In the paper is used two part structure.

The first part describes creation of the reconstructed accounting policy and the respective development stages. Problems linked with development of accounting regulations and standards are disclosed. Development of regulations and standards was assessed in historical context and the respective classification of accounting policy periods was worked out. Implementation of accounting policy is impossible without well-educated and well- trained professional accountants. Therefore in second part was analysed and assessed education and training system of professional accountants in the country. Final part of the paper contains conclusions and proposals (based on the research done) for amending the accounting policy including accountant education and certification . Introduction On the world map, Latvia is to be found on the east coast of the Baltic Sea at the crossroads of northern and eastern Europe. Latvia, a parliamentary republic is bordered by Estonia to the north, Russia and Belarus to the east, Lithuania to the south and has a maritime border with Sweden to the west. Over the last five years, Latvia experienced very rapid economic growth and development across all sectors. Today, as many other countries, Latvia has been affected by the global economic crisis and faces a number of difficult economic challenges. The Latvian government has expressed its clear determination to meet these and has set out a programme of measures to do so. One of the key objectives is the attraction of foreign direct investment (FDI), recognised to be an important tool for successful economic recovery. Name of country Country code Size of Area Population (at the beginning of 2009) Capital City Ethnic Composition (beginning of 2008) Language Political system Head of State Head of Government Republic of Latvia LV 64 589 km2 2,229 million Riga 59.4% Latvian, 27.6% Russian, 3.6% Belarusian, 2.5% Ukrainian, 2.3% Polish, 1.3% Lithuanian, 0.4% Jewish, 2.9% other nationalities Latvian (official); Russian, English and German are also widely spoken Republic, parliamentary democracy President Mr Andris Brzi (elected in 2011 by Parliament for a four-year term) Prime Minister Mr Valdis Dombrovskis Unity (Vienotba) - 33 seats, Association of Political Parties Harmony Centre (Politisko partiju apvienba Saskaas Centrs) - 29 seats, Greens and Farmers Union (Zao un Zemnieku savienba) 22 seats, National Association All For Latvia! - For Fatherland and Freedom/LNNK (Nacionl apvienba Visu Latvijai! Tvzemei un Brvbai/LNNK) - 8seats , Association of Parties For Good Latvia (Partiju apvienba Par Labu Latviju) - 8 seats

Political Parties

Membership in International Organizations EU Membership

Member of NATO since 2004 Member of WTO since 1998 Since 2004

Latvia started moving towards a market economy after it regained its independence in 1991. A wide range of reforms were implemented, including steps towards setting up a national system for corporate financial reporting. The first World Bank report on the observance of standards and codes in accounting and auditing (A&A ROSC) in Latvia was published in March 2005 and made a range of recommendations for improving the Latvian framework for accounting and auditing and its application in practice. Latvia has been a member of the European Union since May 2004 and its legal and institutional framework for financial reporting is aligned with the EU acquis. However, there are some areas where progress in implementing the provisions of the acquis is required. In particular, there is a need to improve the operation of the system of public oversight and to strengthen the capacity of the auditing profession to implement the provisions of the Statutory Audit Directive. The projects organized under Latvia's FRTAP program are designed to address these issues. Latvia is part of the following programs at the CFRR: Financial Reporting Technical Assistance Program (FRTAP) The Financial Reporting Technical Assistance Program for the new EU member states supports countries in the field of financial reporting. It aims to assist in the implementation of sustainable regulatory and institutional frameworks and in furthering the correct implementation of the acquis communautaire in the area of financial reporting. Funds for this program are provided from the Swiss State Secretariat for Economic Affairs under the so-called Swiss Enlargement Contribution. The Swiss Enlargement Contribution was approved by the Swiss electorate in a referendum on 26 November 2006, and made available funds to help reduce economic and social disparities within the enlarged European Union. With a total of CHF 1 billion significant assistance is given to the group of ten countries that joined the EU on 1 May 2004 including Estonia, Lithuania, Latvia,Poland, Czech Republic, Slovakia, Hungary, Slovenia, Malta and Cyprus.
Accounting and Auditing Reports on the Observance of Standards and Codes (A&A ROSC) As part of the Accounting and Auditing Reports on the Observance of Standards and Codes (A&A ROSC) initiative, the World Bank has established a program to assist its member countries in implementing international accounting and auditing standards for strengthening the financial reporting regime. State aid programmes for 20072013

To ensure Latvias approach towards European Union average level of welfare, in 2007 2013 programming period the support will be provided to the development of science, innovation and business by encouraging research, development and technology transfer, promoting practical research, encouraging the formation of new enterprises and by facilitating availability of financial resources. To encourage development of innovation in 2007 2013 programming period the assistance will be provided to the formation of competence centers and integrated technology transfer systems, finance of new high and medium technology companies in technology incubators, attraction of highly-qualified workforce, acquisition of equipment and instruments to implement manufacturing of innovative products as well as to the investment in enterprises who during production process generate high value added. To promote development of entrepreneurship in 2007 2013 planning period ERDF will provide support for capture of external markets, establishment of clusters and business incubators, business development consultations, investment in small and medium-sized companies in specially supported territories and development of industrial territories.

After evaluating the implementation of European Union structural funds in 2004 2006 programming period, responsible authorities have planned to develop more effective and transparent implementation system of state aid programmes that would provide more opportunities for attracting investment. During 2007 2013 programming period Investment and Development agency of Latvia will offer wide range of consultation opportunities for entrepreneurs to help them to choose the most appropriate state aid programme as well as to prepare good quality project application. In accordance with the management draft law of the European Union structural funds and the Cohesion fund, the whole project application evaluation procedure will not be divided in administrative and quality specific evaluation procedures but there will be one united evaluation procedure. Consequently project applications will be evaluated based on their total quality and contribution to development of entrepreneurship and innovation. Mainly the evaluation of project applications will be held in form of open tender. After the announcement of open tender and submission of project applications they will be compared against each other. After the submission deadline of project applications final decision upon approval or rejection of project application will be made during tree to four months. ASSESSMENT OF ACCOUNTING POLICY TRENDS IN LATVIA When Latvia regained independence in 1991 and the economic system was changed, transition to market economy brought about necessity to alter financial accounting policy in Latvia and adjust it to the new market relations. With reorientation from planned to market economy fundamental changes in accounting policy took place and effectively accounting system of year 1939 was restored and amended making use of practice of European Union (EU) member states. Objective of this study was to analyse and systematise development trends of the restored financial accounting policy in Republic of Latvia (LR) and the present time problems in order to prepare propositions for further amendments of accounting policy in the country. To reach the said objective one has to cope with the following tasks: to examine and assess the process of making regulatory legal acts and standards in the field of financial accounting in Latvia; to classify periods of development of financial accounting; to analyse and assess the system of accountant education (training) and certification; to disclose problems in implementing accounting policy and to generate suggestions for amending the policy. 1. Classification of LR accounting policy periods and development stages Before independence was restored Latvia was one of republics within USSR, where accounting policy was determined by the panned economy. The integrated accounting system of these times was unsuitable under conditions of market economy; therefore it was necessary to develop new appropriate accounting policy. The new accounting policy should support successful development of economy both in private and public sectors i.e. to provide financial information concerning results of entrepreneurial activity required for enterprise management and at the same time to set up information base necessary for implementing the macroeconomic functions and establishing international business relations.

Formation of accounting policy was linked with several key events, which to some extent broke up the policy development in several stages and thus mapped the policy development tendencies. Our research resulted into classification as follows: 1 stage. Making the basis for LR accounting policy (1992 1998). 2 stage. Amending the LR accounting policy (1999 2002). 3 stage. Further development of LR accounting policy and harmonisation with EU requirements (since 2002). To assess the present accounting policy trends it is advisable to examine in more detail the essence of each stage and its impact on the entrepreneurial activity. 1 stage Making the basis for LR accounting policy(1992 1998) The accounting system in Latvia in the 90th of the 20 century was to be started actually from scratch. The primary task of this time period was to determine the groups of economic agents and to establish relevant regulatory institutions, which govern and coordinate the accounting procedure. Under the new system separate accounting regulations were provided for public organizations credit organisations and commercial enterprises. For each group was developed separate set of regulations, however the common conditions had to be formulated in the law On Accounting. As far as from the previous time period in area of public organizations and credit organisations there were some groundwork available, it was modified to comply with the new conditions; however working with commercial enterprises was a novelty. Therefore it was particularly important to get along with this area and in result law On Enterprise Yearly Reports was adopted. First important event in the area of accounting in history of the Latvian state after regaining independence was the LR Supreme Council decision of 7 April 1992 On Preparation Legal Acts for Accounting in Latvian Republic, which signified approval of two most important legal acts in the area of accounting On Accounting (14.11.1992) and On Annual Accounts of Enterprise (14.11.1992). These laws were developed in cooperation with chartered auditor company Schobel & Marholt and basic principles of EU directives were applied [Millere I., 2005]. These legal acts contained references to legal entities, to which these laws were binding, the primary conditions concerning preparation of financial information, contents of yearly reports, rules for assessing assets and liabilities and other important information. The first edition of On accounting provided that LR government adopts decisions on particularly important accounting issues, determines competence of governmental bodies in the field of methodological management of accounting as well as establishes Board of Accounting Methodology. This Board was established by LR Cabinet of Ministers Regulation No 34 of 21.12.1993. The primary tasks of the Board were to take charge of drafting legal acts and regulations in the field of accounting; weigh up the draft proposals for laws and regulations in context of accounting requirements and practicability, to put forward propositions for accounting staff training; to issue licenses for activity of chartered auditors; to assess accounting software and data processing systems and to issue the respective recommendations concerning applicability in Republic of Latvia. The overall methodological management was provided by Ministry of Finance to which was subordinated also the Board of Accounting Methodology. In retrospect one may observe, that in the roughly four years of Board of Accounting Methodology work (up to 04.02.1997) no major changes were introduced in the field of accounting policy because the very Cabinet of Ministers regulation No 34 set up critical obstacles to it it did not give the Board right to request the draft laws concerning accounting from the governmental bodies in order to assess and approve them.

However, in this time period the prerequisites were elaborated stating that explicit and truthful information is to be included in financial reports because it was the period of transition to market economy and fast privatisation process. Thus in the second half of 1995 was prepared and approved LR Cabinet of Ministers Regulation No 339 Rules on Enterprise Accounting Procedure and Organisation, which elucidated requirements laid down in laws On Accounting and On Annual Accounts of Enterprise and included very wide scope of issues however not always provided for clear cut answers to the unresolved problems in accountants work. Significant turning point in accounting policy development in Latvia was the amendments made in the law On Accounting, which provided for essential changes in the accounting procedure and started standardisation of Latvian accounting. The article 15 stated that LR accounting draft standards (harmonised with International Accounting Standards (IAS) and the respective EU directives on accounting issues) shall be worked out by Chartered Auditors Association of Latvia and the latter is entitled the right to put forward propositions concerning implementation. At the same time establishing of a new governmental body Consulting Board of Accounting Standards of Republic of Latvia was provided, and this decision actually terminated activities of Board of Accounting Methodology. Concept of Latvian accounting standards (LAS) was integrated in amendments of the law On Annual Accounts of Enterprise of 6 November 1996. These amendments defined new chapter of yearly report cash flow statement, and Article 4 laid down that financial statement forms should comply with requirements of the two laws on accounting, LR accounting standards and other regulatory acts. Such a steep change was based on idea to separate legislation from making accounting standards, and in result the accounting policy should have become more flexible in respect to dynamic changes of economy, which is difficult to achieve by means of legal norms [D. Davia, 1998]. One could observe that (in comparison with Board of Accounting Methodology) the influence of Consulting Board of Accounting Standards was considerably narrowed because its task was only to assess and offer recommendations in respect to draft laws concerning accounting and draft Latvian standards made by Chartered Auditor Association [V. Paupa, A. Prauli, 2005]. As far as (in the first years after LR independence was regained) the primary attention in economic area was paid to creating tax system in compliance with conditions of market economy, to which the accounting rules were subordinated, efforts to start with accounting standardisation can be considered appropriate. The first two draft LAS No 7 Cash Flow Statements and No1 Mapping of the Accounting Policy in Financial Reports were made at the end of 1997, however no procedure was provided for their practical application. Therefore in 1998 representatives of interested organisations (Chartered Auditor Association of Latvia, Ministry of Finance, Accountant Association of Latvia, Exchequer, Bank of Latvia, Commission of Securities Market, Riga Stock Exchange, State Revenue Service of Republic of Latvia) worked out propositions for reorganisation of operation of the LR Consulting Board for Accounting Standards and for approving standards in such a way that Cabinet of Ministers regulation was bypassed [I. dre, 1998]. Implementation of these propositions in 1999 started new stage in management of Latvian accounting methodology. When comparing the activities of Board of Accounting Methodology and Consulting Board for Accounting Standards one can conclude that amendments adopted by Cabinet of Ministers were to cardinally alter the methodological administration of accounting by separating the consulting and standardisation functions. However the expected improvement was not achieved. 2 stage Amending the LR accounting policy (1999 2002) Many reforms were initiated in the period 1999 through 2002, and the Administrative and Regulatory Cost Survey carried out in Latvia in late-2001 and again in late-2003 and 2005 showed many signs of continuing improvement:

 a steady reduction in the share of businesses that regard regulations as an obstacle to their operation and growth improved access to information and updates regarding tax issues reduced frequency and duration of inspections declines in the incidence and severity of fines imposed on businesses There have been reductions in the time and money costs of administrative procedures, such as time spent registering a company and registering title transfer in Land Books. Amendment of 1999 of Article 15, law On accounting stated that Cabinet of Ministers should issue regulation concerning mandatory LR accounting standards while standards preparation, approval and registration should be regulated by the Law of Standardisation. It means that a new body Ministry of Economy (as an institution coordinating issues of Standardisation Law) was introduced in the LR accounting management system. The split responsibility (between Ministries of Finance and Economy) in area of LR accounting standards was criticised in the Progress Report 2000 of European Commission [J. Lasis, I. Klis, S. Vilcne, 2002]. An essential innovation was the Latvian Accounting Standardisation Technical Committee established in 14 May 1999, which acted in area of preparing and approving accounting standards for Latvia in compliance with international standards [D. Davia, 2000]. Four standards were approved in the years of Committees activity Preparation of financial reports, Inventories, Cash Flow Statements, Profit or Loss in Report Period, Fundamental Faults and Change of Accounting Policy, however it should be added, that Latvian Standardisation Law does not provides for mandatory application of standards. In publications experts observed that problems of application of these accounting standards were deepened also by insufficient funding. Another distinction of this period of shaping accounting policy was adoption of law On Consolidated Annual Accounts of Enterprises, which specified in more detail the legal norms earlier described in a chapter of law On Annual Accounts of Enterprises. After the new law was adopted the just mentioned chapter was deleted from text of the law. As another novelty can be mentioned the adding Statement of Equity Alterations to annual report. In April 13, 2000 legislator issued particularly important legal act Commercial law, which (after certain transition period) regulated activities of all types of enterprises (from now on just 5 types instead of previous 17). Of course many issues included in that law were linked with accounting. For more detailed specification of accounting rules (in comparison with a similar previous document) was issued new Cabinet of Ministers Regulation No 243 Organisation and Procedure of Accounting of 25 July 2000. Notable changes in the area of bookkeeping affected also participants of capital and financial market - credit institutions, insurance companies, private pension funds, investment companies etc., because by June first 2001 stared functioning Commission of Finance and Capital Markets defined by the respective law. One of functions of this Commission was to issue rules and prescriptions concerning activities of financial and capital market participants and calculation of indicators of those activities as well as procedure for submission of reports. 3 stage Further development of LR accounting policy and harmonisation with EU requirements (since 2002) The present stage of development of accounting policy was introduced by amendments of 15 February 2002 of law On accounting, which provided for establishing new leading institution in the area of accounting methodology Accounting Council. Objective of the latter was linked with ensuring better quality financial reports and preparation of accounting standards, which would be harmonised with IAS. In comparison with the previous stage the adoption procedure of LAS in principle remained the same, however the scope of the new Accounting Council was notably widened and the

standard preparation phases were precisely specified both inside the Council and in Cabinet of Ministers [. . 2005]. Budget funding and support of Ministry of Finance ensured functioning of the Council. As a significant distinction of this stage can be mentioned widened circle of users of standards, which in general was defined by Accounting Council, however Cabinet of Ministers regulation specifies which particular standards are mandatory. Up to the end of 2005 efforts of Accounting Council have resulted in 8 approved accounting standards: LAS No 1 Basic Provisions for preparation of Financial Reports; LAS No 2 Cash Flow Statements; LAS No 3 Events After the Balance Sheet Date; LAS No 4 Change of Accounting Policy, Changes of Accounting Calculations and Errors of Previous Periods; LAS No 5 Long-term contracts; LAS No 6 Revenue; LAS No 7 Fixed Assets; LAS No 8 Accruals, Feasible Liabilities, Feasible Assets. Two standards Lease and Income Taxes are in draft phase. Cabinet of Ministers regulation No 776 Regulation on The Mandatory Applicable Latvian Accounting Standards defined the circle of users who are obliged to observe LAS requirements when preparing financial reports and stated that mandatory are only the first 5 of the above standards and in addition LAS No 1 and No 2 have to be applied to reports covering time period after 1 January 2005, and LAS No 3, 4 and 5 to reports covering time period after 1 January 2006. Application procedure of other standards remains an open issue.

In this time period notable changes were observed also in area of EU accounting standards development. Requirements to financial reports of various enterprises in context with accounting standards and legal status of the enterprises are given in Table 1 [Latvija. Ziojumi,

2005 ]. IAS are gradually replaced by International Financial Reporting Standards (IFRS) which encompass requirements of IAS and EU Directives. To understand linkage of LAS to IFRS, one have to keep in mind that Latvia is EU Member state since 1 May 2004 and therefore national accounting regulations should be harmonised with EU requirements. Already in 1995 European Commission recognised the document Harmonisation of Accounting: A newstrategy vis--vis international harmonisation and started to harmonise EU accounting directives with International Accounting Standards. Thus LAS drafted on the basis of IFRS will satisfy both the requirements of international standards and EU directives. However they will differ by structure and contends, because LAS should be adjusted to Latvias specifics. Information in the table shows that in Latvia in accounting area concurrently are taken in account both national and international standards and therefore in certain situations problems may arise for those who prepare yearly reports as well as for those who read them. As to standardisation the accounting policy has to be unified not split in different directions. Summing up the above described Latvian accounting policy development period one should point out that approach practised by LR Cabinet of Ministers and Ministry of Finance in the field of accounting policy was based on improving the methodological administration. This approach is manifested by four methodological administration institutions Cabinet of Ministers has established and the amendment of accounting standardisation process, which was harmonised with EU requirements. Financial Reporting Rules in Latvia In June 2002, the European Union adopted an IAS Regulation requiring European companies listed in an EU securities market, including banks and insurance companies, to prepare their consolidated financial statements in accordance with IFRSs starting with financial statements for financial year 2005 onwards. EU countries have the option to: Require or permit IFRSs for unlisted companies. Require or permit IFRSs in parent company (unconsolidated) financial statements. Permit companies whose only listed securities are debt securities to delay IFRS adoption until 2007. Permit companies that are listed on exchanges outside of the EU and that currently prepare their primary financial statements using a non-EU GAAP (in most cases this would be US GAAP) to delay IFRS adoption until 2007. The European IAS regulation applies not only to the 27 EU Member States but also to the three members of the European Economic Area (EEA) Iceland, Liechtenstein, and Norway. Latvia is an EU Member State. Consequently, Latvian companies listed in an EU/EEA securities market follow IFRSs since 2005. In July 2010, the European Commission published the results of a survey of the 27 EU member states and the 3 EEA member states regarding the four options above. For information on each country's plans, click to download: Table on Use of IFRS Options in 30 EU Member and EEA States The European Commission has adopted the following wording for use in the notes to the accounts and in the audit reports of companies subject to EU Regulation 1606/2002/EC (the 'IAS regulation'): "in accordance with International Financial Reporting Standards as adopted by the EU" or "in accordance with IFRSs as adopted by the EU". Companies may also state, in a footnote, compliance with IFRSs as adopted by the IASB, if that is the case. In September 2011, the European Commission services published a report an update on the extent to which certain options included within the Accounting Directives have been incorporated

into the law of the Member States and EEA countries. Please click for access to the report. Latvia is included in the IFAD GAAP Convergence Studies National Professional Organisation Website: Latvian Association of Certified Auditors World Bank ROSC Accounting and Auditing Report According to the 2005 World Bank Report on the Observance of Standards and Codes on Accounting and Auditing, national Latvian laws and regulations for financial reporting were generally in line with European Union (EU) directives, but some fundamental differences with International Financial Reporting Standards (IFRSs) existed. Latvian accounting rules, which must be complied with in the preparation of annual accounts of listed and non-listed companies, are developed based on IFRSs; however, as stated in the 2006 self-assessment prepared by the Latvian Association of Certified Auditors (LACA), the alternatives which contradict Latvian accounting legislation are excluded, disclosure requirements for financial information are reduced, and additional illustrations to the standards are added. In a way, these Latvian standards are a simplified version of IFRSs suitable for the needs of small and medium-size enterprises. Being a member of the EU, Latvia complies with the European Commission (EC) Regulation No. 1606/2002, which requires all EU listed companies to prepare their consolidated financial statements in accordance with IFRSs endorsed by the EU from January 1, 2005. As far as the option for the extended use of IFRSs provided for in the EC regulation is concerned, Latvia requires the application of IFRSs in the annual and consolidated accounts of banks, insurance companies, and other supervised financial institutions, and permits the use of IFRSs in the consolidated accounts of all other companies. The World Bank in its 2005 ROSC on Accounting and Auditing noted that under the Commercial Law financial statements of all limited liability companies are required to be audited. However, some companies that that do not exceed two of three size thresholds are exempt from audit requirements. With the enactment of Directive 2006/43/EC of the European Parliament and Council, all statutory audits of annual and consolidated accounts in European Union member states must be carried out on the basis of International Standards on Auditing (ISAs) as adopted by the European Commission. According to the information provided on the European Commission website, Latvia has fully transposed the above-mentioned Directive into its national legislation. Per a 2006 self assessment by the Latvian Association of Certified Auditors (LACA), pursuant to the Law on Sworn Auditors, statutory audits must be carried out in accordance with ISAs issued by the International Federation of Accountants (IFAC), and approved by the LACA. As stated in the LACA self-assessment, as of 2006, the 2004 version of ISAs was effective in Latvia and the 2005 IAASB Handbook was in the process of being translated. Further, the IFAC Code of Ethics for Professional Accountants was fully adopted in December 2004. In the 2005 ROSC the World Bank expressed its concern about the low quality of the actual statutory audits carried out in Latvia. In this respect, the World Bank recommended that Latvia enhance enforcement mechanisms, improve systems of professional education and quality assurance, and increase public oversight of the audit profession. Accounting and bookkeeping in Latvia are regulated by the Law on Accounting, which states that accounts must reflect all of a companys economic transactions and all changes in the state of the companys property so that a third person qualified in the area of accounting may obtain a true and clear representation of the financial position of the company. Accounting registers must be maintained in the Latvian language and kept together with source documents in the territory of Latvia. If a foreign legal or natural person participates in the economic transactions, another language may be used. Companies, except for individual merchants and farms whose revenues in the previous financial year did not exceed LVL 200 000, must maintain accounting registers using a double entry accounting system. All source documents, accounting registers and other documents related to the companys accounts must be kept in the companys archive for a period between 5 and 75 years, depending on the type of the respective documents.

Companies commencing activities and in the future, at the end of each accounting year, must carry out an inventory, in which all the property owned by the company is assessed on site, as also are the amounts of debtor and creditor claims and obligations. Based on the initial inventory data, companies must draw up an opening balance sheet. The accounting year usually coincides with the calendar year. The first accounting year for newly established companies may not exceed 18 months. Companies may change their accounting year if appropriate explanations are provided. Where the financial year is different from the calendar year, this should be stated in companies Articles of Association.

Implementation of the IAS Regulation 1606/2002 in the EU and EEA (published for information purposed only) Date: 01.07.2010

Italy
European Commission Status of the implementation of IAS/IFRS Article 5(a) of the IAS Regulation LISTED COMPANIES 1. Does your MS use the option to permit IAS in the annual accounts for listed companies? 2. Does your MS use the option to require IAS the annual accounts for listed companies? Article 5(b) of the IAS Regulation OTHER COMPANIES 1. Does your MS use the option to permit IAS in the consolidated accounts for other companies? If yes, what type of companies? 2. Does your MS use the option to require IAS in the consolidated accounts for other companies? If yes, what type of companies? 3. Does your MS use the option to permit IAS in the annual accounts for other companies. If yes, what type of companies? 4. Does your MS use the option to require IAS in the annual accounts for other companies? If yes, what type of companies? Article 9 of the IAS Regulation (a) Did your MS use the option to defer the application of IAS until 2007 for companies whose debt securities only were admitted on a regulated market of any MS? (b) Did your MS use the option to defer the application of IAS until 2007 for companies whose securities were admitted to public trading Final law

Latvia
Final law

No, even for insurance companies Yes , except for insurance companies

No

Yes

Yes, except for small enterprises and required companies Yes, for some companies

Yes, all types (except for banks, insurance commercial companies and other supervised financial institutions Yes, banks, insurance commercial companies and other supervised financial institutions No

Yes, except for insurance, small enterprises and required companies Yes, for some companies

Yes, banks, insurance commercial companies and other supervised financial institutions

No

No

No

No

Annual financial reporting Companies, cooperatives, individual merchants and farms registered in Latvia must prepare annual financial reports in accordance with the Annual Accounts Law if revenue in the previous financial year exceeded LVL 200 000. Annual financial reports consist of a financial report and a report by the companys management. Companies can choose not to prepare cash flow statements, statements of changes in equity, to not calculate and report deferred tax assets and obligations, and may prepare shortened annexes, if the company does not exceed two of the following conditions: total value of balance sheet LVL 250 000 net turnover LVL 500 000 average number of employees in the accounting year 25 Reports by company management must provide information about the development of the company, financial results, also the main risks and uncertain conditions faced by the company. The annual financial reports prepared by companies who exceed two of the above criteria, also if transferable securities issued by a company are admitted to trading in the regulated market of a Member State, must be audited by a sworn auditor in accordance with the Law on Sworn Auditors. Companies must submit their annual financial report together with the sworn auditors report (if such exists) to the SRS no later than a month after approval of the annual financial report and no later than four months after the end of the accounting year. Problems of accountant education (training) and certification in Latvia

Accounting policy cannot be materialised without well educated and well trained Professional accountants, therefore development of Latvian accounting is closely linked with enhanced accountant education (training) and qualification. We think that our research disclosed several acute yet unresolved problems. Presently one can become accountant by taking at least 5 different types of study programmes: programmes for intermediate professional programmes, first level higher education study programmes, academic and professional bachelor and master degree study programmes and second level higher education study programmes. We believe this is very tangled professional and academic education system for students and difficult to understand for employers. Such a rather intricate system triggers a whole number of other secondary problems the most significant of which are: 1) difficult choice for applicants; It is difficult for the to be accountant to decide on academic or professional study programme, because notable differences exist concerning study contents, job opportunities as well as duration of the studies. Academic study programmes are more oriented to wide scope education and scientific research (e.g. various level microand macroeconomics, statistics mathematic, foreign languages, IT etc.), while the professional accountant programmes are focused on accounting theory, management accounting, financial analysis, international accounting standards and other courses. The students of professional programmes have to have extensive practise 26 weeks, which is not the case for academic programmes students. The study duration also differs usually the professional study programmes takes more time. 2) dissatisfaction of postgraduates with the broad definition of the obtained degree orqualification; If the employer opts the potential accountant by the entry in diploma - mistakes are quite possible, because the entry in diploma of postgraduates of academic programmes reads:bachelor (master) degree of social sciences in economics or in management and only in the addendum to diploma some items indicate the accountant qualification. The situation is similar concerning the second level professional study programmes, because up till now the standard for 5th degree accountant profession is not written, and therefore entry in post graduate diploma reads: 5th level economist qualification. 3) incompatibility of first and second level higher education professional study programmes. Keeping in mind that accredited first level professional study programmes are offered at 18 different educational institutions, it is quite reasonable to expect that the numerous postgraduates will wish to study further. However the present Latvian professional study system provides for rather restricted possibilities to take the second level professional study programme at another university. In this context Article 25, law Of Higher Education Schools states: the first level professional higher education programme is part of second level professional education provided by the higher education school, thus going to another university in order to take the second level programme is impossible without special transition period. It deserves mentioning that education issues are in the scope of Education and Science Ministry and there are no serious cooperation between the Ministry and institutions interested in issues of accountant education and professionalism. The only type of cooperation is related to requirement laid down in Education Law, namely - for accreditation of professional study programme it is advisable that nongovernmental professional organisations (in this case Latvian Accountant Association) provide their recommendations on the programme contents. The responsible for accounting policy Ministry of Finance also does not take part in resolving accountant education problems. Necessity to comply with requirements of accounting regulations and legal acts impose certain requirements on the set of professional knowledge and skills when performing as an accountant, therefore criteria for professional accountant and official recognitionof professionalism are needed. At international level issue of accountant

professionalism is resolved long ago Education Committee of International Accountant Federation (IFAK EC) has issued guidelines for the set of professional accountant knowledge and skills and corresponding requirements are incorporated in certification programmes of accountant professional organisations. The essence of accountant certification is continuous enhancement (according to social and economic development tendencies) of professional knowledge and skills based on fundamental knowledge provided by higher education. EU directives do not provide for regularising accountant profession, however each member state approaches the issues of accountant profession taking in consideration international experience, i.e. they certify accountants and the certification is carried out by independent professional accountant associations. Certification was started in U.S.A. where according to qualification requirements certificates were issued by National Independent Accountant Association. In Belgium it is National Expert - Accountant Collegiums, in France - Expert - Accountant Association and in Ireland Institute of Chartered Accountants [., .,1997]. In our neighbour countries Lithuania, Estonia and also Poland and Ukraine certification is done by Accountant Associations and by government decries (decisions) the Associations are responsible for certification procedure [Alver J.,Golov S., 2005]. LR Accountant Association started certification in year 2000, however in the last years various commercial companies offer to certify accountant competency even to issue international accountant certificates. It is an indication that in Latvia there is no unified system, which establishes basic requirements and criteria for accountant professionalism. It poses serious problem for accountants and company chief executives as well as for society in general. The potential accountants lack information about knowledge and skills necessary when doing accountant job. Company managers have difficulties to ascertain accountants professionalism and to make decision whether to pay salary to accountant or to buy accounting services from some company. It is an absurdity that accounting services may be provided by any legal person registered in the Enterprise Register without any kind of certified specialisation and professionalism, so there is good reason for asking which accountant certificate issued in Latvia certifies the necessary accountant professional knowledge and skills? Our research shows that international practice is issuing certificate of professional accountant usually for 5 years. This term may be extended by enhancing professional knowledge, attending various courses the scope and contents of which are defined by Provisions for repeated certification written by LR Accountant Association define requirements for certificate extension as follows: 1. Attended free chosen qualification courses and seminaries in field of economics or entrepreneurship. The minimal amount of courses and seminaries (evaluated by specific point system) should be 250 points in 5 years since issuance of the certificate. 2. If the certified accountant has enhanced his knowledge at state accredited higher education institution then for each study year he obtains 50 repeated certification points. 3. Job experience in the last three years before the repeated attestation the person should have been working as accountant, chief accountant or have occupied some other post in field of economy where accounting knowledge is necessary. 4. Attended LR Accountant Association courses mandatory for attestation of professional accountants. Every year Attestation Commission defines the topics of mandatory courses. 5. Passed qualification test. Every year Attestation Commission determines contents of the test. [LR GA Resertifikcijas nolikums, 2002. (Provisions for repeated certification, 2002)]

Examination of LR Accountant Association Provisions on repeated certification shows, that these requirements comply with Guidelines for the Set of Professional Accountant Knowledge and Skills issued by Education Committee of International Accountant Federation (IFAK EC) as well as provide for continuous accountant professional enhancement in accord with the tendencies of economic development. Quality of financial reports depends on accountant qualification therefore issues of accountant qualification became particularly acute after Latvia accessed European Union. The problems of accountant qualification were implicitly referred to also in World Bank report on assessment of requirements to preparation of financial reports and to financial audits practice in enterprises. The report stated that financial reports not always meet standard requirements and therefore does not satisfy public interests [The World Bank Report, 2005]. At the Report presentation attended by representatives of various governmental and nongovernmental institutions analysts of Latvian commercial banks openly pointed out the insufficient accountant qualification in the field of preparing financial reports.

Findings and discussion 1. Our investigation shows, that development of Latvian accounting policy can be conditionally divided in three stages: shaping of the basis for LR accounting policy, amending the LR accounting policy and further development of LR accounting policy and harmonisation with EU requirements. In parallel with the positive accounting policy development trends there are still unresolved acute problems. The activities of Accounting Methodology Council in the first development stage were not successful no major changes in accounting policy were introduced mainly because contradictions between the defined Council functionality and Cabinet of Ministers regulation. Also unresolved remained the issue of preparing and introducing accounting standards. Solving of the problem was started only in the third stage of policy development. We think that one solution could be that the Accounting Council, which develops and approves Latvian accounting standards, should be given the right to establish the class of agents to whom compliance with the respective standards is mandatory. Thus the Cabinet of Ministers would be released from this function. 2. It is witnessed by our research results in a field of accountant education and certification that in accountant education the study programmes contents is in contradiction with statements in postgraduate diplomas; the latter lacks information about postgraduates real speciality. Lacking is also state level system providing for unified accountant certification criteria. We believe several solutions could be possible. The Accountant Council should be entitled right to define the circle of standards users to whom application of the standard is mandatory, thus freeing Cabinet of Ministers from this function. To systematise accountant education. Ministry of Education and Science should ensure preparation of standard for fifth level accountant profession and make the entry in diploma of postgraduate of academic programme more specific i.e. to bachelor (master) degree of social sciences in economics or in management add a reference to the speciality in accounting, analysis and audit according

to the particular study programme. Also it should be ensured that the first level postgraduates were ensured opportunity to proceed with their education taking second level professional study programmes without transition period. Ministry of Finance (responsible for accounting policy in the country) jointly with LR Accountant Association and practicing certified accountants have to prepare (countrywide applicable) unified certification system including confirm criteria for issuing a certificate. In this process of accounting policy materialisation should be engaged experts of Ministry of Education Science and Latvian University Accounting Institute as well as professors of other higher schools, who for years have successfully educated accountants for our economy. In conclusion the authors would like to stress that notwithstanding some problems still waiting resolution the Latvian accounting policy is being enhanced in compliance with requirements laid down in EU directives and provisions of IAS and the general development trends deserve positive assessment.

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