Transparency in the Polish market
We crave transparency in modern society, yet it always seems to elude us. Ever since the days of the Trojan horse, a lack of transparency has been a tool for thieves, kings, warriors and (more recently) dishonest businessmen as a means of improving their lot to the disadvantage of others. Often when we go to court, it is to redress a lack of transparency. Our goal in the justice system is to make things transparent. Everywhere we go transparency is an issue.
A lack of transparency can bring down large companies, eradicate fortunes of innocent trusting people, and sometimes even bring down economies (the seed crystal for the U.S. Great Depression of the 1930s was essentially due to a lack of transparency in financial information on the part of companies being traded on the various stock exchanges). It is no wonder then that regulators all over the world seek pure transparency in company reporting.
The debate over Poland's EU accession focuses on the highly visible and popular issues: should we join another grand bureaucracy, having just been freed from one? Are subsidies sufficient in size? Will they reach the intended beneficiaries? Will prices rise or fall relative to wages? However, in addition to these highly visible issues of the day, there are other developments going on just under the surface, which, although they sound mundane, may have a bigger and more lasting impact than all the other developments put together.
New rules
As of January 1, 2005, Poland, as a member of the EU, was obliged to adopt the new International Financial Reporting Standards, known most commonly by its acronym, IFRS. All stock exchange-listed companies will now be obliged to submit their quarterly, biannual and annual financial reports in compliance with IFRS. Many non-listed subsidiaries of foreign listed companies will be obliged to do the same.
Just as the seemingly dull and academic discipline of mathematics has provided mankind with the most influential inventions of the 20th century (for example, nuclear energy), the rules and regulations prepared by that other (for many) dull profession, accountancy, under the rubric of IFRS, represent a revolution not only in how Polish businesses report their findings, but also in how they conduct their businesses.
One can argue that a revolution in accounting standards is the last thing that Poland needs right now. It is just starting to pull through a paradox of macro-economic growth against a background of combined political and business scandals that have made every Polish citizen, and perhaps more than a few investors, suspicious if not cynical. It looks as though, with elections months away, it might pull through to the other side after years of stagnancy. Changes that upset the delicate equilibrium could create uncertainty. Is it a good time to introduce new requirements into the mix?
Part of the Union
Unfortunately, whether it is a good time or not matters little. Apart from the obvious phenomena of subsidy programs and participation in the EU governmental bodies, IFRS may be the first and most pervasive evidence that Poland is now a part of a larger and more homogenous Union that not only grants benefits but also imposes obligations. It is neither as visible nor as sexy as structural funds, but it could go a long way towards building investor confidence by taking a significant step to assure transparency.
With transparency comes accountability. Transparency has never been one of Poland's strong points, on both political and business levels. Given that set of circumstances, IFRS could be silent phenomenon that will give investors the confidence and help start changing the way Polish society views its institutions.
But even with all the benefits, the step will not be an easy one. The Warsaw Business Journal has prepared this special report on IFRS, and what it means to companies doing business in Poland. For those who think that it is just a bunch of boring new accounting rules that won't have any practical consequences for business, read on. You may be surprised by what you find.
By Robert Michaels
A lack of transparency can bring down large companies, eradicate fortunes of innocent trusting people, and sometimes even bring down economies (the seed crystal for the U.S. Great Depression of the 1930s was essentially due to a lack of transparency in financial information on the part of companies being traded on the various stock exchanges). It is no wonder then that regulators all over the world seek pure transparency in company reporting.
The debate over Poland's EU accession focuses on the highly visible and popular issues: should we join another grand bureaucracy, having just been freed from one? Are subsidies sufficient in size? Will they reach the intended beneficiaries? Will prices rise or fall relative to wages? However, in addition to these highly visible issues of the day, there are other developments going on just under the surface, which, although they sound mundane, may have a bigger and more lasting impact than all the other developments put together.
New rules
As of January 1, 2005, Poland, as a member of the EU, was obliged to adopt the new International Financial Reporting Standards, known most commonly by its acronym, IFRS. All stock exchange-listed companies will now be obliged to submit their quarterly, biannual and annual financial reports in compliance with IFRS. Many non-listed subsidiaries of foreign listed companies will be obliged to do the same.
Just as the seemingly dull and academic discipline of mathematics has provided mankind with the most influential inventions of the 20th century (for example, nuclear energy), the rules and regulations prepared by that other (for many) dull profession, accountancy, under the rubric of IFRS, represent a revolution not only in how Polish businesses report their findings, but also in how they conduct their businesses.
One can argue that a revolution in accounting standards is the last thing that Poland needs right now. It is just starting to pull through a paradox of macro-economic growth against a background of combined political and business scandals that have made every Polish citizen, and perhaps more than a few investors, suspicious if not cynical. It looks as though, with elections months away, it might pull through to the other side after years of stagnancy. Changes that upset the delicate equilibrium could create uncertainty. Is it a good time to introduce new requirements into the mix?
Part of the Union
Unfortunately, whether it is a good time or not matters little. Apart from the obvious phenomena of subsidy programs and participation in the EU governmental bodies, IFRS may be the first and most pervasive evidence that Poland is now a part of a larger and more homogenous Union that not only grants benefits but also imposes obligations. It is neither as visible nor as sexy as structural funds, but it could go a long way towards building investor confidence by taking a significant step to assure transparency.
With transparency comes accountability. Transparency has never been one of Poland's strong points, on both political and business levels. Given that set of circumstances, IFRS could be silent phenomenon that will give investors the confidence and help start changing the way Polish society views its institutions.
But even with all the benefits, the step will not be an easy one. The Warsaw Business Journal has prepared this special report on IFRS, and what it means to companies doing business in Poland. For those who think that it is just a bunch of boring new accounting rules that won't have any practical consequences for business, read on. You may be surprised by what you find.
By Robert Michaels
