The Eurasian Economic Union—formed in 2015 between five post-Soviet countries—is expected to have an integrated single market of 183 million people, a gross domestic product of over USD $2.2 trillion, and trade exports estimated at $750 billion.
Member states—the Republic of Armenia, the Republic of Belarus, the Republic of Kazakhstan, the Kyrgyz Republic and the Russian Federation—are in the midst of amending national legislation to implement new requirements that are expected to enhance cooperation and free movement of people, services, and goods.
The accountancy profession—as a key advisory service provider to businesses—will be affected by the introduction of common rules for provision of auditing services. IFAC member organizations in the region are preparing for the upcoming change.
I sat down with Valeria Getman, Executive Director of the Union of Accountants and Auditors of the Kyrgyz Republic, to get her take as national legislation in the Kyrgyz Republic undergoes changes.
Maria Chuvasheva: Is the Kyrgyz profession ready for the change?
Valeria Getman: Unfortunately, the short answer is “not yet.” Currently, the overall quality of financial reporting is insufficient to remain competitive when the markets open. There is low awareness about the importance of financial reporting, its role in attracting investment, and, ultimately, about its contribution to economic growth. Most companies in our jurisdiction are small- and medium-sized entities (SMEs) and the primary users of the financial statements are [SME] owners who use the financial information for tax purposes only.
With markets opening, we expect that there will be more demand for the audit and assurance on the quality of financial statements. Right now, only a limited number of companies, such as banks and other financial institutions supervised by the National Bank of the Kyrgyz Republic, insurance companies, investment funds, and joint stock companies are subject to a mandatory audit. If more companies become subject to audit, institutes, like the Union of Accountants and Auditors of the Kyrgyz Republic, will need to be ready to respond and ensure that there are competent professionals to provide these services.
Maria: Is there a demand for quality audit work already amongst companies that might not be subject to a mandatory audit yet?
Valeria: The auditing profession in our country is still rather new and has not yet received wide recognition. Of course, the term “auditor” is known to the public but there is limited understanding of what auditors do and their contribution to sound corporate financial reporting. This misunderstanding can lead to false expectations and assumptions amongst clients and, subsequently, a dissatisfaction in the final results of auditors’ work. Without proper legal reinforcements in place, there is a risk that clients will stop employing qualified auditors and transparency in financial information is diminished.
Maria: What is the system of oversight and education of auditors currently?
Valeria: Auditing activity is currently regulated by the unified financial regulator—the State Service for Supervision and Regulation of Financial Markets—which enforces entry requirements to the profession that are established by law. In order to provide auditing services, individuals must have a university diploma, three years of practical experience, pass an exam organized by the State Service’s attestation commission, and then obtain a license from State Service. However, neither these entry requirements nor continuing professional development requirements are in line with those of the Eurasian Economic Union or International Education Standards.
It is our understanding that the licensing of auditors will soon cease. To provide auditing services, auditors will need to be included in a register. But at this point, we have many questions. How much time will take to be included in the registry? Who and how will oversee, for example, Kyrgyz auditors providing services in other countries? How will regulators cooperate? I am sure that auditors in other EAEU countries have similar questions.
Additionally, auditors are currently not subject to stringent quality control requirements and are not required to be members of a professional accountancy organization (PAO). The latter is not being fully addressed in any legislation, leading to existence of many organizations claiming to be full-functioning PAOs when, in reality, they are not.
Maria: What might change? What can your organization do to address some of these concerns and challenges?
Valeria: We believe that with the opening of the markets, the demand for qualified accountancy professionals will only grow. That is why we need to strengthen the capacity of the profession, and—as a priority—the capacity of our members to tackle future challenges by offering them forward-looking curricula in both initial and continuing education.
We are expecting several significant changes that are intended to strengthen the educational foundation of auditors. First, the auditor certification syllabus will be updated to include the most up-to-date international requirements and best practices. The update will be done through the UK Department of International Development-funded and IFAC-managed capacity building project implemented by the Institute of Chartered Accountants in England and Wales.
Auditors only discover problems. A strong qualification program for auditors is therefore unlikely to substantially increase the quality of financial reporting soon without raising first quality of preparing financial statements. That is why in addition to enhancing qualification of auditors, a new qualification for accountants is also being developed as part of the DFID-funded project. This qualification will be administered by our organization.
For these certifications to be successful, we will also need to strengthen relationships with universities, assist them with updating curricula, inform young students about the value of the profession and the benefits of joining a professional organization, and the need for a quality professional education. It is not a secret that the knowledge obtained at the universities nowadays is often not enough to provide high-quality services upon graduation. University programs are often not up to date, insufficient time is allocated to studying accounting and auditing fundamentals, and many professors lack practical experience in the field.
We will also continue our commitment and enforcement of compliance with the International Code of Ethics for Professional Accountants to build trust in the Kyrgyz profession and thereby enhance its competitiveness. Healthy competition is only possible if ethical principles are adhered to.
Maria: Aside from receiving development funding, how else is your organization finding the capacity and resources to strengthen and prepare the Kyrgyz profession for the future?
Valeria: The purpose of regional integration through the Eurasian Economic Union was to enhance the cooperation and collaboration of our neighboring countries and grow stronger economically, socially, and politically. Being united is key to achieving these objectives. In the Kyrgyz Republic, we thought it was important to set an example by uniting the voice of the profession. In 2019, we merged with the Chamber of Accountants and Auditors of the Kyrgyz Republic, the second largest PAO in our country and our partner for over twenty years, in promoting the accountancy profession. Working together as one organization is more efficient and effective for advancing the Kyrgyz accountancy profession, especially as we were previously operating as two smaller PAOs with very limited resources.
In recent years, we have also seen progress in the creation of regional organizations of PAOs that bring together increased numbers of PAOs to share experiences and we actively participate in their work. We welcome this approach and are glad to see that other PAOs in the region are considering how they might reorganize their operations through mergers and join regional groupings in the spirit of developing the profession.
Although there are many challenges facing us at the moment, we believe that future holds many exciting opportunities. We are committed to complying with the Eurasian Economic Union’s regulation and operating in a single, economic space while also maintaining the reputation of the Kyrgyz audit and accounting profession.
Working together with other PAOs in the region will help us identify and take advantage of opportunities that benefit all of our PAOs, the Eurasian profession, and national economies. I’d like to take this moment to urge other PAOs to also share their experience and story so that we advance not only the region, but the global profession as well.