The transformation of Estonia’s economic system since the 1990s as a result of transition from a centrally planned economy to a market-led one involved significant legal and institutional changes in the regulation and practice of accounting. In May 2004 Estonia joins the European Union. In view of this, it is necessary to analyze the effectiveness of Estonian accounting policy and, whether and how well the Estonian accounting regulation directions conform to the requirements of the future European accounting framework. In July 2002, the European Commission decided to oblige all EU companies listed on a regulated market to prepare their consolidated accounts in accordance with the International Financial Reporting Standards (IFRS, previously IAS). This requirement will enter into effect, at the latest, from 2005 onwards.

Introducing theoretical developments from the organizational change theory and the phased approach the present paper examines the evolution of the Estonian accounting system and accounting policy within the context of the EU accession and harmonization. The author concentrates on the following three aspects of the Estonian accounting reform: development of the accounting regulations; development of the scope of accounting regulations and development of the degree of independence of the accounting regulatory institution.