The new Law on Accounting and the new Law on Auditing are two fundamental laws that regulate corporate financial reporting in Serbia. They were adopted in October 2019. All portals conveyed the impressions of the Minister of Finance of Serbia that they should contribute to better reporting and attracting new investments. As well as his key words:
“"We have to keep up with the world. As a candidate country for membership in the European Union, we strive to harmonize our laws with its regulations.".
Here we are now "aligned" and there is a significant intermezzo to the period of alignment with the same. Certainly, there is a clear analogy between raising the level of quality of financial reporting in the Republic of Serbia and creating a better business environment in the country to stimulate the development of the domestic economy and attract potential foreign investments.
Objectively, it was inevitable that those old laws would be subject to changes. If we abstract the EU tendencies, we still have constructive reasons: acceptance of Manival's recommendation, (Manival is a body of the Council of Europe that deals with the assessment of compliance of national systems for preventing money laundering and terrorist financing of member states of the Council of Europe with international standards, the so-called FATF), then a better assessment of the future performance of companies, which enables investors to make good investment decisions based on transparent financial reports. Furthermore, the improvement of the existing system of public supervision and control over the quality of work of the auditing profession, in accordance with the best practice. And finally, raising the quality level of audit and financial reporting in the Republic of Serbia, through the improvement of the audit system, which is one of the prerequisites for attracting potential foreign investors and domestic ones as well. Therefore, despite the EU tendency, there are enough reasons.
A brief review of what is already widely known when the key changes in the Accounting Act are:
Regulation of provision of accounting services
The Chamber of Authorized Auditors will issue work permits to legal entities and entrepreneurs, while the register will be managed by the Agency for Business Registers, whereby the entry in the register is made ex officio and there are no additional costs for the economy. One of the conditions for obtaining permits is that at least one person is permanently employed in a legal entity and that person, or the entrepreneur himself, meets the requirement to have a professional title in the field of accounting or auditing acquired by a member of the International Federation of Accountants. Currently, there are two such professional organizations in the Republic of Serbia that are members of the International Federation of Accountants, namely the Chamber of Authorized Auditors and the Association of Accountants and Auditors of Serbia.
The register of accounting service providers will start operating on January 1, 2021, and legal entities, that is, entrepreneurs who provide accounting services within three years, from the date of entry into force of this law, are obliged to harmonize their operations with the provisions of this law. Therefore, a period of three years is quite sufficient, in order for the legal entities engaged in this activity to comply with this law.
Keeping up with the world: E-invoices
The obligation for legal entities, i.e. entrepreneurs, to issue invoices, accounts, as accounting documents, exclusively in electronic form is also one of the provisions of the Law on Accounting. In this way, the procedure for issuing invoices will be simplified, neither a stamp nor a signature is required, and the time necessary to perform these tasks will be shortened, a faster VAT refund will be provided, and more. These e-invoices will be mandatory starting January 1, 2022.
This is all a big first step towards the introduction of e-invoices in the economy of the Republic of Serbia, and the idea is that from January 1, 2022, e-invoices will be introduced without stamps or signatures. Therefore, we will do everything that developed market economies do, and this law opens the door for us to move towards that.
Everyone can apply IFRS
Different categories of legal entities, including micro and small legal entities, may apply international financial reporting standards when compiling regular annual financial statements. This will have the effect of further reducing financial reporting costs for legal entities, facilitating operations and ensuring that their financial statements are more transparent and reliable.
One set of reports
Furthermore, this law provides for the abolition of the obligation to compile and submit two sets of reports. If you remember, there are two sets of reports that need to be submitted, for statistical and other needs, as well as financial reports to the Agency for Business Registers, and now we have one deadline, the deadline for submitting regular annual financial reports, which will also include a statistical report, by March 31 of the current year for the previous year.
Bans modeled after Manival
Finally, this law implies acceptance of Recommendation 28 of Manival to amend the existing regulation, in terms of banning criminally convicted legal and natural persons and their related persons, as well as associates, from being founders and owners of legal persons and entrepreneurs engaged in the provision of accounting services.
Some of the key amendments to the Law on Audit:
Unified controls
First of all, public supervision over the performance of audits and quality control over the work of the auditing profession are unified within one institution, which is the Securities Commission. This is in line with EU regulatory requirements and best practice. In accordance with the old law, this procedure took place in three institutions - the Chamber of Authorized Auditors, the Board for Public Supervision of Auditing and the Ministry of Finance. The process from the beginning of the quality control of the auditor's work to the final result, the imposition of measures, will be shorter, and there have been cases where the process has lasted over six months from the day the process started within the Chamber of Authorized Auditors.
Bans modeled after Manival
Acceptance of Recommendation 28 of Manival to amend the existing regulation in terms of banning criminally convicted legal and natural persons and their related persons, as well as associates, from being founders and owners of the auditing company.
Deadline
The deadline for the harmonization of auditing companies is one year from the date of entry into force of this law, with the obligation to inform the commission and the chamber about it, while no new request for the issuance of a license is submitted.
Independence and internal controls
The scope of the audit is described in more detail, and special attention is paid to the improvement of independence through the prevention of potential conflicts of interest, the issue of the internal organization of audit companies is regulated, as well as the conditions for providing other services to audit clients.
What are the key commonalities of both Acts?
It would definitely be an insistence on education, possession of professional titles and appropriate professional knowledge and skills in order to provide the highest quality accounting and auditing services. It is a laborious, continuous and long-lasting process, but the benefits it brings are multiplied both for economic subjects and the profession, and ultimately, the country as a whole.
It is completely clear that the basis for raising the quality of practice is a quality legal solution. Public discussions are behind us, the Laws are very much alive, enough time has been left for harmonization. However, as with any new product, it is necessary to get used to it because it takes time to adapt to the changes. The time ahead will teach us about the effects and possible shortcomings. We deeply believe that if something does not prove to be applicable in practice, that all those responsible and interested persons, and whoever will then be the Minister of Finance, will listen to people from the profession and find a way to, through potential additions or changes to the Law, try to adjust the regulation, all with the aim of improving the quality of financial reporting that most directly participates in a transparent business environment, but a real and realistic one, and not in some environment in another EU country where, due to a million other factors of the economy and control environment, it is completely different to implement such directives.
It is optimal for everyone to reduce the gap between Serbian and EU legislation in the field of audit and accounting, but it is even more important to make timely evaluations and effects and check the "step we must take" - as our Minister of Finance says.
We need to know if we need to speed up or slow down, or if it's at a certain stage, it's good that we're going the way we're going...
Majkic Ruzica
Certified auditor
