Accounting and Auditing

Accounting and Auditing

Accounting

The value of reliable accounting information is critical for both private and state-owned companies, as well as for the regulatory authorities. The former Accounting Law 82/1991 came into force on 1 January 1992, and the rules for its application were issued in 1993. This law was mainly inspired from French accounting regulations, but also had other western countries' accounting influences. This law applied to all legal entities except for banks and for the operations of the Ministries of Defense and Internal Affairs. The law stipulated the procedures to be followed, the chart of accounts to be used, the records to be produced and maintained the prerogatives of the Ministry of Finance to monitor the activities of private companies. In 2001, the Ministry of Finance started a long and important process to implement International Account 818t1918i ing Standards in Romania. This process was initially implemented through Order no 94/2001 " for approval of the Accounting regulations harmonized with the IV-th EEC Directive and the International Account 818t1918i ing Standards" which is gradually applied by larger companies so that by 2005 all such companies will report under the new accounting regulations. In 2002, the accounting law was amended under Order 306/2001, which introduced the new chart of accounts and records to be produced and maintained for small companies as of 1 January 2003. This Order introduced a simplified version of the International Account 818t1918i ing Standards.

Accounting Records

The main accounting principles are as follows:

the double entry bookkeeping system is applicable;

the financial year is the calendar year;

accounting records are to be kept in Romanian currency and in the Romanian language (bilingual records are permitted and dual currency records are required for transactions in other currencies);

a statutory audit must be performed yearly for joint stock companies that Order 94/2001 is applicable. The results are published yearly;

most records are stored for 10 years.

Financial Statements

The Accounting Law specifies the compulsory preparation of yearly financial statements. The Ministry of Finance establishes the format of the financial statements. The financial statements include: the balance sheet; the profit and loss account; the cash flow statement, the statement of changes in equity, the notes to the financial statements and the management report. Statements prepared in nominal terms must be prepared and submitted to the tax authorities at dates established by the Ministry of Finance depending on the size of the company.

A set of financial statements prepared in inflated numbers and observing the International Financial Reporting Standards may be prepared by the company and submitted to authorities other than the Ministry of Finance (e.g. Trade Registry, Romanian Stock Exchange Commission);

The half-year financial statements prepared in nominal terms, including a balance sheet, a profit and loss account and explanatory notes must be submitted to the tax authorities by all companies.

The present accounting reform in Romania

As already mentioned, in 2001, the Ministry of Finance introduced new accounting regulations under Order 94/2001. This new regulation was the first step towards harmonization with the 4th Directive of the European Communities and the implementation of International Financial Reporting Standards.

For the financial year 2000, this program was applicable only to the entities listed on the Romanian Stock Exchange, Regies Autonomes and other entities of a national interest or involved in the capital markets.

Between 2001 and 2005, companies meeting specific requirements regarding turnover, total assets and number of employees will come under the scope of the harmonized accounting regulations. The qualifying criteria are as follows:

One of the priorities of the Ministry of Finance is to prepare an accounting system in accordance with European Directives and International Financial Reporting Standards under the Romanian legal framework. Order nr. 94/2001 is a major step in this direction, as it integrates International Financial Reporting Standards into Romanian accounting regulations (with several exceptions, the most notable of which is the optional application of IAS 29 Financial Reporting in Hyperinflationary Economies). The financial statements that are compulsory for entities applying the new regulations include the balance sheet, the income statement, the cash flow statement, a statement of changes in equity, as well as more detailed explanatory notes. The Order also contains a revised version of the General Chart of Accounts.

The professional body operating in the field of accountancy is the National Association of Certified and Chartered Accountants (CECCAR), a member of the International Federation of Accountants (IFAC).

Specific regulations issued by the Romanian authorities govern the application of the accounting law adapted to the banking system (i.e. accounting registers, chart of accounts, main book entries). In 2001, Order nr 1982/5/2001 was issued "for the approval of the accounting regulations harmonized with the International Account 818t1918i ing Standards applicable to credit institutions". Starting with 2002, all credit institutions in Romania have applied the provisions of this law.

The Romanian authorities have also issued specific accounting regulations for insurance and reinsurance companies under Order no 2328/2390/2001 "for the approval of the accounting regulations specific to insurance companies, harmonized with European Directives and with International Account 818t1918i ing Standards". As of 2001, all insurance companies in Romania have had to apply the provisions of this law.

Audits

The value of an independent professional examination of the financial records and underlying information of a company is very useful to different groups, including shareholders, creditors, joint venture partners, suppliers and customers.

The financial audit is a complex examination and review of accounting records requiring an independent professional opinion on: the fairness of the financial statements; the consistency of the accounting method used over the years; and whether the financial statements have been prepared in accordance with Romanian accounting law.

The Romanian Chamber of Financial Auditors, which supervises the auditing activity in Romania, awards the Financial Auditor qualification (AF) to legal persons and individuals, which enables them to provide financial audit services. The National Standards on Auditing are harmonized with the International Standards on Auditing as promulgated by the International Federation of Accountants and adopted by the Chamber of Financial Auditors of Romania.

Companies complying with Order 94/2001 for a full year must have their accounts audited by a financial auditor and no longer need to appoint censors.