1. A DOPTING THE € IN L ATVIA A CCOUNTING ISSUES Rita Ilisson, MA Economics Member of IASBs Standards Advisory Council (2001-5) Chairman - Estonian Accounting Standads Board (1993-2001) 1 Audit, Taxes and Accounting 2012, Rita Ilisson, Dec.7, 2012

2. T HE EURO AND 2013  April 2013 - European Commission and the European Central Bank will evaluate if Latvia meets the convergence criteria  In 2012 - ≠ legislation, ≠price stabilization, ≠public finances,√exchange rate,√ long-term interest rates,  May 2013 - Convergence Report analyzed   ECOFIN will invite Latvia to join  European Council political decision in June 2013  July 2013 ECOFIN ‘s final decision on accession to the  eurozone and the l at-euro exchange rate 2 Audit, Taxes and Accounting 2012, Rita Ilisson, Dec.7, 2012

3. A DOPTING THE EURO S OURCES  SIC Interpretation 7- Introduction of the Euro  IAS 21 The Effects of Changes in Foreign Exchange Rates Accounting for the introduction of the euro © Copyright 1997, Brussels, European Commission, 3 Audit, Taxes and Accounting 2012, Rita Ilisson, Dec.7, 2012

4. P ROCEDURES  Change in functional currency  IAS 21 35.When there is a change in an entity’s functional currency, the entity shall apply the translation procedures applicable to the new functional currency prospectively from the date of the change.  opening balance is translated at € rate.  all subsequent transactions reported in €.  Stating comparatives  Comparatives are restated using the € rate, without regard for previous fluctuations 4 Audit, Taxes and Accounting 2012, Rita Ilisson, Dec.7, 2012

5. FML IK _311012_EIL_ ENG ; D RAFT L AW ON I NTRODUCTION OF E URO  Section 14. Source Documents and Accounting Registers  (1) On the day of introduction of euro the balance of each accounting register entry and the value of each accounting unit in lats shall be recalculated to the equivalent thereof in euro, in compliance with the conversion rate specified by the Council and the principles of rounding set out in Section 6 of this Law. 5 Audit, Taxes and Accounting 2012, Rita Ilisson, Dec.7, 2012

6. FML IK _311012_EIL_ ENG ; D RAFT L AW ON I NTRODUCTION OF E URO  (2) Starting from the day of introduction of euro, entries in accounting registers shall be made, using euro as the measure of value. Source documents, where the measure of value is lat or another currency, which refer to the accounting period following the day of introduction of euro and which prior to the day of introduction of euro have not been used for entries in accounting registers, shall be recalculated in euro, in compliance with the conversion rate specified by the Council and the principles of rounding set out in Section 6 of this Law, and recorded in accounting registers. ...prospective 6 Audit, Taxes and Accounting 2012, Rita Ilisson, Dec.7, 2012

7. FML IK _311012_EIL_ ENG ; D RAFT L AW ON I NTRODUCTION OF E URO  Section 15. Preparation of Annual Reports  (1) The values of an annual report (or parts thereof) or financial statement for the accounting year, which ends on the day of introduction of euro or later, shall be prepared in euro.  (2) The values of in the first annual report prepared in euro, the indices of the previous accounting year recalculated in euro shall be indicated as comparable indices, in compliance with the conversion rate specified by the Council and the principles of rounding set out in Section 6 of this Law. ...restatement at € rate without regard got previous fluctuations 7 Audit, Taxes and Accounting 2012, Rita Ilisson, Dec.7, 2012

8. FML IK _311012_EIL_ ENG ; D RAFT L AW ON I NTRODUCTION OF E URO  Chapter VI  Measures for Adjusting the Financial Market to the Introduction of Euro  Section 21. Redenomination of Equity Capital Stocks (Shares) of Capital Companies  (1) Denomination of equity capital stocks (shares) from lats to euro shall be performed, preserving the current proportion among the current participants (shareholders) of the company and minimising changes in the equity capital. 8 Audit, Taxes and Accounting 2012, Rita Ilisson, Dec.7, 2012

9. FML IK _311012_EIL_ ENG ; D RAFT L AW ON I NTRODUCTION OF E URO (2) The nominal value of equity capital stocks of a limited liability company shall be expressed in euro. The nominal value of stocks of a joint stock company shall be expressed in euro and euro cents. In expressing the nominal value of equity capital stocks (shares) in euro and euro cents, the conversion rate specified by the Council and the principles of rounding set out in Section 6 of this Law shall be complied with. 9 Audit, Taxes and Accounting 2012, Rita Ilisson, Dec.7, 2012

10. FML IK _311012_EIL_ ENG ; D RAFT L AW ON I NTRODUCTION OF E URO (3) The equity capital of a capital company shall be formed by the number of the equity capital stocks (shares) multiplied by the nominal value of the equity capital stock (share). The value obtained, the residual value resulting from rounding of the equity capital stocks (shares), shall be disbursed to participants (shareholders) of the capital company in proportion to the equity capital stocks (shares) belonging to them. Participants (shareholders) may take a decision on transfer of such value to the reserves of the capital company. 10 Audit, Taxes and Accounting 2012, Rita Ilisson, Dec.7, 2012

11. FML IK _311012_EIL_ ENG ; D RAFT L AW ON I NTRODUCTION OF E URO (4) A capital company, in statutes of which the nominal value of the equity capital stock (share) is expressed in lats, shall, within 30 months from the day of introduction of euro, shall notify amendments to the statutes to the authority of the Enterprise Register, providing for expressing the nominal value of the equity capital stock (share) in euro and document, which includes information about the capital stocks owned by the participants. 11 Audit, Taxes and Accounting 2012, Rita Ilisson, Dec.7, 2012

12. I N E STONIA Changes in Company law Min cap for JSC 25 000 – nom,10€ previously 400 000 EEK 25564.66 Min cap of LLC 2000 – nom 1€ – previously 40 000 EEK 2556.47 € preserving the current proportion among the current participants (shareholders) 12 Audit, Taxes and Accounting 2012, Rita Ilisson, Dec.7, 2012

13. C HANGES IN EU ACCOUNTING REGULATIONS Brussels, 25.10.2011 COM(2011) 684 final 2011/0308 (COD) Proposal for a DIRECTIVE OF THE EUROPEAN PARLIAMENT AND OF THE COUNCIL on the annual financial statements, consolidated financial statements and related reports of certain types of undertakings (Text 13 Audit, Taxes and Accounting 2012, Rita Ilisson, Dec.7, 2012

14. P ROPOSAL – AUDIT REQUIREMENTS ?  Article 3  Categories of undertakings and groups  1. Small undertakings shall be undertakings which on their balance sheet dates do not  exceed the limits of two of the three following criteria:  (a) balance sheet total: EUR 5 000 000;  (b) net turnover: EUR 10 000 000;  (c) average number of employees during the financial year: 50 14 Audit, Taxes and Accounting 2012, Rita Ilisson, Dec.7, 2012