Assessment of the Ongoing Accounting and Audit Reform in Georgia

Assessment of the Ongoing Accounting and Audit Reform in Georgia: Regulatory Base, Enforcement Level and the Quality of Financial Statements


Laws in general and accounting standards in particular are often elaborated based on the experience of the developed world. Under-developed economies, on the other hand, merely (have to) mirror those regulations. In the absence of a theory on how the ‘copy-paste’ approach of regulation affects the under-developed world, we are in need to consider countries on a case-by-case basis. This is because specific institutional basis within the under-developed markets warrants a close inspection.


With this research project we aim to assess the efficiency of the currently ongoing international accounting standards’ adoption in the light of an under-developed economy of Georgia. In June 2014, the EU and Georgia signed an Association Agreement. In the context of the harmonization with the EU acquis, Georgian government enacted the Law of Georgia on Accounting, Reporting and Auditing on June 8, 2016. As such, for the first time in the history of Georgia, about 84.000 private sector entities have to go transparent by October 1 st, 2019. Before this massive dataset breaks a transparency threshold, we are already now in need to have a valid estimation of what to expect.


This change is unprecedented; and this research project is likely to also bear some outstanding merits as it will be dedicated to the assessment of these unprecedented changes. It is a unique possibility for the academia, but also the regulators in Georgia and within the EU to detect how successful and efficient the EU funded (overall budget: €5.85 million) reform is.


This research project aims to address three bulk sub-questions:

a) how good is the quality of the enacted law – disclosure quality;


b) how well is the law enforced – compliance level;


c) how well is the final target of the reform met – the quality of financial information provided within the reports.


Our data will be automatically collected from three sources. First, we will collect the descriptive data of the entities from the open public source of" by using the “Link Clicker” and “Scrapestorm” techniques. Second, based on an official letter, we will withdraw the systematized financial information (all four financial statements) of the entities through the Ministry of Finance of Georgia.


Finally, we will manually download the pdf formatted annual financial reports of the entities by Python programming language. We employ descriptive analysis to assess the disclosure quality and enforcement levels (including timeliness) and we will employ: time-series properties of earnings, earnings management (earnings smoothness and earnings discretion) and accounting conservatism to assess the quality of financial information.


For the purposes of analysis of the textual parts of the financial statements, we will additionally rely on Fog index, (key) word counts and text length or file size. The lessons learned from Georgia would be crucial as today’s affairs of Georgia are likely to be recalled tomorrow and a day after in other Eastern Partnership countries – also subject to current changes in accounting and audit field.


Project Budget 167 800 Gel

Project Duration 3 Years

Principal Investigator Jochen Zimmermann, Bremen University Professor

Coordinator Erekle Pirveli, Caucasus University Professor