ADRESSING THE NEEDS OF
SMEs
Addressing the Needs of SMEs and
Other Stakeholders
The Case of SLOVENIA
Meta Duhovnik, Ph.D., SLOVENIAN INSTITUTE OF AUDITORS
04.04.2006
IFRSs in Slovenia
• On the basis of Companies Act the IFRSs
are mandatory for:
– consolidated listed companies,
– banks,
– insurance companies.
• Other companies can use IFRSs on the
voluntary basis provided they are used
uninterruptedly for at least five-year
period.
04.04.2006
Meta Duhovnik, Ph.D., Cert. Auditor, Ver. Fin. Expert
Slovenian Accounting Standards
SASs
• All the other companies use SASs.
• SASs are
– simplified version of IFRSs organised in a different
way;
– in line with the Fourth EU Company Law Directive.
• The latest renewal is valid from January 1st,
2006 (published in the Official Gazette of the
Republic of Slovenia No. 118/05).
04.04.2006
Meta Duhovnik, Ph.D., Cert. Auditor, Ver. Fin. Expert
The Process of Preparation and
Adoption
• For the draft of a specific SAS, a threemember working group is appointed by the
Slovenian Accounting Standards
Commission (SASC).
– SASC
• is a special commission of the council of experts;
• has a permanent chairperson and six other members
(at least two university professors of accounting and
auditing, two certified auditors and two verified
accountants).
04.04.2006
Meta Duhovnik, Ph.D., Cert. Auditor, Ver. Fin. Expert
STRUCTURE OF THE SLOVENIAN INSTITUTE OF AUDITORS
Senior Advisers (4)
Legal Adviser
AUDITING SECTION
Administrators (2)
BOARD
Director
COUNCIL OF EXPERTS
AUDITING COUNCIL
ACCOUNTING
SECTION
TAX ADVISORY
SECTION
BUSINESS
FINANCE
SECTION
04.04.2006
SECTION FOR
INFORMATION SYSTEMS’
AUDITING
SECTION FOR
VALUATION
Meta Duhovnik, Ph.D., Cert. Auditor, Ver. Fin. Expert
SECTION
FOR INTERNAL
AUDITING
Three-member working group
• Chairperson and two members:
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university professor of accounting and auditing,
certified auditor,
verified accountant,
external experts if necessary.
• The working group prepares the draft standard
which is presented to the SASC.
• If two thirds of the SASC approve the draft, it is
submitted to the Professional Council of the Institute.
• If two thirds of the Professional Council approve the
draft, it is submitted to the public discussion - not
shorter than three months.
04.04.2006
Meta Duhovnik, Ph.D., Cert. Auditor, Ver. Fin. Expert
Adoption
• The working group gathers comments and proposals
coming from public discussion and incorporates
them into the final proposal of the SAS which is
submitted to the SASC.
• If two thirds of the SASC approve the final proposal,
it is submitted to the Professional Council.
• If two thirds of the Professional Council approve the
final proposal, the SAS is adopted.
• After the adoption, the Institute has to acquire
consensus from the Minister for Economic Affairs
and the Minister for Finance followed by the
publishing in the Official Gazette of the Slovenia.
04.04.2006
Meta Duhovnik, Ph.D., Cert. Auditor, Ver. Fin. Expert
SAS interpretations
• Barring the public discussion, the SAS
interpretations are adopted following the same
procedure.
• The SAS interpretations actually in use:
– Interpretation 1 to SAS 2 – Emission Rights
– Interpretation 1 to SAS 18 – The Recognition of Revenues
– Interpretation 1 to SAS 19 – The Recognition of Deferred
Tax Assets and Liabilities
04.04.2006
Meta Duhovnik, Ph.D., Cert. Auditor, Ver. Fin. Expert
The organisation of SAS
• The SASs cover wider scope of activities than
IFRSs. Besides external reporting rules, they
also contain internal accounting guidelines.
• They are an original merger of the national
accounting theory and the international
requirements defined in IFRSs and EU
directives.
04.04.2006
Meta Duhovnik, Ph.D., Cert. Auditor, Ver. Fin. Expert
• SASs are prepared for companies.
• On the basis of appropriate acts, they are also
(partly) used by other entities, such as
institutes, non-profit and even state
organisations depending on their specific
requirements.
• Besides the Introduction, there are
– 30 general SASs,
– 10 specific SASs.
04.04.2006
Meta Duhovnik, Ph.D., Cert. Auditor, Ver. Fin. Expert
General Slovenian Accounting Standards
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SAS 1 – Property, Plant and Equipment
SAS 2 – Intangible Assets
SAS 3 – Financial Investments
SAS 4 – Inventories
SAS 5 – Receivables
SAS 6 – Investment Property
SAS 7 – Cash and Cash Equivalents
SAS 8 – Equity
SAS 9 – Long-term Debt
SAS 10 – Provisions and Long-term Deferred
Liabilities
04.04.2006
Meta Duhovnik, Ph.D., Cert. Auditor, Ver. Fin. Expert
General Slovenian Accounting Standards
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SAS 11 – Short-term Accrued and Deferred Items
SAS 12 – Short-term Debt
SAS 13 – Depreciation and Amortisation Costs
SAS 14 – Costs of Material and Services
SAS 15 – Costs of Labour and Employees’
Reimbursements
SAS 16 – Cost Classification by Types, Centres and
Units
SAS 17 – Expenses
SAS 18 – Revenues
SAS 19 – Types of Income (Loss) and Net Cash Flow
SAS 20 – Budgeting and Budgets
04.04.2006
Meta Duhovnik, Ph.D., Cert. Auditor, Ver. Fin. Expert
General Slovenian Accounting Standards
• SAS 21 – Bookkeeping Documents
• SAS 22 – Books of Accounts
• SAS 23 – Accounts Processing and Statements of
Accounts
• SAS 24 – Formats of Balance Sheet for External
Business Reporting
• SAS 25 – Formats of Income Statement for External
Business Reporting
• SAS 26 – Formats of Cash Flow Statement for
External Business Reporting
• SAS 27 – Formats of Statement of Changes in Equity
for External Business Reporting
04.04.2006
Meta Duhovnik, Ph.D., Cert. Auditor, Ver. Fin. Expert
General Slovenian Accounting Standards
• SAS 28 – Accounting Supervising
• SAS 29 – Accounting Analysing
• SAS 30 – Accounting Information Reporting
• Mandatory SASs in connection with external financial
reporting:
– Introduction to SAS
– SASs 1 to 15, 17 to 19, 24 to 27 and determinations from
other SASs referred to in mandatory SASs
• Other SASs are recommended rules of good
accounting practice.
04.04.2006
Meta Duhovnik, Ph.D., Cert. Auditor, Ver. Fin. Expert
Specific Slovenian Accounting Standards
• SAS 31 – Accounting Treatments in Banks
– ceased to be valid on January 1st, 2006
• SAS 32 – Accounting Treatments in Insurance
Companies
– ceased to be valid on January 1st, 2007
• SAS 33 – Accounting Treatments in Associations and
Invalid Persons’ Organisations
• SAS 34 – Accounting Treatments in Cooperatives
• SAS 35 – Accounting Treatments of Public Services
• SAS 36 – Accounting Treatments in Non-profit
Organisations – Legal Persons of Private Law
04.04.2006
Meta Duhovnik, Ph.D., Cert. Auditor, Ver. Fin. Expert
Specific Slovenian Accounting Standards
• SAS 37 – Accounting Treatments in Enterprises
Subject to Bankruptcy or Liquidation Procedures
• SAS 38 – Accounting Treatments in Mutual Funds
• SAS 39 – Accounting Treatments of Sole Practitioners
04.04.2006
Meta Duhovnik, Ph.D., Cert. Auditor, Ver. Fin. Expert
The structure of an
individual SAS
• Introductory part (A):
– the purpose and the scope of the SAS;
– its theoretic basis;
– its relation to the other SASs, IFRSs and EU
directives.
04.04.2006
Meta Duhovnik, Ph.D., Cert. Auditor, Ver. Fin. Expert
The Structure of an Individual SAS
• Part B:
– the text of the standard, divided into
subsections:
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04.04.2006
classification,
recognition and derecognition,
initial measurement,
revaluation,
consolidation,
disclosure.
Meta Duhovnik, Ph.D., Cert. Auditor, Ver. Fin. Expert
The Structure of an Individual SAS
• Part C:
– definition of key terms
• Part D:
– clarifications
• Part E:
– date of adoption and effective date
04.04.2006
Meta Duhovnik, Ph.D., Cert. Auditor, Ver. Fin. Expert
Mandatory Slovenian Accounting
Standards
Accounting treatments
• The whole logic of SASs is described in short
in the introduction:
– the recognition of economic categories in financial
statements and financial records;
– the measurement of economic categories in
financial statements and accounting records;
– the revaluation of economic categories in financial
statements and accounting records;
04.04.2006
Meta Duhovnik, Ph.D., Cert. Auditor, Ver. Fin. Expert
Mandatory Slovenian Accounting Standards
• Besides, the introduction includes (in special subheads)
some areas not discussed in separate SASs:
– the fundamental accounting assumptions and the
qualitative accounting characteristics;
– changes in accounting estimates, changes in
accounting policies and corrections of errors;
– business combinations;
– deferred taxes (covered partly by SASs 5, 9, and 19);
– joint ventures;
– consolidation of accounting data in financial
statements;
– presentation of compliance with SASs in financial
statements.
04.04.2006
Meta Duhovnik, Ph.D., Cert. Auditor, Ver. Fin. Expert
Mandatory Slovenian Accounting
Standards
The fundamental accounting assumptions and the
qualitative accounting characteristics
• Fundamental accounting assumptions:
– accrual basis:
• business events are recognised when they occur and
are recorded in the accounting records and reported in
the financial statements of the periods to which they
relate;
– going concern:
• the entity will continue in operation in the foreseeable
future.
• Principal qualitative accounting characteristics:
– understandability, relevance, reliability, comparability.
04.04.2006
Meta Duhovnik, Ph.D., Cert. Auditor, Ver. Fin. Expert
Mandatory Slovenian Accounting
Standards
Changes in accounting estimates, changes in
accounting policies and corrections of errors
• Changes in accounting estimates:
– The effect is recognised in the period of change and future
periods.
• Changes in accounting policies:
– The effect is recognised retrospectively unless it is
impracticable.
• Corrections of errors:
– The effect is recognised retrospectively unless it is
impracticable.
04.04.2006
Meta Duhovnik, Ph.D., Cert. Auditor, Ver. Fin. Expert
Mandatory Slovenian Accounting
Standards
Business Combinations
• Business combinations are accounted for by
applying the purchase method.
• The introduction determines:
• measuring the cost of a business combination,
• allocating the cost of a business combination,
• the recognition of goodwill.
• For matters not regulated by the Introduction to
SASs, the IFRS 3 (Business Combinations) is to
be applied.
04.04.2006
Meta Duhovnik, Ph.D., Cert. Auditor, Ver. Fin. Expert
Deferred taxes
Mandatory Slovenian Accounting
Standards
• The deferred taxes are accounted for by
applying the balance sheet liability method
which focuses on temporary differences.
• Deferred tax assets and liabilities are covered by
SAS 5 (Receivables), SAS 9 (Long-term Debt),
and SAS 19 (Types of Operating Results and Net
Cash Flows).
• The tax consequences of business events are
accounted for in the same way as the business
events themselves.
04.04.2006
Meta Duhovnik, Ph.D., Cert. Auditor, Ver. Fin. Expert
Joint ventures
Mandatory Slovenian Accounting
Standards
• Joint ventures:
– jointly controlled operations,
– jointly controlled assets,
– jointly controlled entities.
• Common characteristics:
– two or more venturers are bound by a contractual
arrangement;
– the contractual arrangement establishes joint control.
• For matters not regulated by the Introduction to
SASs or other SASs, the IAS 31 (Interests in Joint
Ventures) is to be applied.
04.04.2006
Meta Duhovnik, Ph.D., Cert. Auditor, Ver. Fin. Expert
Mandatory Slovenian Accounting
Standards
Consolidation of accounting data in
the financial statements
• A group:
– the parent company,
– the subsidiaries, controlled by the parent on the basis of the share in
equity,
– the subsidiaries, controlled by the parent on the basis of prevailing
influence or due to other reasons.
• A parent which is itself a subsidiary with a parent in Slovenia
is exempted from presenting consolidated financial statements
when it obtains the approval of the owners of a minority
interest.
• An investment in an associate (more than 20 %) is accounted
for by applying the equity method.
04.04.2006
Meta Duhovnik, Ph.D., Cert. Auditor, Ver. Fin. Expert
Consolidation of accounting data in
the financial statements
Mandatory Slovenian Accounting
Standards
(continuation)
• The specific features of evaluating individual economic
categories within the consolidated financial statements are
discussed in a separate section of each SAS dealing with a
specific economic category.
• The SASs dealing with the formats of the financial
statements include a separate section explaining the
difference between the format of the relevant separate
financial statement and the format of the consolidated
financial statement.
04.04.2006
Meta Duhovnik, Ph.D., Cert. Auditor, Ver. Fin. Expert
Mandatory Slovenian Accounting
Standards
Presentation of compliance
with SASs in financial
statements
• Financial statements are not prepared in accordance with
SASs if they are not taking into account all relevant SASs and
interpretations.
04.04.2006
Meta Duhovnik, Ph.D., Cert. Auditor, Ver. Fin. Expert
Mandatory Slovenian Accounting
Standards
Accounting solutions
• All important accounting solutions from
IFRSs are incorporated into the mandatory
SASs.
• There are a few exceptions which are
supposed to be (according to determination in
specific SASs) regulated by certain parts of
IFRSs.
04.04.2006
Meta Duhovnik, Ph.D., Cert. Auditor, Ver. Fin. Expert
Mandatory Slovenian Accounting
Standards
References to IFRSs
• Introduction to SASs refers to:
– IFRS 3 for the accounting issues of
business combinations not covered by
the introduction;
– IAS 31 for matters regarding joint
ventures and not regulated by the
introduction.
04.04.2006
Meta Duhovnik, Ph.D., Cert. Auditor, Ver. Fin. Expert
Mandatory Slovenian Accounting
Standards
References to IFRSs (continuation)
• SAS 3 (Financial Investments) refers to IAS 39.
89-102 regarding hedge accounting.
• SAS 6 (Investment Property) refers to IFRS 5
regarding conditions to be met for the asset held
for sale.
• SAS 10 (Provisions and Long-term Deferred
Liabilities) refers to IAS 19 and IAS 26
regarding provisions connected with employee
benefits.
04.04.2006
Meta Duhovnik, Ph.D., Cert. Auditor, Ver. Fin. Expert
Mandatory Slovenian Accounting
Standards
References to IFRSs (continuation)
• SAS 15 (Costs of Labour and Employees’
Reimbursements) refers to IAS 19 and IAS
26 regarding retirement benefit plans.
04.04.2006
Meta Duhovnik, Ph.D., Cert. Auditor, Ver. Fin. Expert
Mandatory Slovenian Accounting
Standards
The importance of cash flow
statements for SMEs
• SMEs in the countries incorporating IFRSs in the
national accounting standards use the accounting
solutions developed in the environment with the
efficient market mechanism.
• They need more thorough evaluation of the
assumptions used under the national financial
reporting framework (based on IFRSs) in the
environment where the market mechanism is not
developed enough to support the fair values of the
financial statements’ items.
04.04.2006
Meta Duhovnik, Ph.D., Cert. Auditor, Ver. Fin. Expert
Mandatory Slovenian Accounting
Standards
The importance of cash flow
statements for SMEs (continuation)
• As the balance sheet and income statement depend
a lot on the identified financial reporting
framework, the cash flow statement should be
prepared so as to show the real liquidity position of
the firm.
• For this reason, SAS 26 (Formats of Cash Flow
Statement for External Business Reporting) stresses
the importance of the direct cash flow statement
based on the financial records of the entity.
04.04.2006
Meta Duhovnik, Ph.D., Cert. Auditor, Ver. Fin. Expert
Mandatory Slovenian Accounting
Standards
The importance of cash flow
statement for SMEs (continuation)
• Cash flows should not be tied up to already
prepared balance sheet and income statement, as
(according to IAS 1.25) cash flow statement is the
only financial statement not prepared using the
accrual basis of accounting.
• If an entity wants to avoid assumptions used to
prepare income statement and balance sheet, cash
flows should be traced and not established on the
basis of already prepared financial statements.
04.04.2006
Meta Duhovnik, Ph.D., Cert. Auditor, Ver. Fin. Expert
Conclusion
SASs proved themselves to be a very good
mechanism to meet the needs of
Slovenian SMEs.
The previous SASs (2001) have been
translated to English. The last version
(2006) is in the process of translation.
04.04.2006
Meta Duhovnik, Ph.D., Cert. Auditor, Ver. Fin. Expert
SLOVENSKI INŠTITUT ZA
REVIZIJO
SLOVENIAN INSTITUTE OF
AUDITORS
Tel.: +386 568 55 54
www.si-revizija.si
meta.duhovnik@si-revizija.si
04.04.2006
Meta Duhovnik, Ph.D., Cert. Auditor, Ver. Fin. Expert