Source document: https://docs-lawep.s3.us-east-2.amazonaws.com/1694868900426.pdf (Georgia)
IMPROVED FINANCIAL REPORTING FOR EASY ACCESS TO FINANCE AND GROWTH OF BUSINESS Launch of the GGF Project: CORPORATE FINANCIAL REPORTING FOR IV CATEGORY ENTERPRISES 29 March 2018 Welcome Remarks: Mr. Nikoloz GAGUA, Deputy Minister of Finance of Georgia Mr. Ben LUCKOCK, Regional Portfolio Manager, UK Embassy Mr. Yuri DOLIDZE, Head of Service for Accounting, Reporting and Auditing Supervision (SARAS) Improved Financial Reporting for Easy Access to Finance and Growth of Business | GGF project IMPROVED FINANCIAL REPORTING FOR IV CATEGORY ENTERPRISES Project overview by: Mr. Michael WELLS, GGF Project Team Leader Improved Financial Reporting for Easy Access to Finance and Growth of Business | GGF project Rational behind the reform/project Micro, Small and Medium Enterprises (MSMEs) generate immediate employment opportunities with relatively low investment.
In addition, they support entrepreneurship development and innovation.

% of active Enterprise % of employment % value added 6% 21% Georgia 94% 1% EU 99% 57% 33% 43% 67% 79% 43% 57% Statistics indicate that Georgia has room for improvement of value added and employment rates in MSMEs.
2017 May Annual Report on EUROPEAN SMEs 2015/2016 Improved Financial Reporting for Easy Access to Finance and Growth of Business | GGF project 4 Regulatory Framework – Classification criteria and requirements for IV category enterprises Entity Classification Assets Revenue ANE Standard for Financial Reports Management Report Audit Requirement IV Category (Micro) III Category (Small) II Category (Medium) < 1 mil.

< 2 mil.

< 10 Local Standard Voluntary Voluntary < 10 mil.

< 50 mil.

< 20 mil.


< 50 IFRS For SMEs Voluntary Voluntary < 100 mil.

< 250 IFRS For SMEs Mandatory Mandatory I Category (Large) > 50 mil.

> 100 mil.

> 250 IFRS Mandatory Mandatory Note: Category IV entities cannot be a sole entrepreneur.
Improved Financial Reporting for Easy Access to Finance and Growth of Business | GGF project 5 Benefits of the reform/project Support the social and economic development strategy of Georgia Category IV enterprises will benefit from:  Having basis to more comprehensive accounting frameworks  Reduced administrative burden/cost savings More complete and accurate financial information available to:  Credit rating agencies  Banks and Micro-financiers  Tax Office Improved Financial Reporting for Easy Access to Finance and Growth of Business | GGF project 6 Process of standard development Assessment Phase Develop new Standard Implementation support February 2018 March 2018 June 2018 October 2018 • Analysis of Georgian, Estonian, UK, Polish, Irish, Singaporean GAAP • Online survey of IV Category enterprises • In-depth interviews with accountants • Drafting working papers • Consultative Group meetings • Self-learning material • Kick-off event • Drafting Standard • Communicating with SARAS and • Awareness workshops • Pilot financial statements other stakeholders • Success stories of 10 • Communicating the draft standard with Consultative Group IV Category Enterprises Improved Financial Reporting for Easy Access to Finance and Growth of Business | GGF project 7 Project Team Quality Assurance Lasha Janelidze, Partner at PwC Georgia Audit and Assurance Quality assurance, beneficiary relationship Team Leader Mike Wells, International expert bringing expertise of financial accounting and reporting Project Manager Nini Eliashvili, Manager PwC Georgia Advisory Services Overseeing the overall project execution Senior Consultant Aleksandra Rytko, International expert Supporting team leader in drafting corporate financial accounting and reporting standards Communications Expert Nina Beradze, Manager PwC Georgia Advisory Services Supporting developing communication channels and campaigns for raising awareness Senior Consultant Levan Batiashvili, Senior Consultant PwC GE Advisory Services Supporting team leader in drafting corporate financial accounting and reporting standards Senior Consultant Nika Koiava, Senior consultant PMCG Supporting team leader in drafting corporate financial accounting and reporting standards GESI Consultant Mariam JaJanidze Gender Equality and Social Inclusion Expert Researcher Nino Khatisashvili, Consultant PMCG supporting research and analytics Improved Financial Reporting for Easy Access to Finance and Growth of Business | GGF project 8 Results of the Assessment Responses rate: 16,169 out of 80,000 entities (20%) In-depth in-person interviews: 24 accountants serving more than 60 IV Category enterprises Key findings: • Category IV entities are aware of the forthcoming Standard • Self-learning material will be useful if detailed; written in simple language; and including examples for a range of industries • Would also find useful if practical workshops/trainings useful Improved Financial Reporting for Easy Access to Finance and Growth of Business | GGF project 9 Consultative Group • Wider stakeholder engagement ensured to support SARAS in developing Category IV Standard.
• Expert team of accountants, tax authorities, regulators, banks and professional associations formed to discuss Staff Papers, including preliminary views on basis of: • Experience from other jurisdictions • Georgian context (stakeholder perspectives analysis) • EU Accounting Directive • Opportunity for other interested stakeholders to contribute to the Exposure Draft Standard.
Improved Financial Reporting for Easy Access to Finance and Growth of Business | GGF project 10 Consultative Group consensus (1) Simplification considerations • satisfy legal requirements • Cost or burden < benefits to Georgian Category IV-entities • Minimise complexities in the accounting • Do not explicitly specify detailed accounting requirements for infrequent transactions, conditions and events (next slide).
Improved Financial Reporting for Easy Access to Finance and Growth of Business | GGF project 11 Consultative Group consensus (2) Infrequent economic phenomena • long term employee benefits • • investments in associates, joint ventures or subsidiaries share-based payment • complex financial instruments • business combinations and goodwill • equipment dismantling and site restoration costs • • service concession arrangements sale and lease-back transactions • hyperinflation • expenditures on the exploration for and evaluation of mineral resources • multiple element sales Improved Financial Reporting for Easy Access to Finance and Growth of Business | GGF project 12 Consultative Group consensus (3) IV Category simplification Other Categories • True and fair view presumption (only 3 notes) • No consolidated financial statements • No accounting policy choices and appropriately simplified accounting • Simplified measurement (no fair value, no actuarial valuation methods, etc.)
• Extensive note disclosures & presentation judgements • Consolidated and separate financial statements • Many accounting policy choices and much more complex accounting • Complex measurements requiring experts and significant judgements Improved Financial Reporting for Easy Access to Finance and Growth of Business | GGF project 13 Consultative Group consensus (4) Transition • Transition principle: retrospective application (apply from 01/01/2017) • However, in first financial statements can choose: • not to present comparatives (apply from 01/01/2018) • • to present only balance sheet (apply from 31/12/2018) to use deemed costs Improved Financial Reporting for Easy Access to Finance and Growth of Business | GGF project 14 Level of complexity of IV Category equivalent Standards IFRS for SME / Micro Guide y t i x e l p m o C f o l e v e L Defunct 2005 Georgian GAAP UK and Ireland FRC 105 Estonian Micro GAAP Polish Micro Standard (AA) ASEAN Micro Standard Georgian IV Category Standard EU Directive Minimum Requirements Improved Financial Reporting for Easy Access to Finance and Growth of Business | GGF project 15 Panel discussion: Introduction of financial reporting standards, potential benefits and key players Moderated by: Mr. David MCHEDLIDZE, SARAS Panelists: Ms. Nino CHIKOVANI, President of Georgian Chamber of Commerce and Industry Mr. Irakli KHATIASHVILI, Head of Micro Business Management Division, TBC Bank Mr. Aleksandre GOMIASHVILI, General Director, CreditInfo Mr. Shalva Akhrakhadze, Director, Financial Laboratory Mr. Levan BAINDURASHVILI, Revenue Service Ms. Mariam JAJANIDZE, Gender Equality Social Inclusion expert Improved Financial Reporting for Easy Access to Finance and Growth of Business | GGF project 16 Gender Equality and Social Inclusion • Based on the findings from the IFC’s Enterprise Finance Gap Assessment Database, it is estimated that globally there are roughly 9.34 formal million women-owned SMEs in over 140 assessed countries, which is approximately one third of all formal SMEs; • IFC estimates that as many as 70 percent of women-owned SMEs in the formal sector in developing countries are unserved or under-served by financial institutions.
This amounts to a financing gap—and a missed business opportunity—of approximately $260 – $320 billion per year.

• SME Policy Index: Eastern Partner Countries 2016 recommends Georgia to introduce targeted support measures for women entrepreneurs FMC Manual| GGF project 17 Gender Equality and Social Inclusion Statistical information • 52.08% percent of Georgian population are women.
• 21.9% of men and 41.1% of women are economically inactive (2015); • 31% of newly established enterprises are registered by women from 2013 for each year.

Preliminary Findings: • Challenges in access to finance; • Lack of awareness on how to start entrepreneurship; • Available gender statistic is not enough to identify key challenges FMC Manual| GGF project 18 Questions?

FMC Manual| GGF project 19 THANK YOU FMC Manual| GGF project 20