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THE NEW ACCOUNTANCY ACT

The new Accountancy Act, published in the State Gazette, No. 98 of 16 November 2001 (hereinafter referred to as "the New Act"), entered into force on 1 January 2002 and fully revoked the old Accountancy Act (published in the State Gazette, No. 4 of 15 January 1991, in force since 1 April 1991, referred to hereinafter as the "Revoked Act"). The New Act implements the International Accountancy Standards and the EU Directives on accountancy in enterprises. The Act is characterized by greater conciseness and precision of the legal definitions compared to the Revoked Act. The basic differences between the New Act and the Repealed Act are pointed out below.

1. Acts governing accountancy in enterprises:
According to the New Act accountancy is organized in the manner regulated by the Accountancy Act and an individual chart of accounts affirmed by the administration of the enterprise, and from 1 January 2003 also by the International Accountancy Standards which will be applicable in Bulgaria from this date on. Thus, after 1 January 2003 enterprises, as to accountancy, are to be bound by the Act and the international acts (International Accountancy Standards) only, and not by statutory instruments such as the National Chart of Accounts and the National Accountancy Standards adopted by the Council of Ministers which are to be applied until the applicability of the International Accountancy Standards. Only budget organizations are to be bound by statutory instruments - Chart of Accounts and Accountancy Standards, adopted by the Ministry of Finance.

2. Subjects to obligation to keep accounting records and books:
The New Act creates a more precise and accurate definition of the subjects bound to keep accounting records and books - the so-called "enterprises". The definition of "enterprise" includes merchants within the meaning of the Commercial Act, non-profit entities, civil partnerships, foreign persons having business activities in Bulgaria and budget organizations, while according to the Revoked Act an "enterprise" is an economically independent entity, a sole merchant or an unincorporated partnership carrying out lawful activities. The definition within the Revoked Act is not precise because a dispute could arise as to whether non-profit entities are obliged to keep accounting records and books, to which the New Act gives a positive answer by explicitly pointing them out within the scope of enterprises.

3. Accounting documents and forms of accountancy:
The division of the accounting documents into primary, secondary and accounting books is preserved. The accounting document can already be also an electronic document subject to the provisions of the Electronic Document and Electronic Signature Act.
The New Act, as well as the revoked Act, adopts the principle of double entry book-keeping. Exemptions from this principle are permitted and these are namely the enterprises (including stock corporations) with annual turnover not exceeding 50 000 BGL which can apply single entry book-keeping instead of double entry book-keeping. Now the criterion is only the annual turnover of the previous year and not the type of legal entity or other supplementary criteria, such as the ones used by the Revoked Act.
Under the New Act budget organizations again are obliged to apply only double entry book-keeping.

4. Principles of accountancy:
The principles of accountancy: current assessment, active enterprise, cautiousness, compatibility between revenues and expenditures, priority of substance over formality and preservation to the extent possible of the accounting policy of the previous accounting period, as well as their legal definitions, are analogous to the ones adopted by the Revoked Act and are harmonized with the International Accountancy Standards.

5. Assets, liabilities, revenues and expenditures:
The New Act uses the following definitions of the categories of items subject to recording in the accounting books - assets, own capital and other liabilities, revenues and expenditures, and unlike the Revoked Act does not regulate the principles for evaluation of the tangible reserves of the enterprise during their consumption, referring for the purpose to the Accountancy Standards:
 Long-term (fixed) tangible assets are defined as assets providing economic benefit for a period of more than 12 months, and assets providing economic benefit for a shorter period are short-term assets, while the Revoked Act defines the assets by listing them (land, forestry, pastures etc), without adopting explicitly a general criterion;
 Liabilities are divided into short-term liabilities and long-term liabilities, likewise the assets;
 Revenues of the enterprise are revenues from activity, financial revenues (arising from financial transactions, interest, participation in stock corporations, etc) and overhead revenues. The New Act is more laconic regarding revenues in comparison with the Revoked Act;
 Expenditures of the enterprise are divided into expenditures from activity by economic elements (materials, services, amortization, remuneration, social security payments, etc), financial expenditures, overhead expenditures and expenditures for profit taxes;
 The New Act clarifies the meaning of the term "own capital" (used in Appendix №1 to the Revoked Act) by including into it stock capital, capital reserves, financial result, undistributed profits and uncovered losses from previous years. In other words, these are the own sources of economic means of the enterprise that do not include economic means loaned from third persons. The Revoked Act caused doubts concerning the so-called "supplementary capital" which triggered the question as to whether the supplementary capital was own capital of the enterprise or loan capital.

6. Amortization:
Amortization is regulated in a similar manner in the New Act.

7. Annual financial statements:
Annual accounting statements are termed "annual financial statements" by the New Act likewise the terminology used in the International Accountancy Standards. The component parts of the annual financial statement are: balance sheet, statement of revenues and expenditures, cash flow statement, own capital statement and appendix. The so-called "small enterprises" (i.e. those having annual turnover of up to 50,000 BGL from the previous year) draw only statement of revenues and expenditures. The New Act explicitly points out that no compensation of assets and liabilities, and of revenues and expenditures, is permitted.

The New Act sets new time limits for drawing the annual financial statement of enterprises. The annual financial statement is to be drawn by 1 March of the following year; by 15 February under the Revoked Act. Enterprises administering or controlling other enterprises draw their financial statements by 30 June of the following year; by 31 May under the Revoked Act.

Financial statements of some enterprises are subject to "independent financial audit" ("examination and certification by a certified public accountant" according to the terminology of the Revoked Act). Audit of the financial statement is obligatory if the enterprise exceeds at least two of the following criteria: assets of over 500,000 BGL, net amount of revenues from activity of over 1 million BGL and average number of personnel of more than 30 people. Enterprises drawing consolidated financial statements (sometimes called "parent enterprises"), enterprises conducting their activities under special acts for which the requirement is regulated (banks, investment intermediaries, investment companies, insurers), shareholding companies, partnerships limited by shares and public companies under the Public Offering of Securities Act are subject to obligatory audit.

The requirement for obligatory independent audit of annual financial statements of state-owned and municipal-owned medical institutions is put off until 1 January 2006. Under the Revoked Act, notwithstanding the indicators, the financial statements of all shareholding companies, partnerships limited by shares, co-operative organizations, banks and insurers were subject to obligatory certification by a certified public accountant.