NCEffective Insolvency and Creditor Rights Systems
In a series of reports published in 2003 and 2004, the World Bank noted that the insolvency and creditor rights systems in Honduras were deficient on the legislative, institutional, and cultural level. Troubled firms too often simply closed their doors, leaving creditors unsatisfied. The public perception was that recourse to the courts was too complex, too expensive, and too lengthy. The World Bank noted that there was no provision in law for reorganization or for the settlement of creditor claims out of court. It also stated that the judiciary had insufficient knowledge and experience in commercial law in general and insolvency proceedings in particular. Any new insolvency legislation in Honduras would need to address these shortcomings. The World Bank's 2008 "Doing Business" guide for Honduras noted that it takes, on average, 3.8 years to complete the process of closing a business in the country, at a cost equaling 15% of the estate, with an average recovery rate of 20.3 cents on the dollar. This compares to a regional average of 3.2 years, 16.4%, and 25.9 cents on the dollar. For member states of the Organization for Economic Co-operation and Development, the average time is 1.3 years, costing 7.5% of the estate, and returning 74.1 cents on the dollar.
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ENInternational Financial Reporting Standards
The World Bank, in a 2007 assessment of Honduran accounting and auditing practices, commended Honduras's efforts to improve financial reporting standards and noted that continued national initiatives were required for further alignment with international standards. Furthermore, the harmonization of national practices was also necessitated by the fact that Honduras is a signatory of the Dominican Republic/Central American Free Trade Agreement and was likely to become a party to a Free Trade Agreement with the European Union. The World Bank noted that to avail themselves of the benefits of these trade agreements, Honduran business enterprises needed to adopt internationally accepted rules and standards. A significant development in this direction was the enactment of the Accounting and Auditing Law, which mandates the application of International Financial Reporting Standards (IFRSs) beginning January 1, 2008, with earlier adoption permitted. The Law also establishes the Accounting and Auditing Standards Technical Board as the body responsible for the adoption of international standards. Moreover, the strengthening of auditing and accounting regulations in the financial sector was another significant improvement in the Honduran reporting framework. However, the World Bank identified a number of deficiencies. The January 2008 deadline for application of IFRSs was found to be "too ambitious." The World Bank recommended that the deadline be extended to 2011-2012. Also, it was unclear whether national Generally Accepted Accounting Principles would coexist with IFRSs or apply during the period of transition. Furthermore, the new Law requires application of IFRSs regardless of enterprise size. This means that small and medium size enterprises must also apply the international standards, but the World Bank observed that IFRSs were not designed for such entities. Instead, the World Bank argued that IFRSs should apply only to Honduran public-interest entities. At the time of the assessment, a technical assistance project financed by the Multilateral Investment Fund was working towards developing interpretations and guidelines for the application of IFRSs and International Standards on Auditing.
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IIPrinciples of Corporate Governance
According to a 2005 International Financial Law Review (IFLR) report on corporate governance, in September 2004, a new Financial System Law was passed introducing "modern" corporate governance regulations for financial institutions in Honduras. These regulations primarily focused on the accountability of directors and officers for corporate and management decisions and covered aspects that, thus far, did not exist in Honduran commercial law. Furthermore, a 2007 World Bank report notes that the enactment of the Accounting and Auditing Law mandates the use of IFRSs and International Standards on Auditing (ISAs) beginning January 2008. Finally, an ongoing World Bank project addresses issues concerning the oversight of the corporate sector and effectiveness of insolvency proceedings in Honduras. Despite these initiatives, a number of deficiencies were identified in the Honduran corporate governance framework. For instance, the 2007 World Bank report noted that the implementation deadline for IFRSs and ISAs was "too ambitious," given the fact that Honduras is faced with inadequate human and financial resources. Furthermore, the IFLR report observed that the establishment of a supervisory body for corporations is not likely to occur in the near future. Most significantly, the World Bank assessment pointed out that although a stock exchange exists in the national capital of Tegucigalpa, Honduras has no active securities market. Overall, there is insufficient publicly available information to assess Honduras's compliance with the Organization for Economic Co-operation and Development's (OECD) Principles of Corporate Governance.
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ENInternational Standards on Auditing
In a 2007 review of the accounting and auditing environment in Honduras, the World Bank observed that "commendable" efforts to improve Honduran financial reporting standards had been made. However, continued national initiatives were required for further alignment with international standards. This was also necessitated by the fact that Honduras is a signatory of the Dominican Republic-Central American Free Trade Agreement and had the "least stringent" audit requirements among member countries. However, as noted in the assessment, with the passing of the Accounting and Auditing (A&A) Law in 2004, Honduras made significant progress. Beginning in January 2008, the application of ISAs became mandatory. The Law also established the Accounting and Auditing Standards Technical Board as the national standard-setter, primarily responsible for the adoption of international standards. A technical assistance project financed by the Multilateral Investment Fund (MIF) was working towards developing interpretations and guidelines for the application of International Financial Reporting Standards and ISAs. However, the World Bank identified a number of deficiencies in the auditing framework, and found the January 2008 deadline for the application of ISAs to be "too ambitious." Therefore, the World Bank recommended that the A&A Law be amended to extend the adoption deadline to 2011-2012. The assessment also found that a lack of necessary accounting skills and knowledge was likely to impede the application of ISAs. Prior to the mandatory application of ISAs there were no Honduran auditing standards, and international audit firms applied ISAs for audit purposes.
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IDAnti-Money Laundering/Combating Terrorist Financing Standard
The legal framework that defines anti-money laundering (AML) and combating the financing of terrorism (CFT) measures in Honduras is generally effective, according to a 2004 World Bank report. Despite this rather positive outlook projected by the World Bank report, there is little in this report that actually identifies Honduras' compliance with the Financial Action Task Force's 40+9 recommendations and special recommendations. Moreover, the report mentions several deficiencies in the Honduran AML/CFT regime, of which the lack of proper legislation criminalizing the financing of terrorism as a separate offence is the most glaring. The World Bank also suggested that the resources and skills of the staff of the supervisory agencies need to be improved. A 2008 report by the U.S. Department of State indicates that Honduran authorities are in the process of making amendments to its legislation so as to bring the country in line with international standards. The International Monetary Fund's 2006 report also refers to the efforts the authorities are making to improve the country's AML/CFT regime. The Honduran financial intelligence unit (FIU), called Unidad de Información Financiera, is a member of the Egmont Group.
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NCCore Principles for Systemically Important Payment Systems
A 2004 World Bank report notes that there are two systemically important payments systems in Honduras, the Electronic Checks Clearing House, and the funds transfer system. However, the report observes that payments systems in the country have no legal basis to enable modern, reliable operation. The report adds that electronic documents and signatures have no legality and checks are still cashed physically. Settlement finality has no legal certainty and netting arrangements have no legal recognition. The CBH has neither defined nor implemented its payment systems oversight objectives and responsibilities. Further, there are no formal cooperation arrangements among different financial sector supervisory authorities and private sector entities. The report advises Honduras to define and implement a payments system policy and the oversight objectives of the CBH. The Honduran government has declared its intent to modernize and upgrade its payments system infrastructure. A regional technical assistance project under the aegis of the Inter-American Development Bank Fund has been active since 2003 to strengthen and harmonize the payments systems in Costa Rica, the Dominican Republic, El Salvador, Guatemala, Honduras, and Nicaragua.
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