Experience of the Republic of Moldova in modernization of accounting regulatory regime, including development of new National Accounting Standards

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1 Experience of the Republic of Moldova in modernization of accounting regulatory regime, including development of new National Accounting Standards Natalia Tirulnikova, PhD, Associate Professor Academy of Economic Studies of Moldova, Member of Advisory Council at the Ministry of Finance of the RM Chisinau, April 3,

2 Moldovan accounting regulatory regime is undergoing significant changes due to development of implementation of a new set of accounting regulatory acts

3 Need for modernization of accounting regulatory framework Regulations that are being replaced were enacted in 1998 and have not undergone serious changes since then. New IFRS have been developed during this period, and many current regulations have been revised. Moldova signed agreements on harmonization of its regulation with EU legislation.

4 Legal Framework development of the new set of accounting regulations: Revision of NAS is envisioned in the Law on Accounting, Article 47, part 3; procedure, structure, timeframe for implementation is set forth in the Plan for Accounting Audit development in Corporate Sector for , adopted by the RM Government Decree in 2008.

5 Content of the package of the new accounting regulations 16 National Accounting Standards 2 Methodological guideline General Chart of Accounts Methodological recommendations on transfer to the new NAS

6 Development and implementation time New accounting regulations: Developed during ; Adopted in August 2013; Officially published in October 2013; Recommended for application by the entities starting from January 1, 2014; Binding for application starting from January 1, 2015.

7 Composition of the new NAS (1) 9 NASs replacing previous ones 2 NASs that have no previous analogs Componenta şcolii 16 NASs 5 NASs merging similar previous standards 7

8 Composition of the new NAS (2) NAS Stock NAS Lease agreements NAS Income NASs replacing previous standards NAS Inventories NAS Lease accounting NAS Income NAS Construction agreements NAS «Foreign currency exchange and sum differences» and etc. NAS Construction contracts NAS Effects of foreign currency exchange rates change

9 Composition of the new NASs (3) NASs merging previously existing standards NAS «Accounts presentation» NAS «Accounts presentation» NAS «Accounting policies, changes in accounting valuations, errors and subsequent events» NAS «Long-term intangible and tangible assets» NAS «Cash Flow Statement» NAS «Specific accounting features at small-scale enterprises» NAS «Accounting policy» NAS «Net profit within the accounting period, significant errors and modification of the accounting policy» NAS «Events after the date of financial statements compilation» NAS «Accounting of intangibles» NAS «Accounting of long-term tangible assets» NAS «Accounting of R&D costs»

10 Composition of the new NASs(4) NASs that have no previous analogues subject to replacement: NAS «Investment properties» NAS «Asset impairment»

11 Main characteristics of the new NAS (1) New NAS bring national accounting rules closer to the requirements of the EU Directive and IFRS, however They take into consideration provisions of the current national legislation, current level of entities development and expertise level of the specialists/

12 Main characteristics of the new NAS(2) Degree of the national standards compliance with international accounting rules: Investment property very high Impairment of assets there are serious discrepancies

13 Main characteristics of the new NAS(3) Compliance of the national standards of investment property accounting with international approaches Similarities in approaches: Content of the notions used Recognition of the items and their initial evaluation Following costs Evaluation after recognition Information disclosure Differences in approaches : Accounting of gain on disposal of an item Assets reclassification rules

14 Main characteristics of the new NAS(4) Compliance of the national standards of assets impairment accounting with international approaches Similarities with regard to Scope of application Content of the majority of used notions Features of depreciation Determination of fair value Recognition of impairment losses and their restoration Information disclosure Differences with regard to: Absence of notions, rules for determination and application of - replacement value - value in use

15 Main characteristics of the new NAS(5) Compliance of the national rules of fixed assets accounting with the international approaches Similarities with regard to: Definition of fixed assets accountable items Inclusion of expected cost of disposal into the initial value amortization period Future costs capitalization rules and etc. Differences with regard to: Accounting of exchange operations Accounting of gain on disposal Term of recognition of significant disposal costs and etc.

16 Main characteristics of the new NAS(6) New NAS do not contain alternative methods of items recognition and evaluation. For instance, further evaluation of long-term tangible and intangible assets shall be performed on the basis of cost of acquisition (cost of price) minus amortization and depreciation. However, in conformity with the accounting policy the entity can use revalued price in line with IAS 38 and IAS 16.

17 Main characteristics of the new NAS(7) In some cases new NAS contain direct references to IFRS. For instance, NAS «Borrowing costs» prescribes to recognize borrowing costs on the basis of contractual conditions, i.e., with the help of nominal interest rate. But in accordance with accounting policies an entity can also use effective interest rate method in line with IAS 23. Note. In accordance with the Law on Accounting if NAS and other regulations do not contain specific requirements envisioned in IFRS, the entity is encouraged to apply IFRS requirements.

18 Main characteristics of the new NAS(8) New NAS are adapted to financial statements elements, that is why unlike IFRS they contain the rule for accounting receivables, equity capital, liabilities, expenses. At the same time The new NAS do not contain accounting rules for such items and operations that are not typical for the majority of entities, e.g., financial instruments, pension schemes, consolidated statements and etc..

19 Main characteristics of the new NAS(9) Updated terminology Accounting record rules comments Availability of concise wordings examples

20 Content of financial statements Full financial statements: In line with the criteria set forth in the Law on Accounting, an entity can prepare Balance sheet Profit and Loss Statement Net worth changes statement Cash flow statement Notes to the accounts -annexes - explanatory note Simplified financial statements: Balance sheet Profit and Loss Statement Notes

21 Financial statements format (1) Financial statements are prepared on the basis of the forms adopted by the RM Ministry of Finance as part of «Financial statements presentation»: Balance sheet Is presented in horizontal format Profit and Loss Statement Is prepared on the basis of expenditures functional classification составляется на основе, and the annex contains a а note on the basis of expenditures classification by nature

22 Format of financial statements (2) Main specific features of the balance sheet Subscribed capital stock, as well as withdrawn own shares or partnership interest are presented not as part of assets, but as part of equity capital by deducting from the statutory capital Organization costs are not reflected as part of assets, but are included into current expenditures Intangible assets generated by the entity are not separated from intangible assets Assessed reserves are reflected not in a separate section of the balance sheet, but as part of long-term and current liabilities There are differences in the procedure for some balance sheet items presentation and in the degree of balance sheet items aggregation

23 Формат финансовых отчетов (3) Main specific features of Profit and Loss Statement Operating (regular, current) activity results are presented in a separate line Financial results from other types of activity different from operation activity are presented in minimized outline as the difference between obtained profit and incurred losses Interests payable and other borrowing costs are not presented as a separate item Profit from affiliated parties and borrowing costs due to affiliated parties are not presented as a separate item Other taxes, except for profit tax are also not presented as a separate item

24 Notes to financial statements Mandatory format Free format General information Summary of information on profit and losses classified by nature Summary of information on relations with non-residents Information required by NAS Explanatory note: - information on financial statements compliance with NAS - disclosure of accounting policy - analysis of economic and financial activity of the entity - other information

25 Methodological recommendations on transfer to the new NAS New accounting regulations are applied prospectively, starting from the date they take force but An entity can voluntarily apply accounting policy retrospectively with disclosure of the respective information in the notes to financial statements.

26 Transition stages to the new NAS Development of accounting policies Development of working chart of accounts, if necessary Determination of differences as a result of transfer to new NAS Carry forward of balances from the accounts that were used prior to transition to the new NAS to the new accounts

27 Differences emerging as a result of transfer to new NAS Differences in recognition of accounting elements: Ceasing of recognition of certain accounting elements (for instance, organizational costs, exchange rate differences for foreign exchange contributions to the statutory capital) Reclassification of some accounting elements (e.g., investment property, long-term biological assets) Differences in evaluation of accounting elements: Depreciation of long-term assets; Borrowing costs referred to qualified assets recognized as current expenditures prior to the date of transfer put to account 335 «Results of transfer to new accounting regulations»

28 Tax effects of transition to the new NAS Differences as a result of the transition to the new NAS are not recognized for tax purposes Non-sanctioning for accounting rules violation within 2 years following to the transition to the new NAS за Tax regime of certain business transactions after the transition to the new NAS

29 New NAS: response and expectations Placement of draft NAS on the official websites Discussion of NAS On the forums, meetings, and etc. Printed and electronic publications on new NAS Training courses for practitioners Questions, responds, wishes, comments and proposals Amendments made to the NAS drafts NAS adopted Transition period is defined Ministry of Finance provides methodological assistance

30 Thank you for attention! Questions?

Financial Statements The Group and the Bank 31 December 2005 Prepared in accordance with International Financial Reporting Standards

Financial Statements The Group and the Bank Prepared in accordance with International Financial Reporting Standards Contents General information Independent Auditor s Report Income statement 1 Balance