European choice for Ukrainian accountants and auditors on the transition to IFRS
The official website of the international audit network HLB International published an article by Sergiy Rogozniy, Deputy General Director of HLB Ukraine, on the European choice for Ukrainian accountants and auditors to switch to International Financial Reporting Standards (hereinafter – IFRS).
By signing the Association Agreement with the EU in 2014, Ukraine has committed itself to harmonizing its legislation with European standards. And above all, this applies to business legislation, including the scope of financial reporting and auditing. In 2017, the 3-year transitional period established by the Association Agreement ended for the adaptation of our legislation to EU Regulation No. 1606/2002 on the transition to IFRS and EU Directive No. 2006/43/EU regarding statutory audit, the aim of which was to «create a fully functioning market economy and trade stimulation «(Article 337 of the Association Agreement).
In order to fulfill its obligations, Ukraine has amended the Law of Ukraine «On Accounting and Financial Reporting in Ukraine» since 2018. Along with the new Law «On the audit of financial statements and auditing activities», they have a significant impact on the activities of accountants and auditors in the country.
Small enterprises do not fall under the changes, in which two out of the three indicators will not exceed the limit:
– annual revenue does not exceed 8 million EUR;
– total assets of not more than 4 million EUR;
– staff not more than 50 people.
If an enterprise «fits in» with these indicators and does not participate in the insurance business, in other financial services, and is not an issuer of securities, then with a probability of 99% nothing will change for it. That is, about 1% of 1 million Ukrainian legal entities will have to worry.
It is these 10-15 thousand legal entities that produce more than 80% of GDP that should be prepared for new standards of quality of financial information. The organizational form of the LLC or PJSC is no longer exempted from the mandatory audit of financial statements, and large enterprises (revenues of more than 40 million EUR, assets of 20 million EUR, 250 employees) will need to study and adopt IFRS for financial reporting and daily accounting.
In fact, the transfer of financial statements to IFRS will take about a year, during which it is necessary to restructure business processes, complete the formation of accounting policies and accounting programs, reassess long-term assets, and train staff. This, of course, needs investment: these costs for one year can be less than 3 thousand EUR for small enterprises, not taking into account the cost of the audit, or even hundreds of thousands of EUR for the giants of domestic industry.
Enterprises that refuse to conduct audits and publish financial reports on their web page (also from 2019) will face significant fines.
Such «victims» will increase business transparency and reduce the shadow sector, which, according to estimates of the International Monetary Fund in Ukraine, is 45% versus 18-22% in the Baltic countries and 7-15% in Japan, the USA, Switzerland and Singapore.
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