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.

    Accounting Framework

    After the 2013 EU Accounting Directive was adopted in Latvia, the new Law on 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.

    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, admitted on the official list in the Republic of Latvia, or debt securities are admitted to trading on a regulated market, be prepared in accordance with EU-endorsed IFRS.

    The Law on Annual Financial Statements and Consolidated Financial Statements states several cases when companies may deviate 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 and is not under consideration for adoption.

    Auditing Framework

    Auditing requirements are set in the Law on Audit Services as amended in July 2019 (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 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 €4 million; net revenue of €8 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 regulates sworn (certified) auditors in Latvia. The law establishes 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, developed by Latvian Association of Certified Auditors (LACA)’s Examination Committee.

    Under the Law on Audit Services, the Ministry of Finance (MoF) is responsible for the regulation and public oversight of auditors through its Commercial Companies Audit Policy and Oversight Unit (CCAPOU). Its responsibilities include approval of the certification of certified auditors, the licensing of commercial companies of certified auditors, drafting laws related to auditing, co-operation with institutions of other EU countries in the field of audit, performing quality assurance reviews for audits of public interest entities and reporting on those findings, and conducting the investigation and disciplinary procedures for auditors of public interest entities.

    Additionally, under the Law on Audit Services, the Audit Advisory Council (AAC) was established by the Minister of Finance as a consultative body to promote high quality of audit services, raise public awareness of issues in the field of auditing, and to protect the public interest. Through both the CCAPOU and the AAC, the Ministry of Finance supervises the activities of the Latvian Association of Certified Auditors (LACA) – LACA grants the title of Certified Auditor and 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, subject to oversight and approval of the CCAPOU; (iii) organizing continuing professional education; (iv) maintaining electronic registers of the Certified Auditors, commercial companies of certified auditors’ and Register of Third Country Auditors and Commercial Companies of Auditors; (v) conducting quality assurance reviews for audits of non-PIEs; and (vi) the investigation and disciplinary procedures for auditors of non-PIEs.

    Provision of accounting services is not regulated at the state level. Professional accountants may voluntarily join the Association of Accountants of the Republic of Latvia (AARL) and then be subject to its regulation. AARL developed a voluntary Professional Accountant certification in 2000 to improve the expertise and competencies of the preparers of financial statements in Latvia. Certificate-holders of AARL are required to have a university degree, have three years of work experience as a chief accountant or five years as accountant, or five years in another top-level position related to economics and requiring knowledge in accountancy, pass a series of professional examinations, and then fulfill CPD requirements once a member of AARL.

    A majority of AARL members are certified and hold the certificate. 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.

  • Audit Oversight Arrangements

    Latvia has introduced substantial changes in the audit oversight system 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 Ministry of Finance (MoF) is responsible for the regulation and public oversight of auditors through its Commercial Companies Audit Policy and Oversight Unit (CCAPOU). Its responsibilities include approval of the certification of certified auditors, the licensing of commercial companies of certified auditors, drafting laws related to auditing, co-operation with institutions of other EU countries in the field of audit, performing quality assurance reviews for audits of public interest entities and reporting on those findings, and conducting the investigation and disciplinary procedures for auditors of public interest entities.

    Additionally, under the Law on Audit Services, the Audit Advisory Council (AAC) was established by the Minister of Finance as a consultative body to promote high quality of audit services, raise public awareness of issues in the field of auditing, and to protect the public interest. Through both the CCAPOU and the AAC, the Ministry of Finance supervises the activities of the Latvian Association of Certified Auditors (LACA) – LACA grants the title of Certified Auditor and ensures compliance with professional standards and ethical norms, as well as other regulatory enactments applicable to the profession.

  • 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 offers the Professional Accountant certification launched in 2000. Membership in AARL is voluntary and is open to all representatives of the accountancy profession, including internal auditors, tax consultants, bookkeepers, and members of the academia. For the last 20 years, it has been actively involved in the development of the Latvian accounting profession and contributed to development and implementation of public policy on accounting issues in Latvia. In addition to IFAC membership, AARL is a member of Accountancy Europe, and the European Accounting Association.

    Latvian Association of Certified (Sworn) Auditors (LACA)

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

  • Projects or Other Information

Adoption of International Standards

  • Quality Assurance

    The Law on Audit Services, last amended in July 2019, 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 Ministry of Finance is responsible for the inspections of audits of public interest entities (PIEs) while the reviews of audits of non-PIEs are administered by the Latvian Association of Certified Auditors (LACA). All LACA activities are subject to the oversight of the Ministry of Finance through the Commercial Companies Audit Policy and Oversight Unit (CCAPOU) and the Audit Advisory Council (AAC). According to LACA, the QA system complies with the requirements of the SMO 1.

    Current Status: Adopted

  • International Education Standards

    The Law on Audit Services as amended in July 2019 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 Ministry of Finance.

    Education requirements for auditors include higher education (bachelor) in economics, finance, or management; 3 years practical training; and passing final examinations administered by LACA. LACA states that the university curricula provide necessary technical competence, professional skills, and practical experience for the entry level position in auditing firms. CPD requirements of LACA are 120 hours over a 3-year period, which aligns with input approaches of IES 7 and 8. While it seems that requirements of the 2015 revised IES are in place for auditors (such as competency-based approaches), further information on the adoption of IES effective as of January 2021 (IES 2, 3, 4, and 8) is needed for an Adopted rating.

    Additionally, while legislation does not specify any IPD or CPD requirements for accountants, the Association of Accountants of the Republic of Latvia (AARL), a voluntary organization, establishes IPD and CPD requirements for its members. AARL developed a voluntary Professional Accountant certification in 2000 to improve the expertise and competencies of the preparers of financial statements in Latvia. Certificate-holders of AARL are required to have a university degree, have three years of work experience as a chief accountant or five years as accountant, or five years in another top-level position related to economics and requiring knowledge in accountancy, and pass a series of professional examinations. AARL reports that the certification program was developed in accordance with the IES but indicates it will review IES effective as of January 2021 (IES 2, 3, 4) to determine if any changes in AARL’s qualification programming are needed.

    AARL also has a CPD requirement for members which it states meets IES 7. IES 8 is not applicable to AARL members.

    Current Status: Partially Adopted

  • International Standards on Auditing

    The Law on Audit Services as amended in July 2019 requires the 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 the revisions to ISA 240 and 250 in the 2018 IAASB Handbook. All LACA activities are subject to the oversight of the Ministry of Finance.

    Current Status: Adopted

  • Code of Ethics for Professional Accountants

    Various aspects of the IESBA Code of Ethics have been incorporated into the Law on Audit Services as amended in July 2019. Under the Law, certified auditors must abide by the IESBA Code of Ethics, as translated by the Latvian Association of Certified Auditors (LACA), 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.

    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 national standards with accrual-based principles (IFAC, CIPFA 2020) and the financial statements for central and local government and government-related entities are broadly IPSAS compliant, apart from accounting for tax revenue which will continue to be on a cash-basis through 2021.

    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 as amended in July 2019. Under the law, the I&D function for certified auditors is shared between the Ministry of Finance (MoF) and the Latvian Association of Certified Auditors (LACA). MoF’s mandate includes the oversight of LACA’s activities, including investigation and discipline. The Ministry of Finance is responsible for the I&D regarding auditors of public interest entities.

    LACA has established I&D mechanisms for its members and LACA reports that the I&D system is in-line with the SMO 6 requirements. 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.

    Additionally, the Association of Accountants of the Republic of Latvia (AARL), has also established an I&D system for its members that join on a voluntarily basis. AARL reports that the system fulfills most SMO 6 requirements – it does not have a separate investigations and disciplinary committee. Both investigations and disciplinary decisions are done by the Ethics Committee. AARL is currently developing regulations on I&D for AARL members who are acting in public practice regarding any violation of the quality of accountancy services provided. In 2022, it is envisioned that AARL’s Accounting Outsourcing Committee will have an investigation function regarding quality of services and work performed by these members and the AARL’s Ethics Committee will separately perform the disciplinary function.

    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, 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, are admitted on the official list in the Republic of Latvia or debt securities are admitted to trading on a regulated market, be prepared in accordance with IFRS as endorsed by the EU. EU-endorsed IFRS have slight modifications from IFRS (e.g., temporary 'carve-out' from IAS 39 Financial Instrument: Recognition and Measurement and a temporary extension of the scope of applying IFRS 9 Financial Instruments with IFRS 4 Insurance Contracts) but according to the IFRS Foundation, the majority of companies can state full compliance with the IFRS.

    The Law on Annual Financial Statements and Consolidated Financial Statements states several cases when companies may deviate from the Latvian Generally Accepted Accounting 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 but may be referred to for guidelines.

    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: 11/2021
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