Estonia Estonia is included in the IFAD GAAP Convergence Studies Response to IFAC Member Body Survey on Standard Setting and Regulation World Bank ROSC Accounting and Auditing Report. Update for July 2003 Financial Reporting Framework in Estonia Adoption of IFRSs in Europe Effective in 2005 In June 2002, the European Union adopted an IAS Regulation requiring European companies listed in an EU securities market, including banks and insurance companies, to prepare their consolidated financial statements in accordance with IFRSs starting with financial statements for financial year 2005 onwards. EU countries have the option to: Require or permit IFRSs for unlisted companies. Require or permit IFRSs in parent company (unconsolidated) financial statements. Permit companies whose only listed securities are debt securities to delay IFRS adoption until 2007. Permit companies that are listed on exchanges outside of the EU and that currently prepare their primary financial statements using a non-EU GAAP (in most cases this would be US GAAP) to delay IFRS adoption until 2007. The European IAS regulation applies not only to the 27 EU Member States but also to the three members of the European Economic Area (EEA) – Iceland, Liechtenstein, and Norway. Estonia is an EU Member State. Consequently, Estonian companies companies listed in an EU/EEA securities market will follow IFRSs starting in 2005. In January 2005, the European Commission published the results of a survey of the 25 EU member states and the 3 EEA member states on their plans regarding the four options above. For information on each country's plans, click to download: Table on Use of IFRS Options in 27 Member and 3 EEA States (PDF 52k) The European Commission has adopted the following wording for use in the notes to the accounts and in the audit reports of companies subject to EU Regulation 1606/2002/EC (the 'IAS regulation'): "in accordance with International Financial Reporting Standards as adopted by the EU" or "in accordance with IFRSs as adopted by the EU". Companies may also state, in a footnote, compliance with IFRSs as adopted by the IASB, if that is the case. July 2003 Update Estonia will be one of the first European countries to allow IFRS also in stand-alone (parent-company) financial statements for statutory purposes. This reform was supported by the fact that in Estonia, the corporate tax is charged on dividends, not on profit. Therefore, the accounting framework does not affect the tax basis and the state budget revenues. All listed companies will be required to apply IFRS in their consolidated and separate accounts from 1 January 2005 (most of them do it already). New Estonian GAAP - accounting principles fully harmonised with IFRS but less disclosure required In addition, the new law requires national accounting standards (Estonian GAAP) to be harmonised with IFRS and cross-referenced to applicable IFRS paragraphs. Any differences in the local standards compared to IFRS must be explained and justified. The accounting principles in the new standards of Estonian GAAP are fully harmonised with IFRS (in very rare cases simplified methods are allowed) but they will require less disclosure than IFRS. In areas that are not covered by the guidelines of Estonian GAAP, the IFRS treatment is recommended, but not mandatory. The Estonian Accounting Standards Board (EASB) has already rewritten most of its standards and brought them in line with the requirements of the new law and IFRS. Large companies are expected to choose the full IFRS option, small and medium-size companies are likely to use revised Estonian GAAP ('simplified IFRS') as their accounting framework. Very likely, 2003 profit and equity will be substantially the same under IFRS and Estonian GAAP, but Estonian GAAP financials will be less informative than IFRS financial statements.