Montenegro

Member Organizations

Member Organization Associate Other PAOs

  Institute of Accountants and Auditors of Montenegro
  Institute of Certified Accountants of Montenegro

Legal and Regulatory Environment

  • Overview of Statuatory Framework for Accounting and Auditing

    The accounting, auditing, and financial reporting framework for legal entities within Montenegro is defined by the Law on Business Organization of 2002, the Law on Accounting No. 052 of 2016, and the Law on Auditing No. 001 of 2017.

    The Law on Business Organizations outlines the formation, operation, and dissolution of all legal entities in Montenegro. For joint stock companies, it establishes financial reporting requirements, which include the requirement to prepare and submit audited financial statements to shareholders.

    Article 5 of the Law on Accounting No. 052 of 2016 introduces the following categories of entities for financial reporting purposes based on their size:

    Micro entities: an average number of employees that does not exceed 10; total annual revenue that does not exceed EUR 700,000; and total assets that do not exceed EUR 350,000;

    Small entities: an average number of employees higher than 10, but less than 50; total annual revenue in excess of EUR 700,000.00 and less than EUR 8,000,000; and total assets increased by EUR 350,000.00 and less than EUR 4,000,000;

    Medium entities: an average number of employees greater than 50, but less than 250; total annual revenue in excess of EUR 8,000,000, and less than EUR 40,000,000; and total assets increased from EUR 4,000,000, and less than EUR 20,000,000; and

    Large entities: an average number of employees greater than 250; total annual revenue is in excess of EUR 40,000,000; and total assets above EUR 20,000,000.

    Key pieces of secondary legislation aimed at enabling implementation of the requirements in the aforementioned laws include the (i) Decree on Entrusting of Affairs of Public Administration Bodies Competent for Accounting and Auditing No. 33/10 of 2010 (Decree No. 33/10); (ii) Rulebook on Form and Content of Forms of Financial Statement of Companies and Other Legal Entities of 2011; and (iii) Rulebook on Form and Content of Forms of Financial Statement of Investment Funds of 2012.

    In addition to the requirements of the above laws and regulations, banks, insurance companies, and listed entities must comply with financial reporting requirements specified in the Law on Banks of 2008, Law on Insurance Companies of 2006, and Law on Securities of 2000, respectively.

    In general, these laws grant supervisory bodies such as the Central Bank of Montenegro, the Insurance Supervision Agency, and the Securities Commission the authority to specify accounting, auditing, and financial reporting requirements.

    Accounting Framework

    The Law on Accounting No. 052 of 2016 stipulates that legal entities are required to prepare financial statements in accordance with IAS or IFRS and promulgated by the Ministry of Finance or legal entity entrusted with the execution of these operations (i.e., competent authority). Under the Law on Accounting No. 052 of 2016, the competent authority must be a member of IFAC and obtain related rights. The Decree No. 33/10 acknowledges the Institute of Certified Accountants of Montenegro (ICAM) as the competent authority for accounting and auditing activities referred to in the Law on Auditing No. 001 of 2017 and the Law on Accounting No. 052 of 2016 as the holder of the Consortium with the University of Podgorica Faculty of Economics of Montenegro and the Serbian Association of Accountants and Auditors.

    Auditing Framework

    The Law on Auditing No. 001 of 2017 regulates the conditions and manner of performing audits of financial statements. Under the Law, audits are mandatory for (i) public interest entities (PIEs); (ii) medium-sized entities; (iii) parent legal entities, which together with subsidiaries are eligible for inclusion in the group of medium or large entities; (iv) investment companies; (v) investment funds; (vi) companies for managing investment funds; (vii) voluntary pension funds; (viii) companies for managing the voluntary investment funds; (ix) and other investment schemes.

    PIEs, under the same Law, are defined as either (i) a person or entity issuing securities and other financial instruments traded in a regulated market; (ii) banks and other financial institutions; (iii) insurance companies; or (iv) large legal entities as defined in the Law on Accounting No. 052 of 2016.

    The Law requires audits to be conducted in accordance with ISA as issued by the IAASB and promulgated by the Ministry of Finance or a competent authority entrusted by the Ministry (as of 2017, ICAM).

  • Regulation of Accountancy Profession

    Certified Accountants and Certified Auditors are the only categories of accountancy professionals regulated in Montenegro. They are regulated at the state level by the Ministry of Finance and the newly established Council for Audit, which has not yet become operational as of the time of the assessment. Some of the regulatory functions were delegated from the Ministry of Finance to the Institute of Certified Accountants of Montenegro (ICAM) through the Decree on Entrusting of Affairs of Public Administration Bodies Competent for Accounting and Auditing No. 33/10 of 2010 (Decree No. 33/10).

    ICAM is entrusted with the responsibility to (i) adopt, translate, and publish international accounting and auditing standards as well the IESBA Code of Ethics for Professional Accountants; (ii) organize and conduct the certification program for Certified Accountants; (iii) organize initial and continuing professional development (IPD and CPD, respectively) for other categories of professional accountants; and (iv) maintain a registry of Certified Accountants.

    The Law on Accounting No. 052 of 2016 establishes IPD requirements for Certified Accountants and authorizes the Ministry of Finance to oversee the certification of Certified Accountants that is entrusted to ICAM. Certification is administered by ICAM in accordance with the same Law and the Decree No. 33/10.

    A candidate can apply for the professional title Certified Accountant if he/she (i) acquired a university degree or the professional title of Management Accountant; (ii) completed three years of practical experience; (iii) passed the examinations for acquiring the title Certified Accountant administered by ICAM; and (iv) provided proof that he/she has not been convicted of a crime that makes them unworthy to perform accounting tasks.

    The Law on Accounting No. 052 of 2016 also provides that individuals with foreign qualifications are eligible to acquire the Certified Accountant qualification if their qualification is obtained from a member of IFAC and provided the certification and training process is equivalent to those of ICAM.

    Certified Auditors are regulated under the Law on Auditing No. 001 of 2017, which outlines the procedures for licensing, registration, and CPD of Certified Auditors; establishes auditing standards; requires maintaining an audit registry; establishes the Council for Audit as an oversight body; and authorizes the Ministry of Finance to regulate the audit activity.

    Specifically, the Ministry of Finance is responsible for (i) issuing/revoking auditor licenses; (ii) managing the registry of Certified Auditors; (iii) validating licenses for candidates from the European Union (EU); (iv) ensuring implementation of IPD and CPD requirements for Certified Auditors; (v) controlling implementation of a mandatory quality assurance review system for all audits; and (vi) supervising the Council for Audit in its investigation and discipline of Certified Auditors.

    As the entity responsible for issuing licenses to provide auditing services, the Ministry of Finance requires prospective Certified Auditors to satisfy the following criteria (i) acquire the title of Certified Accountant from ICAM; (ii) complete practical experience in the area of auditing for a minimum of three years, of which at least two years are under the supervision of another Certified Auditor; and (iii) provide proof that they are not guilty of a criminal offense that makes them unworthy to carry out auditing.

    Article 11 of the Law on Auditing No. 001 of 2017 stipulates that an auditor license can also be obtained by recognition of titles granted by EU Member States. The procedures require verification of compliance with the abovementioned initial professional development requirements.

    The Law on Auditing No. 001 of 2017 mandates the establishment of a Council for Audit to (i) monitor the implementation of auditing standards; (ii) provide advice to policy-makers, regulators and government entities; (iii) provide technical assistance to improve the quality of financial reporting; (iv) publish reports on the transparency of auditing firms or Certified Auditors; (v) provide opinions on various issues such as CPD and training; (vi) improve audit practices in Montenegro; and (vii) establish an investigative and disciplinary system for Certified Auditors.

    In addition, auditors of entities regulated by the Central Bank of Montenegro, the Insurance Supervision Agency, and the Securities Commission must be approved by the respective regulators.

    Other segments of accountants can also choose to become members of a professional accountancy organization (PAO), in which case they become subject to the PAO’s regulations. Both ICAM and the Institute of Accountants and Auditors of Montenegro establish IPD and CPD requirements, establish ethical requirements, and investigate and discipline their members.

  • Audit Oversight Arrangements

    An independent audit oversight authority does not exist in the jurisdiction.

    Certified Auditors are regulated under the Law on Auditing No. 001 of 2017 by the Ministry of Finance and the newly established Council for Audit. The law outlines the procedures for licensing, registration, and continuing professional development (CPD) of Certified Auditors; establishes auditing standards; requires maintaining an audit registry; establishes the Council for Audit as an oversight body; and authorizes the Ministry of Finance to regulate the audit activity.

    The Council for Audit has not yet become operational as of the date of this assessment, but will be responsible for (i) monitoring the implementation of auditing standards; (ii) providing advice to policy-makers, regulators and government entities; (iii) providing technical assistance to improve the quality of financial reporting; (iv) publishing reports on the transparency of auditing firms or Certified Auditors; (v) providing opinions on various issues such as CPD and training; (vi) improving audit practices in Montenegro; and (vii) establishing an investigative and disciplinary system for Certified Auditors.

    As for the Ministry of Finance, it is responsible for (i) issuing/revoking auditor licenses; (ii) managing the registry of Certified Auditors; (iii) validating licenses for candidates from the European Union; (iv) ensuring implementation of initial and continuing professional development requirements for Certified Auditors; (v) controlling implementation of a mandatory quality assurance review system for all audits; and (vi) supervising the Council for Audit in its investigation and discipline of Certified Auditors.

    Lastly, the Institute of Certified Accountants of Montenegro has been delegated the authority to adopt, translate, and publish applicable auditing and ethical standards through the Decree on Entrusting of Affairs of Public Administration Bodies Competent for Accounting and Auditing No. 33/10 of 2010.

  • Professional Accountancy Organizations

    There are two operational professional accountancy organizations (PAOs) in Montenegro and membership in both organizations is voluntary. A Chamber of Auditors was founded in 2009; however, it never became operational.

    The Institute of Accountants and Auditors of Montenegro (IAAM)

    IAAM is the older of the two organizations established under the Law on Accounting and Auditing of 2002. IAAM was responsible for the certification of auditors and regulation of the profession until 2005, when the Law on Accounting and Auditing of 2005 was passed. In 2007, the Ministry of Finance delegated the responsibility for the education, examination and certification of auditors to the Institute of Certified Accountants of Montenegro (ICAM). Since ICAM was awarded this responsibility, IAAM’s main focus is to (i) promote the profession in Montenegro; (ii) train and educate accounting professionals; and (iii) support the organizations within Montenegro that have authority over Statements of Membership Obligations areas. Its membership is comprised of accountants.

    IAAM is an Associate member of IFAC.

    The Institute of Certified Accountants of Montenegro (ICAM)

    ICAM is a non-governmental, not-for-profit PAO that was established in 2006 as a professional association of accountants and auditors subsequent to a decision to split IAAM membership. ICAM’s membership is voluntary and comprises Certified Accountants, Management Accountants, Bookkeepers, and Students. ICAM members provide accounting, consulting (tax, finance), and auditing (internal, external) services. In 2016, ICAM reported that close to 50% of ICAM membership is involved in public practice, with the remaining 25% divided between business/industry, public sector, academia/education, student, and retired members.

    It is acknowledged by the Decree on Entrusting of Affairs of Public Administration Bodies Competent for Accounting and Auditing No. 33/10 of 2010 (Decree No. 33/10) as the competent authority for accounting and auditing activities referred to in the new Law on Accounting No. 052 of 2016 and the new Law on Auditing No. 001 of 2017. The Decree No. 33/10 puts forth that the competent authority—ICAM—is the holder of a Consortium with the University of Podgorica Faculty of Economics of Montenegro and the Serbian Association of Accountants and Auditors.

    ICAM is entrusted with the responsibility to (i) adopt, translate, and publish international accounting and auditing standards as well the IESBA Code of Ethics for Professional Accountants; (ii) organize and conduct the certification program for Certified Accountants; (iii) organize initial and continuing professional development for other categories of professional accountants; and (iv) maintain a registry of Certified Accountants.

    In addition to being an Associate member of IFAC, ICAM is an Associate member of Accountancy Europe, previously known as the Federation of European Accountants.

  • Projects or Other Information

    The Centre for Financial Reporting Reform of the World Bank provided implementation support to the Government of Montenegro through the Institutional Development Fund project Capacity Building for Effective Audit Oversight, which was launched in 2013 and completed in 2016. Implementation support involved providing technical assistance to the Government of Montenegro in establishing a system of public oversight and quality assurance for the statutory audit function, which was adopted by the new Law on Auditing No. 001 of 2017.

    Additionally, the World Bank provided monetary support to the Institute of Certified Accountants of Montenegro (ICAM) to strengthen its capacity and undertake the following strategic activities (i) enhance the continuing professional development program for members; (ii) carry out a review of ICAM membership requirements and members’ services operations to improve the range and quality of services offered to members; (iii) support the enhancement of the internal quality control regime of the auditing profession if selected by the Ministry of Finance for these activities following the adoption of the new Law on Auditing; (iv) enhance ICAM’s educational, training, and examination programs; (v) promote awareness of good corporate disclosure and transparency; (vi) meet IFAC full membership requirements; and (vii) identify activities to support the commercial development of ICAM.

    Further interventions are envisioned as part of the additional funding to support implementation of the newly adopted laws.

Adoption of International Standards

  • Quality Assurance

    The Law on Auditing No. 001 of 2017 introduced the requirement to establish a mandatory quality assurance (QA) review system for all audits, supervised by the Ministry of Finance and implemented by the Council for Audit. However, as of the date of the assessment, no mandatory QA review system has been established, but is expected to be operational beginning 2018.

    Prior to the adoption of the Law on Auditing No. 001 of 2017, in the absence of a legal requirement to conduct QA reviews, the Institute of Certified Accountants of Montenegro (ICAM) developed a pilot voluntary QA system for its members and established a self-regulatory requirement for its members to use ISQC 1. According to the information reported by ICAM, a formal system has not been introduced and the existing voluntary system does not fulfill all the requirements of SMO 1 since it falls short in terms of consideration of public oversight. ICAM reports that it did not proactively address the gaps in light of the envisioned adoption of the new legal requirements and the establishment of the Council for Audit.

    Current Status: Partially Adopted

  • International Education Standards

    Initial and continuing professional development (IPD and CPD, respectively) requirements for Certified Accountants and Certified Auditors are established in the Law on Accounting No. 052 of 2016 and the Law on Auditing No. 001 of 2017, and are implemented by the Ministry of Finance, the Institute of Certified Accountants of Montenegro (ICAM), and the Institute of Accountants and Auditors of Montenegro (IAAM). Tertiary education is provided by universities, and according to the World Bank 2017 Accountancy Education: Benchmarking Study, master’s and undergraduate programs compare well against the IES requirements.

    ICAM, the only accredited provider of classroom-based trainings, organizes and conducts the program for Certified Accountants in accordance with the Decree on Entrusting of Affairs of Public Administration Bodies Competent for Accounting and Auditing No. 33/10 of 2010. ICAM developed its professional education and training program in line with the Montenegrin National Accounting Educational Standard, which is based on IES, the IESBA Code of Ethics for Professional Accountants, and relevant European Union Directives.

    The Centre for Financial Reporting Reform of the World Bank provided support to the Government of Montenegro as well as ICAM (see 2017 Accountancy Education: Benchmarking Study) which launched in 2013 and completed in 2016, to enhance educational requirements. Upon completing the project, the World Bank determined that although ICAM’s program incorporates most of the IES requirements related to IPD, a structured review and update to the education program and the teaching resources of ICAM is needed. Specifically, greater alignment in areas such as Governance, Risk and Ethics, and Advanced Financial and Performance Management would be beneficial. CPD and practical experience requirements, as well as the enforcement of the requirements, also need to be further aligned with those of IES.

    IAAM, which offers voluntary Accountant and Authorized Accountant designations, was not included in the World Bank’s benchmarking study. The extent of alignment with IES remains to be established.

    Current Status: Partially Adopted

  • International Standards on Auditing

    The Law on Auditing No. 001 of 2017 requires all mandatory audits to be conducted in accordance with ISA as issued by the IAASB and translated and published by the designated competent authority, the Institute of Certified Accountants of Montenegro.

    The 2016 version of ISA has been translated and is being applied.

    Current Status: Adopted

  • Code of Ethics for Professional Accountants

    The Law on Accounting No. 052 of 2016 and the Law on Auditing No. 001 of 2017 adopted the IESBA Code of Ethics as issued by IESBA for application by Certified Accountants and Certified Auditors, respectively.

    As the competent authority under the Decree on Entrusting of Affairs of Public Administration Bodies Competent for Accounting and Auditing No. 33/10 of 2010, the Institute of Certified Accountants of Montenegro (ICAM) has responsibility for translating the IESBA Code of Ethics and indicates that the 2016 version of the Code has been translated, published, and is being applied by Certified Accountants and Certified Auditors, as well as other ICAM members.

    Current Status: Adopted

  • International Public Sector Accounting Standards

    The Law on State Property of 2009 and the Law on Financing of Local Self-Government of 2010 prescribe accounting standards for the public sector in Montenegro, and put forth that the Ministry of Finance is the responsible entity for implementation.

    The Rulebook on the Method of Making and Submitting of Financial Statements of the Budget, State Funds and Units of Local Self-Government of 2010 prescribes the application of accounting standards that are based on IPSAS but use a cash- and a modified cash-basis of accounting. The Government of Montenegro, in its Strategy for 2015, stated that it plans to introduce the accrual-basis of accounting in the public sector by 2018.

    Current Status: Partially Adopted

  • Investigation and Discipline

    The Law on Auditing No. 001 of 2017 mandates the establishment of an investigative and disciplinary (I&D) system for Certified Auditors in the jurisdiction, which was not in place prior to the adoption of the law in 2017.

    The law outlines requirements for conduct as well as applicable sanctions for breaches of conduct for Certified Auditors and requires the establishment of a Council for Audit to investigate and discipline Certified Auditors under the supervision of the Ministry of Finance. As of the time of the assessment, the Council for Audit has not become operational.

    As for Certified Accountants in the jurisdiction, the Law on Accounting No. 05 of 2016 stipulates that the competent authority, the Institute of Certified Accountants of Montenegro (ICAM), can impose sanctions against individuals that violate any provisions of the law.

    Prior to the adoption of the Law on Auditing No. 001 of 2017, in the absence of a legal requirement to conduct an I&D system, ICAM reports that it has operated its own system for its members largely in line with SMO 6 requirements, with the exception of two areas that need to be improved—imposing an extensive range of penalties, and public interest considerations. ICAM has delayed revising its I&D system pending the adoption of the new laws and the introduction of the new requirements at the jurisdictional level. As of 2017, ICAM reports that its role in I&D is likely to change and the system will be revised accordingly.

    Based on the information provided by the Institute of Accountants and Auditors of Montenegro (IAAM), the mechanisms IAAM established for the I&D of its members, who voluntarily become members of the institute, need to be further enhanced to be aligned with SMO 6.

    Current Status: Partially Adopted

  • International Financial Reporting Standards

    The Law on Accounting No. 052 of 2016 requires that all legal entities prepare financial statements in accordance with IAS/IFRS as translated and published by the designated competent authority, the Institute of Certified Accountants of Montenegro.

    The latest version of IFRS translated into the Serbian language is the full 2009 version and a number of standards from the 2013 Handbook, which were translated in cooperation with the University of Podgorica Faculty of Economics of Montenegro and the Serbian Association of Accountants and Auditors.

    IFRS for Small- and Medium-sized Enterprises was translated in 2013 but is not mandatory for application. There is no indication that there are plans for its adoption.

    Current Status: Partially 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: 11/2017
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