New financial accounting law in Lithuania. What changes lie ahead?

On 23 November 2021, the Parliament of the Republic of Lithuania (the Seimas) adopted the Law on Amendments to the Law on Accounting. Up to now, the existing Law on Accounting has been amended only minimally. Therefore,  its‘ provisions are outdated enough and not in line with the current situation. The digitalization and modernization in the field of accounting have necessitated a fundamental review and updating of the entire law. This change should be one of the effective means of contributing to transparency and data reliability.

The new version of the law enters into force as of 1 May 2022. In general,  it contains a number of changes and updates. First of all, the alterations of the main concepts have been adopted, e.g., a title “Law on Financial Accounting of the Republic of Lithuania” has replaced a concept “Law on Accounting of the Republic of Lithuania”. In addition, a term “accounting” has been altered by the “financial accounting”, meanwhile, a concept “chief accountant (accountant)” has been changed into a “person who keeps the accounts”. As the positions of accountants, bookkeepers and financiers remain in the classification of occupations, companies will be provided with a possibility to decide themselves on the definition of accountant obligations. In the updated legal act, a term "accounting certificate" to be eliminated, and  the requirement for an approval of the chart of accounts will no longer exist. Also, the heads of legal entities will be able to decide on the procedure and proper ways for the documentation of missing accounts as well as on a title of a document and a person to be assigned for signing the document.

Amendments to the Law on Accounting are related to day-to-day business operations: starting from the initial documents up to accounting registers and indication of a scope of the entry in the accounting register, as well as listing specific requirements for the accounting registers. In addition, accounting registers are set to become mandatory and a general ledger must be compiled.  If an entity conducts cash transactions, in such a case, the cash accounting register becomes essential. It is also stated that “economic transactions must be registered on a date of the economic transaction or immediately after an opportunity arises to do so, but not later than the reporting date”; "Accounting documents shall be ready within or after the economic transaction and shall be submitted (sent) to the recipient immediately, not later than by 10th day of the month following the day of the economic transaction." The existing regulations of the current law states that “accounting documents shall be compiled during or after the economic transaction/activity” and “data on economic transactions shall be re-gistered in the accounting registers no later than the 30th day of the following month”.

With certain exceptions, the requirement for signing accounting documents and registers is waived if the traceability of information on the correction of an entry is being ensured.
 

It also focuses on the digitalization of accounting processes and the usage of electronic accounting documents. An electronic accounting document is defined as “an accounting document prepared, transmitted and received in an electronic format, enabling the documents to be processed automatically and electronically”. A new version of  the law also states that entities participating in public procurement, in accordance with the procedure established by the Government of Lithuania, will gradually have to switch to the electronic accounting documents. Meanwhile, the public sector entities and  contracting authorities will accept and process such documents by using the tools of the information system "E.Account". In addition, there will be no obligation to keep electronic accounting documents if they are uploaded on the E-Account information system and/or on the performance management information systems. It is obvious that changes are inevitable as a result of the implementation of the digitalization, even though a significant number of documents are still received and printed in a paper version. These changes will therefore lead to a shift towards digital documents and records only.

The new version of the law eliminates a restriction of bookkeeping for the heads of legal entities. This alteration contributes to an improvement of business conditions and an increase of flexibility. However, it should be taken into account that there are no any exemptions for an obligation  to keep accounts in accordance with the legal acts.

The updated law clearly defines the assignments of proper organization and maintenance of accounting. In contrast, the current legislation does not specify in details which functions are attributed to the organization of accounting and which ones are assigned to the management of accounting. The new law also contains the functions and obligations of the heads of legal entities who are in charge of the organization of entity's accounting, including the fact that the head has to ensure that the accounting data are provided to the state information system ( i.e. the intelligent tax administration information system i.MAS) in a standard accounting data file. The new legal act also requires that persons in charge of accounting must establish and comply with a procedure for the organization of the provision of accounting services and for the accounting control. However, this may lead to the additional administrative burden for small accounting companies, as they will have to make their own written arrangements, regardless of their size.

The new version of the law no longer requires accounting policy, but introduces the concept of internal control. The head of the company will have to lay down in an internal procedure the rules on the timeline of the creation and signing of registers and documents, as well as on the application of access to accounting systems and the protection of registers (e.g. passwords, accesses to databases, etc.), and on the inventory procedure and the procedures for the storage of documents and data.

The requirement for maintaining a mandatory inventory within the private sector has been eliminated: the balances of assets and liabilities have to be supported by the inventory data at the frequency and in cases determined by the head of company, except the cases when insolvency proceedings are being initiated or a decision is being taken to wind up, reorganize or restructure the entity. Thus, the obligation for taking inventories remains, but the possibility of taking them in accordance with the procedures adopted by the CEO has been introduced.

Overall, the new law will undoubtedly have an impact on the financial accounting and the preparation of the annual financial statements of both natural and legal persons, as accompanying legislative amendments have been adopted alongside the Accounting Law.​