Regulation of Accounting and Financial Reporting in Ukraine
Regulatory bodies include the Ministry of Finance, the State Commission on Securities and the Stock Market, the National Bank of Ukraine (NBU), and the State Tax Administration. Accounting and financial reporting methodology is regulated by the Ministry of Finance, which approves the National Regulations on Accounting and other regulatory acts with respect to maintaining accounting records and compiling financial statements.
The procedure for maintaining accounting records and preparing financial statements by banks is stipulated by the NBU in accordance with legislation and accounting standards.
Accounting Standards
Accounting and reporting requirements for enterprises in Ukraine are regulated by the Law on Accounting and Financial Reporting, which came into effect on January 1, 2000 and provided for the introduction of new National Regulations on Accounting (NRA), which are intended not to contradict international accounting standards (IAS).
NRA are to be applied for reporting purposes by all legal entities established under Ukrainian law, irrespective of their organizational and legal form or form of ownership, as well as representations of foreign legal entities.
NRA combine the concepts and principles of IAS. As of today, 27 standards have been introduced and more are being developed. Although NRA are based on IAS, they are not identical. Unlike IAS or other generally accepted accounting principles (GAAP), NRA have less interpretative guidance, explanations and illustrations, which inevitably leads to some confusion in application of the new NRA, thus undermining the comparability and quality of financial statements. For example, the concepts of deferred tax and accounting for subsidiaries and associates are relatively new and have not been applied in full by many Ukrainian entities. There are still areas for which no standards have been introduced (e.g., impairment of assets, segment reporting, investment property, agriculture).
A corresponding NRA exists for most sections of IAS. However, the corresponding NRA often do not include all the details found in their equivalent IAS sections. NRA classifies such contradictions as either limitations or constraints of IAS. Such constraints refer to the absence in NRA of allowed alternative treatments and also to the absence in NRA of certain disclosure requirements.
Besides the above-mentioned constraints, there are several contradictions between existing NRA sections and their equivalent IAS sections. Contradictions usually concern requirements or treatment in NRA that are different or contradictory to those required by IAS.
A good example of this contradiction is the treatment of accumulated depreciation. NRA 7 (re: property plant and equipment) proposes five depreciation methods and as an alternative allows the use of depreciation methods provided by tax legislation. IAS 16 (re property plant and equipment) allows a variety of depreciation methods to spread the depreciable amount of an asset over its useful life on a systematic basis. According to IAS, the depreciation method should reflect the pattern in which the asset’s economic benefits are consumed by the enterprise. In this case, the tax depreciation method may not be appropriate, as it is designed for taxation purposes.
Books and Records
The general provisions of the Law on Accounting and Financial Reporting in Ukraine state that the purpose of maintaining accounting records and preparing financial statements is to provide users with complete, fair, and unbiased information about the financial position, results of operations, and cash flows of an enterprise.
Enterprises are obliged to maintain their accounting records on an on-going basis, commencing from the date of registration until the date of liquidation. The organization of accounting at enterprises falls within the competence of the enterprise’s owner(s) or an authorized body (an officer) in accordance with Ukrainian law and the company’s founding documents.
The enterprise's owner(s) or the authorized body (an officer) managing the enterprise in accordance with Ukrainian law and the company’s founding documents are responsible for organizing the accounting function and ensuring that all economic transactions are recorded in supporting documents, as well as maintaining records of processed documents, ledgers and financial statements during a fixed period of time not less than three years.
Fundamental Concept
NRA principles include accruals, going concern, prudence, consistence, and substance over form.
However, NRA do not include all IAS concepts and qualitative characteristics for the presentation of financial statements. For example, NRA 1 does not explicitly address the fundamental concepts for the preparation of financial statements such as true and fair view. And such principles as materiality and aggregation, offsetting, and comparative information are only partially used.
Reporting and Filing Requirements
Enterprises have to prepare financial statements based on their accounting records. An enterprise’s director and accountant must sign financial statements.
Financial statements of enterprises (except for institutions financed from the budget, representations of foreign companies and entrepreneurs determined as such by effective law) include the balance sheet, statement of financial results, cash flow statement, equity statement, and notes to financial statements.
The NRA provides for condensed financial statements, which consist of the balance sheet and statement on financial results for entrepreneurs and representations of foreign companies.
The format of financial statements for enterprises (except for banks) and the procedure for completing them are prescribed and established by the Ministry of Finance with the approval of the State Statistics Committee. All statements must be prepared in Ukrainian using UAH as the reporting currency.
Prepared in accordance with the materials of "Ernst & Young" LLC