NCEffective Insolvency and Creditor Rights Systems
In 2003, the European Bank for Reconstruction and Development (EBRD) found Kazakhstan to have achieved only "medium" overall compliance of its insolvency regime with prevailing international standards for effective insolvency and creditor rights systems, even though its insolvency laws were found to be among the strongest in Central Asia. Chief among the areas of deficiency are the reorganization and liquidation processes and the treatment of estate assets. Harmer and Cooper, writing for the EBRD in 2004, noted that the gap between the quality of Kazakh insolvency law and the effectiveness of its implementation was among the greatest to be found in the countries studied by the EBRD. Reforms took place through 2006 and were added to by regulations issued through the Ministry of Finance in 2007 and 2008. Nevertheless, the subsequent EBRD reports published in 2009 and 2010 disclose that the reforms of the insolvency regime had not brought about the expected changes and the overall rating of Kazakhstan in terms of its insolvency regime was downgraded to “low” compliance.
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ENInternational Financial Reporting Standards
The Kazakh accounting framework is primarily governed by the provisions of the Law on Accounting and Financial Reporting of 1995, which was significantly amended in 2007, according to a 2007 World Bank assessment of the accounting and auditing environment in Kazakhstan. The amendments enacted in February 2007 mandate the application of International Financial Reporting Standards (IFRSs) issued by the International Accounting Standards Board (IASB) by listed companies, large companies, and companies that qualify as public interest entities (PIEs). Small and medium-sized entities (SMEs) and companies that cannot be defined as PIEs may apply either IFRSs or the Kazakh Accounting Standards (KASs). The report explained that KASs, although said to be based on IFRSs, differ significantly from their international equivalents. Differences arise largely from the fact that KASs were developed in 1995, and, therefore, do not take into account any subsequent revisions made to the international standards. Thus, certain areas covered by IFRSs are not addressed by an equivalent KAS. Additionally, the assessment identified differences in disclosure requirements and accounting policies under the two frameworks. For entities that do not qualify as PIEs, the World Bank recommended setting up a committee to develop a simplified financial reporting system. This simplified reporting system may be based on the existing KASs subject to their revision or on the IFRS for SMEs developed by the IASB. As of February 2010, there is no information as to the developments in this area.
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IDPrinciples of Corporate Governance
According to the 2007 Corporate Governance Sector Assessment by the EBRD, corporate governance is a relatively new concept in Kazakh law. Nevertheless, the assessment states that both the government and private sector acknowledge the need for corporate governance practices in Kazakhstan to be further developed and improved. The 2007 assessment, per a 2010 EBRD report, found corporate governance legislation in Kazakhstan to be in "medium compliance" with the Organization for Economic Cooperation and Development's (OECD) Principles of Corporate Governance. The 2010 report states that weaknesses were identified with regard to ensuring the basis for an effective corporate governance framework, as well as disclosure and transparency. This represents a downgrade from the 2004 assessment by the EBRD which assigned Kazakhstan “high compliance.” The Law on Joint Stock Companies (JSCs) was introduced in 2003 and subsequently amended in 2005, as a 2006 EBRD report noted. The report observed that these amendments enhanced the system of state regulation of JSC activity and the protection of shareholders' and investors' rights. According to the 2007 EBRD assessment, the Council of Issuers approved the Kazakh Corporate Governance Code on February 21, 2005 and states that the Code is generally based on the OECD Corporate Governance Principles and the Recommendations on Application of Corporate Governance by Kazakhstan Joint Stock Companies.
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ENInternational Standards on Auditing
According to the 2007 World Bank assessment of accounting and auditing practices in Kazakhstan, since 2006 the Law on Auditing mandates the use of International Standards on Auditing (ISAs) issued by the International Auditing and Assurance Standards Board (IAASB) and translated into Russian and Kazakh in accordance with the standard-setter’s translation policy. The previous edition of the Law mandated application of the Kazakh Standards on Auditing which differed significantly from ISAs. Although the law introduced significant changes in the auditing framework, the World Bank observed that compliance with the Auditing Law turned out to be challenging, because local professionals were not familiar with ISAs. Furthermore, the World Bank made a number of recommendations to the Kazakh authorities, including the requirement for an audit regardless of the entity's legal form only when there is a public interest for such an audit. The assessment also recommended making audited financial statements available to the public, establishing in the long term a public oversight mechanism for the audit profession, and developing a standard audit methodology and audit manual for ISAs. In its 2008 Action Plan, the Kazakh Chamber of Auditors (CoA) noted that it will continue to implement the IAASB pronouncements and was in the process of translating the IAASB’s 2008 Handbook. As of February 2010, the 2008 IAASB Handbook has been translated and is posted on the CoA website. No information as to the translation of the most recent version (2009) of the Handbook that contains Clarified ISAs is available as at the time of the writing of this report.
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IDAnti-Money Laundering/Combating Terrorist Financing Standard
The most recent assessment of Kazakhstan's compliance with the Financial Action Task Force's (FATF) recommendations and special recommendations on anti-money laundering (AML) and combating the financing of terrorism (CFT) was conducted in 2004 by the IMF. The results of this assessment was published in two separate reports by the IMF, namely, the Financial System Stability Assessment (FSSA) Update and the Financial Sector Assessment Program (FSAP) Update in 2004. The 2004 FSSA Update noted that the Kazakh AML legal framework was not in line with international standards, terrorist financing had not been criminalized as a separate offense, and there was no functioning Financial Intelligence Unit (FIU). These findings were also confirmed by the U.S. Department of State in its 2005 report. However, the IMF assessment was conducted on the basis of the FATF's 2002 methodology, which was subsequently revised in 2004 and there is insufficient information publicly available regarding Kazakhstan's compliance with the FATF recommendations per its 2004 methodology. Nevertheless, the Eurasian Group (EAG) website as of January 2010 reports that some progress has since been made in Kazakhstan’s AML/CFT regime. In April 2008, the Financial Monitoring Committee, Kazakhstan’s FIU, was established within the Ministry of Finance. Kazakhstan also adopted the AML/CFT law in September 2009; due to come into effect on March 9, 2010. The EAG also reports that Kazakhstan’s next mutual evaluation is scheduled for July 2010. The FATF, in its 2008-2009 Annual Report, names Kazakhstan as one of the jurisdictions that have endorsed the FATF's 40 plus 9 recommendations.
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CPCore Principles for Systemically Important Payment Systems
In 2000, the IMF assessed Kazakhstan's compliance with the Committee on Payment and Settlement Systems' (CPSS) Core Principles for Systemically Important Payment Systems (SIPS). At the time, the IMF identified two SIPSs: the Interbank System of Money Transfers (ISMT) and System of Retail Payments. In 2004, the IMF conducted a Financial System Stability Assessment Update of its 2000 assessment and concluded that only the ISMT is of systemic importance. The retail payment system, the Interbank Clearing System (ICS), is mentioned on the National Bank of Kazakhstan's (NBK) website and in recent published reports as being one of the payment systems operating in the country. However, there is no indication as to whether the system has since the 2004 IMF report been classified as a SIPS. The IMF's 2004 Update notes that the ISMT observes all Core Principles (CP) with the exception of CP I. With regards to CP I, the assessment finds inconsistencies between the Law on Payments and Money Transfers and the bankruptcy law concerning real-time finality or irrevocability of payments. However, the Kazakhstani authorities note that they do not consider the law to hinder any aspect of irrevocability. The 2004 IMF Update nonetheless recommends that a clause be inserted into the bankruptcy law to strengthen the irrevocability of payments. According to the NBK's 2008 Annual Report, the bulk of non-cash transactions, 98.4 percent, were processed through the ISMT system in 2008. Information provided on its website indicates that the NBK oversees the payment systems in the country, namely, the ISMT, and the ICS.
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