A National Conference “Strengthening Corporate Governance in Serbia: Sustainability Reporting and the Increasing Role of Audit Committees” was held in Belgrade, Serbia on May 11, 2023. The Conference was attended by members of audit committees of public interest entities and large state-owned enterprises, certified auditors, accountants, representatives of business associations, professional accounting associations, internal auditors, academia, totaling over 90 participants.
The Conference discussed challenges and potential responses related to: (i) new provisions of the European Union (EU) Corporate Sustainability Reporting Directive, including draft European Sustainability Reporting Standards; (ii) implementation of the EU sustainability reporting requirements, already transposed into Serbian legislation (the “non-financial statement”); and (iii) the increasing role of audit committees in strengthening confidence in statutory audit and in financial and non-financial information.
The EU Corporate Sustainability Reporting Directive and European Sustainability Reporting Standards are seen as important tools to support implementation of the EU Green Deal and Social Justice Policies. They should also help enhance understandings of the financial impact of climate risks, environmental, social, and corporate governance (ESG) regulatory requirements, and the evolving business environment, supporting companies to prepare for changes through development of forward-looking, responsive strategies for future operations. The new European Sustainability Reporting Standards will enter into application by 2028, in a phased and staggered approach over several years.
As the Serbian economy is tightly linked with the EU through trade and foreign direct investments, the new reporting requirements will have a direct impact on companies in the value chain. Participants were given a general overview on the content of the standards, drafted by the European Financial Reporting and Advisory Group at the request of the European Commission, and discussed and debated their potential impact and related challenges for Serbia, led by a panel of a local experts, comprising representatives of the Ministry of Finance, audit profession, and commercial banking. The introduction of sustainability reporting requirements will be challenging and costly for most companies, also in EU Member States.
The Conference considered the readiness of companies in Serbia to adopt non-financial reporting requirements, based on regional work done by the International Finance Corporation, part of the World Bank Group. This looked at current practices as possible drivers for non-financial reporting (with a view of the wider EU agenda), and the role of ESG capacity building of local intermediaries. Serbia is well aligned with existing EU financial reporting and auditing requirements and will be able to take some years to observe the experience of sustainability reporting implementation in the EU before it decides on an approach suitable for its national needs. For the time being, application of the new regime will be on a voluntary basis driven by market demand. However, companies, especially those included in international value chains, should try to begin implementation even before it is mandatory in Serbia. Awareness building and preparation will be key.
The application of sustainability reporting will require not only new skills but also new structures, processes, active involvement of management boards and audit committees, which will be challenging. Successful implementation will require education and training of preparers, accountants, auditors, management and audit committee members, as well as students as part of the university curricula for new jobs.
The important role of the audit committee as a link in the chain of parties ensuring proper reporting and the related assurance provided by auditors was highlighted during the Conference. Participants learned from the experience of the United Kingdom on what makes an effective audit committee. The role of a competent authority in reinforcing the role of audit committees was also discussed, including as part of a very dynamic and informative panel, comprising independent board members, internal auditors, and representatives of the audit profession and the audit oversight regulator. Panelists suggested areas with the greatest potential for audit committee members to improve their effectiveness in promoting high quality and transparent corporate and sustainability reporting and auditing. It was suggested that establishing a pool of qualified people, able to serve on companies’ boards as a non-executive director and/or member of an audit committee would contribute to improving actual practice.
Participants generally found the Conference informative, well organized, and valuable to their work. Over the course of rich and wide-ranging discussions, it was clear that sustainability, and in particular climate change, is a defining issue of our time. Participant feedback on the Conference highlighted the following aspects as particularly valuable: practical examples and the possibility to learn from local peers, presentation of international experience, discussion of the role of the audit committee, meeting with colleagues - auditors & sharing good practice. Many also mentioned that it was a good opportunity for networking and the exchange of ideas, and they appreciated the openness of the discussions.