Trajectories of accounting and auditing developmentin EU enlargement: comparative analysis of ten newmember states
Judy Day Peter Taylor
Published online: 16 July 2009
Springer Science+Business Media, LLC. 2009
Abstract This paper presents comparative qualitative analysis of the developmentof accounting and auditing in the ten member states which joined the European
Union in May 2004, eight with transition economies and two with established but
emerging market economies. The post-communist eight shared many similarities at
the outset of transition but subsequent economic and political experiences were
strongly divergent. In contrast, Cyprus and Malta had established market economies
(but at relatively lower levels of development than more established EU member
states). Compared with the transition eight they also differed in having established
accounting and auditing professions. The papers research questions and associated
hypotheses address varying institutional characteristics and comparative inter-
temporal institutional change among the ten member states. In testing these
hypotheses we use qualitative analysis on descriptive data developed as part of the
official EU evaluation of accession states suitability for membership. In adopting
this research approach we are consistent with a range of studies of institutional
change which have been undertaken in an EU context, largely in political theory and
political economy. We find evidence that different trajectories of institutional
development are observable in the ten new member states. This research thus
documents a major exercise in pan-European regulatory change, adds to the record
of the transition to market structures and institutions of eight transition economies,
and assists understanding of accounting development in two emerging economies.
J. Day (&) P. TaylorManchester Business School, University of Manchester, Crawford House,
Manchester M15 6PB, UK
e-mail: [email protected]
P. Taylor
e-mail: [email protected]
P. Taylor
School of Management, University of Liverpool, Liverpool L69 7ZH, UK
123
J Manag Gov (2010) 14:313350
DOI 10.1007/s10997-009-9103-z
Furthermore, it informs understanding of processes under way for other EU
applicants and for new membership applications which may arise in future.
Keywords EU enlargement Accounting transition Regulatory change
1 Introduction
In 1993, at the Copenhagen meeting of the European Council, it was agreed that the
European Union (EU) should be further enlarged by the admission of all those
countries with which association agreements had been concluded, and which wished
to be admitted. Accession would take place as soon as the applicant was able to
satisfy the necessary economic and political conditions. Among these conditions
was a requirement for the existence of a functioning market economy. Appropriate
administrative and judicial structures would be needed to provide the conditions for
effective implementation of relevant EU legislation (sometimes referred to as the
acquis communautaire, henceforth acquis). In 1997 the Luxembourg EuropeanCouncil also agreed that the enlargement of the EU must involve the strengthening
and improvement of the operation of institutions in keeping with the provisions of
the Amsterdam Treaty. As a result, significant expansion has taken place and further
expansion is in prospect. On 1st May 2004 ten new member states, eight of which
were transition countries, joined the EU. Two additional transition countries have
obtained EU membership since the influx of 2004 (Bulgaria and Romania, both
acceding on 1st January 2007) creating a then total membership of 27 countries. At
time of writing three other countries have outstanding candidatures for member-
ship,1 four others have been recognised by the EU as potential candidate members,2
and a range of other countries are possible members of widely varying degrees of
likelihood.
The membership criterion of a functioning market economy was explicitly stated
to involve various prerequisites, among which was that an appropriate legal system,
including the regulation of property rights, should be in place and laws and contracts
must be enforceable. Certain necessary conditions to support these essential
institutions of a market economy did not appear to be explicitly mentioned. Notable
explicit omissions were the need for a well-functioning system of accounting and
auditing practices and procedures which were effectively promulgated and
regulated; and an established accounting and auditing profession. This raises
research questions in two broad areas: firstly, how applicant countries are and have
been assessed on criteria relating to accounting and auditing institutions and systems
1 Namely, Croatia, FYR of Macedonia, and Turkey. Croatia was granted candidate status in 2004 and
accession negotiations opened in 2005. FYR Macedonia became a candidate for membership in
December 2005 but accession negotiations have not yet commenced. Turkeys status with regard to EU
membership has been long, having been an associate member of the EU and its predecessors since 1964, a
candidate member since 1999, and in negotiations for membership since October 2005. Despite the initial
screening process having been completed in October 2006, Turkeys final accession remains
controversial.2 Namely, Albania, Bosnia and Herzegovina, Montenegro, and Serbia.
314 J. Day, P. Taylor
123
prior to a decision on EU membership; secondly how applicants have developed
accounting and auditing institutions and systems in ways which would satisfy the
requirements for accession; thirdly, what patterns are present in this institutional
development; and fourthly, what might be the determinants of difference in those
patterns. The first question has been addressed in an earlier paper (Day and Taylor
2005). In this paper we address the other three research question by presenting a
comparative analysis of the experiences of institutional change in accounting and
auditing of the ten member states which formally joined the EU in May 2004. This
analysis may be applicable to subsequent accession applications.
Our analysis focuses on how the ten 2004 new member states developed
accounting and auditing practices and procedures, accounting and auditing
professions, and relevant regulatory systems. Such an analysis is made interesting
by the magnitude of the simultaneous institutional changes which were represented
and by the variety present amongst the new member states. These new member
states comprised eight transition economies (the Czech Republic, Estonia, Hungary,
Latvia, Lithuania, Poland, the Slovak Republic, and Slovenia) and two emerging
market economies (Cyprus and Malta). Apart from the differences implied by
transition and emerging status other differences can be noted both within and
between these two groups. The transition eight includes countries from Central
Europe (the Czech Republic, Hungary, Poland, the Slovak Republic, and Slovenia)
and the Baltic (Estonia, Latvia, and Lithuania). In addition, although the post-
communist countries as a whole shared many similarities at the outset of the
transition process, their economic and political experiences have been strongly
divergent. Some succeeded in stabilising their economies relatively early and
became set on course for rapid growth and convergence with Western market
economies whilst others have been less successful. Transition economies in general
vary significantly in their level of economic and social development, political,
economic and social stability, and position in the transition cycle and the transition
eight, despite their commitment to and relative success in transition when compared
to the generality of transition countries, exhibit important differences of experience.
Cyprus and Malta, as emerging economies, had established market economic
systems which were at relatively lower levels of economic development at least in
comparison with the more established members of the EU. In comparison with the
eight transition countries they had another interesting difference in that they both
already had established accounting and auditing professions. Thus these ten new
member states represent an interesting and varied sample for analysis.
We consider the research reported in this paper to be important for a number of
reasons. It adds a new dimension to the record of the transition to market structures
and institutions of the eight former communist countries which joined the EU in
2004, as well as assisting in understanding the accounting development of the two
emerging economies which already had democratic and market institutions. It also
further informs our understanding of the EU accession process which is presently
under way for the three countries which are currently candidates for membership
and which are now at various stages on the road to accession and it provides a
framework for the analysis of accounting institutional development in both future
Trajectories of accounting and auditing development 315
123
candidates for EU membership and transition and emerging countries more
generally.
The paper is organised as follows. We present a literature review in Sect. 2 and
go on to outline and discuss our hypotheses. In Sect. 3 we present analyses of
comparative data on the ten countries paths to accession as tests of our hypotheses.
Section 4 contains our conclusions and suggestions for directions for further
research.
2 Literature review and development of hypotheses
In this section of the paper we consider literature relating to institutional differences
between the sample countries, in particular but not exclusively relating to their
accounting and auditing systems, and also to analyses of institutional change in
other contexts.
It is well-documented that extensive differences existed between communist
accounting and capitalist accounting (Bailey 1988; Garrod and McLeay 1996).
Accounting in the centrally planned economies of the USSR and Eastern Europe
was designed in accordance with communist economic theory and represented
Marxist-Leninist accounting (Seal et al. 1995; Daniel et al. 2001) and thus were
based on quite different objectives, concepts and terminology, and exhibited
distinctly different practices and professional characteristics from those in market
economies. For the external audit of enterprises, differences of similar magnitude
existed. Bychkova (1996) states that auditing as understood in the West never
existed in either Russia or the USSR, rather systems of external control were
present. Similar circumstances were observable elsewhere in communist Eastern
Europe. Furthermore, accounting and auditing did not exist as professions in the
sense that they do in most capitalist countries (see for example Sucher and Zelenka
1998 for the Czech Republic).
The foregoing points to the initial existence of substantial institutional gaps for
all eight transition economies both in the broad sense of transition to market based
institutions as well as their more narrowly focussed and administratively driven
transition to EU structures and practices. Recognition of this raises two related
questions: were the institutional gaps for each of the eight transition economies
effectively the same; and were the paths which they followed to close those gaps
effectively the same (both in terms of speed and other characteristics)?
Whilst the accounting systems of these eight member states may have possessed
broadly comparable institutional bases at the end of communism, they also have
distinct histories and cultural values, both pre- and post-communism, which suggest
that particular characteristics might emerge in their accounting and auditing systems
during transition. Thus, accounting in the countries of Eastern Europe before the
communist era was subject to a range of influences with dominant influences in
certain countries being Austrian and German (see Seal et al. 1995; Krzywda et al.
1995). Thus, adopting the methodology of Gray (1988) we might argue that history
and culture in the eight transition economies would generally tend to favour
statutory control over professionalism in accounting and audit regulation,
316 J. Day, P. Taylor
123
uniformity over flexibility in accounting regulation, conservatism over optimism in
accounting practices, and secrecy over transparency in disclosure and financial
reporting.3 Empirical evidence from transition countries tends to bear this out.
Daniel et al. (2001) note in the case of Slovakia that post-1989 changes in the
accounting system were strongly influenced by Continental European models.
Borbely and Evans (2006) in an analysis of developments in Hungarian accountingregulation during transition note a persistent influence of taxation on accounting,
and of other Continental European, code-law regulatory and accounting features,
reflecting inter alia an over-strong influence of government and legislation and acontinuation of traditional approaches stressing detailed accounting methods in both
practice and accounting education. The influence of centralised direction is also
present in Slovakia through the role played in the development of accounting
practices by the Ministry of Finances Department of Accounting Methodology.
Kosmala-MacLullich (2003) and Kosmala (2005) in empirical research on the
introduction of the construct of the true and fair view into Polish financial reporting
in the context of European harmonisation and EU accession, concluded that Polish
practice perceived the true and fair view to be primarily a matter of formal and legal
compliance because of the continuing difficulty of expressing judgements based
upon accumulated experience when much of Polish experience reflected Continental
European influence, in particular the German tradition, and the regulatory and
economic arrangements of a centrally planned economy (see also Dragneva and
Millan 2002, for both Hungary and Poland).
In addition, there is some support in the literature for a prediction of degrees of
homogeneity in trajectories of institutional change arising from an expected high
degree of commonality in the objectives of policy makers. For example Boross et al.
(1995) (see also Borbely and Evans 2006) cite as policy objectives for the
development of accounting in Hungary during transition, fiscal policy and tax
collection, the need to attract foreign investment, and the presence of international
accountancy firms, and if we add the needs of general economic liberalisation and of
improvement in corporate governance, it is arguable that these influences would be
amongst those facing policy makers in most of these transition economies.
These issues suggest some commonality in trajectories for transition in
accounting and audit among the eight transition economies considered in this
paper but this view may be modified by examining the aims and actions of policy
makers in particular countries. Some researchers thereby argue for a considerable
degree of diversity. Thus, Richard (1998) argues that considerable diversity was
present in the evolving accounting systems of the transition economies, including
variation in the development of accounting principles. He attributes this variety to
the influence of short-term strategic alliances made by particular transition
governments with foreign states and institutions, selected for economic and
political advantage, overriding more fundamental and longer-term cultural and
historical factors. This observation is supported by the findings of a number of
researchers. For example Sucher and Zelenka (1998) note the influence of UK
3 For a more detailed discussion of Gray (1988), and of further work based on his model, see Day and
Taylor (2004a, b).
Trajectories of accounting and auditing development 317
123
legislation in the development of audit in the Czech Republic, whilst Krzywda et al.
(1998) refer to the diversity of Western influence on the development of audit in
Poland. Adams and McMillan (1997) note UK and French influences on Polish
accounting (see also Jaruga 1993 on these issues as perceived in the early stages of
transition in Poland); Illes et al. (1996) report influences on and reactions to
accounting reform in Hungary; and Jermakowicz and Rinke (1996) present evidence
on the Czech Republic, Hungary, and Poland. Bailey et al. (1995) reports
differences in the pattern of development of accounting reform in Estonia, Latvia
and Lithuania.
Taking a wider view of institutional change and development adds strength to
the argument of heterogeneous experience in transition. Hungary, Poland and the
former Czechoslovakia had already experimented with economic reform before the
breakdown of their communist regimes whilst the other four transition economies
had no equivalent experience. Thus, for example, Hungary was an early
experimenter with economic reforms which sought to address the basic institutional
failings of the communist system. Hungarys early experience with institutional
reform, although clearly flawed, appears to have given it an impetus not shared by
some other transition economies (Crane 1991), suggesting an early-mover
advantage in institutional change. Some of the necessary market-orientated
institutions were in place when the socialist regime was replaced and economic
agents were already familiar with their working when transition formally began.
Additionally, the early reforms helped to create an entrepreneurial class. In
comparison, other transition economies were slow starters and appeared to continue
to lag in certain areas. Detailed modelling and empirical analysis of institutional
change in a sample of twenty-five transition economies by Raiser et al. (2000)
provides evidence to support this conclusion. Raiser et al. find compelling evidence
that economic reforms and political liberalisation are stronger forces than changes in
economic structures induced by those changes. From this they conclude that there
may be positive spillovers from early reforms in liberalisation and privatisation into
institutional reforms, but with a significant lag. Thus, countries which lag behind in
making fundamental changes at an early stage may find it very difficult to catch up
with the leaders in transition. A related theme is the extent to which institutional
legacy from the pre-Communist era assisted certain transition countries in beginning
and accelerating institutional change. In some transition countries pre-transition
institutional legacy was extensive. For example, a stock exchange was established
as early as 1817 in Poland (the Warsaw Mercantile Exchange) and this exchange,
together with exchanges in six4 other cities operated until 1939 (Warsaw Stock
Exchange 2006). Trading recommenced in the recreated Warsaw exchange in 1991.
Similarly, Poland had a long history of professionalised accountancy (see footnote
21 below) and first legislated on insolvency in 1934 (EBRD 2003).
Supporting evidence from a different perspective comes from indices developed
by de Melo et al. (1996) and the European Bank for Reconstruction and
Development (EBRD) in various studies to measure the extent of reforms needed
4 One of these exchanges was in Vilnius, then part of Poland, but now capital of Lithuania, indicating a
shared institutional legacy.
318 J. Day, P. Taylor
123
to make markets the main mechanism for resource allocation, and data on these
indices for the eight transition economies is shown in Table 1. The indices are
composites of scores against seven elements.5 The indices reported in Table 1 are
on a linear scale from zero to one where zero represents an unreformed centrally
planned economy and one the standards of a market economy. The year 1990
represents an effective starting point for formal transition following the general
removal of communist regimes around that date.
In interpreting Table 1 it should be noted that the Czech Republic and the Slovak
Republic have the same score in 1990 as they then comprised the single country of
Czechoslovakia. The Table indicates that the three lead countries in institutional
development were Hungary, Poland and, perhaps surprisingly, Slovenia, with the
remaining five clustered some way behind. Comparative data suggests, however,
that the five lagging countries had at least accomplished moderate institutional
development (in comparison in 1990 Russia had an index of 0.15, the republics of
the former Soviet Union other than Russia had indices equivalent to that for Russia,
and Albania had the lowest index at around 0.1 of all transition countries in Europe).
These differences in part reflect different experiences in the pre-transition phase as
well as in the early period of transition among the eight transition economies.
Hungarys opening position was different since it began its transition in 1968 with
the introduction of the New Economic Mechanism when detailed central planning
was abandoned. There was a period of recentralisation in the 1970s which was
followed by additional market-orientated reforms. Thus, many of the reforms
implemented after political transition had already been developed and had begun to
be introduced earlier, suggesting much stronger and longer continuity in reforms
than can be observed for any other transition country (Hare 1991). By early 1991
Hungary had advanced significantly towards a market economy after 20 years of
experience in reform. The benefit of this strong foundation can be seen in the
progress made between 1995 and 1998.
Table 1 Estimated indices ofprogress in institutional reform
for selected transition countries
Source: World Bank (2002),adapted from Fig. 2.1, p. 14
1990 1995 1998
Czech Republic 0.24 0.84 0.88
Estonia 0.27 0.81 0.87
Hungary 0.56 0.85 0.94
Latvia 0.22 0.70 0.77
Lithuania 0.22 0.73 0.77
Poland 0.64 0.82 0.89
Slovak Republic 0.24 0.81 0.84
Slovenia 0.68 0.78 0.82
5 The aspects of institutional reform included in these indices are: the imposition of hard budget
constraints on banks and enterprises, the creation of an enabling environment for private sector
development, legal and judicial reform, macroeconomic stabilisation: price and trade liberalisation:
reform of the tax system and public finances: and reform of public sector institutions.
Trajectories of accounting and auditing development 319
123
In the case of Czechoslovakia the communist regime was removed from office in
the so-called Velvet Revolution of 1989. Some early transition progress had been
made in 1968 in the Dubcek era but this had been sharply reversed after the Soviet
invasion which also stifled subsequent attempts at reform and made conditions
difficult for transition when the opportunity arose (Brada 1991). Once transition
began in earnest the two parts of Czechoslovakia pursued transition quickly.
In contrast to the transition economies discussed above, Malta and Cyprus are
two emerging market economies. Classification studies of international accounting
and national accounting systems differences, whilst infrequently including either
Cyprus or Malta directly in samples of classified countries, nonetheless consistently
provide classifications which would locate the two countries variously as British
Commonwealth (Nair and Franks 1980) and UK influenced (Nobes 1992) or
similar.6 Relevant academic research on Malta is sparse but institutional detail
supports the foregoing. Malta has been independent since 1964 but during its long
period of association with the UK developed institutions modelled partly on those of
the UK. Thus, the legal system was based on English common law as well as Roman
civil law. The Malta Institute of Accountants (MIA) was founded in 1942 and
following the establishing of an alternative professional body, the Malta Corpo-
ration of Accountants (founded 1954), emerged in its present form in 1965 from the
merger of the two bodies (Malta Institute of Accountants 2008). Recognition of
accountancy as a profession occurred in 1979 through the Accountancy Profession
Act, which introduced the granting of warrants to Certified Public Accountants and
Certified Public Accountants Auditors by the Malta Minister of Finance. Under the
Act the MIA was given statutory recognition and is the only recognised local body.
Legal control of the profession is governed by the Accountancy Board, a
government body appointed under the 1979 Act (Malta Ministry of Finance, the
Economy and Investment 2008). The MIA was approved as a member body of the
Federation des Experts Comptables Europeens in 1989.
In the case of Cyprus, classification studies are well supported by empirical
studies of aspects of Cypriot financial reporting. Thus, Vafeas et al. (1998) observe
that as a result of the countrys history as a British colony, the accounting system in
Cyprus is much closer to the Anglo-Saxon model than to the Continental European.7
The legal system was based on common law with civil law modifications, with
company law having originally been modelled on UK legislation. After indepen-
dence in 1960, public companies were incorporated under the Companies Law,
Chapter 113 of the Laws of Cyprus, which was almost identical to the UK
Companies Act 1948 (Neocleous et al. 2000, p. 317). The Cyprus Income Tax Law,
1961 is based on English revenue law and it is common practice for English tax
cases to be used as precedent in Cyprus and more generally authority from UK Law
is used extensively in Cyprus. In addition the concept of true and fair view has
been prevalent in Cyprus (Vafeas et al. 1998). The country has had for many years a
professional accountancy body, The Institute of Certified Public Accountants of
6 See also Doupnik and Salter (1995), Roberts (1995), and Nobes (1998).7 In making this distinction we note the controversy over the validity of the distinction (see Alexander
and Archer 2000; Nobes 2003). .
320 J. Day, P. Taylor
123
Cyprus but with membership based on qualification overseas.8 Charitou et al. (2005)
note that a form of over-the-counter stock exchange has been in operation in Cyprus
since the early 1980s through dealers and brokers, but without a proper institutional
framework (Vafeas et al. 1998). Some monitoring of this process was provided by
the Cyprus Chamber of Commerce and Industry but no specialists or official market
makers were used during this period.9 In March 1996, an official Cyprus Stock
Exchange (CSE) was established by government through the Securities and Stock
Exchange Regulations, 1995 and Securities and Stock Exchange Law, 1996,
regulation being provided by a Council and a Securities Commission, both bodies
containing heavy government representation (see Krambia-Kapardis and Psaro
2006). In this respect Cyprus is similar to Malta which established its stock market
in 1992 and to the eight transition countries discussed in this paper which also
opened their stock markets during the 1990s. Krambia-Kapardis and Psaro (2006)
examine the implementation of corporate governance regulation in Cyprus and
observe the importance for reform of the need for foreign capital and the role played
by the CSE following a market crash in 2000, noting that the CSE introduced the
Cypriot Corporate Governance Code in September 2002 and that the Code is
predicated largely on Anglo-Saxon principles of corporate governance.
The foregoing review leads us to develop hypotheses concerning the trajectories
of institutional development of these ten new member states. Firstly, we argue that
the suitability of the institutional legacy at the beginning of the process of accession
is likely to be a significant determinant of trajectories of institutional development.
Thus, the comparatively long isolation of the eight transition economies from
practices and institutions of Western capitalist accounting and auditing compared to
the experiences of Cyprus and Malta lead us to hypothesise:
H1 The two emerging market economies of Cyprus and Malta are expected toexhibit smoother accession trajectories than the eight transition economies.
Despite the greater volume of (academic) evidence on Cyprus there is little to
justify a significant distinction between it and Malta and as a consequence we
hypothesise that:
H2 Cyprus and Malta are expected to exhibit broadly similar accessiontrajectories.
Within the group of transition economies we noted variation in pre- and early-
transition experiences and approaches and, in particular, the presence of an
observable early-mover advantage amongst transition countries in areas of
economic activity, suggesting the following hypothesis:
8 Applicants for membership must be a member of one of the following bodies: the Institute of Chartered
Accountants in England and Wales; its counterparts in Scotland, Ireland, Canada, South Africa, and New
Zealand, or the Chartered Association of Certified Accountants. Members of the American Institute of
Accountants and the Association of International Accountants may also be accepted for membership.9 See Travlos et al. (2001) for, inter alia, analysis of transactions in the CSE between 1985 and 1995 andchanges that occurred in the structure of the CSE during the period.
Trajectories of accounting and auditing development 321
123
H3 Hungary, Poland, and the Czech Republic are expected to exhibit smootheraccession trajectories than the other five transition economies.
H3 can also be based on the argument that the overall quality of a countrys
institutions (and the effectiveness of policy-makers responses to the need for
institutional improvement and change) will determine the speed and smoothness of
the accession trajectory. Thus, the weaker are institutions and the more problematic
are policy-makers responses, the less smooth are likely to be accession trajectories.
Consequently we can hypothesise further expected relative trajectories within the
transition group, thus:
H4 Estonia, Latvia, and Lithuania are each expected to experience less smoothtrajectories than Slovenia.
H5 Slovenia is expected to experience a smoother trajectory than the SlovakRepublic.
3 Data, analysis, and discussion
The research questions addressed in this paper concern institutional characteristics
and comparative inter-temporal institutional change. There is a large and complex
academic literature related to the study of such issues embracing micro- and macro-
approaches and qualitative and quantitative modes of institutional representation
and analysis applied in a number of disciplines. In this paper we use descriptive data
developed as part of the official EU evaluation of accession states suitability for EU
membership and analyse that data qualitatively, focusing on institutional develop-
ment through time. In adopting this approach we are consistent with a range of
studies of institutional change which have been undertaken in an EU context,
largely in political theory and political economy (eg Henderson 2003; Johnson 2003
on institutional development in the EU; Schimmelfenning et al. 2003 on EU strategy
to induce institutional change in applicant countries; Sicherl 1999 on disparities
between the institutions of EU Member States).10
We shall consider three components of institutional change during accession,
namely initial institutional gap, accession trajectory, and residual institutional gap.
An institutional gap will be present because of differences between the requirements
of the acquis and the actual organisational and institutional structures in place in theapplicant state (ie institutional misfit) and institutional deficiencies in the applicant
state (ie institutional shortfall).11 The presence of initial institutional gaps for all the
ten new member states is expected although the expectation is that they will be of
different sizes and degrees of seriousness depending inter alia upon the institutionallegacy of the country and the effectiveness of pre-accession preparations. These
expectations are implicit in the hypotheses developed above. The formulation of
precise expectations on the presence of residual institutional gaps on accession is
10 In addition there are a number of methodological studies relevant to the analysis of institutional
change, for example Lindner and Rittberger (2003).11 The concept of institutional gap is widely used in political theory, see for example Borzel (1999).
322 J. Day, P. Taylor
123
problematic. Accession is not prima facie evidence of the absence of a residualinstitutional gap. Day and Taylor (2005), in a study of the accession assessment
process by EC officials, reported interview evidence that not being in compliance
with an article from the 4th or 7th Directive would be very unlikely to be a reason
for not becoming a member state12 and, despite the possibility of the granting of
derogation for a transition period in areas of non-compliance, it was reported that
derogations were unlikely to arise due to the strictness of application of criteria
related to internal market aspects of the acquis. The path of travel of institutionsduring the accession period (ie between the initial and residual, if any, institutional
gaps) is the institutional trajectory. The concept of institutional trajectory is applied
in various disciplines which study institutional change.13 The sense in which
trajectory is used in such studies, and which is applied in this paper, is as the way in
which a process (in this case institutional change) develops over time. Thus, it
involves identifying a series of institutional states in dynamic development and, by
implication, observing institutional development mechanisms. Underlying the
analysis is assessment of the relative success of national strategies for wide-
ranging institutional reform implemented to achieve accession, each of which
represents a planned trajectory of institutional change through time.
3.1 Data
The data we analyse is generated from the bureaucratic administration of the
accession process itself. The process of accession to the EU broadly begins with the
negotiation of a Trade and Cooperation Agreement which is normally followed by
the conclusion of a more formal Association Agreement. In some cases an
Association Agreement comes into force, or is even negotiated, simultaneously with
the countrys application for membership. The final stage before actual accession is
normally an Accession Partnership. Table 2 shows dates at which the ten new
member states reached these various points in the transition process. Two sources of
data for the analysis of transition trajectories are generated by the stages reported in
Table 2. Following an application for membership, EC officials are required to
produce a report giving an opinion on the application for membership, which is laid
before the European Parliament. Each EC Report on Membership Applicationcontains a section which considers the applicants ability to assume the obligations
of membership. In column two of Tables 3, 4, 5, 6, 7, 8, 9, 10, 11 and 12 we
summarise the findings of the EC Reports on Membership Application for each ofthe ten new member states, with particular emphasis on commentary on their ability
to comply with the acquis on accounting and auditing issues. These analyses giveindications of the extent of institutional gaps at the beginning of the formal
accession process.
12 Sicherl (1999) confirms, at least in the case of Central and Eastern European countries, that decisions
on integration into the EU would turn on political issues not technical ones.13 As recent examples see, from sociology, Garcelon (2006), social economics, Zukowski (2004) and
political theory, Duit (2007).
Trajectories of accounting and auditing development 323
123
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Lat
via
19
91
(In
forc
e1
99
3)
19
95
(In
forc
e1
99
8)
19
95/1
99
71
99
8
Lit
huan
ia1
99
2(I
nfo
rce
19
93
)1
99
5(I
nfo
rce
19
98
)1
99
5/1
99
71
99
8
Mal
ta1971
(Eff
ecti
vel
yan
asso
ciat
ion
agre
emen
tw
hic
hw
asnot
full
yco
mp
lete
d)
Info
rce
19
71
19
90/1
99
3B
ut
susp
end
ed
19
96
and
reac
tiv
ated
19
98
20
00
Po
lan
d1
98
91
99
1(i
nfo
rce
19
94)
19
94/1
99
71
99
8
Slo
vak
Rep
ub
lic
19
90
(Fo
rmer
Cze
cho
slo
vak
ia)
19
91
Cze
chosl
ov
akia
;th
en1
99
3(i
nfo
rce
19
95)
wit
hS
lov
akR
epub
lic
19
95;
No
tfu
lly
app
rov
edu
nti
l1
99
9
19
98
Slo
ven
ia1
98
0,
Su
spen
ded
19
91
.N
ew
agre
emen
tin
forc
e1993
Inte
rim
agre
emen
tin
forc
e1997
1996/1
997
1998
324 J. Day, P. Taylor
123
The second source of data relates to accession trajectory and is contained in a
series of annual reports on progression to accession for the applicant countries
(henceforth EC Regular Reports). Following acceptance in principle of anapplication for membership, EC officials undertake the preparation, review and
negotiation of a National Programme for the Adoption of the Acquis (NPAA) for
each applicant (see Day and Taylor 2005 for a more detailed description of this
process). Commission officials then produce annual Regular Reports which reviewthe current status of and progress on each individual application for membership.
These reports on respective NPAAs go to the European Council. These RegularReports cover all areas of the acquis, as well as making more generalrecommendations on political and other issues. Annual reports were prepared on
each of the ten new member states for the years 19982002, together with a
composite report (henceforth Comprehensive Monitoring Report) which summa-rised the overall position for all the applicants (see European Union 1998, 1999,
2000, 2001, 2002, 2003). These reports, together with the judgements on the ten
applications for membership have been examined for references relating to
accounting and auditing aspects of the acquis and Tables 3, 4, 5, 6, 7, 8, 9, 10, 11and 12 summarise the findings of this analysis.
3.2 Data analysis
Table 2 gives an overall indication of accession trajectory by dating certain key
events in the accession process for each of the ten new member states. It is clear that
for the eight transition economies the whole process was compressed into a far
shorter period of time than was the case for the two emerging market economies.
We note that Malta concluded an Association Agreement as early as 1971, 20 years
before the earliest date for an Association Agreement with any of the transition
eight (Czechoslovakia as was, and Poland). The Association Agreement with
Cyprus came in 1972, with a customs union protocol following in 1987.
Applications for membership from Cyprus and Malta were also earlier (Cypruss
application was 1990, accepted 1993 and Maltas 1990, accepted 1993, suspended
1996 and reactivated 1998). Moreover, neither Cyprus nor Malta had an accession
partnership in place until 2000 for political reasons.14 This overview weakens
support for H1 that Cyprus and Malta are expected to exhibit smoother accession
trajectories than the eight transition economies. However, we may note additionally
that the ECs reviews of the ten applications for membership indicated that, as
expected, Cyprus and Malta had (in 1993 for both) each already achieved
compliance with a substantial part of the elements of the acquis relating toaccounting and auditing (which come under the heading of Company Law),
indicating relatively small initial institutional gaps. This is supported by the reviews
of applications for membership of the transition economies undertaken between
1994 and 1997 (excepting Slovakia whose application was not fully approved until
14 Negotiations with Cyprus were delayed mainly because of the issue of reunification with Northern
Cyprus, and negotiations with Malta were suspended for 2 years in the mid-1990s after a change of
government.
Trajectories of accounting and auditing development 325
123
Tab
le3
Acc
essi
on
traj
ecto
ryof
Cypru
s
Com
men
tfr
om
EC
report
on
mem
ber
ship
appli
cati
on
EC
regula
rre
port
son
pro
gre
ssto
acce
ssio
n,
19982002,
and
com
pre
hen
sive
monit
ori
ng
report
,2003
1998
1999
2000
2001
2002
2003
Dat
eof
Appli
cati
on
1990
Dat
eof
favoura
ble
Rep
ort
1993
Com
pan
yla
wal
read
yin
corp
ora
ted
much
of
the
rele
van
tpar
tsof
the
acq
uis
Pro
gre
ssre
port
edin
com
pan
yla
wbut
stil
lar
eas
wher
eal
ignm
ent
wit
hth
eacq
uis
was
nec
essa
ry
Alt
hough
Cypru
sfo
llow
ing
IAS
s,m
uch
of
EU
Dir
ecti
ves
pro
vis
ions
on
bal
ance
shee
tsan
dpro
fit
and
loss
acco
unts
yet
tobe
imple
men
ted.
Conce
rnover
curr
ent
rule
sfo
rpri
vat
eex
empt
com
pan
ies
and
the
off
-shore
sect
or
Enfo
rcem
ent
iden
tifi
edas
issu
e
Acq
uis
on
com
pan
yla
wst
ill
open
toneg
oti
atio
n,
wit
hli
ttle
furt
her
pro
gre
sshav
ing
bee
nm
ade
inth
ear
eas
of
com
pan
yan
dac
counti
ng
law
.
Leg
isla
tion
bri
ngin
gth
eap
pro
val
of
the
stat
uto
ryau
dit
or
inli
ne
wit
hth
ere
quir
emen
tsof
the
8th
Dir
ecti
ve
stil
louts
tandin
g
Com
pute
risa
tion
of
com
pan
ies
regis
try
inpro
gre
ssm
akin
gth
epubli
cati
on
of
com
pan
ydocu
men
tsea
sier
Com
pan
ies
fail
ing
toco
mply
wit
hfi
ling
of
annual
report
snow
bei
ng
stru
ckoff
com
pan
ies
regis
ter
No
par
ticu
lar
dev
elopm
ents
wer
enote
din
the
area
of
acco
unti
ng
law
but
pro
gre
ssnote
din
1999
on
enfo
rcem
ent
of
com
pan
yla
wco
nti
nued
Imple
men
tati
on
of
the
8th
Dir
ecti
ve
pro
ceed
ing
Cypru
sco
nsi
der
edto
be
toa
larg
eex
tent
inli
ne
wit
hth
eacq
uis
on
acco
unti
ng
Neg
oti
atio
ns
on
the
chap
ter
of
the
acquis
on
com
pan
yla
wnow
pro
vis
ional
lycl
ose
d
Pro
vis
ions
of
the
8th
Dir
ecti
ve
had
bee
nen
acte
din
the
Cypru
sC
om
pan
ies
(Am
endin
g)
Law
of
2001
Posi
tion
on
acco
unti
ng
law
now
consi
der
edin
line
wit
hth
eacq
uis
(des
pit
ece
rtai
nre
serv
atio
ns)
Inst
itute
of
Cer
tifi
edP
ubli
cA
ccounta
nts
of
Cypru
sap
pro
ved
asth
eco
mpet
ent
regula
tory
pro
fess
ional
body
Adm
inis
trat
ive
capac
ity
for
enfo
rcin
gco
mpan
yla
wbei
ng
stre
ngth
ened
by
furt
her
appoin
tmen
tsto
the
offi
ces
of
the
regis
trar
of
com
pan
ies
and
the
offi
cial
rece
iver
Leg
isla
tion
tofu
lfil
the
requir
emen
tsof
the
4th
Dir
ecti
ve
and
cert
ain
oth
erco
mpan
yla
wD
irec
tives
urg
entl
yre
quir
ed
Dra
ftla
win
corp
ora
ting
the
outs
tandin
gre
quir
emen
tsof
the
4th
and
7th
Dir
ecti
ves
adopte
din
Sep
tem
ber
2003
Am
endm
ents
toco
mpan
yla
wal
low
ing
non-
qual
ified
audit
ors
topra
ctic
ean
dau
dit
acco
unts
of
publi
cly
list
edco
mpan
ies
rais
ednew
conce
rns
about
com
pat
ibil
ity
wit
hacq
uis
326 J. Day, P. Taylor
123
Tab
le4
Acc
essi
on
traj
ecto
ryof
Mal
ta
Com
men
tfr
om
EC
report
on
mem
ber
ship
appli
cati
on
EC
regula
rre
port
son
pro
gre
ssto
acce
ssio
n,
19982002,
and
com
pre
hen
sive
monit
ori
ng
report
,2003
1998
1999
2000
2001
2002
2003
Dat
eof
Appli
cati
on
1990
but
susp
ended
1996
and
reac
tivat
ed1998
Dat
eof
Fav
oura
ble
Rep
ort
1993
and
updat
ed1999
Fai
rly
good
deg
ree
of
com
pli
ance
inco
mpan
yla
w(i
ncl
udin
gac
counti
ng
and
audit
ing)
No
pro
gre
ssre
port
pro
duce
d;
Mal
tas
appli
cati
on
for
mem
ber
ship
susp
ended
in1996
and
reac
tivat
edin
1998
Fai
rly
good
deg
ree
of
com
pli
ance
wit
hth
eacq
uis
inth
efi
eld
of
com
pan
yla
wnote
d
Mal
tahad
alre
ady
imple
men
ted
nea
rly
all
the
com
pan
yan
dac
counti
ng
law
Dir
ecti
ves
Rep
ort
did
not
note
any
furt
her
dev
elopm
ents
Rep
ort
note
dth
atth
ead
min
istr
ativ
esy
stem
regar
din
gac
counti
ng
had
bee
nm
odifi
edin
ord
erto
bet
ter
imple
men
tth
eacq
uis
Mal
tain
stit
ute
of
acco
unta
nts
reco
gnis
edby
Gover
nm
ent
asan
offi
cial
adm
inis
trat
ive
body
resp
onsi
ble
for
most
adm
inis
trat
ive
work
pre
vio
usl
yca
rrie
dout
by
acco
unta
ncy
boar
d
Nec
essa
ryam
endm
ents
toal
ign
law
wit
hth
e8th
Dir
ecti
ve
dra
fted
but
not
yet
adopte
d
Now
larg
ely
inli
ne
wit
hth
eacq
uis
.C
om
mit
men
tson
acco
unti
ng
met
and
countr
ysh
ould
be
inposi
tion
toim
ple
men
tacq
uis
inth
isar
eafr
om
dat
eof
acce
ssio
n
No
tran
siti
on
arra
ngem
ents
inre
spec
tof
acco
unti
ng
or
audit
ing
law
reques
ted
Trajectories of accounting and auditing development 327
123
Tab
le5
Acc
essi
on
traj
ecto
ryof
Cze
chR
epubli
c
Com
men
tfr
om
EC
report
on
mem
ber
ship
appli
cati
on
EC
regula
rre
port
son
pro
gre
ssto
acce
ssio
n,
19982002,
and
com
pre
hen
sive
monit
ori
ng
report
,2003
1998
1999
2000
2001
2002
2003
Dat
eof
Appli
cati
on
1996
Dat
eof
favoura
ble
opin
ion
1997
Exis
ting
legis
lati
on
alre
ady
som
ew
ayto
com
pli
ance
wit
hE
Uac
counti
ng
and
audit
ing
requir
emen
ts;
pla
nned
amen
dm
ents
expec
ted
toco
mple
tepro
cess
Poss
ibil
ity
of
tran
siti
onal
pro
ble
ms
of
imple
men
tati
on
due
tosh
ort
age
of
qual
ified
acco
unta
nts
and
audit
ors
note
d
Acc
ounti
ng
Act
and
the
Act
on
Audit
ors
tobe
or
had
bee
nim
ple
men
ted
on
sched
ule
Tra
nsi
tional
pro
ble
ms
rela
ting
toim
ple
men
tati
on
and
ash
ort
age
of
suit
ably
qual
ified
audit
ors
stil
lev
iden
t
Acc
ounta
nts
now
regis
tere
dw
ith
cham
ber
of
audit
ors
and
tobe
exam
ined
by
com
mis
sion
com
pose
dof
Min
istr
yof
Fin
ance
offi
cial
san
dac
counta
nts
appoin
ted
by
cham
ber
of
audit
ors
No
furt
her
pro
gre
ssre
port
edin
oth
erar
eas
New
Act
on
Audit
ors
tobe
info
rce
from
1Ja
nuar
y2001
Over
all
asse
ssm
ent
that
legis
lati
on
inac
counta
ncy
alre
ady
larg
ely
inli
ne
wit
hacq
uis
,al
though
new
legis
lati
on
(expec
ted
for
the
end
of
2000)
stil
lnec
essa
ryto
fill
rem
ainin
ggap
s
Chap
ter
of
acq
uis
on
com
pan
yla
wpro
vis
ional
lycl
ose
d
New
Act
on
audit
ors
info
rce
ensu
ring
full
com
pli
ance
wit
hacq
uis
Am
endm
ents
mad
eto
legis
lati
on,
incl
udin
gch
anges
toth
esc
ope
of
Acc
ounti
ng
Act
,defi
nit
ion
of
acco
unti
ng
yea
r,an
dru
les
on
dis
closu
rean
ddep
reci
atio
n
Com
mis
sion
for
stra
tegic
issu
esin
acco
unti
ng
&au
dit
ing
esta
bli
shed
asad
vis
ory
body
atM
inis
try
of
Fin
ance
on
pro
posa
lsfo
rre
stru
cturi
ng
acco
unti
ng
syst
eman
dpro
fess
ional
regula
tion
Am
endm
ent
toA
ccounta
ncy
Act
toal
ign
acco
unti
ng
legis
lati
on
wit
hacq
uis
info
rce
inJa
nuar
y2002
requir
ing
use
of
IAS
sfo
rco
nso
lidat
edac
counts
of
list
edco
mpan
ies
and
fair
val
ue
acco
unti
ng
for
som
efi
nan
cial
inst
rum
ents
Nat
ional
acco
unti
ng
legis
lati
on
nee
ds
toin
clude
addit
ional
requir
emen
tsto
ensu
refu
llco
mpli
ance
wit
hacq
uis
,e.
g.
dis
closu
rere
quir
emen
tson
num
ber
of
staf
f,em
olu
men
tsan
dad
van
ces
todir
ecto
rs,
incl
usi
on
of
pro
fit
and
loss
acco
unt
of
par
ent
com
pan
ies
inco
nso
lidat
edac
counts
,an
dso
me
audit
and
publi
cati
on
requir
emen
ts
Com
mit
men
tson
acco
unti
ng
met
and
countr
ysh
ould
be
inposi
tion
toim
ple
men
tacq
uis
inth
isar
eafr
om
dat
eof
acce
ssio
n
Adm
inis
trat
ive
stru
cture
sas
sess
edas
adeq
uat
e
328 J. Day, P. Taylor
123
Tab
le6
Acc
essi
on
traj
ecto
ryof
Est
onia
Com
men
tfr
om
EC
report
on
mem
ber
ship
appli
cati
on
EC
regula
rre
port
son
pro
gre
ssto
acce
ssio
n,
19982002,
and
com
pre
hen
sive
monit
ori
ng
report
,2003
1998
1999
2000
2001
2002
2003
Dat
eof
appli
cati
on
1995
Dat
eof
favoura
ble
opin
ion
1997
Rec
ent
and
pla
nned
legis
lati
on
expec
ted
tobri
ng
acco
unti
ng
inli
ne
wit
hE
UD
irec
tives
and
IAS
s
Posi
tion
on
audit
ing
less
clea
rdue
tola
ckof
info
rmat
ion
Tra
nsi
tional
pro
ble
ms
of
lack
of
qual
ified
acco
unta
nts
and
audit
ors
would
nee
dm
ajor
effo
rtto
per
mit
pro
per
imple
men
tati
on
of
new
and
impen
din
gle
gis
lati
on
No
pro
gre
sson
acco
unti
ng
or
audit
ing
inst
ituti
onal
dev
elopm
ent
report
ed
Pro
ble
ms
of
adm
inis
trat
ive
capac
ity
and
short
age
of
qual
ified
audit
ors
note
d
Adopti
on
of
Audit
ing
Act
1999
note
ddea
ling
wit
hap
pro
val
of
per
sons
carr
yin
gout
stat
uto
ryau
dit
s,th
ele
gal
fram
ework
wit
hin
whic
hth
eyoper
ate,
and
bas
icpri
nci
ple
sfo
rth
eIn
stit
uti
on
of
Auth
ori
sed
Audit
ors
Neg
oti
atio
ns
on
com
pan
yla
wch
apte
rof
acq
uis
pro
vis
ional
lycl
ose
d
Auth
ori
sati
on
Com
mit
tee
for
Audit
ors
esta
bli
shed
wit
hre
pre
senta
tives
from
gover
nm
ent
bodie
san
doth
erag
enci
es
Note
dth
attr
ainin
gan
dqual
ifica
tion
of
audit
ors
nee
ded
rein
forc
emen
t
Mea
sure
sin
rela
tion
toco
nso
lidat
edac
counts
stil
louts
tandin
g
Reo
rgan
isat
ion
of
Acc
ounti
ng
Sta
ndar
ds
Boar
dst
ill
requir
ed
Acc
ounti
ng
Act
amen
ded
toin
troduce
requir
emen
tsfo
rco
nso
lidat
edac
counts
inli
ne
wit
h7th
Dir
ecti
ves
and
IAS
s
Iden
tifi
cati
on
of
nee
dfo
rgover
nm
enta
lsu
per
vis
ion
of
self
-re
gula
ting
Inst
itute
of
Auth
ori
sed
Audit
ors
toen
sure
publi
ccr
edib
ilit
yof
audit
s
Act
on
auth
ori
sed
publi
cac
counta
nts
of
Feb
ruar
y2002
larg
ely
alig
ned
wit
hacq
uis
No
dev
elopm
ents
note
don
audit
ing
Over
all
legis
lati
on
was
consi
der
edto
be
inli
ne
wit
hac
counti
ng
&au
dit
ing
elem
ents
of
acq
uis
Rei
tera
tion
of
min
or
conce
rns
on
short
com
ings
inA
cton
auth
ori
sed
publi
cac
counta
nts
;so
me
dis
crep
anci
esre
lati
ng
toau
dit
ing
whic
hnee
ded
tobe
corr
ecte
d;
nee
dfo
rgover
nm
ent
super
vis
ion
of
the
Inst
itute
of
Auth
ori
sed
Audit
ors
note
d
Over
all
countr
yw
ould
com
ply
wit
hacq
uis
by
acce
ssio
n
Trajectories of accounting and auditing development 329
123
Tab
le7
Acc
essi
on
traj
ecto
ryof
Hungar
y
Com
men
tfr
om
EC
report
on
mem
ber
ship
appli
cati
on
EC
regula
rre
port
son
pro
gre
ssto
acce
ssio
n,
19982002,
and
com
pre
hen
sive
monit
ori
ng
report
,2003
1998
1999
2000
2001
2002
2003
Dat
eof
appli
cati
on
1994
Dat
eof
favoura
ble
opin
ion
1997
Countr
yhad
bas
icle
gis
lati
ve
fram
ework
inpla
ce
Poss
ible
tran
siti
onal
pro
ble
ms
of
imple
men
tati
on
due
tosh
ort
age
of
qual
ified
acco
unta
nts
and
audit
ors
.O
ncu
rren
tti
met
able
thes
epro
ble
ms
capab
leof
reso
luti
on
Note
dth
atth
ere
wer
ear
eas
of
acco
unti
ng
law
wher
efu
rther
chan
ge
was
stil
lnee
ded
Pla
nned
audit
ing,
dev
elopm
ents
had
bee
nin
stit
ute
d;
new
ly-c
reat
edC
ham
ber
of
Audit
ors
addre
ssin
gsh
ort
age
of
qual
ified
audit
ors
but
stil
lgap
s
No
pro
gre
ssre
port
edin
area
spre
vio
usl
yfo
und
defi
cien
t;note
dth
athig
hdeg
ree
of
confo
rmit
yhad
alre
ady
bee
nac
hie
ved
New
law
on
acco
unti
ng
tota
ke
effe
ctfr
om
2001
topro
vid
efo
rfu
rther
alig
nm
ent
wit
hacq
uis
and
for
legal
bas
isfo
rin
troduct
ion
of
nat
ional
acco
unti
ng
stan
dar
ds
Chap
ter
of
acq
uis
on
com
pan
yla
wcl
ose
d
Cham
ber
of
Audit
ors
has
7,0
00
audit
ors
and
audit
ing
firm
sre
gis
tere
d
Sti
llno
acco
unti
ng
stan
dar
ds
body
and
no
nat
ional
acco
unti
ng
stan
dar
ds
intr
oduce
d
Acc
ounti
ng
and
audit
ing
elem
ents
of
acq
uis
stat
edto
be
subst
anti
ally
met
Modifi
cati
ons
toA
cton
Acc
ounti
ng
esta
bli
shed
legal
bas
isfo
rac
counti
ng
stan
dar
ds
Now
pro
vis
ion
for
exte
rnal
qual
ity
contr
ol
of
audit
ors
Modifi
cati
ons
tocr
imin
alco
de
now
allo
wvio
lati
ons
of
acco
unti
ng
regula
tions
tobe
rigoro
usl
yad
dre
ssed
Fundin
gm
ade
avai
lable
toen
able
the
tran
slat
ion
of
IAS
sin
toM
agyar
Ver
ynea
rly
full
yal
igned
wit
hacq
uis
on
acco
unti
ng
and
audit
ing
Rec
ent
revis
ion
toval
uat
ion
rule
sfo
ran
nual
and
conso
lidat
edac
counts
of
cert
ain
types
of
com
pan
ies,
ban
ks
and
oth
erfi
nan
cial
inst
ituti
ons
rem
ained
tobe
dea
ltw
ith,
asdid
intr
oduct
ion
of
nat
ional
acco
unti
ng
stan
dar
ds
Adm
inis
trat
ive
stru
cture
sas
sess
edas
adeq
uat
e
330 J. Day, P. Taylor
123
Tab
le8
Acc
essi
on
traj
ecto
ryof
Lat
via
Com
men
tfr
om
EC
report
on
mem
ber
ship
appli
cati
on
EC
regula
rre
port
son
pro
gre
ssto
acce
ssio
n,
19982002,
and
com
pre
hen
sive
monit
ori
ng
report
,2003
1998
1999
2000
2001
2002
2003
Dat
eof
appli
cati
on
1995
Dat
eof
favoura
ble
opin
ion
1997
New
law
son
acco
unti
ng
wer
egood
star
tto
alig
nm
ent
wit
h4th
Dir
ecti
ve
and
furt
her
amen
dm
ents
in1996
incr
ease
dra
teof
pro
gre
ss
Furt
her
legis
lati
on
pla
nned
for
acco
unti
ng
and
audit
ing
Pra
ctic
alim
ple
men
tati
on
of
law
sco
uld
be
dif
ficu
ltdue
toa
short
age
of
suit
ably
qual
ified
acco
unta
nts
and
audit
ors
Tra
inin
gce
ntr
efo
rac
counta
nts
and
audit
ors
had
bee
nes
tabli
shed
toad
dre
sssh
ort
age
of
qual
ified
per
sonnel
No
oth
erpro
gre
ssnote
d
Acq
uis
scre
enin
gpro
cess
on
com
pan
yla
wnow
com
ple
ted
No
new
legis
lati
on
on
acco
unti
ng
and
audit
ing
adopte
dsi
nce
pre
vio
us
report
Curr
ent
legis
lati
on
stil
lre
quir
edso
me
amen
dm
ent
tobe
full
yin
line
wit
hacq
uis
but
pro
cess
of
alig
nm
ent
consi
der
edto
be
quit
efa
rad
van
ced
Rec
om
men
ded
that
atte
nti
on
be
pai
dto
ensu
ring
effe
ctiv
eim
ple
men
tati
on
and
enfo
rcem
ent
of
legis
lati
on
Det
aile
dneg
oti
atio
ns
open
edon
com
pan
yla
wch
apte
rof
acq
uis
Law
on
annual
acco
unts
amen
ded
Dec
ember
1999
toal
ign
wit
h4th
Dir
ecti
ve
Law
on
Conso
lidat
edA
nnual
Acc
ounts
info
rce
Januar
y2000
toal
ign
dom
esti
cla
ww
ith
the
7th
Dir
ecti
ve
but
som
ein
com
pat
ibil
itie
sbet
wee
noth
erdom
esti
cla
ws
regula
ting
acco
unta
ncy
and
som
egap
s
Furt
her
work
nec
essa
ryto
achie
ve
alig
nm
ent
wit
h8th
Dir
ecti
ve
on
audit
ing
Adm
inis
trat
ive
capab
ilit
yst
ill
lack
ing.
Shar
edre
sponsi
bil
ity
bet
wee
nM
inis
try
of
Fin
ance
and
Min
istr
yof
Eco
nom
ycr
eate
dnee
dfo
rcl
ose
rco
oper
atio
n
Law
on
Sw
orn
Audit
ors
due
tobe
info
rce
inea
rly
2002,
tran
sposi
ng
8th
Dir
ecti
ve
into
dom
esti
cla
w
Am
endm
ents
toL
awon
Annual
Acc
ounts
of
Ente
rpri
ses
info
rce
Apri
l2001
Pro
cess
of
imple
men
ting
IAS
sco
nti
nuin
g
Pra
ctic
alim
ple
men
tati
on
of
conso
lidat
edac
counti
ng
assi
sted
by
issu
eof
Man
ual
on
Pre
par
atio
nof
Conso
lidat
edA
nnual
Acc
ounts
Lat
via
nF
inan
cial
Acc
ounti
ng
Sta
ndar
ds
Com
mit
tee
bei
ng
esta
bli
shed
but
furt
her
work
on
its
legal
bas
isnec
essa
ry
Over
all,
alig
nm
ent
wit
hac
counti
ng
and
audit
ing
elem
ents
of
acq
uis
consi
der
edgood
Law
on
Sw
orn
Audit
ors
info
rce,
tran
sposi
ng
8th
Dir
ecti
ve
into
dom
esti
cla
w
IAS
imple
men
tati
on
conti
nuin
g
Imple
men
tati
on
of
conso
lidat
edac
counti
ng
conti
nuin
g
Fin
anci
alA
ccounti
ng
Sta
ndar
ds
Com
mit
tee
now
esta
bli
shed
Chap
ter
of
acq
uis
on
com
pan
yla
wpro
vis
ional
lycl
ose
d
Acc
ounti
ng
and
audit
ing
legis
lati
on
appea
red
bro
adly
inli
ne
wit
hacq
uis
Super
vis
ion
of
audit
ors
reso
lved
;m
ain
issu
ere
mai
nin
gw
asam
endm
ent
of
dom
esti
cla
wto
allo
wfa
irval
ue
acco
unti
ng
No
tran
siti
onal
arra
ngem
ents
reques
ted
Countr
yin
posi
tion
toco
mply
wit
hac
counti
ng
and
audit
ing
elem
ents
of
acquis
;no
par
ticu
lar
conce
rns
note
d
Trajectories of accounting and auditing development 331
123
Tab
le9
Acc
essi
on
traj
ecto
ryo
fL
ith
uan
ia
Co
mm
ent
fro
mE
Cre
po
rto
nm
emb
ersh
ipap
pli
cati
on
EC
reg
ula
rre
po
rts
on
pro
gre
ssto
acce
ssio
n,
19
98
2
00
2,
and
com
pre
hen
siv
em
on
ito
rin
gre
po
rt,
20
03
19
98
19
99
20
00
20
01
20
02
20
03
Dat
eo
fap
pli
cati
on
19
95
Dat
eo
ffa
vo
ura
ble
op
inio
n1
99
7
Ex
isti
ng
and
pla
nn
edle
gis
lati
on
mea
nt
no
maj
or
pro
ble
ms
exp
ecte
dw
ith
acq
uis
on
acco
un
tin
g
Ev
iden
ceo
nau
dit
ing
insu
ffici
ent
toas
sess
pro
spec
ts
Sh
ort
age
of
qu
alifi
edac
cou
nta
nts
and
aud
ito
rsw
asid
enti
fied
asp
ract
ical
pro
ble
mn
eed
ing
rem
edy
toim
ple
men
ta
cqu
isef
fect
ivel
y
No
dev
elo
pm
ents
inac
cou
nti
ng
or
aud
itin
gn
ote
d
Acq
uis
scre
enin
gp
roce
sso
nco
mp
any
law
no
wco
mp
lete
d
No
new
dev
elo
pm
ents
inac
cou
nti
ng
rep
ort
edan
dso
me
gap
sw
ere
no
ted
New
aud
itla
win
tro
du
ced
in1
99
9ra
isin
gq
ual
ifica
tio
nan
dp
rofe
ssio
nal
req
uir
emen
tsfo
rap
pli
can
tsto
aud
itp
rofe
ssio
n
Ch
amb
ero
fA
ud
ito
rsp
rop
ose
das
pro
fess
ion
alb
od
yw
ith
sep
arat
ion
of
fun
ctio
ns
of
per
form
ance
ov
ersi
gh
tan
dtr
ain
ing
No
furt
her
pro
gre
sso
nd
evel
op
men
tin
acco
un
tin
g
Ch
amb
ero
fA
ud
ito
rs
esta
bli
shed
and
Co
de
of
Eth
ics
for
pro
fess
ion
alau
dit
ors
app
rov
ed
Ov
eral
las
sess
men
tw
asth
atal
tho
ug
hth
eb
asic
req
uir
emen
tso
fth
ea
cqu
isw
ere
larg
ely
met
,th
ere
wer
ece
rtai
ng
aps,
and
that
the
nec
essa
ryin
stit
uti
on
alst
ruct
ure
sn
eed
edto
be
esta
bli
shed
,p
lus
imp
rov
emen
to
fth
eq
ual
ifica
tio
ns
of
spec
iali
sts
Neg
oti
atio
ns
on
com
pan
yla
wch
apte
ro
fth
ea
cqu
isp
rov
isio
nal
lycl
ose
d
No
leg
isla
tiv
ed
evel
op
men
tsre
po
rted
inac
cou
nti
ng
or
aud
itin
g
Fu
rth
erre
vis
ion
toau
dit
ing
leg
isla
tio
nn
eed
edto
ensu
reco
mp
lian
cew
ith
pro
vis
ion
so
fn
ewC
ivil
Co
de
Leg
isla
tio
no
nco
nso
lid
ated
acco
un
tin
gn
eed
sst
ren
gth
enin
g
Inst
itu
tio
nal
fram
ewo
rkfo
rb
oth
acco
un
tin
gan
dau
dit
ing
req
uir
esat
ten
tio
n
Cla
rifi
cati
on
nee
ded
on
wh
ich
inst
itu
tio
nw
ou
ldex
erci
sefo
rmal
po
wer
tose
tac
cou
nti
ng
stan
dar
ds
nee
ded
Cu
rren
tsu
per
vis
ion
mec
han
ism
sfo
rau
dit
ing
no
tco
nsi
der
edad
equ
ate
Fu
rth
eral
ign
men
to
nac
cou
nti
ng
mad
ev
iaad
op
tio
no
fL
awo
nC
on
soli
dat
edF
inan
cial
Acc
ou
nts
and
Law
on
Fin
anci
alS
tate
men
tsin
forc
ela
te2
00
1
Law
on
Fin
anci
alA
cco
un
tin
gin
forc
eea
rly
20
02
Law
on
Au
dit
ado
pte
dM
ay2
00
2
Ch
amb
ero
fA
ud
ito
rsh
adis
sued
17
aud
itst
and
ard
ssi
nce
20
01
Go
ver
nm
ent
reso
luti
on
of
Dec
emb
er2
00
1es
tab
lish
edR
egis
ter
of
Leg
alE
nti
ties
Dec
emb
er2
00
1In
stit
ute
of
Au
dit
,A
cco
un
tin
gan
dP
rop
erty
Val
uat
ion
reo
rgan
ised
and
Inst
itu
teo
fA
cco
un
tin
ges
tab
lish
edas
ap
ub
lic
inst
itu
tio
nw
ith
resp
on
sib
ilit
yfo
rb
usi
nes
sac
cou
nti
ng
stan
dar
ds
Ov
eral
lal
ign
men
tw
ith
acco
un
tin
gan
dau
dit
ing
elem
ents
of
acq
uis
con
sid
ered
tob
efa
iral
tho
ug
hq
ues
tio
ns
rem
ain
edo
nab
ilit
yto
pu
tle
gis
lati
on
into
pra
ctic
alef
fect
Co
un
try
mee
tin
gm
ajo
rity
of
com
mit
men
tsu
nd
era
cqu
is
Nat
ion
alau
dit
law
rem
ain
edto
be
furt
her
alig
ned
par
ticu
larl
yo
nsc
op
eo
fau
dit
san
dp
ract
ical
trai
nin
go
fau
dit
ors
(wit
ham
end
men
tsin
pre
par
atio
n)
Am
end
edla
wo
nq
ual
ity
assu
ran
cefo
rst
atu
tory
aud
ith
adb
een
ado
pte
d
Ov
eral
l,ad
min
istr
ativ
eca
pac
ity
asse
ssed
asad
equ
ate
Ex
pec
ted
that
cou
ntr
yw
ou
ldb
ein
po
siti
on
toco
mp
lyfu
lly
wit
hac
cou
nti
ng
and
aud
itel
emen
tso
fa
cqu
isb
yac
cess
ion
332 J. Day, P. Taylor
123
Tab
le1
0A
cces
sion
traj
ecto
ryo
fP
ola
nd
Com
men
tfr
om
EC
report
on
mem
ber
ship
appli
cati
on
EC
regula
rre
port
son
pro
gre
ssto
acce
ssio
n,
19982002,
and
com
pre
hen
sive
monit
ori
ng
report
,2003
1998
1999
2000
2001
2002
2003
Dat
eof
appli
cati
on
1994
Dat
eof
favoura
ble
opin
ion
1997
Act
son
acco
unti
ng
and
audit
ing
model
led
on
EU
dir
ecti
ves
and
IAS
sex
iste
d
No
real
pro
ble
ms
fore
seen
aslo
ng
aspla
ns
wer
efu
lfill
ed
Poss
ible
tran
siti
onal
pro
ble
ms
of
imple
men
tati
on
due
tosh
ort
age
of
qual
ified
acco
unta
nts
and
audit
ors
Pro
ble
ms
of
short
age
of
qual
ified
audit
ors
agai
nid
enti
fied
Note
dth
atex
isti
ng
acco
unti
ng
law
sbro
adly
inli
ne
wit
hacq
uis
and
that
imple
men
tati
on
was
mai
nis
sue
No
furt
her
pro
gre
ssre
port
edin
area
spre
vio
usl
yfo
und
defi
cien
t
Note
dth
ata
hig
hdeg
ree
of
confo