NCEffective Insolvency and Creditor Rights Systems
The Trade and Commercial Law Assessment on Costa Rica published in January 2005 by Booz Allen Hamilton notes that the legal framework for insolvency in Costa Rica focuses on liquidation rather than on reorganization of companies in financial distress, and does not provide for equitable treatment of creditors. Further, the report points out that despite having a basic legal framework for bankruptcy, there is no functioning bankruptcy system in Costa Rica as there are very few officially sanctioned bankruptcies. One of the reasons the report emphasized is the rigid legal procedural formalism focusing on the letter and not the spirit of the law, which obfuscates the bankruptcy process and discourages filings. Regarding Costa Rica's compliance with the Principles and Guidelines for Effective Insolvency and Creditor Rights Systems developed by the World Bank, the report states that Costa Rica’s legal framework for bankruptcy is inefficient, non-transparent, and unreliable, and thus does not comply with the World Bank principles. The report recommends strengthening the existing legal framework, harmonizing bankruptcy law with other commercial laws, and building judicial capacity.
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ENInternational Financial Reporting Standards
The Institute of Public Accountants (CCPA) has the responsibility to set accounting standards in Costa Rica for application for companies other than those supervised by the National Council for the Supervision of the Financial System (CONASSIF). In a 2009 survey, PricewaterhouseCoopers observes that the CCPA adopted International Financial Reporting Standards (IFRSs) as issued by the International Accounting Standards Board (IASB) for obligatory application in Costa Rica in stand-alone and consolidated accounts. In addition, in a resolution adopted in January 2007, the CCPA ruled that all modifications to IFRSs and their Interpretations, as well as the new standards issued by the IASB, will be automatically incorporated in the Costa Rican requirements for mandatory application, upon becoming available in Spanish. In 2007, the CONASSIF also issued Regulation No. 692, which adopted IFRSs in force as of January 1, 2007, with exceptions indicated in Chapter II of the Regulation, to be applied by the entities under its jurisdiction. The Regulation states that all new IFRSs issued by the IASB, as well as any modification to the existing IFRSs will be adopted after the approval of the CONASSIF.
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IIPrinciples of Corporate Governance
While the legal and judicial architecture for corporate governance in Costa Rica has been described as “moderately strong” or "generally sound" in different reports in 2005, a report of the same year by Lines and Karina states that Costa Rica’s corporate governance legislature, mainly set forth in the Code of Commerce passed in 1964, is outdated. Costa Rica’s civil legal tradition puts a focus on the laws in the books, leading to a lack of case law concerning corporate governance. The report also notes weak enforcement of general corporate governance principles. According to a 2005 Booz Allen Hamilton report, weak minority shareholder protection, lack of transparency, unreliable accounting practices, and wide-spread “insider dealing” discourage small-scale investors and are responsible for a small and inefficient equity market. The report recommends legal reform to incorporate best practice corporate governance principles into Costa Rican commercial law, as well as a training and education campaign to enhance awareness of corporate governance, in order to achieve improved transparency, accounting practices, and minority shareholder protection. In June 2007, Costa Rica issued its first corporate governance code, which employs a voluntary “comply or explain” model where an adherence report will be reviewed by an external auditor. In June 2009, the National Council for the Supervision of the Financial System published the final version of an obligatory Regulation of Corporate Governance for regulated entities, which will be have to be applied from November 30, 2009 onwards. Nevertheless, publicly available information does not directly address Costa Rica's compliance with the Organization of Economic Cooperation and Development's Principles of Corporate Governance.
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ENInternational Standards on Auditing
Audits in Costa Rica are conducted in accordance with the standards issued by the Institute of Public Accountants of Costa Rica (CCPA). Through two resolutions adopted in 1998 and 2002, International Standards on Auditing (ISAs) and their Interpretations issued by the International Federation of Accountants (IFAC) were adopted as the basis for the conduct of audits and related services in Costa Rica. However, the IFAC has been revising and issuing new standards and interpretations, and in 2005, based on the recommendations of the Auditing Committee of the CCPA, the Steering Committee issued Circular No. 07-05, which repealed the Resolutions of 1998 and 2002, and adopted the most recent version of ISAs and their Interpretations. In addition, the Circular stipulated that all modifications to the adopted international standards and interpretations, as well as new ISAs and Interpretations issued in the future by the IFAC, will be automatically considered incorporated in the Costa Rican requirements for mandatory application. The CCPA can make recommendations for the application of the adopted standards, without changing the substance of the standards. In case of an absence of a translated version into Spanish ISAs, auditors should refer to the text in English available from the IFAC website.nterpretations issued by the International Federation of Accountants (IFAC) were adopted as the basis for the conduct of audits and related services in Costa Rica. However, the IFAC has been revising and issuing new standards and interpretations, and in 2005, based on the recommendations of the Auditing Committee of the CCPA, the Steering Committee issued Circular No. 07-05, which repealed the Resolutions of 1998 and 2002, and adopted the most recent version of ISAs and their Interpretations. In addition, the Circular stipulated that all modifications to the adopted international standards and interpretations, as well as new ISAs and Interpretations issued in the future by the IFAC, will be automatically considered incorporated in the Costa Rican requirements for mandatory application. The CCPA can make recommendations for the application of the adopted standards, without changing the substance of the standards. In case of an absence of a translated version into Spanish ISAs, auditors should refer to the text in English available from the IFAC website.
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IDAnti-Money Laundering/Combating Terrorist Financing Standard
Costa Rica is a member of the Caribbean Financial Action Task Force (CFATF). In 2007, the CFATF conducted a mutual evaluation of Costa Rica, in which it found the country to be either non compliant or partially compliant with an overwhelming majority of the Financial Action Task Force's (FATF) 40+9 recommendations and special recommendations. The CFATF report did note that Costa Rica has made substantial progress in enhancing its anti-money laundering (AML) framework since the last mutual evaluation in 2001. Nevertheless, the country has yet to criminalize the financing of terrorism. According to a 2009 U.S. Department of State (DoS) report, a terrorism bill was expected to be enacted by February 2009, but there is no further information publicly available as to the passage of this bill. The 2007 CFATF report identified other shortcomings regarding the sanctioning system of supervised financial institutions, as well as insufficient resources for its Financial Intelligence Unit and other law enforcement agencies. The report also points to the "the need for regulation introducing protection for reporting and tipping off, deficiencies in availability of corporate ownership information, as well as lack of AML regulations and guidelines in the insurance and DNFBP [Designated non-Financial Business and Professions] sectors." A 2008 report by the FATF lists Costa Rica as one of the jurisdictions which have undertaken to implement the FATF's 40 recommendations and 9 special recommendations.
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IICore Principles for Systemically Important Payment Systems
The IMF, in a 2003 assessment, identifies two systemically important payment systems (SIPS) in Costa Rica: the Real Time Gross Settlement (RTGS) system, Transferencia Electronica de Fondos, and the check clearinghouse, Compensacion y Liauidacion de Cheques. Managed and operated by the Central Bank of Costa Rica, they are both part of the comprehensive payment system named SINPE (Sistema Interbancario de Negociacion y Pagos Electronicos). The IMF notes that the technical infrastructure and security arrangements of SINPE “are of adequate quality,” but does not directly address its overall compliance with the Committee on Payment and Settlement Systems' Core Principles for Systemically Important Payment Systems. SINPE is commended as the most important initiative by Costa Rica to improve its payment system’s efficiency and safety, according to a 2003 report by the Center for Latin American Monetary Studies and the World Bank. However, the IMF report pointed out some weaknesses in SINPE’s legal framework, and recommended improving the legal foundation to provide better bankruptcy protection and settlement finality, as well as to clarify responsibilities for payment systems oversight. A 2008 World Bank report indicates that payment systems in Costa Rica are undergoing reforms to reduce system risk and provide better payment and settlement services, and that a number of recommendations made by the IMF in its 2003 assessment have been carried out.
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