ENEffective Insolvency and Creditor Rights Systems
According to R. Harmer and N. Cooper, writing for the EBRD in 2003, Serbia's national legislation governing insolvency had a high overall degree of compliance with the international standards articulated by a number of international organizations, including the World Bank Principles and Guidelines for Effective Insolvency and Creditor Rights Systems, although certain deficiencies remain. The 2003 EBRD assessment is based solely on the content of a draft version of a new bankruptcy law, which was subsequently adopted in 2004. It has not evaluated or assessed the effectiveness or practical operation and application of the law, nor has it evaluated institutional capacity to apply the law. The 2007 EBRD "Commercial Laws of Serbia" report, on the other hand, does mention the issue of "effectiveness" of the insolvency regime in the country. Citing the results of the 2004 EBRD Legal Indicator Survey on Insolvency, the 2007 report concludes that in practice there is a significant gap between the extensiveness of the statute and the effectiveness of its implementation.
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NCInternational Financial Reporting Standards
In 2005, the World Bank completed a ROSC on accounting and auditing in Serbia, in which it stated that Serbia adopted International Financial Reporting Standards (IFRSs) as issued by the International Accounting Standards Board, although banks, insurance companies, and listed entities follow in addition a set of standard forms and grids that do not comply fully with IFRSs. A 2009 survey of IFRSs adoption around the world by PricewaterhouseCoopers (PwC) also states that the local accounting standards are “nearly converged” with IFRSs, but a few differences still exist. PwC clarifies that for listed companies, IFRSs are permitted. Overall, the World Bank found the quality of financial information in Serbia to be weak due to the shortcomings in the statutory framework, inadequate enforcement of the existing fincial reporting requirements, and deficiencies in the academic education and professional training. It was thus recommended to amend existing laws and regulations to conform to the EU acqui communutaire, apply IFRSs to public interest entities only, limit statutory audits to large limited liability companies, and eliminate conflicting regulatory financial reporting requirements. In addition, the World Bank noted a strong need to improve and enhance the training and institutional capacity of the accounting profession. It also recommended forming a National Steering Committee to advise policymakers and regulators on implementing the recommendations.
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IDPrinciples of Corporate Governance
In 2004, the European Bank for Reconstruction and Development evaluated Serbia’s legal framework for corporate governance as being in "medium compliance" with the Organization for Economic Corporation and Development’s (OECD) Principles of Corporate Governance. A 2005 EBRD Legal Indicator Survey measuring the effectiveness of the corporate governance framework found that Serbia has a relatively effective framework for related party transactions, competent prosecutors in corporate cases, and mechanisms for a minority shareholder to request disclosure of corporate information. However, weaknesses remain in disclosure and transparency legislation, the enforcement of law, minority shareholder protection, the independence of statutory auditors, and the competence and experience of courts and market regulators. Moreover, low awareness of corporate governance and underdeveloped capital markets impede further development of corporate governance in Serbia. A 2009 Center for International Private Enterprises (CIPE) report recommends that the enforcement of laws and regulations be strengthened, the Law on Business Companies and other laws be harmonized, the personnel of boards of directors be completely separated from executive boards, and awareness of corporate governance be promoted. The main law regulating corporate governance in Serbia is the Law on Business Companies which was updated in 2004 to include some improvements particularly concerning minority shareholder protection and voting rights. The 2009 CIPE report notes that the law harmonized Serbia’s laws with the OECD principles and European Union directives. A corporate governance code was adopted by the Serbian Chamber of Commerce in 2006 but it is not commonly used in practice.
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ENInternational Standards on Auditing
According to the 2005 World Bank ROSC, International Standards on Auditing (ISAs) as promulgated by the International Auditing and Assurance Standards Board (IAASB) have been required for application in Serbia in all audits since 2003. The Serbian Association of Accountants and Auditors (SAAA) is responsible for translating ISAs into Serbian and, at the time of the World Bank assessment, was in the process of translating the 2005 version of ISAs. In a subsequent 2006 response to an International Federation of Accountants (IFAC) self-assessment, the SAAA states that translation of the 2006 Handbook of the IAASB pronouncements, including ISAs, is in the pipeline, and the 2006 IFAC Code of Ethics has been made mandatory for its members. Despite these achievements, the World Bank expressed concerns about the quality of financial reporting in Serbia, as the review of audited fincial statements conducted by the Bank’s team revealed that in practice auditors do not comply with the latest ISAs and the IFAC Code of Ethics. Moreover, there is no continuous professional development requirement for auditors, and the on-site inspections of audit firms exposed some weaknesses in the audit methodology. It was thus proposed to establish a National Steering Committee for the accounting and auditing reform to advise the the stakeholders on the implementation of the World Bank recommendations.
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IDAnti-Money Laundering/Combating Terrorist Financing Standard
In 2005, the Committee of Experts on the Evaluation of Anti-Money Laundering Measures and the Financing of Terrorism (MONEYVAL) of the Council of Europe conducted its second round of evaluation on Serbia against the Financial Action Task Force's (FATF) recommendations. However, this report was based on the old (2002) Methodology which was revised in 2004, and it cannot therefore be used as a source of assessment on Serbia's anti money laundering (AML) and combating the financing of terrorism (CFT) practices against the FATF's current requirements. Nevertheless, the report noted that at the time of the assessment, Serbia's AML/CFT regime did lack some essential components. A 2008 Progress Report by the European Commission notes that there has been little progress in Serbia's fight against money laundering since the 2005 mutual evaluation. The country has adopted a national strategy for the prevention of money laundering and financing of terrorism but still lacks any new legislation in these areas. According to the European Commission's 2008 Progress Report, current legislation is not in line with the Council directive on prevention of the use of the financial system for the purpose of money laundering and financing terrorist financing (Third Directive). A more recent report, in 2009, by the U.S. Department of State (DoS) also points to weaknesses in Serbia's implementation of AML/CFT measures. The FATF, however, in its 2008-2009 Annual Report names Serbia as one of the jurisdictions that has undertaken to implement the FATF's 40 recommendations and 9 special recommendations. According to the website of the Administration for the Prevention of Money Laundering, which serves as the country's Financial Intelligence Unit, MONEYVAL conducted an on site visit as part of its mutual evaluation exercise in Serbia in May 2009 to assess the compliance of Serbia’s AML/CFT regime with the FATF recommendations. The report is expected to be published by the end of the 2009.
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FCCore Principles for Systemically Important Payment Systems
In 2003, the NBS set up a real time gross settlement (RTGS) system and the clearing system, which according to the IMF's 2006 FSSA, represented a "milestone" in the restructuring of the Serbian payment infrastructure. The assessment notes that the most important system in the country is the NBS' RTGS system, which in 2004, settled 90 percent of all interbank payments (in terms of value) in Serbia. The IMF team therefore assessed this system and concluded that it fully complies with the Core Principles for Systemically Important Payment Systems (CPSIPS). Further, the NBS fully observes the four core principles concerning central bank responsibilities. The IMF recommends that to further improve the payment system, Serbia should simplify the legal, technical, operational and organizational issues important for the RTGS system; develop a risk analysis methodology and undertake regular risk analysis and business continuity procedures test; and prepare and publish a document on payment system objectives and policies to facilitate understanding and improve clarity. A more recent report, the 2008 World Bank publication on payment systems worldwide, indicates in its appendix that the RTGS system is the main large-value payment system in Serbia. Based on the results of the World Bank’s 2008 Global Payment Systems Survey, Cirasino and Garcia’s 2008 report evaluates a country's compliance with four distinct sub components which are broadly based on the Committee on Payment and Settlement Systems' (CPSS) Core Principles for Systemically Important Payment Systems. The component, "large value payment systems" addresses aspects of Core Principles (CP) III through CP X and the 2008 report by Cirasino and Garcia concludes that Serbia achieves "high level of development” for this component. Serbia also achieves "high level of development" for the legal and regulatory framework component, which covers CP I and to some extent CP II. Finally the third component of interest in the Cirasino and Garcia report is the payment system oversight component for which Serbia achieves a "medium-high level of development."
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