LIETUVOS RESPUBLIKOS

LIETUVOS RESPUBLIKOS OFFICIAL TRANSLATION Republic of Lithuania LAW ON FINANCIAL STATEMENTS OF ENTITIEs 6 November 2001 No IX-575 (As last amended on 27 June 2006 – No X-731) Vilnius CHAPTER I GENERAL PROVISIONS Article

1. Purpose of the Law
2. This Law shall set forth the procedure for drawing up financial statements, the rules for the valuation of assets, equity and liabilities when drawing up the financial statements and drawing up of the annual report.
3. This Law has the objective of harmonising the procedure for drawing up financial statements and regulation of the valuation of assets, equity and liabilities when drawing up the financial statements and drawing up of the annual report with the EU legal acts listed in the Annex to this Law. Article
4. Scope of the Law
5. This Law shall be applied to the limited civil liability profit-seeking legal persons (hereinafter referred to as “entities”) which are registered in the Republic of Lithuania in accordance with the procedure set forth by laws.
6. Where a general partnership, limited partnership or individual enterprise, which are not under an obligation to draw up financial statements under this Law, take a decision on the drawing up of the financial statements at their own discretion, they must draw up the financial statements in compliance with the requirements set by this Law.
7. The general partnerships and limited partnerships all participants whereof are public limited liability companies or private limited liability companies must draw up financial statements and the annual report.
8. The procedure for drawing up financial statements of farmer’s farms shall be set forth by the Government or an institution authorised by it.
9. This Law shall not be applied to non-profit legal persons. The procedure for drawing up and presenting their financial statements shall be set forth by the Government or an institution authorised by it, unless the laws regulating pursuit of their activities provide otherwise.
10. In respect of financial institutions, the laws and other legal acts regulating pursuit of their activities may set forth additional requirements regarding financial statements and the annual report.
11. In respect of banks and other credit institutions as well as insurance undertakings, only paragraphs 1, 2 and 3 of Article 24¹ of this Law shall apply. Article
12. Definitions
13. “Reporting period” shall mean a period for which annual or interim financial statements are drawn up.
14. “Financial year” shall mean a period for which annual financial statements and the annual report are drawn up.
15. “Stocktaking” shall mean a verification of entities’ assets and liabilities and comparison of actual assets and liabilities with accounting data.
16. “Financial statements” shall mean the regular preparation of financial data on the financial position of an entity, performance, cash flows as well as disclosure thereof in a set form.
17. “Date of financial statements” shall mean the last day of the reporting period.
18. “Annual financial statements” shall mean the financial statements drawn up upon generalisation of data for the financial year of an entity.
19. “Annual report” shall mean a report supplementing annual financial statements and specifying data on an entity’s activities of the financial year and the activities envisaged.
20. “Material information” shall mean the information a failure to present or incorrect presentation whereof may distort financial statements and affect the decisions taken by users of information.
21. “Item” shall mean a line in financial reports.
22. “Interim financial statements” shall mean the financial statements drawn up upon generalising the data of a period shorter than the financial year.
23. Other concepts used in this Law shall be interpreted as they are used in the Republic of Lithuania Law on Accounting and the Republic of Lithuania Law on Companies. CHAPTER II GENERALLY ACCEPTED ACCOUNTING PRINCIPLES Article
24. Application of Generally Accepted Accounting Principles to the Drawing up of Financial Statements
25. Annual financial statements must be drawn up to give a true and fair view of an entity’s assets, equity, liabilities, income and expenditure.
26. All entities shall handle accounting and draw up financial statements in conformity with the following generally accepted accounting principles: 1) principle of an entity; 2) going concern principle; 3) periodicity; 4) consistent accounting methods; 5) monetary measurement; 6) accrual-based accounting; 7) comparability; 8) principle of prudence; 9) neutrality; 10) importance of content Article
27. Principle of an Entity
28. Every entity drawing up financial statements shall be considered a separate accounting unit.
29. The assets, equity and liabilities of such an entity alone shall be accounted. Article
30. Going Concern Principle
31. As regards the handling of accounting, the following assumption shall be made: 1) the period of activities of an entity is unlimited; 2) the entity will not be wound up in the foreseeable future.
32. This principle shall not be applied, where a decision is taken on the winding up of an entity as well as in respect of the entities established for a limited period of activities. Article
33. Principle of Periodicity As regards the handling of accounting, activities of an entity shall be divided according to the financial year or the reporting periods of other duration at the end whereof financial statements shall be drawn up. Article
34. Principle of Consistent Accounting Methods
35. An entity must apply the selected accounting method for each financial year.
36. An accounting method may be changed only in order to give a fair view of an entity’s assets, equity and liabilities for the financial year. Article
37. Principle of Monetary Measurement The entire assets, equity capital and liabilities of an entity shall be expressed in accounts in money terms. Article
38. Principle of Accrual-based Accounting Economic operations and economic events shall be accounted after they take place and are presented in the financial statements of those reporting periods regardless of whether cash is received or disbursed. According to the principle of accrual-based accounting, income shall be recorded in the period in which it is earned. Article
39. Principle of the Comparability The income earned over the reporting period shall be related to the expenditure incurred in order to earn the income. Financial reports must be drawn up so that users of the financial information could compare the information presented therein with the information of other reporting periods and the information presented by other entities and correctly assess changes in the financial condition of an entity. Financial statements must provide information of reporting and preceding reporting periods (at least one period). Article
40. Principle of Prudence An entity shall select the accounting methods such as cannot unreasonably increase or unreasonably reduce the value of the entity’s assets, equity and liabilities as well as income and expenditure. Article
41. Principle of Neutrality Accounting information shall be presented in an unbiased manner. Presentation thereof should not affect the decisions taken by users of the accounting information, and it should not be aimed at a pre-set result. Article
42. Principle of Importance of Content Economic operations and economic events shall be accounted according to their content and economic substance and not merely according to their legal form. CHAPTER III REQUIREMENTS FOR THE DRAWING UP OF FINANCIAL STATEMENTS Article
43. General Requirements for Financial Statements
44. Entities shall draw up annual financial statements at the end of their financial year.
45. Entities shall draw up interim financial statements where necessary or on a periodic basis specified by other legal acts.
46. Newly registered entities shall draw up a balance sheet of the commencement of economic activities indicating the assets, equity and liabilities of an entity at the commencement of activities.
47. Financial statements shall be drawn up in compliance with this Law, Business Accounting Standards and other legal acts. [Enters into force on 1 January 2005]
48. The entities securities whereof are traded on regulated markets shall handle accounting and draw up financial statements according to International Accounting Standards.
49. The notes on the accounts must specify the standards according to which financial statements have been drawn up.
50. Financial statements shall be drawn up using the monetary unit of the Republic of Lithuania – the Litas.
51. Financial statements shall be drawn up in the Lithuanian language and, where necessary, in a foreign language.
52. All economic operations and economic events of an entity must be accounted prior to the drawing up of financial statements.
53. Accounting data shall be based on the data of the stocktaking of assets and liabilities. The procedure for stocktaking shall be set forth by the Government or an institution authorised by it.
54. Entities shall draw up financial statements according to the data of the last day of the financial year. The events occurred since the end of the financial year until the drawing up of financial statements shall be registered in accordance with the procedure set forth by Business Accounting Standards. Where a decision has been taken on the winding up or reorganisation of an entity, the entity must draw up a balance sheet according to both data of the day of the taking of the decision and data of the day of the winding up and reorganisation.
55. Where the generally accepted accounting principles and other requirements of this Law as well as Business Accounting Standards are insufficient for accounts to give a true and fair view of an entity’s assets, equity, liabilities, income and expenditure for the financial year, additional information must be supplied.
56. Where in exceptional cases the financial statements drawn up by applying the generally accepted accounting principles and Business Accounting Standards are incompatible with the requirements set in paragraph 1 of Article 4 of this Law, the Business Accounting Standards and generally accepted accounting principles may be departed from in order to meet the requirement of paragraph 1 of Article 4 of this Law to give a true and fair view of an entity’s assets, equity and liabilities for the financial year. Any departure from the Business Accounting Standards shall be disclosed in the notes on the accounts together with an explanation of the reasons for it and a statement of its effects on the entity’s assets, equity and liabilities. Article
57. Financial Year
58. The financial year of an entity shall last 12 months. Entities shall select the financial year by taking account of the nature of their activities.
59. The financial year may be changed due to a change of the nature of activities of an entity (not more than once per five years) or due to consolidation of financial statements (in this case, a subsidiary undertaking shall be allowed to change the financial year and to agree it with the financial year of a parent undertaking).
60. The financial year of an entity which is commencing economic activities, is being reorganised, wound up or is changing the financial year may be shorter or longer than 12 months, but may not exceed 18 months. Article
61. Correction of Errors The procedure for correcting the errors discovered after the approval of annual financial statements shall be set forth by Business Accounting Standards. Article
62. Comparison of Financial Statements
63. Financial statements shall contain the data of the reporting year and the preceding financial year.
64. It shall be possible not to include an item of the balance sheet, profit (loss) account, cash flow statement and statement of changes in equity for which there is no amount in financial reports, save where there is a corresponding item for the preceding financial year.
65. The remaining funds in separate items of financial reports at the beginning of the reporting financial year must correspond to the remaining funds in separate items of financial reports of the end of the preceding financial year.
66. Where it is impracticable to compare items of financial reports for the reporting and preceding financial year due to the form of a report, a change of accounting principles or for other reasons, the remaining funds at the end of the preceding financial year may be amended to enable comparison thereof. The notes on the accounts shall disclose the reason for the amendment, method of calculation and the resulting differences. Article
67. Signature and Approval of Financial Statements Financial statements and the annual report shall be approved in accordance with the procedure set forth by laws. Article 19¹. Audit of Annual Financial Statements
68. Annual financial statements of state-owned and municipal enterprises, public limited liability companies and the private limited liability companies specified in paragraph 2 of this Article, general partnerships and limited partnerships all participants whereof are public limited liability companies or private limited liability companies must be audited.
69. Annual financial statements of private limited liability companies, general partnerships and limited partnerships all participants whereof are public limited liability companies or private limited liability companies must be audited where at least two indicators thereof on the last day of the reporting period exceed the following limits: 1) net turnover during the reporting financial year – LTL 10 million; 2) the value of the assets specified in the balance sheet – LTL 5 million; 3) average number of pay-roll workers during the reporting financial year –
71. Annual financial statements shall be audited in compliance with the Republic of Lithuania Law on Audit and other legal acts. Article
72. Publication of Annual Financial Statements
73. The approved annual financial statements and the annual report together with an auditor’s report (in the cases when audit has been carried out or must be carried out according to the law) shall be published in the cases and in accordance with the procedure set forth by laws and other legal acts.
74. The annual financial statements published in full must be reproduced in the form and text on the basis of which an auditor has drawn up his report. Published annual financial statements must be accompanied by the full text of the auditor’s report.
75. When in the cases and according to the procedure set forth by legal acts annual financial statements are not published in full, it must be indicated that abridged annual financial statements are published, and the location whereat access may be granted to full annual financial statements must be indicated. In such a case, an auditor’s statement of an opinion presented in the auditor’s report must accompany this publication. CHAPTER IV COMPONENTS OF FINANCIAL STATEMENTS AND DESCRIPTION OF REPORTS Article
76. Components of Financial Statements Financial statements shall consist of the following financial reports: 1) balance sheet; 2) profit (loss) account; 3) cash flow statement; 4) statement of changes in equity; 5) notes on the accounts. Article
77. Description of Financial Reports
78. Balance sheet shall be a financial report showing the total assets, equity and liabilities of an entity on the last day of the financial year.
79. Profit (loss) account shall be a financial report showing the total income earned by an entity over the financial year as well as the expenditure incurred in order to earn the income and performance.
80. Cash flow statement shall be a financial report showing the receipts and disbursements of cash and cash equivalents of an entity over the financial year.
81. Statement of changes in equity shall be a financial report showing the increase and decrease of the equity over the financial year.
82. Notes on the accounts shall be a part of annual financial statements disclosing the amounts specified in the balance sheet, profit (loss) account, cash flow statement and statement of changes in equity or providing a detailed analysis thereof as well as additional information not required to be presented in financial reports. The notes on the accounts shall include the information required by Business Accounting Standards as well as other information necessary to give a true and fair view of an entity’s financial position and performance. Article
83. General Requirements for the Layout of Financial Reports
84. At the beginning of financial reports, the following particulars must be given: 1) name, code and address of the registered office of an entity; 2) date of financial statements; 3) the level of precision used in the presentation of figures (indicators) in financial statements (it shall be specified whether the indicators are expressed in Litas, thousands of Litas, etc.).
85. The financial reports of an entity must preserve headings of the items given in sample reports, numbering and ordering thereof. Article
86. Forms of Financial Reports
87. Full balance sheet, full profit (loss) account and full notes on the accounts or abridged balance sheet, abridged profit (loss) account and abridged notes on the accounts may be presented in financial statements.
88. The sample reporting forms of financial statements shall be set by Business Accounting Standards.
89. (Repealed on 18 July 2006)
90. Net turnover shall comprise the amounts derived from the sale of products and the provision of services during the reporting financial year after deduction of returned goods, discounts and sales rebates as well as VAT.
91. The average number of pay-roll workers shall be calculated in accordance with the procedure set forth by the Government or an institution authorised by it.
92. Abridged annual financial reports shall be drawn up by the entities at least two indicators whereof on the last day of the reporting period do not exceed the following limits for two consecutive years, including the reporting financial year: 1) net turnover during the reporting financial year – LTL 7 million; 2) the value of the assets specified in the balance sheet – LTL 5 million; 3) average number of pay-roll workers during the reporting financial year – 10 persons.
93. The entities specified in paragraph 6 of this Article may draw up financial statements without a cash flow statement.
94. The entities specified in paragraph 6 of this Article may, at their discretion or where necessary, prepare full financial reports.
95. The entities not specified in paragraph 6 of this Article shall prepare the full balance sheet, full profit (loss) account and full notes on the accounts. CHAPTER IV¹ ANNUAL REPORT Article 24¹. Annual Report
96. In addition to annual financial statements, public limited liability companies, private limited liability companies, general partnerships and limited partnerships all participants whereof are public limited liability companies or private limited liability companies must draw up the annual report.
97. The annual report must include: 1) a fair review of an entity’s position, the performance and development of the entity’s business, a description of the principal risks and uncertainties that it faces; 2) analysis of financial and non-financial performance, information relating to environmental and employee matters; 3) references to and additional explanations of the data presented in annual financial statements; 4) the number of the shares acquired by the entity and the entity’s own shares as well as nominal value thereof and a part of the authorised capital made up by these shares; 5) the number of the own shares acquired and transferred during the reporting period, where they are acquired or transferred against payment; 6) information about payment for own shares, where they are acquired or transferred against payment; 7) reasons for acquiring the entity’s own shares during the reporting period; 8) information about the entity’s branches and representative offices; 9) the important events which have occurred since the end of the preceding financial year; 10) the entity’s operating plans and forecasts; 11) information about activities of the entity in the field of research and development; 12) where the entity uses financial instruments and where this is of importance for the evaluation of the entity’s assets, equity capital, liabilities, financial position and performance, the entity shall disclose financial risk management objectives, its policy for hedging major types of forecasted transactions for which hedge accounting is used, and the entity’s exposure to price risk, credit risk, liquidity risk and cash flow risk.
98. The annual report may be subject to additional requirements set by the laws and other legal acts regulating pursuit of activities of entities.
99. The entities specified in paragraph 6 of Article 24 shall be allowed not to draw up the annual report, but the information specified in subparagraphs 4, 5, 6 and 7 of paragraph 2 of this Article must be disclosed in the notes on their accounts. CHAPTER V VALUATION RULES Article
100. Rules for the Valuation of Assets and Liabilities
101. When drawing up financial statements, entities shall valuate assets, equity and liabilities in compliance with generally accepted accounting principles and the Business Accounting Standards.
102. Departures from generally accepted accounting principles and Business Accounting Standards shall be permitted in exceptional cases, where the financial statements drawn up according to the Business Accounting Standards and generally accepted accounting principles are incompatible with provisions of paragraph 1 of Article 4 of this Law. All such departures must be disclosed in the notes on the accounts and the reasons for them given together with an assessment of their effect on an entity’s assets, equity and liabilities.
103. Every asset, equity capital and liability item shall be valuated separately. Any set-off between fixed and current asset, equity, long-term and short-term liability, income and expenditure items shall be prohibited, with the exception of the cases specified by the Business Accounting Standards.
104. (Repealed on 18 July 2006) CHAPTER VI STORAGE OF FINANCIAL STATEMENTS Article
105. Procedure for Storing Financial Statements The procedure for storing financial statements shall be set forth by the Law on Accounting. Article
106. Continuity of Financial Statements The financial statements of the entities which have been wound up shall be stored in accordance with the procedure set forth by the Law on Archives. CHAPTER VII LIABILITY FOR THE DRAWING UP OF FINANCIAL STATEMENTS Article
107. Liability for the Drawing up of Financial Statements
108. The persons who have violated requirements of this Law shall be held liable under law.
109. The liability for the drawing up of an entity’s financial statements and timely submission thereof shall rest with the head of the entity, and in unlimited civil liability entities, where they draw up financial statements according to this Law, with the person (persons) having the right to act on behalf of an entity. CHAPTER VIII FINAL PROVISIONS Article
110. Entry into Force and Application of the Law
111. The Law shall enter into force on 1 January 2003, with the exception of Chapters III, IV and V.
112. Chapters III, IV and V of the Law shall enter into force on 1 January 2004, with the exception of paragraph 5 of Article 15, which shall enter into force on 1 January
114. Financial statements of entities for 2004 and subsequent years shall be drawn up according to this Law.
115. Until 2004, financial statements shall be drawn up according to the legal acts of the Government and the Ministry of Finance regulating the drawing up of financial statements. I promulgate this Law passed by the Seimas of the Republic of Lithuania. PRESIDENT OF THE REPUBLIC VALDAS ADAMKUS Annex to Republic of Lithuania Law on Financial Statements of Entities EU LEGAL ACTS IMPLEMENTED HEREBY
116. Fourth Council Directive 78/660/EEC of 25 July 1978 based on Article 54