The Harmonization of Serbian Bookkeeping and Revision Laws with EU Regulations
December 22, 2017 by Nebojša Stanković
The Republic of Serbia is obliged, among other things, to harmonize its accounting regulations with EU regulations during the process of joining the EU. The current accounting regulations in the Republic of Serbia are legal, professional, and internal regulations.
- Accounting Law – ZRA, Službeni glasnik RS, no. 62/2013;
- Auditing Law - ZRE, Službeni glasnik RS, no. 62/2013;
- Bylaws adopted on their basis;
The professional accounting regulations, specified by the Accounting Act and the Auditing Act, include a framework for the preparation and presentation of financial statements, IAS, IFRS, and related interpretations, subsequent amendments to these standards and related interpretations, as well as the IFRS for SMEs. In addition, this regulation also includes International Standards on Auditing (ISA), international quality control standards, and standards published by the International Standards on Auditing and Assurance Services, along with amendments to these standards and future standards issued or accepted by the body in question.
Furthermore, these regulations require the code of professional ethics of the auditor (envisaged by the Auditing Act), which constitutes a code of ethics for professional accountants of the International Federation of Accountants as well as international education standards (envisaged by the Law on Auditing), which represent international standards of education for professional accountants adopted by the International Federation of Accountants. That said, internal accounting regulations are general acts adopted by legal entities that contain guidelines and instructions on how to perform accounting and auditing activities.
The Republic of Serbia received the status of a candidate country for the European Union membership on the 1st of March 2012., by which, among other things, the country accepted the obligation to harmonize accounting regulations with EU regulations.
The implementation of the IAS/IFRS is not a sufficient condition for the harmonization of our accounting regulatory framework with EU regulations in the joining process. Our accounting statutory solution needs to be adopted to the mentioned EU regulatory framework. Meaning, in the following period, it is necessary to regulate the issues of:
- Quality control development of financial reporting and all professional services provided by professional accountants (at business, company, professional organization, and public levels);
- Education of professional accountants;
- Implementation of the Code of Ethics for professional accountants;
- Harmonization with the new 2013/34/EU Directive;
Although professional organizations, regulatory bodies, and the relevant ministry have done a lot to align their accounting with EU regulations, there is a notion of insufficient harmonization of the Accounting Act with the new 2013/34/EU Directive, which imposes the following questions:
- Responsibility for the preparation;
- Preparation and disclosure of financial statements;
- The content and scope of the financial statements;
- Criteria for classifying legal entities;
- Basis for financial reporting;
- Handling the status of a professional accountant;
- Quality control of financial statements;
- Lack of respect for the Code of Ethics for professional accountants;
- Generally accepted standards of education;
Serbian Accounting Law mentions the responsible parties for preparation and disclosure of financial statements, but it doesn’t insist on the collective responsibility of a new Directive and the sanctioning of offences in financial reporting. The content of the regulated financial statement set differentiates from the Law on Accounting prescribed by the new Directive.
To be precise, our law provides six mandatory regular financial statements in the annual report, which also contain a new report in relation to the new directive and IFRS, or simply put, a report on the rest of the results. By introducing this report, the assessment or comparison at the international level is lost, because such a report doesn’t exist. Moreover, similar effects are noted on the national scale when comparing legal entities of different sizes.
Likewise, a comparability problem with the previous year for the first year this directive was introduced and became effective (31.12.2014.) arises as well, since the previous set of mandatory financial statements didn’t have the same reports.
There is also a difference in the degree of detail in the financial statements. The balance sheet of the financial statements with the new Accounting Law has been increased in relation to IFRS (the balance sheet of all legal entities in Serbia contains 156, and according to IFRS, 31, while the income statement in Serbia has 92, and according to IFRS, 30 positions).
On the national level, the increase in the degree of detail of the financial statements leads to imprecision, incomparability, and an increase in expenses contrary to the benefits of such a disagreement.
When it comes to the criteria for the classification of legal entities by size, there is a lack of harmonization in Serbia with that in the EU. Whereas the existing criteria for classification in our country lead to a decrease in number of legal entities obligated to apply for IFRS (IFRSs are applied by large legal entities, parent companies, public societies, and societies preparing to become public). Thereby, the new Accounting Law annulled what has been achieved in the previous process of harmonization.
In Serbia, there are several legal basis for the preparation of financial statements:
- IFRS for SMEs;
- Policy on the manner of recognition;
- Presentation and disclosure of positions in individual financial statements of micro and other legal entities;
- Cash basis for accounting of budget users;
- Simple bookkeeping for micro-legal entities;
This diminishes the compatibility of the financial statements on the national as well as the international level, especially if one takes into account the possibility of choosing between two (for medium-sized enterprises) and three reporting bases (for micro-enterprises).
Moreover, there is a discrepancy between the provisions of the Accounting Act and the European Accounting Regulations regarding the status of professional accountants. The Accounting Act stipulates that a legal entity regulates who can perform the accounting work (professional qualifications, experience, and other requirements), and the same applies for agencies that provide bookkeeping services.
A professional accountant is not mentioned at all in the Accounting Act, as well as their competence, so it seems as if the legislator doesn’t care who performs accounting tasks and what kind of vocational education is needed from them. Also, the place and role of a professional organization in financial reporting are not mentioned.Financial reporting is a matter of importance for the entire accounting profession. Any change in the policy (change of the account code or group of accounts in the chart of accounts, terminological changes in the financial statements) requires a change of posting, a change of the software package, and often brings much higher costs than benefits. This is precisely the reason why it is essential to include professional organizations in the amendments of the Law regarding financial reporting.