In 2002, a European Commission (EC) Regulation No. 1606/2002 was passed by the European Parliament and the European Council of Ministers requiring the adoption of International Financial Reporting Standards (IFRSs) issued by the International Accounting Standards Board. As a result of the Regulation, all European Union (EU) listed companies are required to prepare their consolidated financial statements following IFRSs as adopted by the EU beginning January 1, 2005. Listed companies in Poland consequently follow IFRSs in preparation of their consolidated accounts. Per the 2008 EC report on the implementation of the Regulation No. 1606/2002, IFRSs are permitted in the annual accounts of listed companies and in the consolidated and annual accounts of all other companies that have either filed for admission to public trading or are a subsidiary of a parent which prepares its consolidated accounts in accordance with IFRSs. All banks are required to apply IFRSs in their consolidated financial statements. Companies that are not required or choose not to apply international standards prepare financial statements in accordance with the Polish requirements primarily contained in the Accounting Act, which incorporates provisions set out in the Fourth and Seventh EU Company Law Directives. The World Bank in its 2005 assessment of accounting and auditing practices in Poland commended the authorities for the progress achieved in reforming financial reporting requirements, however, pointed to a number of remaining differences between Polish and international accounting standards. Adoption of IFRSs for consolidated accounts of all public interest entities was recommended, as was a review of Polish legislation to eliminate conflicting reporting requirements.

General Overview

In a 2005 Report on the Observance of Standards and Codes (ROSC) assessment, which benchmarked Polish accounting and auditing practices against International Financial Reporting Standards (IFRSs) and International Standards on Auditing, the World Bank commended Polish authorities for the progress achieved in reforming financial reporting requirements since the 2002 assessment. However, weaknesses persisted, and differences between Polish Accounting Requirements (PARs) issued by the Accounting Standards Committee (ASC) and IFRSs were observed. Although PARs were found to be in line with the European Union (EU) 4th and 7th Company Law Directives, the World Bank noted that "certain differences with IFRS may impede the reliability of financial statements in public interest entities" (p. 23). The World Bank, therefore, recommended that Polish authorities ensure the application of IFRSs in consolidated financial statements by all public-interest entities. Public-interest entities as defined by the World Bank include listed companies, banks, insurance companies, investment funds, pension funds and large enterprises.

According to European Commission (EC) Regulation No 1606/2002, application of EC-endorsed IFRSs in consolidated financial statements of listed companies was required beginning January 2005. Poland complies with EC regulations and, therefore, listed companies must follow IFRSs in preparation of consolidated financial statements. Per the 2008 EC report on the implementation of the Regulation No. 1606/2002, IFRSs are permitted in the annual accounts of listed companies. Furthermore, Poland permits IFRSs in the consolidated and annual accounts of all other companies under the following circumstances: (1) if it has applied for admission to public trading, or (2) it is a subsidiary of a parent which prepares its consolidated accounts in accordance with IFRSs. All banks, listed or non-listed, are required to use IFRSs in their consolidated financial statements. Companies not required or that choose not to apply international standards prepare financial statements in accordance with the Polish requirements. The World Bank report further noted that, in the absence of relevant national regulations, companies may apply IFRSs. With regard to small and medium size-enterprises (SMEs), the World Bank observed that PARs are adequate. However, Polish authorities must take greater advantage of the simplified reporting framework under the EU directives for SMEs.

In addition to PARs, Polish accounting requirements are primarily contained in the Accounting Act which incorporates provisions laid out in the Fourth and Seventh EU Company Law Directives as of 2003 and was last amended in 2004, per the World Bank report. The Accounting Act applies to all joint stock and limited liability companies including banks, insurance companies, listed companies, and pension and investment funds and is supplemented by Decrees from the Ministry of Finance (MoF). Banks and insurance companies are also governed by the Banking Act of 1997 and the Insurance Act of 2003, respectively. The World Bank noted that "although the Regulations issued by the Minister of Finance have been updated based on the most recent changes to the EU Banking Accounts Directive, the ROSC team contemplates potential conflicting financial reporting requirements for some banks" (pp. 6-7). Similarly, with respect to insurance companies, the assessment pointed out that despite the MoF regulations being updated in line with the changes in EU Insurance Accounts Directive, the likelihood of conflicting requirements for listed insurance companies could not be ruled out. The World Bank, therefore, recommended reviewing Polish legislation to eliminate conflicts with IFRSs. Sanctions for non-compliance with national requirements include fines and imprisonment.

Until September 2006, the Polish Securities and Exchange Commission (PSEC) was the regulator of the securities market and had been responsible for the enforcement of IFRSs. The Banking Supervision Commission (BSC) and the Insurance and Pension Funds Supervisory Commission were responsible for the regulation of the banking and insurance sector respectively. The BSC conducted on-site inspections to monitor compliance with accounting and auditing requirements and banks were legally obliged to provide BSC with access to documents and information concerning enquiries, the World Bank report explained. However, with the enactment of the Act on Financial Market Supervision in 2006, the regulatory authority in Poland changed and the supervision of the securities market, insurance, and pension funds was consolidated under the Polish Financial Supervisory Authority (Komisja Nadzoru Finansowego, or PFSA). The integration of the BSC into the new regulator came into effect on January 1, 2008, as noted on the PFSA website. There is no further information on exactly how the PFSA monitors compliance with financial reporting requirements in Poland.

Empowered by the Accounting Act, in 2002, the MoF established the Accounting Standards Committee (ASC) as the Polish accounting standard-setter. As explained in the assessment, its main task is issuing Polish standards. According to the 2007 Ernst & Young "Doing Business in Poland" report, as of January 2007, the ASC had issued three standards. The World Bank assessment noted that "the ASC should provide a forum for exchange of views on the most problematic issues that appear during the process of change in the national accounting system," Furthermore, the World Bank found that although the ASC comprises a diverse mix of stakeholders, it lacked the authority to "review accounting issues that are likely to receive divergent or unacceptable treatment in the absence of authoritative guidance under Polish Accounting Standards" (p. 15). The World Bank, therefore, recommended that the ASC be diversified to include professionals with more experience

The National Chamber of Statutory Auditors (Krajowa Izba Biegłych Rewidentów, or KIBR) is the main professional body. Only members of KIBR have the right to conduct statutory audits of financial statements. Although the profession is self-regulated, it is subject to the supervision of the MoF. The KIBR, however, is empowered to independently initiate disciplinary sanctions in case of non-compliance with the Auditing Act. Furthermore, the 2005 World Bank assessment pointed out that "the mandate of KIBR does not explicitly include serving the public interest" (p. 11). With regard to ethics, KIBR issued a Code of Professional Ethics based on the 2001 International Federation of Accountants (IFAC) Code in 2002. KIBR is listed as a member on the IFAC website.

The Principles

IFRS 1: First-time Adoption of International Financial Reporting Standards (effective 2006)

II

There is insufficient publicly available information directly addressing this principle.

IFRS 2: Share-based Payment (effective 2005)

II

There is insufficient publicly available information directly addressing this principle.

IFRS 3: Business Combinations (effective 2004)

NC

According to the 2007 Ernst & Young report, under Polish requirements, business combinations are "accounted for as an acquisition or uniting of interest - based on the conditions of the combinations" (p. 134). Also, unlike IFRSs, under Polish requirements, goodwill is amortized over the useful life.

IFRS 4: Insurance Contracts (effective 2006)

NC

According to the 2005 World Bank report, "the disclosures required under PARs in some cases may be insufficiently broad and detailed enough to comply with IFRS requirements" (p. 25).

IFRS 5: Non-current Assets Held for Sale and Discontinued Operations (effective 2005)

NC

According to the 2007 Ernst & Young report, under Polish requirements, unlike IFRSs, "trade receivable and payables, regardless of the credit period, are not discontinued" (p. 134).

IFRS 6: Exploration for and Evaluation of Mineral Resources (effective 2006)

II

There is insufficient publicly available information as to Poland's compliance with this principle.

IFRS 7: Financial Instruments: Disclosures (effective 2007)

II

There is insufficient publicly available information as to Poland's compliance with this principle.

IAS 1: Presentation of Financial Statements (effective 2007)

II

There is insufficient publicly available information as to Poland's compliance with this principle.

IAS 2: Inventories (effective 2005)

II

There is insufficient publicly available information as to Poland's compliance with this principle.

IAS 7: Cash Flow Statements (effective 1994)

II

There is insufficient publicly available information as to Poland's compliance with this principle.

IAS 8: Accounting Policies, Changes in Accounting Estimates and Errors (effective 2005)

II

There is insufficient publicly available information as to Poland's compliance with this principle.

IAS 10: Events after the Reporting Period (effective 2005)

II

There is insufficient publicly available information as to Poland's compliance with this principle.

IAS 11: Construction Contracts (effective 1995)

NC

According to the 2007 Ernst & Young report, unlike IFRSs, under Polish requirements, "long term contracts approach need only be applied for contracts with a period exceeding 6 months" (p. 133).

IAS 12: Income Taxes (effective 2001)

II

There is insufficient publicly available information as to Poland's compliance with this principle.

IAS 14: Segment Reporting (effective 1998)

NC

According to the 2002 World Bank assessment, "the concept of segment reporting, as defined in IAS, does not exist in PARs. Nonetheless an entity is obliged to disclose a breakdown of the net sales by activity type and by territory (domestic and foreign)" (p. 9).

IAS 16: Property, Plant and Equipment (effective 2005)

NC

According to the 2005 World Bank assessment, under Polish requirements, property, plant, and equipment (PPE) "may be under or overstated" in comparison with IFRSs. Furthermore, "PARs do not specifically require that the initial measurement of PPE includes the estimated cost of dismantling and removing an item and restoring the site (e.g., nuclear plant, restoration of a quarry, clay pits, etc.)" (p. 23). Also, "PARs provide that the cost of purchase or manufacture of tangible fixed assets comprises the total costs incurred by an enterprise in relation to the period of construction, including related foreign exchange differences" (p. 24), the report noted.

IAS 17: Leases (effective 2005)

NC

According to the 2005 World Bank report, under the Polish requirements, "lease accounting could mislead users" (p. 23). The report noted that Polish requirements are "substantially consistent" with the definitions of the lessor and the lessee under IFRS, however, "PARs do not provide any further guidance on issues such as measurement, revenue recognition, and sale and leaseback transaction" (p. 23).

IAS 18: Revenue (effective 1995)

II

There is insufficient publicly available information as to Poland's compliance with this principle.

IAS 19: Employee Benefits (effective 2006)

NC

According to the 2005 World Bank assessment, "provisions for employment benefits may be understated under PARs" (p. 24). Moreover, accounting requirements for employee benefits compatible with IFRSs do not exist.

IAS 20: Accounting for Government Grants and Disclosure of Government Assistance (effective 1984)

II

There is insufficient publicly available information as to Poland's compliance with this principle.

IAS 21: The Effects of Changes in Foreign Exchange Rates (effective 2005)

II

There is insufficient publicly available information as to Poland's compliance with this principle.

IAS 23: Borrowing Costs (effective 1995)

NC

According to the 2007 Ernst & Young report, under Polish requirements "all borrowing costs incurred in the period of construction of tangible and intangible assets are capitalized as part of the assets' cost" (p. 135).

IAS 24: Related Party Disclosures (effective 2005)

II

There is insufficient publicly available information as to Poland's compliance with this principle.

IAS 26: Accounting and Reporting by Retirement Benefit Plans (effective 1998)

II

There is insufficient publicly available information as to Poland's compliance with this principle.

IAS 27: Consolidated and Separate Financial Statements (effective 2005)

NC

According to the 2005 World Bank assessment, "different filing deadlines for legal entity and consolidated financial statements may result in a conflict with IAS 27, Consolidated Financial Statements and Accounting for Investments in Subsidiaries. IAS 27 effectively requires that the consolidated financial statements should be issued contemporaneously with the legal entity financial statements" (p. 10).

IAS 28: Investments in Associates (effective 2005)

NC

According to the 2007 Ernst & Young report, under Polish requirements, unlike IFRSs, equity accounting is permitted.

IAS 29: Financial Reporting in Hyperinflationary Economies (effective 1990)

NC

According to the 2007 Ernst & Young report, Polish requirements do not mandate adjustments for hyperinflation. However, "regulated restatements of fixed assets are undertaken," the report added.

IAS 31: Interests in Joint Ventures (effective 2005)

NC

According to the 2007 Ernst & Young report, under Polish requirements "joint ventures which are commercial entities are accounted for using the equity accounting method. Joint ventures which are not commercial entities are accounted for using proportional consolidation" (p. 135).

IAS 32: Financial Instruments: Disclosure and Presentation (effective 2005)

NC

According to the 2007 Ernst & Young report, there are a number of differences between Polish and international requirements in this area.

IAS 33: Earnings per Share (effective 2005)

II

There is insufficient publicly available information as to Poland's compliance with this principle.

IAS 34: Interim Financial Reporting (effective 1999)

II

There is insufficient publicly available information as to Poland's compliance with this principle.

IAS 36: Impairment of Assets (effective 2004)

NC

According to the 2007 Ernst & Young report, there are differences in assessment of assets with regard to impairment and accounting of assets. The World Bank assessment added that under Polish requirements, "impairment of assets may not be timely recognized" (p. 24).

IAS 37: Provisions, Contingent Liabilities and Contingent Assets (effective 1999)

II

There is insufficient publicly available information as to Poland's compliance with this principle.

IAS 38: Intangible Assets (effective 2004)

NC

According to the 2007 Ernst & Young report, unlike IFRSs, under PARs "revaluation to fair value is not permitted" (p. 133) and all intangible assets are amortized.

IAS 39: Financial Instruments: Recognition and Measurement (effective 2006)

II

There is insufficient publicly available information as to Poland's compliance with this principle.

IAS 40: Investment Property (effective 2005)

NC

According to the 2007 Ernst & Young report, unlike IFRSs, under PARs "assets held under an operating lease cannot be classified as investment property" (p. 133). Other differences were found in the fair value model under the two regimes.

IAS 41: Agriculture (effective 2003)

NC

According to the 2005 World Bank assessment, Polish requirements do have a similar standard. The report noted that "based on the fragmented nature of Polish agriculture the lack of rules compliant with IAS 41 is unlikely to have a significant impact in the short-term (except for larger producers; e.g. poultry farms)" (p. 24).