1. The objective of the National Accounting Standard 1, The Framework for the Preparation of Financial Statements („NAC 1„ or “the Standard”), adopted by the National Council of Accounting and promulgated by the Ministry of Finance, as amended, is to provide the basic concepts and rules set forth in Law No. 9228 of April 29, 2004, “For Accounting and Financial Statements,” and to establish the rules for the application of accounting policies, estimates, correction of errors, and the presentation of economic events after the date of closing the financial statements prepared in accordance with the National Accounting Standards. The National Accounting Standards are based on internationally accepted accounting and financial reporting principles, the general requirements of which are described in Law "On Accounting and Financial Statements" No. 9228, published in April 2004, as amended.
2. IFRS 1 was based on the framework of the International Financial Reporting Standards “Framework for the Preparation and Presentation of Financial Statements” as well as International Financial Reporting Standard IFRS 1 “Presentation of Financial Statements,” IFRS 8 “Accounting Policies, Changes in Accounting Estimates and Errors,” and IFRS 10 “Post-Balance Sheet Events.” SSAP 1 (as amended) has been revised to be consistent with the separate sections of the IFRS for SMEs (2009). The standard is based primarily on Section 2 – Concepts and Broadly Accepted Principles. The standard also relies on Section
10 – Accounting Policies, Estimates and Errors and in Section 31 – Events After the Reporting Period. The comparison of IFRS for SMEs (as amended) with the SNRF for SMEs (2009) is given in paragraph 131. For cases not addressed by a specific accounting policy of IFRS 1, the economic entity's management must adopt such a policy that ensures a true and fair presentation of the financial position, the financial performance, and cash flows of the reporting economic unit, as required by Article 9 of Law No. 9228 “On Accounting and Financial Statements,” published in April 2004, as amended.
3. Financial statements are prepared on the basis of the concept of materiality. National Accounting Standards do not apply to immaterial items. The materiality principle is defined and clarified in paragraphs 40 to 90 of NGAAP 1. Financial statements are prepared based on the basic assumptions, principles, and characteristics of accounting information.
Field of Application
4. The requirements of SKK 1, “General Framework for the Preparation of Financial Statements,” shall apply to all financial statements prepared in accordance with the National Accounting Standards.
Objective of Financial Statements
Objective
5. The objective of the financial statements prepared in accordance with National Accounting Standards is to provide information about the financial position, financial performance and cash flow of the economic entity, useful for the economic decision-making of a broad group of users who do not require separate reports to meet their specific information needs.
6. Financial statements present a true and fair view of the economic entity's financial position, financial performance, and cash flows only and only if:
(a) they are accurate and complete in reflecting the content of economic events;
(b) their preparation is based on reasonable and well-founded assessments (in cases where assessments are necessary); and
(c) the notes to the financial statements have been prepared with sufficient detail to provide an overall view of the economic entity's financial position, financial performance, and cash flows, so that competent readers can draw reasonable conclusions.
7. True and reliable presentation implies that:
(a) The basic principles and other requirements set forth in Articles 9 through 12 of Accounting Law No. 9228, as well as paragraphs 40–90 of the standard, have been used as the basis for preparing the financial statements;
(b) Assets, liabilities, equity, revenues, expenses, and net profit, as presented in the financial statements, meet the criteria of the definitions provided in this standard.
8. The proper application of all National Accounting Standards in the preparation of financial statements generally provides a true and fair view of the economic entity's financial position, financial performance, and cash flows. In very rare cases, when the economic entity's management believes that applying certain National Accounting Standards does not make it possible to provide a true and fair view of the financial position, financial performance and cash flows of the entity, then management will prepare the financial statements in accordance with those principles that allow for a true and fair presentation and will explain the reasons for not applying the IFRSs in the explanatory notes to the financial statements.
financial.
Financial Position
9. The financial position of an economic unit is the relationship of its assets, liabilities, and equity at a given date as presented in the statement of financial position. These are defined as follows:
(a) an asset is an item or right controlled by the economic entity as a result of past events, from which future economic benefits are expected to flow to the economic entity;
(b) a liability is a present obligation of the economic entity arising from past events, the settlement of which is expected to result in an outflow of resources from the economic entity;
(c) Own capital is the remaining interest in the economic unit's assets after deducting all its liabilities.
10. Some items that meet the definition of an asset or a liability may not be recognized as assets or liabilities in the statement of financial position because they do not meet the recognition criteria set out in paragraphs 14 to 26. In particular, the expectation that future economic benefits will flow to or from an economic entity must be sufficiently certain to satisfy the probability criterion before an asset or liability is recognized.
Performance
11. Performance is the relationship between the revenues and expenses of an economic entity during a reporting period. This standard allows economic entities to present performance in two financial statements (a statement of revenues and expenses and a statement of comprehensive income). Profit or loss for the year or total comprehensive income are often used as performance measures or as the basis for other evaluations, such as return on investment or earnings per share. Revenues and expenses are defined as follows:
(a) "Revenues" means increases in economic benefits during the reporting period in the form of inflows or increases in assets, or decreases in liabilities, resulting in increases in capital, excluding those related to contributions from equity investors;
(b) expenses are the reductions in economic benefits during the reporting period in the form of outflows or reductions of assets or as increases in liabilities that result in a decrease in equity, except for those related to distributions to equity investors.
12. The recognition of revenues and expenses results directly from the recognition and measurement of assets and liabilities.
Key Definitions for the Elements of Financial Statements
13. Assets, liabilities, equity, revenues, expenses, and profit presented in the financial statements must meet the criteria of the definitions given in this Standard. The meanings of these key definitions are explained in paragraphs 14–39 of this Standard.
Active
14. An asset is an economic object or right controlled by the economic entity, which
(a) has come as a result of past events; and
(b) from the use of which future benefits are expected.
15. The economic entity may obtain economic benefits from the asset in various forms. An asset may: (a) be used alone or in combination with other assets in the production of goods or services sold by the economic entity; (b) be exchanged for other assets; (c) be used to settle/pay an obligation; (d) be distributed to the owners of the economic entity.
16. Many such assets, such as tangible long-term assets, have physical substance. However, physical existence is not essential to their existence. Thus, for example, patents and copyrights are assets if they are controlled by the economic unit and expected to generate economic benefits.
17. The basis for reporting assets in the statement of financial position is the existence of legal ownership or the existence of effective control. Although in general effective control of assets corresponds with their legal ownership, this may not always be the case. For example, in the case of a finance lease agreement, an asset may legally belong to the lessor, but since that asset is under the control of the lessee for most of its useful life, it is reported on the lessee's statement of financial position.
18. A key aspect in determining the existence of effective control is who receives the majority of the economic benefits generated by the asset, and who bears the majority of the risks associated with that asset.
19. The ability to generate economic benefits usually implies the capacity to increase the inflow of monetary funds and their equivalents into the economic unit, or to reduce the outflow of monetary funds from the unit.
20. An asset is recognized in the economic entity's statement of financial position only if it is probable that future economic benefits will flow to the entity from it. If these economic benefits are probable but there is insufficient certainty, the asset will not be recognized in the statement of financial position. Such a transaction results in the recognition of an expense in the statement of financial performance. However, such assets will be disclosed in the financial statements as contingent assets.
21. Only those that are active, the cost of which can be reliably determined, are recognized in the statement of financial position.
Obligations
22. Liabilities in the economic entity's statement of financial position are current liabilities that: (a) have arisen from past events; and (b) are expected to be settled by the outflow of resources in the future.
23. A liability is recognized in the statement of financial position if the economic entity, in order to settle it, would have to act in a way that would cause an outflow of economic benefits. To settle the liability, the economic entity may, for example, have to pay in cash or cash equivalents, provide a specific service, deliver a particular asset, replace that liability with another liability, or convert the liability into equity.
24. Many obligations arise from legal agreements (so-called “contractual obligations”). In certain cases, obligations may arise from the economic unit's business practices, as well as from a desire to maintain good business relationships with customers, employees, and other partners (so-called “constructive obligations”). For example, if the economic practice of an economic unit requires replacing all defective products, the economic unit will recognize on the statement of financial position the liability arising from this practice, regardless of whether a legal obligation exists or not.
A constructive obligation is an obligation that arises from the actions of an economic unit when:
(a) by establishing a pattern based on past practice, previously published policies, or specific statements, the economic unit has indicated to other parties that it will assume particular responsibilities, and
(b) As a result, the economic unit has created a reasonable expectation in other parties that it will fulfill these responsibilities.
25 An economic entity will recognize a liability in the statement of financial position when:
(a) the economic entity has a liability at the end of the reporting period, as a result of a past event;
(b) it is possible that the economic unit will be required to transfer resources (including economic benefits) in settlement;
(c) The repayment amount can be reliably measured.
26. A contingent liability is either a possible but uncertain obligation, or a present obligation that has not been recognized because it fails to meet one or both of conditions (b) and (c) in paragraph 25. An entity shall not recognize a contingent liability as a liability in the balance sheet, except for unplanned liabilities arising from a business combination (see IFRS 9, Business Combinations and Consolidation).
Own capital
27. Equity (or “net assets”) is the difference between the economic unit's assets and liabilities at the date of the statement of financial position.
28. Equity represents the value of net assets belonging to the owners of an economic entity as of the date of the statement of financial position. The calculation of equity depends on the accounting policies used to measure assets and liabilities, some of which are based on fair value, while others are based on cost or other methods. Goodwill created within the economic unit is not recognized in equity. Consequently, the economic unit's net assets are not necessarily equal to
the fair value of the net capital of the economic unit.
29. The assets, liabilities, and equity of the economic entity are presented in the economic entity's statement of financial position as of the reporting date.
Revenue
30. Revenues represent inflows (increases in economic benefits) during the reporting period that result in increases in assets or decreases in liabilities, and that increase the economic entity's capital, excluding those related to contributions from participants in capital.
31. The definition of income includes both income and differences (+):
(a) revenues arise in the course of the economic unit's ordinary activities and are referred to by a variety of names, including sales, fees, interest, dividends, honoraria, and rents.;
(b) differences (+) are other items that meet the definition of income but are not income that affect the year's profit or loss. When these differences are recognized in the statement of financial performance, they are presented separately (as other comprehensive income) because their recognition is useful for economic decision-making.
32. Revenue recognition arises directly from the recognition and measurement of assets and liabilities. An economic entity should recognize income in the statement of financial performance when an increase in future economic benefits arises that is associated with an increase in an asset or a decrease in a liability that can be reliably measured.
Expenditures
33. Expenses are outflows of cash (reductions in economic benefits) during the reporting period that result in a decrease in assets or an increase in liabilities and that reduce the economic entity's capital, excluding those related to distributions to equity participants.
34. The definition of expenses includes expenses arising in the course of the economic unit's normal activities as well as differences (–):
(a) expenses arise in the course of the economic unit's ordinary activities and include, for example, selling costs, wages, and depreciation. They usually take the form of an outflow or reduction of assets such as cash and cash equivalents, inventory, or tangible long-term assets;
(b) Differences (-) are other items that meet the definition of expenses and may arise in the course of the economic entity's normal activities but do not affect the year's profit or loss. When these differences (-) are recognized in the statement of financial performance, they are presented separately (as other comprehensive expenses) because their recognition is useful for making economic decisions.
35. The recognition of expenses results directly from the recognition and measurement of assets and liabilities. An economic entity should recognize expenses in the statement of financial performance when an decrease in future economic benefits arises that is related to a reduction of an asset or an increase of a liability, which can be measured reliably.
36. Revenues and expenses include both realized and unrealized items. For example, realized revenues are revenues recognized from the sale of goods. Unrealized gains, for example, are the differences recognized from the translation of monetary assets or liabilities held in foreign currency.
Total comprehensive income and profit or loss
37 Total comprehensive income is the arithmetic difference between revenues and expenses, both realized and unrealized. It is not a separate element of the financial statements and no specific recognition principle is required for it.
38. Profit or loss is the arithmetic difference between revenues and expenses recognized (excluding those items of revenue and expense that this Standard classifies as items of other comprehensive income). This is not a separate element of the financial statements, and no separate recognition principle is required for it.
39. This Standard does not permit the recognition of those items in the statement of financial position that do not meet the definition of assets or liabilities, regardless of whether they result from the application of the concept known as the “matching concept” for measuring profit or loss.
Basic Principles for Preparing Financial Statements
40. Article 10 of Accounting Law No. 9228 “For Accounting and Financial Statements” establishes the basic principles for bookkeeping and the preparation of financial statements in accordance with this law, as well as the National Accounting Standards published by the National Accounting Council. Paragraphs 40 through 90 describe these basic principles. None of the paragraphs in this section (paragraphs 40 through 90) take precedence over any specific requirement of other paragraphs of GAAP 1 or any other GAAP.
Assumptions and general considerations
Determination of rights/obligations and compliance
41. In order to meet their objectives, the financial statements are prepared on the basis of recognized rights and obligations. Under this method, the effects of transactions and other events are recognized in the financial statements when they occur (and not when cash or its equivalents are received or paid) and are recorded in the accounts and reported in the financial statements of the accounting periods to which they belong. Financial statements prepared on the basis of recognized rights and obligations inform users not only about past transactions involving receipts and payments, but also about liabilities to be paid in the future as well as about assets that will generate future receipts. In this way, they present information on past transactions and events that best serve users in making decisions.
economic decisions.
42 Expenses related to revenues earned during the reporting period are recognized in the same accounting period as the corresponding revenues. Expenses incurred during a reporting period that differs from the period in which they provide benefits to the economic unit are recorded as expenses precisely in the period when the benefits are received.
43. Expenses are recognized in the same accounting period as the revenues related to them. If the revenues related to certain expenses cannot be determined directly, then indirect methods are used for their recognition. For example, expenses related to the acquisition of a tangible long-term asset are recognized as expenses over the useful life of that asset (depreciation expenses). Expenses that are not expected to generate revenue are recognized as expenses when they occur.
The principle of economic unity
44. The economic unit keeps separate accounts of its own assets, liabilities, and economic transactions from those of shareholders, creditors, employees, clients, and other parties.
45. Only the assets, liabilities, equity, revenues, expenses, and cash flows of the economic entity will be recorded in its financial statements. In addition to its own economic transactions, the economic entity's consolidated statements will also include the economic transactions of the entities it controls.
Principle of continuity
46. Financial statements are prepared on the basis of continuity, which means that the economic entity's economic activity will continue and the entity does not intend or will not need to cease its operations. If the financial statements are not prepared in accordance with the going concern principle, the alternative accounting principle used in their preparation must be disclosed in the explanatory notes.
47. In preparing the financial statements, management should assess the economic entity's ability to continue its operations for 12 months after the date of the financial statements. If this continuity of operations of the economic entity is not certain (for example, the economic entity does not meet legal requirements), the economic entity's management must disclose in the explanatory notes to the financial statements the conditions and circumstances that give rise to this uncertainty. If the economic entity has commenced the liquidation process or it is possible that within the next 12 months the economic entity will liquidate or will be required to liquidate its activities, then the financial statements must reflect this fact as well as the basis for the assessment of
assets and liabilities.
Recognition of assets, liabilities, revenues, and expenses
48. Recognition is the process of including in the financial statements an item that meets the definition of an asset, liability, revenue, or expense and that satisfies the following criteria:
(a) it is possible that any future economic benefit related to this item will flow to or from the economic unit; and
(b) the voice has a cost or value that can be reliably measured.
49. Errors in the recognition of a revenue that meet these criteria are not corrected in the explanatory notes on the accounting policies of
use or in other further clarifications.
The probability of future economic gain
50. The concept of probability, as the first criterion of recognition, refers to the degree of uncertainty that future economic benefits associated with a particular item will flow to or from the economic entity. Estimates of the degree of uncertainty of future economic benefit flows are made on the basis of evidence of conditions available at the end of the reporting period, at the time the financial statements are prepared. These estimates are made individually for items that are individually material and for a large group of items that are individually immaterial.
Measurement reliability
51. The second criterion for recognizing an item is that its cost or value can be measured reliably. In many cases, the cost or value of an item is known. In other cases, it must be estimated. The use of reasonable estimates is an essential part of preparing financial statements and does not impair their reliability. An item is not recognized in the financial statements when a reasonable estimate cannot be made.
52. A voice that fails to meet the criteria for recognition may qualify for recognition at a later date as a result of subsequent circumstances or events.
53. A voice that does not meet the recognition criteria may nevertheless be presented in the explanatory notes or other explanatory materials. This occurs when voice recognition is important for assessing the financial position and financial performance of an economic unit by users of the financial statements.
54. The main characteristic of revenues is that they increase the net assets of an economic unit, excluding additional contributions made by the economic unit's shareholders. The main characteristic of expenses is that they reduce the net assets of the economic unit, excluding distributions made to the economic unit's shareholders. Both revenues and expenses are recorded on the basis of the recognition of rights and obligations – the moment when the economic transaction fundamentally affects the net assets of an economic unit, rather than the moment when the cash flows associated with the transactions are received or paid.
55. Expenses are recognized in the same period as the revenues related to them. Expenses related to the generation of economic benefits in future reporting periods are recognized in the statement of financial position as an asset when incurred and as an expense during the period reporting periods when they are expected to generate economic benefits (for example, expenditures on tangible long-term assets and depreciation expenses). Costs related to generating economic benefits during the current reporting period or those not incidental to generating economic benefits, (such as the cost of disposal
The use of a long-term investment is recognized as an expense during the reporting period in which it occurs.
56. Transactions with the economic unit's own shares (also called “treasury shares”) represent distributions made to the economic unit's shareholders or contributions received from the economic unit's shareholders, as a result of which they do not fall within the definition of revenues and expenses. Therefore, such transactions will not be recognized as revenues nor as
expenses in the statement of financial performance, but as a capital transaction in the statement of changes in equity.
57. Measurement is the process of determining the monetary amounts with which an economic unit measures assets, liabilities, income and
expenses, in its financial statements. Measurement involves the selection of a measurement basis. This standard specifies which measurement basis an economic entity should use for different types of assets, liabilities, revenues, and expenses.
58. The two common bases of measurement are historical cost and fair value:
(a) For assets, historical cost is the amount of cash or cash equivalents paid or the fair value of the consideration given to acquire the asset at the time of its acquisition. For liabilities, historical cost is the amount of cash (or cash equivalents) or the fair value of non-cash assets received in exchange for the liability at the time it arises, or in some circumstances (for example, income tax). the amount of cash or cash equivalents that is expected to be paid to settle the liability in the normal course of business. The historical cost less depreciation is the historical cost of an asset or liability plus or minus that portion of its historical cost previously recognized as an expense or income.
(b) fair value is the price that would be received to sell an asset or that would be paid to settle a liability in a transaction between market participants at the measurement date.
59. The National Accounting Standards may establish other measurement bases when these are considered more appropriate by the National Accounting Council.
Initial recognition and measurement
60. Initial measurement of assets and liabilities that meet the recognition criterion is made at historical cost, except where this Standard requires initial measurement on another basis, such as fair value.
Further assessment
61. An economic entity measures financial assets and liabilities, as defined in IFRS 3 – Financial Instruments, at amortized cost less any impairment. IFRS 3 prescribes how financial instruments should be measured.
62. Most of the non-financial assets of an economic entity that are initially recognized at historical cost are subsequently measured on other measurement bases. For example:
(a) an economic entity measures tangible long-term assets at cost less depreciation (or at fair value as an alternative permitted by IFRS 5 – Non-current Assets and Non-current Liabilities);
(b) a business entity measures inventories at the lower of cost and net realizable value;
(c) an economic entity recognizes a impairment loss in respect of non-financial assets that are in use or held for sale;
Measuring assets at the lower of two values is intended to ensure that an asset is not carried at an amount higher than the value the economic entity expects to recover from its sale or use.
63. Most liabilities, except financial liabilities, are measured at the best available estimate of the consideration required to settle the liability at the reporting date.
Compensation
64. Assets and liabilities and revenues and expenses shall not be offset against each other, except when such an offset is required or permitted by a national accounting standard.
65. It is important that assets and liabilities, as well as revenues and expenses, be reported separately. Reclassification in the statement of financial performance or in the statement of financial position, except when it better reflects the nature of the transaction or event, reduces the reader's ability to understand the transactions, the transactions, events, and conditions that have occurred, as well as for assessing future cash flows. The valuation of assets at net value, after deducting the amount of impairment, such as impairment for obsolete inventory or impairment for bad debts in accounts receivable, is not compensation.
Qualitative characteristics of financial statements
66. Qualitative characteristics are those that make the information in financial statements useful to users. The primary qualitative characteristics are four: understandability, relevance, reliability, and comparability.
Comprehensibility
67. Information in the financial statements should be presented in such a way that it is informative and unambiguous to those users of the financial statements who have sufficient knowledge of accounting to understand the financial statements.
68. Financial statements are prepared to inform a broad group of users (including shareholders and creditors, employees, business partners, the general public, government institutions, and others). In order for the information in the financial statements to be informative and as understandable as possible, the terminology used must be consistent throughout the material. In preparing the financial statements, it must be kept in mind that they must be clear and understandable even to external users, who may not be familiar with the day-to-day activities of the economic entity. Therefore, financial statements should be prepared in such a way that they avoid using language or terminology specific to the economic entity, which may not be understandable to external readers. However, in preparing the financial statements, it is assumed that their readers should have sufficient general knowledge in the field of accounting, so it is not necessary for the financial statements to explain general financial concepts.
69. If information about the same transaction is disclosed in different parts of the financial statements, then the financial statements must include the appropriate references. For example, the items in the statement of financial position, the statement of financial performance, and the statement of cash flows should include references to the explanatory notes, which provide more detailed information about them. If the information for the same transaction or information
If the financial information is clarified in two separate explanatory notes, then those two notes must also have the appropriate cross-references between them.
Importance and Materiality
70. Financial statements present all material information that affects the economic entity's financial position, financial performance, and cash flows. Information in these statements is considered material if its omission or misstatement would influence the economic decisions of the financial statement users. Immaterial items may be recognized using simpler methods.
71. In preparing the financial statements, importance should be given to those aspects and financial data of economic activities that are relevant to the users of the financial statements and that may influence the economic decisions they make. Overloading the financial statements with excessive detail and immaterial information undermines their clarity and understandability.
72. In determining materiality, both the qualitative and quantitative aspects of the information should be taken into account. For certain transactions, it may be that small amounts carry greater informational significance for users than other routine transactions.
73. Intentional manipulation of non-material amounts to achieve a specific financial result is prohibited.
74. Simplified accounting methods may be used for the accounting and reporting of intangible items in the financial statements, provided that the result would not differ materially from the results that would have been obtained had the accounting policies prescribed by the National Accounting Standards been applied.
75. Information regarding material items and transactions will be disclosed separately in the notes to the financial statements. Non-material items are reported in the financial statements grouped with other similar non-material items.
76. Based on the concepts of materiality and understandability, it may be more appropriate to prepare the financial statements in thousands of lek rather than in whole amounts. This allows for the elimination of excessive detail and a focus on the relevant financial information.
Credibility
77. The information presented in the financial statements must be reliable. Information is reliable when it is free from material errors and bias and when it faithfully represents what it is intended to represent or what is reasonably expected to represent. Financial statements are considered not to be unbiased (i.e., not neutral) if, by selecting or presenting information, they are intended to influence the making of a decision or judgment so as to achieve a predetermined result or conclusion. Principle of faithful representation
78. For the information to be reliable, it must faithfully present the transactions and other events that it seeks or is expected to present. Thus, for example, the statement of financial position must faithfully present the transactions and other events that result in the recognition of assets, liabilities, and equity for the economic entity as of the reporting date and that meet the recognition criteria.
The principle of giving precedence to economic content over legal form.
79. For the recording of economic transactions in financial statements, their economic substance is taken into account, which is not necessarily always the same as their legal form.
80. For the recording of business transactions, not only the legal basis on which they are formulated or created is taken into account, but also their economic substance, which is of utmost importance. Although in many cases the economic substance of business transactions matches their legal form, this is not always the case. For example, certain finance lease agreements may be formally classified as ordinary lease agreements, but if these agreements meet the criteria for finance leasing described in National Accounting Standard 7, Accounting for Leases, they are recorded in the statements
financial, such as finance lease.
The principle of impartiality
81. For the information presented in the financial statements to be reliable, it must be unbiased, meaning uninfluenced.
Financial statements are not considered impartial if, by the way information is selected or presented, they influence judgment or decision-making with the aim of achieving a predetermined outcome.
Principle of moderation
82. The nature and extent of uncertainty that inevitably accompanies certain events and circumstances are disclosed in the explanatory notes to the financial statements, and for those uncertainties the exercise of the principle of prudence is required in the preparation of the financial statements. The principle of prudence involves exercising a degree of caution in making the judgments necessary to prepare estimates under conditions of uncertainty, so that assets or revenues are not overstated and liabilities or expenses are not understated. However, the exercise of care does not permit the intentional undervaluation of assets or liabilities.
Receipts, or the deliberate overestimation of obligations or expenses. In short, due diligence does not allow for bias.
83. In accounting estimates, the economic unit's management should avoid excessive optimism. Instead, they should consider all factors that could affect the value of assets and liabilities. For example, when assessing impairment of doubtful accounts receivable, the economic‐unit managers should take into account past experience regarding uncollected receivables, should not optimistically assume that the situation has improved, and
Consequently, there is no need to write down the carrying value of receivables due to impairment.
Principle of completeness
84. Financial statements should provide all information necessary to present a true and fair view of the economic entity's financial position, financial performance, and cash flows.
Sustainability and Comparability
85. The same accounting policies, presentation, and financial statement formats must be consistently applied in the preparation of financial statements.
86. Consistency in accounting policies and in the format of presenting financial statements is necessary for an objective comparison of the economic unit's financial performance indicators over the years. Standard requirements for accounting policies, formats for presenting financial information, and the information that must be disclosed in the financial statements form the basis for comparing the financial data of different economic units.
87. Changes in accounting policies are explained in paragraphs 98–102 of this Standard.
88. The presentation of information (including the formats of the statement of financial position, statement of financial performance, statement of cash flows and statement of changes in equity) may be changed, only if:
(a) the change is required by a new or improved standard adopted by the National Council of Accountancy or by the Law “On Accounting and Financial Statements”;
(b) The new format provides a more objective and complete presentation of the economic entity's financial position, financial performance, and cash flows and complies with the requirements of IFRS 2 – Presentation of Financial Statements.
89. Comparative information for the prior period must be provided for all amounts reported in the financial statements. Comparative information shall also be provided for narrative information when it helps in the understanding of the current accounting period's financial statements.
90. When the presentation of information changes, the presentation of comparative period information must also change.
Prior-period accounting, as presented in the financial statements, is presented to correspond with the new presentation, except in cases where the effect of the new presentation on prior accounting periods cannot be determined reliably.
Selection and Change of Accounting Policies
Selection of accounting policies
91. Accounting policies are the specific principles, bases, conventions, rules, and practices applied by an economic entity in the preparation and presentation of financial statements.
92. Accounting policies applied in the preparation of financial statements must comply with the basic principles set forth in Law No. 9228 “On Accounting and Financial Statements,” published in April 2004, as well as with the National Accounting Standards approved by the National Accounting Council.
93. The use of inappropriate accounting policies is not corrected either by describing the accounting policies used in the financial statements or by the explanations provided in the explanatory notes.
94. In cases where the National Accounting Standards specify a particular accounting policy, the business entity shall apply that accounting policy, and the accounting policy applied shall be disclosed in the notes to the financial statements.
95. In cases where the National Accounting Standards allow a choice among a number of alternative accounting policy options, the accounting policies applied are explained in the notes to the financial statements.
96. In cases where the National Accounting Standards do not specify a particular accounting policy, but it is regulated by an NRS/SNRF, it is recommended that the accounting policy described in the NRS/SNRF be used as the basis for the accounting policy. However, selective application of the IFRSs and the IFRS Interpretations is prohibited.
97. If SRC 1 does not specifically address a transaction, event, or other circumstance, the management of an economic entity should use its judgment in developing and applying an accounting policy that results in information:
(a) suitable for the economic decision-making needs of users; and
(b) reliable, because the financial statements:
(i) faithfully represent the economic unit's financial position, financial performance, and cash flows;
(ii) represent the economic substance of transactions, events, and other circumstances, and not merely the legal form;
(iii) are neutral, i.e., free from bias;
(iv) measured; and
(v) complete in all material respects.
Change in accounting policies
98. Once an accounting policy is selected, it is applied consistently from year to year. An accounting policy may be changed only in the following cases:
(a) a change in an accounting policy is required by a new or improved GAAP, or by the Law “On Accounting and Financial Statements”;
(b) the new accounting policy enables a more objective presentation of the economic entity's financial position and financial performance (in accordance with the requirements described in paragraph 92).
99. A change in accounting policies will be applied retrospectively, going back to the beginning of the earliest presented period, except in cases where (a) a change in accounting policy arises from a new IFRS and that IFRS prescribes different transition provisions to the new policy, or (b) the effect of the change in accounting policy on prior accounting periods cannot be reliably estimated.
100. A change in accounting policies is usually applied retrospectively, i.e., as if the new policy had always been applied. Comparative information for prior accounting periods is revised so that it is presented in accordance with the new accounting policy. The opening balance of retained earnings is adjusted so that it reflects the changes for one or more prior accounting periods.
101. Certain SFRs may allow the adoption of a new accounting policy prospectively, i.e., without adjusting the comparative information.
102. When it is practically impossible to reliably determine the effects of a change in an accounting policy on comparative information for prior accounting periods (including the effects on the opening balances of the prior period), the new accounting policy will be applied retrospectively to the beginning of the reporting period (by accounting for the effect of prior-period items as an adjustment to the opening balance of retained earnings).
Accounting Estimates and Their Changes
Application of accounting estimates
103. Some financial data presented in the financial statements are based on estimates made by the economic unit's management, rather than on objectively observed facts. Examples of the application of accounting estimates include:
(a) evaluation of write-downs for receivables and inventories;
(b) the assessment of the useful life of tangible long-term assets and intangible long-term assets, as well as the determination of the respective depreciation rates;
(c) the creation of provisions for sales under warranty or for covering costs related to ongoing legal proceedings.
104. Realistic estimates play an important role in the preparation of financial statements. In accounting estimates, the economic entity's management must take into account all facts known to them that may affect the information reported in the financial statements as a result of those estimates. For example, in recognizing a provision covering the costs of
Possibly, with respect to legal proceedings in progress, the managers of the economic unit should consider all facts related to the proceedings (including those that arise after the period-end date) that could have an impact.
its performance, as well as the amounts associated with it.
105. Although some accounting estimates are expected to prove inaccurate, the economic unit's management must make the best possible estimates based on the knowledge they have. When new facts emerge, earlier estimates must be revised.
Changes in accounting estimates
106. A change in accounting estimate is an adjustment to the net carrying amount of an asset or liability, or to the periodic consumption amount of an asset, resulting from the assessment of the current status and the expected future benefits and obligations related to the asset or liability. Changes in accounting estimates result from new information or new developments and, consequently, are not corrections of errors. When a change in an accounting policy is difficult to distinguish from a change in accounting estimate, the change is treated as a change in accounting estimate.
107. Changes in accounting estimates will be recognized in the accounting period in which they occur, and not retrospectively.
108. In certain circumstances it may be difficult to distinguish whether the change has occurred in the accounting policy or in the accounting estimate. In such cases, it is assumed that we are dealing with a change in accounting estimate, and the effect of the change is recognized.
during the accounting period, when reporting is made (or prospectively), but not retrospectively.
Correcting Errors
109. Errors are omissions or misstatements in the financial statements of one or more accounting periods that arise from the failure to use or the misuse of information available to management during the preparation of the financial statements.
110. Such errors include the effects of mathematical errors, errors in the application of accounting policies, uncertainties or misinterpretations of facts, and fraud.
111. Errors are distinct from changes in accounting estimates. Changes in accounting estimates are based on sufficient and reliable information, as well as on its change over time, and have nothing to do with its misuse.
The error is characterized by the fact that, although the managers of the economic unit had sufficient and reliable information to prepare accurate financial statements at the time they were prepared, that information was not used accurately.
112. Material errors in prior accounting periods shall be corrected in one of the following two ways:
(a) Retrospectively, meaning that the amount of the correction of a material error related to prior accounting periods will be reported by adjusting the opening balance of retained earnings. Comparative information must be restated if practicable; or
(b) by restating the opening balances for assets, liabilities, and equity for the earliest prior period presented, in cases where the error occurred before that earliest period.
113. Immaterial errors should be corrected in the current accounting period. Retrospective correction of immaterial errors is not permitted. The concept of materiality is described in paragraphs 70–76 of the Standard.
114. When material errors in prior accounting periods are corrected retrospectively, the effect is as if the error had never occurred. Comparative information for prior accounting periods is corrected for the effect of the error. If an error occurred during an accounting period before the comparative period or during even earlier accounting periods,
The excess opening balances of assets, liabilities, and retained earnings for the current and comparative periods are adjusted.
115. If the effect of a material error on comparative information for prior accounting periods (including opening balances of prior periods) if the accumulated effect of a mistake on the opening balances of the period for which the financial statements are reported cannot be reliably determined, the opening balances of assets, liabilities, and retained earnings for that period are adjusted to reflect the effect of the mistake from the prior period. When it is practically impossible to reliably determine the cumulative effect of an error on the opening balances of the reporting period, the error will be corrected prospectively, as of the date
as early as possible.
Events After the End of the Reporting Period
116. Accounting for events that occur after the reporting period ends but before the date the financial statements are authorized.
Whether it will be published depends on whether these events are such that they require correction or not.
117. An event after the reporting period for which adjustments are required is an event that reveals conditions that existed at the reporting period's closing date. An economic entity must adjust the amounts recognized in its financial statements, including providing appropriate explanatory disclosures, to reflect adjusting events after the reporting period has ended.
118. Events for which no adjustments are made are those that do not indicate conditions that existed after the reporting period has closed. The economic entity will not adjust the amounts recognized in its financial statements to reflect events for which no adjustments are made after the reporting period has ended. The effect of events for which no adjustments are made will be described in the explanatory notes to the financial statements if they are material.
Declaration of dividends after the end of the reporting period
119. If an economic entity declares dividends to the holders of its equity instruments after the end of the reporting period, the entity shall not recognize those dividends as an obligation at the end of the reporting period. The dividend amount may be presented as a separate component of retained earnings at the end of the reporting period.
Explanatory Notes
120. The economic unit must present in the explanatory notes to the financial statements a summary of the principal accounting policies used in their preparation.
121. In cases where a change to this Standard affects the current period or any prior period, or may have an effect on future periods, the business entity shall provide the following explanatory information:
(a) the type of change in accounting policy;
(b) for the current period and any prior period presented, to the extent possible, the amount of the adjustment for each affected line item of the financial statements;
(c) the amount of the adjustment relating to periods prior to those presented, to the extent applicable;
(d) an explanation in cases where it is not practicable to determine the amounts disclosed in (b) or (c) above; Financial statements for subsequent periods should not repeat this explanatory information.
122. In cases where a voluntary change in accounting policy affects the current period or any prior period, the business entity shall provide the following explanatory information:
(a) the type of change in accounting policy;
(b) the reasons why the implementation of the new accounting policy provides reliable and more appropriate information;
(c) to the extent applicable, the amount of adjustment for each affected line item of the financial statements, shown separately:
(i) for the current period;
(ii) for each prior period presented; and
(iii) in total for the periods before those presented.
123. If the manner of presenting the accounting policies and/or accounting information has changed, then the explanatory notes will explain:
(a) description of the change and the reason for the change; (b) its effect on the items of the statement of financial position and the statement of financial performance; (c) if the change is not applied retrospectively, an explanation of the situation, a description of the effect of the new policy, and the prior periods affected by the change.
124. In those cases where, in the interest of the most faithful and reliable presentation, the provisions of certain National Accounting Standards have not been applied, then the explanatory notes shall explain:
(a) the provision of the SCC that was not followed;
(b) the reason for not pursuing it;
(c) the effect on the items of the balance of financial position and of the statement of financial performance.
125. The business entity shall provide explanatory information on the nature of each change in accounting estimate and the effect of the change on assets, liabilities, revenues, and expenses for the current period. If the business entity can estimate
the effect of the change in one or more future periods, then it must provide explanatory information for these estimates.
126. In those cases, when material errors are discovered in previous exercises, the explanatory notes will present:
(a) the type of error of the previous period;
(b) for each prior period presented, to the extent applicable, the amount of the adjustment for each affected line item of the financial statements;
(c) to the extent applicable, the amount of the adjustment at the beginning of the earliest prior period presented;
(d) an explanation if the determination of the amounts described in (b) or (c) above is not applicable.
Financial statements for subsequent periods should not repeat this explanatory information.
127. The explanatory notes must describe the material events for which adjustments may be made after the completion of
for the reporting period, as well as their effect on the financial figures presented in the financial statements.
128. The economic unit must provide the following explanatory information for each event category that cannot be adjusted after the reporting period has ended:
(a) the type of event;
(b) an assessment of its financial effect;
(c) a statement that such an assessment cannot be made.
129. If there is uncertainty regarding the continuity of the economic entity's operations, the explanatory notes should disclose the factors causing this uncertainty. If the financial statements have been prepared on the basis of winding up the economic unit's operations, the reason and the basis for their preparation shall be explained.
Dates and Rules for Implementing Standards
130. This Standard shall apply to financial statements covering accounting periods beginning on or after January 1, 2015. This Standard shall be applied prospectively.
Comparison with International Financial Reporting Standards (IFRS for SMEs, 2009)
131. The table shows how the contents of this Standard correspond to the relevant sections of the SNRFs for NVM. Paragraphs are treated as corresponding if they generally address the same issue, regardless of the fact that the descriptions in the referenced standards may differ.
Paragraphs according to IFRS for SMEs published in July 2009
Paragraph 1 No
Paragraph 2 None
Paragraph 3 None
Paragraph 4, Section 2.1
Paragraph 5, Section 2.2
Paragraph 6 None
Paragraph 7 None
Paragraph 8 None
Paragraph 9, Section 2.15
Paragraph 10Sek 2.16
Paragraph 11, Section 2.23
Paragraph 12, second sentence, second subparagraph.
Paragraph 13 None
Paragraph 14 None
Paragraph 15, Section 2.17
Paragraph 16, Section 2.18
Paragraph 17, Section 2.19
Paragraph 18 None
Paragraph 19 None
Paragraph 20, second sentence, third subparagraph
Paragraph 21, Section 2.38
Paragraph 22 None
Paragraph 23, Section 2.21
Paragraph 24, second subparagraph 2.20
Paragraph 25, second sentence, third subparagraph.
