The Albanian legislative act which defines the general principles and rules for the preparation of accounting standards, financial statements and accounting records is the law No.9228, dated 29.04.2004, “On Accounting and Financial Statements”.
According to article 3 of this law, “accounting standards” are the general principles or rules for the normalization of accounting, defined by the law, which serves as a basis for the selection of accounting tools and methods that are applied for the preparation and presentation of financial statements. Typically, the National Accounting Council of Albania translates the standards brought forward by the International Accounting Standards Board. The standards are then decreed as valid and effective by the Ministry of Finance. The latest decree issued by the Ministry of Finance on the topic of accounting standards is the one approved on the 6th of November 2017, no.120, and subsequently published in the Official Gazette in November 2017.
The Decree no.120 issued by the Minister of Finance reflects the changes occurred in the accounting standards, which included among others: - IFRS 4 (insurance contract); - IFRS 2 (payment based on shares); - IFRS 15 (revenues from contracts with customers) and - IAS 40 (long-term investment property).
The changes to the standards entered into force and are applicable since the 1st of January 2018. Below we discuss specific details affecting companies.
IFRS 4: The latest changes include the possibility for entities providing insurance contracts to be excluded from the application of IFRS 9. It also attempts to address several concerns about the difficulties that may arise due to IFRS 9. The entity that choses to go ahead with the exclusion, is obliged to give an explanatory note.
IFRS 2: For share-based payment transactions, in which goods or services are received as part of a share-based payment arrangement, the latest changes include some modalities of financial declarations about the methods and tools that will be used for the cash-settled share based payments. The aim is to introduce the guidance of the accounting requirements for cash-settled share-based payments that follows the same approach as used for equity-settled share-based payments.
IFRS 15: The changes introduce the single, principles-based five-step model to be applied to all contracts with customers, regarding revenue recognition, uniform for all transactions and for all companies, without differentiating between contracts. Based on the use of the five-step model, the moment of revenue recognition may change. Customer contract revenues’ which were previously recognized throughout the term of the contract may be recognized in the future only once and as a whole, at the end of the contract and vice versa. The basic principle of IFRS 15 is that the revenue shall be recognized at the moment the products and/or services are transferred in the control of the customer. In order to realize the proper and efficient implementation of the latest changes, it is necessary to increase the importance of valuations, so that each product and/or service part of the contract is recognized with its real value.
IAS 40: The standard provides the possibility of an entity to transfer an asset to, or from, a long-term invested property only when there is a change in use. A change in use occurs when a property meets or ceases to fulfill criteria making it an investment property and there is evidence of change in use.
Eurofast advises Albanian companies to thoroughly examine the impact these new standards will have on their operations, particularly IFRS 15. We expect that a number of industries (such as those involved in supply of contracted long-term services or license selling) will be affected and may need to seek tax advisory to ensure tax compliance.