Montenegro Negotiating Team for the Accession of Montenegro

Montenegro Negotiating Team for the Accession of Montenegro to the European Union Working Group for Chapter 6 – Company Law Bilateral screening: Chapter 6 PRESENTATION OF MONTENEGRO Brussels, 22 November 2012

Montenegro Negotiating Team for the Accession of Montenegro to the European Union Working Group for Chapter 6 - Company Law Bilateral screening: Chapter 6 Presentation of Montenegro Brussels, 22 November 2012 Chapter 6: Company Law

Chapter 6: Company Law VII EU Directive (83/349/EEC) and International Financial Reporting Standards (IFRS) Igor Pavicevic Secretary General of the Institute of Certified Accountants of Montenegro - a member of IFAC igor. pavicevic@isrcg. org Montenegro Negotiating Team for the Accession of Montenegro to the European Union Chapter 6: Company Law

Chapter 6: Company Law VII EU Directive (83/349/EEC) Of 51 articles of the Directive, in the Law on Accounting and Auditing there is: • Full compliance with 49 articles. • Partial compliance with 2 articles. • No inconsistency. Partial compliance relates to: Article 36 of the Directive requires that a consolidated statement should include review of the development, business performance, position of an entity along with the description of risks and expected uncertainties. Our Law (Article 3 b, paragraph 2) states that consolidated statements include economic entity. Therefore, the Law does not specifically require that the review of business performance, development, position of a legal entity along with the description of risks and expected uncertainties to be presented. Article 38 of the Directive requires publication of consolidated financial statements on its website as well as on the websites of relevant institutions. Article 6 b, paragraphs 5 of the Law on Accounting and Auditing states that the Central Bank (for banks only) and the Insurance Supervision Agency (for insurance companies only) publish quarterly and annual financial reports on their websites. Law on Securities states that the Securities Commission publishes on its website consolidated financial statements for all legal entities which perform consolidation as well as for all legal entities listed on the stock exchange. Montenegro Negotiating Team for the Accession of Montenegro to the European Union Chapter 6: Company Law

Chapter 6: Company Law Full compliance refers to: Articles 1 -15 of the Directive specifies conditions for preparation of consolidated financial statements. Article 3 b of the Law on Accounting and Auditing refers to the full application of IAS/IFRS, and therefore to IAS 27 and IFRS 10. Articles 16 -35 of the Directive set out requirements for the preparation of consolidated financial statements. Article 3 b of the Law on Accounting and Auditing refers to the full application of IAS/IFRS, and therefore to IAS 27 and IFRS 10. Montenegro Negotiating Team for the Accession of Montenegro to the European Union Chapter 6: Company Law

Chapter 6: Company Law Full compliance refers to: Article 37 of the Directive applies to the audit of consolidated financial statements. Law on Accounting and Auditing, Article 12 Articles 39 -51 of the Directive relates to transitional and final provisions Article 3 b of the Law on Accounting and Auditing refers to the full application of IAS/IFRS, and therefore to IAS 27 and IFRS 10. Montenegro Negotiating Team for the Accession of Montenegro to the European Union Chapter 6: Commercial Law

Chapter 6: Company Law International Financial Reporting Standards (IFRS) INTRODUCTORY REMARKS: • In the disturbed conditions of business, under the influence of the world economic crisis, a number of IAS/IFRS was amended, as well as new IFRS were adopted: - IFRS 9 – Financial instruments - IFRS 10 – Consolidated financial reports - IFRS 11 – Joint arrangements - IFRS 12 – Disclosure of participation in other entities - IFRS 13 – Fair values measurement On the same occasion, amendments to the following existing standards were made: - IAS 27 – Separate and Consolidated Financial reports - IAS 28 – Investments in associated entities - IFRS 7 – Financial instruments: Disclosure - IAS 12 – Income tax - IFRS 1 - First implementation of IFRS The above stated amendments mostly represent harmonisation with newly-adopted standards. • In 2011, appropriate regulatory bodies within the IFAC adopted amendments to the Code of Ethics for Professional Accountants, as the answer to global economic crisis. MONTENEGRO Negotiating Team for the Accession of Montenegro to the European Union Chapter 6: Company Law

Chapter 6: Company Law International Financial Reporting Standards (IFRS) INTRODUCTORY REMARKS : • IFAC conducts intensive activities to promote the application of IFRS for the public sector, as instruments of harmonization of financial statements, their comparability and strengthening of accountability and efficiency of business. • Monitoring Committee was formed in 2009, whose task is to monitor the balance of process of adopting the global standards in the field of accounting, as a mechanism of interaction between capital markets and regulatory bodies which adopt IAS/IFRS. This international Committee shall be consisted of: - European Commission - Japan's Financial Services Agency - USA Commission for security and changes - Commission for Market Development - Technical Committee of the Commissions for Market Development - The Basel Committee on Banking Supervision (the presiding body) MONTENEGRO Negotiating Team for the Accession of Montenegro to the European Union Chapter 6: Company Law

Chapter 6: Company Law International Financial Reporting Standards (IFRS) • IFRS 9 - Financial Instruments • Project of implementation of this standard with the aim of simplifying the financial reporting on financial instruments and harmonization of practice started in 2005 in the USA and the EU • Project was continued in 2009 in order to replace IAS 39 - Financial Instruments • The original deadline for the application, 01 January 2013, was postponed to 01 January 2015 • The Central Bank of Montenegro and banking sector will begin applying IFRS 9 in the first quarter of 2013 • Basic characteristics of the content of IFRS 9 are: - Initial measurement of financial instruments - Subsequent measurement of financial assets (at amortized and at fair value) - Instruments of capital - Guidelines for measuring - Subsequent measurement of financial obligations - Cessation recognition of financial assets MONTENEGRO Negotiating Team for the Accession of Montenegro to the European Union Chapter 6: Company Law

Chapter 6: Company Law International Financial Reporting Standards (IFRS) - Cessation of recognition of financial obligations - Financial derivatives and integrated derivatives - Reclassification • IFRS 10 - CONSOLIDATED FINANCIAL STATEMENTS • Project started in 2002, draft was published in 2010, and adopted in May 2011 • Start of implementation is 01 January 2013, when IAS 27 and SIC 12 cease to apply • Basic characteristics of the content are: - Unique model of consolidation, through control, principles for the presentation - Control as basis of consolidation - Preparation of consolidated financial statements - Methods of consolidation - Minority interest - Changes in equity participation MONTENEGRO Negotiating Team for the Accession of Montenegro to the European Union Chapter 6: Company Law

Chapter 6: Company Law International Financial Reporting Standards (IFRS) IFRS 11 - Joint Arrangements • Project started in 2004, drafts were published in 2007, and it was adopted in May 2011 • Beginning of implementation is 01 January 2013, when IAS 31 – Participation in Joint arrangements ceases to apply • Basic characteristics of the content are: - Joint arrangements - Joint control - Classification of joint arrangements - Financial reporting of participants in the joint arrangement MONTENEGRO Negotiating Team for the Accession of Montenegro to the European Union Chapter 6: Company Law

Chapter 6: Company Law International Financial Reporting Standards (IFRS) • IFRS 12 – Disclosure of participation in other entities • Project started in 2004, and it was adopted in 2011 • Beginning of implementation is 01 January 2013 • Basic characteristics of the content: - improvement of disclosure requirements - required disclosures - significant estimates and assumptions - participation in the capital of a dependent entity - investment in joint arrangements - participation of entities that are not included in the consolidation MONTENEGRO Negotiating Team for the Accession of Montenegro to the European Union Chapter 6: Company Law

Chapter 6: Company Law International Financial Reporting Standards (IFRS) • IFRS 13 – Measurement of fair values • Project started in 2005, and it was adopted in May 2011 • Beginning of implementation is 01 January 2013 • Basic characteristics of the content are: - Transaction - Participants in the market - Application of fair value MONTENEGRO Negotiating Team for the Accession of Montenegro to the European Union Chapter 6: Company Law

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