International fiscal accountancy standards to make a company preferable for investors
Some five months remain for Azerbaijan's large companies to turn to international fiscal accountancy standards (IFAS). According to the list approved by the Azerbaijan's Cabinet of Ministers, 20 socially significant organizations shall begin accounting resting on international standards by 1 January 2008. The list includes the State Oil Company of Azerbaijan Republic (SOCAR), SOCAR's Departments on Oil Pipelines, Marketing, and Economic Operations, Azneft PA, Heydar Aliyev and Azneftyag oil refining plants, Azerenerji (energy distributing company), Bakielektrikshabaka (Baku electricity network), Azercell JV, Azerbaijan State Railway, Baku Underground Metro, AzAL state company and its National Air Company, Azerbaijan State Caspian Sea Shipping Company , Azerigaz (gas distributing company), Azersu (water distributing company), Aztelecom PA, petrochemical Azerkimya state company and its Ethylene-Polyethylene Plant. [In accordance with Finance Ministry's selection criteria, socially significant organizations are the organizations with AZN 100mln of assets, over AZN 8mln of annual incomes, and over 1,000 employees]
That is necessary to make Azerbaijani enterprises entering international markets full members of the markets and make accountancy standards objectively reflect companies' activities and status. Introduction of IFAS in Azerbaijan will be an important step for attraction of foreign investments to non-oil field. Foreign investors do not want to run risk putting money in the countries which companies lack corporative transparency.
However, only SOCAR can become the first of the indicated Azerbaijani organizations to officially turn to IFAS at the beginning of 2008.Bytheend of 2007 SOCAR will begin book-keeping and fiscal accountancy resting on international standards in a test regime. For this purpose SOCAR's employees took trainings on international book-keeping in accordance with national book-keeping standards developed by the Finance Ministry. Assistance is rendered to SOCAR's book-keepers within the framework of World Banks' technical assistance.
Moreover, at present SOCAR and PricewaterhouseCoopers consulting company are implementing the project on turning to IFAS. They signed a contract envisaging development of required methodology, trainings for the employees, as well as development of fiscal reports regarding business processes and IFAS for 2007. Pricewaterhouse and SOCAR's joint project is intended for 18 months. Seven months have passed since the beginning of implementation.
Unlike other socially significant organizations, SOCAR has too little time to turn to IFAS. That can be understood. Azerbaijan's key oil company should have been reanimated long ago, for the country is experiencing an oil boom and foreign countries are interested in Azerbaijan's oil. The point is at every step experts face SOCAR's financial flows, as well as the difficulties to understand the peculiar book-keeping of the country's most prestigious company.
That causes certain problems in functioning of Azerbaijan Republic's Oil Fund. The attempts of Oil Fund's administration to work resting on the modern international accounting principles were facing the fact that SOCAR, the main part of the oil sector, was still adhering to the old accounting methods.
The problem is being aggravated by the fact that under PSA contracts foreign oil companies pay off a defined share to SOCAR instead of paying a tax to the public treasury. Consequently, SOCAR pays for them to the public budget. That is explained by foreign companies' reluctance to contact with Azerbaijan's tax system. Such careless book-keeping which is beyond of normal auditing cannot provide for any transparent fiscal accountancy.
To turn the book-keeping to a new calculation system is a very difficult but necessary task today. SOCAR like a mirror reflects all fundamental contradictions of the old economics. So, turn to a new book-keeping system rather deals with economics than a separate company.
Azerbaijan Republic's Law on Accounting stipulates that introduction of national accounting standards in commerce organizations shall be completed by the end of 2007, in budget and NGOs by the end of 2008, and in small-scale and middle-scale enterprises by 1 January 2009. Most time was given to municipalities, budget organizations and state funds - 1 January 2009. However, only bank organizations have completely turned to the new accounting plan, though by 2004 accounting rested on two kinds of standards - national and local.
Low rate of turning to IFAS is caused by a range of obstacles Azerbaijan faces on this way. One of the major reasons is lack of experienced staff in that field. Training and re-training of book-keepers is an expensive process, which in addition takes too much time. Serious support is required both from state bodies (Finance Ministry and Education Ministry) and non-state organizations (professional association).
The second reason for delay in turning to IFAS in Azerbaijan is the language problem, for all standards are designed in English.
Not all financiers have a good command of English, while all instructional materials are published in English. Russian translations of the standards are available now, but the translation process also is delayed for over a year after issue of a standard. Azerbaijan Finance Ministry is translating the international standards into Azerbaijani.
Thirdly, purchase and introduction of new book-keeping software products or revision of the applied ones requires good money and time. Moreover, term of software products' revision in accordance with IFAS requirements is likely to be compared to the term of introduction of the programs with IFAS module (minimum 2-3 years).
For instance, in order to continue the work on turning to international book-keeping standards SOCAR (with its subdivisions) signed a license agreement with AZEL company on 16 August 2007 for purchase of SAP software (Systems, Applications and Products in Data Processing). Moreover, SCOAR and SAP CIS signed an agreement on service support to SAP software.
Fourthly, changes have to be made in Azerbaijan's legislation (the Civil Code in particular) in order to bring it close to IFAS.
Thus, only consecutive and thoroughly considered steps of state bodies, as well as measures on turning to IFAS individually undertaken by local companies (training of personnel and re-formation of business-processes) will enable successful turn to IFAS in near future. In this case book-keeping reform in Azerbaijan will be a success, will provide Azerbaijani companies with full participate in world economy, and will increase the country's authority in the international community.