SARAS publishes information on amendments to the Law of Georgia on Accounting, Reporting and Auditing and the subsequent Law of Georgia on Entrepreneurs

 

SARAS is successfully implementing the reforms as part of a gradual and dynamic approximation process, but as a result of the practice analysis, the revision of the legal norms is on the agenda. For the purpose of gradual approximation and implementation of the norms in accordance with the directives and regulations of the European Union and the Council, several issues have been identified in cooperation with the relevant European structures and international experts for the preparation of legislative changes with the aim of further reforming the field of accounting and auditing in the country.

In 2023, during the visit of the SARAS representatives to the meeting of the EU - Georgia Association Subcommittee on Economic and Sectoral Cooperation in Brussels, several important issues were identified. With the recommendations received, it was considered appropriate to initiate changes related to such important issues as: introduction of the obligation to publish an annual report on transparency for audit firms. In particular, it was determined that the audit firm that audits the financial statements of the PIEs will be required to publish an annual transparency report on its website no later than 4 months after the end of each financial year, which must be available for at least 5 years from the date of publication. 

The procedure for compiling and publishing the annual transparency report will be developed by SARAS in accordance with the requirements of the relevant regulatory directives/regulations of the European Union. In addition, taking into account that the independence of the auditor is an important principle of the audit and that it is mandatory that the auditor is protected from any influence during the audit process, it has been considered appropriate to tighten up the legal requirements for auditors in order to ensure maximum independence.

Since the auditor's independence is questioned when the auditor has direct or indirect connection with the audited entity, in order to prevent risks, audit firms are prohibited under Regulation (EU) No. 537/2014 from providing non-audit services that directly threaten the independence of persons providing services to PIEs. The transposition of the regulatory norms established by the Regulation into the legislation of Georgia will contribute to the reform and the independence of auditors will be protected when providing audit services to PIEs.

In view of the risks associated with independence and the priority given to the high quality of the engagement performance, and also in order to increase the effectiveness of the monitoring carried out by SARAS, it was necessary to implement relevant legislative changes, in particular to establish such restrictive norms as that would not allow the engagement partner to jeopardize its independence and also to deteriorate the quality of the engagement performance.

In recent years, our country has focused on improving the audit reform, and promoting the continuous growth and development of engagement partners has become a direct obligation of the state. The amendment to the Law stipulates that an engagement partner is not entitled to be an engagement partner in more than one audit firm or to provide audit services individually while being an engagement partner in an audit firm.

The amendment also requires audit firms to ensure that their accounting and financial reporting is at least in accordance with the International Financial Reporting Standard for Small and Medium Enterprises (IFRS for SMEs). Under the current version of the Law, the standards to which audit firms' reporting had to comply depended on which entity category criteria the audit firm met. The
amendment also stipulated that the exception provided for in Article 9(3) of the Law, regarding the non-publication of the reports of the fourth category enterprises by SARAS, should not be applied to audit firms that are the fourth category enterprises, and that their reports should be published in the manner prescribed by Law within one month of their submission.

One of the major challenges is the non-delivery of correspondence/documents sent by SARAS on the part of entities and auditors. Many years of practice have shown that one of the most important challenges is the issue of non-delivery of documents/information sent by SARAS on the part of enterprises and auditors/audit firms. The new version of the Law regulates this challenge and provides for a more effective way of delivering documents - electronically, by publishing them on the SARAS website (in the case of an entity - on the reporting website), which will make the issue of enforcing the requirements established by the legislation even more effective.

The development of the legislative amendment is also based on the goals of preventing the non-submission of reports as a repeated offence and repeated actions contrary to the reform - the repetition of the fact of non-submission in relation to two consecutive reporting periods will result in the entity being fined five times the amount of the fine provided for the category. One of the reasons for implementing the amendment to the law is the need to clarify the issue of the types and amounts of sanctions to be applied for violations of the law, and to provide SARAS with discretionary powers in sanctioning - to impose sanctions on violators of the law on the basis of an assessment of the circumstances.

The amendment to the law also creates the possibility for SARAS to reserve the right not to apply a fine to fourth category enterprises for non-compliance with the requirements of the law for reports submitted before the 2024 reporting period. In addition, taking into account that the Association Agreement (between the European Union and the European Atomic Energy Union and their Member States,
on the one part, and Georgia, on the other) provides for the adoption of appropriate standards in the direction of preventing and combating money laundering and terrorism financing, which are in line with the standards set by the Financial Action Task Force (FATF) and similar international organizations, and as it is also mandatory to eliminate the deficiencies identified by the Committee of Experts on the Evaluation of Anti-Money Laundering Measures (Moneyval) regarding the eligibility criteria, the norms related to the absence of criminal conviction, in addition to auditors, will also apply to other obliged entities (certified accountants, accountants providing professional services, accounting and auditing firms) established by the Law of Georgia on Facilitating the Suppression of Money Laundering and Terrorism Financing.

The adoption of the draft law marks a further step in the implementation of the accounting and auditing reform in Georgia and brings the Georgian legislation closer to the regulations of the European Parliament and the Council.