Recently, the Slovak president has signed the new Accounting Law that should become effective on 1 January 2003. The purpose of the new Accounting Law is to bring Slovak accounting rules into harmony with European Union standards.
The new Accounting Law more precisely defines obligations of accounting entities, for example, companies or individual entrepreneurs, and is stricter than the current one. If accounting entities breach their obligations, Slovak tax authorities will impose penalties of up to one to three per cent of the value of an entity's assets before adjustments, depending on what obligations have not been followed. These amounts are higher than current penalties, which reach a maximum of Sk1 million.
The major requirement on accounting entities is to truly show their economic situation and results. The accounting entities will have to disclose all important and relevant information such that it is understandable, comparable and reliable. For example, audited entities will have to also report the following:
* information about financial situation over at least the two previous accounting periods;
* important events that happened after the accounting period to which the annual report relates;
* prediction of future developments of activities of the accounting entity;
* expenditures related to research and development;
* information about acquisition of own shares and ownership interests;
* proposals on profit distribution or settlement of losses; etc.
In addition, the new Accounting Law more clearly states the obligation of all accounting entities to disclose any information relating to possible obstacles that could result in the cessation or limiting of their operations over the following 12 months, and follow relevant accounting measures in this respect. Audited entities have to clearly state what information has been confirmed by an auditor and what not.
The rules related to the consolidated closing of books have also been amended and set out in more detail. For example, the obligation to prepare consolidated closing of books relates also to companies having 20 per cent interest in another company or companies - the current limit is 25 per cent. However, this obligation does not apply if companies, apart from banks, insurance companies and reinsurance companies, meet at least two of the following conditions:
* the total value of assets in consolidated entities is lower than Sk350 million;
* the total amount of turnover is lower than Sk700 million;
* the group of companies employs less than 250 people in total.
This will reduce the administrative requirements to smaller groups of companies. Furthermore, effective January 1, 2004, upon the approval of tax authorities, an entity's accounting period can be determined as any 12 subsequent months. This should ease the consolidation process when entities within a group have different accounting periods.
The new Accounting Law introduces new rules with respect to the valuation of some assets. Above all, the accounting entities will have to value some of their assets, for example shares, derivates, etc., at fair value as of the date to which the closing of books has been prepared - for example, at the end of the accounting period. Fair values will be determined as market prices, values determined by official assessors or in accordance with special legal provisions. In comparison to the current valuation system that uses historic prices, the new system allows a more realistic picture of the wealth of accounting entities.
Furthermore, accounting entities purchasing shares, ownership interests or receivables will record them using acquisitions prices plus all expenses related to the acquisition. This principal also applies to liabilities taken over.
The new Accounting Law allows accounting entities using assets that are not legally in their ownership to record and depreciate these assets under legally stipulated conditions. This allows for a more realistic picture of the economic position of accounting entities.
Similar to the currently effective Commercial Code, the new Accounting Law requires accounting entities registered with the Slovak Commercial Registry to enter their closings of accounting books and annual reports, if they are audited, into the Collection of Documents within 30 days of their approval. As the Collection of Documents is publicly available, it allows anybody to obtain more information about potential business partners and make better decisions in this respect.
Finally, contrary to the current wording of the Accounting Law, all foundations will be obliged to maintain double-entry bookkeeping irrespective of their income. This relates to the fact, that all foundations have had to be audited, irrespective of their income and expenses, since 2001.
Ingrid Jalčová, ACCA, is a chartered accountant with five years of experience with global advisory firms. She invites comments and questions at email: jalcova@gti.sk
Tax Corner is a bi-weekly column that will appear this summer. The next instalment will be on stands on August 26, Vol 8. No 32.
