EU Requires IFRS Standards for Listed Companies, but Not for All
The European Union (EU) has taken a significant step towards harmonizing financial reporting across its member states by requiring International Financial Reporting Standards (IFRS) for listed companies. Croatia, one of the EU’s member countries, has adopted IFRS as required by EU law for companies whose securities trade on regulated markets.
Who Needs to Comply with IFRS Standards?
Large entrepreneurs, including publicly traded companies and major private entities, are required to prepare their consolidated and separate company financial statements in accordance with IFRS Standards as adopted by the EU. These companies must also adhere to strict reporting requirements, including the use of specific accounting standards.
Exemptions for Smaller Companies
Smaller companies that do not trade on regulated markets are exempt from this requirement. Instead, they can use Croatian Financial Reporting Standards (CFRS) for their standalone and consolidated financial statements.
Foreign Companies with Public Securities Trading in Croatia
Foreign companies whose debt or equity securities trade in a public market in Croatia must also comply with IFRS Standards as adopted by the EU for their consolidated financial statements, unless they have been deemed equivalent by the European Commission.
Endorsed IFRS Accounting Standards
The EU has endorsed a limited number of IFRS Accounting Standards for domestic companies, including those that are publicly traded. These standards include:
- IAS 1
- IAS 8
- Others
The auditor’s report must state that the financial statements have been prepared in conformity with IFRS Standards as adopted by the EU.
Incorporation of IFRS Standards into National Law and Regulations
Croatia has incorporated IFRS Standards into its national law and regulations, making them a requirement for large entrepreneurs. The country does not have a formal process for endorsing new or amended IFRS Accounting Standards, but rather relies on the EU’s endorsement process.
Translation of IFRS Accounting Standards
The translation of IFRS Accounting Standards is also an important aspect of Croatia’s financial reporting regime. The EU has 24 official languages, and individual IFRS Standards must be translated into all of these languages before they become binding under EU law.
SMEs and IFRS for SMEs Accounting Standard
Croatia has not adopted the IFRS for SMEs Accounting Standard for at least some small and medium-sized enterprises (SMEs). Instead, SMEs that are not required to use IFRS Standards prepare their financial statements in accordance with CFRS.