Azerbaijan

Member Organizations

Member Organization Associate Other PAOs

  Chamber of Auditors of Azerbaijan Republic

Legal and Regulatory Environment

  • Overview of Statuatory Framework for Accounting and Auditing

    Accounting Framework

    The Law on Accounting of 2004 stipulates the requirements for the preparation of financial statements, including applicable accounting standards and financial reporting requirements. In accordance with the law, the Ministry of Finance is responsible for enacting the financial reporting standards in the Republic of Azerbaijan. As of 2018, IFRS are mandatory for the preparation of financial statements by entities classified as public interest entities (PIEs). PIEs include (i) credit institutions; (ii) insurance companies; (iii) investment funds; (iv) listed companies; (v) non-state (private) social funds; (vi) commercial entities with one or more subsidiary (except very small ones) that must consolidate; and (vii) commercial enterprises exceeding two of the three pre-set thresholds related to revenue, total balance sheet, and average number of employees.

    The Ministry of Finance is responsible for the translation of IFRS and has signed the necessary agreements with the IFRS Foundation. As of 2018, the 2011 version of IFRS has reportedly been translated.

    Commercial organizations that are medium-sized entities, are required to apply national accounting standards (NAS)—which are closely based on IFRS—in their consolidated and legal entity financial statements. Small-sized entities may use IFRS for SMEs, or Simplified Accounting Rules for Subjects of Small Entrepreneurship. Small-sized entities are defined by law as follows: (i) companies in industry and construction with fewer than 50 employees and annual turnover of AZN 500,000 (approximately US$650,000) in industry and construction; (ii) companies in agriculture with fewer than 25 employees and annual turnover of AZN 250,000 (approximately US$325,000); (iii) companies in wholesale trade with fewer than 15 employees and annual turnover of AZN 1,000,000 million (approximately US$1,300,000); and (iv) companies in retail trade, transportation, services and other forms of economic activities with fewer than 10 employees and annual turnover of AZN 250,000 (approximately US$325,000).

    The accounting standards to be applied in the jurisdiction, however, are expected to change following the adoption in May 2018 of the Law Amending the Law on Accounting. Under the new regime, IFRS for SMEs will supersede NAS effective January 1, 2019. SMEs will also have an option to apply full IFRS.

    Auditing Framework

    The Law on Audit of 1994 as amended in 2004 defines audit and audit activities, specifies the scope of the entities subject to mandatory audit requirements, establishes the Chamber of Auditors of Azerbaijan Republic (CAAR) as the professional organization for auditors, establishes requirements to become an auditor, and outlines the rights, responsibilities, and liability of the auditor. However, neither the Law on Audit or other rules and regulations specify auditing standards to be applied. De facto, standards required by the CAAR are to be used. CAAR adopted the 2013 version of the Handbook of International Quality Control, Auditing, Review, Other Assurance, and Related Services Pronouncements and, as of 2018, is in the process of translating the 2017 ISA.

    Under the Law on Audit, audits are mandatory for financial statements of business entities that are required to publish their financial statements; in other cases it is voluntary. Entities that are required to publish their financial statements according to the Law on Accounting of 2004 are PIEs.

    The Law on Banks of 2004 as amended in 2017, the State Committee for Securities regulations, and the Baku Stock Exchange rules also outline accounting and auditing requirements for institutions that fall within their purview.

  • Regulation of Accountancy Profession

    As of 2018, only auditors are regulated in Azerbaijan at the state level under the Law on Audit of 1994 as amended in 2004. The profession is also regulated by the Chamber of Auditors of Azerbaijan Republic (CAAR) under the same law. 

    In order to practice as an auditor, an individual must complete CAAR’s certification program; become its member, and renew audit licenses by completing CAAR’s continuing professional development (CPD) requirements. CAAR members are required to complete 50 hours of CPD annually, and are subject to sanctions through the investigative and disciplinary (I&D) system for failure to complete the requirement. Article 15 of the Law on Audit of 1994 as amended in 2004 describes circumstances under which auditors’ licenses may be revoked or suspended.

    Under the Law, CAAR is responsible for (i) maintaining the register for auditors and audit firms; (ii) organizing and implementing a quality assurance review system; (iii) arranging and delivering the CPD program for auditors; (iv) managing and conducting professional examinations for the certification of auditors; (v) establishing and implementing an I&D system; and (vi) monitoring compliance with the Code of Ethics.

    As of the time of the wiring of this report, accountants are not regulated at the state level and may choose to join professional accounting organizations and be subject to their regulation.

    However, amendments to the Law on Accounting that are expected to come into force on January 1, 2019, will introduce, among others, a requirement for certification of accountants and their mandatory membership in an accredited PAO for chief accountants of a number of specified entities. These entities include state-owned enterprises, except publicly traded legal entities, other public interest entities, large entrepreneurships, budget organizations and public legal entities that publish their annual financial statements (consolidated statements).

    Exams to obtain the certified accountant certificate will be conducted by the National Examinations Center that will maintain a registry of certified accountants. As of 2018, the implementing regulations are being developed and the implementation of the requirements are being discussed.

  • Audit Oversight Arrangements

    There are no independent audit oversight arrangements in the jurisdiction.

    The Law on Audit of 1994 as amended in 2004 establishes the Chamber of Auditors of Azerbaijan Republic as the entity responsible for (i) maintaining the register for auditors and audit firms; (ii) organizing and implementing a quality assurance review system; (iii) arranging and delivering the continuing professional development program for auditors; (iv) managing and conducting professional examinations for the certification of auditors; (v) establishing and conducting an investigation and disciplinary system; and (vi) monitoring compliance with the Code of Ethics.

  • Professional Accountancy Organizations

    Accountants and Risk Professional Association of Azerbaijan (ARPA)

    ARPA, which is a voluntary membership non-governmental organization and a public union, was founded on March 19, 2009 to unite risk management professionals in Azerbaijan (later extended to other professionals, including accountants). ARPA organizes certification programs, conducts research, and disseminates guidance and research publications. The organization offers three certifications for its members: (i) Professional Certification of Accountants (MPS)—developed by ARPA and the Ministry of Finance for professionals who seek to improve their professional level in accounting, finance, and management in the private sector; (ii) Professional Insurer Certification (PSS)—developed by ARPA, the Association of Azerbaijani Insurers (ASA), and Ministry of Finance, for the insurance sector; and (iii) Banking Risk Management Professional Certification (BRM) to enhance the level of professionalism of professional risk managers in the banking sector.

    Association of Professional Financial Managers of Azerbaijan Republic (APFM)

    APFM is a voluntary membership association established in 2007 with the mission of developing the accountancy profession through its professional development. It offers a number of professional certificates, organizes trainings and seminars, information exchange, and round table discussions, both nationally and internationally. It is a member of the European Federation of Accountants and Auditors for SMEs (EFAA).

    Chamber of Auditors of Azerbaijan Republic (CAAR)

    CAAR was established in accordance with the Law on Audit of 1994 as amended in 2004 to regulate the audit profession. Membership in CAAR is mandatory for auditors and audit firms.

    Under the Law, CAAR is responsible for (i) maintaining the register for auditors and audit firms; (ii) organizing and implementing a quality assurance review system; (iii) arranging and delivering the continuing professional development program for auditors; (iv) managing and conducting professional examinations for the certification of auditors; (v) establishing and conducting an investigation and disciplinary system; and (vi) monitoring compliance with the Code of Ethics.

    In addition to being a member of IFAC, CAAR is a member of the Eurasian Council of Certified Accountants and Auditors, and the EFAA.

  • Projects or Other Information

    The Chamber of Auditors of Azerbaijan Republic (CAAR) reports that a new Law on Audit has been drafted that incorporates the requirements of IES and the 8th European Union Directive on Statutory Audits as well as vests the responsibility for setting auditing standards with CAAR. The expected date of adoption of the Law is not clear as of the time of drafting of this report.

    In addition, amendments to the Law on Accounting that are expected to come into force on January 1, 2019, will introduce, among other things, a requirement for certification of accountants and their mandatory membership in an accredited PAO for chief accountants of a number of specified entities. Exams to obtain the certified accountant certificate will be conducted by the National Examinations Center, which will maintain a registry of certified accountants. As of 2018, the implementing regulations are being developed and the implementation of the requirements are being discussed.

Adoption of International Standards

  • Quality Assurance

    The Law on Audit of 1994 as amended in 2004 requires all auditors to be members of the Chamber of Auditors of Azerbaijan Republic (CAAR) and be subject to its quality assurance (QA) review. The system was developed in 2008 and subsequently updated, with the latest changes introduced in 2013. Inspections are carried out by CAAR at least once every three years, with 35 quality controls conducted in 2016 and 47 in 2017.

    CAAR reports that it conducts reviews based on International Standards on Quality Control 1, ISA 220 Quality Control for an Audit of Financial Statements, and the requirements of SMO 1. In 2018, CAAR conducted a self-assessment of its QA review system against SMO 1 and reported compliance with its requirements, except for a number of requirements related to the review cycle and consideration of public oversight.

    In its 2018 SMO Action Plan, CAAR indicates plans to bring the system fully in line with the requirements of SMO 1, including through proposed amendments to the Law on Audit and a related QA regulation. The regulation is aimed at clarifying the scope of entities subject to mandatory QA reviews, independence of inspectors with respect to their engagement in audit activities, and independence of the Quality Control Committee of CAAR in regards to funding and management of its work. As of 2018, the expected date of adoption of the law and the regulations is not clear.

    Current Status: Partially Adopted

  • International Education Standards

    Initial and continuing professional development requirements (IPD and CPD, respectively) for auditors are stipulated in national legislation.

    Under the Law on Audit of 1994 as amended in 2004, responsibility for IPD of auditors is shared between universities and training institutes (IES 1), and the Chamber of Auditors of Azerbaijan Republic (CAAR) (IES 2–6), which regulates auditors in the jurisdiction. Specifically, the law requires (i) university education in accounting, finance, economics, or law; (ii) three or more years of practical experience; and (iii) successful completion of professional examinations administered by CAAR.

    In order to practice as an auditor, an individual must  (i) be eligible to hold a position in business by a court decision; (ii) be free of legal judgements against them; (iii) become a member of CAAR and complete its certification program; and (iv) renew audit licenses by completing CAAR’s CPD requirements. CAAR members are required to complete 50 hours of CPD annually.

    In 2018, amendments to the Law on Accounting that will come into force on January 1, 2019, introduced a requirement for certification of accountants and their mandatory membership in an accredited PAO for chief accountants of a number of specified entities. Exams to obtain the certified accountant certificate will be conducted by the National Examinations Center that will maintain a registry of certified accountants. As of 2018, the implementing regulations are being developed and the implementation of the requirements are being discussed. There is currently no indication that the requirements of IES were taken into consideration in the development of the certification scheme.

    In addition, the Accounting and Risk Professional Association of Azerbaijan (ARPA) offers the following three certifications for risk management professionals: (i) Professional Certification of Accountants (MPS)—developed by ARPA and the Ministry of Finance for professionals who seek to improve their professional level in accounting, finance, and management in the private sector; (ii) Professional Insurer Certification (PSS)—developed by ARPA, the Association of Azerbaijani Insurers (ASA), and Ministry of Finance, for the insurance sector; and (iii) Banking Risk Management Professional Certification (BRM) to enhance the level of professionalism of professional risk managers in the banking sector. Information as to whether the requirements of IES were taken into consideration in the development of the certification scheme is not available.

    Current Status: Partially Adopted

  • International Standards on Auditing

    The Law on Audit of 1994 as amended in 2004 defines audit and audit activities, specifies the scope of the entities subject to mandatory audit requirements, establishes the Chamber of Auditors of Azerbaijan Republic (CAAR) as the professional organization for auditors, establishes requirements to become an auditor, and outlines the rights, responsibilities, and liability of the auditor. However, neither the Law on Audit or other rules and regulations specify auditing standards to be applied. De facto, standards required by the CAAR are to be used. As of 2018, CAAR translated the 2013 version of the Handbook of International Quality Control, Auditing, Review, Other Assurance, and Related Services Pronouncements for use in the jurisdiction and is in the process of translating the 2017 ISA.

    There are new, proposed amendments to the Law on Audit that would legally authorize CAAR to establish auditing standards in the Republic of Azerbaijan; however, the expected date of adoption of the Law is not clear as of the time of drafting of this report.

    Current Status: Partially Adopted

  • Code of Ethics for Professional Accountants

    The Law on Audit of 1994 as amended in 2004 grants the Chamber of Auditors of Azerbaijan Republic (CAAR) the authority to regulate auditors and in Article 13 and 18 stipulates ethical requirements for auditors.

    Although not specifically required by law, in 2010 the Ethics Committee of the CAAR adopted a resolution requiring application of the IESBA Code for its members. As of 2018, the Chamber reports to have translated the 2014 IESBA Code of Ethics. CAAR indicates that a new Law on Audit is being considered for adoption as of 2018, which will directly require adherence to the IESBA Code of Ethics for all auditors in the jurisdiction.

    In 2018, amendments to the Law on Accounting that will come into force on January 1, 2019, introduced a requirement for certification of accountants and their mandatory membership in an accredited PAO for chief accountants of a number of specified entities. It is not clear whether this category of accountants will be then subject to any ethical requirements.

    Currently, other accountants may also choose to join professional associations and be subject to their regulation. No information on the adoption of the IESBA Code of Ethics by other associations is available.

    Current Status: Partially Adopted

  • International Public Sector Accounting Standards

    The 2005 Presidential Decree on the Application of the Law on Accounting delegated responsibility for regulating public sector accounting to the Ministry of Finance.

    The Law on Accounting of 2004 defines public sector accounting standards in the jurisdiction and requires all municipal bodies, budget organizations, and off-budget state funds to prepare their financial statements in accordance with national accounting standards for budget organizations (NASBOs) that are based on IPSAS.

    The Chamber of Auditors of Azerbaijan Republic indicates in its SMO Action Plan that the IPSAS adoption process began in 2009 under the World Bank’s Corporate and Public Sector Accountability Project (CAPSAP) with the Government of Azerbaijan that included a component dedicated to the adoption and implementation of accrual-based IPSAS. Effective January 1, 2019, following the adoption in May 2018 of the Law Amending the Law on Accounting, IPSAS will supersede NASBOs. At the time of the writing of the report the scope of application of IPSAS as well as the due process for their adoption remain to be established.

    The Ministry of Finance translated the Handbook of International Public Sector Accounting Pronouncements and made it publicly available on its website. However, the version of IPSAS that has been translated is not clear.

    Current Status: Partially Adopted

  • Investigation and Discipline

    Under the Law on Audit of 1994 (Article 15) as well as Article 8 of the Chamber of Auditors of Azerbaijan Republic (CAAR) Regulations, investigation and discipline (I&D) of auditors—the only formally regulated category of professional accountants—is performed by the CAAR.

    As of 2015, CAAR reports to have established investigations, disciplinary, and appeals committees to carry out its I&D functions. The Investigations Committee is responsible for investigating complaints while the Disciplinary Committee is responsible for conducting hearings and imposing sanctions.

    In 2014, CAAR conducted a self-assessment of its I&D system against SMO 6 requirements and identified gaps in (i) the range of sanctions; (ii) activities undertaken to ensure that the public is aware of the I&D system; and (iii) publicizing the results of I&D proceedings. As of 2018, no progress in closing these gaps has been reported.

    In 2018, amendments to the Law on Accounting that will come into force on January 1, 2019, introduced a requirement for certification of accountants and their mandatory membership in an accredited PAO for chief accountants of a number of specified entities. It is not clear whether the Law contains provisions for I&D of this category of accountants.

    Finally, other accountants may choose to join professional accountancy organizations and be subject to their regulation. No information is available on whether these organizations have established I&D processes and whether those are in line with the SMO 6 best practices.

    Current Status: Partially Adopted

  • International Financial Reporting Standards

    The Ministry of Finance is responsible for the adoption and promulgation of accounting standards in Azerbaijan in accordance with the Law on Accounting of 2004.

    As of 2018, IFRS are mandatory for the preparation of financial statements by public interest entities (PIEs). PIEs include (i) credit institutions; (ii) insurance companies; (iii) investment funds; (iv) listed companies; (v) non-state (private) social funds; (vi) commercial entities with one or more subsidiary (except very small ones) that must consolidate; and (vii) commercial enterprises exceeding two of the three pre-set thresholds related to revenue, total balance sheet, and average number of employees.

    According to the Law on Accounting of 2004, the Ministry of Finance organizes the translation of IFRS under an agreement with the IFRS Foundation. The 2011 version of IFRS has been translated and is available on the Ministry of Finance’s website.

    Commercial organizations that are medium-sized entities, are required to apply national accounting standards (NAS)—which are closely based on IFRS—in their consolidated and legal entity financial statements. Small-sized entities may use IFRS for SMEs, or Simplified Accounting Rules for Subjects of Small Entrepreneurship. Small-sized entities are defined by Law as follows: (i) Companies in industry and construction: Fewer than 50 employees and annual turnover of AZN 500,000 (approximately US$650,000) in industry and construction; (ii) Companies in agriculture: Fewer than 25 employees and annual turnover of AZN 250,000 (approximately US$325,000); (iii) Companies in wholesale trade: Fewer than 15 employees and annual turnover of AZN 1,000,000 million (approximately US$1,300,000); and (iv) Companies in retail trade, transportation, services and other forms of economic activities: Fewer than 10 employees and annual turnover of AZN 250,000 (approximately US$325,000).

    The accounting standards to be applied in the jurisdiction, however, are expected to change following the adoption in May of 2018 of the Law Amending the Law on Accounting. Under the new regime, IFRS for SMEs will supersede NAS effective January 1, 2019. SMEs will also have an option to apply full IFRS.

    Current Status: Partially Adopted

Disclaimer

IFAC bears no responsibility for the information provided in the SMO Action Plans prepared by IFAC member organizations. Please see our full Disclaimer for additional information.

Methodology

Methodology
Last updated: 12/2018
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