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IMPROVED FINANCIAL REPORTING FOR EASY ACCESS TO FINANCE AND GROWTH OF BUSINESSLaunch of the GGF Project:
CORPORATE FINANCIAL REPORTING FOR IV CATEGORY ENTERPRISES
29 March 2018
Mr. Nikoloz GAGUA, Deputy Minister of Finance of Georgia
Mr. Ben LUCKOCK, Regional Portfolio Manager, UK
Embassy
Mr. Yuri DOLIDZE, Head of Service for Accounting,
Reporting and Auditing Supervision (SARAS)
Welcome Remarks:
Improved Financial Reporting for Easy Access to Finance and Growth of Business | GGF project
IMPROVED FINANCIAL
REPORTING FOR IV CATEGORY
ENTERPRISES
Project overview by:
Mr. Michael WELLS, GGF Project Team Leader
Improved Financial Reporting for Easy Access to Finance and Growth of Business | GGF project
Micro, Small and Medium Enterprises (MSMEs) generate immediate employment opportunities with relatively low investment. In addition, they support entrepreneurship development and innovation.
Rational behind the reform/project
94%
6%
43%
57%
21%
79%
99%
1%
67%
33%
57%
43%
Georgia
EU
2017 May Annual Report on EUROPEAN SMEs 2015/2016
Statistics indicate that Georgia has room for improvement of value added and employment rates in MSMEs.
% of active Enterprise % of employment % value added
4Improved Financial Reporting for Easy Access to Finance and Growth of Business | GGF project
Note: Category IV entities cannot be a sole entrepreneur.
Regulatory Framework – Classification criteria and requirements
for IV category enterprises
Improved Financial Reporting for Easy Access to Finance and Growth of Business | GGF project
Entity Classification
IV Category (Micro)
III Category (Small)
II Category (Medium)
I Category (Large)
Assets
< 1 mil.
< 10 mil.
< 50 mil.
> 50 mil.
< 2 mil.
< 20 mil.
< 100 mil.
Revenue ANE
> 100 mil.
< 10
< 50
< 250
> 250
Standard for Financial Reports
Local Standard
IFRS For SMEs
IFRS For SMEs
IFRS
Management Report
Voluntary
Voluntary
Mandatory
Mandatory
Audit Requirement
Voluntary
Voluntary
Mandatory
Mandatory
5
Category IV enterprises will benefit from:
Having basis to more comprehensive
accounting frameworks
Reduced administrative burden/cost
savings
More complete and accurate financial
information available to:
Credit rating agencies
Banks and Micro-financiers
Tax Office
Support the social and economic development strategy of Georgia
Benefits of the reform/project
Improved Financial Reporting for Easy Access to Finance and Growth of Business | GGF project 6
Process of standard development
Improved Financial Reporting for Easy Access to Finance and Growth of Business | GGF project 7
Assessment Phase
Develop new Standard
Implementation support
• Analysis of Georgian, Estonian, UK, Polish, Irish, Singaporean GAAP
• Online survey of IV Category enterprises
• In-depth interviews with accountants
• Drafting working papers
• Consultative Group meetings
• Kick-off event
• Drafting Standard
• Communicating with SARAS and other stakeholders
• Communicating the draft standard with Consultative Group
• Self-learning material
• Awareness workshops
• Pilot financial statements
• Success stories of 10 IV Category Enterprises
February 2018 March 2018 June 2018 October 2018
Project Team
8
Team Leader
Mike Wells, International expertbringing expertise of financial accounting and reporting
Senior Consultant
Aleksandra Rytko,International expertSupporting team leader in drafting corporate financial accounting and reporting standards
Quality Assurance
Lasha Janelidze,Partner at PwC GeorgiaAudit and AssuranceQuality assurance, beneficiary relationship
Project Manager
Nini Eliashvili,Manager PwC GeorgiaAdvisory ServicesOverseeing the overall project execution
Communications Expert
Nina Beradze,Manager PwC Georgia Advisory ServicesSupporting developing communication channels and campaigns for raising awareness
Senior Consultant
Levan Batiashvili,Senior Consultant PwC GEAdvisory ServicesSupporting team leader in drafting corporate financial accounting and reporting standards
Senior Consultant
Nika Koiava,Senior consultant PMCGSupporting team leader in drafting corporate financial accounting and reporting standards
GESI Consultant
Mariam JaJanidzeGender Equality and Social Inclusion Expert Researcher
Nino Khatisashvili,Consultant PMCGsupporting research and analytics
Improved Financial Reporting for Easy Access to Finance and Growth of Business | GGF project
Results of the Assessment
Improved Financial Reporting for Easy Access to Finance and Growth of Business | GGF project 9
Responses rate: 16,169 out of 80,000 entities (20%)
In-depth in-person interviews: 24 accountants serving more than 60 IV
Category enterprises
Key findings:
• Category IV entities are aware of the forthcoming Standard
• Self-learning material will be useful if detailed; written in simple language; and including examples for a range of industries
• Would also find useful if practical workshops/trainings useful
• Wider stakeholder engagement ensured to support SARAS in developing Category IV Standard.
• Expert team of accountants, tax authorities, regulators, banks and professional associations formed to discuss Staff Papers, including preliminary views on basis of:
• Experience from other jurisdictions
• Georgian context (stakeholder perspectives analysis)
• EU Accounting Directive
• Opportunity for other interested stakeholders to contribute to the Exposure Draft Standard.
Consultative Group
Improved Financial Reporting for Easy Access to Finance and Growth of Business | GGF project 10
Simplification considerations
• satisfy legal requirements
• Cost or burden < benefits to Georgian Category IV-entities
• Minimise complexities in the accounting
• Do not explicitly specify detailed accounting requirements forinfrequent transactions, conditions and events (next slide).
Consultative Group consensus (1)
Improved Financial Reporting for Easy Access to Finance and Growth of Business | GGF project 11
Consultative Group consensus (2)
Improved Financial Reporting for Easy Access to Finance and Growth of Business | GGF project 12
Infrequent economic phenomena
• long term employee benefits
• investments in associates, joint ventures or subsidiaries
• share-based payment
• complex financial instruments
• business combinations and goodwill
• equipment dismantling and site restoration costs
• service concession arrangements
• sale and lease-back transactions
• hyperinflation
• expenditures on the exploration for and evaluation of mineral resources
• multiple element sales
IV Category simplification
• True and fair view presumption (only 3 notes)
• No consolidated financial statements
• No accounting policy choices and appropriately simplified accounting
• Simplified measurement (no fair value, no actuarial valuation methods, etc.)
Consultative Group consensus (3)
Improved Financial Reporting for Easy Access to Finance and Growth of Business | GGF project 13
Other Categories
• Extensive note disclosures & presentation judgements
• Consolidated and separate financial statements
• Many accounting policy choices and much more complex accounting
• Complex measurements requiring experts and significant judgements
Transition
• Transition principle: retrospective application (apply from01/01/2017)
• However, in first financial statements can choose:
• not to present comparatives (apply from 01/01/2018)
• to present only balance sheet (apply from 31/12/2018)
• to use deemed costs
Consultative Group consensus (4)
Improved Financial Reporting for Easy Access to Finance and Growth of Business | GGF project 14
Level of complexity of IV Category equivalent Standards
Improved Financial Reporting for Easy Access to Finance and Growth of Business | GGF project 15
Le
ve
l o
f C
om
ple
xit
y
EU Directive Minimum Requirements
IFRS for SME / Micro Guide
Georgian IV Category Standard
ASEAN Micro Standard
UK and Ireland FRC 105
Polish Micro Standard (AA)
Estonian Micro GAAPDefunct 2005
Georgian GAAP
Moderated by: Mr. David MCHEDLIDZE, SARAS
Panelists:
Ms. Nino CHIKOVANI, President of Georgian Chamber of Commerce and Industry
Mr. Irakli KHATIASHVILI, Head of Micro Business
Management Division, TBC Bank
Mr. Aleksandre GOMIASHVILI, General Director, CreditInfo
Mr. Shalva Akhrakhadze, Director, Financial Laboratory
Mr. Levan BAINDURASHVILI, Revenue Service
Ms. Mariam JAJANIDZE, Gender Equality Social
Inclusion expert
Panel discussion: Introduction of financial reporting standards, potential benefits and key players
Improved Financial Reporting for Easy Access to Finance and Growth of Business | GGF project 16
• Based on the findings from the IFC’s Enterprise Finance Gap Assessment Database, it
is estimated that globally there are roughly 9.34 formal million women-owned
SMEs in over 140 assessed countries, which is approximately one third of all
formal SMEs;
• IFC estimates that as many as 70 percent of women-owned SMEs in the formal
sector in developing countries are unserved or under-served by financial institutions. This amounts to a financing gap—and a missed business opportunity—of approximately $260 – $320 billion per year.
• SME Policy Index: Eastern Partner Countries 2016 recommends Georgia to introduce targeted support measures for women entrepreneurs
Gender Equality and Social Inclusion
FMC Manual| GGF project 17
Statistical information
• 52.08% percent of Georgian population are women.
• 21.9% of men and 41.1% of women are economically inactive (2015);
• 31% of newly established enterprises are registered by women from 2013 for each year.
Preliminary Findings:
• Challenges in access to finance;
• Lack of awareness on how to start entrepreneurship;
• Available gender statistic is not enough to identify key challenges
Gender Equality and Social Inclusion
FMC Manual| GGF project 18
Questions?
FMC Manual| GGF project 19
THANK YOU
FMC Manual| GGF project 20