Azerbaijan

Accounting Framework

The preparation of financial statements in the Republic of Azerbaijan is governed by the Law on Accounting, which entered into force in 2018. The law establishes the financial reporting framework, including applicable accounting standards and reporting requirements, and designates the Ministry of Finance as the authority responsible for adopting financial reporting standards in the jurisdiction.

Under the law, public interest entities (PIEs) are required to apply International Financial Reporting Standards (IFRS) as issued by the IASB. Large entities are required to apply IFRS for SMEs or may elect to apply full IFRS, while medium-sized entities are required to apply IFRS for SMEs. Small entities are permitted to apply simplified accounting rules established by the Ministry of Finance or may elect to apply IFRS for SMEs.

PIEs include credit institutions, insurance companies, investment funds, listed companies, certain social funds, entities preparing consolidated financial statements, and entities exceeding specified thresholds related to revenue, total assets, and number of employees.

The Ministry of Finance is also responsible for the translation of IFRS and has entered into agreements with the IFRS Foundation for this purpose. The most recent available information indicates that translated IFRS are published and made mandatory for application in the jurisdiction.

Auditing Framework

Auditing in Azerbaijan is governed by the Law on Audit of 1994, as amended in 2004, which defines audit activities, establishes the scope of mandatory audits, and sets out the rights and responsibilities of auditors. The law establishes the Chamber of Auditors of the Azerbaijan Republic (CAAR) as the professional body responsible for regulating the audit profession.

The law does not explicitly mandate the application of International Standards on Auditing (ISA). In practice, auditing standards translated and adopted by CAAR are applied. As of the latest available information, CAAR has translated and adopted the 2016–2017 edition of the IAASB Handbook.

Audits are mandatory for entities required to publish financial statements, including public interest entities, while other entities may undergo audits on a voluntary basis.

The accountancy profession in the Republic of Azerbaijan is regulated through a combination of legislation and institutional oversight. Auditors and certain categories of accountants are regulated under the Law on Audit of 1994 (as amended) and the Law on Accounting of 2018, respectively. Regulatory responsibilities are shared between government authorities and professional accountancy organizations.

Auditors

Auditors are regulated under the Law on Audit of 1994 (as amended), which establishes the Chamber of Auditors of the Azerbaijan Republic (CAAR) as the professional self-regulatory organization responsible for the audit profession.

To qualify as an auditor, individuals must (i) hold a university degree in accounting, finance, economics, or law; (ii) complete at least three years of practical experience; and (iii) successfully pass professional examinations administered by CAAR. To practice, auditors must be members of CAAR, be included in the state register of auditors, and fulfill continuing professional development (CPD) requirements.

Under the law, CAAR is responsible for maintaining the register of auditors and audit firms; organizing and implementing a quality assurance review system; establishing and delivering CPD requirements; administering professional examinations; implementing an investigation and disciplinary (I&D) system; and monitoring compliance with ethical requirements.

Accountants

The Law on Accounting of 2018 introduced regulation of certain categories of accountants, including chief accountants of public interest entities, large enterprises, government-financed organizations preparing consolidated financial statements (with certain exceptions), and listed entities. These individuals are required to obtain the qualification of Professional Accountant.

Initial and continuing professional development requirements are established in law and implemented by the Ministry of Finance, the State Examination Center, and accredited professional accountancy organizations. To obtain the Professional Accountant qualification, candidates must have higher education, pass examinations administered by the State Examination Center, and complete practical experience requirements.

Professional Accountants are required to be members of a professional accountancy organization accredited by the Ministry of Finance. Accreditation criteria are established under Ministry of Finance Resolution No. 204 of 2019 and include requirements related to organizational capacity, membership thresholds, education and training capabilities, and the existence of investigation and disciplinary mechanisms.

As of the latest available information, three professional accountancy organizations are accredited: the Association of Professional Financial Managers of Azerbaijan (APFM), the Azerbaijan Accountants and Risk Professionals Association (ARPA), and the Young Accountants Union (YAU).

Implementation of the 2018 Law on Accounting has been carried out on a phased basis, with full qualification requirements for chief accountants becoming mandatory by December 2024.

There is no independent public audit oversight authority in the Republic of Azerbaijan.

The Law on Audit of 1994, as amended, designates the Chamber of Auditors of the Azerbaijan Republic (CAAR) as the body responsible for regulating the audit profession. In the absence of an independent oversight authority, CAAR performs regulatory functions including maintaining the register of auditors and audit firms; implementing a quality assurance review system; administering continuing professional development; conducting professional examinations; establishing and operating an investigation and disciplinary system; and monitoring compliance with ethical requirements.

There are three professional accountancy organizations accredited by the Ministry of Finance for accountants in Azerbaijan, in addition to the Chamber of Auditors of the Azerbaijan Republic (CAAR), which regulates auditors. Only the IFAC member and associate are presented below.

Association of Professional Financial Managers of Azerbaijan Republic (APFM)

The Association of Professional Financial Managers of Azerbaijan Republic (APFM), established in 2007, is a non-profit organization recognized as a professional accountancy organization for accountants following the introduction of the Law on Accounting of 2018.

APFM supports the development of the accountancy profession through the provision of education and certification programs, continuing professional development, and professional guidance for its members. Membership in an accredited PAO is mandatory for Professional Accountants, including chief accountants subject to the requirements of the law.

APFM is an associate member of IFAC and a member of the European Federation of Accountants and Auditors for SMEs (EFAA).

Chamber of Auditors of the Azerbaijan Republic (CAAR)

The Chamber of Auditors of the Azerbaijan Republic (CAAR) was established under the Law on Audit of 1994, as amended, and is the professional body responsible for regulating the audit profession in Azerbaijan. Membership in CAAR is mandatory for auditors and audit firms.

CAAR’s responsibilities include maintaining the register of auditors and audit firms; implementing a quality assurance review system; administering continuing professional development and professional examinations; establishing and operating an investigation and disciplinary system; and monitoring compliance with ethical requirements.

CAAR is a member of IFAC, the Eurasian Council of Certified Accountants and Auditors, and the European Federation of Accountants and Auditors for SMEs (EFAA).

The Law on Audit of 1994, as amended, requires all auditors to be members of the Chamber of Auditors of the Azerbaijan Republic (CAAR) and to be subject to its quality assurance (QA) review system. CAAR is responsible for establishing and operating the QA system in the jurisdiction.

The QA system, established in 2008 and subsequently updated, is operational and covers mandatory audits, with inspections performed on a cyclical basis. CAAR reports that quality control standards based on ISQC 1 and ISA 220 (2016–2017 IAASB Handbook) are applied.

CAAR has conducted a self-assessment of its QA system against SMO 1 requirements and reports a high level of alignment; however, gaps remain, including the absence of the most recent quality management standards and limitations related to review cycle and public oversight.

As the QA system does not fully incorporate the requirements of SMO 1 in effect at the time of the assessment, it is assessed as Partially Adopted.

Current Status: Partially Adopted

Initial and continuing professional development (IPD and CPD) requirements for auditors and for chief accountants of certain entities are established under the Law on Audit of 1994, as amended, and the Law on Accounting of 2018, respectively. These requirements apply to specific segments of the profession and are implemented by multiple stakeholders, including universities, the Chamber of Auditors of the Azerbaijan Republic (CAAR), the Ministry of Finance, the State Examination Center, and accredited professional accountancy organizations, including the Association of Professional Financial Managers of Azerbaijan (APFM) and other accredited PAOs.

For auditors, IPD requirements are defined in law and include completion of a university degree, a minimum of three years of practical experience, and successful completion of professional examinations administered by CAAR. Continuing professional development is mandatory for maintaining membership and the right to practice.

For professional accountants in business, the Law on Accounting of 2018 introduced mandatory qualification requirements for chief accountants of specified entities. Candidates must complete higher education, pass examinations administered by the State Examination Center, and fulfill practical experience requirements. CPD obligations are implemented by accredited professional accountancy organizations, including APFM, which are required to maintain formal professional development programs for their members.

While elements of the International Education Standards are reflected in the legal and regulatory framework, the requirements apply only to certain categories of professional accountants, and the extent of alignment with the IES in effect at the time of the assessment has not been fully demonstrated across all segments of the profession.

Accordingly, the International Education Standards are assessed as Partially Adopted.

Current Status: Partially Adopted

The Law on Audit of 1994, as amended, defines audit activities, establishes the scope of mandatory audits, and designates the Chamber of Auditors of the Azerbaijan Republic (CAAR) as the professional body responsible for regulating the audit profession. The law does not explicitly mandate the application of International Standards on Auditing (ISA).

In practice, auditing standards translated and adopted by CAAR are applied in the jurisdiction. To date, CAAR has translated and adopted the 2016–2017 edition of the Handbook of International Quality Control, Auditing, Review, Other Assurance, and Related Services Pronouncements issued by the IAASB.

While CAAR reports that translation and adoption of more recent ISA are ongoing, there is no indication that a more recent full version of the IAASB Handbook has been adopted and made effective for application in all mandatory audits.

Audits are mandatory for entities required to publish financial statements, including public interest entities, while other audits are conducted on a voluntary basis.

As the standards currently applied are not fully aligned with ISA in effect at the time of the assessment, ISA are assessed as Partially Adopted.

Current Status: Not Adopted

Ethical requirements for auditors are established under the Law on Audit of 1994, as amended, which sets out general principles but does not explicitly mandate the application of the International Code of Ethics for Professional Accountants.

In practice, the Chamber of Auditors of the Azerbaijan Republic (CAAR) has adopted and translated the 2018 International Code of Ethics for application by its members.

For professional accountants in business, the Law on Accounting of 2018 does not establish comprehensive ethical requirements aligned with the IESBA Code. Ethical requirements are implemented through accredited professional accountancy organizations, including the Association of Professional Financial Managers of Azerbaijan (APFM), although the extent of alignment with the IESBA Code and the version applied across all professional accountants is not fully established.

While a version of the International Code of Ethics has been adopted for auditors, the Code in effect at the time of the assessment has not been adopted in its entirety for all professional accountants in the jurisdiction.

Accordingly, the IESBA Code of Ethics is assessed as Partially Adopted.

Current Status: Partially Adopted

Under the Law on Accounting, effective January 2019, public sector entities in the Republic of Azerbaijan are required to apply accounting standards adopted by the Ministry of Finance.

The Ministry of Finance is responsible for establishing public sector accounting standards and for translating International Public Sector Accounting Standards (IPSAS) for use in the jurisdiction.

Public sector accounting is based on national standards that reference IPSAS and are applied on a partial-accrual basis. Budgetary organizations and municipalities are required to prepare financial statements in accordance with these standards.

While IPSAS serve as the reference point for the national public sector accounting framework, accrual-basis IPSAS in effect at the time of the assessment have not been fully adopted and applied by all public sector entities.

Accordingly, IPSAS are assessed as Partially Adopted.

Current Status: Partially Adopted

Under the Law on Audit of 1994, as amended, investigation and discipline of auditors is performed by the Chamber of Auditors of the Azerbaijan Republic (CAAR). CAAR’s Ethics, Disputes, and Disciplinary Committee oversees the I&D function for auditors and audit firms.

CAAR has assessed its I&D system against SMO 6 requirements and identified gaps in the range of sanctions available, activities undertaken to ensure public awareness of the system, and publicizing the results of disciplinary proceedings. The system is operational for auditors, but these gaps indicate that it is not fully aligned with SMO 6.

In addition, the Law on Accounting introduced mandatory certification of certain professional accountants and their membership in a professional accountancy organization accredited by the Ministry of Finance. Accredited PAOs are required to have systems for investigating and disciplining their members. As of the latest available information, the accredited PAOs are the Association of Professional Financial Managers of Azerbaijan (APFM), the Azerbaijan Accountants and Risk Professionals Association (ARPA), and the Young Accountants Union (YAU).

APFM reports that it has established an I&D system for its members, although it indicates that certain areas require further development to align with SMO 6 best practices. For ARPA and YAU, no information is available to confirm the extent to which their I&D systems are operational or aligned with SMO 6 requirements.

Accordingly, while I&D mechanisms exist for auditors and for at least some professional accountants in business, the extent of alignment with SMO 6 is uneven across the jurisdiction and has not been fully established for all professional accountants. The investigative and disciplinary system is therefore assessed as Partially Adopted.

Current Status: Partially Adopted

The Law on Accounting of the Republic of Azerbaijan establishes the financial reporting framework and designates the Ministry of Finance as the authority responsible for adopting accounting standards in the jurisdiction.

International Financial Reporting Standards (IFRS) as issued by the IASB are legally adopted and required for application by public interest entities, including listed companies, financial institutions, and other specified entities.

Large and medium-sized entities that are not public interest entities are required or permitted to apply IFRS for SMEs or may elect to apply full IFRS, depending on their size and characteristics.

The Ministry of Finance is responsible for the translation and enactment of IFRS in the jurisdiction under agreements with the IFRS Foundation.

While IFRS are adopted as the national financial reporting framework, the most recent standards in effect at the time of the assessment have not yet been fully translated and made effective for application across all relevant entities.

Current Status: Partially Adopted

Relevant Organizations

• HYPERLINK "https://apfm.az/"Association of Professional Financial Managers of Azerbaijan Republic (APFM)
• Azerbaijan Accountants and Risk Professionals Association (ARPA)
• Chamber of Auditors of the Azerbaijan Republic (CAAR)
• Ministry of Finance of the Republic of Azerbaijan
• State Examination Center

Relevant Legislation

• Law on Audit of the Republic of Azerbaijan, 1994 (as amended)
• Law on Accounting of the Republic of Azerbaijan, 2018

Relevant Publications

• CAAR, Regulations on Quality Control and Disciplinary Procedures
• IFRS Foundation, IFRS Application Around the World, Jurisdictional Profile: Azerbaijan, August 2019.
• World Bank, Reports on Accounting and Auditing (ROSC), Azerbaijan