The Albanian legislative act which defines the general principles and rules for the preparation of accounting standards, financial statements and accounting records is the Law on Accounting and Financial Statements (Law No. 9228, dated April 29 2004).
According to Article 3 of this Law, 'accounting standards' are the general principles or rules for the normalisation of accounting, defined by the law, which serve as a basis for the selection of accounting tools and methods that are applied for the preparation and presentation of financial statements. Typically, the National Accounting Council of Albania translates the standards brought forward by the International Accounting Standards Board. The standards are then decreed as valid and effective by the Ministry of Finance. The latest decree issued by the Ministry of Finance on the topic of accounting standards was Decree No. 120, approved on November 6 2017, and subsequently published in the Official Gazette in the same month.
Decree No. 120 issued by the Minister of Finance reflects the changes that have occurred in the accounting standards, which include among other things:
- IFRS 4 (insurance contracts);
- IFRS 2 (payments based on shares);
- IFRS 15 (revenues from contracts with customers); and
- IAS 40 (long-term investment property).
The changes to the standards entered into force and were applicable from January 1 2018. Below we discuss specific details affecting companies.
IFRS 4: The latest changes include the possibility for entities providing insurance contracts to be excluded from the application of IFRS 9. The changes also attempt to address several concerns about the difficulties that may arise due to IFRS 9. Entities that choose to proceed with this exclusion are obliged to provide an explanatory note.
IFRS 2: For share-based payment transactions, in which goods or services are received as part of a share-based payment arrangement, the latest changes include some modalities of financial declarations as regards the methods and tools that will be used for the cash-settled share-based payments. The aim is to introduce guidance for the accounting requirements for cash-settled share-based payments that follows the same approach as used for equity-settled share-based payments.
IFRS 15: The changes introduce the single, principles-based five-step model to be applied to all contracts with customers, regarding revenue recognition, with uniformity for all transactions and for all companies, without differentiating between contracts. Based on the use of the five-step model, the moment of revenue recognition may change. Customer contract revenues, which were previously recognised throughout the term of the contract, in future may be recognised only once and as a whole, at the end of the contract and vice versa. The basic principle of IFRS 15 is that the revenue will be recognised at the moment the products and/or services are transferred into the control of the customer. In order to realise a proper and efficient implementation of the latest changes, it is necessary to increase the importance of valuations, so that each product and/or service part of the contract is recognised at its real value.
IAS 40: This standard provides the possibility for an entity to transfer an asset to, or from, a long-term invested property, but only when there is a change in use. A change in use occurs when a property meets or ceases to fulfill criteria making it an investment property, and there is evidence to support this change in use.
Eurofast advises Albanian companies to examine thoroughly the impact these new standards will have on their operations, particularly as regards IFRS 15. We expect that a number of industries (such as those involved in the supply of contracted long-term services or the sale of licences) will be affected and may need to seek tax advice to ensure tax compliance.
|Dorina Asllani Ndreka|
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