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February 2019

i

Abbreviations and Acronyms ............................................................................................ ii

Executive Summary ......................................................................................................... iii

Background, objectives and methodology ........................................................................ iii

Part one: establishing a professional body ....................................................................... iii

Part two: roles and responsibilities of IACA ...................................................................... iv

Part three: education and examinations ............................................................................ v

Areas for consideration ...................................................................................................... v

1. Preface ...................................................................................................................... 1

2. Objectives and Methodology ..................................................................................... 2

3. Background ............................................................................................................... 3

4. Part One: Establishing a Professional Accountancy Body ............................................ 5

4.1. Considerations in establishing a professional accountancy body and legislation ..... 5

4.2. Governance, committees, and management structure ............................................. 6

4.3. Financing the body ..................................................................................................... 7

5. Part Two: Roles and Responsibilities of a Professional Accountancy Body .................. 9

5.1. Membership requirements ........................................................................................ 9

5.2. IFAC’s Statements of Membership Obligations ....................................................... 10

5.3. Assuring the quality of professional services (SMO 1) ............................................. 11

5.4. Adoption and implementation of auditing standards (SMO 3) ............................... 11

5.5. Code of professional conduct and ethics (SMO 4) ................................................... 11

5.6. Public Sector Accounting Standards (SMO 5) .......................................................... 12

5.7. Investigation and disciplinary process (SMO 6) ....................................................... 12

5.8. Financial reporting standards (SMO 7) .................................................................... 12

6. Part Three: Education and the Examinations (SMO 2)............................................... 13

7. Areas for consideration ........................................................................................... 18

ii

CEO Chief Executive Officer

CFO Chief Financial Officer

CFRR [World Bank] Centre for Financial Reporting Reform

CPD Continuing Professional Development

EU European Union

IAASB International Assurance and Auditing Standards Board

IACA Institute of Accountants and Certified Accountants

ICARM Institute of Certified Auditors of the Republic of North

Macedonia

IAESB International Accounting Education Standards Board

IES [IAESB’s] International Education Standards

IESBA International Ethics Standards Board for Accountants

IFAC International Federation of Accountants

MoF Ministry of Finance

PAO Professional Accountancy Organization

PIE Public Interest Entity

QAS Quality Assurance System

ROSC Report on the Observance of Standards and Codes

SMOs [IFAC’s] Statements of Membership Obligations

CURRENCY: MACEDONIAN DENARS (MKD)

1 USD = 53.9 MKD as of January 31, 2019

1 EUR = 61.5 MKD as of January 31, 2019

iii

i. This institutional analysis has been produced within the framework of the EU-REPARIS

program1 implemented by the World Bank Centre for Financial Reporting Reform (CFRR), with

the objectives of providing policy options for regulating the accounting profession; reviewing

IACA’s performance against IFAC’s Statements of Membership Obligations; providing insights

to the Ministry of Finance in their legislative amendment process of the Law on Performance

of Accounting Services; and encouraging the accounting profession to offer enterprises,

especially SMEs, effective business support services and advice on accessing finance and

complying with regulatory requirements.

The analysis was performed at a strategic level, and it was anticipated at the outset that IACA,

as a very young body may not have implemented all the activities (or fulfilled all of the SMOs)

that might be expected of a mature Professional Accountancy Organizations (PAO). The

benchmarks used in the assessment are: International Federation of Accountants (IFAC) 2010

Guide to Establishing and Developing a Professional Accountancy Body2; IFAC’s Statements of

Membership Obligations (SMOs)3 as well as its International Education Standards (IES)4 .

ii. The 2014 A&A ROSC highlighted major issues related to accounting profession regulation in

North Macedonia, including: (i) the overregulation of accounting services and accounting

profession; (ii) the need to improve functioning of accounting professional organization IACA

in line with IFAC SMOs; and (iii) the need to improve collaboration between IACA and ICARM

(auditor’s professional organization).

iii. Republic of North Macedonia introduced regulation of accounting services and all

accountants, which is not a common practice and is not required by the EU legislation. While

1 EU REPARIS Program (In-Country and Implementation Support sub component (P153877-TF018944): http://web.worldbank.org/WBSITE/EXTERNAL/COUNTRIES/ECAEXT/EXTCENFINREPREF/0,,contentMDK:23650584~menuPK:9755227~pagePK:64168445~piPK:64168309~theSitePK:4152118,00.html 2 See http://www.ifac.org/publications-resources/establishing-and-developing-professional-accountancy-body 3 IFAC’s SMOs cover member bodies obligations to support the (a) adoption and implementation of international standards and other pronouncements issued by the IAASB, IAESB, IESBA, IPSASB and IASB as well as the (b) establishment of quality assurance and investigation and discipline systems. 4 The International Accounting Education Standards Board (IAESB), as an independent standard-setting body of IFAC, serves the public interest by strengthening the global world-wide accountancy profession by developing and implementing globally accepted IESs, aimed at increasing the competence of the global accountancy profession and reducing international differences in the requirements to qualify and work as a professional accountant.

iv

the Law on Audit established audit oversight system and defined the roles of responsible

institutions, such as CAOA and ICARM, the 2012 law on performing accounting services

effectively established the regulation of the entire accounting profession and required

establishment of IACA. The new draft law on accounting services is being prepared by the

MoF and among other things will seek to improve governance of IACA.

iv. Currently IACA faces significant governance challenges. These include: (i) functionality of

governance bodies (there are effectively two governing boards and there is no clarity

regarding their roles and responsibilities); (ii) limited number of committees and absence of

committees in charge of audit, ethics, professional standards, education and discipline; (iii)

absence of proper accountability mechanisms, including a requirement to perform annual

audits; (iv) limited number of executive staff and absence of technical staff responsible for

particular technical area.

v. Although IACA collects significant resources form its members, its expenditures need to be

more efficient. A significant share of revenues is spent to outsource CPD activities instead of

building inhouse capacity for education and CPD. IACA also need to perform a multi-annual

financial forecast to help ensure sustainability of operations, and over time establish a

modern management information system to capture all aspects of IACA activities.

vi. IACA has only two categories of membership, accountants and professional accountants,

which are differentiated by entry requirements and the type of accounting work they can

perform. Accountants have fewer entry requirements and are only allowed to perform

accounting work for sole proprietors, associations and foundations. Certified accountants can

perform work on all types of entities, and there are also differentiated services accounting

firms can offer depending on qualifications and number of their owners and employees. There

are no such types of members as fellow, associate, accounting technician, student, etc. IACA

maintains a public register of its members.

vii. Overall, IACA is not compliant with all IFAC SMOs, and significant effort is needed to build

institutional capacity to ensure full compliance and open the possibility of IFAC

membership. In summary: quality assurance over the work of professional members (SMO 1)

is only at its incipient stage, and once developed, it needs to be tailored to specifics of

accounting work; education (SMO 2) – see separate section below; audit and related

standards (SMO 3) is not relevant for IACA; the IESBA’s Code of Ethics (SMO 4) is applicable

but it needs to be updated by ICARM, which is responsible for its translation and adoption;

the investigation and disciplinary system (SMO 6) needs formally documented operating

procedures and processes to ensure due process and independent review of alleged breaches

of discipline; translation and adoption of IFRS (SMO 7) needs to be enhanced to allow timely

translation and adoption of most recent versions of IFRS and IFRS for SMEs.

v

viii. A new draft Law on Performance of Accounting Services introduces significant changes in

the education framework for Accountants and Certified Accountants. The contemplated

education framework within the draft Law is broadly aligned with the requirements of the

International Education Standards (IES), as it assigns responsibility to the Institute of

Accountants and Certified Accountants (IACA) to develop an initial professional development

program and conduct a professional exam (i.e. IESs 1-6) in addition to its present responsibility

for conducting continuing professional development (i.e. IES 7). The new education

framework would be applicable to new members of IACA once the draft Law becomes

effective.

ix. Developing an initial professional development program aligned with IES requirements is a

significant undertaking for IACA considering its present stage of maturity. The 2014 ROSC

A&A Update noted that there are considerable overlaps in the professional and educational

requirements for accountants and auditors. ICARM’s professional education and examination

infrastructure has already been established; it should therefore collaborate with IACA to

achieve economies of scale and transfer knowledge while establishing and implementing the

newly contemplated education framework.

x. The main areas for consideration arising from this report are summarized below.

• In respect of IACA’s legislative basis and oversight:

o The new draft Law on Accounting Services is a good opportunity to further

improve accounting regulation and functioning of IACA: (i) ease regulatory burden

for smaller and micro- entities and not require them to hire accountants that are

IACA members; (ii) consider regulating only external accounting services; (iii)

improve governance structures of IACA; (iv)require IACA to comply in full with

relevant IFAC SMOs; and (v) define an appropriate oversight of IACA by CAOA.

• In respect of the organization of the accountancy profession in North Macedonia:

o Over the medium-to-long term, revisit the organization of the accountancy

profession to avoid duplication and ensure its long-term development. Initially,

stronger cooperation is needed between ICARM and IACA; over the longer term,

consider unifying the profession into a single PAO.

• In respect of IACA’s finances:

o IACA should revise its financing structure to support in an appropriate way its

operations. This would include optimization of expenditures and revision of the

arrangement of CPD; implementation of long-term financing projections and over

vi

medium-to-long-term introduce a comprehensive management information

system (MIS).

• In respect of IACA’s operational systems and procedures:

o Revise the governance and committee structures and over time recruit and retain

professional executive staff.

• In respect of IACA’s roles and responsibilities as a professional accountancy body:

o IACA should develop a detailed plan to come into compliance with IFAC SMOs and

a strategy to apply for IFAC membership.

• In respect of IACA’s education and professional qualification:

o As ICARM already had a developed and operating IPD program for auditors, IACA

should cooperate with ICARM to achieve economies of scale and transfer

knowledge while establishing and implementing the newly contemplated

education framework.

o The education framework for aspiring and professional accountants should be

updated to reflect the competence-based approach required by the revised

International Education Standards.

o In respect of CPD, IACA needs to: formulate CPD requirements commensurate

with the professional activities of its various types of members; and establish a

scheme to acknowledge and recognize CPD delivered other than by IACA-

accredited bodies.

1

1. This report is produced within the framework of the EU-REPARIS program5 implemented by

the World Bank Centre for Financial Reporting Reform (CFRR). As candidates or potential

candidates for EU enlargement, the countries of Southeast Europe, including Albania, Bosnia

and Herzegovina, Kosovo, Republic of North Macedonia, Montenegro and Serbia, are

integrating more closely with the EU and the EU's internal market, and aligning their

legislative frameworks with the EU acquis communautaire. EU-REPARIS has been designed to

help and encourage this process of integration. It helps address the need for better

institutional frameworks, aligned with the acquis and harmonized regionally; encourages the

accounting profession to offer enterprises, especially SMEs, effective business support

services and advice on accessing finance and complying with regulatory requirements; helps

stakeholders better understand the relationship between improved financial reporting and

access to finance; and develops supportive networks of institutions among the countries of

Southeast Europe, building sustainability and improving awareness of the benefits and

successful approaches to corporate financial reporting reform. EU-REPARIS builds on the Road

to Europe - Program of Accounting Reform and Institutional Strengthening (REPARIS) which

ran from 2008 to 2014. The program plan specifically provides for an institutional analysis of

the professional organization of accountants in North Macedonia.

2. This report was prepared by Senior Financial Management Specialists Kalina Shukarova

Savovska and Andrei Busuioc on the basis of fieldwork in December 2018 under the guidance

of Jarett Decker, Head of the CFRR. The team acknowledges the extensive and open

cooperation and assistance received while researching and drafting this report particularly

from the Institute of Accountants and Certified Accountants (IACA) and also from the Ministry

of Finance (MoF).

3. This report is a product of the staff of the International Bank for Reconstruction and

Development / The World Bank. The findings, interpretations, and conclusions expressed in

this paper do not necessarily reflect the views of the Executive Directors of The World Bank

or the governments they represent.

5 EU REPARIS Program (In-Country and Implementation Support sub component (P153877-TF018944): http://web.worldbank.org/WBSITE/EXTERNAL/COUNTRIES/ECAEXT/EXTCENFINREPREF/0,,contentMDK:23650584~menuPK:9755227~pagePK:64168445~piPK:64168309~theSitePK:4152118,00.html

2

4. The institutional analysis has the following major objectives:

• To provide policy options to IACA on the areas remarked on and raised in previous

analytical reports, notably the draft 2014 Accounting & Auditing (Update) ROSC.

• To assess IACA’s performance against IFAC’s Statements of Membership Obligations,

which are important in the establishment and development of a professional

accountancy body.

• To provide insights to the Ministry in their legislative amendment process of the Law

on Performance of Accounting Services, insofar as they highlight gaps and capacity

constraints which need to be considered in the revised Law implementation process.

• To provide insights and guidance that encourage the accounting profession to offer

enterprises, especially SMEs, effective business support services and advice on

accessing finance and complying with regulatory requirements.

5. The assessment was performed at a strategic level, and it was anticipated at the outset that

IACA, as a very young body may not have implemented all the activities (or fulfilled all of the

SMOs) that might be expected of a mature Professional Accountancy Organizations (PAO).

During the field assessment, the approach was to focus on activities that have been

conducted and highlight areas where IACA further needs to develop capacities and processes

in the medium and long-term.

6. This assessment benchmarks IACA against good practice guidance concerning the role of the

accountancy profession and the role and responsibilities of professional accountancy bodies

as provided in IFAC’s 2010 Guide to Establishing and Developing a Professional Accountancy

Body6 as well as its accompanying publications and guidance, where applicable. It also

benchmarks IACA against the IFAC’s Statements of Membership Obligations (SMOs) as well

as its International Education Standards (IES) which are considered benchmarks of good

practice for member bodies to assist them in ensuring high quality performance by

professional accountants.

6 See http://www.ifac.org/publications-resources/establishing-and-developing-professional-accountancy-body

3

7. The North Macedonian Accounting and Auditing profession is regulated by two distinct laws:

The Law on Audit and the Law on Performing Accounting Services. The Law on Audit provides

for the creation of a public oversight system for the statutory audit function, in line with the

EU Statutory Audit Directive, and clarifies the respective roles of the oversight body – the

Council for Advancement and Oversight of Audit, (CAOA)-- and the Institute of Certified

Auditors of the Republic of North Macedonia (ICARM). With the Law on Performing

Accounting Services, a body of professional accountants i.e. the Institute of Accountants and

Certified Accountants (IACA) was established. Although it was formed in 2012 with mandatory

membership by law for accountants, the Body did not become operational till 2017.

8. In regard to the Law on Performing Accountancy Services and the set-up of IACA, the 2014

Update ROSC A&A, among other things, highlighted the following important considerations:

a. Further improve the Law on Performing Accountancy Services. The present Law

imposes equal requirements for all accountants, no matter if they are engaged in public

practice or in business. This is not a preferred approach taken by EU member states7.

Such regulatory requirements could have disproportionate financial impact for a

significant number of accounting technicians employed as administrative staff or

engaged by small firms for provision of basic bookkeeping and accounting services, as

well as raising costs for the businesses they serve, and thus impeding growth of the SME

sector. Furthermore, access to the profession for technically educated high school or

university graduates could be unnecessarily prolonged and employability of youth

decreased by the requirement to hold a professional certificate for roles involving

maintaining basic bookkeeping activities.

b. IACA should function in accordance with IFAC’s standards/benchmarks for

professional accountancy organizations referred to as the Statements of Membership

Obligations (SMOs) and should seek to join IFAC as an associate member in the

medium term, with a longer-term goal of becoming a full member.

7 Clearly there are countries in Europe that require certification through examination (Germany, Austria, Belgium, France, and Netherlands, to name several) in order to practice as an accountant or tax advisor. This commonly refers only to accountants in public practice engaged in issuing financial statements or providing accounting and tax consulting services. But there are also countries that regulate only part of the profession, mostly the public practice in statutory audit (Denmark, Finland, Bulgaria, Croatia etc.) and, therefore, do not subject all accountants to similar requirements. In Norway, there is a requirement for “external accountants” and “external accounting firms” to be authorized by the Financial Supervisory Authority of Norway. The term external means that the person responsible for preparation of financial statements of the company is not an employee of the company. External accounting firms in Norway should have an authorized external accountant as Chief Executive Officer, and only accountants that choose to be authorized as external accountants need to complete university education with concentration in accounting, complete relevant professional experience of at least two years and adhere to the requirements for continuing professional education.

4

c. The collaboration between ICARM and IACA should be enhanced. There are

considerable overlaps in the professional and educational requirements for accountants

and auditors. Given the small size of the domestic market and resource constraints,

there seems potential benefit in developing close co-operation between ICARM and

IACA from the outset.

9. This institutional analysis aims to build on the findings of these reports by reference to IFAC’s

Guide to Establishing and Developing a Professional Accountancy Body as well as its

accompanying publications and resources of IFAC, including Tools and Resources to Support

the Development of the Accounting Profession8. Further, the Ministry of Finance recently

initiated a process of significantly amending the Law on Performing Accounting Services. The

planned institutional analysis could also be useful to the Ministry in their legislative

amendment process, as far as it highlights gaps and capacity constraints which need to be

considered in the revised Law implementation process.

8 See http://www.ifac.org/publications-resources/establishing-and-developing-professional-accountancy-body

5

10. The profession in North Macedonia is organized in two professional accountancy

organizations, Institute of Certified Auditors of the Republic of North Macedonia (ICARM) and

the Institute of Accountants and Certified Accountants (IACA).

11. The Law on Audit provides for the creation of a public oversight system for the statutory audit

function, in line with the EU Statutory Audit Directive, and clarifies the respective roles of the

oversight body – the Council for Advancement and Oversight of Audit, (CAOA)-- and ICARM.

ICARM, as a professional body of statutory auditors, since its establishment in 2006 received

substantial assistance from development partners, including the World Bank’s REPARIS

program, and has achieved international recognition from IFAC in 2013 as a full member. As

the audit profession in North Macedonia is small, ICARM has approximately 200 members

who are registered statutory auditors. The Council for Advancement and Oversight of Audit

acts as the independent public oversight body and is the executive arm of the Ministry of

Finance, retaining ultimate responsibility for the Public Oversight System in the country9.

12. The 2012 Law on Performing Accounting Services in effect regulates accounting and

accountants and requires accountants to be certified members of IACA. This makes the

position of chief accountant who can sign an enterprise’s financial statements a reserved

function of IACA members. Financial statements of smaller businesses can be signed by

accountants, and for larger entities only by certified accountants. The provision of accounting

services or professional accountants in business is not regulated under EU statutes, and only

a few countries impose similar obligations on their businesses.

13. With the Law on Performing Accounting Services, a body of professional accountants—IACA-

- was established. Although it was formed in 2012 with mandatory membership by law for

accountants, the Body did not become operational till 2017. In the intervening period,

certification was undertaken by the Ministry of Finance, which issued certificates to some

12,000 accountants and certified accountants, of which 9,000 were temporary certificates.

Currently, the Ministry of Finance has an important role in IACA: the Minister has the

9 A recent paper of the World Bank CFRR acknowledged certain capacity constraints within the CAOA, especially as it relates to qualified personnel to undertake quality assurance over the statutory audit function as well as adequate funding to perform oversight functions, and proposed a gradual approach in respect of quality assurance delegation functions. See: http://siteresources.worldbank.org/EXTCENFINREPREF/Resources/4152117-1427109489814/MacedoniaKnowledgePaper.pdf

6

authority to endorse or reject the appointment of board members, including its President, as

well as approval authority for IACA operational regulations. This is an interim and temporary

solution; the authorities indicated that the oversight responsibilities of the Ministry of Finance

over the accounting profession will be transferred to another institution in the future, possibly

the Council for Advancement and Oversight of Audit (CAOA), which would be a reasonable

solution.

14. The new draft law on Performing Accounting Services is being drafted by the MoF and aims

among other things to improve governance and functioning of IACA. The new draft

lawprovides a good opportunity to (i) reconsider the approach of regulating accounting

services and at least ease some burden for small and micro entities; (ii) improve governance

of IACA that would over time improve its development; and (iii) provide a basis for oversight

tailored to the specifics of accounting profession, and ensure that there is sufficient funding

available for CAOA for this mandate, given that the draft law envisages that IACA oversight

will be assigned to CAOA.

15. Presently, IACA faces significant governance challenges. The governance arrangements of

IACA are prescribed by law. The main governing body is a representative assembly that

consists of 50 representatives nominated by members from different regions, so there might

be a risk underrepresentation for locations with fewer members. There is also lack of clarity

about the roles and responsibilities between the managing board and governing board. Both

boards are effectively non-executive, and this calls into question the need to have such two

boards. Also, while the institute has various committees in place, there is no audit committee

and an audit is not required by law (although there is an initiative to perform an audit in early

2019, which would cover the period of 2017-2018). Finally, in May 2018 the general assembly

requested dissolution and reelection of management board, which has not yet been

confirmed by the MoF, and triggered drafting of a new law which among other things also

aims at improving governance of IACA.

16. The IACA daily operations are supported by few employees, most of which are assigned

administrative roles. There are only 11 staff supporting daily operations of IACA. They

perform administrative duties. The technical work on education and qualification is

outsourced, and other work is performed by committees, which do not have supporting full

staff members dealing with particular technical areas.

17. While some committees are established by IACA, others do not exist, which makes it

difficult to deal with all areas that should be covered in line with IFAC SMOs. IACA currently

has committees responsible for ethics, professional standards, education, and discipline.

There is no committee for quality assurance.

7

18. IACA governance arrangements do not correspond to its mandate and responsibilities. The

governance arrangements need to correspond to a mandate of a PAO with significant

professional and legal obligations. This would require appropriate supervisory board,

executive structure consisting of permanent staff, and committees that would be supported

by professional executive staff. Auditing arrangements of IACA’s financial statements should

be in place, paying particular attention to independence of auditors and considering over time

whether it would be appropriate to invite auditors from other countries who will be entirely

independent from the local profession.

Box 1.

IFAC makes the observation that “in a small organization, committees, supported by

volunteers, may perform tasks which in a larger organization would be delegated to staff”.

IFAC’s guidance further notes that “the sustainability of any organization is significantly

affected by the quality of the management of its operations. As soon as resources allow,

the board should appoint a full-time [Chief Executive Officer (CEO)] to assume

responsibility for the day to day management of the organization. The CEO fulfils a

leadership role for the professional accountancy body, leading the organization’s

achievement of its strategic objectives, defined by the President and the board, and

responsible for the conduct of the day-to-day affairs of the body. The CEO is a strategic

partner of the board. The CEO should attend all board meetings and report on the

implementation of policy and strategic issues, operations and performance against

strategic objectives, including financial performance against budget. The CEO works in

close cooperation with the President in presenting to the board informed and sound

recommendations for action. Although the President is primarily responsible for

representing the professional body and presenting its mission and role to the membership

and the public, the CEO can support the President and represent him in this role, when

needed”.

19. IACA needs to consider, in conjunction with revisions to its financing framework, the extent

to which its Board, and other commissions should be supported by a full-time cadre of

professional and technical staff. This would likely include a CEO and Chief Financial Officer

(CFO) thus leaving supporting volunteers free from onerous implementation responsibilities

and able to focus on policy development and monitoring.

20. The membership of IACA is very broad, allowing for collection of significant revenues on

annual basis. Annual revenues from members are approximately 0.5 mln. euro (i.e over 30

mln. denars).

8

21. The most significant expense item is outsourcing CPD activities to a specific outside

organization, which may constrain developing inhouse capacity at IACA. Approximately half

of the annual budget is spent on outsourcing externally provided CPD (see further discussion

in Part three: Education and Examination).

22. Although in recent years IACA’s revenues and expenditures enable it to retain some

surpluses, there is a need to make a sustainable funding projection and have an appropriate

financing strategy that would support the needed activities and effective governance

structures, and make it sustainable. IACA has not prepared any medium-term financial

projections for the organization as a whole.

23. Currently IACA does not have a comprehensive management information system (MIS).

Over time, it could consider developing one for membership (including internal records and a

publicly available register), as well as a system to produce financial information and

management accounts that would, among other things, include activity-based budgeting and

tracking of expenses.

9

24. IACA has several membership categories for individuals and corporate members. The main

differentiation is between accountants who have less demanding entry requirements and

respectively fewer services they can perform, and certified accountants (see Part three:

Education and Examination for entry requirements). Following the same principles of allowed

services, separate requirements are established for accountants registered as sole proprietors

and for accounting firms. Consistent with IFAC recommendations, IACA could further analyze

whether additional categories are appropriate such as member, fellow, associate, affiliate,

accounting technician, student, trainee, extended leave, and retired.

Table 1. Information about membership in IACA as of December 201810

Member

type Number

Services allowed to

perform

CPD

requirements

Membership fees

(annual)

Accountant 1393 Perform accounting

activities for sole

proprietors,

associations and

foundations

60 hours in a

period of 3

years (at least

10 hours

annually)

1.200,00 MKD / 19 Eur

Certified

accountant

7398 Perform accounting

activities for all

entities

90 hours in a

period of 3

years (at least

20 hours

annually)

2.400,00 MKD / 39 Еur

Sole

proprietor

certified

accountant

336 Perform accounting

activities for sole

proprietors,

associations and

foundations and

other non-profit

organizations and

limited liability

companies

X 6.000,00 MKD / 97,5

Eur

10 Source: information prepared by IACA management

10

Member

type Number

Services allowed to

perform

CPD

requirements

Membership fees

(annual)

Sole

proprietor

accountant

12 Perform accounting

activities for sole

proprietors,

associations and

foundations

X 3.600,00 MKD / 58,5

Eur

Accounting

firms

1360 With at least one

accountant and one

certified

accountants can

perform accounting

activities for all

entities

X With

2 employees = 9.600

MKD / 156Eur

3-5 employees = 18.000

MKD / 293 Eur

6-10 employees =

24.000 MKD / 390 Eur

over 10 employees =

36.000 MKD / 585 Eur

25. IACA maintains a public register of all categories of membership. The public register is

readily accessible via IACA’s website11. It is structured differently depending on the category

of membership. Over time, IACA may consider developing a comprehensive system to

manage members records appropriately and enabling public access to part of it. It may also

further consider whether it si appropriate to include additional information similarly to

requirements for public register of auditors.

26. Overall, IACA is not compliant with all SMOs and significant effort is needed to build

institutional capacity to ensure full compliance and open the possibility of IFAC

membership. In summary: quality assurance (SMO 1) is only at its incipient stage; further it

should be given a proper consideration so that quality assurance for accounting work fit for

purpose given that this area is not required to be regulated. Education Standard (SMO 2) –

see separate section. Audit and related standards (SMO 3) is not relevant for IACA. The

IESBA’s Code of Ethics (SMO 4) is applicable but it needs to be updated by ICARM which is

responsible for its translation and adoption. The investigation and disciplinary system (SMO 6)

needs: formally documented operating procedures and processes to ensure due process and

independent review of alleged breaches of discipline. Translation and adoption of IFRS (SMO

11 www.isos.com.mk

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7) needs to be enhanced to allow timely translation and adoption of most recent versions of

IFRS and IFRS for SMEs.

27. The remainder of Part Two of this report expands on the preceding paragraph by

benchmarking IACA’s activities with six of IFAC’s seven Statements of Membership

Obligations (SMOs), being the benchmark for IFAC member bodies to assist them in ensuring

high quality performance by professional accountants. SMO 3 is addressed and benchmarked

separately in Part Three of this report.

28. IACA needs to develop its quality assurance and tailor it to the fact that the institution has

only accountants as its members and does not have auditors who are engaged in statutory

audits. There is no quality assurance committee established at IACA. The IFAC Guide suggests:

“SMO 1 requires IFAC member bodies to ensure that a mandatory quality assurance review

program is in place for its members performing audits of financial statements of listed entities

(as a minimum)”. For IACA this would mean that no mandatory quality assurance program is

needed, as members are only engaged in accounting services and not auditing services. Yet,

as the country decided regulation of accounting is needed, some quality assurance may be

established and tailored to the specifics of accounting work performed by members. This

would be more applicable for external accounting services and would require developing a

methodology and an approach to ensure this review process is independent.

29. This SMO is not applicable for IACA as it does not have a mandate to issue or adopt auditing

standards.

30. While the ethics code is applicable for IACA members, it is set by ICARM. IACA needs to

collaborate with ICARM to make sure the latest IESBA code of ethics is adopted and properly

communicated to members. Its implementation should also be the focus of the quality

12 SMO 1 is formally titled: Quality Assurance 13 SMO 3 is formally titled: International Standards and Other Pronouncements Issued by the IAASB 14 SMO 4 is formally titled: IESBA Code of Ethics for Professional Accountants

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assurance review program. IACA would also need to consider implementing learning activities

for its members such as devising training courses as well as developing and disseminating

implementation guidance that would be specific to its members and services they offer.

31. The MOF has sole responsibility for North Macedonia’s public sector accounting framework.

IACA has no direct responsibility for developing and issuing public sector accounting

standards such as International Public Sector Accounting Standards and other

pronouncements issued by the International Public Sector Accounting Standards Board. IACA

could perhaps play a greater role in advocating and promoting such public sector standards

and pronouncements.

32. IACA has not started performing any substantial investigation and disciplinary activities.

Even though the disciplinary committee was established, no substantial work was performed

and IACA needs to develop its procedures and processes to (i) respond with effective

disciplinary measures in cases when quality assurance activities reveal serious issues; and (ii)

perform ad-hoc investigation and disciplinary activities that may arise form complaints or

other information on disciplinary issues that may become available form public sources.

33. IACA has significant capacity and resources constraints to effectively fulfill its role in

adoption of standards issued by IASB (IFRS and IFRS for SMEs). As a result, outdated versions

of IFRS and IFRS for SMEs are in force in North Macedonia. IACA needs to enhance its capacity

and allocate resources to update the translations. IACA also needs to support implementation

of IFRS and IFRS for SMEs through education, training and CPD.

15 SMO 5 is formally titled: International Public Sector Accounting Standards and Other Pronouncements Issued by the IPSASB 16 SMO 6 is formally titled: Investigation and Discipline 17 SMO 7 is formally titled: International Financial Reporting Standards and Other Pronouncements Issued by the IASB.

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34. The draft Law on Performance of Accounting Services introduces significant changes in the

education framework for Accountants and Certified Accountants. The contemplated

education framework within the draft Law are broadly aligned with the requirements of the

International Education Standards (IES)18 as it assigns responsibility to the Institute of

Accountants and Certified Accountants (IACA) to develop an initial professional development

program and conduct a professional exam (i.e. IESs 1-6) in addition to its present responsibility

for conducting continuing professional development (i.e. IES 7).

35. The new education framework would be applicable to new members of IACA once the Draft

Law becomes effective. As described earlier in this report, the original members of IACA at

the time of its formation in June 2016, transferred into IACA based on a certification process

performed by the Ministry of Finance, which considered two criteria: (i) prior education of

the aspiring candidate and (ii) years of practical experience. Since 2016, IACA has continued

a similar certification process which is presently in force19.

36. Given the size of the domestic market and resource constraints, there seem to be potential

benefits in developing close co-operation between the Institute of Certified Auditors of the

Republic of North Macedonia (ICARM) and IACA, especially in the area of initial professional

development. Developing an initial professional development program aligned with IES

requirements is a significant undertaking for IACA considering its present stage of maturity.

The 2014 ROSC A&A Update noted that there are considerable overlaps in the professional

and educational requirements for accountants and auditors. ICARM’s professional education

and examination infrastructure has already been established; ICARM should therefore

collaborate with IACA to achieve economies of scale and transfer knowledge while

establishing and implementing the newly contemplated education framework.

37. The remainder of Part Three benchmarks the present and contemplated education

framework with the new Law with applicable IESs (i.e. IESs 1-720) to give a sense of the issues

facing IACA when it is assumes full responsibility for all parts of that framework.

18 International Education Standards (IESs) as developed and approved by IFAC’s International Accounting Education Standards Board (IAESB) are considered a benchmark of good practice for entry to professional accounting education programs, initial professional development of aspiring professional accountants, and continuing professional development of professional accountants. 19 At December 2018 IACA has 8,791 members, of which majority (84 percent) are “Certified Accountants” while the remaining hold titles of “Accountant”. 20 IES 8, Professional Competence for Engagement Partners Responsible for Audits of Financial Statements (2016) has not been considered in the benchmarking as it is relevant for Engagement Partners (referred to in some jurisdictions as the “signing partner” or “statutory auditor”) which are expected to maintain and develop the professional competence to function in this particular role.

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38. IES 1 - Entry Requirements to Professional Accounting Education Programs (2014).21 This IES

establishes the principles to be followed when setting and communicating educational

requirements for entry to professional accountancy education programs. Such programs

should have suitable entry requirements which are neither too high by posing unnecessary

barriers to entry, nor too low. Candidates should have a reasonable chance of successfully

completing the program. For example, some programs require completion of a degree from

a university or equivalent higher education institution.

39. At present there is no qualification process in place and candidates for the Accountant title

are admitted into IACA membership upon providing proof of 3 years of practical experience

and vocational accounting high school and / or 1 year of practical experience and higher

education from the economics field of study, while for the title Certified Accountant,

candidates need to provide proof of 3 years of practical experience and higher education from

the field of economics. The new law proposes several changes to this requirement within the

revised education framework, including that candidates from other fields of study can apply

to start the qualification process. IACA will be required to develop an accreditation system

with two streams: (i) those with prior education with a concentration in accounting and (ii)

those from other fields of study, in order to ensure entrance only to those with a reasonable

chance of successfully completing, while not representing excessive barriers to entry. For

example, accreditation procedures will need to be developed with universities, and IACA

should be able to explain to its stakeholders the rationale behind those requirements and

make them publicly available to help individuals assess their own chances of successfully

completing a professional accounting education program.

40. IES 2 Initial Professional Development – Technical Competence (2015). This standard

prescribes the learning outcomes for the technical competences that aspiring professional

accountants should be able to demonstrate on completion of the program, which is often

referred to as IPD. These competence areas include essential accountancy knowledge (such

as financial accounting and reporting) and other business disciplines (e.g. business strategy

and management).

41. The initial professional development qualification requirements as formulated in the new Law

need to be further developed to include greater specificity of the technical competencies

required and expected learning outcomes consistent with the recently revised IES 2. Namely,

in the new Law, the syllabi are stated in very broad terms with very little specificity which

would enable either a student properly to prepare for the professional examinations or a

training provider properly to devise a training course for such examinations. This lack of

specificity undermines compliance with IES 2, which also states detailed learning outcomes

for each technical competence as well as determines expected proficiency level.

21 IES 1 is equivalent to the EC requirement for a statutory auditor per Article 6 of the Statutory Audit Directive.

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42. IES 3 Initial Professional Development – Professional Skills (2015). This IES prescribes the

requisite learning outcomes for intellectual, interpersonal and communication, personal and

organizational skills. There is no explicit statement of the professional competences required

of a candidate as required by IES 3, i.e., intellectual, interpersonal and communication,

personal and organizational. For the title Certified Accountant, a successful candidate is

required to have completed higher studies, gained work experience and passed examinations

and as such it could be argued the candidate will have gained these professional

competences. However, in the absence of an explicit specification of the required

professional skills and appropriately designed assessment activities, it is probable that some

or even many candidates will not get all professional skills required by IES 3.

43. IES 4 Initial Professional Development – Professional Values, Ethics and Attitudes (2015).

This IES stipulates the professional values, ethics, and attitudes that aspiring professional

accountants are expected to demonstrate. These include: learning outcomes associated with

professional skepticism and professional judgment; ethical principles; and commitment to the

public interest.

44. In a manner mirroring the situation with respect to compliance with IES 2, the content of

professional accounting education appears to cover the professional values, ethics and

attitudes competence areas required by IES 4. However, the syllabus is stated in very broad

terms with very little specificity which would enable either a student properly to prepare for

the professional examinations or a training provider properly to devise a training course for

such examinations. This lack of specificity undermines compliance with IES 4.

45. IES 5 Initial Professional Development – Practical Experience (2015). This standard

establishes the practical workplace experience that aspiring professional accountants should

achieve during IPD under the supervision of appropriately qualified providers. This experience

should reinforce the technical competence and other professional skills that candidates are

expected to achieve. PAOs may adopt an input-based, output-based or combination approach

to measure the achievement of practical experience requirements. If an input-based

approach is used, the practical experience requirement should be for a minimum of three

years. Details of work experience and required evidence are prescribed by the Law, and IACA

considers and approves each candidate’s practical experience based on a review of the

documentation. Accordingly, it would appear that such requirements sufficiently reflect the

principles of IES 5.

46. IES 6 Initial Professional Development – Assessment of Professional Competence (2015). As

a prerequisite of completing IPD, this standard establishes the requirement for assessing the

professional competence of aspiring professional accountants. The assessment should be

based on verifiable evidence with high levels of reliability, validity, equity, transparency, and

sufficiency, and may include a series of examinations, a single multi-disciplinary examination,

or a series of examinations and workplace assessments conducted throughout IPD. Therefore,

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in the forthcoming period, IACA would need to develop formal assessments of professional

competence through a series of written and oral examinations including high levels of:

• Reliability – the assessment activity should consistently produce the same result, given

the same set of circumstances (e.g. avoiding using ambiguous wording in written

examination questions);

• Validity – assessments should measure what they were intended to measure (e.g. using

comprehensive case studies rather than simple case studies);

• Equity – the assessment activity should be fair and without bias (e.g. introducing

assessment activities that rely on computer-based technologies);

• Transparency – enabling appropriate public access regarding the assessment activities

(e.g. making information on scoring, types of assessments publicly available);

• Sufficiency – the assessment activity should have a balance of depth and breadth,

knowledge, and application, and combine materials from different areas applied to a

range of situations and contexts (e.g. assessment activities that combine technical

knowledge and professional skills, and professional values, ethics and attitudes, at

appropriate levels of difficulty and detail).

47. IES 7 Continuing Professional Development (2014). After completing Initial Professional

Development, professional accountants are expected to develop and maintain their level of

professional competence through a CPD program. This can be achieved by following an input-

based, output-based or combination approach. Should an input-based approach be followed,

then the IES propose a requirement to complete a minimum of 120 hours of CPD over a three-

year period. An input-based approach focuses on what the learning or development activity

should feature, e.g. coverage of certain subject matter in curricula or the minimum number

of hours that a course should comprise.

48. Both the present Law and the foreseen changes with the new Law regulate that all members

of IACA are subject to Continuing professional development according to an annual CPD plan

developed by IACA. Certified Accountants need to complete at least 90 hours of CPD in a 3

year period (and at minimum 20 hours annually) and Accountants are subject to 60 hours of

CPD in a 3 year period (or at least 10 hours annually). Further, both Certified Accountants and

Accountants need to ensure that at least 50% of the CPD required hours in any calendar year

is achieved through verifiable classroom training. A mandatory test of knowledge is

conducted after each CPD training event to verify the level of knowledge attained.

49. At present, IACA recognizes CPD training delivered by accredited providers who had been

approved by the International Chamber of Commerce (ICC). Namely, based on a legal

agreement between IACA and the International Chamber of Commerce (ICC) accreditation for

CPD was granted to 17 bodies and companies based on certain accreditation criteria

17

established by ICC. The current setup, whereby ICC sets accreditation criteria and approves

CPD providers, should be revised going forward as the discretion to decide who is accredited

should be based on entities who fulfil requirements either set by Law or prescribed by IACA.

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50. The main areas for consideration arising from this report are presented below.

51. The new draft law Law on Accounting Services is a good opportunity to further improve

accounting regulation and functioning of IACA. The drafters may consider further key areas

before finalizing the draft:

(i) easing the legal restriction allowing only IACA members to be chief accountants or

professional accountants, as this is not a regulated profession in the EU statutes; this

can be approached proportionally, and deregulation should be considered, especially

for smaller and micro-entities;

(ii) balancing the need for improving the competence level of accountants and the impact

on the cost of doing business, particularly considering the compliance costs for

accountants in terms of initial and continuing professional development requirements.

One option which is also taken by some countries, could be to regulate the public

(external) accounting service providers only, instead of all accountants employed in

business (Including bookkeepers and accountants working for accounting service

providers willing to have the authority to sign off company financial statements.) as is

in the current Law;

(iii) improve governance structures of IACA following the IFAC’s 2010 Guide to Establishing

and Developing a Professional Accountancy Body22. These improvements should in

particular address the issue of fair representation of members in general assembly,

appropriate board and executive structures (avoiding the need for two boards as it is in

present), establishing appropriate committees, and paving the way for IACA to hire

professional executive staff that would support effective functioning of committees and

the supervisory board in general. Appropriate accountability mechanisms need to be in

place, including among other things annual external auditing and publication of annual

audited financial statements;

(iv) require IACA to comply with all IFAC SMOs, which will enable full IFAC membership in

medium-term; the priority should be given to SMO 7 so that IFRS and IFRS for SMEs are

duly translated, updated and adopted;

(v) define appropriate professional oversight of IACA by CAOA, including appropriate

mechanisms and procedures, as well as funding arrangements for this mandate.

52. Over medium-to-long term revisit the organization of the accountancy profession to avoid

duplication and ensure its long-term development. Accounting and auditing are part of the

same profession of accountancy, and there are considerable overlaps in the professional and

educational requirements for accountants and auditors. Given the size of the domestic

22 See http://www.ifac.org/publications-resources/establishing-and-developing-professional-accountancy-body

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market and resource constraints, close co-operation between ICARM and IACA is critical, with

short term priority given to establishing an appropriate education and qualification system by

IACA. ICARM is already an IFAC member, with an existing professional education and

examination infrastructure. Providing services for accountants and certified accountants

would also help ICARM broaden its revenue base.

53. IACA should revise its financing structure to support in an appropriate way its operations.

This would include a sustainable funding projection and appropriate financing strategy. The

first step is to review expenditures and optimize it. For example, one expense item is

outsourcing CPD activities which could be developed internally, with appropriate staff

engaged in it. Over the medium to long-term, IACA should develop an appropriate MIS to

enable activity-based costing and budgeting. The system is also needed for a members

comprehensive register that would include publicly accessible information and also internal

information that would capture all the relevant information about members and their

activities, including CPD.

54. IACA should develop a detailed plan on IFAC SMOs compliance and strategy for application

to IFAC membership. Although this is also dependent on the new law, compliance with SMOs

is a significant undertaking, and an appropriate approach should be developed in terms of

each SMO. During the IFAC application process, IACA may also seek options for mentorship

from other IFAC members. The most urgent SMO to be dealt with is SMO 7, and more

specifically IACA needs to undertake urgent measures to translate updates of IFRS and IFRS

for SMEs so that these are fully adopted in North Macedonia.

55. Developing an initial professional development program aligned with IES requirements is a

significant undertaking for IACA considering its present stage of maturity. The 2014 ROSC

A&A Update noted that there are considerable overlaps in the professional and educational

requirements for accountants and auditors. ICARM’s professional education and examination

infrastructure has already been established; it should therefore collaborate with IACA to

achieve economies of scale and transfer knowledge while establishing and implementing the

newly contemplated education framework.

56. The education framework for aspiring and professional accountants should be updated to

reflect the competence-based approach required by the revised International Education

Standards and include: reformulation of initial professional development qualification

requirements to include greater specificity of the required technical competences,

professional skills, and professional values, ethics and attitudes; and the development of an

examination process with high levels of reliability, validity, equity, transparency, and

sufficiency.

57. In respect of continuing professional development, the new Law should further align its CPD

requirement to align with IES 7 in terms of minimum hours required (of which not all needs

20

to be verifiable) and IACA should establish a scheme to acknowledge and accredit CPD

providers as well as monitor the quality of the CPD delivered.