From January 1, Uzbek joint-stock companies, commercial banks, insurance companies and legal entities in the category of large taxpayers are required to keep accounting on the basis of IFRS and from the end of 2021 will prepare financial statements on the basis of IFRS.

What are implications for Uzbekistan?

In Uzbekistan, major push for privatization is expected in 2021 which is due to the inefficient management by the state, increased competition, as well as to the major transition to a market economy. One of the biggest obstacles in the privatization process, or rather, one of the reasons slowing down the process, is that the accounting of these organizations is not kept in line with IFRS.

The potential foreign investors understand little the reports prepared by Uzbek organizations and doubt the accuracy of figures. Translating reports into IFRSs and auditing is laborious, time consuming and costly. For example, Rothschild & Co Investment Bank (financial advisor), Dentons law firm (legal adviser), as well as KPMG were engaged to help sell the state’s stake in the Coca-Cola plant in Uzbekistan.

Background

Uzbekistan once tried to switch to the IFRS before. Joint-stock companies and banks were required to submit financial statements based on IFRS in practice. Unfortunately, these reports were often prepared with the help of international audit organizations because the quality of the reports prepared by the organizations themselves was poor.

So what has changed this time round?

This time, we have two major differences in the transition to IFRS in Uzbekistan:

Firstly, the transition to IFRS will be comprehensive. All joint-stock companies, banks, insurance companies and large taxpayers (including private companies) must switch to IFRS from 1 January. It covers more than 500 major companies.

Secondly, for entities that have transitioned to IFRSs, accounting based on national standards will be abolished. This means that organizations have no choice but to make the full transition to IFRS.