No Compliance Summary
According to the 2005 World Bank Report on the Observance of Standards and Codes on Accounting and Auditing, national Latvian laws and regulations for financial reporting were generally in line with European Union (EU) directives, but some fundamental differences with International Financial Reporting Standards (IFRSs) existed. Latvian accounting rules, which must be complied with in the preparation of annual accounts of listed and non-listed companies, are developed based on IFRSs; however, as stated in the 2006 self-assessment prepared by the Latvian Association of Certified Auditors (LACA), the alternatives which contradict Latvian accounting legislation are excluded, disclosure requirements for financial information are reduced, and additional illustrations to the standards are added. In a way, these Latvian standards are a simplified version of IFRSs suitable for the needs of small and medium-size enterprises. Being a member of the EU, Latvia complies with the European Commission (EC) Regulation No. 1606/2002, which requires all EU listed companies to prepare their consolidated financial statements in accordance with IFRSs endorsed by the EU from January 1, 2005. As far as the option for the extended use of IFRSs provided for in the EC regulation is concerned, Latvia requires the application of IFRSs in the annual and consolidated accounts of banks, insurance companies, and other supervised financial institutions, and permits the use of IFRSs in the consolidated accounts of all other companies.
General Overview
Latvia is an active member in the European Union (EU) Accounting Regulatory Committee and the Committee of European Securities Regulators. Financial reporting of Latvian companies is governed by various laws and regulations, which are primarily based on EU directives. The 2005 World Bank Report on the Observance of Standards and Codes (ROSC) provides an overview of the regulatory and legislative framework governing accounting and auditing in Latvia. The report found that Latvia implemented the acquis communautaire in law; however, Latvia lacked sufficient means to implement and enforce the acquis requirements. The 2005 ROSC stated the key law providing the legal framework for governing accounting in Latvia is the Law on Accounting. The law applies to all business forms including subsidiaries of foreign undertakings and permanent representative offices. Pursuant to the Law on Accounting, the Accounting Board (AB), the Cabinet of Ministers, and the Ministry of Finance (MoF) are responsible for accounting policymaking. Under the Law on Accounting, the AB drafts and issues accounting standards and regulations in accordance with IFRSs and the acquis communautaire. However, according to the World report, some fundamental differences existed between Latvian accounting requirements and IFRSs, particularly with respect to: (1) the scope of consolidation; (2) earnings per share; (3) revenue recognition; and (4) leases. The Cabinet of Ministers formally enacts the proposed accounting standards and determines the scope of their application.. The MoF elaborates and implements state policy on accounting.
The Latvian Association of Certified Auditors (LACA), which is the independent professional organization representing certified auditors in Latvia, assists the AB in the development of accounting standards. As stated in the 2006 self-assessment prepared by the LACA, the alternatives which contradict the Latvian accounting legislation are excluded, disclosure requirements for financial information are reduced, and additional illustrations to the standards are added. In a way, these Latvian standards are a simplified version of IFRSs suitable for the needs of small and medium-size enterprises. Moreover, the self-assessment notes that the LACA is responsible for the translation and publication of IFRSs in Latvian. The LACA in cooperation with the Association of Chartered Certified Accountants (ACCA) and an UK accountancy training company was planning to launch an update program on IFRSs in Latvia in 2007. As indicated on the International Federation of Accountants website, the LACA is an associate member of the IFAC. As stated in the 2005 ROSC, the IFAC Code of Ethics for Professional Accountants was fully adopted in December 2004.
According to the World Bank, all Latvian limited liability companies, except banks and some other financial institutions and insurance companies, are subject to the Law on Annual Accounts of Enterprises. Further, all Latvian limited liability companies, except banks and some other financial institutions and insurance companies, are also subject to the Law on Consolidated Annual Accounts if they are parent companies of a concern. The general principles for preparing the annual reports of banks and other financial institutions and insurance companies are respectively laid down by the Law on Credit Institutions, the Law on Credit Unions, the Law on Investment Management Companies, the Law on Private Pension Funds, the Law on Insurance Companies and Their Supervision, the Law on the Activity of Insurance and Reinsurance Intermediaries, and the rules and regulations of the Finance and Capital Market Commission (FCMC).
The FCMC is the supervisory agency for listed entities. It reviews the financial statements of listed entities and may question the quality of these statements and the quality of the respective audit. The FCMC in cooperation with the Bank of Latvia (BoL) also supervises the banking sector. The FCMC and the BoL are represented on the AB of the MoF. The FCMC supervises non-financial institutions and insurance companies by reviewing their financial statements and enforcing accounting and reporting requirements. The FCMC participates in eight EU committees, one European Central Bank committee, and 30 working groups.
According to the European Commission website, Latvia complies with the European Commission (EC) Regulation No. 1606/2002, which requires all EU listed companies to prepare their consolidated financial statements by using IFRSs endorsed by the EU from January 1, 2005. As far as the option for the extended use of IFRSs provided for in the EC regulation is concerned, Latvia requires the application of IFRSs in the annual and consolidated accounts of banks, insurance companies, and other supervised financial institutions and permits the use of IFRSs for the consolidated accounts of all other companies. Prior to 2005, banks and insurance companies followed rules and regulations promulgated by the FCMC, which, according to the World Bank, differed from the full IFRS standards.
The 2005 World Bank ROSC concluded that further enhancements to the statutory framework were needed. The World Bank suggested installing a multi-disciplinary working group, representing public and private stakeholders, with the goal of implementing EU acquis developments into national law. The World Bank highlighted some policy issues for this working group to consider such as: eliminating conflicting or ambiguous financial reporting requirements with respect to IFRSs, enhancing enforcement of accounting, auditing and ethical standards, enhancing the statutory framework, increased resources for Latvian institutions to participate in the European policy-making process, enhanced statutory audit quality and public trust in the audit profession, increased resources for the Accounting Board, strengthened institutional incentives for high quality financial reporting, and finally to consider the establishment of a pan-Nordic Financial Reporting Council.
The Principles
IIIFRS 1: First-time Adoption of International Financial Reporting Standards (effective 2010)
There is insufficient publicly available information as to Latvia's compliance with this principle.
IIIFRS 2: Share-based Payment (effective 2010)
There is insufficient publicly available information as to Latvia's compliance with this principle.
IIIFRS 3: Business Combinations (effective 2010)
There is insufficient publicly available information as to Latvia's compliance with this principle.
IIIFRS 4: Insurance Contracts (effective 2006)
There is insufficient publicly available information as to Latvia's compliance with this principle.
IIIFRS 5: Non-current Assets Held for Sale and Discontinued Operations (effective 2010)
There is insufficient publicly available information as to Latvia's compliance with this principle.
IIIFRS 6: Exploration for and Evaluation of Mineral Resources (effective 2006)
There is insufficient publicly available information as to Latvia's compliance with this principle.
IIIFRS 7: Financial Instruments: Disclosures (effective 2009)
There is insufficient publicly available information as to Latvia's compliance with this principle.
IIIFRS 8: Operating Segments (effective 2010)
There is insufficient publicly available information as to Latvia's compliance with this principle.
IIIAS 1: Presentation of Financial Statements (effective 2010)
There is insufficient publicly available information as to Latvia's compliance with this principle.
IIIAS 2: Inventories (effective 2005)
There is insufficient publicly available information as to Latvia's compliance with this principle.
NCIAS 7: Cash Flow Statements (effective 2010)
According to the 2005 World Bank report, LGS 2 was issued in 2003 and was found to be a simplified version of IAS 7.
IIIAS 8: Accounting Policies, Changes in Accounting Estimates and Errors (effective 2005)
There is insufficient publicly available information as to Latvia's compliance with this principle.
IIIAS 10: Events after the Reporting Period (effective 2005)
There is insufficient publicly available information as to Latvia's compliance with this principle.
IIIAS 11: Construction Contracts (effective 1995)
There is insufficient publicly available information as to Latvia's compliance with this principle.
IIIAS 12: Income Taxes (effective 2001)
There is insufficient publicly available information as to Latvia's compliance with this principle.
IIIAS 16: Property, Plant and Equipment (revised 2009)
There is insufficient publicly available information as to Latvia's compliance with this principle.
NCIAS 17: Leases (effective 2010)
The 2005 World Bank ROSC states that, as of 2005, Latvian accounting requirements did not provide for accounting for leasing. However, an exposure draft of a new standard was prepared.
NCIAS 18: Revenue (effective 1995)
The 2005 World Bank ROSC states that, as of 2005, Latvian accounting requirements did not provide for detailed rules for revenue recognition. Under Latvian accounting requirements revenue was recognized on an accrual basis.
IIIAS 19: Employee Benefits (revised 2009)
There is insufficient publicly available information as to Latvia's compliance with this principle.
IIIAS 20: Accounting for Government Grants and Disclosure of Government Assistance (revised 2009)
There is insufficient publicly available information as to Latvia's compliance with this principle.
IIIAS 21: The Effects of Changes in Foreign Exchange Rates (effective 2005)
There is insufficient publicly available information as to Latvia's compliance with this principle.
IIIAS 23: Borrowing Costs (revised 2009)
There is insufficient publicly available information as to Latvia's compliance with this principle.
IIIAS 24: Related Party Disclosures (effective 2005)
There is insufficient publicly available information as to Latvia's compliance with this principle.
IIIAS 26: Accounting and Reporting by Retirement Benefit Plans (effective 1998)
There is insufficient publicly available information as to Latvia's compliance with this principle.
NCIAS 27: Consolidated and Separate Financial Statements (effective 2010)
The 2005 World Bank ROSC states that, as of 2005, the scope of consolidation under Latvian accounting requirements was less stringent than under IFRSs.
IIIAS 28: Investments in Associates (revised 2009)
There is insufficient publicly available information as to Latvia's compliance with this principle.
IIIAS 29: Financial Reporting in Hyperinflationary Economies (revised 2009)
There is insufficient publicly available information as to Latvia's compliance with this principle.
IIIAS 31: Interests in Joint Ventures (revised 2009)
There is insufficient publicly available information as to Latvia's compliance with this principle.
IIIAS 32: Financial Instruments: Disclosure and Presentation (effective 2010)
There is insufficient publicly available information as to Latvia's compliance with this principle.
NCIAS 33: Earnings per Share (effective 2005)
The 2005 World Bank ROSC states that, as of 2005, Latvian accounting requirements did not mandate the disclosure of earnings per share.
IIIAS 34: Interim Financial Reporting (effective 1999)
There is insufficient publicly available information as to Latvia's compliance with this principle.
IIIAS 36: Impairment of Assets (revised 2009)
There is insufficient publicly available information as to Latvia's compliance with this principle.
IIIAS 37: Provisions, Contingent Liabilities and Contingent Assets (effective 1999)
There is insufficient publicly available information as to Latvia's compliance with this principle.
IIIAS 38: Intangible Assets (effective 2010)
There is insufficient publicly available information as to Latvia's compliance with this principle.
IIIAS 39: Financial Instruments: Recognition and Measurement (effective 2010)
There is insufficient publicly available information as to Latvia's compliance with this principle.
IIIAS 40: Investment Property (effective 2009)
There is insufficient publicly available information as to Latvia's compliance with this principle.
IIIAS 41: Agriculture (effective 2009)
There is insufficient publicly available information as to Latvia's compliance with this principle.
