Latvia

Member Organizations

Member Organization Associate

  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.

    After the 2013 EU Accounting Directive was adopted in Latvia, the new Law on Annual Financial Statements and Consolidated Financial Statements of January 1, 2016 was developed and set the requirements for the preparation of corporate financial statements in Latvia. It outlines accounting standards to be applied based on company size and type: EU-endorsed IFRS or Latvian Accounting Regulations, which constitute the Latvian Generally Accepted Accounting Principles. The Ministry of Finance is responsible for setting accounting standards and preparation of financial statements both for private and public entities. Until 2012, accounting standards were issued by the Latvian Accounting Standards Board but in 2012 the Board ceased operations and its standards, which were based on older versions of IFRS and IAS, were withdrawn.

    Requirements for financial institutions are prescribed in the instructions and regulations of the Financial and Capital Market Commission (FCMC), the regulator for financial institutions and securities market participants, which issues financial reporting rules largely consistent with EU-endorsed IFRS. According to the FCMC, companies listed on the main market segment, banks, insurance companies, and undertakings for collective investment are required to apply EU-endorsed IFRS in their legal entity and consolidated financial statements.

    The Financial Instrument Market Law defines that consolidated financial statements of a capital company, whose transferable securities are admitted to trading on a regulated market, shall be prepared in accordance with EU-endorsed IFRS. In addition this law defines that financial statements of a capital company, whose transferable securities are admitted on the official list in the Republic of Latvia or debt securities are admitted to trading on a regulated market, shall be prepared in accordance with EU-endorsed IFRS.

    The Law on Annual Financial Statements and Consolidated Financial Statements states several cases when companies shall or may derogate from the principles and regulations laid down in the Law on Annual Financial Statements and Consolidated Financial Statements and measure items in the financial statements, prepare financial statements and provide explanatory information in the notes to the financial statements in accordance with EU-endorsed IFRS.

    • a development financial institution and a commercial company, which in accordance with the Financial Instrument Market Law prepare annual financial statements and consolidated financial statements in accordance with EU-endorsed IFRS;
    • a large state capital company may prepare annual financial statements in accordance with EU-endorsed IFRS (a large company is a company which on the balance sheet date exceeds least two of the following criteria: total balance sheet – € 20 million, net revenue – € 40 million, an average of 250 employees); and
    • a parent in a group of companies may prepare consolidated annual financial statements in accordance with EU-endorsed IFRS.

    IFRS for SMEs has not been adopted in Latvia.

    Auditing requirements are set in the Law on Audit Services of January 1, 2017 (formerly known as the Law on Sworn Auditors of January 22, 2004) which transposes the EU Statutory Audit Directive. The Law requires the use of ISA as adopted by the Latvian Association of Certified Auditors, a professional accountancy organization, in the performance of the audit of financial statements. A mandatory audit is required for medium and large-sized companies, for all entities with securities traded on a regulated market, as well as for consolidated financial statements prepared by a parent in a group of companies.

    For small companies, a statutory audit must be performed if one of the following conditions is met: (i) exceeds two of the following criteria for two consecutive years - total balance sheet of € 800,000; net revenue of € 1.6 million; an average of 50 employees in the financial year; (ii) is a parent in a group of companies; (iii) is a public person’s company or its subsidiary or a public-private capital company within the meaning of the Law On Governance of Capital Shares of a Public Person and Capital Companies; or (iv) elects to recognize certain financial statement items in accordance with IFRS. All statutory audits must be performed by sworn (certified) auditors.

    For small companies, a review of financial statements must be performed if above mentioned conditions for statutory audit do not apply for small company and if it exceeds at the balance sheet date two of the following criteria for two consecutive years - total balance sheet of € 400,000; net revenue of € 800,000; an average of 25 employees in the financial year. The review is performed by sworn (certified) auditors.

  • Regulation of Accountancy Profession

    The Law on Audit Services of January 1, 2017 regulates sworn (certified) auditors in Latvia. The law regulates the profession by establishing initial and continuing professional development (IPD and CPD, respectively) requirements, ethical obligations, requirement for quality assurance reviews, and investigation and discipline procedures. The law directly adopts the IESBA Code of Ethics as the code of professional conduct for certified auditors in the jurisdiction.

    The requirements for entry to the auditing profession include: (i) fluency in Latvian language; (ii) a university degree in economics, management, or finance; (ii) at least three years of work experience as an auditor; and (iv) successful completion of professional accountancy examinations.

    Under the Law on Audit Services, the Ministry of Finance (MoF) is responsible for the regulation and public oversight of auditors through its Audit Oversight Commission (AOC). Its responsibilities include approval of the certification of certified auditors, the licensing of commercial companies of certified auditors, performed by the Latvian Association of Certified Auditors (LACA) drafting laws in the field of auditing, co-operation with institutions of other EU countries in the field of audit, coordinating the authorized representatives of the MoF, who perform reviews of compliance with the quality assurance requirements over certified auditors of public interest entities, reporting on the findings of the compliance reviews and issuing recommendations.

    The title of Certified Auditor is a qualification awarded by the LACA, a professional accountancy organization regulated by the Law on Audit Services and under the oversight of the AOC. The professional accountancy examinations are developed by LACA’s Examination committee. It ensures compliance with professional standards and ethical norms, as well as other regulatory enactments applicable to the profession. LACA has a wide range of responsibilities given by the Law on Audit Services, including: (i) organizing professional education and examination; (ii) issuing licenses for audit firms and certified auditors and conducting quality assurance of their work; (iii) organizing continuing professional education; (iv) reviewing disputes, and (v) maintaining electronic registers of the Certified Auditors, commercial companies of certified auditors’ and Register of Third Country Auditors and Commercial Companies of Auditors.

    Provision of accounting services is not regulated at the state level. Professional accountants may choose to join the Association of Accountants of the Republic of Latvia (AARL) and be subject to its regulation. AARL developed a voluntary Certified Professional Accountant (CPA) qualification in 2000 to improve the expertise and competencies of the preparers of financial statements in Latvia. A majority of AARL members are certified and hold the title of CPAs. Some AARL members, being also members of LACA (certified auditors), provide audit and assurance related services as well—in this case they are regulated by the Law on Audit Services.

    CPA title holders of AARL are required to complete a professional education program, pass a series of professional examinations, and satisfy the practical experience and CPD requirements.

    In addition, under the Law on Audit Services, the Audit Advisory Council (AAC) was established by the Minister of Finance as a consultative body to promote the increase of quality of audit services, raise public awareness of issues in the field of auditing and to protect the public interest. AAC has the authority to examine the 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 the quality control of the professional activity, as well as regarding ISA and ethical guidelines recognised in Latvia and can make recommendations for their improvement under the purview of the MoF.

    AAC is composed of representatives of various organizations, including AARL, the MoF, the Ministry of Justice, the Financial and Capital market Commission, LACA, Riga Stock Exchange, the Foreign Investors Council in Latvia, the Employers’ Confederation of Latvia and one of the higher education institutions. AARL is a member of AAC.

  • Audit Oversight Arrangements

    Latvia has introduced substantial changes in the oversight system of audit of the financial statements services since 2008 with the release of European Union directives, when new principles of oversight were introduced and amendments to the Law On Sworn Auditors of January 22, 2004 were adopted.

    The public oversight of auditors is being executed by the Ministry of Finance (MoF) of the Republic of Latvia, namely by the Latvian Audit Oversight Commission (AOC) which oversees the operations of the Latvian Association of Certified Auditors (LACA) and overall quality control requirements in statutory audit. Based on the Law on Audit Services of January 1, 2017, the MoF has delegated some supervisory functions to LACA, particularly in the supervision of certified (sworn) auditors and commercial companies of sworn auditors.

    The AOC is a collaborative body established in 2012 and does not have legal personality; it operates as a separate Commission under the Department of Taxes Administration and Accounting Policy within the MoF. Up to December 2014, AOC is comprised of three professionals employed by the MoF: the Head of the AOC (senior expert on auditing), one senior desk officer and one legal counsel. Starting December 2014, a senior expert from the European Union Funds - Audit Department assists the AOC department. Besides overseeing LACA activities, AOC responsibilities also include drafting laws in the field of auditing, co-operation with institutions of other European Union countries in the field of audit, coordinating the authorized representatives of the MoF who perform inspections of compliance with the quality control requirements over certified auditors of PIEs, report on the findings of the compliance reviews and issue recommendations.

    Latvia is not a member of 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 accountants and offer the Certified Professional Accountant Certification launched in 2000. 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 is advocating a licensing scheme for accounting services providers and has developed its own voluntary certification. For the last 20 years, it has been actively involved in the development of the Latvian accounting profession, participated in the work of the former Accounting Board in the development of Latvian accounting standards, contributed to development and implementation of public policy on accounting issues in Latvia. AARL is an associate member of Accountancy Europe, a member of the European Accounting Association, International Association for Accounting Education and Research, and European Institute for Advanced Studies in Management.

    Latvian Association of Certified (Sworn) Auditors (LACA)

    LACA is an independent professional corporation that was founded in 1994 according to the Law on Sworn Auditors of January 22, 2004. The aim of LACA is to facilitate the development of audit profession at the national level and to ensure that the firms of certified auditors operate according to the International Standards on Auditing (ISAs). LACA has a wide range of responsibilities according to the Law on Audit Services. including: (i) organizing professional education and examination; (ii) issuing licenses for audit firms and certified auditors and conducting quality assurance of their work; (iii) organizing continuing professional education; (iv) reviewing disputes; and (v) maintaining registers of auditors, including audit firms and individuals. LACA translates ISAs, provides training for certified auditors, quality control of audit engagements, and maintains the system for disciplinary processes.

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

  • Projects or Other Information

    The Latvian Association of Certified Auditors and the Association of Accountants in the Republic of Latvia established a cooperation agreement in 2012 with the objective of enhancing the Latvian financial reporting framework. The agreement covers collaboration on the following issues: (i) creating favourable conditions for the development of accountants, auditors and other related professions in Latvia; (ii) achieving a qualitative development of the Latvian financial reporting system, including the introduction of the requirements of the EU legislation, IFRS, as well as other standards imposed by the IFAC; (iii) improving the quality of financial reporting as well as the implementation of best practice models in the field of accounting, financial reporting and auditing.

Adoption of International Standards

  • Quality Assurance

    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 establishment and implementation of the 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 of the Latvian Audit Oversight Commission which is part of the Ministry of Finance. Since 2005, LACA has established a quality control system and guidance, based on the International Standard on Quality Control 1 (ISQC 1) back in 2005. According to LACA, the QA system complies with the requirements of the SMO 1. The MoF performs inspections of QA reviews of public interest entities (PIEs) audits performed by LACA every three years. Auditors of PIEs are inspected every five years by LACA.

    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 its members and the association has established a partnership with the Institute of Certified Accountants from England and Wales for technical support.

    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 Oversight Commission under the Ministry of Finance.

    LACA reports that IPD and CPD requirements for statutory auditors are mostly in line with the requirements set in IES. The translated and approved IES were posted on the members’ area of LACA’s website at http://www.lzra.lv/.

    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 appear to have been incorporated into the national requirements for auditors, the extent of alignment with the IES needs to be clarified.

    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). LACA has translated the 2016 ISA Handbook and a number of subsequently issued ISAs. As of 2020, there is no indication that the latest 2018 IAASB Handbook is being applied.

    Current Status: Partially Adopted

  • Code of Ethics for Professional Accountants

    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 Latvian Association of Certified Auditors (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 Association of Accountants of the Republic of Latvia (AARL) have supplemented these legal requirements by adopting the full IESBA Code of Ethics as translated by LACA. The currently effective version is the 2018 IESBA Code of Ethics.

    AARL reports that since 2011 its members are required to comply with the IESBA Code, which it translates jointly with LACA.

    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 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) through the Audit Oversight Commission, 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 QA review system and the I&D system. In addition, LACA also reports that the existing I&D arrangements for auditors has 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 requirements.

    Current Status: Partially Adopted

  • International Financial Reporting Standards

    The Law on Annual Financial Statements and Consolidated Financial Statements of January 1, 2016 set the requirements for the preparation of corporate financial statements in Latvia. The law outlines accounting standards to be applied based on company size and type: EU-endorsed IFRS, which contain some carve-outs from IFRS as issued by the IASB, or Latvian Accounting Regulations, which constitute the Latvian Generally Accepted Accounting Principles. The Ministry of Finance is responsible for setting accounting standards and preparation of financial statements both for private and public entities.

    The Financial Instrument Market Law defines that consolidated financial statements of a capital company, whose transferable securities are admitted to trading on a regulated market, shall be prepared in accordance with IFRS as endorsed by EU. In addition this law defines that financial statements of a capital company, whose transferable securities are admitted on the official list in the Republic of Latvia or debt securities are admitted to trading on a regulated market, shall be prepared in accordance with IFRS as endorsed by EU.

    The Law on Annual Financial Statements and Consolidated Financial Statements states several cases when companies shall or may derogate from the principles and regulations laid down in the Law on Annual Financial Statements and Consolidated Financial Statements and measure items in the financial statements, prepare financial statements and provide explanatory information in the notes to the financial statements in accordance with IFRS as endorsed by EU: (i) a development financial institution and a commercial company, which in accordance with the Financial Instrument Market Law prepare annual financial statements and consolidated financial statements in accordance with IFRS as endorsed by EU; (ii) a large state capital company may prepare annual financial statements in accordance with IFRS as endorsed by EU (a large company is a company which on the balance sheet date exceeds least two of the following criteria: total balance sheet – € 20 million, net revenue – € 40 million, an average of 250 employees); (iii) a parent in a group of companies may prepare consolidated annual financial statements in accordance with IFRS as endorsed by EU.

    In accordance with Latvian laws and regulations, all banks, insurance commercial companies, and other supervised financial institutions including those whose securities do not trade in a regulated market require IFRS as endorsed by EU in both the consolidated and separate company financial statements.

    IFRS for SMEs has not been adopted in Latvia.

    Current Status: Partially Adopted

Disclaimer

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Methodology

Methodology
Last updated: 10/2020
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