Proposed changes to accounting procedures (2)
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This article picks up where we left off last week
Many of the companies operating in Latvia are owned or controlled by multinational groups that basically communicate in English. On 23 January 2018 the Cabinet of Ministers debated and endorsed a report on keeping books in English and using non-euro currencies in accounting records, drawn up by the Ministry of Economics. This article takes a look at key areas covered by that report.
The report analyses two areas crucial to entities operating in Latvia:
Keeping books in English;
Making entries in a non-euro currency, to be converted at the average rate of exchange on the date of filing a tax return.
This initiative would resolve many accounting issues in companies that operate in Latvia as branches or subsidiaries of foreign companies and at shared service centres that serve Latvian companies, using the accounting policies, charts of accounts, accounting software, management report forms etc adopted by their parent or group. Under the current rules (section 6 of the Accounting Act) accounting records should be kept using the Latvian language and stored along with supporting documents in Latvia. In transactions with a foreign entity or individual the law permits using a second language acceptable to both parties and the auditors. The euro should be used as a unit of account under section 5 of the Accounting Act, and transactions in any other currency should be restated into euros accordingly.
A study underlying the report finds that Latvia’s business environment is currently considered inaccessible to foreign businesses because it lacks openness, up-to-date forms of access and information in English, and because government services are not available in English. The report is based on views held by government agencies (such as the Finance Ministry, the State Revenue Service, and the National Language Centre) and NGOs (such as the Latvian Association of Commercial Banks, the Foreign Investors Council, and the Latvian Association of Accountants), as well as looking at experience elsewhere in the EU (e.g. the Netherlands and Estonia).
After conducting the study and putting together the stakeholders’ views, the report finds that Latvia’s infrastructure is not suitable for keeping books in English or for using non-euro currencies in accounting records. The report finds that the availability of government services in English is the first area to tackle and defines the following tasks:
Implement a solution on the SRS Electronic Declaration System to machine-translate elements of user communication texts into English;
Take measures to further adapt such machine-translated texts;
Ensure that the SRS provides and improves support to foreign investors; and
Regularly update the English translations of key laws and regulations on the website likumi.lv.
The tasks given to the responsible agencies deserve appreciation as a step forward to welcome multinational companies to Latvia, but the business community is expecting immediate changes, such as permission to keep books according to group policies and technical solutions that would not be contrary to the legislation and would not affect the requirement for filing tax returns and financial statements using the Latvian language.