Latvia

Member Organizations

Member Organization Associate Other PAOs

  Association of Accountants of the Republic of Latvia
  Latvian Association of Certified Auditors

Legal and Regulatory Environment

  • Overview of Statuatory Framework for Accounting and Auditing

    As a member of the European Union (EU), Latvia is subject to the accounting, auditing and financial reporting requirements established in EU Regulations and Directives as transposed into national laws and regulations.

    Accounting Framework

    The 2013 EU Accounting Directive was adopted in Latvia and transposed under the 2016 Law on Annual Financial Statements and Consolidated Financial Statements which sets the requirements for the preparation of corporate financial statements in Latvia. It outlines accounting standards to be applied—either EU-endorsed IFRS or Latvian Generally Accepted Accounting Principles (GAAP)—based on company size and type. The Ministry of Finance (MoF) is responsible for setting accounting standards for the preparation of financial statements for both private and public entities.

    EU-endorsed IFRS are required or permitted in the following circumstances:

    • For companies whose securities trade in a regulated market: EU-endorsed IFRS is required for the consolidated company financial statements while it is permitted for the separate company financial statements;
    • For companies whose securities do not trade in a regulated market: EU-endorsed IFRS is required in both the consolidated and separate company financial statements for banks, insurance commercial companies and other supervised financial institutions; and
    • For development financial institutions and large state-owned companies: Large state-owned enterprises may prepare annual financial statements in accordance with EU-endorsed IFRS. A large company is defined as having a total balance sheet that exceeds at least two of the following criteria: (i) total balance sheet exceeds € 20 million; (ii) net revenue exceeds € 40 million; and (iii) an average of 250 employees during the financial year. EU-endorsed IFRS is permitted for consolidated and separate company financial statements of development financial institutions.

    All other entities may apply Latvian GAAP. While, IFRS for Small- and Medium-sized Entities has not been adopted in Latvia, the law permits its usage as an alternative to Latvian GAAP.

    Auditing Framework

    Auditing requirements are set in the 2017 Law on Audit Services (formerly known as the 2004 Law on Sworn Auditors) which transposes the 2014 EU Audit Directive. One of the requirements of the directive is for the mandatory audit of all public-interest entities (PIEs) as defined by the EU law. In Latvia, the definition of PIEs covers listed entities, credit institutions, insurance undertakings, pension funds, investment companies and asset management companies. The Law also stipulates that the appointment of auditors of PIEs rotate after seven years.

    In addition to PIEs, Latvia has extended the statutory audit requirements to other types of entities and according to the Ministry of Finance, the complete list covers the following: (i) all medium and large-sized undertakings; (ii) financial institutions and undertakings whose transferable securities are included in the regulated market; (iii) municipalities; (iv) public agencies; (v) associations and foundations that are public benefit organizations with income of more than 800,000 euro in a financial year; (vi) political parties with a turnover of more than 10 minimum wages in a financial year; (vii) parent undertakings; and (viii) small undertakings which on their balance sheet dates for two consecutive years exceed at least two of the three following criteria: a total balance sheet of 800 000 euro; a net revenue of € 1.6 million; and an average of 50 employees in the financial year.

    Although there is an audit exemption for small undertakings, it should be noted that certain small companies must nevertheless undergo a limited audit or examination by an auditor where, for the last two years, they have exceeded at least two of the following three size thresholds: (i) A total balance-sheet value of EUR 400,000; (ii) Net annual turnover of EUR 800 000; and (iii) a minimum of an annual average of 25 employees.

    In addition, the 2017 Law on Audit Services requires the use of ISA as adopted by the Latvian Association of Certified Auditors (LACA), the professional accountancy organization for certified auditors, and requires that all statutory audits must be performed by certified auditors who are members of LACA.

  • Regulation of Accountancy Profession

    Only certified auditors in Latvia are regulated at the state level through the 2017 Law on Audit Services. The law regulates the profession by establishing initial and continuing professional development (IPD and CPD, respectively) requirements, ethical obligations, requirements for quality assurance reviews, and investigation and discipline procedures. The law adopts international standards including ISA and the IESBA Code of Ethics as the code of professional conduct for certified auditors in the jurisdiction.

    Certified auditor candidates must meet the following requirements: (i) fluency in Latvian language; (ii) a university degree in economics, management, or finance; (iii) at least three years of work experience as an auditor; and (iv) fulfillment of professional accountancy examinations with passing scores.

    According to the law, regulation of the audit profession is undertaken by three entities: the Latvian Association of Certified Auditors LACA, the Ministry of Finance (MoF), and the Audit Advisory Council (AAC).

    LACA is the professional body of Latvian certified auditors and confers the title under the oversight of the MoF. LACA has a wide range of responsibilities, including: (i) organizing professional education courses and examinations for its certification; (ii) issuing licenses for audit firms and certified auditors and conducting quality assurance (QA) of their work; (iii) setting and ensuring compliance with professional standards, ethical standards and regulatory enactments applicable to the profession; (iv) organizing continuing professional education; (v) reviewing disputes; and (vi) maintaining registers for Certified Auditors, Commercial Companies of Certified Auditors, and Third Country Auditors.

    These activities are all carried out under the supervision of the MoF which provides audit oversight for the country and maintains ultimate responsibility for the regulation and public oversight of auditors. Its responsibilities include the supervision of the above-mentioned activities of LACA, supervision of and participation in the QA review system operated by LACA, conducting QA reviews for public interest entities (PIEs), and cooperation with other public audit oversight authorities and standard-setters, among others.

    Lastly, the Audit Advisory Council (AAC) serves to enhance the quality of audit services, raise public awareness of issues in the field of auditing, and protect the public interest. The AAC was established by the MoF as a consultative body and is comprised of representatives from: (a) LACA, (b) the Association of Accountants in the Republic of Latvia (AARL) - the professional accountancy organization for accountants, (c) the Financial and Capital Market Commission, (d) the Ministry of Justice, (e) Nasdaq Riga Stock Exchange, (f) the Foreign Investors Council in Latvia, (g) the Employers’ Confederation of Latvia and (h) higher education institutions.The AAC has authority to examine documents prepared by LACA regarding examination and certification of applicants of certified auditors, licensing of commercial companies of certified auditors, maintaining the qualification of certified auditors, and quality control of the profession. Additionally, the AAC has authority over the ISA and ethical guidelines recognised in Latvia and can make recommendations for their improvement under the purview of the MoF.

    Unlike the auditing profession, the accounting profession is not regulated at the state level. Accountants may voluntarily join AARL and be subject to their regulations. AARL’s activities include: (i) establishing IPD, CPD, and professional conduct requirements; (ii) administering the Certificate of Professional Accountant title designed for accountants seeking advanced level qualifications; (iii) conducting courses and seminars for professional development in accounting and related fields; (iv) promoting the regulation of accountants’ professional activity to policymakers such as the MoF; (v) participating in improving the legal framework governing the accountancy profession; (vi) reporting on draft laws and regulations; (vii) participating as experts in the accreditation process of various levels of professional education study programs with a specialization in accounting; and (viii) cooperating with professional associations of accountants from other states on relevant issues.

    AARL members who would like to qualify for the Certificate of Professional Accountant must fulfill the following requirements: (i) obtain a bachelor’s degree or higher; (ii) complete practical experience as (a) chief accountant for a period of three years, (b) accountant for a period of five years, or (c) senior executive in economics or accounting for a period of five years; (iii) pass the qualifying examination administered by AARL in financial accounting, management accounting, taxation, and commercial law; and (iv) provide evidence of a clear record void of any convictions for intentional offenses or malicious bankruptcy.

  • Audit Oversight Arrangements

    The Law on Audit Services of January 1, 2017 (formerly known as the Law on Sworn Auditors of January 22, 2004) and the Regulation of the Cabinet of Ministers No. 136 of March 7, 2017 on Inspection of the Compliance with the Requirements for the Audit Services Quality Control and Qualification Requirements of Authorized Representatives set the legal foundation for the audit oversight authorities in Latvia.

    The Ministry of Finance (MoF) maintains ultimate responsibility for the regulation and public oversight of the auditing profession. Its responsibilities include supervision of the activities of Latvian Association of Certified Auditors (LACA), conducting audit quality assurance reviews for public interest entities (PIEs), and cooperating with other public audit oversight authorities and standard-setters. Currently, the LACA and the MoF cooperate jointly to provide audit quality assurance based on risk in compliance with the requirements of relevant laws and regulations.

    Additionally, the Audit Advisory Council (AAC) serves to enhance the quality of audit services, raise public awareness of issues in the field of auditing, and protect the public interest. The AAC was established by the MoF as a consultative body and is comprised of representatives from: (a) LACA, (b) the Association of Accountants in the Republic of Latvia (AARL) - the professional accountancy organization for accountants, (c) the Financial and Capital Market Commission, (d) the Ministry of Justice, (e) Nasdaq Riga Stock Exchange, (f) the Foreign Investors Council in Latvia, (g) the Employers’ Confederation of Latvia and (h) higher education institutions.The AAC has authority to examine documents prepared by LACA regarding examination and certification of applicants of certified auditors, licensing of commercial companies of certified auditors, maintaining the qualification of certified auditors and quality control of the profession. The AAC also has authority over the ISA and ethical guidelines recognised in Latvia and can make recommendations for their improvement under the purview of the MoF.

    At present, Latvia does not maintain a member organization in the International Forum of Independent Audit Regulators.

  • Professional Accountancy Organizations

    Association of Accountants of the Republic of Latvia (AARL)

    AARL is a professional accountancy organization whose main objective is to improve the professional skills of professional accountants in Latvia. Membership in AARL is voluntary and is open to all representatives of the accounting profession, including internal auditors, tax consultants, bookkeepers, members of the academia, etc. AARL’s activities include the following: (i) establishing initial and continuing professional development, and professional conduct requirements; (ii) administering the Certificate of Professional Accountant title designed for accountants seeking advanced level qualifications; (iii) conducting courses and seminars for professional development in accounting and related fields; (iv) promoting the regulation of accountants’ professional activity to policymakers such as the MoF; (v) participating in improving the legal framework governing the accountancy profession; (vi) reporting on draft laws and regulations; (vii) participating as experts in the accreditation process of various levels of professional education study programs with a specialization in accounting; and (viii) cooperating with professional associations of accountants from other states on relevant issues.

    Apart from IFAC membership, AARL is an associate member of Accountancy Europe.

    Latvian Association of Certified Auditors (LACA)

    LACA is an independent professional corporation that was founded in 1994 according to the Law on Certified Auditors. It is the professional body of Latvian certified auditors and confers the certified auditor title under the oversight of the MoF. LACA has a wide range of responsibilities in accordance with the audit law, including: (i) organizing professional education courses and examinations for its certification; (ii) issuing licenses for audit firms and certified auditors and conducting quality assurance of their work; (iii) ensuring compliance with professional standards, ethical standards and regulatory enactments applicable to the profession; (iv) organizing continuing professional education; (v) reviewing disputes; and (vi) maintaining registers for Certified Auditors, Commercial Companies of Certified Auditors, and Third Country Auditors.

    Apart from IFAC membership, LACA is a member of Accountancy Europe.

  • Projects or Other Information

Adoption of International Standards

  • Quality Assurance

    The 2017 Law on Audit Services provides for the establishment and implementation of a mandatory quality assurance (QA) review system for all audits of financial statements in Latvia.

    The QA review system is administered by the Latvian Association of Certified Auditors (LACA) under the oversight and in cooperation with the Ministry of Finance (MoF). Since 2005, LACA has established quality control standards and guidance, based on the International Standard on Quality Control 1 (ISQC 1).

    Currently, the LACA and the MoF cooperate jointly to provide QA reviews based on risk in compliance with the requirements of relevant laws and regulations. In line with the 2017 Law on Audit Services, the MoF is in the process of establishing a unit which will undertake direct reviews of individual auditors and companies of auditors which audit public interest entities (PIEs) on a three-year rolling basis. It is expected that LACA will retain responsibility for direct review of non-PIEs auditors and audit firms. Operation of the MoF quality review unit is expected to commence in 2018. Until this time, LACA will continue to cooperate with the MoF to provide inspection of the audit services’ quality control for all individual auditors and audit companies and will inform the MoF regarding the results thereof, including regarding findings and conclusions made. According to LACA, the current QA system complies with the requirements of SMO 1.

    In addition, the Association of Accountants in the Republic of Latvia (AARL), a voluntary association for professional accountants in Latvia, requires its members to comply with ISQC 1 and ISRS 4410 (revised). AARL reports that it is in the process of developing a QA review system for accountancy services for its members and the association has partnered with the Institute of Certified Accountants from England and Wales to implement the system.

    Current Status: Adopted

  • International Education Standards

    The Law on Audit Services of January 1, 2017 establishes the initial and continuing professional development (IPD and CPD, respectively) requirements for auditors in Latvia. The law also authorizes the Latvian Association of Certified Auditors (LACA) to implement the IPD and CPD requirements under the oversight of the Audit Advisory Council under the Ministry of Finance.

    LACA reports that in September 2007, its IPD and CPD requirements for statutory auditors were approved based on the IES requirements. These standards are posted on the members’ area of LACA’s website.

    For accountants, the law does not specify professional qualifications, education, and licensing requirements. The Association of Accountants of the Republic of Latvia (AARL), a voluntary member organization, establishes IPD and CPD requirements for its members. Since 2000, AARL has developed a voluntary Certified Professional Accountant qualification to improve the expertise and competencies of professional accountants in Latvia.

    Although some of the requirements of IES have been incorporated into the national requirements for auditors, it appears that the updated 2015 version of the IES needs to be reviewed, translated and incorporated into the national requirements. Additionally, further information is needed on the alignment of the AARL’s educational requirements with the 2015 IES for other professional accountants.

    Current Status: Partially Adopted

  • International Standards on Auditing

    The Law on Audit Services of January 1, 2017 requires use of ISA in Latvia as approved and translated by the Latvian Association of Certified Auditors (LACA). Although LACA has responsibility for approval and translation of ISA, the Ministry of Finance through the Audit Advisory Council has ultimate authority over ISA recognition in the country and can make recommendations for modifications and improvements.

    LACA reports it has adopted the 2016 ISA Handbook, which includes the new standards on the auditor’s report, and translated the new auditor’s report into Latvian.

    Current Status: Adopted

  • Code of Ethics for Professional Accountants

    Ethical requirements are both embodied in legislation in addition to the requirements of the Latvian Association of Certified Auditors (LACA) and Association of Accountants of the Republic of Latvia (AARL) for all members to abide by the IESBA Code of Ethics.

    Various aspects of the IESBA Code of Ethics have been incorporated into the Law on Audit Services of January 1, 2017. Under the Law, certified auditors have to abide by the IESBA Code of Ethics, as translated by the LACA, in carrying out the audit of financial statements and are bound by stringent independence rules.

    In addition, to ensure that the entirety of the Code is mandated and applicable to its membership, both LACA and the AARL have supplemented these legal requirements by adopting the full IESBA Code of Ethics as translated by LACA. LACA reports that the currently effective version is the 2016 IESBA Code of Ethics.

    Current Status: Adopted

  • International Public Sector Accounting Standards

    In Latvia, the State Treasury, under the Ministry of Finance is responsible for the development of legislation for public sector accounting standards. According to the Latvian Association of Certified Auditors and the Association of Accountants of the Republic of Latvia, the Latvian public sector accounting standards are in line with accrual-based principles and the financial statements for central and local government and government-related entities are broadly IPSAS compliant.

    Current Status: Partially Adopted

  • Investigation and Discipline

    In Latvia, a mandatory investigative and disciplinary (I&D) system for certified auditors is established based on the Law on Audit Services of January 1, 2017. Under the law, the I&D function for certified auditors is shared between the Ministry of Finance (MoF), the Audit Advisory Council (AAC), and the Latvian Association of Certified Auditors (LACA). MoF’s mandate includes the oversight of LACA’s activities in the I&D area and AAC has the right to review and comment on all by-laws and acts prepared by LACA, including those relating to disciplinary proceedings.

    LACA has implemented I&D mechanisms for its members related to misconduct and failure to meet rules and regulations. According to LACA, the I&D system is in-line with most of the SMO 6 requirements although efforts are needed to strengthen the linkages between the results of the quality assurance review system and the I&D system. In addition, LACA also reports that the existing I&D arrangements for auditors have been further reviewed with a focus on enhancing the role of the oversight board in line with the amended EU Audit Directive and strengthening its independence.

    In addition, while not required by law, the Association of Accountants of the Republic of Latvia (AARL), has also established an I&D system for its members. AARL reports that the system is generally in line with SMO 6 best practices.

    Current Status: Partially Adopted

  • International Financial Reporting Standards

    The 2013 EU Accounting Directive was adopted in Latvia and transposed under the 2016 Law on Annual Financial Statements and Consolidated Financial Statements which sets the requirements for the preparation of corporate financial statements in Latvia. It outlines accounting standards to be applied—either EU-endorsed IFRS or Latvian Generally Accepted Accounting Principles (GAAP)—based on company size and type. The Ministry of Finance (MoF) is responsible for setting accounting standards for the preparation of financial statements for both private and public entities.

    EU-endorsed IFRS are required or permitted in the following circumstances:

    • For companies whose securities trade in a regulated market: EU-endorsed IFRS is required for the consolidated company financial statements while it is permitted for the separate company financial statements;
    • For companies whose securities do not trade in a regulated market: EU-endorsed IFRS is required in both the consolidated and separate company financial statements for banks, insurance commercial companies and other supervised financial institutions; and
    • For development financial institutions and large state-owned companies: EU-endorsed IFRS is permitted for consolidated and separate company financial statements.

    All other entities may apply Latvian GAAP. While, IFRS for Small- and Medium-Sized Entities has not been adopted in Latvia, the law permits its usage as an alternative to Latvian GAAP.

    Current Status: Adopted

Disclaimer

IFAC bears no responsibility for the information provided in the SMO Action Plans prepared by IFAC member organizations. Please see our full Disclaimer for additional information.

Methodology

Methodology
Last updated: 11/2018
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