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New Instruction on the Preparation, Audit and Publication of Financial Statements of Commercial Entities in Kosovo

New Instruction on the Preparation

The Kosovo Financial Reporting Council (KFRC) has issued Instruction No. 02/2016 to clarify the requirements and obligations on the preparation, audit and publication of financial statements for each category of commercial entities as defined by Law No. 04/L-014 on Accounting, Financial Reporting and Audit. The Instruction summarizes the requirements of the Law on Accounting, Financial Reporting and Audit and provides further guidance on specific areas.

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The Instruction is not applicable to the Central Bank of Kosovo (CBK) and to all financial institutions which are licensed by the CBK.

Classification of enterprises 

For the purpose of financial reporting, enterprises are classified into the following categories if they fulfill at least two out of the three criteria listed below:

Large enterprises

  • Net annual turnover – over EUR 4 million 
  • Total assets – over EUR 2 million 
  • Average number of employees during the year – over 50 

Medium enterprises

  • Net annual turnover – from EUR 2 million up to EUR 4 million 
  • Total assets – from EUR 1 million up to EUR 2 million 
  • Average number of employees during the year – from 10 up to 50 

Small enterprises

  • Net annual turnover – from EUR 50,000 up to EUR 2 million 
  • Total assets – from EUR 25,000 up to EUR 1 million 
  • Average number of employees during the year – up to 10 

Micro enterprises

  • Net annual turnover – up to EUR 50,000 
  • Total assets – up to EUR 25,000 
  • Average number of employees during the year – up to 10 

Net turnover definition 

The Instruction sets out a detailed definition of net turnover for the purpose of classification of entities: net turnover represents the amount generated from the sale of goods and services after deducting the discounts and returns, not including VAT and any other taxes directly related to the turnover.

Change in classification  

The Instruction clarifies the approach to changing the classification from one category to another for the purpose of accounting, financial reporting and audit (i.e. large enterprise, small and medium enterprise or micro enterprise). An entity can change its classification only after 2 years from the initial categorization, even if the entity fulfills the conditions to be classified in another category in the second year following the initial classification. 

Individual and consolidated financial statements  

A parent company operating in Kosovo that is part of a group of companies is obliged to prepare consolidated financial statements, whereas its controlled entity operating in Kosovo is obliged to prepare individual financial statements. If both, the parent and the controlled entity, operate in Kosovo, the parent is obliged to prepare consolidated financial statements and the controlled entity is obliged to prepare individual financial statements.

Application of IFRS  

Large enterprises should apply IFRS for accounting and financial reporting purposes. 

Application of IFRS for SMEs  

The Instruction clarifies that all entities that fulfill the criteria of small and medium enterprises shall apply IFRS for SMEs, despite their legal form. The application of IFRS for SMEs is mandatory starting from 1 January 2015.

All small and medium enterprises shall prepare their financial statements based on Administrative Instruction No. 02/2014 on the Implementation of IFRS for SMEs and Administrative Instruction No. 04/2015 on the Structure and Content of the Annual Financial Statements for SMEs . 

Voluntary application of IFRS  

The Instruction clarifies that entities which are not required to apply IFRS (e.g. small and medium enterprises) can voluntarily select the application of IFRS for accounting and financial reporting purposes by giving prior written notice to the KFRC. 

Financial reporting for micro enterprises  

The financial reporting of micro enterprises will be regulated through a separate administrative instruction issued by the KFRC. 

Audit of financial statements 

Large enterprises are obliged to have their financial statements (either individual or consolidated financial statements) audited by audit firms which are licensed by the KFRC.

Medium enterprises are obliged to have their financial statements (either individual or consolidated financial statements) audited by audit firms or statutory auditors licensed by the KFRC.

Small enterprises are not obliged to have their financial statements audited . 

Submission of financial statements 

Large enterprises must submit their audited financial statements to the KFRC. For large enterprises that prepare individual financial statements, the deadline for submission is 30 April of the year following the year of reporting. For large enterprises that prepare consolidated financial statements, the deadline for submission is 30 June of the year following the year of reporting.

Small and medium enterprises are not obliged to submit their financial statements to the KFRC.

Penalties for non-compliance 

The following penalties are applicable in case of non-compliance with the provisions of the Law and respective Instructions.

  1. The penalty for non-submission of audited financial statements for large enterprises ranges from EUR 5,000 to EUR 25,000. The respective penalty for the person responsible for managing the entity ranges from EUR 200 to EUR 1,000. 
  2. The penalty for non-submission within the deadline of the audited financial statements for large enterprises ranges from EUR 5,000 to EUR 10,000. The respective penalty for the person responsible for managing the entity ranges from EUR 200 to EUR 1,000. 
  3. The penalty for non-compliance with IFRS ranges from EUR 3,000 to EUR 5,000. 
  4. The penalty for non-compliance with IFRS for SMEs ranges from EUR 3,000 to EUR 5,000. 

Entry into force  

The Instruction entered into force on 6 September 2016.

© 2017 KPMG Albania Shpk, an Albanian limited liability company and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved.

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