Effective accounting across Baltic States16.04.2010 Baltic SparkMartins Tambaks<br />
Agenda<br /><ul><li>Accounting environment and practices in Baltic states
Basic requirements for bookkeeping
Financial reporting requirements
Accounting technology
Implementation of financial and management accounting function - Decentralized/Centralized and Internal/Outsourced accounting
Criteria for decision
Potential benefits
Potential risks and issues</li></li></ul><li>Framework for MSE<br /><ul><li>Small entity identification, K EUR (2 out of 3...
Micro entity identification - Some identifications of entities smaller than small exist in Lithuania and are planned in La...
Legal form of entities - Large variety but most common in all countries – limited liability companies (SIA, UAB, OU)</li><...
<ul><li>General accounting principles for Micro and Small Entities (MSE) in all countries - Law on Accounting and local GAAP:
Responsibility for accounting – fully on Management Board
Double entry bookkeeping
Accrual based accounting
Going concern assumption. Consistency and comparability. Prudence. Substance over form.
Chart of Accounts as per business needs
Functional currency - Local currency only (@ Central Banks’ established exchange rates)</li></ul>Accounting environment in...
<ul><li>General accounting principles for MSE in all countries
Accounting policies and procedures – written and approved by board
Stock count and reconciliation of all assets and all liabilities required at least annually
All transactions must be registered on monthly base
Cash transactions
all cash sales should be done via cash registers
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Effective accounting across Baltic States [Mārtiņš Tambaks]

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Baltic Spark, http://www.balticspark.org, 2010.04.16

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Effective accounting across Baltic States [Mārtiņš Tambaks]

  1. 1. Effective accounting across Baltic States16.04.2010 Baltic SparkMartins Tambaks<br />
  2. 2. Agenda<br /><ul><li>Accounting environment and practices in Baltic states
  3. 3. Basic requirements for bookkeeping
  4. 4. Financial reporting requirements
  5. 5. Accounting technology
  6. 6. Implementation of financial and management accounting function - Decentralized/Centralized and Internal/Outsourced accounting
  7. 7. Criteria for decision
  8. 8. Potential benefits
  9. 9. Potential risks and issues</li></li></ul><li>Framework for MSE<br /><ul><li>Small entity identification, K EUR (2 out of 3 criteria must not be exceeded)
  10. 10. Micro entity identification - Some identifications of entities smaller than small exist in Lithuania and are planned in Latvia but they do not have major effect on accounting
  11. 11. Legal form of entities - Large variety but most common in all countries – limited liability companies (SIA, UAB, OU)</li></li></ul><li>Accounting practices<br />
  12. 12. <ul><li>General accounting principles for Micro and Small Entities (MSE) in all countries - Law on Accounting and local GAAP:
  13. 13. Responsibility for accounting – fully on Management Board
  14. 14. Double entry bookkeeping
  15. 15. Accrual based accounting
  16. 16. Going concern assumption. Consistency and comparability. Prudence. Substance over form.
  17. 17. Chart of Accounts as per business needs
  18. 18. Functional currency - Local currency only (@ Central Banks’ established exchange rates)</li></ul>Accounting environment in Baltics<br />
  19. 19. <ul><li>General accounting principles for MSE in all countries
  20. 20. Accounting policies and procedures – written and approved by board
  21. 21. Stock count and reconciliation of all assets and all liabilities required at least annually
  22. 22. All transactions must be registered on monthly base
  23. 23. Cash transactions
  24. 24. all cash sales should be done via cash registers
  25. 25. salaries can be paid in cash, but not advised as requiresadditional paperwork
  26. 26. business transactions in cash – limited by reportable volume</li></ul>Accounting environment in Baltic<br />
  27. 27. Basic bookkeeping requirements<br /><ul><li>Storage of documentation</li></ul>All bookkeeping registers and documents must be kept in-country.<br /><ul><li>Local language use
  28. 28. Latvia and Lithuania – all accounting documents and registers as well as financial statements should be maintained in local language
  29. 29. Estonia – no specific requirement in what language accounting isdone. Tax authorities accept supporting documents in Estonian and English. Statutory report must be prepared in local language</li></li></ul><li>Financial – Management – Tax accounting<br /><ul><li>Local GAAPs and local taxation principles are generally harmonized. Financial and Tax accounting do not differ
  30. 30. Result for corporate taxation purposes is based on adjusting financial accounting result
  31. 31. Management accounting can be different from local GAAP and tailored to decision making needs</li></li></ul><li>Basic financial reporting requirements<br /><ul><li>Independent audit for MSEs
  32. 32. Latvia and Lithuania – NOT required
  33. 33. Estonia – required with the share capital exceeding 25k €
  34. 34. Local GAAP major differences with IFRS that might be relevant to MSEs
  35. 35. Materially less volume of description of policies and off-balance sheet items
  36. 36. Fixed assets component accounting not explicitly required</li></li></ul><li>Basic financial reporting requirements<br /><ul><li>Financial statements for MSEs under local GAAP
  37. 37. Latvia and Lithuania
  38. 38. Following Financial Statements items are not mandatory
  39. 39. Management report
  40. 40. Cash Flow statement
  41. 41. Equity Statement (Latvia only)
  42. 42. Gross Profit detail specification in P&L (in Latvia only)
  43. 43. Deferred Tax calculation and disclosure
  44. 44. Disclosure of transactions with related parties
  45. 45. Estonia – no reliefs for annual accounts preparation for MSE
  46. 46. IFRS as adopted by EU can be applied in Lithuania and Estonia</li></li></ul><li>Basic financial reporting requirements<br /><ul><li>Annual Accounts Deadline
  47. 47. Latvia and Lithuania – within 4 months after the end of the financial year
  48. 48. Estonia – within 6 months after the end of the financial year
  49. 49. Financial year may be different from calendar year
  50. 50. Requirement to prepare Consolidated Accounts
  51. 51. Required if local or foreign subsidiaries exist
  52. 52. EU parent consolidated accounts can be filed instead
  53. 53. Relief for small local groups
  54. 54. Filing deadlines are extended</li></li></ul><li>Accounting technology<br /><ul><li>No advanced accounting systems required.
  55. 55. Information safety, authenticity prove, storage and presentation requirements exist.
  56. 56. Technology available for selection:
  57. 57. Paper / Electronic spreadsheets (Excel)
  58. 58. Stand alone bookkeeping database.
  59. 59. Local Accounting / Enterprise Resource Planning (ERP) applications
  60. 60. International ERP licence based applications, cloud computing applications</li></li></ul><li>Accounting technology selection<br />
  61. 61. Implementation of accounting function<br />
  62. 62. Implementation of accounting function<br /><ul><li>Who can do accounting?
  63. 63. Hired staff / Loaned staff
  64. 64. Outsourced team of accountants
  65. 65. Sole owner may also execute bookkeeper function
  66. 66. How to arrange the function?
  67. 67. Decentralized organisation
  68. 68. On-site function done by employee, loaned staff or outsourced team in your premises
  69. 69. Off-site function done by outsourced team in provider’s premises
  70. 70. Centralized organisation - Accounting function is centralized over three Baltic countries and executed:
  71. 71. on-site by internal accounting department or outsourced team
  72. 72. off-site by outsourced team</li></li></ul><li>Who can do accounting?<br />
  73. 73. Top reasons for employed staff<br />Why employ the staff?<br />Gain full time availability<br />Day-to-day transaction control<br />Control the person’s development, performance and loyalty<br />Gain possibility to cover other functions (HR, Administrator) with the same cost (temporarily)<br />Business case<br />High loyalty and close monitoring of transactions<br />Short response time on new issues<br />Very specific internal knowledge required<br />
  74. 74. Top reasons for loaned staff<br />Why loan the staff?<br />Limit costs<br />Gain higher qualified resource for the same total cost<br />Limit or avoid training costs<br />Avoid motivation and performance development costs/time<br />Gain flexibility to use the resource when needed only<br />Business case<br />Temporary, not full time work<br />Flexibility in hiring, firing and workload <br />
  75. 75. Top reasons for outsourcing<br />Why outsource?<br />Gain access to resources and expertise never available internally <br />Save on capital investments (i.e. system, office)<br />Share risks (employment, failure, data security)<br />Improve business focus of company’s management<br />Reduce and control administrative costs<br />Business case<br />High quality output<br />Process efficiency<br />Changing volume of work, changing environment and business<br />Advice on complicate accounting and tax issues.<br />
  76. 76. Top reasons for centralization<br />Why centralize?<br />Allow group companies to act as one<br />Reduce and control administrative costs<br />Leverage group-wide systems and policies<br />Increase transparency and transaction control<br />Share internal best practices and increase overall efficiency<br />Share scarce, well-trained resources<br />Business case<br />Number of local or international companies with similar business setup<br />High and constant volume of simple transactions<br />
  77. 77. Potential risks and issues<br /> The following illustrate several of the potential risks and issues from employees and loaned staff:<br />Loaned staff<br /><ul><li>Motivation and Loyalty
  78. 78. Information might leak
  79. 79. Time management (illness, vacation)
  80. 80. Knowledge limitations (Legislation changes, IT changes)
  81. 81. Complicate control over work quality</li></ul>Internal employee<br /><ul><li>Hiring process mistakes
  82. 82. Firing complications
  83. 83. Information and knowledge loss in case of firing
  84. 84. Time management (illness, vacation)
  85. 85. Knowledge limitations (Legislation changes, IT changes)
  86. 86. Performance management and development and motivation time and costs</li></li></ul><li>Potential risks and issues<br /> The following illustrate several of the potential risks and issues from outsourcing and centralization:<br /> Centralization<br /><ul><li>Communication issues
  87. 87. Expensive training
  88. 88. Complicated guidance and support from business management
  89. 89. Unclear performance indicators to provide incentive and reward
  90. 90. Limited continuous improvement
  91. 91. Local regulations’ compliance in case of cross-border centralization</li></ul>Outsourcing<br /><ul><li>Information might leak
  92. 92. Loss of control over day-to-day transactions
  93. 93. Losing the ability to re-establish outsourced functions internally
  94. 94. Problems with quality, consistency and oversight
  95. 95. Lowered employee loyalty
  96. 96. Inner oppositions to outsourcing</li></li></ul><li>What we have coverded<br /><ul><li>Accounting environment and practices in Baltic states
  97. 97. Basic requirements for bookkeeping
  98. 98. Financial reporting requirements
  99. 99. Accounting technology
  100. 100. Implementation of financial and management accounting function
  101. 101. Criteria for decision on how to arrange the function
  102. 102. Potential benefits
  103. 103. Potential risks and issues</li></li></ul><li>Accounting can involve lot of creativeness– JUST SAY WHAT YOU NEED<br />

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