Who should follow rules of accounting in Serbia?
Legal entities, branches and entrepreneurs shall keep books, prepare, present, submit and disclose financial statements in compliance with the legislation, professional and internal rules.
The accounting system should be settled immediately after company registration in Serbia.
Legislation for accounting in Serbia
Basic framework for setting system of accounting in Serbia is Law on Accounting. In this text we will present basic principles from the law.
Professional rules include:
- Code of Ethics for Professional Accountants,
- International Accounting Standards (IAS),
- National standard governing the requirements for professional development of accountants and auditors and acquiring of professional titles,
- National standard applied to accounting software,
- Other standards established by International Federation of Accountants (IFAC).
Internal rules include internal general rules containing specific principles, instructions and guidelines for bookkeeping, preparing, submitting and annual statements as issued by the legal entity and entrepreneur in accordance with the legislation and professional rules.
Application of IFRS
IFRS shall be applied for recognition, evaluation, presentation and disclosure of items in the financial statements of:
- small entities – voluntary,
- medium entities – voluntary,
- large entities – mandatory,
- legal entities that have the obligation to compile consolidated financial statements (parent legal entities) – mandatory,
- public companies or companies that are preparing to become public, in accordance with the law governing the capital market, regardless of their size – mandatory.
The Application of IFRS for SMEs
IFRS for SMEs apply to the recognition, measurement, presentation and disclosure of items in the financial statements of small and medium-sized legal entities.
In addition, medium-sized legal entities may decide to apply IFRS rather than IFRS for SMEs. In that case, medium-sized companies apply IFRS continuously, unless they become a small legal entity in accordance with the Law on Accounting.
Micro and Other Legal Persons
For the recognition, evaluation, presentation and disclosure of items in individual financial statements, micro and other legal entities, regardless of their size, shall apply a secondary legislation passed by the minister in charge of finance affairs, which shall be based on general accounting principles. That is Rulebook on recognition asses, liabilities, revenues and costs of micro and other entities.
In addition, micro and other legal entities, regardless of their size, may choose to apply IFRS for SMEs. In that case, micro and other legal entities, regardless of their size, apply IFRS for SMEs continuously.
In the Law on Accounting, Article 19 states:
The positions in the regular financial statements of legal entities should be evaluated in accordance with general accounting principles:
1) Assumption that a company operates continuously;
2) Evaluation methods shall be applied consistently from year to year;
3) Evaluation shall be performed by applying the precautionary principle, and in particular:
(1) Balance Sheet shall show the liabilities incurred during the current or previous business years, even
if such liabilities become evident only between the date of the Balance Sheet and the date of its drawing;
(2) All impairments shall be taken into account, regardless of whether the result of a business year is gain or loss;
(4) All income and expenses relating to the business year regardless of the date of their collection or payment shall be taken into account;
(5) Components of assets and liabilities shall be evaluated separately;
(6) Opening balance for each business year shall be equal to the closing balance for the previous business
Deviations from general accounting principles shall be allowed only in cases of application of IFRS or IFRS for SMEs. Such deviations, as well as the reasons why they arise, must be disclosed in the Notes to the Financial Statements, including an assessment of their effect on the assets, liabilities, financial position and profit or loss of the legal entity or sole proprietor.
Internal vs. External accounting in Serbia
Selection of internal or external accountants is prescribed in internal accounting act of the Company.
External accounting in Serbia is more reliable for service and trade industry and small/medium companies, while larger manufacture business requires more commitment and internal staff for production accounting at least.
External accounting in Serbia is able to cover all accounting law requirements in Serbia.
The company may engage both internal and external accountant. (e.g. internal accountant has duty of handling administration documents and recording invoices, while external accountant make control and compliance in line with IFRS)
Local vs. Company chart of account
Local rules for accounting in Serbia are very strict and quite differ from the European practice.
According to the local Law on Accounting, recording of business transaction has to be done in local chart of accounts and in local ERP that is localized from the tax and accounting local requirements.
Accordingly the application of foreign CoA is not allowed.
What the local accountant can do is to make the mapping of accounts, you can provide us your CoA and we will deliver local mandatory CoA to you. A local accountant in Serbia can record transaction in local CoA and then he can make monthly trial balance translation to your CoA.
Classification of entities
In term of Law on Accounting, legal entities are classified as:
- medium and
Depending on the following criteria:
- the average number of employees
- business income and
- average value of operating assets determined on the day of drafting of the regular annual financial statement for the business year.
The micro entities are classified as legal entities that do not exceed two of the following criteria:
1) The average number of employees 10
2) Operating income of 700,000 EUR
3) The average value of operating assets 350,000 EUR.
Small entities are classified as legal entities that exceed two criteria referred to micro entities, but do not exceed two of the following criteria:
1) The average number of employees 50
2) Operating income of 8,800,000 EUR
3) The average value of operating assets 4,400,000 EUR
Medium entities are classified as legal entities that exceed two criteria referred to small entities, but do not exceed two of the following criteria:
1) The average number of employees 250
2) Operating income of 35,000,000 EUR
3) The average value of operating assets 17,500,000 EUR
Large entities are classified as legal entities that exceed two criteria referred to medium entities.
The classification in accordance with these criteria will be performed independently by these legal entities on the date of preparation of financial statements. The information obtained will be used for the following financial year.
In term of Law on Accounting, legal entities that will be considered as large entities are:
- National Bank of Serbia,
- insurance companies,
- financial leasing providers,
- voluntary pension funds
- companies managing voluntary pension funds
- open-ended and closed-ended investment fund
- investment funds’ management companies
- stock exchanges and broker-dealer companies
- factoring companies
External audit liability
All medium and large companies based on the above criterion have liability of external audit. Also small companies with revenues higher 4.4m EUR have liability of audit.
Mandatory internal acts
Mandatory internal acts for compliance with rule of accounting in Serbia are:
- “Internal Accounting Rulebook” required by Article 7. of the Law on Accounting that prescribes application of IFRS and contains accounting policies and internal controls system description.
- Local Chart of account
- “Internal Rulebook on annual inventory of assets and liabilities
Mandatory books and software
Mandatory books include:
- general ledger and
- subsidiary ledgers.
The journal and the general ledger shall be kept in ERP in a principle bookkeeping.
The journal represents chronological data of the business transactions.
The general ledger contains all accounts of assets, liabilities, equity, income and expenses and that is the basis for the preparation of financial statements. The general ledger consists of two parts:
- the balance sheet records and
- off-balance sheet records.
General ledger should include the accounts determined by chart of accounts, in accordance with the needs of the company.
Subsidiary ledgers shall be analytic records kept separately for inventory, intangibles, equipment, investment property, long-term financial investments, account receivables, account payables and others.
The entity should use accounting software that contains set of internal control. Recording work hours of accountants/employees with timesheet software for accountants is not mandatory, but it can be very useful for the improvement accounting function.
Inventory of assets and liabilities
A legal entity conduct an inventory of assets and liabilities with an indication of individual values in the quantity and monetary amount. A legal entity conduct an inventory of assets and liabilities and reconcile the balance in the books with the balance determined through inventory at the end of the business year.
Synchronizing turnover and the balance of the general ledger with the journal, and subsidiary ledgers with the general ledger, is made prior to the inventory of assets and liabilities, and prior to preparation of the annual financial statements.
A legal entity or a sole proprietor may stipulate in their constitutional documents even longer periods for conducting the inventory of books, films, archives and similar, provided that these periods may not be longer than five years.
Method and time limits for the inventory and reconciliation of the books balance with the actual situation is prescribed by special Rulebook.
Regular annual statements include:
- Balance sheet
- Income statement
- Cash flow Statement
- Other Comprehensive Income statement
- Statement on changes of equity
- Notes to the financial statements
Submission of annual statements
Legal entities that perform accounting in Serbia submit the regular annual financial statements for the reporting year to the Business Register, no later than 30 June of the following year.
Legal entities, whose business year differs from the calendar one, submit the regular annual financial statements for the reporting year, to the Agency, for public release, not later than six months from the day when these reports were prepared.
Legal entities that prepare consolidated annual financial statements (parent legal entities) submit the consolidated annual financial statements for the reporting year, to the Register, no later than 31 July of the following year unless a special law stipulates otherwise.
The financial statements undersigned by qualified electronic signature of the legal representative, shall be entered in a special information system of the Agency and submitted to the Agency in electronic form.
There is two deadlines, one deadline is related to annual statements submission for statistical purpose and another deadline is related to submission of final annual accounts.
Frist deadline is 28th of February for the annual statements of previous year. Second deadline is 30th of June annual statement of previous year.
If you have prepared final annual statements up to you have summited your final annual statements, without liability to submit reports for statistical purpose.
Submission of documents related to the annual statements
Along to the annual statements, the entities are required to submit following:
- Decision on the adoption of the annual financial statements (for both standalone or consolidated)
- Decision on distribution of profit or loss coverage
- Annual business report in accordance accounting law.
The entities that have audit liability, submit the original of the audit report.
ERP requirement and localization
In set up of accounting in Serbia, any ERP that fulfill Accounting Law requirement should be implemented.
Al transactions, books and reports should be available in Serbian Language and local chart of account should be primary chart of account.
Data entries into books are organized so as to enable:
- Control of the data entry;
- Control of correctness of the data entry;
- Insight into the transactions and the balance of the general ledger accounts;
- Insight into the chronology of recorded business changes;
- Storage and usage of data.
A Company using computerized data processing methods in accounting in Serbia shall use standard accounting software that allows operation of the system of internal accounting controls and prevents the deletion of recorded business transactions.
Selection of fiscal year
Regular fiscal year is equal as calendar year.
Only in a case your local entity is part of group, and the founding non-resident entity has difference fiscal year, it could be changed. This change should be official requested to Ministry of finance.
There is a set of documents you need to prepare altogether with requires (e.g. consolidated statements of group etc.)
Reconciliation of balance requirements
Before preparation of the annual statements, the companies are required to reconcile receivables and payables with third parties.
A creditor should deliver a list of outstanding payables to the debtors.
Companies that prepare Notes to the financial statements should disclose not reconciled receivables and payables in the total amount.
Authorities for accounting in Serbia
The Government, on the proposal of the Ministry, establishes the National Commission for Accounting, tasked with:
1) Monitoring the process of implementation of European Union directives in the field of accounting and proposing appropriate solutions for the national legislation;
2) Monitoring the process of implementation of IFRS and IFRS for SMEs and giving its opinion to the Ministry on translation of these standards, as well as solutions for any problems that may arise in the process of application of those standards.
The National Commission for Accounting submits to the Ministry a report on its work, at least once a month.
Supervision of legal entities and sole proprietors, in the sense of checking the correctness of recording of business changes in the books, shall be performed by the Tax Administration in accordance with the
provisions of regulations governing the tax procedure and tax administration.
Supervision of banks and other financial institutions, insurance companies, financial leasing providers,
voluntary pension funds and management companies of voluntary pension funds, in the sense of checking the correctness of recording of business changes in the books, shall be performed by the National Bank of Serbia.
Penalties for non-compliance a rules of accounting in Serbia
According to the Law on Accounting, commercial offence fine of 100,000 to 3,000,000 dinars shall be imposed on legal entities if:
1) If fails to classify itself into micro, small, medium or large entity in accordance with this law;
2) It fails to regulate the organization of accounting by a constitutional document in accordance with this law;
3) It performs data processing on a computer, but fails to provide accounting software that allows operation of the system of internal accounting controls and prevents the deletion of the recorded business changes;
4) It fails to prepare accounting documents in accordance with this law;
5) It fails to check the accounting documents before entering them into the books of accounts;
6) It fails to submit the accounting documents and documentation for recording within the prescribed period and if it fails to record the business change in the books within the prescribed period;
7) It fails to keep books of accounts in accordance with this law;
8) It fails to open the books in accordance with this law;
9) It fails to designate in a constitutional document a person entrusted with bookkeeping and preparation of financial statements;
10) It fails to make the inventory of assets and liabilities in accordance with this law;
11) As a creditor, it fails to submit a balance of unpaid invoices to its debtor and if it fails to disclose in the Notes to the Financial Statements not reconciled receivables and payables;
12) It fails to prepare and display its financial statements in accordance with this law;
13) It fails to close books of account in accordance with this law;
14) It fails to store accounting documents, books of account, financial statements, annual business report and the audit reports in time limits and in the manner prescribed by this law;
15) It fails to protect books of account that are kept on electronic media in accordance with this law;
16) It fails to prepare financial statements in accordance with this law;
17) It fails to perform an audit of financial statements;
18) It fails to prepare an annual business report;
19) It fails to prepare books of account, reports, decisions and other financial information in Serbian language and in dinars;
20) It fails to submit the financial statements, annual business report, the audit report and other documentation to the Agency for public release, or fails to provide data for statistical and other purposes within the time limits prescribed by this law;
21) Uses data obtained from the Register of Financial Statements in breach of this law.
In addition, commercial offence fine of 20,000 to 150,000 dinars shall be imposed on the responsible person in the legal entity.
If you need any kind of support in term of accounting in Serbia, please contact our experts.