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Journal number 4 ∘ Erekle Pirveli

Expanded Summary 

The Law of Georgia on Accounting, Reporting and Auditing 2016, through increased financial transparency, aims to promote country’s economic growth (Law 2016, Article 1.2). For the first time in the history of Georgia, the private sector entities are obliged to publicly disclose their financial statements. First and second category entities, plus the Public Interest Entities (about 700 entities), had to publish their audited financial statements by October 1st, 2018; about 3.000 entities of a third category had to submit their financial statements by October 1st, 2019; and about 80.000 entities of an IV category have to do so by October 1st, 2021.

According to existing evaluations, the ongoing changes are unprecedented within the country’s history. Though, the question remains: does a mandatory public disclosure of financial information promote financial transparency? According to prior literature, financial statements’ public disclosure is necessary but insufficient criterion to promote information transparency. The theory says that financial information transparency depends on different criteria including the complexity of data access. Public disclosure of Georgian private sector entities’ financial statements at the Ministry of Finance’s official website of ‘Reportal’, due to the sophistication levels of accessing this information, might be hindering the reform’s aim of promoting economic growth. In this paper, we study how easy/complex it is to obtain publicly disclosed financial information.

To learn whether financial transparency actually is at place in Georgia, we base our analysis on a sample of I and II category enterprises plus the Public Interest Entities, who have already reported their financial statements of 2017 to the Ministry of Finance of Georgia – overall about 600 entities. We first disentangle and analyze four theoretical ways of financial information obtainment in Georgia: a) financial and non-financial information of entities to be hand by hand collected from the ‘Reportal’ website; b) the financial statements to be automatically downloaded and analyzed via a programming language (e.g., Python); c) the major four financial statements’ information in a systematized way to officially be withdrawn from the Ministry of Finance; and d) companies’ descriptive data to be automatically obtained from ‘Reportal’ website by the use of AI techniques (Link Klipper and ScrapeStorm). As, next we formulate an ‘optimal’ way of information obtainment which is a mix of third and fourth ways: financial information to be officially withdrawn from the Ministry of Finance and non-financial information to be automatically retrieved via AI techniques. Finally, we count the number of necessary steps based on the revealed ‘optimal’ way of data obtainment.

Complexity of financial information access can be measured by counting the number of steps necessary to obtain the information. The results reveal that data access in Georgia requires considerable efforts. To obtain the necessary financial and non-financial data of about 600 entities requires 365 steps. The result impedes general public’s access to the necessary information and hinders the OECD Open Government Data’s one of the general principles of data openness: “Access and Availability”. Based on this finding, we recommend the Ministry of Finance to re-organize the website and to facilitate easier financial information access for the general public.

The very first reason of sophisticating the data access process in Georgia, is that the requested numerical forms from the supervisory body of the Ministry of Finance of Georgia is incomplete and imprecise.It is recommended that the Ministry of Finance heightens its control mechanism regarding the correctness and completeness of (especially) non-financial information, not subject of audit verification and thus subject of technical mistakes. E.g., more than 10% of the entities incorrectly indicate the scale of their disclosure (the amounts are given in 1GEL or in 1000GEL). Also, regarding, the non-financial data details, the information does not include all the variables (e.g., information about a category an entity belongs to). Although given the three variables based on which the category definition is provided, these variables are overwhelmingly infilled. Finally, the website is un-user-friendly – e.g., the filtration functions either do not exist or work poorly. It is recommended the user to be able to choose how many entities to be shown on each page (10, 50, 100, 500, etc). This would also decrease the number of steps required to access the data. To add a function of opening different entity pages in different windows is further recommended. Even though the website is named to be still under construction, we need to point out that it’s a third year since its launch. The website, is often out of order. These deficiencies lead us to additionally use other sources of information, ultimately sophisticating the data access, and thus hindering information transparency.