2002年-世界发展银行全球_Lithuania___Accounting_and_Auditing_14页_510kb

Summary of the Report on the Observance of Standards and Codes (ROSC) in Lithuania

Executive Summary

This report evaluates the current state of accounting and auditing standards and practices in Lithuania, focusing on the alignment with International Accounting Standards (IAS) and International Standards on Auditing (ISA). Financial reporting in Lithuania is governed by laws and regulations from 1992 and 1993, with new laws enacted in 2001 and effective from 2002, significantly increasing compliance with EU Directives. A new national standard-setting body is expected to be established to issue National Business Accounting Standards aligned with EU and IAS requirements.

While the quality of many IAS-compliant financial statements is good, there are concerns about conflicts between the requirements of the Bank of Lithuania (BOL) and IAS, particularly in the case of banks. The BOL prohibits the application of IAS 39, which may result in non-compliance with IAS for bank financial statements. There is also a lack of enforcement and monitoring of compliance with IAS and national standards, and the audit quality varies, with some audits affected by management attitudes and misconceptions about the audit process.

I. Introduction

• Lithuania became independent in 1991 and initiated extensive privatization and legal reforms to attract investors.
• The National Stock Exchange of Lithuania (NSEL) and the Lithuanian Securities Commission were established in 1992.
• The securities market remains underdeveloped, with only 49 listed companies and sporadic trading for 800 others.
• The report assesses the institutional framework, accounting and auditing standards, and compliance practices in Lithuania.

II. Institutional Framework

A.1 Current Statutory Framework - Financial Reporting

• Financial reporting is governed by the Law on the Principles of Accounting, MOF decrees, the Rules on Periodic Disclosure, and BOL regulations.
• Listed companies must comply with IAS.
• Banks must comply with IAS unless it conflicts with BOL regulations.
• There is no requirement for consolidated financial statements, which is a deviation from EU Directives.
• The Law on the Register of Enterprises requires all companies to file financial statements, but public access is not yet available.

A.2 New Statutory Framework - Financial Reporting (2002)

• The new laws include the Accounting Law, Law on Financial Statements, and Law on Consolidated Financial Statements.
• All parent entities (except certain exceptions) are required to prepare and publish consolidated financial statements.
• The new standard-setting body will replace the Institute of Audit, Accounting and Asset Evaluation.
• Banks and insurance companies are still required to follow BOL and other regulations, with IAS compliance limited where there are conflicts.

A.3 Statutory Framework - Audit of Financial Statements

• The Audit Law mandates that public limited companies and limited liability companies (except small ones) must be audited.
• The Chamber of Auditors is responsible for setting national auditing standards based on ISA.
• Only 11 ISA-based standards are currently approved, with 17 more expected soon.
• Auditors must be licensed and registered, and the Chamber of Auditors has the authority to suspend or cancel licenses.
• There is no quality assurance mechanism for auditors or audit firms, and the MOF has not yet appointed an institution for this purpose.

III. Accounting Standards as Designed and as Practiced

• The review included financial statements of seven listed companies, six banks, and one insurance company.

• One company did not claim to comply with IAS, and another had incomplete financial statements.

• Banks generally prepare IAS-compliant financial statements, but certain practices may lead to material non-compliance:

  • Loan loss provisions determined under BOL regulations instead of IAS.
  • Non-disclosure of fair values or misrepresentation of cost-based values as fair values.
  • Inclusion of assets managed by others as if they were the bank's own.
  • Inadequate disclosures in consolidated financial statements, especially regarding subsidiaries with less than 50% voting rights and restructuring provisions.

• For other companies, the quality of IAS financial statements is good, but there are areas of potential non-compliance:

  • Delayed application of new or revised IAS.
  • Failure to apply split accounting for compound financial instruments as required by IAS 32.

• Practical challenges include:

  • Statutory revaluation of property, plant, and equipment conflicting with IAS 16/IAS 29.
  • Application of IAS 14 Segment Reporting to companies with multiple geographical segments.
  • Lack of reliable fair value data.
  • Misunderstandings about the role of audits.
  • Reliance on management representations for related party disclosures.

IV. Auditing Standards as Designed and as Practiced

• Audit firms generally strive to comply with ISA, but there are significant variations in audit quality.
• Management attitudes and misconceptions can affect audit quality.
• Auditors often have to prepare IAS financial statements from Lithuanian statutory data, which is not seen as a conflict to independence.
• Issues identified include:
  • Inadequate planning by smaller audit firms.
  • Difficulty in obtaining audit evidence, especially for related party transactions and fair value assessments.
  • Lack of reliable public information about companies.
  • Reliance on bank-prepared circularizations for depositor identities.
  • No reliable statistics for analytical reviews.
  • Different approaches to reviewing previous auditors' working papers and granting access to them.
  • Reluctance of companies to pay for expert services, affecting the reliability of certain liability estimates.

V. Policy Recommendations

• Strengthen the enforcement and monitoring of IAS and national standards compliance.
• Implement the powers of the Ministry of Finance over auditors to ensure conformity with EU Directives.
• Establish a reliable quality assurance mechanism for auditors and audit firms.
• Improve access to public information about companies to aid auditors in identifying related party transactions.
• Increase the number of continuing professional education hours and ensure compliance.
• Address the standards gap in banking and insurance sectors by revising BOL regulations to align with IAS.