Developments in the field of accounting and accounting professions.

The economic system of any country can function normally and without many problems if the management of each economic unit receives accurate and timely information overall. Among the many pieces of information used by the management of each economic unit, accounting plays a special role.

Accounting continuously and without interruption provides management of the economic unit and beyond with information that is fast, accurate, rigorously documented, and written. It provides the management of the economic unit with complete information on the unit's financial position, its performance, and the factors that have, as the case may be, influenced its achievements or failures. Therefore, we say that the information obtained from accounting provides the management of the economic unit with the “eyes and ears” necessary for as efficient management of economic activity as possible; it is the starting point for all its financial management. 

In our country, even before the beginning of the last century, not only during the period of the centralized economy but long before it, accounting was written and kept. The patriot and Renaissance figure Jani Vreto, who in 1889 in his book “Crown of Radhushka”Printed at the “Dituri” printing press in Bucharest, he wrote about the need to keep accounts of receivables and payables. Here is how he expresses it right from the start:

“Radhueshkronja is said to be the writing of incoming and outgoing data in notebooks or other books called registers. But specifically, Radhueshkronjë refers to the practice of writing for those craftsmen who, with just a little work in the past, can always know where they stand. Ledger-keeping is useful to anyone who has transactions, but merchants cannot do without it. Therefore, the merchant who keeps his accounts straight and clear, besides the advantage that, as we said, he can always know where he stands and organize his affairs and move forward, He also earns the honor of keeping faith, as a man whose affairs are just and transparent before the people who matter—even before his heirs when he dies.” Later in this book, the author has compiled a diary of the state of the receipts and disbursements of monetary funds (grosh).

Accounting, even employing the principle of double-entry bookkeeping, has been practiced since the Ottoman era. Likewise, today our archives contain the balance sheets from the period of Ismail Qemali's government for domestic and foreign companies operating in our country.

During the monarchy, by a special law “On the Administration of State Property and General Accounting of the State” dated July 31, 1928, and approved by decree of King Zogu I on May 28, 1929, All issues related to accounting, administration, and the treasury system in our country were modernized and codified by law during this period. More specifically, regarding the legal sanctioning of many financial issues during this period, Haxhi Shkoza, the Inspector General of the Royal Court, also writes in his work “Financat e Shqipnis” (1839-1934).

Thus, excluding the period of Ottoman rule, accounting record-keeping in our country can be divided into three periods:

i) from the 19th century until 1944,

ii) from 1944 to 1991

iii) from 1991 to the present day

In the period from 1944 to 1991, that is, under conditions of a centralized economy, with regard to the purpose of maintaining accounting records, I believe it was complete. Of course, accounting regulation was not carried out by a specific accounting law but was based on a single accounting plan approved by a decision of the Council of Ministers, which defined the basic rules for preparing financial statements, the list of accounts, and their operation. There was a single accounting plan with general, uniform criteria to be applied by all sectors of the economy. For each sector of the economy—such as industry, agriculture, trade, construction, etc.—there were separate accounting plans tailored to the specific characteristics of each sector. Within each sector, there were also more detailed features, not to mention separate accounting plans for budgetary institutions, for banks, for agricultural cooperatives, etc. Of course, like all the policies of that period, the information prepared by accounting served to implement the directives of the state party, the infamous slogan “Let's build socialism with our own efforts.” This was the reason why the school of accounting in that period was the Eastern European or Russian one; there was no question of the Western schools of accounting, even though the Eastern school also traces its origins in accounting and statistics to the West.

During this period, accounting information and accounting itself were oriented solely toward preserving material values and managing state property; analytical accounting was overly detailed and burdensome, extending to the point of infringing on the cost-benefit principle; There was no clear and distinct separation of financial accounting from cost accounting, and in the absence of real management by the economic unit's directors, there was no question of management accounting. The latter was equated with the analysis of the economic and financial performance of enterprises. This was why accounting specialists were extremely overworked, spending more time on mechanical tasks to make the entries—all by hand, since there was no talk of the computer programs used today. In the mid-1960s, as part of the “war against bureaucracy,” a campaign was launched to simplify the data derived from accounting information, even to the point of excess. Thus, the calculation of production costs for many products, especially in industry, was abandoned and replaced by the indicator “revenue per one hundred lek in expenses.”Such “simplifications” led to many job cuts among accounting office staff in enterprises or demotions. In general, the method of bookkeeping during this period was manual; only after the 1970s did a very small number of enterprises—and even some agricultural cooperatives—begin to keep their accounts mechanized in accounting record centers. Not only in enterprises and agricultural cooperatives in general but also in these centers, the data kept on expenses were so detailed that they bordered on excess. Thus, for example, in agriculture expenses were continuously recorded not only for each crop and type of livestock but also by specific expense items. Someone today could rightly say that it was a valuable record. They might be right, but what was the purpose of such detailed record-keeping, and who used it? There was no question of this information being used by enterprise managers to make decisions. It was used primarily and exclusively at the planning level by high-ranking economic bodies or simply for propaganda.

During this period, there was no talk of a proper accounting profession – they remained mere record-keepers of figures, simple compilers of financial statements. Their specialized opinion on economic issues was rarely sought; but when it came to assigning responsibility—even if the economic targets weren't met—the financier was often held accountable, sometimes even facing imprisonment under the infamous “economic sabotage” article of the penal code. Until the late 1950s of the last century, accountants were specialists trained primarily with secondary education at the Vlora Commercial School (1924), at secondary schools in other countries, and at the country's economic secondary schools after liberation (the financial, economic, and commercial technical schools) or through special short-term courses, after this year the Faculty of Economics in Tirana and later the Faculty of Agricultural Economics at the Agricultural University prepared accounting specialists with higher education; in fact, in 1959, The Faculty of Economics graduated the first contingent of 30 “Accounting Specialists.” The preparation of this large army of economic specialists in our higher education institutions, public or private, as well as their further qualification, I am convinced, is the greatest guarantee for the implementation of new developments in accounting. 

Thus, in the third period, from 1991 to the present day, the accounting reform initiated by the Ministry of Finance in 1991 did not begin from scratch. Naturally, the socio-economic changes that took place during this period dictated reforms in the field of accounting, just as in all other areas of our lives. At that time, the reform in the field of accounting had two main objectives:

First, changes to the accounting regulatory provisions so that they would meet the requirements of a market economy and be in line with European and broader harmonization.

Secondly, the organization of the accounting professions, such as that of the Certified Accountant and the Authorized Accounting Expert (auditor).

The implementation of the first objective was entrusted to a group of individuals who, after the adoption of the Law “On Accounting,” were formalized as members of the first National Accounting Council (KKK) and who were the students of the earliest teachers and contributors in the field of accounting. They also remain the main contributors to accounting reform, and as a member of this group among the nine founding members of the KKK, I would like to highlight the key contribution of Chairman Baki Berberi and take this opportunity to once again express special respect for this esteemed figure in the field of accounting.and of reform in the economic and financial sphere. Within the framework of the accounting regulatory provisions, the council rightly chose continental-style normalization based on the French system, and this because:

i) In Albania, accounting standardization has been carried out at least since 1947 through laws and subordinate acts. The unified accounting plans and sectoral accounting plans, drafted and approved by state bodies (the Ministry of Finance), have been the keys to this standardization. This required that Albania's tradition as a small country with codified law be preserved, while at the same time changing the objectives, the scope, and the form of the standardization. In this way, accounting specialists, accustomed to working with fixed rules, would find it easier to implement a new accounting system. And this happened, justifying the belief of a large segment of our generation that accounting, under market economy conditions, would find its rapid and full application.

ii) Accounting standardization in our country should cover a broad scope of application. At the same time, it should extend not only to the preparation and publication of financial statements but also to the maintenance of accounting records.

iii) Given that Albanian accounting professionals, with few exceptions, were far from familiar with the generally accepted international accounting principles and standards, it was necessary to present these principles and standards in a systematic manner in single, methodical texts. The General Accounting Plan was a highly suitable instrument for this purpose and facilitated the practical application of these norms and principles.

iv) The continental-type normalization takes into account the strong link between accounting and taxation, and the accounting result is the basis for calculating tax. Hence, the need arose for a General Accounting Plan and a classification of revenues and expenses by nature. Initially, the burden of implementing this Plan fell on the large army of accountants and later, beginning in mid-2000, on the most qualified segment, Certified Accountants, who currently number around 900, a large proportion of whom have set up their own professional offices. In view of the above, after the transition to a market economy, the development of accounting regulation can be divided into two periods:

• From the early 1990s to 2004
• From 2004 onward. The first period is characterized by deep, rapid, and radical political and economic changes, and consequently in the field of accounting as well. The free-market economy, the opening up of private enterprises, and the growing role of management in decision-making necessarily required an increased role for the information provided by accounting. Thus, accounting gains a new role alongside its traditional function of providing information on the preservation and management of assets. It must now become decisive in the management decision-making of the economic unit. But these changes, in line with the new conditions created, also required other necessary measures to be taken to ensure the accounting system would meet current and future demands.

So, we are in a period of transition; many changes are occurring in parallel, and in accounting a series of steps were taken which, by their nature and importance, aimed at two main objectives:

i) The accounting system and its development needed to be restructured.

ii) Accounting-based liberal professions should be created and developed.

To implement the first emergency objective, it was necessary to establish certain rules and formulate some, admittedly temporary, guidelines both for adapting accounting to market economy conditions and for completing financial statements. The first effort was undertaken in January 1991, when the first accounting law was enacted; due to its shortcomings, and with the assistance of foreigners, it was replaced and the Law “On Accounting” of 1993 came into force. Upon its implementation in July of that same year, this law was accompanied by the “General Accounting Plan.” which established the basic rules and principles for accounting, the operation of accounts, and the preparation of financial statements, as well as the Accounting Plan for Budgetary Institutions and the Accounting Manual for Banks, which were adopted several years later.

The early 1990s was a rather intensive period in drafting legislation in the field of accounting and auditing. Thus, the 1992 law “For Commercial Companies” laid the first foundations for the creation of the independent auditor profession and for the rules governing the approval and publication of financial statements. It was a requirement of public investors and shareholders to have a financial statement auditor after they had invested their capital. Under market economy conditions, the new concept in the work of accounting professionals required that in Albania work immediately begin on drafting legislation, legalizing the profession, and qualifying and training the relevant specialists from among existing professionals. And this work was carried out in parallel with the recognition and implementation of the new accounting plan. The auditor's role grew year by year, and in Albania global audit firms such as Deloitte &Touche, Ernst & Young, KPMG, etc., which primarily audit foreign companies that are subsidiaries of these firms listed on their home country's stock exchange and beyond. At the end of the 1990s, the profession of “Certified Accountant” began to operate in our country, regulated in accordance with the requirements of the Law “On Accounting” and the Order of the Minister of Finance. Thus, at the end of 2000, when the specialized association—the Professional Association of Certified Accountants, now the Institute of Certified Accountants—was formed, it had 114 members; today that number has been multiplied by eight.

Over the past decade, both of these professions have been significantly strengthened and refined, not only in bookkeeping, the preparation and auditing of financial statements for the performance indicators of economic units, but have further enhanced and strengthened their role in raising the quality of the services they provide, increasing the effectiveness of those services, and assuring investors of the reliability and significance of these professions. This led to the adoption of the law in March 2009 for both liberal professions, that of the certified accountant and the auditor, who, respectively, in addition to the right they have to prepare and audit financial statements, are also granted the right to provide independent consulting services to various companies on financial matters, analysis of financial statements, tax issues, market study plans, company valuation, procedures for the establishment and liquidation of commercial companies, etc. Both of these professions, first that of the auditor (Institute of Authorized Experts - IEKA) and then the Certified Accountant (Institute of Certified Accountants - IKM), have become members of prestigious international organizations such as IFAC. “International Federation of Accountants” and SEE PAD “Partnership of Eastern European Countries for the Development of the Accounting Profession,” where representatives of both professions regularly participate in organized meetings where the most advanced experiences in both professions are presented, experiences are exchanged, and qualifying seminars are held.

These two professions, along with the Association of Accountants, more than any other body, face daily problems that demand solutions, even taking the lead in the fight against informality in the economy. Owners of economic units, on one hand, and accounting professionals, on the other, share the same interest in maximizing the unit's profit; however, when it comes to calculating tax liabilities to the state on profit, the former will do everything they can to minimize them. This is because, in the current period, a portion of Albanian businesses are still far from being aware of and valuing accounting records, the need for regular documentation, let alone the efforts of accountants and the role they play in increasing the effectiveness of operations and their decision-making. Not in all economic units, Managers require the assistance of accountants to develop economic and financial development programs for their unit, and the lack of financial markets for the development of the public economic sector are factors that do not encourage high-quality, reliable financial reporting or the growth of a professional accounting corps. But there are quite a few trading companies, especially the large ones, where the accounting profession is strong and highly qualified, ensuring that financial reporting is high-quality and reliable, thereby helping users make sound and efficient decisions. 

Albania, over the past decade, has been continuously working toward its integration into the European Union. This, among other things, requires reflection and development in accounting rules. After 2000, there were also significant developments in the field of accounting at the international level. There was a fundamental review of a number of International Accounting Standards, and a series of other new International Accounting Standards were drafted and issued; as a result, the financial information reported by business entities becomes higher quality and more reliable for its users.

In 2003, the government drafted a strategy for a new reform in the field of accounting and accounting-based professions with the aim of improving accounting regulations to further enhance the transparency and reliability of financial information and for tto respond as effectively as possible to market needs and to protect the interests of the public and the state. This strategy also provided for a review of the existing accounting regulation and the drafting of a new Law on Accounting and Financial Statements.

The Law “On Accounting and Financial Statements” of April 2004, as amended in 2006, They were the materialization of this strategy, and, most importantly, this law was drafted in the spirit of International Accounting Standards, authorizing the regulation of accounting not by the General Accounting Plan but by Accounting Standards. The law requires that the standards be drafted at the national level and be consistent with International Accounting Standards (IAS) and International Financial Reporting Standards (IFRS). and to be applied by the majority of companies, while foreign companies operating in our country and those listed on exchanges, banking companies, and financial institutions will apply IFRS without any modifications.

The law establishes the National Accounting Council (NAC) by assigning it a different role and position and making it an independent body in accounting decision-making. At the end of 2006, the Council published 14 National Accounting Standards (SKK) which began to be applied by law in January 2008, and in 2009 SKK 15 was drafted and implemented, applying only to microentities and providing them with significant relief from the high costs of preparing accounting information. Experience in recent years shows that accounting standards, both national and international, have been widely adopted by business entities, further enhancing the role and effectiveness of the information used for decision-making.

This has further enhanced the reliability of financial information for the country's economic development and the inflow of foreign investment, since the credibility and integrity of this information foster capital markets and provide the necessary confidence for decision-making. The scandals at ENRON, Parmalat, WorldCom and elsewhere are examples of the negative role of misrepresentation and distortions in the financial statements prepared by the accounting departments of these companies. The damages had a wide-ranging impact, starting with the shareholders of these companies who lost their capital, many affiliated firms went bankrupt, banks were harmed, and employees lost their jobs. Accounting is what gives the first signal of any economic crisis; therefore, by properly applying national accounting standards that are well harmonized with international ones, accounting will prepare and provide reliable, accurate, and high-quality information.

In closing this presentation, I would like to express to this esteemed audience a special sentiment and the duty of every generation of accountants to periodically speak and write about this invaluable and irreplaceable information. Unfortunately, and in particular we accounting specialists, while we spend all our time working with numbers, writing dozens of pages of reports, provide valuable opinions and suggest solutions, we pay little attention to the historical side of our work and at the same time forget those who have made valuable contributions in this field.

And there are many of them. Thus, the generation to which I also belong must, first and foremost, mention with deep gratitude and respect our teachers: Professors Xhemil Cela, Lefter Kriqi and Aristotel Pano; the distinguished specialists Pandeli Gjika at the Ministry of Finance, Laze Ajazi at the Ministry of Agriculture, Malo Frashëri at the Ministry of Industry, Lefter Cave at the Ministry of Commerce, Vangjel Karajani at the Ministry of Construction, and many others. I have had the chance, indeed I would say the good fortune, to live and work with these distinguished figures in our field, and I can say with conviction that, thanks to them, both I and my colleagues who have had the privilege to work with them have benefited greatly in our professional development and beyond.

Author: Prof. Dr. Leandro Haxhi