The Role and Current Status of IFRS in the Completion of National Accounting Rules – Evidence from Slovenia

Abstract

We provide an overview of the role and current status of International Financial Reporting Standards (IFRS) in the development of national accounting rules in Slovenia. The basic requirements of the financial reporting in Slovenia are set in the Companies Act, while the Slovenian accounting standards (SAS) provide a detailed authoritative guidance, especially on measurement. We describe the (historical) relations of all four editions of SAS with IFRS, provide explanations for the close alignment of SAS 2006 and SAS 2016 with IFRS, and identify major differences. In addition, the paper covers the adoption of the new EU accounting Directive into Slovenian legislation.

Keywords:

• IFRS
• Slovenian accounting standards
• financial reporting
• EU accounting directive 2013/34/EU
• SMEs

JEL: Codes:

• M41
• M48
• N20
• P2

Notes

1 See Petrovic and Turk (1995) as well as Jerman and Novak (1995) for more on pre-independence accounting and institutional features in Slovenia.

2 Formal approval is still required from both Ministry of Finance and Ministry of Economic Development.

3 The certification and regulation of the audit profession was until the Auditing Act of 2008 in the sole domain of the Slovenian Institute of Auditors (SIA), a private-sector body (OECD, 2011). The Auditing Act of 2008 actually introduced a two-tier structure of the auditing quality supervision, where the SIA still continues the systematic process of monitoring, but which is authorised and supervised by Agencija za javni nadzor nad revidiranjem (Agency for Public Oversight of Auditing, the Agency) that became operational on 1 March 2009. The Agency is now responsible for all disciplinary proceedings and sanctions for breach of auditing standards, or professional requirements, which resolved the tension inherent in the previous structure.

4 For more details about the governance structure of the SIA, see World Bank – Centre for Financial Reporting Reform (2014).

5 The Slovenian Accounting Standards shall not be contrary to this Act and other acts governing the rules on accounting for individual legal entities and the regulations issued on their basis (Companies Act, 2006, article 54).

6 The standards were organised topically, similarly to IFRS for SMEs. In addition to the 30 general core SAS, specific SAS were issued, beginning with SAS 31 Accounting Solutions in Banks and SAS 32 Accounting Solutions in Insurance Companies, which dealt with the specific features of accounting in different types of organisation.

7 See Odar (2003) for dilemmas about the systematization and structure of SAS 2002.

8 Slovenia became a member of European Union (EU) on 1 May 2004 and a member of Economic Monetary Union (EMU) on 1 January 2007.

9 See Kosi and Valentincic (2013) and Garrod, Kosi, and Valentincic (2008) for a description of the interplay between the roles of financial reporting in Slovenia.

10 Moreover, banks and insurance companies are required to use IFRS for their separate (legal entity) as well as consolidated financial statements.

11 In the latest version of the Companies Act, this is Chapter 8.

12 The course of the legislative process can be fully followed on the National Assembly website: https://www.dz-rs.si/wps/portal/en/Home .

13 We note that there is one discrepancy between The Insurance Act and IFRS due to incompatibility between the Insurance Directives and IFRS in terms of equalization reserves. Firms report equalization reserves in equity as per IFRS.

14 In accordance with the current Slovenian Companies Act in force, all large and medium-sized firms as well as small firms whose securities are traded on a regulated market need to have their annual reports audited. The size criteria are expressed in terms of number of employees, size of total assets and total revenue. Following Accounting Directive 2013/34/EU (Article 3), a micro firm is thus a firm where the number of employees <10 and balance sheet total (total assets) ≤EUR 350,000 or net turnover (sales) ≤EUR 700,000. A small firm is a firm where the number of employees <50 and balance sheet total (total assets) ≤EUR 4m or net turnover (sales) ≤EUR 8m. A medium-sized firm (firms larger than this are »large«) is a firm where the number of employees <250 and balance sheet total (total assets) ≤EUR 43m or net turnover (sales) ≤EUR 50m.

15 Therefore, all the previous SAS consolidation guidance was removed from the SAS 2016. It is quite interesting that neither for SAS 1994 nor later separate accounting standard on consolidation was developed. Standards 1–19, which cover the basic elements of financial statement, thus contained a separate chapter with consolidation guidance concerning those elements. In addition, the general principles of consolidation were outlined in the Preface to the standards themselves (see also Garrod & Turk, 1995).