ENEffective Insolvency and Creditor Rights Systems
In 2001, writing for the World Bank in the context of the ROSC, Gordon Johnson identified a number of weaknesses in the Czech insolvency regime, including inadequate resources for the courts, extremely slow proceedings leading to significant backlogs of cases, weak protection for creditor rights, and lack of professional criteria and training or adequate oversight over the administrative process. Other assessments released prior to 2007 reported similar shortcomings in the Czech Republic’s insolvency framework. Czech law had been amended piecemeal over the years since 1999, but with minimal overall success, as evidenced by the findings of these assessments. However, on July 1, 2007, the new Act on Insolvency and its Settlement Methods No. 182 of 2006 (the Insolvency Act) came into force, replacing the Act on Bankruptcy and Composition No. 328 of 1991 as the Czech Republic’s main insolvency law. The new Insolvency Act was found to be a solid overall improvement on the Czech insolvency framework. In contrast to previous evaluations, the 2009 European Bank for Reconstruction and Development’s (EBRD) Insolvency Law Assessment Project deemed the Czech Republic’s legal framework to be “highly compliant” with current international standards. The assessment noted that many improvements have been made, especially in the areas of estate assets, creditor rights, and reorganization. It is worth noting however, that the EBRD assessment is based solely on the content of the insolvency law. It has not evaluated or assessed the effectiveness or practical operation and application of those laws, nor has it evaluated institutional capacity to apply the law.
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NCInternational Financial Reporting Standards
In line with the European Commission (EC) Regulation No. 1606/2002, listed companies in the Czech Republic are required to prepare consolidated accounts in accordance with the International Financial Reporting Standards (IFRSs) as adopted by the European Union. The 2008 EC report on the implementation of Regulation No. 1606/2002 states that the Czech Republic exceeded the requirements of the Regulation by mandating application of IFRSs in the annual accounts of listed companies and permitting IFRSs in the consolidated accounts of all other companies. Companies that are not required or choose not to apply the international standards, have to follow the Czech Generally Accepted Accounting Principles (GAAP) which are primarily contained in the Accounting Act, supplemented by the Ministry of Finance Provisions on Accounting and Czech Accounting Standards for entrepreneurs, banks, insurance, non-profit organizations, and other governmental entities. According to a number of publications on the subject, Czech GAAP differ from the international standards in many respects. The 2009 PricewaterhouseCoopers report on the implementation of IFRSs throughout the world states that the national accounting standard-setter has not announced any convergence plans.
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ENPrinciples of Corporate Governance
In its 2003 Corporate Governance Sector Assessment Project the EBRD came to the conclusion that corporate governance legislation in the Czech Republic was in "medium compliance" with the Organization for Economic Cooperation and Development (OECD) Principles of Corporate Governance. The EBRD assessment pointed out shortcomings in certain areas, including disclosure and transparency, protection of shareholders rights, and implementation and enforcement of corporate governance legislation. In 2002, the World Bank had conducted a similar review and made policy recommendations in three broad areas: legislative reform, institutional strengthening, and voluntary/private initiatives. The Czech Corporate Governance Code of 2004 is modeled on the OECD's principles of Corporate Governance and remains voluntary.
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IDInternational Standards on Auditing
According to the Chamber of Auditors of the Czech Republic’s (CACR) website, the Czech Republic's transition from national auditing standards to International Standards on Auditing (ISAs) started in 2003. National auditing standards were gradually withdrawn and, in 2004, the CACR decided to implement ISAs in the audits of financial statements covering periods beginning on or after January 1, 2005. As explained in the 2006 CACR self-assessment, the Chamber adopts International Auditing and Assurance Standards Board’s (IAASB) pronouncements, including ISAs, although with adaptations to reflect the local legal environment. Since 2004, the CACR has been publishing a Czech translation of the Handbook of International Auditing, Assurance, and Ethics, and, at the time of the 2006 self-assessment, the latest version of ISAs had been published. However, the IAASB has since revised some standards. In its 2009 action plan, the CACR reiterated its commitment to the on-going convergence process and noted that the 2008 Handbook was expected to be translated into Czech by August 2008. As of December 2009, there is no information as to whether the translation has been completed.
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IDAnti-Money Laundering/Combating Terrorist Financing Standard
In its 2007 mutual evaluation of the Czech Republic, the Committee of Experts on the Evaluation of Anti-Money Laundering Measures (MONEYVAL) notes that the country has made moderate progress since the last evaluation. The 2007 evaluation found that the Czech Republic was fully or largely compliant with 23 of the Financial Action Task Force's (FATF) 40 recommendations (R) and 9 special recommendations (SR). The country was not however, fully or largely compliant with all the core recommendations as stipulated by the FATF. The country was deemed only partially compliant with R 1, R 5 and SR II. In 2009, MONEYVAL released a first written progress report based on the findings and recommendations put forward by the 2007 evaluation. According to the progress report, the Czech Republic has passed Act No. 253 of 2008, a new Anti-Money Laundering and Combating the Financing of Terrorism (AML/CFT) act which implements European Union Directives 2005/60/EC and 2006/70/EC, as well as some FATF requirements. The progress report acknowledges that the new act, along with other measures have addressed several existing shortcomings in the AML/CFT framework. However, the report did not assign updated compliance levels based on these new developments. The FATF, in its 2008-2009 Annual Report, names the Czech Republic as one of the jurisdictions that have endorsed the FATF's 40+9 recommendations.
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CPCore Principles for Systemically Important Payment Systems
The Czech Express Real-Time Interbank Gross Settlement (CERTIS) is the Czech Republic's only payment system and, therefore, the country's sole systemically important payment system (SIPS). The system processes both retail and large-value transactions, according to a 2001 assessment conducted by the IMF and the World Bank (WB). The IMF/WB report, however, referred to the CERTIS system as the Clearing and Settlement Center of the CNB. The same report indicated that, as of 2001, the Czech Republic observed seven of the nine applicable Core Principles for SIPS as promulgated by the Committee on Payment and Settlement Systems, since Core Principle V is not applicable in the Czech context,. The country 'largely observed' the remaining two principles, with only minor shortcomings. The IMF/WB report also noted that all four principles regarding the central bank responsibilities were largely observed by the CNB. A new generation of CERTIS, which increases capacity and lowers operational costs, was introduced in late 2006, and the country continues to make progress in implementing the Single Euro Payment Area project. A 2007 report by the European Central Bank affirmed the CERTIS system's importance in the Czech Republic and noted that the Payment System Act and the Banks Act are the main laws governing payment systems in the country. Although the CERTIS system is currently the only existing payment system, the Payment System Act allows for the establishment of other payment systems in the country.
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