Is Serbia a Leader in Creative Financial Reporting?

Serbia does not know how it operates and what it possesses due to a lack of adequate financial reporting

Statement of the Minister of Finance of the Republic of Serbia, Mr. Dusan Vujovic, that Serbia is a regional leader in the process of reform of financial reporting caused amazement and disbelief in the expert public. Cases such as Agrobank, Petrohemija, Azotara, Privredna Banka, Mining and Smelting Combinate Bor, two years of abstinence on reporting the work of state audit institution to the Parliament and the newest events with Agrokor, along with many others suggest a serious analysis of real condition of financial reporting in our region is needed, especially after it was stated by the Minister of Finance, eminent professor and globally-renowned expert.

Indispensable lesson of economic and other faculties in the field of finance is that purpose of financial reporting is providing most important information for economic decision making of the investors, creditors, state institutions, business partners, employees and trade unions, business and financial groups, regulatory bodies, rating agencies, financial analytics, investment advisors, consultancy agencies, statistics, etc. Financial reporting is a decisive factor of financial infrastructure of the economy and is a basis for stability of every national and international financial system. From financial reports economic policy makers identify structural problems, business sector debt, insolvency issues, high degree of financial expenses points to profitability and level of competitiveness of certain sectors, industries and companies, etc. Financial reporting is significant for the company management as it has to analyze financial position and success of own and other companies, in order to assess business position and risks.

Key infrastructure support to the efficient and transparent capital market is financial reporting, as it leads to the allocation of capital promoting productivity, supporting innovation, ensuring the liquidity of the capital market, eases crediting, etc. Naturally, the observatory function of capital market regulatory bodies is also based on financial reports.

What is the situation in Serbia?

Quality of financial reporting in Serbia is at a very low level, as it is not harmonized with the EU acquis or the international accounting regulative, as a key criteria of quality. For an important number of subjects of reporting special national regulations have been prescribed, which have no grounding in theory or practice. Financial reporting in Serbia has no stability or consistency. Professional accountant’s ethics, as a basis of modern professionalism has been almost entirely neglected in Serbian legal framework. Professional accounting association, natural “guardian” of the quality of financial reporting and the protectors of the public interest in the developed cultures of financial reporting, which exists in Serbia, is a member of IFAC and functions in accordance to the professional guidelines for over 60 years, is not even mentioned in the regulations.

Structure and content of financial reports in Serbia is not acceptable to any practice of financial reporting, relevancy and reliability of information contained has been compromised, and transparency is not even worth talking about. Due to those reasons, submission of annual financial reports should be performed by February for the previous year, with simultaneous use of the same reports for statistical needs, and the possibility of replacement of financial reports according to the desires of the subject of reporting should be entirely removed.

Quality of financial reports and trust in them would be increased by introducing the obligatory signing of financial report by the professional accountant, returning the education standards, Ethical codex of professional accountants and standards for accounting software in the legal framework and introduction of real accountability of the providers of accounting services who fulfill the criteria of certification and continued education, which would bring Serbia closer to countries with a developed practice of financial reporting. By improving the legal and professional control of financial reports there would be a reduction of risk of errors contained in them, as well as a level of informal economy.

It doesn’t take great wisdom to see that the only real way is the return to the set of international financial regulations and the return of professional accountants in the legal framework, knowing that all other control functions (commercial or state audit) are products of this basic activity.

Author: Prof Ljubisa Stanojevic, PhD, certified auditor

Text is based on a study Accounting Legal Framework and Quality in the Republic of Serbia, Association of Accountants and Auditors of Serbia, September 2016