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Developing an Accounting Profession in a New Market Economy (Croatian Experience)

An accounting profession and the development of accounting standards differ significantly from a controlled economy to a market economy. This paper reports on the changes in the accounting profession as an economy moves from a controlled economy to a market economy. Specifically, the accounting profession in Croatia during its change to a market economy is reported upon. Education for certified public accountants (CPA) began in 1939 under the Commercial Chamber of Zagreb. At this time Croatia was a part of Yugoslavia. Accounting education for CPAs was organized at the state level under the “ states and social self-government control.” A purpose of the profession was to support international investors. The relationship between the states and the federal government in relation to the accounting profession was similar to that in the United States where each state determines the requirements to become a CPA. The principal professional accounting organization in Croatia was established in Zagreb in 1954 as the Croatian Association of Accounting and Financial Worker. This was during the socialist era that probably influenced the inclusion of the word “ worker.” In a socialist economy, it was very important to insure full employment. The Croatian Association of Accounting and Financial Worker played an important role in the development of accounting and auditing. On October 8, 1991, the Parliament of the Republic of Croatia took the action of separation from the Yugoslavia Federation. With the establishment of the Republic of Croatian began the move from a controlled (Socialist) economy to a market (Capitalist) economy. In recognition of the effect of this economic system change and the importance of financial reporting in a market economy Parliament decreed a modification and addition to the Law of Accounting on June 4, 1992. This decree dealt with a few financial accounting issues but mostly with semantics. Four months later, on October 23, 1992, Parliament passed the new Law of Accounting that was prepared by Croatian Accounting experts. The 1992 law is still in effect. Article 15 of the 1992 law required that International Accounting Standards be used in the Republic of Croatia and that the financial reports must be published in the official public newspaper in Croatia, “ Narodne Novine.” However, Article 17 of the law required that external financial reports must be based on European Union (EU) regulations. The Croatian Association of Accounting and Financial Worker is currently in the process of preparing a proposal of a new Law of Accounting. The Croatian Association of Accounting and Financial Worker plays an important role in developing accounting and financial reporting in Croatia. It is a member of the IFAC, IASC, and ECIIA. For many years the Croatian Association of Accounting and Financial Worker has published a journal of accounting and finance (Racunovodstvo i Financije) and organized many conferences and educational seminars. In 1998, the Croatian Association of Accounting and Financial Worker began offering a certificate in internal auditing (CIA). This certification is for specialists in the area of internal auditing in businesses, banks, and financial institutions. The program is based on a similar program by the European Confederation of Institutes of Internal Auditing (ECIIA). In 1999, the Croatian Association of Accounting and Financial Worker began a program for internal accountants wherein they offer the possibility to acquire the certificate for managerial accountant (CMA). As in the United States, different organizations in Croatia offer educational programs that lead to certification. Unlike the United States, once one is certified in Croatia, there is no continuing education obligation to retain certification. One of the elements of the proposed new Law of Accounting is the establishment of an “ Accounting Institute” that will provide direction in financial accounting, managerial accounting, external auditing, internal auditing, and similar accounting functions. The Institute would exercise control of examinations, licensing, and professional development. The law would require bi-certification with a requirement of continuing education. The accounting profession in the United States developed over a period of many years, beginning as an outgrowth of the English accounting profession. States established their own requirements for licensing but moved towards the uniform system that exists today. The federal government in the United States has exercised little direct control over the profession. Financial reporting is separated from government control and from control by the major professional organization, the American Institute of Certified Public Accountants (AICPA). The Croatian accounting profession is more comparable to the European model in that there is more legislative intervention both in the profession and in accounting standards. The EU will certainly have greater influence over the development of an accounting profession and accounting standards in Croatia. In order to enhance financial development between Croatia and the UE, conformity with EU standards is most likely.

Accounting Profession; Market Economy; Croatia; Development

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