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Azerbaijan’s Accounting and Auditing ROSC: An Overview

Institutional Framework

Since gaining independence in 1991, Azerbaijan has undergone significant changes to its institutional framework. The country has adopted a Civil Law system, but still needs to establish a comprehensive legal framework.

Supreme Legislation and Civil Code

  • The Constitution is the supreme legislation of Azerbaijan.
  • The Civil Code (2000) defines various legal structures that can be used by businesses operating in Azerbaijan.

Business Forms

Azerbaijan has two primary forms of incorporation: Limited Liability Companies and Joint-Stock Companies.

Limited Liability Company

  • A limited liability company can have one or several owners.
  • Benefits include:
    • Not being liable for obligations of the company
    • Having losses limited to capital contribution
    • Fewer regulations and reporting requirements than joint-stock companies

Joint-Stock Company

  • Equity capital is divided into shares.
  • Shareholders are not responsible for liabilities of the company.

Governance Structures

The governance structures of Limited Liability Companies and Joint-Stock Companies are outlined in the Civil Code.

General Meeting of Participants (Limited Liability Company)

  • The supreme body of a limited liability company
  • Responsible for appointing an executive body and electing a Revision Commission

General Meeting of Shareholders (Joint-Stock Company)

  • The supreme steering body of a joint-stock company
  • Amends and approves the charter and equity capital
  • Elects members to the board of directors (supervisory board) and of the Revision Commission

Accounting Regulation

Azerbaijani accounting regulation is currently in transition, with various agencies developing fragmented and uncoordinated regulations.

Law on Accounting

  • Has been amended several times since its adoption in 1995
  • Latest amendments aimed at bringing Azerbaijani accounting standards in line with international best practices

Challenges and Opportunities

The current system of accounting regulation in Azerbaijan is characterized by a lack of coordination between different regulatory bodies, leading to inconsistent and sometimes contradictory regulations.

Efforts to Improve the System

  • Adoption of International Financial Reporting Standards (IFRS)

Conclusion

Azerbaijan’s institutional framework has undergone significant changes since its independence in 1991. The country continues to face challenges related to accounting regulation, with a need for coordination and consistency between different regulatory bodies. However, there are efforts underway to improve the system, including the adoption of international best practices.

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