Financial Crime World

Accounting and Auditing System in Bosnia and Herzegovina

Bosnia and Herzegovina’s accounting and auditing system is complex due to its governance structure. Here are some key points about the country’s accounting and auditing framework:

Governance Structure

  • Three Official Languages: Bosnian, Croatian, and Serbian are recognized as official languages.
  • International Cooperation: There is cooperation between the RS (Republika Srpska) and Serbia, as well as between FBH (Federation of Bosnia and Herzegovina) and Croatia, to access international accounting and auditing standards.

Accounting and Auditing Framework

  • District of Brcko: The District of Brcko has its own financial reporting framework, which was not reviewed in this report.

Economic Situation in Bosnia and Herzegovina

Bosnia and Herzegovina achieved significant economic milestones but faces challenges. Here are some key points about the country’s economic situation:

Milestones

  • Stabilization and Association Agreement: The country signed a Stabilization and Association Agreement with the European Union in June 2008.
  • Economic Growth: The economy grew at an average annual rate of 6 percent in real terms between 2004 and 2008, driven by reconstruction efforts and private sector investment.

Challenges

  • Company Law Development: Limited progress has been made in developing company law, and further work is necessary to fully meet international and accounting and auditing standards.
  • GDP Growth: GDP growth peaked in 2007 at around 7 percent but weakened with the onset of the financial crisis.
  • Inflation: Inflation was moderate during this period, amounting to just 3.8 percent in 2008 (year-on-year).

Economic Performance

  • Private Investment and Consumption: Both private investment and consumption saw strong growth.
  • Export Growth: Export growth averaged 25 percent per annum over the period.

Current Account Deficit in Bosnia and Herzegovina

The country has a significant current account deficit, financed by foreign direct investment, grants, and foreign borrowing. Here are some key points about the current account deficit:

Financing

  • Foreign Direct Investment: FDI inflows averaged 7 percent of GDP between 2004 and 2008, covering an average of about 44 percent of the CAD during this period.
  • Food and Fuel Price Increases: Food and fuel price increases pushed up the current account deficit further in 2007 and 2008.

Impact of the Global Economic Crisis

The global economic crisis spread quickly throughout Bosnia and Herzegovina, reversing some of the strong growth enjoyed before 2009. Here are some key points about the impact of the crisis:

Economic Contraction

  • GDP Drop: GDP dropped by 3 percent in 2009.
  • Export and Import Reductions: Exports dropped 44 percent and imports 45 percent (year on year) during the first half of 2009.

Financial Situation

  • Foreign Reserves: Foreign reserves started to drop, but the fall was not alarming.