General Overview
According to the 2005 World Bank Report on the Observance of Standards and Codes (ROSC) on Accounting and Auditing, Latvian Accounting Standards (LASs) were generally in line with European Union (EU) directives, but some fundamental differences with International Financial Reporting Standards (IFRSs) existed. LASs, which are required for the annual accounts of listed and non-listed companies, are developed based on IFRSs; however, 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. (LACA 2006a). In December 2006, the Latvian Association of Certified Auditors (LACA) reported that a Latvian version of IFRSs for small and medium enterprises (SMEs) was being developed. 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. Moreover, in accordance with the option for the extended use of IFRSs provided for in the EC regulation, 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 (EC 2006).
Financial reporting of Latvian companies is governed by various laws and regulations, which are primarily based on EU directives. According to the 2005 ROSC, Latvia implemented the acquis communautaire in law; however, Latvia lacked sufficient means to implement and enforce the acquis requirements. Accounting practices are regulated by the Law on Accounting, the Law on Annual Accounts of Undertakings and the Law on Consolidated Annual Accounts, which are in line with the EU directives and the standards promulgated by the International Accounting Standards Board (IASB) (OMX 2004). However, according to the World Bank ROSC, in 2005 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 laws governing accounting standards for listed companies are the Commercial Code, the Law on Annual Accounts of Undertakings, the Law on Consolidated Annual Accounts, the Law on Sworn Auditors, the Law on the Financial Instruments Market, and the EU regulations regarding the application of IFRSs in consolidated accounts of listed companies (LACA 2006b). The Financial and Capital Market Commission (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 Accounting Board (AB) of the Ministry of Finance (MoF). Finally, the FCMC supervises non-financial institutions and insurance companies by reviewing their financial statements and enforcing accounting and reporting requirements (LACA 2006b).
The Law on Credit Institutions requires banks to prepare financial statements in compliance with the Law on Accounting and regulations issued by the FCMC. In its 2005 ROSC, the World Bank points out that there were specific differences between IFRSs and Latvian accounting requirements pertaining to banks. Particularly, FCMC regulations were prepared based on the set of IFRSs existing in 2001. In the meantime, however, IFRSs had been revised several times. Therefore, the FMCM regulations did not reflect the most recent version of IFRSs. Similar differences existed between IFRSs and Latvian accounting requirements for insurance companies. In 2005, the World Bank reported that the Law on Insurance Companies and Supervision Thereof required insurance companies to prepare financial statements in compliance with the Law on Accounting and regulations issued by the FCMC, but only insofar as IFRSs did not contradict regulations of the FCMC. However, as stated by the EC in 2006, Latvian banks and insurance companies are required to use IFRSs.
Pursuant to the Law on Accounting, the AB, the Cabinet of Ministers, and the MoF are responsible for accounting policymaking. The AB drafts and issues accounting standards and regulations in accordance with IFRSs and the acquis communautaire. The Cabinet of Ministers formally enacts the proposed accounting standards and determines the scope of application of the standards. The MoF elaborates and implements state policy on accounting. According to the World Bank, the AB issued two national accounting standards in 2003: LGS 1 - Basic Principles for Preparation of Financial Statements (comparable to International Accounting Standard (IAS) 1) and LGS 2, which is a simplified version of IAS 7. Both standards became effective in July 2004. In 2004, the AB issued only one accounting standard LAS 3 - Events After the Balance Sheet Date, even though 8 standards were scheduled to be issued that year. LAS 4 - Changes in Accounting Policies and Accounting Estimates and Errors was issued in February 2005. The World Bank's 2005 ROSC stated that another six standards were drafted and eight additional standards were expected to be completed by the end of 2005. These standards include Income Taxes, Leases, Revenue, Long Term Contract Fixed Assets and Provision, Contingent Liabilities and Contingent Assets.
The LACA assists the AB in the development of accounting standards. It has translated and published 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 (LACA 2006a).
The 2005 World Bank ROSC concluded that further enhancements to the statutory framework were needed. The World Bank suggested to install a multi-disciplinary working group, representing public and private stakeholders, with the goal of implementing EU acquis developments into national law. Also, the working group should ensure to eliminate conflicting or ambiguous financial reporting requirements with respect to IFRSs. Finally, the effective enforcement of accounting, auditing and ethical standards needed to be enhanced.
The LACA is an associate of the International Federation of Accountants (IFAC website). Latvia is an active member in the EU Accounting Regulatory Committee and the Committee of European Securities Regulators (CESR). The FCMC participates in eight EU committees, one European Central Bank (ECB) committee, and 30 working groups. The IFAC Code of Ethics for Professional Accountants was fully adopted in December 2004 (WB 2005).
The Principles
IFRS 1: First-time Adoption of International Financial Reporting Standards (effective 2006) |
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There is no publicly available information as to Latvia's compliance with this principle.
IFRS 1: First-time Adoption of International Financial Reporting Standards was issued in June 2003 and applies to an entity whose first IFRS financial statements are for a period beginning on or after January 1, 2004. In June 2005, the IASB issued amendments to IFRS 1: First-time Adoption of International Financial Reporting Standards and the Basis for Conclusions on IFRS 6: Exploration for and Evaluation of Mineral Resources. The amendments clarify the IASB's intentions with respect to an exemption provided to first-time adopters of IFRSs who choose to adopt IFRS 6 before 1 January 2006. The effective date of these amendments is January 1, 2006. (Deloitte IAS Plus website)
IFRS 2: Share-based Payment (effective 2005) |
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There is no publicly available information as to Latvia's compliance with this principle.
IFRS 2 Share-based Payment was issued in February 2004 and applies to annual periods beginning on or after January 1, 2005. (Deloitte IAS Plus website)
IFRS 3: Business Combinations (effective 2004) |
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There is no publicly available information as to Latvia's compliance with this principle.
IFRS 3: Business Combinations was issued in March 2004 and is applicable for business combinations for which the agreement date is on or after March 31, 2004. (Deloitte IAS Plus website)
IFRS 4: Insurance Contracts (effective 2006) |
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There is no publicly available information as to Latvia's compliance with this principle.
IFRS 4: Insurance Contracts was issued in March 2004 and is applicable for annual periods beginning on or after January 1, 2005. On August 18, 2005, the IASB amended the scope of IAS 39 to include financial guarantee contracts issued. However, if an issuer of financial guarantee contracts has previously asserted explicitly that it regards such contracts as insurance contracts and has used accounting applicable to insurance contracts, the issuer may elect to apply either IAS 39 or IFRS 4: Insurance Contracts to such financial guarantee contracts. The amendments to IAS 39 and IFRS 4 are effective for annual periods beginning on or after 1 January 2006, with earlier application encouraged. (Deloitte IAS Plus website)
IFRS 5: Non-current Assets Held for Sale and Discontinued Operations (effective 2005) |
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There is no publicly available information as to Latvia's compliance with this principle.
IFRS 5: Non-current Assets Held for Sale and Discontinued Operations was issued in March 2004 and is applicable for annual periods beginning on or after January 1, 2005. (Deloitte IAS Plus website)
IFRS 6: Exploration for and Evaluation of Mineral Resources (effective 2006) |
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There is no publicly available information as to Latvia's compliance with this principle.
IFRS 6: Exploration for and Evaluation of Mineral Assets was issued in December 2004 and is applicable for annual periods beginning on or after January 1, 2006. (Deloitte IAS Plus website)
IFRS 7: Financial Instruments: Disclosures (effective 2007) |
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There is no publicly available information as to Latvia's compliance with this principle.
IFRS 7: Financial Instruments: Disclosures was issued on August 18, 2005 and is applicable for annual periods beginning on or after January 1, 2007. (Deloitte IAS Plus website)
IAS 1: Presentation of Financial Statements (effective 2007) |
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There is no publicly available information as to Latvia's compliance with this principle.
According to the World Bank, the AB issued LGS 1 - Basic Principles for Preparation of Financial Statements in 2003, which is comparable to IAS 1. The standard became effective in July 2004 (2005).
The effective date of IAS 1 (rev. 2003): Presentation of Financial Statements was January 1, 2005. However, the IASB further revised IAS 1: Presentation of Financial Statements in August 2005 as a part of its project to develop IFRS 7 Financial Instruments: Disclosures. The IASB concluded to amend IAS 1 to add requirements for disclosures of: (1) the entity's objectives, policies and processes for managing capital; (2) quantitative data about what the entity regards as capital; (3) whether the entity has complied with any capital requirements; and (4) if it has not complied, the consequences of such non-compliance. These disclosure requirements apply to all entities, effective for annual periods beginning on or after 1 January 2007, with earlier application encouraged. (Deloitte IAS Plus website)
IAS 2: Inventories (effective 2005) |
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There is no publicly available information as to Latvia's compliance with this principle.
The IASB revised IAS 2: Inventories in December 2003. The revised standard is effective for periods commencing January 1, 2005. (Deloitte IAS Plus website)
IAS 7: Cash Flow Statements (effective 1994) |
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There is no publicly available information as to Latvia's compliance with this principle.
According to the World Bank, the AB issued LGS 2, which is a simplified version of IAS 7. The standard became effective in July 2004 (2005).
IAS 7: Cash Flow Statements (revised 1992) is applicable for periods beginning on or after January 1, 1994. (Deloitte IAS Plus website)
IAS 8: Accounting Policies, Changes in Accounting Estimates and Errors (effective 2005) |
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There is no publicly available information as to Latvia's compliance with this principle.
According to the World Bank, the AB issued LAS 4 - Changes in Accounting Policies and Accounting Estimates and Errors in February 2005 (2005).
The IASB revised IAS 8: Accounting Policies, Changes in Accounting Estimates and Errors in December 2003. The revised standard is effective for periods commencing January 1, 2005. (Deloitte IAS Plus website)
IAS 10: Events after the Reporting Period (effective 2005) |
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There is no publicly available information as to Latvia's compliance with this principle.
According to the World Bank, in 2004, the AB issued LAS 3 - Events After the Balance Sheet Date (2005).
The IASB revised IAS 10: Events After the Balance Sheet Date in December 2003. The revised standard is effective for periods commencing January 1, 2005. (Deloitte IAS Plus website)
IAS 11: Construction Contracts (effective 1995) |
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There is no publicly available information as to Latvia's compliance with this principle.
IAS 11: Construction Contracts is applicable for periods beginning on or after January 1, 1995. (Deloitte IAS Plus website)
IAS 12: Income Taxes (effective 2001) |
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There is no publicly available information as to Latvia's compliance with this principle.
According to the World Bank, Latvia was scheduled to issue an accounting standard on income taxes at the end of 2005 (2005).
IAS 12: Income Taxes is applicable for periods beginning on or after January 1, 1998. (Deloitte IAS Plus website)
IAS 14: Segment Reporting (effective 1998) |
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There is no publicly available information as to Latvia's compliance with this principle.
IAS 14 Segment Reporting is applicable for periods beginning on or after 1 July 1998. (Deloitte IAS Plus website)
IAS 16: Property, Plant and Equipment (effective 2005) |
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There is no publicly available information as to Latvia's compliance with this principle.
According to the World Bank, Latvia was scheduled to issue an accounting standard on long term contract fixed assets at the end of 2005 (2005).
The IASB revised IAS 16 Property, Plant and Equipment Sheet Date in December 2003. The revised standard is effective for the periods commencing on January 1, 2005. (Deloitte IAS Plus website)
IAS 17: Leases (effective 2005) |
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The 2005 World Bank ROSC states that, as of 2005, LASs did not provide for accounting rules for leasing. However, an exposure draft was prepared.
According to the World Bank, Latvia was scheduled to issue an accounting standard on leases at the end of 2005 (2005).
The IASB revised IAS 17: Leases in December 2003. The revised standard is effective for periods commencing January 1, 2005. (Deloitte IAS Plus website)
IAS 18: Revenue (effective 1995) |
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The 2005 World Bank ROSC states that, as of 2005, LASs did not provide for detailed requirements for revenue recognition. Under LASs, revenue was recognized on an accrual basis.
According to the World Bank, Latvia was scheduled to issue an accounting standard on revenue at the end of 2005 (2005).
IAS 18: Revenue is applicable for periods beginning on or after January 1, 1995. (Deloitte IAS Plus website)
IAS 19: Employee Benefits (effective 2006) |
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There is no publicly available information as to Latvia's compliance with this principle.
IAS 19: Employee Benefits was issued in 1998 and is applicable for periods beginning on or after January 1, 1999. However, the IASB revised IAS 19: Employee Benefits in December 2004 to take into account options to recognize actuarial gains and losses in full, outside profit or loss, in a statement of changes in equity. The amendment is applicable for periods beginning on or after January 1, 2006. (Deloitte IAS Plus website)
IAS 20: Accounting for Government Grants and Disclosure of Government Assistance (effective 1984) |
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There is no publicly available information as to Latvia's compliance with this principle.
IAS 20: Accounting for Government Grants and Disclosure of Government Assistance is applicable for periods beginning on or after January 1, 1984. (Deloitte IAS Plus website)
IAS 21: The Effects of Changes in Foreign Exchange Rates (effective 2005) |
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There is no publicly available information as to Latvia's compliance with this principle.
The IASB revised IAS 21: The Effects of Changes in Foreign Exchange Rates in December 2003. The revised standard is effective for periods commencing January 1, 2005. (Deloitte IAS Plus website)
IAS 23: Borrowing Costs (effective 1995) |
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There is no publicly available information as to Latvia's compliance with this principle.
IAS 23: Borrowing Costs is applicable for periods beginning on or after January 1, 1995. (Deloitte IAS Plus website)
IAS 24: Related Party Disclosures (effective 2005) |
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There is no publicly available information as to Latvia's compliance with this principle.
The IASB revised IAS 24: Related Party Disclosures in December 2003. It is applicable for annual periods beginning on or after January 1, 2005. (Deloitte IAS Plus website)
IAS 26: Accounting and Reporting by Retirement Benefit Plans (effective 1998) |
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There is no publicly available information as to Latvia's compliance with this principle.
IAS 26 Accounting and Reporting by Retirement Benefit Plans is applicable for periods beginning on or after January 1, 1988. (IASB website)
IAS 27: Consolidated and Separate Financial Statements (effective 2005) |
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The 2005 World Bank ROSC states that, as of 2005, the scope of consolidation under LASs was less stringent than under IFRSs.
The IASB revised IAS 27: Consolidated and Separate Financial Statements in December 2003. The revised standard is effective for periods commencing January 1, 2005. (Deloitte IAS Plus website)
IAS 28: Investments in Associates (effective 2005) |
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There is no publicly available information as to Latvia's compliance with this principle.
The IASB revised IAS 28: Investment in Associates in December 2003. The revised standard is effective for periods commencing January 1, 2005. (Deloitte IAS Plus website)
IAS 29: Financial Reporting in Hyperinflationary Economies (effective 1990) |
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There is no publicly available information as to Latvia's compliance with this principle.
IAS 29: Financial Reporting in Hyperinflationary Economies is applicable for periods beginning on or after January 1, 1990. (Deloitte IAS Plus website)
IAS 31: Interests in Joint Ventures (effective 2005) |
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There is no publicly available information as to Latvia's compliance with this principle.
The IASB revised IAS 31: Interests in Joint Ventures in December 2003. The revised standard is effective for periods commencing January 1, 2005. (Deloitte IAS Plus website)
IAS 32: Financial Instruments: Disclosure and Presentation (effective 2005) |
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There is no publicly available information as to Latvia's compliance with this principle.
IAS 32: Financial Instruments: Disclosure and Presentation was issued in December 2003 and is applicable for annual periods beginning on or after January 1, 2005. (Deloitte IAS Plus website)
IAS 33: Earnings per Share (effective 2005) |
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The 2005 World Bank ROSC states that, as of 2005, LASs did not require the disclosure of earnings per share.
The IASB revised IAS 33: Earnings per Share in December 2003. The revised standard is effective for periods commencing January 1, 2005. (Deloitte IAS Plus website)
IAS 34: Interim Financial Reporting (effective 1999) |
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There is no publicly available information as to Latvia's compliance with this principle.
IAS 34: Interim Financial Reporting is applicable for periods beginning on or after January 1, 1999. (Deloitte IAS Plus website)
IAS 36: Impairment of Assets (effective 2004) |
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There is no publicly available information as to Latvia's compliance with this principle.
The IASB issued IAS 36: Impairment of Assets in March 2004. It is applied to goodwill and intangible assets acquired in business combinations after March 31, 2004 and to all other assets for annual periods beginning on or after March 31, 2004. (Deloitte IAS Plus website)
IAS 37: Provisions, Contingent Liabilities and Contingent Assets (effective 1999) |
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There is no publicly available information as to Latvia's compliance with this principle.
According to the World Bank, Latvia was scheduled to issue an accounting standard on provisions, contingent liabilities and contingent assets at the end of 2005 (2005).
IAS 37: Provisions, Contingent Liabilities and Contingent Assets was issued in July 1998 and is applicable for periods beginning on or after July 1, 1999. (Deloitte IAS Plus website)
IAS 38: Intangible Assets (effective 2004) |
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There is no publicly available information as to Latvia's compliance with this principle.
The IASB revised IAS 38: Intangible Assets in March 2004. The revised standard is applied to the accounting for intangible assets acquired in business combinations after March 31, 2004, and to all other intangible assets for annual periods beginning on or after March 31, 2004. (Deloitte IAS Plus website)
IAS 39: Financial Instruments: Recognition and Measurement (effective 2006) |
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There is no publicly available information as to Latvia's compliance with this principle.
In December 2003, the IASB issued IAS 39: Financial Instruments: Recognition and Measurement comprehensively revised as a part of the IASB's Improvement Project. IAS 39 became effective in January 2005. Subsequently, during the period of 2004-2005 the IASB issued several amendments to IAS 39 on macro hedging, day 1 gain/loss transition, hedges of forecast intragroup transactions, fair value option, and financial guarantee contracts. The amendment for macro hedging is applicable for annual periods beginning on or after January 1, 2005; the amendment for day 1 gain/loss transition is applicable for annual periods beginning on or after January 1, 2005; the amendment for hedges of forecast intragroup transactions is applicable for periods beginning on or after January 1, 2006; the amendment for fair value option is applicable for periods beginning on or after January 1, 2006; and the amendment for financial guarantee contracts is applicable for periods beginning on or after January 1, 2006. (Deloitte IAS Plus website)
IAS 40: Investment Property (effective 2005) |
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There is no publicly available information as to Latvia's compliance with this principle.
The IASB revised IAS 40: Investment Property in December 2003. The revised standard is effective for periods commencing January 1, 2005. (Deloitte IAS Plus website)
IAS 41: Agriculture (effective 2003) |
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There is no publicly available information as to Latvia's compliance with this principle.
IAS 41: Agriculture is applicable for periods beginning on or after January 1, 2003. (Deloitte IAS Plus website)
Latvia