SLOVAKIA can expect amendments to its accounting standards in several years, but immediate changes after the country's accession to the European Union are unlikely.
The reason is that changes made to Slovak accounting legislation in the last 18 months were largely designed to narrow the gap between Slovak accounting legislation and International Financial Reporting Standards (IFRS).
There is an EU requirement that all public companies present their financial statements in accordance with IFRS for periods beginning in January 2005; it is probable that changes in the Slovak legislation will follow to further harmonise with these standards.
Ultimately, we can envisage a point at which Slovak legal entities will be able to present financial statements under IFRS only, with no requirement to present separate Slovak GAAP (Generally Accepted Accounting Principles) financial statements.
Such a step would be welcomed by public companies and by Slovak subsidiaries of foreign entities reporting under IFRS.
Although Slovakia has not been involved in recent accounting scandals affecting some large international corporations, the authorities are aware of these cases and will take cognisance of new international rules designed to prevent such frauds.
In 2003, Slovakia received a grant from the World Bank to assist in developing and implementing a country action plan designed to strengthen the country's corporate financial reporting regime and to allow the full implementation of international accounting and auditing standards.
The conclusions of this grant project are expected in September 2004.
Without doubt, the confidence of investors in capital markets has been adversely affected by the high-profile cases of the last two years.
Having said that, restoring the trust of investors in capital markets is a responsibility we all share. It is going to take sustained high-quality, high-integrity performance by the accounting profession, corporate management, audit committees, boards of directors, investment bankers, and lawyers.
Recognising that there are no quick fixes, the audit profession is committed to doing whatever it can to provide the highest quality service to help restore investor confidence.
A key element in restoring investor confidence is resolving concerns about auditor independence. The US Securities and Exchange Commission (SEC) recently issued its final rules on Strengthening Auditor Independence, which implement Title II of the Sarbanes-Oxley Act of 2002.
These rules set forth revised requirements in several areas, including rules regarding the provision of non-audit services, disclosure of fees paid to auditors, audit committee pre-approval of services, audit partner rotation, communications with audit committees, employment of former members of the audit team, and audit partner compensation.
A focal point of the new auditor independence rules is the importance of the oversight role provided by audit committees. As the SEC notes, "the final rules recognise the critical role played by audit committees in the financial reporting process and the unique position of audit committees in assuring auditor independence."
This new direct relationship between independent auditors and audit committees will improve financial reporting.
Generally speaking, the international audit firms operating in Slovakia are already subject to their individual firms' independent rules, which are modelled on those of the US, so many of these new changes are already being applied in Slovakia.
The best results will be achieved when management, the audit committee, and the independent auditors all work together while fulfilling their unique roles in the financial reporting process.
Mark Dobson is the head of assu-rance & advisory business services at Ernst & Young Slovakia.
Author: Mark Dobson
