Instructions for Filling Out Financial and Additional Reports of Factoring Companies

Based on Article 9 of the Rulebook on Financial and Additional Reports and the Chart of Accounts for Factoring Companies ("Narodne novine" nos. 41/16, 61/16, 132/17, and 142/22), the Croatian Financial Services Supervisory Agency (HANFA), at its Board of Directors meeting held on 21 December 2022, adopts

INSTRUCTIONS FOR FILLING OUT FINANCIAL AND ADDITIONAL REPORTS OF FACTORING COMPANIES

INTRODUCTION These Instructions govern the method for completing the financial and additional reports of factoring companies. When preparing the aforementioned reports, factoring companies must act in accordance with these Instructions.

A factoring company is obliged to maintain accounting books, business documentation, and other records in a manner that enables verification of whether the factoring company operates in compliance with applicable regulations and professional standards, using accounts at least to the extent specified in the Chart of Accounts prescribed by the Rulebook on Financial and Additional Reports and the Chart of Accounts for Factoring Companies ("Narodne novine" nos. 41/16, 61/16, 132/17, and 142/22; hereinafter: the Rulebook).

In light of the Agency's reporting requirements prescribed by the Rulebook and other legislative and sub-legislative regulations, as well as disclosure requirements under the International Financial Reporting Standards, a factoring company is obliged to ensure additional information in auxiliary accounting books, beyond those prescribed by the factoring company's chart of accounts.

All reports shall be completed in EUR.

The terms used in and for the purposes of these Instructions have the following meanings:

1. Recourse factoring - factoring in which the supplier guarantees the factoring service provider for the customer's obligation,
2. Non-recourse factoring - factoring in which the entire collection risk is borne by the factoring service provider, and the supplier is not liable for the collectability of the factored receivables,
3. Domestic factoring - factoring in which all parties are residents within the meaning of the law governing foreign exchange transactions,
4. Import factoring - foreign factoring in which the customer and the domestic factoring service provider are residents, while the supplier and, in the case of a multi-factor system, foreign factoring service providers are non-residents,
5. Export factoring - foreign factoring in which the supplier and the domestic factoring service provider are residents, while the customer and, in the case of a multi-factor system, foreign factoring service providers are non-residents,
6. Domestic supplier factoring - factoring in which the supplier is a resident,
7. Foreign supplier factoring - factoring in which the supplier is a non-resident,
8. Contractual maturity - maturity of receivables from the factoring agreement relative to the contract date,
9. Remaining maturity – as of the reporting date, determined as the remaining term to maturity of receivables,
10. Related parties - denotes the relationship between two or more natural or legal persons, or entities, through participation or control relationships, in accordance with the Factoring Act,
11. Inadequate collateral - for the purposes of these Instructions, inadequate security instruments are considered to be bills of exchange, promissory notes, enforcement declarations, guarantees from persons without adequate creditworthiness or credit rating, and therefore they are not reported in the reports prescribed by the Rulebook,
12. Classification of institutional units - institutional units are classified into sectors in accordance with regulations governing the sectoral classification of institutional sectors,
13. Classification of business entities (legal and natural persons) by activity – is carried out in accordance with regulations governing the sectoral classification of institutional sectors,
14. Classification of entrepreneurs by size - is carried out in accordance with the provisions of the Accounting Act. Micro-entrepreneurs must be classified into the Small Entrepreneurs group,
15. Reporting date – the date on which annual reports (31 December) and quarterly reports (31 March, 30 June, 30 September, and 31 December) are prepared,
16. Reporting period – the period from the beginning of the year for which the report is submitted to the reporting date.

FINANCIAL AND ADDITIONAL REPORTS OF FACTORING COMPANIES The structure and content of the financial and additional reports through which factoring companies report to the Agency and other users on their financial position, operating performance, cash flows, and other information about their operations are prescribed by the Rulebook.

The financial reports of factoring companies, whose content and structure are prescribed by forms in the Rulebook, are:

1. Statement of Financial Position (FP),
2. Statement of Comprehensive Income (SD),
3. Statement of Cash Flows (NT),
4. Statement of Changes in Equity (PK).

The additional reports of factoring companies, whose content and structure are prescribed by forms in the Rulebook, are:

1. Report on Portfolio Structure - Factoring (SP-F),
2. Report on Portfolio Structure - Factoring Including Bill Purchase (SP-FOM),
3. Report on Portfolio Structure - Supplier (Reverse) Factoring (SP-DF),
4. Report on Portfolio Structure by Activities, Sectors, and Size of Factoring Business Participants and Related Factoring Transactions (SP-DSV),
5. Report on Portfolio Structure - Transactions Directly or Indirectly Related to Factoring Transactions (SP-OP),
6. Report on Changes in Allowance for Impairment (IV),
7. Report on Portfolio Quality (KP),
8. Report on Large Exposures (VI),
9. Report on Sources of Funds (IS),
10. Report on Currency Structure of Assets and Liabilities (VS-IO),
11. Report on Maturity Structure of Assets and Liabilities (RS-IO),
12. Report on Structure of Other Financial Assets (OFI),
13. Report on Structure of Other Financial Liabilities (OFO).

A. FINANCIAL REPORTS

1. STATEMENT OF FINANCIAL POSITION (FORM FP) I. General Instructions The Statement of Financial Position reports the assets, liabilities, and equity of the factoring company as of the reporting period date and the preceding reporting period date.

II. Instructions for Completing Specific Items NON-CURRENT ASSETS – comprises the sum of the following items:

• intangible assets (account group 00),
• tangible assets (account groups 01 and 051),
• non-current financial investments (account group 02),
• non-current deposits (account group 03),
• other non-current financial assets (account group 050),
• non-current receivables (account group 04),
• deferred tax assets (account group 18).

CURRENT ASSETS – comprises the sum of the following items:

• receivables - factoring,
• receivables - factoring including bill purchase,
• receivables - supplier (reverse) factoring,
• receivables - interest, fees, and commissions on factoring transactions,
• receivables - transactions directly or indirectly related to factoring transactions,
• other current receivables (account group 14),
• current financial investments (account group 11),
• current deposits (account group 12),
• derivative financial instruments (account group 13),
• other current financial assets (account group 150),
• other assets (account group 15 (excluding account group 150), account group 5, and all other items not previously covered),
• cash in bank and cash on hand (account group 10).

The following further elaborates on items related to factoring transactions.

Receivables - Factoring On the Receivables - Factoring item, receivables from customers on factoring transactions – with and without recourse, shall be reported at the nominal amount of the monetary claim reduced by the obligation to the supplier for the remaining principal (the amount not paid as an advance) and reduced by allowances for impairment of receivables.

If, in non-recourse factoring, an unconditional obligation of the factoring company to pay the supplier the remaining principal is agreed (regardless of whether the customer has paid the factored item), receivables shall be reported at the nominal amount of the monetary claim and reduced by allowances for impairment of receivables, while simultaneously reporting the obligation to the supplier for the remaining principal (the amount not paid as an advance) on the liability side.

Receivables - Factoring Including Bill Purchase On the Receivables - Factoring Including Bill Purchase item, receivables from customers on factoring transactions that include bill purchase – with and without recourse, shall be reported at the nominal amount of the bill claim reduced by the obligation to the supplier for the remaining principal (the amount not paid as an advance) and reduced by allowances for impairment of receivables.

If, in non-recourse factoring including bill purchase, an unconditional obligation of the factoring company to pay the supplier the remaining principal is agreed (regardless of whether the customer has paid the factored item), receivables shall be reported at the nominal amount of the bill claim and reduced by allowances for impairment of receivables, while simultaneously reporting the obligation to the supplier for the remaining principal (the amount not paid as an advance) on the liability side.

Receivables - Supplier (Reverse) Factoring On the Receivables - Supplier (Reverse) Factoring item, receivables from customers for the amount paid to the supplier shall be reported, depending on whether it is domestic or foreign factoring, reduced by allowances for impairment of receivables.

Receivables - Interest, Fees, and Commissions on Factoring Transactions On the Receivables - Interest, Fees, and Commissions on Factoring Transactions item, the following shall be reported:

• receivables for interest - factoring (account group 35),
• receivables for fees - factoring (account group 36),
• other receivables - factoring (account group 37), reduced by allowances for impairment of receivables.

Receivables - Transactions Directly or Indirectly Related to Factoring Transactions On the Receivables - Transactions Directly or Indirectly Related to Factoring Transactions item, the following shall be reported:

• receivables based on collection, preparation, analysis, and provision of information on creditworthiness of legal and natural persons engaged in independent activities (account group 40),
• receivables based on client receivable management transactions arising from sold goods and provided services and related consulting (account group 41),
• receivables based on forfeiting (account group 42),
• receivables based on purchase of matured receivables (account group 43),
• receivables based on issuance of credit cover when conducting foreign factoring (account group 44),
• receivables based on other transactions directly or indirectly related to factoring transactions (account group 45),
• other receivables based on transactions directly or indirectly related to factoring transactions (account group 46), reduced by allowances for impairment of receivables.

PREPAID EXPENSES AND UNMATURED REVENUE COLLECTION – comprises the sum of the following items:

• prepaid expenses (account group 190),
• unmatured revenue collection (account group 191).

ACTIVE OFF-BALANCE SHEET RECORDS – comprises the sum of the following items:

• active off-balance sheet records for potential assets (account group 990),
• active off-balance sheet records – contra entries for accounts in group 994 (account group 991),
• contractual value of derivative financial instruments (active) (account group 992).

EQUITY AND RESERVES – comprises the sum of the following items:

• share capital (account group 90),
• share capital owned by non-residents (account groups 9002, 9003, 9011),
• capital reserves (account group 91),
• revaluation reserves (account group 92),
• other reserves (account group 93),
• retained earnings/accumulated losses (account group 940),
• profit/loss of the current year (account group 941 or 949).

PROVISIONS - provisions for risks and expenses are reported (account group 25).

NON-CURRENT LIABILITIES – comprises the sum of the following items:

• liabilities for loans and borrowings from foreign banks and financial institutions (account group 2110),
• liabilities for loans and borrowings from domestic banks and financial institutions (account group 2100),
• liabilities for borrowings from other persons (account group 2120),
• other non-current liabilities (account groups 2130, 2140, 2160, 240),
• deferred tax liabilities (account group 28).

CURRENT LIABILITIES – comprises the sum of the following items:

• liabilities for loans and borrowings from foreign banks and financial institutions (account groups 2111 and 2112),
• liabilities for loans and borrowings from domestic banks and financial institutions (account groups 2101 and 2102),
• liabilities for borrowings from other persons (account groups 2121 and 2122),
• liabilities on factoring transactions (account group 20),
• liabilities for derivative financial instruments (account group 215),
• other current liabilities (2103, 2113, 2123, 2131, 2141, 2161, 22, 23, 241).

The following further elaborates on items related to factoring transactions.

Liabilities on Factoring Transactions On the Liabilities on Factoring Transactions item, the following shall be reported:

• obligations to suppliers on factoring transactions – without recourse (nominal amount of the monetary claim reduced by the advance paid to the supplier),
• obligations to suppliers on factoring transactions that include bill purchase – without recourse (nominal amount of the bill claim reduced by the advance paid to the supplier), if an unconditional obligation of the factoring company to pay the supplier the remaining principal is agreed, regardless of whether the customer has paid the factored item.

The obligation on a factoring transaction must also be reported when the factoring company has collected the receivable from the customer, but as of the reporting date, the obligation for the remaining principal has not been paid to the supplier.

DEFERRED EXPENSE PAYMENT AND FUTURE PERIOD REVENUES - comprises the sum of the following items:

• deferred expense payment (account group 290),
• future period revenues (account group 291).

PASSIVE OFF-BALANCE SHEET RECORDS – comprises the sum of the following items:

• passive off-balance sheet records – contra entries for accounts in group 990 (account group 993),
• passive off-balance sheet records – potential liabilities (account group 994), contractual value of derivative financial instruments (passive) (account group 995).

EQUITY AND RESERVES - equity and reserves are reported:

• attributable to owners of the parent,
• attributable to non-controlling interests

2. STATEMENT OF COMPREHENSIVE INCOME (FORM SD) I. General Instructions The Statement of Comprehensive Income presents all revenues and expenses, as well as the financial result of the factoring company's operations during the reporting period and the preceding reporting period.

Other comprehensive income comprises items of income and expense, including reclassification adjustments, that are not recognized as profit or loss as required or permitted by International Financial Reporting Standards.

II. Instructions for Completing Specific Items INTEREST INCOME - comprises the sum of the following items:

• interest income - factoring (account group 700),
• interest income - factoring including bill purchase (account group 701),
• interest income - supplier (reverse) factoring (account group 702),
• interest income - transactions directly or indirectly related to factoring transactions (account group 703),
• interest income - deposits given (account group 705),
• other interest income (account groups 704 and 706).

INTEREST EXPENSE - comprises the sum of the following items:

• interest expense - domestic banks and financial institutions (account group 600),
• interest expense - foreign banks and financial institutions (account group 601),
• other interest expense (account groups 602 and 603).

PROFIT/LOSS FROM INTEREST - is reported as the difference between interest income and interest expense.

FEE AND COMMISSION INCOME - reports non-interest income from fees and other income based on factoring and transactions directly or indirectly related to factoring transactions (account group 71).

FEE AND COMMISSION EXPENSE - reports non-interest costs based on fees and commissions for financial services (account group 620).

PROFIT/LOSS FROM FEES AND COMMISSIONS – is reported as the difference between fee and commission income and fee and commission expense.

OTHER OPERATING INCOME - comprises the sum of the following items:

• profit from exchange rate differences (positive difference between positive exchange rate differences (account group 720) and negative exchange rate differences (account group 621)),
• other income (account groups 721, 722, 724, 725, 726, 73).

OTHER OPERATING EXPENSES - comprises the sum of the following items:

• general and administrative expenses (account group 65),
• staff costs (account group 64),
• loss from exchange rate differences (negative difference between positive exchange rate differences (account group 720) and negative exchange rate differences (account group 621)),
• value adjustment costs (difference between asset value adjustment costs (account group 61) and income from reversal of allowances for impairment (account group 723)),
• other expenses (account groups 622, 623, 63, 66, 67).

PROFIT/LOSS FROM OTHER INCOME AND EXPENSES - is reported as the difference between other operating income and other operating expenses.

TOTAL REVENUES - sum of interest income, fee and commission income, and other operating income.

TOTAL EXPENSES - sum of interest expense, fee and commission expense, and other operating expenses.

PROFIT/LOSS BEFORE INCOME TAX - is reported as the difference between total revenues and total expenses.

INCOME TAX - report the total amount of current and deferred tax included in determining the net profit or loss for the period. For annual reports, the income tax amount from the annual tax return for the financial year for which the statement of comprehensive income is prepared is reported, while for quarterly reports, the income tax amount for the current reporting period determined by applying the tax rate defined by the law regulating profit taxation is reported.

PROFIT/LOSS AFTER INCOME TAX – is reported as the difference between profit/loss before income tax and income tax.

Attributable to owners of the parent – reports the amount of profit/loss attributable to owners of the parent, i.e., majority owners of the company.

Attributable to non-controlling interest – reports the amount of profit/loss attributable to non-controlling interest.

OTHER COMPREHENSIVE INCOME/LOSS BEFORE TAXATION – comprises the sum of the following items:

• Change in revaluation reserves (property, plant, equipment, and intangible assets) - changes in revaluation reserves are reported based on bringing long-term tangible and intangible assets to fair value in accordance with IAS 16 Property, Plant and Equipment and IAS 38 Intangible Assets,
• Unrealized gains/losses on financial assets at fair value through other comprehensive income - unrealized gains or losses from subsequent measurement of financial assets measured at fair value through other comprehensive income are reported in accordance with IFRS 9 Financial Instruments,
• Gains/losses on cash flow hedge instruments - gains or losses arising from the use of cash flow hedge instruments related to the effective portion of the cash flow hedge are reported in accordance with IFRS 9 Financial Instruments,
• Actuarial gains/losses on defined benefit pension plans - actuarial gains or losses related to defined benefit plans are recognized in accordance with IAS 19 Employee Benefits,
• Gains/losses arising from translating financial statements of foreign operations – gains or losses from translating financial statements related to foreign operations are reported in accordance with IAS 21 The Effects of Changes in Foreign Exchange Rates.

INCOME TAX ON OTHER COMPREHENSIVE INCOME FOR THE PERIOD – reports the total amount of income tax relating to components of other comprehensive income.

NET OTHER COMPREHENSIVE INCOME/LOSS FOR THE PERIOD – reports the difference between other comprehensive income reduced by income tax on other comprehensive income for the period.

TOTAL COMPREHENSIVE INCOME – sum of profit/loss after income tax and net other comprehensive income/loss for the period.

Attributable to owners of the parent – reports the amount of total comprehensive income attributable to owners of the parent, i.e., majority owners of the factoring company.

Attributable to non-controlling interest – reports the amount of total comprehensive income attributable to non-controlling interest.

Reclassification adjustments – report amounts reclassified to profit or loss of the current period that were recognized in the current or preceding period as part of comprehensive income to avoid double counting.

3. STATEMENT OF CASH FLOWS (FORM NT) I. General Instructions The Statement of Cash Flows reports cash and cash equivalents inflows and outflows during the period, classified into operating, investing, and financing activities.

Operating activities are the principal revenue-producing activities of the company and other activities that are not investing or financing activities.

Investing activities are the acquisition and disposal of non-current assets and other investments not included in cash equivalents.

Financing activities are activities that result in changes in the size and composition of the contributed equity and borrowings of the company.

The Statement of Cash Flows is prepared using the indirect method.

II. Instructions for Completing Specific Items Cash Flows from Operations Before Changes in Working Capital – reports profit/loss before income tax adjusted for depreciation, value adjustment costs, and other write-offs, provisions, interest income, and interest expense.

NET CASH FLOW FROM OPERATING ACTIVITIES - comprises the sum of the following items:

• Cash flows from operations before changes in working capital,
• Increase/decrease in receivables on factoring transactions,
• Increase/decrease in other receivables,
• Increase/decrease in prepaid expenses and unmatured revenue collection,
• Increase/decrease in liabilities on factoring transactions,
• Increase/decrease in other liabilities,
• Increase/decrease in deferred expense payment and future period revenues,
• Interest received,
• Income tax paid.

NET CASH FLOW FROM INVESTING ACTIVITIES - comprises the sum of the following items:

• Increase/decrease in non-current tangible and intangible assets,
• Increase/decrease in financial assets,
• Increase/decrease in other items.

NET CASH FLOW FROM FINANCING ACTIVITIES - comprises the sum of the following items:

• Payments by owners,
• Expenditures for distribution of profit (dividends),
• Interest paid,
• Increase/decrease in liabilities for loans and borrowings,
• Increase/decrease in other items.

NET CASH FLOW - comprises the sum of the following items:

• net cash flow from operating activities,
• net cash flow from investing activities,
• net cash flow from financing activities.

CASH AND CASH EQUIVALENTS AT THE BEGINNING OF THE YEAR – reports the amount of cash and cash equivalents at the beginning of the period.

CASH AND CASH EQUIVALENTS AT THE END OF THE YEAR – reports the amount of cash and cash equivalents at the end of the period.

4. STATEMENT OF CHANGES IN EQUITY (FORM PK) I. General Instructions The Statement of Changes in Equity reports total comprehensive income for the period, separately reporting amounts attributable to owners of the parent and owners of non-controlling interests, the effects of retroactive application of changes in accounting policies or retroactive restatement of amounts recognized in accordance with IAS 8 Accounting Policies, Changes in Accounting Estimates and Errors, amounts of transactions with owners in their capacity as owners, separately reporting owner capital contributions and distributions to owners, and reconciliation between the book values of each component...