Financial Crime World

Israel’s Compliance and Audit Requirements: A Guide for Businesses

======================================================

Israel is a country with strong economic ties and innovative industries, which has led to strict regulations when it comes to financial reporting and auditing. All companies operating in Israel must comply with these requirements, which vary depending on the type of company and its size.

Types of Companies and Requirements

Individual Entrepreneurs

  • Required to keep accounting records and file simplified accounts
  • Cannot work with legal entities

Private Limited Companies

  • Must employ an accountant and use double-entry accounting
  • File annual reports with the Ministry of Justice

Public Companies

  • Must maintain accounting records, similar to private companies
  • File annual reports with the Securities Authority and the Registrar of Companies
  • Use International Financial Reporting Standards (IFRS) when filing consolidated accounts

Annual Report Requirements

  • All companies must prepare and file an annual report within a specific timeframe
  • The report must contain:
    • Balance sheet
    • Profit and loss statement
    • Cash flow statement
    • Notes to accounts
    • Detailed analysis of the company’s activity, including main financial indicators, sources of funding, and liquidity

Audit Requirements

Mandatory Audit

  • All companies except individual entrepreneurs and small private companies with an annual turnover under 106 shekels must appoint an auditor
  • The auditor must review the company’s financial statements and express an opinion on them

Auditors’ Responsibilities

  • Must be appointed at each annual general meeting and serve until the next meeting
  • Must keep records for at least seven years to allow for inspection by directors and shareholders

Penalties for Non-Compliance

  • Companies that fail to file their annual reports on time may face penalties, including a fine of 119 Israeli shekels and late payment fees
  • Those with subsidiaries must also prepare consolidated accounts in accordance with IFRS, which includes additional financial statements and notes

Conclusion

Israel’s compliance and audit requirements are strict and complex, but essential for businesses operating in the country. Companies must understand these regulations to avoid penalties and ensure transparency and accountability in their financial reporting.