Interview of Executive Director of “Ameria Audit” CSJC Artur Andreasyan to Mediamax Agency and Banks.am portal

- What is the essence of recent legislative chances, related to audit and accounting?

- Recently, at the initiative of the Armenian government, a number of measures were taken to form the sphere of accounting and audit. The given measures aim at regulating the existing legislation in order to increase quality of services, offered in the market. 

The recent legislative changes, in particular, provide for transition to international financial reporting standards (IFRS), certain toughening of quality requirements, set for audit companies, as well as expansion of the spectrum of economy entities, subject to obligatory audit.

A significant legislative change is the obligatory transition to IFRS for all enterprises, functioning in the territory of Armenia. The obligatory transition was undertaken by the Ministry of Finance of Armenia and approved by the Council for International Financial Reporting Standards. This implies that there will be no local standards for financial accounting anymore in Armenia, but the Armenian translation of IFRS will be in effect.

To this end, there was a workgroup set up, consisting of translators and qualified specialists, checking the translation. They also include representatives of our company. It is expected that the Armenian translation of IFRS will be completed in September, 2009, after which the transition stage will be initiated.

A change was introduced also into the law on “Financial Reporting”, according to which starting January 1, 2009, the requirement to carry out financial reporting in accordance with IFRS covers the banking system and other companies, regulated by the Central Bank (credit organizations, payment-account organizations, accountable issuers, investment companies, operator of the regulated market, the Central Depository, insurance companies, reinsurance companies, insurance brokers), and since January 1, 2010, this requirement will be obligatory for all companies, the annual revenues of which exceed 100mln AMD.

- Already today there is obligatory audit set for large companies. How will this affect Armenia’s economy?

- Up till now, the requirement to make a transition to obligatory audit concerned open joint stock companies, funds, participants of the financial market and other companies, regulated by CB. As a result, quite a few major companies, representing closed joint stock companies or limited liability companies, remained outside the audit field. To apply audit as a limitation tool for shadow economy, starting January 1, a change came into effect in the law on “Financial Reporting”, according to which, starting from 2010, the financial reporting of companies, the gains or the assets of which in 2009 exceeded 500mln AMD, are subject to obligatory audit. Thus, the indices of the given companies already for the current year are subject to obligatory audit.

Expansion of the audit field, undoubtedly, will have a quite efficient influence on Armenian economy. All the above-mentioned legislative changes will contribute to:

- Improvement of business climate, stimulation of local and foreign direct and portfolio investments in private sector;
- Armenia’s integration into European and global economy;
- Consolidation of stability and competition of banking and real sectors, reduction of risks;
- Increase of transparency;
- Abolition of dual standards existing today, when organizations, subject to obligatory audit, first should pass audit in accordance with accounting standards of Armenia, after which they have to form their financial reporting in accordance with IFRS and again undergo audit. As a result, audit services cost companies more expensive, and auditors, in their turn, fulfill more volume work.

- How will expansion of the spectrum of companies, subject to obligatory audit, influence Armenian market of audit services? It is also known that the Ministry of Finance will toughen requirements for auditor companies. May this fact lead to reduction of the number of companies, providing auditor services?

- As of July 1, 2009, 22 auditor companies and 11 private auditors have been licensed in Armenia. The sphere reformation, which also includes toughening of terms, set for auditor companies, is necessary both for increasing the quality of provided services and bringing them in compliance with the required standards, and for progress in the sphere of professional education and teaching.

The World Bank (WB) also put forward proposals concerning audit policy and financial accounting of Armenia. It organized a conference on June 17, devoted to the process of reforms in the sphere of financial accounting and audit in Armenia and implementation of definite initiatives on further reforms.

In particular, a report on standards and on preserving the rules, composed by WB Group basing on diagnostic observations carried out in Armenia, was presented.

Since the financial system and economy of Armenia gradually become more regulated and developed, private companies start carrying out shares and bonds issues. Audit is a significant tool for shareholders and investors, which gives clear and transparent information on the financial state of the company. Here the necessity comes up to pay more and more attention to the quality of auditor services.

Today, there are already three auditor companies out of the “Big Four” functioning in Armenia – KPMG, “PricewaterhouseCoopers” and “Ernst and Young”, as well as the representative of a major international company “Grant Thornton Amyot”. Besides companies, enjoying international fame, there are also local auditors functioning in the Armenian market, which provide quality services.

Of course, toughening conditions will to a certain degree affect the number of auditor companies, but one should not forget that the given requirements aim at increasing the confidence for financial reporting, checked by auditors.

Toughening also touched upon the complexity of the questionnaire for professional qualification of auditors. It is necessary however to note that pure toughening of requirements cannot secure quality, one should pay attention also to the problems of the educational sphere. Of course, there are organizations functioning in the market today, which provide quality services of professional training, however the lack of the necessary materials and competent specialists is yet felt.

- The financial sector is the most regulated sphere of Armenian economy. Has its transition to IFRS led to real changes in controlling financial organizations?

- Of course, there are changes and they are conditioned not only by new control standards, but also by the fact that the world is in conditions of the global crisis today, and control tools are necessary to maximum avoid possible problems.

One should, however, note that CB and IFRS requirements concerning participants of the financial market contain a number of conflicting items and discrepancies, which particularly relate to formation of reserves for possible losses on credits, principles of recognizing and calculating profits and expenses, etc. I am sure that as a result of realizing undertaken reforms, the given requirements will be brought in compliance with IFRS and in the nearest future we will have a single accounting system. 

Already today an outstanding result of competent control over the financial system and compliance to IFRS is the fact that international financial establishments, such as the International Finance Corporation (IFC), European Bank for Reconstruction and Development (EBRD) and others acquire share participation to Armenian banks, as well as provide those banks with loans.

- Are the volume and the dynamics of Armenian market of audit services known?

- Under the law on “Audit Activity”, audit companies of Armenia present their quarterly and yearly reports to the authorized body – the Ministry of Finance, but those reports are not public. One can only state that as a result of the mentioned legislative changes, the volumes of auditor market of Armenia will significantly increase.

- What will the activity of the Chamber of Accountants and Auditors of Armenia, which is in process of establishment, be?

- It is suggested in the new draft law on “Financial Reporting” setting up a Chamber of Auditors and Accountants, which will regulate the accounting sphere. The draft law notes that the Chamber should approve standards, concerning small and medium enterprises, legislative acts, regulating accounting sphere, the standard of the calculation plan, public guidelines, etc. 

If the Ministry of Finance decides to delegate a part of its authorities to specialized structures, the Chamber may also fulfill the function of control over auditor sphere.