04.04.2006 adressing the needs of smes addressing the needs of smes and other stakeholders the case...

04.04.2006

ADRESSING THE NEEDS OF SMEs

Addressing the Needs of SMEs and

Other Stakeholders

The Case of SLOVENIA

Meta Duhovnik, Ph.D., SLOVENIAN INSTITUTE OF AUDITORS

04.04.2006 Meta Duhovnik, Ph.D., Cert. Auditor, Ver. Fin. Expert

IFRSs in Slovenia

• On the basis of Companies Act the IFRSs are mandatory for:– consolidated listed companies,– banks,– insurance companies.

• Other companies can use IFRSs on the voluntary basis provided they are used uninterruptedly for at least five-year period.


Slovenian Accounting StandardsSASs

• All the other companies use SASs.

• SASs are – simplified version of IFRSs organised in a different way;– in line with the Fourth EU Company Law Directive.

• The latest renewal is valid from January 1st, 2006 (published in the Official Gazette of the Republic of Slovenia No. 118/05).


The Process of Preparation and Adoption

• For the draft of a specific SAS, a three-member working group is appointed by the Slovenian Accounting Standards Commission (SASC).– SASC

• is a special commission of the council of experts;• has a permanent chairperson and six other members (at

least two university professors of accounting and auditing, two certified auditors and two verified accountants).


BOARD

STRUCTURE OF THE SLOVENIAN INSTITUTE OF AUDITORS

Senior Advisers (4) Legal Adviser

Administrators (2)

Director

AUDITING COUNCIL

AUDITING SECTION

COUNCIL OF EXPERTS

TAX ADVISORY SECTION

BUSINESS FINANCE SECTION

ACCOUNTING SECTION

SECTION FOR VALUATION

SECTION FORINFORMATION SYSTEMS’

AUDITING SECTION

FOR INTERNALAUDITING


Three-member working group• Chairperson and two members:

– university professor of accounting and auditing,– certified auditor,– verified accountant,– external experts if necessary.

• The working group prepares the draft standard which is presented to the SASC.• If two thirds of the SASC approve the draft, it is submitted to the Professional

Council of the Institute.

• If two thirds of the Professional Council approve the draft, it is submitted to the public discussion - not shorter than three months.


Adoption• The working group gathers comments and proposals coming

from public discussion and incorporates them into the final proposal of the SAS which is submitted to the SASC.

• If two thirds of the SASC approve the final proposal, it is submitted to the Professional Council.

• If two thirds of the Professional Council approve the final proposal, the SAS is adopted.

• After the adoption, the Institute has to acquire consensus from the Minister for Economic Affairs and the Minister for Finance followed by the publishing in the Official Gazette of the Slovenia.


SAS interpretations

• Barring the public discussion, the SAS interpretations are adopted following the same procedure.

• The SAS interpretations actually in use:– Interpretation 1 to SAS 2 – Emission Rights

– Interpretation 1 to SAS 18 – The Recognition of Revenues

– Interpretation 1 to SAS 19 – The Recognition of Deferred Tax Assets and Liabilities


The organisation of SAS

• The SASs cover wider scope of activities than IFRSs. Besides external reporting rules, they also contain internal accounting guidelines.

• They are an original merger of the national accounting theory and the international requirements defined in IFRSs and EU directives.


• SASs are prepared for companies.

• On the basis of appropriate acts, they are also (partly) used by other entities, such as institutes, non-profit and even state organisations depending on their specific requirements.

• Besides the Introduction, there are – 30 general SASs,– 10 specific SASs.


• SAS 1 – Property, Plant and Equipment• SAS 2 – Intangible Assets• SAS 3 – Financial Investments• SAS 4 – Inventories• SAS 5 – Receivables• SAS 6 – Investment Property• SAS 7 – Cash and Cash Equivalents• SAS 8 – Equity• SAS 9 – Long-term Debt• SAS 10 – Provisions and Long-term Deferred Liabilities

General Slovenian Accounting Standards


• SAS 11 – Short-term Accrued and Deferred Items• SAS 12 – Short-term Debt• SAS 13 – Depreciation and Amortisation Costs• SAS 14 – Costs of Material and Services• SAS 15 – Costs of Labour and Employees’ Reimbursements• SAS 16 – Cost Classification by Types, Centres and Units• SAS 17 – Expenses• SAS 18 – Revenues• SAS 19 – Types of Income (Loss) and Net Cash Flow• SAS 20 – Budgeting and Budgets



• SAS 21 – Bookkeeping Documents

• SAS 22 – Books of Accounts

• SAS 23 – Accounts Processing and Statements of Accounts

• SAS 24 – Formats of Balance Sheet for External Business Reporting

• SAS 25 – Formats of Income Statement for External Business Reporting

• SAS 26 – Formats of Cash Flow Statement for External Business Reporting

• SAS 27 – Formats of Statement of Changes in Equity for External Business Reporting



• SAS 28 – Accounting Supervising• SAS 29 – Accounting Analysing• SAS 30 – Accounting Information Reporting

• Mandatory SASs in connection with external financial reporting:– Introduction to SAS– SASs 1 to 15, 17 to 19, 24 to 27 and determinations from other

SASs referred to in mandatory SASs

• Other SASs are recommended rules of good accounting practice.



• SAS 31 – Accounting Treatments in Banks– ceased to be valid on January 1st, 2006

• SAS 32 – Accounting Treatments in Insurance Companies– ceased to be valid on January 1st, 2007

• SAS 33 – Accounting Treatments in Associations and Invalid Persons’ Organisations

• SAS 34 – Accounting Treatments in Cooperatives • SAS 35 – Accounting Treatments of Public Services• SAS 36 – Accounting Treatments in Non-profit

Organisations – Legal Persons of Private Law

Specific Slovenian Accounting Standards


• SAS 37 – Accounting Treatments in Enterprises Subject to Bankruptcy or Liquidation Procedures

• SAS 38 – Accounting Treatments in Mutual Funds • SAS 39 – Accounting Treatments of Sole Practitioners

Specific Slovenian Accounting Standards


The structure of an individual SAS

• Introductory part (A):– the purpose and the scope of the SAS;– its theoretic basis;– its relation to the other SASs, IFRSs and EU

directives.


• Part B:– the text of the standard, divided into subsections:

• classification,

• recognition and derecognition,

• initial measurement,

• revaluation,

• consolidation,

• disclosure.

The Structure of an Individual SAS


• Part C:– definition of key terms

• Part D:– clarifications

• Part E:– date of adoption and effective date

The Structure of an Individual SAS


Accounting treatments

• The whole logic of SASs is described in short in the introduction:– the recognition of economic categories in financial statements

and financial records;– the measurement of economic categories in financial

statements and accounting records;– the revaluation of economic categories in financial statements

and accounting records;

Mandatory Slovenian Accounting Standards


• Besides, the introduction includes (in special subheads) some areas not discussed in separate SASs:– the fundamental accounting assumptions and the qualitative accounting characteristics;– changes in accounting estimates, changes in accounting policies and corrections of errors;– business combinations;– deferred taxes (covered partly by SASs 5, 9, and 19);– joint ventures;– consolidation of accounting data in financial statements;– presentation of compliance with SASs in financial statements.



The fundamental accounting assumptions and the

qualitative accounting characteristics • Fundamental accounting assumptions:

– accrual basis:• business events are recognised when they occur and are recorded

in the accounting records and reported in the financial statements of the periods to which they relate;

– going concern:• the entity will continue in operation in the foreseeable future.

• Principal qualitative accounting characteristics:– understandability, relevance, reliability, comparability.



• Changes in accounting estimates:

– The effect is recognised in the period of change and future periods.

• Changes in accounting policies:– The effect is recognised retrospectively unless it is

impracticable.

• Corrections of errors:– The effect is recognised retrospectively unless it is

impracticable.


Changes in accounting estimates, changes in

accounting policies and corrections of errors


• Business combinations are accounted for by

applying the purchase method.

• The introduction determines:• measuring the cost of a business combination,

• allocating the cost of a business combination,

• the recognition of goodwill.

• For matters not regulated by the Introduction to SASs, the IFRS 3 (Business Combinations) is to be applied.


Business Combinations


• The deferred taxes are accounted for by applying the balance sheet liability method which focuses on temporary differences.

• Deferred tax assets and liabilities are covered by SAS 5 (Receivables), SAS 9 (Long-term Debt), and SAS 19 (Types of Operating Results and Net Cash Flows).

• The tax consequences of business events are accounted for in the same way as the business events themselves.


Deferred taxes


• Joint ventures:– jointly controlled operations,

– jointly controlled assets,

– jointly controlled entities.

• Common characteristics:– two or more venturers are bound by a contractual arrangement;

– the contractual arrangement establishes joint control.

• For matters not regulated by the Introduction to SASs or other SASs, the IAS 31 (Interests in Joint Ventures) is to be applied.

Mandatory Slovenian Accounting StandardsJoint ventures


• A group:

– the parent company,

– the subsidiaries, controlled by the parent on the basis of the share in equity,

– the subsidiaries, controlled by the parent on the basis of prevailing influence or due to other reasons.

• A parent which is itself a subsidiary with a parent in Slovenia is exempted from presenting consolidated financial statements when it obtains the approval of the owners of a minority interest.

• An investment in an associate (more than 20 %) is accounted for by applying the equity method.


Consolidation of accounting data in the financial statements


• The specific features of evaluating individual economic categories within the consolidated financial statements are discussed in a separate section of each SAS dealing with a specific economic category.

• The SASs dealing with the formats of the financial statements include a separate section explaining the difference between the format of the relevant separate financial statement and the format of the consolidated financial statement.


Consolidation of accounting data in the financial statements

(continuation)


• Financial statements are not prepared in accordance with SASs if they are not taking into account all relevant SASs and interpretations.


Presentation of compliance with SASs in financial

statements


• All important accounting solutions from IFRSs are incorporated into the mandatory SASs.

• There are a few exceptions which are supposed to be (according to determination in specific SASs) regulated by certain parts of IFRSs.


Accounting solutions


• Introduction to SASs refers to:– IFRS 3 for the accounting issues of

business combinations not covered by the introduction;

– IAS 31 for matters regarding joint ventures and not regulated by the introduction.


References to IFRSs


• SAS 3 (Financial Investments) refers to IAS 39. 89-102 regarding hedge accounting.

• SAS 6 (Investment Property) refers to IFRS 5 regarding conditions to be met for the asset held for sale.

• SAS 10 (Provisions and Long-term Deferred Liabilities) refers to IAS 19 and IAS 26 regarding provisions connected with employee benefits.


References to IFRSs (continuation)


• SAS 15 (Costs of Labour and Employees’ Reimbursements) refers to IAS 19 and IAS 26 regarding retirement benefit plans.


References to IFRSs (continuation)


• SMEs in the countries incorporating IFRSs in the national accounting standards use the accounting solutions developed in the environment with the efficient market mechanism.

• They need more thorough evaluation of the assumptions used under the national financial reporting framework (based on IFRSs) in the environment where the market mechanism is not developed enough to support the fair values of the financial statements’ items.


The importance of cash flow statements for SMEs


• As the balance sheet and income statement depend a lot on the identified financial reporting framework, the cash flow statement should be prepared so as to show the real liquidity position of the firm.

• For this reason, SAS 26 (Formats of Cash Flow Statement for External Business Reporting) stresses the importance of the direct cash flow statement based on the financial records of the entity.


The importance of cash flow statements for SMEs (continuation)


• Cash flows should not be tied up to already prepared balance sheet and income statement, as (according to IAS 1.25) cash flow statement is the only financial statement not prepared using the accrual basis of accounting.

• If an entity wants to avoid assumptions used to prepare income statement and balance sheet, cash flows should be traced and not established on the basis of already prepared financial statements.


The importance of cash flow statement for SMEs (continuation)


Conclusion

SASs proved themselves to be a very good mechanism to meet the needs of Slovenian SMEs.

The previous SASs (2001) have been translated to English. The last version (2006) is in the process

of translation.


SLOVENSKI INŠTITUT ZA REVIZIJO

SLOVENIAN INSTITUTE OF AUDITORS

Tel.: +386 568 55 54www.si-revizija.si

[email protected]

04.04.2006 adressing the needs of smes addressing the needs of smes and other stakeholders the case...

Documents

liabilitiesmeta duhovnik

specific sas

professional council

basis of companies

working group

insurance companies

public discussion

final proposal