active
  Membership Rolls
• Enrich and Expand The Accountant//Auditor
  Certification Program
• Work on implementation of IFAC Statements of
  Membership Obligations
• Inform Members, Firms and All Others Involved in
  Accountancy Education about IFAC IES
• Work towards Implementation of IFAC Ethics and
  Quality control requirements even without Direct
  Responsibility
• To achieve the role as the influencer in
  accounting profession development in Moldova and
  as the good standing representative of Moldovas
  accounting and auditing professionals,
• Dedicate substantial efforts to eliminating its
  dependency on external funding sources.

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POSITION OF IFAC MEMBER BODY

• Code of Ethics for Licensed auditors and
  professional accountants should be based directly
  on IFAC Code of Ethics (June 2005)
• Cooperation with the Ministry of Finance on new
  regulations and AA reform implementation
• New Law on Auditing should provide a
  comprehensive regulatory framework for a
  significant improvement in the audit practice
• Understanding of benefits for professional
  membership at least with one of existing
  professional organizations. (e.g. UK, Romania,
  Russia, etc.)

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II. THE LEGAL FRAMEWORK on AUDITING - CURRENT
STATUS

• The Law on Auditing dates back to 1996.
• Regulations on certification of auditors and
  licensing of auditing activity approved by the
  Ministry of Finance certification is done by
  Attestation Commission under MoF.
• 37 National Standards on Auditing and 7 National
  Auditing Practice Statements approved by the
  Ministry of Finance and published by 2005.
• Code of Professional Conduct for Auditors and
  Accountants of the Republic of Moldova issued
  by MOF.

Conclusion Major problem in current legal
framework no effective enforcement mechanisms.
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THE NSA, CODE OF PROFESSIONAL CONDUCT, AND LAW ON
AUDIT DEVELOPMENT PROCESS

• Joint effort by MOF, SROs, audit practitioners,
  accountancy academia
• The Working Group on the Development of NSA
  under the auspices of MOF renewed
• NSAs and the Code of Professional Conduct are
  published in the Monitorul Oficial Government
  Newspaper

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CURRENT STATUS

• National Standards on Auditing (NSA) are Based on
  ISA (1999 and 2000 IFAC technical pronouncements)
• NSAs are effective for audits of financial
  statements covering periods beginning on January
  1, 2001
• The new Draft Law on Audit is being debated by
  the Government with subsequent submission to the
  Parliament and approval till end of 2006 is
  trying to comply with the current best practices

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REVISED DRAFT OF NEW AUDIT LAW

• Subject to be approved by the Parliament in 2006
• Shall Became in force since 2008
• General Provisions
• PIOB creation
• Annual Meeting of Auditors
• Written qualification exam with content largely
  compliant with IFAC education guidelines, (by
  State)
• CPD requirements 40 hours per year
• Accreditation of CPD providers, (by State)

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CODE OF PROFESSIONAL CONDUCT OF AUDITORS AND
ACCOUNTANTS OF THE REPUBLIC OF MOLDOVA

• The Code is based on IFAC Code for Professional
  Accountants as revised in January 1998
• Approved by the Ministry of Finance and published
  on March 15, 2001
• The Code is effective January 1, 2002

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CODE S STRUCTURE

• Part A framework applies to professional
  accountants in public practice and employed
  professional accountants unless otherwise
  specified (all professional accountants)
• Part B professional accountants in public
  practice
• Part C employed professional accountants
  (professional accountants in business)

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FUNDAMENTAL PRINCIPLES

• 1. INTEGRITY
• 2. OBJECTIVITY
• 3. PROFESSIONAL COMPETENCE AND DUE CARE
• 4. CONFIDENTIALITY
• 5. PROFESSIONAL BEHAVIOR
• 6. TECHNICAL STANDARDS

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TO WHOM CODE IS APPLY?
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III. IMPLEMENTATION OF THE ETHICS CODE in MOLDOVA
-CURRENT STATUS

• Auditing Act does not provide for abiding by a
  Code of ethics
• Neither the MoF nor any professional bodies
  effectively monitor auditors compliance with
  Auditing Standards and the ethics code
• Quality control for audit work, which appears to
  be applied mainly only by the audit firms within
  international network
• Auditing practices tend to depart from the
  standards in several areas (e.g. third- party
  confirmation of debtors creditors inquiries
  of subsequent events and the appropriateness of
  managements use of the going concern
  assumption)
• Professional continuing education development
  is not mandatory to retain a certificate of
  auditor and is only carried out by audit firms
  whose internal policies set such requirements
  (Note. Currently certificates are issued for a
  term of 5 years)
• The professional examination required for the
  issuance of the auditor certificate does not
  comply with related IFAC Education Standards and
  EU 8th Directive.

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EXPERIENCE OF IMPLEMENTATION OF THE ETHICS CODE
IN MOLDOVA

• 4 years of experience shows
• As of February 1,2006 101 audit firms, including
  4 of Big Four
• 5 sole individuals
• 73 licensed auditors
• Only 3 cases of suspension of audit
  organizations licenses and 1 case of revocation
  in 2005

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ETHICS CODE S ENFORCEABILITY

• The code is not legally enforceable
• No Ethics problem solving mechanism
• No enforcement procedures existence
• - no disciplinary committee or sanctions
  to apply
• No requests from public
• Expectations Gap
• Lack of knowledge by companies management
  related to ethics

Conclusion no effective implementation of the
code is possible without effective
monitoring/enforcement mechanisms that would
cover at least accountants in public practice
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ENFORCEMENT ACTIVITY by ACAP

• Provisions of ACAP Strategic Plan for 2003-2008
  regarding
• --- Code of professional conduct
• Monitoring of observance of the Code of
  professional conduct,
• Appling disciplinary measures to the members
• --- Quality control and disciplinary
  activities
• committee on quality control of observance of
  professional standards and ethics, and also to
  develop its internal procedures for realization
  of control activity.
• Protection of the legal rights and assertion
  professional interests of members of the
  association in the solution of disputable and\or
  conflict issues.
• carry out regular discussions of demands and
  blames from organizations concerning the members
  of the association.
• observation the honour and objective approach in
  the solving of disputes and to follow precisely
  the legislation while making disciplinary
  decisions.
• Note. It is one of the most complex and
  non-realized issues related to public and state
  recognition of profession

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IFAC CODE OF ETHICS (as of JUNE 2005)

• Became in force June 30, 2006 for ACAP RM members
• Decision subject to be made by ACAP Annual
  Membership meeting in April 2006 (around 800
  members, from which 88 CAPs, 1 CIPA, 2 CPA, 23
  licensed auditors)
• plans to be submitted to the MoF Working Group
  for further discussions and approval for all
  accountants and auditors

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IV. DIFFICULTIES SOLUTIONS

• Issues
• - no government regulation of the AA Profession
  exists
• - no professional regulation of accounting
  profession exists
• Gap of expectations
• - understandings of Independence rule
• - publicity / disclosures
• - advertisements
• - companies management and corporate governance
  culture luck of understanding regard ethics and
  audits

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FACTORS EXPLAINS THE DIFFICULTIES

• Lack of understanding of the audit process by
  economic entities
• Governance structures among the companies are
  limited
• Lack of practical experience and technical
  expertise for applying Standard on Audit and
  enforcing Code of Ethics
• Absence of monitoring and effective sanctions
  and remedies
• Market does not recognize and does not understand
  (and does not encourage) benefits for accountants
  to be part of professional organization

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WHAT PROFESSION COULD BENEFIT FROM ACAP RM

• Certification Program in line with IFAC and EU
  requirements - CIPA
• CPD Programs, including SEEPAD Regional seminars
• IFAC Publications updates other relevant
  library resources
• Training Programs (MoEd Licensed)
• Exchange of information (e.g. from international
  partnerships)
• Relatively Low cost membership for high quality
  services

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V. ACTIONS TO BE TAKEN

• Approval of New Audit Law
• An independent PIOB of auditors should be
  established
• Develop guidelines
• Implementing the quality control based on
  international standards principles
• JEEP Joint Ethics Enforcement Procedures
• Strengthen of the professional education
  training, Continue Professional Development
• Encourage that accountant in public practice to
  be part of one professional organization

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FUTURE DEVELOPMENTS

• Development of guidelines to support the new
  Audit law - certification and CPD guidelines
• Development of the full blown Manual on Auditing
  Ethics
• Establishment of a system where all newly
  approved ISAs and revisions thereof become
  effective in Moldova without a lengthy
  leucocratic adoption process
• Delegation of some costly activities to
  professional organizations - e.g. certification,
  training, drafting and translating standards with
  subsequent approval by Government body, etc.
• Establishing an effective enforcement mechanism
  Public Oversight Body and active participation of
  professional organizations in enforcement

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ISSUES TO BE CONSIDERED IN FUTURE Compliance
Enforcement
Source Dr. Gert Karreman, Carana Corp. GAEB -
GLOBAL ACCOUNTANCY EDUCATION BENCHMARKING
FOR SEEPAD
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Compliance Enforcement (continued)
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CPD
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Strengths vs. Weaknesses

• Quote from Michael Hammer . . .The formulas for
  yesterdays success are almost guaranteed to be
  formulasfor failure tomorrow.
• Chinese Proverb Tell me Ill forget. Show me
  I may remember. Involve me then Ill
  understand.
• Educate Me and I Will Perform!

THANK YOU FOR YOUR ATTENTION!
Contacts ACAP RM E-mail info_at_acap.md,
mselaru_at_acap.md Tel. ( 373 22) 541-412,
543-408, 541-495