Accounting

08.02.2013 ZF English

Changes in Romanian accounting rules over the last few years have moved Romanian accounting closer to International Financial Reporting Standards (IFRS), although there are still some significant differences.

The Romanian accounting system is based on Law no. 82/1991, republished in Official Journal of Romania no. 454 of 18 June 2008 (the “Accounting Law”). The provisions of the Accounting Law are applicable to:

• Private companies
• State companies, regii autonome, national research and development institutes
• Cooperatives
• Public institutions
• Non-profit organizations
• Other legal entities
• Individuals authorized to carry out independent activities
• Foreign branches and representative offices of Romanian legal entities
• Romanian branches and representative offices of foreign entities

The Accounting Law serves as a framework while detailed guidance, including on the content and form of the financial statements, applicable accounting principles, recognition and measurement rules for financial statement items as well as the chart of accounts to be used by entities, is provided by the Accounting Regulations compliant with European Directives approved by Order of the Ministry of Public Finance no.3055/2009 (“Order 3055”), in effect as of 1 January 2010.

Order 3055 is applicable to all categories of entities listed above, except for entities operating in financial services and listed entities, for which specific accounting regulations are issued by their respective supervisory authorities as follows:

• Accounting regulations compliant with IFRS approved by Order of the National Bank of Romania no.27/2010, applicable to credit institutions.
• Accounting regulations compliant with IFRS approved by Order of the Ministry of Public Finance no.1286/2012, applicable to entities whose securities have been admitted for trading on a stock exchange.
• Accounting regulations compliant with European Directives approved by Order of the National Bank of Romania no.27/2011, applicable to non-banking financial institutions, payment institutions, electronic money institutions and to the Guarantee Fund for Bank Deposits.
• Accounting regulations compliant with European Directives approved by Order of the Insurance Supervisory Commission no. 3129/2005, applicable to entities in the insurance industry.
• Accounting regulations compliant with the European Fourth Directive approved by Norm of the Private Pension System Supervisory Commission no.14/2007, applicable to entities in the private pension system.
• Accounting regulations compliant with European Directives approved by Regulation no. 4/2011 applicable to entities authorized, regulated and supervised by the Romanian National Securities Commission.

Accounting Records

The main accounting principles are as follows:

• Double-entry bookkeeping is generally applicable.
• As an exception, single-entry bookkeeping is maintained  by certain categories of entities such as representative offices of foreign entities and individuals authorized to carry out independent activities.
• In principle, the financial year starts on 1 January and ends on 31 December, with the exception of the first year of operation when the financial year begins on the date of formation.
• Branches or subsidiaries of a foreign company may adopt the financial year of the parent company, except for credit institutions, non-banking financial institutions, insurance and reinsurance companies and entities operating under the supervision of the National Securities Commission and of the Private Pension System Supervisory Commission.
• Accounts are maintained in the Romanian language and in RON; foreign currency transactions are accounted for both in RON and in the foreign currency
• Accounting records are stored for a ten year period, starting from the closing date of the financial period for which such documents were prepared, except for payroll records which are maintained for fifty years.

• Order 3055 details a specified chart of accounts to be used by legal entities and includes directions for the mapping of individual accounts to the balance sheet and income statement templates. The accounts are grouped in the following categories:
  • Class 1 – Equity accounts
  • Class 2 – Non-current assets
  • Class 3 – Inventories and work in progress
  • Class 4 – Third party accounts
  • Class 5 – Treasury accounts
  • Class 6 – Expense accounts
  • Class 7 – Revenue accounts
  • Class 8 – Special accounts
  • Class 9 – Management accounts

Annual Financial Statements

The Accounting Law states that the preparation of annual financial statements is compulsory. The form and content of the annual financial statements is prescribed by the Ministry of Public Finance or by the other regulators for the entities under their supervision.

All types of companiesare required to prepare their annual financial statements and to submit them to the local offices of the Ministry of Public Finance, on paper and in electronic format, or only in electronic format, within 150 days of the closing their financial year.

According to the Company Law (no. 31/1990 with subsequent amendments), annual financial statements are submitted for approval by the Annual General Assembly of Shareholders within five months of the end of the year.

Order 3055 establishes a set of size criteria according to which entities are required to submit either regular or abridged financial statements. Size criteria established under Order 3055 are:

• Total assets - EUR 3,650,000
• Net turnover - EUR 7,300,000
• Average number of employees during the financial year – 50.

Entities which in two consecutive financial years exceed two of the three size criteria set under Order 3055, as well as companies whose securities have been admitted to trading on a stock exchange (regardless of size) are required to submit regular financial statements including a balance sheet, an income statement, a statement of changes in equity, a statement of cash flows and explanatory notes. Companies which do not exceed two of the three size criteria are required to submit abridged financial statements including only an abridged balance sheet, an income statement and explanatory notes. Preparing a statement of changes in equity and a statement of cash flows is optional.

In all cases, the annual financial statements are accompanied by the directors’ report. This report provides comments on the entity’s current year activities and on its financial position, as well as a description of the main risks and uncertainties faced by the entity.

The going concern, consistency, prudence, independence, separate measurement of asset and liability items, intangibility, non-offsetting between asset and liability items, materiality and substance over form principles must all be observed during preparation of statutory financial statements. Any departure from these principles is seen as being exceptional and requires disclosure in the explanatory notes, indicating the reason for departure and its impact on assets, liabilities, financial position and profit or loss for the period.

Consolidated Financial Statements

The requirements on consolidated financial statements as set out in Order 3055 are consistent with the Seventh Council Directive 83/349/EEC.

An entity is required to prepare consolidated financial statements and a consolidated directors’ report if that entity (a parent entity) is part of a group of entities and meets one of the following conditions:

(a) It has a majority of the shareholders' or members' voting rights in another entity (a subsidiary).

(b) It is a shareholder in or member of an entity and a majority of the members of the administrative, management or supervisory bodies of that entity (a subsidiary) who have held office during the financial year, during the preceding financial year and up to the time when the consolidated financial statements are prepared, have been appointed solely as a result of the exercise of its voting rights.

(c) It is a shareholder in or member of a subsidiary and has sole control over a majority of shareholders' or members' voting rights in that subsidiary, under an agreement with other shareholders or members.

(d) It is a shareholder in or member of a subsidiary and has the right to exercise a dominant influence over that subsidiary, under a contract entered into with that entity or under a provision in its memorandum or articles of association, where the law governing that subsidiary permits its being subject to such contracts or provisions.

(e) It has the right to exercise or actually exercises a dominant influence or control over a subsidiary.

(f) It is a shareholder in or member of a subsidiary and has the right to appoint or remove a majority of the members of the administrative, management or supervisory body of that subsidiary.

(g) The entity and its subsidiary are managed on a unified basis by the parent entity.

A parent entity is exempt from the preparation of consolidated financial statements if it does not exceed two of the three size criteria below according to the most recent annual financial statements:

• Total assets - EUR 17,520,000
• Net turnover - EUR 35,040,000
• Average number of employees during the financial year – 250.

The exemption above does not apply where one of the subsidiaries to be consolidated is an entity whose securities have been admitted to trading on a stock exchange.

Notwithstanding the requirement in the previous paragraph, a parent entity which is also a subsidiary and its own parent entity if this is governed by the law of Romania or another European Union member state are exempt from preparation of consolidated financial statements in the following two cases:

(a) Where that parent entity holds all of the shares in the exempted entity. The shares in that entity held by members of its administrative, management or supervisory bodies as a result of a legal obligation or as set out in the memorandum or articles of association are ignored for this purpose.

(b) Where that parent entity holds 90% or more of the shares in the exempted entity and the remaining shareholders in or members of that undertaking have approved the exemption.

Consolidated financial statements are prepared within 9 months of the end of the financial year. Consolidated financial statements approved by shareholders must be filed with the Trade Registry within 15 days of their approval.

Application of IFRS in Romania

Preparation of financial statements compliant with IFRS as the basis for accounting is compulsory for credit institutions. Entities whose securities have been admitted for trading on a stock exchange, except for entities under the supervision of the Romanian National Securities Commission, apply IFRS as approved by Order 1286/2012 as the basis of accounting in the individual/ separate financial statements.

Preparation of IFRS financial statements is also compulsory for entities which prepare consolidated financial statements and whose securities have been admitted for trading on a stock exchange.

The relevant legislation includes:

• Accounting regulations compliant with IFRS approved by Order of the National Bank of Romania no.27/2010, applicable to credit institutions.
• Accounting regulations compliant with IFRS approved by Order of the Ministry of Public Finance no.1286/2012, applicable to entities whose securities have been admitted for trading on a stock exchange.
• Order no. 1121/2006 issued by the Ministry of Public Finance on application of International Financial Reporting Standards.

According to Order 3055, public interest entities (except for entities operating in financial services and listed entities) that are required to prepare consolidated financial statements may prepare such financial statements either in accordance with the Seventh Council Directive or with IFRS.

Source: KPMG - Investment in Romania report (May 2013)