Research Journal of Finance and Accounting www.iiste.org ISSN 2222-1697 (Paper) ISSN 2222-2847 (Online) Vol.7, No.22, 2016 142 Accounting and Auditing in Free Economic Zones: Factors for Change and Perspectives of Improvement Azamat Ostonokulov Senior Researcher of Tashkent Financial Institute 60 A, Amir Temur street, 100000, Tashkent, Uzbekistan Tel: +998911344846; E-mail: ostonokulov@rambler.ru Abstract The last three decade is marked with the convergence of large scale practices in cross-border capital mobility and benchmarking of international best practices in business, finance and trade. Enhancements in global investment environment and expansion of open economies in number led to a highly competitive global investment climate, in which both developed and developing economies interact to boost economic growth and strengthen stability. Free economic zones became a widespread tool of attracting investment and creating new production capacities, despite structural differences and systemic barriers in regulatory and supervisory procedures. Existing gap in taxation and reporting practices is widening as foreign direct investment is penetrating the business environment of all economies. Therefore, a growing body of need for uniformity and coordination of accounting and auditing policies has become visible and easily identifiable. This article examines the investment policy changes and proposes the recommendations in matching accounting and auditing practices in free economic zones deriving from internationally recognized and prioritized rules. Keywords: accounting and auditing, free economic zone, foreign direct investment, investment policy. 1.Introduction. Foreign direct investment is an integral part of an open and effective international economic system and a major catalyst to development (OECD, 2002). Considering the FDI as a key to economic advancement, many developing economies compete to attract as much investment as possible. In or to stimulate the interest of foreign investors, several countries present particular investor-specific privileges in tax, management and customs, while other countries created FDI-privileged economic zones with an absolute provision of preferences. Free economic zones are considered by host countries as magnets for attracting foreign direct investment and are considered as an essential plank of the strategy to promote manufactured exports and achieve long term economic diversification and growth (Hakimian, 2009). Free economic zones serve as a key point of economic development by ensuring the technological modernization, integration and production internationalization. Attracting foreign direct investment by establishment of free economic zones enables aligning the traditional practices with advanced international experience. Transfer of cutting-edge technologies, new production capacity and management skills stimulate business performance, local market saturation and export-oriented production in a host country. Attracting foreign direct investment brings positive effect and, in one part, it touches to the reforms and adjustments in particular areas. Differences in business structures, legal system and legislative principles, tax and financial control policies may call for changes and improvements. Existing distinguishing features in regulatory and supervisory environments in host and home economies sometimes may lead to investor-state disputes. Therefore, reforms in specific areas, where differences exist, are crucial to create a favorable investment environment. In international practice, accounting system reforms is often seen as a widespread area of investor- oriented systemic changes. Differences in reporting and accounting principles and procedures pose the burden of dual-reporting which create a doubled task of following two diverse accounting systems. Number of cases with investor disputes is increasing as the volume and geographical scope of foreign direct investment is extending at an accelerating pace. In particular, mass disputes with tax avoidance and evasion problems still have remained as a hot issue in free economic and special industrial zones due to different accounting, reporting and auditing procedures. Most policymakers and officials of international organizations are urging governments to adopt full- fledged international accounting standards and to eliminate systemic barriers in order to prevent disputes with investors and to create a common accounting and auditing policy for both local and foreign investors. This article studies the recent developments in international investment policies and provides scientifically-proven