Georgia has signed an association agreement with EU and assumed obligation to harmonize the national legislation with the EU requirements.
One of the EU instructions obliges the country to introduce new standards of financial transparency into the private sector.
he Government has shaped a new office to increase transparency of Georgian business sector and adjust it to European standards. The project calls for developing a joint electronic portal, in which private companies will publish annual financial indicators. Under the changes, companies will be obliged to conduct quality audit of IFRS international standards and publish them.
The mentioned reform will be controlled by the Service for Accounting, Reporting, and auditing supervision, which is a subdivision of Ministry of Finance of Georgia.
Financial reports submitted by auditor companies to the mentioned office will be published on specially developed webportal – Reportal.ge
The Caucasus Business Week (CBW) has inquired the purpose of the mentioned reforms, expected results and whether these changes are acceptable for private sector.
“One of the strategic objectives of the reform is to promote capital market, financial market and improve investment environment”, the office Chief Iuri Dolidze said.
«Financial reporting is important for not only capital market development, but also direct investments, credit organizations, banks, nonbank financial sector. Access to reliable financial information on the market is important», Dolidze noted.
This requirement is embodied in the law on bookkeeping, reporting and audit, which was enacted in June 2016. Under the mentioned law, companies are divided in categories and each category is adapted to the due standard, he said.
The legislation obliges companies with more than 100 million GEL revenues and over 250 employees to publish detailed reports.
The legislation differentiates the following groups of companies:
- Category 1 – annual revenues exceed 100 million GEL, assets value exceeds 50 million GEL and companies employ more than 250 persons.
- Category 2 – Annual revenues total 20-100 million GEL, assets value is 10-50 million GEL and companies employ less than 250 persons.
- Category 3 – annual revenues total 2-20 million GEL, assets value is 1-10 million GEL and companies employ 10-50 persons. Category 4 – annual revenues make up about 2 million GEL, assets value is about 1 million GEL and companies employ about 10 persons.
Category 5 – Public Interest Body, commercial banks, insurance companies, companies playing at stock exchanges, microfinance organizations.
Major companies are obliged to submit financial reports prepared by auditor companies to the mentioned new office until October 1, 2018, Dolidze said.
Medium and small companies are obliged to submit financial reports to the supervisory office and then to publish them until October 1, 2019.
The reformation package also calls for introducing an obligation of auditing only first and second category companies. Medium and small business sectors are not obliged to carry out auditing services, Dolidze noted.
«This requirement does not refer to companies with less than 20 million GEL turnover, less than 10 million GEL assets and about 50 employees. This segment implies third and fourth category companies», Dolidze said.
In response to the question whether the mentioned reform will make business sector take certain costs, Dolidze explained that major companies (about 250-300 ones) have gained huge experience of auditing services for many years. This requirement implies companies without the mentioned practice. This category will have to take insignificant costs, Dolidze said.
Private Sector – Major Business
Businessman Temur Chkonia
«This should be prestigious for businessmen», businessman Temur Chkonia commented on European instructions that oblige business sector to publish financial reports starting October 2018. I am ready to start publishing financial reports even today, Chkonia noted.
All businessmen should be interested to keep their business activities transparent. At the same time, the Authorities should realize the huge role of business sector in state economy development. The Authorities will more respect businessmen, when economic process grows transparent, Chkonia said.
«All businessmen should divulge their revenues, the way they act and the role they play in the economy. This should be mandatory and prestigious for businessmen. After declaration, the Government will have more respect to people, who determine economic condition of the country. If Georgia is a rich country, this is the merit of businessmen», Chkonia noted.
When competitor businessmen see the competitor company’s indicators, they become more motivated to surpass competitors. «There will be much jealousness, but you should win by hardworking, not by envy», Chkonia noted.
Businessman Lasha Papashvili
«Businessmen and trading facilities do not have more confidential information than the banking sector. I do not think these standards will harm business sector», businessman Lasha Papashvili commented on the European instructions.
Transparency brings only positive results for business sector, he said and hailed an introduction of the mentioned obligation.
«I have not analyzed this issue in details, but we used to publish these indicators for our bank, the whole period of operation. I started working in the banking sector in 1995 and since then nobody was harmed by these procedures. Even more so, small and medium businessmen and trading facilities do not have more confidential information than the banking sector. I do not expect these instructions to bring negative results. On the contrary, these instructions will assist consumers, competitor companies, young people who plan to take efforts in business», Papashvili said.
Small Business – LLC Imeri tobacco manufacturing company
Tamaz Turmanidze, head of LLC Imeri welcomes the EU instructions that oblige companies to publish financial reports.
«We have always kept our working process transparent and we will follow this practice in the future too. I see no problem to upload an annual financial report onto a specific website», Turmanidze noted.