Colombia has a modernized economy consisting of various/diverse industries and an educated workforce. Despite the country's ongoing internal conflict, the economy of Colombia is growing as numerous multinational companies are expanding their operations in the country. The report cited liquidity in the market as a key concern, especially after the 1997-99 recession, which the company has for the most part recovered after its hard impact on the country.
-Colombia's democratic(?) government has begun implementing economic reforms and is dedicated to solidifying the foundations of the economy. It is reforming the economic and legal systems to increase public confidence in the markets, draw in additional investors, and overall strengthen the economy. The government plans on (or has?) reforming the accounting profession by adopting (adopted) international accounting and auditing standards, establishing international best practice in a code of ethics for accountants, and developing licensing requirements essentially equivalent to those found internationally.
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-The country's current accounting requirements are subpar. Colombia has several sources that develop the accounting rules and standards whose requirements are inconsistent and clash among one another. Their contradictions cause confusion amongst practitioners, resulting in lower quality financial reporting.
-Colombian law allows the tax authorities to develop accounting rules, and such rules influence the accounting used to produce/prepare the audited financial statements. Since the rules established by tax authorities conflict with financial reporting standards, the financial statement users do not always have access to adequate market-oriented financial information.
-Multiple laws require certain companies to prepare consolidated financial statements and require filings of quarterly financial statements.
-Colombian law requires companies meeting certain requirements to appoint a "revisor fiscal" to perform the annual audit. The "revisor fiscal" is not equivalent to an external independent auditor; a "revisor fiscal" performs additional functions. The "revisor fiscal" expresses an opinion on the financial statements, certifies the effectiveness of internal control, safeguards company assets, ensures fulfillment of obligations to different government agencies, and controls and analyzes transactions and operations. Therefore, a "revisor fiscal" violates the independence requirements for an external auditor by the International Federation of Accountants.
-Top management and the board of directors are held responsible for any financial statement misrepresentations, and owners and shareholders are even allowed to take management to court.
-Companies are required to have their balance sheet and income statement published in a widely circulated newspaper; however, the World Bank is concerned since the notes to the statements are not published with them, readers may misconstrue or misunderstand the information.
-Colombia's Central Board of Accountancy (CBA), which regulates public accounting and auditing, is under the Minister of Education. The ROSC indicates/mentions/ that only a bachelor's degree, not professional certification, with one year of accounting work experience is required to become a public accountant. A registered public accountant can become a "revisor fiscal" of any type or size of a company without having to take an exam or have work experience. The ROSC mentions that instead of requiring proper licensure, public accounting is more of an accredited profession. It suggests that many public accountants are inadequately taught and trained when starting out their careers.
-The CBA can inflict proper sanctions on public accountants who violate accounting and auditing requirements, but unfortunately it does not have a means of monitoring or enforcing the requirements. The ROSC expresses that the CBA is under-budgeted and lacks the ability to effectively regulate the accounting profession.
-The code of ethics that registered public accountants must follow in Colombia is not as stringent as that of the IFAC Code of Ethics for Professional Accountants.
-The ROSC claims university accounting curriculum and the teaching quality should be reformed. The academic accounting curriculum focuses more on the legal requirements of bookkeeping rather than modern accounting, and the auditing instruction concentrates on the role of the "revisor fiscal." The ROSC asserts that only four accounting programs at universities are high quality, so the programs need to be revamped with quality instructors who have adequate knowledge of the modern accounting theories and practices.
-The ROSC recommends implementing a practical experience qualification/requirement that includes adequate training in order to become certified. The ROSC is also concerned about the absence of required continuing professional education.
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-The Colombian Congress is the only body with authority to create Colombian GAAP, and it has delegated its authority to the Technical Council for Public Accounting. Colombian GAAP is inconsistent with international standards and with U.S. GAAP and no Colombian standards exist for independent auditors of financial statements.
-Regulatory bodies do not effectively or efficiently enforce the accounting standards of the "revisor fiscal" or impose punitive sanctions.
-Colombia does not have a regulatory body to ensure auditors comply with auditing standards and any code of ethics.
-Accounting rules issued by other regulatory bodies contradict Colombian GAAP, which produces confusion among practitioners.
-A ROSC review of 20 financial statement samples found violations of Colombian GAAP in a few areas. The review found insufficient disclosure of accounting policies, related party transactions, and events subsequent to the balance sheet date; lack of presentation of accounts receivable bad debt; and problems with consolidated financial statements,
The review also found various nondisclosures, such as nondisclosures of provisions relating to restrictions, inventory, employee benefit cost, financial instrument, foreign exchange rates, earnings per share, tax, and stockholders' equity.
-Many of the audit reports by "revisors fiscales" that were reviewed for the A&A ROSC contained deficiencies of Colombian legal requirements on audits.
-The ROSC found that stakeholders are concerned about the declining quality and usefulness of financial statements resulting from ineffective enforcement, inadequate university education, insufficient disclosures, a lack of "revisor fiscal" independence, and the influence of tax authorities.
-The ROSC states numerous policy recommendations developed with participation of various stakeholders.
-Colombia should implement a new law that modifies the current ones regarding accounting, auditing, financial reporting, and the accounting profession. The new law is to mitigate the conflicting frameworks and provide a platform on which regulators can depend.
-The new law should authorize a Higher Council to establish accounting and auditing standards, enforce IAS and ISA, provide guidelines on the employment of IAS and ISA in Colombia, release simplified financial reporting standards for organizations that are small and medium-sized, and lead a movement to improve accounting education and training.
-The ROSC recommends establishing a regulatory body charged with the enforcement of standards and a code of professional ethics. The regulatory body would be responsible for issuing practice licenses upon completion of qualifications, monitoring for noncompliance of standards, effectively sanctioning violators, and reviewing the practices of auditors.
-The new law should keep the requirements of the "revisor fiscal," but should strip the independent auditor of management activities.
-Colombia should follow international best practice by requiring independent auditor candidates to pass a professional examination and have adequate experience before granting certification.
-Colombia should legislate the creation of a professional organization of independent auditors. The organization would foster the audit profession and work to maintain high quality accounting, auditing, and reporting practices.
-The Higher Council on Accounting and the new professional organization should partner to provide training on IAS, ISA, and IFAC's Code of Ethics for Professional Accountants.
-Professors need to be retrained, and accounting, auditing, and ethics programs at universities should be improved.
- The World Bank and IMF's August 2003 Corporate Governance Country Assessment Report on Observance of Standards and Codes reveals thatâ€¦
-Since only three shareholders own 63% of the capital, Colombia's capital market is the third highest concentrated of all the countries studied.
-The "Supervalores," under the Ministry of Finance, regulates the capital market and has the power to investigate and sanction.
-The "Supervalores" requires companies to have and disclose a "code of good governance," which guarantees shareholders will be protected and treated fairly.
-The ROSC evaluates Colombia's observance of the OECD Principle of Corporate Governance. It found thatâ€¦ [in presentation, just give overview and not the specific recommendations]
-Shareholders' rights are protected (p.4), stakeholders are incentivized to participate and perform well (p.10), stakeholders and board members can access pertinent information in a fair, timely, and cost-effective manner (pp.11, 12, & 16), the board ensures compliance with laws and considers stakeholder interests (p. 14),
-Shareholders' rights to participate in decisions and shareholder meetings could be enhanced (p.5). Shareholder approval should be required for transactions involving the acquisition or disposal of substantial assets. A group of shareholders totaling less ownership percentage than the current requirement should be able to call a meeting, and voting remotely should be made more feasible.
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-Shareholder redress should be made more effective. (p.8)
-The oversight function of the board of directors should be clearly delineated (p.13).
-The ROSC found a few/many areas needing improvements.
-disclosure of arrangements giving certain shareholders disproportionate control: The disclosure of arrangements giving certain shareholders disproportionate control should be improved. Any board of directors or management holdings should be disclosed as well as the names of shareholders holding more than a set percentage of shares. (p.6)
- the efficiency and transparency of markets for corporate control: the efficiency and transparency of markets for corporate control should be enhanced to allow for more protection of minority shareholders. (p.7)
-the weighing of costs and benefits of shareholders executing their voting rights: The ROSC mentions that shareholders should weight the costs and benefits of executing their voting rights. Also, companies should be required to describe any non-compliance of the code of good governance. (p.7)
-insider trading and abusive self-dealing: better rules prohibiting abusive self-dealing should be implemented, and insider trading should be monitored (p.9).
-conflicts of interest involving oversight board members and managers: Oversight board members and managers should be ordered to report any conflicts of interest and be prohibited from voting (p.9-10).
-disclosure of ownership percentages and related party transactions: the "Supervalores" should be more stringent in monitoring and enforcing the code of good governance and disclosures of ownership percentages and related party transactions (p.11 & 16).
-the quality of accounting and audits: Colombia should implement IAS and ISA in order to increase the quality of accounting and audits (p. 11-12).
-independence of external auditors: Colombia should require audits by an independent external auditor, separate from the "revisor fiscal" (p.12).
-the equitable treatment of all shareholders: minority shareholders should be given more participation in the nomination and selection of independent board members (pp.13-14).
-the oversight board's functions: The oversight board's responsibilities, and qualifications should be clearly defined, the directors should be adequately trained, and certain duties of the board should be required by law (pp.14-15).
-the independence of the board of directors from management: a minimum percentage of directors should be independent from management, the independent directors should be certified, and companies should be required to have an audit committee (p.15).
-summary of policy recommendations (p.16):
-Colombia should implement a law that establishes minimum corporate governance standards.
-Colombia should adopt IAS and ISA and should create an independent audit oversight board.
-Each regulatory body should be delegated clear responsibilities to minimize confusion.
-The "Supervalores" should enhance its roles of monitoring and enforcing disclosures and the code of good governance. It also should focus on disclosures of ownership percentages and related party transactions (repeat of another point).
-Colombia should require directors to be accredited.
- The International Monetary Fund's May 2003 Fiscal Transparency Report on Observance of Standards and Codes reveals thatâ€¦