Azerbaijan

Accounting Framework

Preparation of financial statements in Azerbaijan is regulated by the Law of the Republic of Azerbaijan on Accounting that entered into force in 2018. The law stipulates the applicable accounting standards and financial reporting requirements. In accordance with the law, the Ministry of Finance is responsible for enacting the financial reporting standards in the Republic of Azerbaijan.

Under the law, public interest entities (PIEs) must apply IFRSs. Large entities must prepare their financial statements in accordance with IFRS for SMEs or may opt to apply full IFRS. Medium-sized entities must apply IFRS for SMEs. Small entities must maintain accounting records in accordance with the rules for micro and small businesses established by the Ministry of Finance or may opt to apply IFRS for SMEs.

PIEs include (i) credit institutions; (ii) insurance companies; (iii) investment funds; (iv) listed companies; (v) non-state (private) social funds; (vi) commercial entities with one or more subsidiary (except very small ones) that must consolidate; and (vii) commercial enterprises exceeding two of the three thresholds related to revenue, total balance sheet, and average number of employees.

The Ministry of Finance is responsible for the translation of IFRS and has signed the related agreements with the IFRS Foundation. Based on the information on the Ministry of Finance website, the 2018 version of IFRS has been translated and is mandatory for application.

Auditing Framework

The Law on Audit of 1994 as amended in 2004 defines audit and audit activities, specifies the scope of the entities subject to mandatory audit requirements, establishes the Chamber of Auditors of Azerbaijan Republic (CAAR) as the professional organization for auditors, establishes requirements to become an auditor, and outlines the rights, responsibilities, and liability of the auditor. Amendments to the Law on Auditing requiring adoption of ISA as issued by IAASB and translated by the CAAR have been pending approval. De facto, standards required by the CAAR are used. To date, CAAR translated and adopted the 2016–2017 version of the Handbook of International Quality Control, Auditing, Review, Other Assurance, and Related Services Pronouncements.

Under the Law on Audit, audits are mandatory for business entities that are required to publish their financial statements; in other cases, it is voluntary. PIEs are required to publish their financial statements according to the Law on Accounting of 2004.

As of the time of the assessment, auditors and chief accountants of certain enterprises are regulated in the Republic of Azerbaijan in accordance with the Law on Audit of 1994 as amended and the Law of the Republic of Azerbaijan on Accounting of 2018, respectively. The profession is regulated by the government agencies and professional organizations of accountants and auditors.

Auditors

To qualify as an auditor, an individual must (i) have a university degree in accounting, finance, economics, or law; (ii) have three or more years of practical experience; and (iii) successfully pass a certification program and professional examinations administered by the Chamber of Auditors of Azerbaijan Republic (CAAR). To practice as an auditor, an individual must become a member of CAAR, be included in the register of auditors, and fulfill continuous professional development (CPD) requirements.

Under the Law, CAAR is responsible for (i) maintaining the register for auditors and audit firms; (ii) organizing and implementing a quality assurance review system; (iii) arranging and delivering the CPD program for auditors; (iv) managing and conducting professional examinations for the certification of auditors; (v) establishing and implementing an investigation and disciplinary (I&D) system; and (vi) monitoring compliance with the Code of Ethics.

Accountants

The Law of the Republic of Azerbaijan on Accounting was amended in 2018 to introduce, inter alia, regulation of certain categories of accountants. According to the law, chief accountants of public interest entities (PIEs), large enterprises, government-financed organizations that prepare consolidated accounts except entities with state-owned controlling interest (stock), and listed entities which have outstanding securities in stock exchange, must be qualified as Professional Accountants.

Initial professional development (IPD) and CPD requirements for obtaining and maintaining the qualification are prescribed in law and are implemented by the Ministry of Finance, the State Examination Center, and professional accountancy organizations (PAOs) for accountants.

To obtain a qualification of a Professional Accountant, a candidate must have higher education; confirm theoretical knowledge and professional competence by successfully passing relevant exams conducted by the State Examination Center; and obtain practical training in accounting activities.

All Professional Accountants must be a member of a PAO for accountants accredited by the Ministry of Finance (MoF). The criteria for accreditation are prescribed in the MoF Resolution No. 204 of 2019 and include (i) being a non-profit organization operating in the field of accounting for at least five years supporting implementation of international standards; (ii) conducting relevant trainings and/or examinations and being licensed to conduct educational activities; (iii) having at least 500 members (individuals and legal entities) or 200 members with a certificate of a Professional Accountant; (iv) having necessary processes to support professional development of accountants and a formal plan for professional development of its members; and (v) having necessary processes to investigate and discipline its members. To date, there are 3 accredited professional accountants’ organizations in Azerbaijan: Association of Professional Financial Managers of Azerbaijan (APFM), Azerbaijan Accountants and Risk Professionals Association (ARPA), and the Young Accountants Union (YAU).

The requirements of the new law are being implemented in a phased approach, but with all chief accountants needing to be qualified by December 2023.

There are no independent audit oversight arrangements in the jurisdiction.

The Law on Audit of 1994 as amended in 2004 establishes the Chamber of Auditors of Azerbaijan Republic as the entity responsible for (i) maintaining the register for auditors and audit firms; (ii) organizing and implementing a quality assurance review system; (iii) arranging and delivering the continuing professional development program for auditors; (iv) managing and conducting professional examinations for the certification of auditors; (v) establishing and conducting an investigation and disciplinary system; and (vi) monitoring compliance with the Code of Ethics.

To date, there are 3 accredited professional accountants’ organizations in Azerbaijan in addition to the Chamber of Auditors of Azerbaijan Republic (CAAR). Only the current IFAC member and IFAC candidate are listed here.

Association of Professional Financial Managers of Azerbaijan Republic (APFM)

APFM was established in 2007 as a non-for-profit legal entity with the mission of developing the accountancy profession. In 2019, following the adoption of a new Law on Accounting that introduced regulation of the accounting profession, APFM was acknowledged as a professional accountancy organization (PAO) for chief accountants, financial managers, and other professionals with the responsibility of supervising the professional activities of its members, representing their interests, and providing expert advice to other stakeholders involved in policy development. By end of 2023, qualification as a Professional Accountant and membership in an accredited PAO is mandatory for all chief accountants. APFM organizes the pre-requisite education programs for obtaining a Professional Accountant certificate, offers several other specialization certificates, organizes seminars, information exchanges, and round table discussions, both nationally and internationally. APFM is a member of the European Federation of Accountants and Auditors for SMEs (EFAA).

Chamber of Auditors of Azerbaijan Republic (CAAR)

CAAR was established in accordance with the Law on Audit of 1994 as amended to regulate the audit profession. Membership in CAAR is mandatory for auditors and audit firms.

Under the Law, CAAR is responsible for (i) maintaining the register for auditors and audit firms; (ii) organizing and implementing a quality assurance review system; (iii) arranging and delivering the continuing professional development program for auditors; (iv) managing and conducting professional examinations for the certification of auditors; (v) establishing and conducting an investigation and disciplinary system; and (vi) monitoring compliance with the Code of Ethics.

In addition to being a member of IFAC, CAAR is a member of the Eurasian Council of Certified Accountants and Auditors, and the EFAA.

The Strengthening Auditing and Reporting in Countries of the Eastern Partnership (STAREP) is a regional program aimed at creating a transparent policy environment and effective institutional framework for corporate reporting within the countries that make up the EU's Eastern Partnership. Azerbaijan has participated in the program which is expected to run until 2023 and is intended to assist the countries in in adopting and implementing international standards and fostering the alignment of their financial reporting frameworks with international best practices and EU standards.

The Public Sector Accounting and Reporting Program (PULSAR) Program is a regional and country-level program targeting the Western Balkans and the EU Eastern Partnership countries to support the development of public sector accounting and financial reporting frameworks in line with international standards and good practice. Azerbaijan is also a beneficiary country under this program.

The Law on Audit of 1994 as amended in 2004 requires all auditors to be members of the Chamber of Auditors of Azerbaijan Republic (CAAR) and be subject to its quality assurance (QA) review system. The system was developed in 2008 and subsequently updated. Inspections are carried out by CAAR at least once every three years.

CAAR indicates that the system was brought overall in line with SMO 1, except for adoption of the most recent version of ISQC 1 and ISA 220 (2016-2017 IAASB Handbook is adopted).

Current Status: Partially Adopted

Initial and continuing professional development requirements (IPD and CPD, respectively) for auditors and chief accountants of certain enterprises, the only categories of professional accountants regulated at the state level, are stipulated in the Law on Audit of 1994 as amended and the Law of the Republic of Azerbaijan on Accounting of 2018, respectively.

Under the Law on Audit, responsibility for IPD of auditors is shared between universities and training institutes (IES 1) and the Chamber of Auditors of Azerbaijan Republic (CAAR) (IES 2–6), which regulates auditors in the jurisdiction. Specifically, the law requires (i) university education in accounting, finance, economics, or law; (ii) three or more years of practical experience; and (iii) successful completion of the professional certification program and examinations administered by CAAR. To practice as an auditor, an individual must become a member of CAAR, be included in the register of auditors, and fulfill CPD requirements. The extent of alignment of educational requirements for auditors with those of 2019 IES remains to be established.

In 2018, amendments to the Law of the Republic of Azerbaijan on Accounting introduced a requirement for chief accountants of certain specified entities to obtain a mandatory qualification of a Professional Accountant in order to provide services. IPD and CPD requirements for obtaining and maintaining the qualification are established in law and are being implemented by the government agencies and professional accountancy organizations (PAOs) of accountants.

To obtain a qualification of a Professional Accountant, a candidate must have higher education; confirm theoretical knowledge and professional competence by successfully passing the relevant exams conducted by the State Examination Centre (SEC); and undergo practical training in conducting accounting activities. PAOs of accountants must ensure professional development of their members and have a formal CPD plan. To date, there are 3 accredited professional accountants’ organizations in Azerbaijan: Association of Professional Financial Managers of Azerbaijan (APFM), Azerbaijan Accountants and Risk Professionals Association (ARPA), and the Young Accountants Union (YAU). According to the World Bank’s National Education Initiatives – Azerbaijan (2019) report, university curricula for accounting and auditing is being reviewed and amended to align with the IES and the utilizing ACCA examinations (with local modifications as necessary) is under consideration.

The APFM indicates that it has integrated IES into its education and training for the SEC exams and requires members to fulfill 120 hours of CPD over three years.

The requirements of the Law on Accounting are being implemented in a phased approach and the extent of alignment of the IPD and CPD requirements of both the APFM and other accredited PAOs with those of latest IESs (2019 Handbook) remains to be established.

Current Status: Partially Adopted

The Law on Audit of 1994 as amended in 2004 defines audit and audit activities, specifies the scope of the entities subject to mandatory audit requirements, and establishes the Chamber of Auditors of Azerbaijan Republic (CAAR) as the professional self-regulatory organization for auditors.

Amendments to the Law on Auditing requiring adoption of ISA as issued by IAASB and translated by the CAAR have been pending approval. De facto, standards required by the CAAR are used. To date, CAAR translated the 2016–2017 version of the Handbook of International Quality Control, Auditing, Review, Other Assurance, and Related Services Pronouncements. CAAR is currently translating the revised standards in the 2020 Handbook and expects to complete this by the end of June 2022.

Current Status: Partially Adopted

The Law on Audit of 1994 as amended in 2004 stipulates ethical requirements for auditors, without referencing the IESBA Code of Ethics.

Although not specifically required by law, in 2010 the Ethics Committee of the Chamber of Auditors of Azerbaijan Republic (CAAR), which regulates the audit profession and to which all auditors must maintain membership, adopted a resolution requiring application of the IESBA Code for its members. The Chamber has translated the 2018 International Code of Ethics for application by its members. It will begin translation of the 2021 International Code at the end of 2022. CAAR indicates that amendments to the Law on Auditing directly requiring adherence to the IESBA Code of Ethics for all auditors in the jurisdiction is pending approval.

In 2018, amendments to the Law of the Republic of Azerbaijan on Accounting introduced mandatory regulation of chief accountants of certain specified entities It is not clear whether the law establishes ethical requirements to be followed by the certified professionals.

All Professional Accountants must be a member of a professional accountancy organization (PAO) for accountants accredited by the Ministry of Finance. The criteria for accreditation are prescribed in the Ministry of Finance (MoF) Resolution No. 204 of 2019 and while the criteria include having investigative and disciplinary procedures, there is no mention of ethical requirements. To date, there are 3 accredited professional accountants’ organizations in Azerbaijan: the Association of Professional Financial Managers of Azerbaijan (APFM), Azerbaijan Accountants and Risk Professionals Association (ARPA), and the Young Accountants Union (YAU). The APFM indicates its members are required to comply with a “norm of professional conduct and principles of independence, objectivity, and competence”. APFM plans to align its internal requirements with the IESBA Code while, in the meantime, recommending its members to refer to the latest IESBA Code.

Proposed amendments to the Law on Accounting are expected to adopt the IESBA Code of Ethics for professional accountants as well; however, the timeline is not known. No information on the adoption of the IESBA Code of Ethics by the other associations is available.

Current Status: Partially Adopted

Under the Law of the Republic of Azerbaijan on Accounting that came into force in January 2019, budgetary organizations and municipalities must prepare financial statements in accordance with IPSASs as adopted for application in the jurisdiction by the Ministry of Finance.

According to the 2020 IFAC/CIPFA Public Sector Financial Accountability Index and the World Bank/CFRR’s 2020 Stocktaking of Public Sector Accounting and Reporting Environment in PULSAR Beneficiary Countries: Azerbaijan the standards are national standards with reference to IPSAS and currently are a partial-accrual basis. It is expected that the standards will transition to full accrual-basis IPSAS. The IPSAS adoption process began in 2009 under the World Bank’s Corporate and Public Sector Accountability Project (CAPSAP) with the Government of Azerbaijan that included a component dedicated to the adoption and implementation of accrual-based IPSAS.

The Ministry of Finance translated the 2012 Handbook of International Public Sector Accounting Pronouncements and made it available on its website.

Current Status: Partially Adopted

Under the Law on Audit of 1994 (Article 15), investigation and discipline (I&D) of auditors is performed by the Chamber of Auditors of Azerbaijan Republic (CAAR). Article 8 of the CAAR Regulations details the rules and procedures for I&D of auditors and the Ethics, Disputes, and Disciplinary Committee oversees CAAR’s I&D function.

CAAR conducted a self-assessment of its I&D system against SMO 6 requirements and identified gaps in (i) the range of sanctions; (ii) activities undertaken to ensure that the public is aware of the I&D system; and (iii) publicizing the results of I&D proceedings.

Additionally, since 2019, the amended Law of the Republic of Azerbaijan on Accounting introduced a requirement for certification of professional accountants and their mandatory membership in an accredited PAO by the Ministry of Finance. Accredited PAOs must have in place a system for investigating and disciplining their members. To date, there are 3 accredited professional accountants’ organizations in Azerbaijan: Association of Professional Financial Managers of Azerbaijan (APFM), Azerbaijan Accountants and Risk Professionals Association (ARPA), and the Young Accountants Union (YAU).

The APFM has an I&D system in place for its members; however, it indicates there are several areas that could use improvement to align with the SMO 6 best practices.

No information is available on whether the other organizations have established I&D processes and whether those are in line with the SMO 6 best practices.

Current Status: Partially Adopted

Preparation of financial statements in the Republic of Azerbaijan is regulated by the Law of the Republic of Azerbaijan on Accounting that entered into force in 2018.

Under the law, public interest entities (PIEs) must apply IFRSs. Large entities must prepare their financial statements in accordance with IFRS for SMEs or may opt to apply full IFRS. Medium-sized entities must apply IFRS for SMEs. Small entities must maintain accounting records in accordance with the rules for micro and small businesses established by the relevant authority or may opt to apply IFRS for SMEs.

The Ministry of Finance is responsible for the translation of IFRS and their enactment and has signed the related agreements with the IFRS Foundation. To date, based on the information on the Ministry of Finance website, the 2018 version of IFRS has been translated and is mandatory for application. The Association of Professional Financial Managers of Azerbaijan (APFM) reports that revised standards effective 2018 – 2021 will be translated by end of 2022.

Current Status: Partially Adopted

Relevant Organizations

• Association of Professional Financial Managers of Azerbaijan Republic (APFM)
• Azerbaijan Accountants and Risk Professionals Association
• Chamber of Auditors of Azerbaijan Republic (CAAR)
• Ministry of Finance of Azerbaijan

Relevant Legislation

• Law on Audit, 1994 (as amended 2004)
• HYPERLINK "https://ifac529.sharepoint.com/sites/DEPT_QDMembership_INT/Shared Documents/DBR Reviews/•%09http:/www.maliyye.gov.az/scripts/pdfjs/web/viewer.html?file=/uploads/static-pages/files/5be935ea2c8b7.pdf"Law on Accounting, 2019
• Law on Accounting, 2004
• Concept of Development of the Audit Service in the Republic of Azerbaijan (2012–2020), 2013
• Law on Banks, 2004 (as amended 2017)
• Decision of the Parliament on Approval of Regulations on the Chamber of Auditors of the Republic of Azerbaijan
• Regulations on Audit Service Quality Control in Azerbaijan
• Regulation of the Quality Control Committee of the Chamber of Auditors
• CAAR Ethics Committee Regulation, 2010

Relevant Publications

• CAAR, Annual Report on Compliance with the Measures of the Audit Committee Staff, August 2017.
• CAAR, 2017 Auditor’s Report, March 2017.
• CAAR, Report on the Results of the Chamber of Auditors of Azerbaijan for 2017, 2018.
• CAAR, Work Plan of the Chamber of Auditors of Azerbaijan Republic for 2018, 2019.
• CAAR, Report on the provision of practical assistance to audit organizations and independent auditors on the use of International Standards on Auditing, 2016.
• CAAR, SMO Action Plan, 2020.
• Deloitte, IPSAS in Your Pocket, May 2017.
• Deloitte, Deloitte Tax Azerbaijan Legal Update, June 2018.
• IFAC/CIPFA Public Sector Financial Accountability Index, 2020.
• IFRS Foundation, IFRS Application Around the World, Jurisdictional Profile: Azerbaijan, August 2019.
• Lunds Universitet, Accounting and Audit Reforms in Transition Economies: The Case of Azerbaijan, June 2009.
• World Bank, Report on the Observance of Standards and Codes (ROSC), Accounting and Auditing: Azerbaijan, September 2006.
• --, National Accounting Qualification in Azerbaijan, January 2014
• --, Corporate and Public Sector Accountability Project Implementation Completion and Results Report, December 2015.
• --, Accountancy Education: A Collection of Good Practices, 2017.
• --, Roundtable on National Accounting Education Initiatives – Azerbaijan, April 2018.
• --, World Bank, Regional Education Study for STAREP Countries. 2019.
• --, World Bank, National Education Initiatives – Azerbaijan. 2019.
• --, Stocktaking of Public Sector Accounting and Reporting Environment in PULSAR Beneficiary Countries: Azerbaijan, 2020.