Alexander Nederitsa
For the past three years, Moldova has been gradually moving to an accounting system which is in compliance with IFRS. The move to IFRS has been led by the Moldova Ministry of Finance with participation of PricewaterhouseCoopers, EAST-WEST Management Institute and funded by the World Bank and the US Agency for International Development (USAID).
The following progress has been made in Moldova:
- A new IFRS based accounting regulatory framework has been set up;
- New forms of financial statements have been developed and implemented;
- A program of continuous professional education and certification of accountants and auditors have been implemented in compliance with IFAC’s guidelines.
The accounting regulatory framework is based on IFRS and comprises three core elements:
- national accounting standards (NAS);
- NAS implementation guidance;
- Chart of Accounts.
NAS are developed on the basis of IFRS and approved by the Moldova Ministry of Finance. They prescribe an accounting framework and rules for all economic entities irrespective of their industry, ownership and legal form.
NAS contents as well as their numbers and names were developed in accordance with IFRS. However, NAS also incorporate national established practices in accounting organisation while given effect to existing mentality of accounting practitioners and other country-specific terms and factors. To this end, some changes and amendments were made in standards in order to achieve their better understanding.
In addition, the set of NAS includes two standards that are missing in IFRS but they are required to facilitate the understanding of a new accounting system: NAS 3, Cost and Expense Composition, and NAS 4, Specific Accounting Treatments for Small Businesses.
According to the Accounting Reform Concept approved by the Moldova Government in 1997, NAS should be updated in accordance with recent changes and amendments to IFRS. In addition, the set of NAS will be expanded as new IFRS are adopted and amendments to IFRS are made. If certain NAS are missing, the relevant IFRS should be applied.
NAS Implementation Guidance clarifies NAS application procedures using specific examples and case studies. It is also approved by the Moldova Ministry of Finance and constitutes regulations that are binding for all economic entities.
The Chart of Accounts prescribes a set of synthetic accounts and sub-accounts and the Methodological Framework for their Application which is obligatory. It comprises 9 classes, including financial accounts (classes 1–7), management accounts (class 8) and off-balance sheet accounts (class 9). The Chart of Accounts enables enterprises to keep accounting records according to international practices and delineates accounts intended to prepare a balance sheet and income statements. It also includes asset and liability accounts. The use of asset-liability accounts is not allowed, which complies with an overall principle prohibiting the offset of assets and liabilities as well as income and expenses.
The new forms of financial statements include the balance sheet, income statement, statement of movements in equity, cash flow statement and attachments.
The content of financial statements and measurement procedures are in compliance with IFRS and do not need transformation.
Financial statements are integrated with the Chart of Accounts: the numbers and names of balance sheet sections and line items are similar to those of classes and groups of balance sheet accounts while the names of income statement line items coincide with the names of income and expense synthetic accounts. Data from synthetic accounts are reported on the face of financial statements while sub-accounts are reported in attachments to financial statements.
The continuous education and certification of accountants and auditors was introduced at the inception of Moldova’s move to IFRS. A vast majority of accountants and auditors has already completed the training and professional development program. The certification of accountants and auditors is held twice a year under the IFAC Program. The Moldova Association of Accountants and Auditors which is an IFAC associate member prepares and conducts certification exams. In addition to local experts, employees of foreign audit firms and projects having representative offices in Moldova sit on the Certification Commission. The holders of qualification certificates find themselves at an advantageous position when seeking employment with both government agencies and private firms.
Despite the above achievements, several issues are still pending in Moldova:
- The Accounting Law that was adopted as early as in 1995 is still in effect in Moldova despite the fact that its provisions are not in full compliance with IFRS. This impedes the accounting reform and sets certain difficulties in the move to IFRS. Local and foreign experts have developed a new draft Accounting Law that is to be adopted by the Moldova Parliament in 2002;
- Implementation Guidance has not been developed in respect of all NAS, which impedes the implementation of standards due to poor understanding and ambiguous interpretation of their provisions by accounting and auditing practitioners;
- Financial statements and attachments thereto are prepared quarterly using standard forms. This increases significantly the level of accounting effort and does not provide all necessary information in various enterprises. In our view, it makes sense to give up quarterly reports because they do not provide complete and accurate information while making the accounting process more difficult. In addition, it is necessary to give up standard forms of financial statements and prescribe only a minimum set of financial statement line items following the experience of other countries that have moved to IFRS;
- Tax reconciliations have not been clearly specified, which often results in financial information being in poor demand from its users. This is especially the case with small & medium-size enterprises with a limited number of users of financial statements. Tax authorities continue to be a major user of financial statements for accountants and other practitioners, which adversely affects the accuracy and neutrality of financial statements.
It should be noted that the Moldova Ministry of Finance, consultants of foreign firms and projects focus on the above-mentioned and other issues arising from the move to IFRS. These issues will be solved as accounting legal and regulatory framework is updated and amended.
Alexander Nederitsa, Ph.D. in Economics is the Chairman of the Methodological Council for Accounting under the Moldova Ministry of Finance,Consultant of the USAID project «Accounting Reform in Moldova».
He can be contacted by phone (3732) 22 1476 or e-mail: adned@moldovacc.md.