In the year 1999 Georgia adopted International Accounting Standards (IAS) with enforcement of the Law on the Regulation of Accounting and Financial Reporting (Law of Georgia N 1796 adopted on 5 February 1999). IAS has been renamed as as IFRS (International Financial Reporting Standards) in 2001.
General accounting principles
IFRS, as promulgated by IASB (International Accounting Standards Board), has been translated and fully adopted and made mandatory as the only reporting standards in Georgia for a majority of enterprises (excluding sole entrepreneurs, small businesses and non-commercial legal entities).
Sole entrepreneurs, small businesses and non-commercial legal entities perform accounting and financial reporting following the simplified interim standards, approved by the parliamentary Accounting Commission. The main functions of the Accounting Commission are:
1. Approval of Georgian IFRS (IAS) translations and interpretations.
2. Approval of temporary accounting standards (those issues not covered by IFRS).
3.Approval of a chart of accounts structure based on IFRS.
Obligations and publications
The accounting and reporting regulations covers all enterprises, except small ones. A small enterprise is defined as a company with a staff strength of not more than 10 members and has a maximal annual profit of GEL 40,000. Accounting must be full, accurate, clear, based on double reporting, closely connected with the nomenclature of the account, and with the previous year's data.
Itís the obligation of the following to prepare the financial statements as per IFRS (IAS) and submit it by:
a) Tax payers : Before 1st April to relevant tax inspectorate.
b) Accountable Joint stock companies : An interim Financial Statement (FS) twice per year within 45 days after completion of any 6 month period of a year and annual FS within 90 days of the completion of the financial year to the commission of securities.
c) Banking institutions : Annual FS to National Bank of Georgia.
d) Insurance companies : Annual FS to State Supervision Service of Insurance.
Certification and auditing
The Law of Georgia Concerning Auditing Activity, adopted in 1997, is a legal framework for carrying out auditing activity in Georgia.
There are two types of auditing:
a) Compulsory audit: Applicable to :- limited liability companies, banks, insurance-agencies, issuers of securities and investment organizations, other organizations included in the list acknowledged annually by the Ministry of Finance of Georgia.
b) Voluntary audit: Carried out at the initiative of an economic subject on the basis of a relevant agreement.
The licensing of the auditors and auditing companies is carried out by an Audit Council, which functions under the parliament of Georgia. An auditing license is valid for five years. The Audit Council formulates the state regulations of auditing, the subject of audit, the rules of conducting activities, the rights and obligations of the parties in the audit.
Professionals and representative organizations
1. Georgian Federation of Professional Accountants and Auditors
2. Georgian Department of Audits and Accounts (GDAA)
A new draft law, which has not yet been adopted, frees limited liability companies from a compulsory auditing. There are about 250 licensed auditing firms operating in Georgia now, but the abolition of a compulsory audit for limited liability companies will probably abate the demand for this service, especially considering the fact that the most common organizational-legal form of enterprise in Georgia is a limited liability company. The adoption of a new law will result in the withdrawal of the largest consumer segment from this market.