Introduction
Colombia is one of the countries of the developing world that is located in the continent of South America. It is a free market economy with major economic relations with the United States. The economy of the Republic of Colombia could be described as considerably steady up till the year 1997. Subsequently, GDP growth slowed to a mere 0.6% after which the country experienced depression at 4.5% per year (Martin 2008). Unemployment rose to around 20% which required major reform to bring it back on track. This led to a depreciation in the value of the Colombian Peso in the international markets, eventually prompting the country to draw on emergency funds from the IMF which was accompanied by enforcement of strict disciplinary measures. This aided recovery to a great extent however as the growth rate climbed to a healthy 3.1% by the year 2000 and international reserves reached above the $8 billion mark. Following the election of a new government in 2002, economic reforms were introduced again aimed at reducing the public-sector deficit (Dow Jones-Irwin 2006). This led to Colombia rising high among the developing nations of Latin America, reaching a considerable growth rate of nearly 8% according to nominal estimates by the year 2007.
Rules and Regulations
The legal and regulatory requirement in Colombia, accompanied with the requirement of the International Accounting Standards has led to issuing conflicting standards. The legal requirements on accounting are primarily expressed in the Code of Commerce which provides a guideline for the general accounting needs that companies must adhere to in terms of keeping books and creating financial statements. This is supplemented by the 1990 Law 43 that gives a more general legal framework that authorizes the Colombian government to issue Colombian auditing and accounting standards and to perform regulation of the profession in the country (Accounting Standards Update by Jurisdiction 2007). Lastly, the “Decree 2649” gives way to the Colombian generally accepted accounting principles. In addition, accounting and other rules regarding financial statement representation are also issued and overseen by the Superintendent of Corporations (corporate regulator), the Superintendent of Securities (securities market regulator), and the Superintendent of Banking (Colombia: Financial Statement Requirements In Colombia 1997).
Table 1. Exchange Listing (Global Reports 2009)
* Sizes have been determined in terms of asset size of the relative companies and industry categorizations have been obtained from the World Stock Exchange Factbook. Source: (Meridian Securities Market 2008)
Compared to the previous years, the size of the companies in the stock exchange appeared to have improved. The number of companies listed on the Bogota Stock Exchange has increased and revenue figures seem to be improving as well as evidenced by the number of “large” companies (Boliviarez 2008). This is in tune with the improvement in Colombia’s economy that been experiencing rapid growth recently and has recovered from the effects of depression and IMF disciplinary measures.
A Sample Company
Looking at the financial statements of Ecopetrol SA which is listed on the Bogota Stock Exchange, we see that the financial reporting within the company is relatively strong. One is the listing of important data in the notes of the financial statements that appear to be in detail (Global Reports 2008). This hints at a strong explanation of transactions and steps taken during the year which aids more transparent representation. A second strength is the auditor review. The statements come attached with auditor confirmed that the statements have been reviewed and according to the standards and these are confirmed by the certificate the external auditors provide (Financial Statements 2008). However, the company does not adequately list the frequency of the board of directors meeting which needs to be known as the board oversees the top management which needs to be done to prevent abuse, especially since Colombia is a third-world country. Another is the lack of transparency regarding the transactions that may require shareholders’ resolutions and a clear listing of the obligations to shareholders that the company holds. The organizational structure is mainly based on departmental levels and allows for a degree of non centralization, crucial for the oil industry.
The annual report shows that the level of environmental accounting is significant as the company is involved in oil and gas exploration. It is not as high as it should be but considering Colombia is a third World Company, the mere mention of environmental responsibility and commitment to a safer one points to some measure of responsibility being accepted. Human resource and social accounting are not strong, however (Business New America 2008). The company makes very small mentions of the size of the workforce and a little level of advertisement regarding human resource programs that have been initiated but a detailed one is not provided, although the company does claim to adhere to the standards of corporate social responsibility.
The International Accounting Standards Board could initiate strong requirements for reporting regarding good corporate governance. This would require companies to givea transparent representation of the board of directors, the frequency of their meetings and make sure that they are independent (Financial Standards Foundation 2009). There could be some level of cooperation involved with the regulatory and rules issuing authorities in Colombia to aid them in implementing the IFRS and to regulate them well. This could further be supplemented by a strong and vociferous support of independent audit and remuneration as well as nomination committees which will make management oversight as independent as possible and lead to soaring investor confidence and a rise in financial sector development. There is also the potential opportunity in terms of following the model used by the United States in communicating with the International Accounting Standards Board to form joint committees to phase out the indigenous GAAP and move to a more widely used international standards. There is however the other option of following closely the trends spurred by the Cadburry report and the Sarbanes Oxley Act in the US and aiming to make legislation in accordance with in (Objectives 1998).
Thus it appears that Colombia is at the typical stage most developing countries are in at the present juncture in terms of their financial representation and legislation regarding it. The country sees ever changing economic fortunes but has room for considerable growth and use of its vast resources. Development of better accountancy and hence corporate governance may aid development a great deal but policies need to be in tune with this so as to encourage investment and bring more money to the market.
References
- “Business News Americas.” 2008. Web.
- Objectives, B. “Countering International Financial Crime.” 1998.
- “Global Reports.”
- “Accounting Standards Update by Jurisdiction.” 2007.
- “Colombia: Financial Statement Requirements In Colombia.” 1997. Web.
- Dow Jones-Irwin, The Dow Jones-Irwin business almanac. Ann Arbor, Michigan: Dow Jones-Irwin, 2006.
- Martin, Randy. “Colombia Goldfields Provides Fourth Quarter 2008 Exploration and Corporate Updates.”2009.
- Meridian Securities Markets, World Stock Exchange Fact Book. 2 ed. Los Angeles: Electronic Commerce, Inc, 2008.
- “Financial Statements.” 2008.
- “Financial Standards Foundation.” 2009.
- “Accountancy Requirement S.A.” 1997.
- “Colombia BVC.”
- “Boliviarez de Colombia.” 2009.