Comments on the New Edition of the Law of the Republic of Uzbekistan "On Accounting"

Comments on the New Edition of the Law of the Republic of Uzbekistan "On Accounting"

In accordance with the Law of the Republic of Uzbekistan No. URQ-404 dated April 13, 2016 "On Amendments and Additions to the Law of the Republic of Uzbekistan 'On Accounting'", the new edition of the Law "On Accounting" has been approved.

As is known, the Law of the Republic of Uzbekistan "On Accounting" (hereinafter referred to as the Law in the text) was adopted on August 30, 1996, and only two amendments and additions were made to it.

The adopted new Law took into account the essence of changes that occurred in economic life and legislation as a result of consistent economic reforms in the country, as well as accumulated national and international experience in resolving issues that arose in the accounting system over the past period.

First of all, it should be noted that since the legal basis for the country's accounting system already existed, this Law did not fundamentally change the basis for organizing accounting, but rather harmonized it with the requirements of newly enacted legal acts and international accounting standards, and eliminated the shortcomings of the current Law.

This Law includes, along with amendments to nearly all its articles (except for Article 24), 9 new articles.

As is known, the main goal of accounting was to more fully meet the interests of a wide range of users based on financial statements prepared on the basis of accounting information.

To achieve this goal, the Law introduced a number of norms aimed at increasing the responsibility of business entities and heads of accounting services for organizing and maintaining accounting and ensuring an internal control system, through defining the concept of accounting and its elements as a systematic approach, identifying subjects and objects of accounting, and clarifying the rights and obligations of responsible persons, as well as establishing the legal status of accounting public associations.

Specifically, new articles were introduced that were not present in the current edition of the Law: the purpose of the Law (Article 1), the concept of accounting (Article 4), and the definition of accounting information (Article 5). This further reveals the principles of accounting, its purpose, and tasks, and in turn, helps to increase the transparency and completeness of the accounting system.

Article 3. Basic Principles of Accounting:

In Article 3 of the Law, taking into account modern legal practice, some of the 11 basic principles established in Article 6 of the old document were removed as separate norms of other articles, and some had the same content. Therefore, the rules of continuity, reliability, and comparability of indicators were established as the basic principles of accounting.

For example, the double-entry method of accounting is reflected in Articles 4 and 15, the true valuation of assets and liabilities in Articles 4 and 17, the monetary valuation of economic transactions, assets, and liabilities in Articles 17, 18, and 19, and the principle of matching revenues and expenses of the reporting period in Article 18. Rules such as clarity, prudence (conservatism), substance over form, and neutrality of financial statements express the content of the reliability principle. Therefore, they were not listed as separate independent principles.

Article 6. Subjects of Accounting:

In accordance with legislation, the list of subjects of accounting required to maintain accounting records was clarified. Amendments were added to this article providing that branches, representative offices, and other structural subdivisions of foreign legal entities considered taxpayers in the form of permanent establishments operating in the territory of the Republic of Uzbekistan must maintain accounting records and submit reports in the manner prescribed by legislation.

Article 7. Objects of Accounting:

According to the Concept of International Accounting Standards, the elements (objects) of financial reporting are assets, liabilities, equity, reserves, revenues, and expenses. Therefore, Article 7 of the Law was adapted to these requirements. In addition, since the concept of "fixed assets" is not used in national and international practice and the concept of "long-term assets" is used instead, the concepts in the field of accounting were harmonized with the requirements of current legislation. That is, the general concept of "assets" was introduced in this article, which covers both long-term and current assets.

Article 8. Synthetic and Analytical Accounting:

To improve the structural composition of the Law and ensure that the concepts of synthetic and analytical accounting are interpreted uniformly by all business entities and state bodies, synthetic and analytical accounting were separated as a separate article.

Article 9. Regulation of Accounting and Reporting:

Taking into account the requirements of the Budget Code and the specifics of the execution of budgets by the budget system, the content of this part of the article was clarified, and a new part with the following content was added: "Accounting and financial reporting of budgetary institutions and state target funds are carried out on the basis of budget accounting standards and other legal acts."

As is known, Article 51 of the Law of the Republic of Uzbekistan "On the Central Bank of the Republic of Uzbekistan" establishes the authority of the Central Bank to establish mandatory rules for banks regarding the execution of banking operations, maintenance of accounting and bank statistical reporting, and preparation of annual reports, as well as rules for microcredit organizations regarding the execution of financial operations, maintenance of accounting, and reporting.

Therefore, the part of this article applicable to banks is given in the following new edition: "Accounting and reporting of banks and other credit organizations are carried out by the Central Bank of the Republic of Uzbekistan in accordance with legal acts."

Article 10. Accounting Standards:

In connection with the Decree of the President of the Republic of Uzbekistan No. PF-4720 dated April 24, 2015 "On Measures to Introduce Modern Corporate Governance Methods in Joint Stock Companies," which stipulates the publication of financial statements based on international standards, the concept of "accounting standards" covering both national and international standards was established in the law by adding a new article.

Article 11. Organization of Accounting and Reporting:

Clarity was introduced regarding the types of specialized organizations that could be entrusted with maintaining accounting on a contractual basis, as specified in Article 7 of the old Law (auditing organizations, tax advisory organizations, and other organizations whose charter provides for the provision of services for maintaining accounting). Also, the words "head of the enterprise, organization, and institution" from the old document were generally replaced with "head of the accounting entity."

Article 12. Head of the Accounting Service:

The words "Chief Accountant of the enterprise, organization, and institution" were replaced with "Head of the Accounting Service." The responsibility of the head of the business entity and the head of the accounting service was increased by clarifying and delineating their rights and obligations.

A new article was introduced providing for the determination of the functions and duties of the head of the accounting entity and the head of the accounting service, the clarification and delineation of their responsibility, rights, and obligations, and the establishment of qualification requirements for the heads of accounting services of enterprises of public importance (joint-stock companies, insurance organizations, enterprises with state share in the charter fund, etc.).

The introduction of this article increased the responsibility of the head of the accounting entity in carrying out financial and economic activities, which helps to ensure mutual control between the head of the accounting entity and the head of the accounting service.

The establishment of qualification requirements for heads of accounting services leads to an increase in the quality of prepared reports and the strengthening of the potential of the accounting service, which in turn ensures the reliability of financial reporting.

Article 13. Right to Sign:

In accordance with Article 11 of this Law, since the head of the accounting entity has the right to independently perform accounting and financial management functions, a new norm was added to this article stating that if the head of the accounting entity assumes the duties of accounting and financial management, he must indicate himself in both lists.

Article 14. Primary Accounting Documents:

In accordance with the Law of the Republic of Uzbekistan "On Combating the Legalization of Income Obtained from Criminal Activity and Financing of Terrorism," the norm was enriched regarding the indication of the position name and signatures of persons responsible for creating primary accounting documents and authorizing economic transactions, including the last name, initials of the first name and patronymic, or other identification details of the persons (individuals) who performed the economic transaction, for identification purposes.

Also, in accordance with Article 5 of the Law of the Republic of Uzbekistan "On Electronic Document Circulation," a norm was introduced stating that primary accounting documents may be created and submitted in electronic form, taking into account modern requirements and the development of information technologies.

Article 15. Accounting Registers:

Harmonized with Articles 4 and 14 of the Law, and in accordance with Article 5 of the Law of the Republic of Uzbekistan "On Electronic Document Circulation," taking into account modern requirements and the development of information technologies, it was supplemented with two new parts.

These additions were introduced to define the interdependence between primary accounting documents and accounting registers, as well as to improve the internal control system, which includes the circulation of primary documents, primary accounting documents and registers, and the procedures for the formation of analytical information.

Article 16. Inventory of Assets and Liabilities:

The article remained almost unchanged.

Article 17. Valuation of Assets and Liabilities:

The first and sixth parts of this article were adapted to IFRS, and the second part was harmonized with National Accounting Standards.

Article 18. Recognition of Revenues and Expenses:

The article remained almost unchanged.

Article 19. Recognition of Equity:

The first and second parts of this article were harmonized with Article 58 of the Civil Code, the third part with Resolution No. 21 of the State Committee for Accounting and Statistics, and the fourth and fifth parts with Article 34 of the Law "On Joint Stock Companies and Protection of Shareholders' Rights."

Article 20. Recognition of Pledges:

The article remained almost unchanged.

Article 21. Internal Control:

A new article was introduced to increase the responsibility of the head of the accounting entity for ensuring the integrity of assets and forming reliable accounting information. This control ensures the effective distribution of responsibility and authority among employees of the accounting entity for the correct and timely execution of economic transactions, integrity of assets, detection and prevention of embezzlement and errors.

Article 22. Financial Reporting:

The first part of this article was changed due to the necessity of a uniform interpretation of the concept of financial reporting by all business entities and state bodies. The second part was harmonized with the Decree of the President of the Republic of Uzbekistan No. PF-4453 dated July 16, 2012 "On Fundamental Reduction of Statistical, Tax, Financial Reporting, Licensed Activities, and Permitting Procedures." The third part was added to implement the part of Decree No. PF-4720 dated April 24, 2015, regarding the publication of financial statements based on international standards. The fourth part was supplemented taking into account Article 23 of the Law. The fifth and sixth parts were transferred to other articles of the Law.

Also, in accordance with the Law of the Republic of Uzbekistan "On the Central Bank of the Republic of Uzbekistan," the last part of this article grants the third authority to the Central Bank of the Republic of Uzbekistan to determine the composition and content of the financial reporting of banks and other credit organizations.

Article 23. Consolidated Financial Reporting:

The name was changed to harmonize the name and content of financial reporting with IFRS. The first part was harmonized with the concepts of "parent company" and "subsidiary company" in Article 67 of the Civil Code. The second, third, and fourth parts were removed because they were already present in other current legal acts and other norms of this Law. The fifth part was amended in accordance with IFRS.

Article 24. Reporting Period of Financial Reporting:

The first part was harmonized with the second part of Article 22. The second part was supplemented based on the practical necessity of preparing interim financial reporting (financial reporting may be prepared for a year, half-year, quarter, month, and other reporting periods). Editorial clarity was introduced into the third and fourth parts.

Article 25. Submission of Financial Reporting:

The first part was harmonized with the Tax Code and the Law "On State Tax Service Bodies." The second part was introduced based on the necessity of implementing modern information and communication technologies in the field of accounting and reporting.

Article 26. Publication of Financial Reporting:

Clarifying corrections were introduced into the first part. The second part was harmonized with norms established in current legal acts regarding the publication of financial reporting, namely Article 102 of the Law "On Joint Stock Companies and Protection of Shareholders' Rights," Article 61 of the Law "On Insurance Activity," Article 42 of the Law "On Banks and Banking Activity," Article 25 of the Law "On Public Funds," and other legal acts (for example, the part of the Law "On Exchange of Credit Information" regarding the credit bureau, the Law "On Exchanges and Exchange Activity," etc.). The third part was supplemented based on the specifics of reporting of certain subjects of accounting in other sectors of the economy.

Article 27. Financial Reporting at the Time of Liquidation:

Editorial corrections were made to this article in accordance with Articles 54 and 738 of the Civil Code.

Article 28. Confidentiality of Accounting Information:

Editorial corrections were made to this article in accordance with Article 11 of this Law, according to which the organization of accounting is entrusted to the head of the accounting entity, and consequently, access to the content of accounting information is carried out not with the permission of the administration in general, but only with the permission of the head of the accounting entity.

Article 29. Storage of Accounting Documents:

The storage periods for accounting documents were clarified. Amendments were introduced to ensure the storage of accounting documents (Article 29 "Storage of Accounting Documents") for at least five years, with the aim of unifying and establishing the storage period of documents in accordance with tax legislation (Articles 38 and 41 of the Tax Code) and the Law "On Combating the Legalization of Income Obtained from Criminal Activity and Financing of Terrorism." This eliminated the inconsistency existing in the aforementioned legislative acts.

Article 30. Public Associations of Accountants:

Taking into account the priority tasks defined in the concept of further deepening democratic reforms and developing civil society in our country, the legal status of voluntary public associations of accountants, which are non-governmental non-profit organizations, was established in the law with the aim of increasing the role of professional public associations of accountants in the field of regulating accounting.

Article 31. Resolution of Disputes:

A new article was introduced taking into account the resolution of disputes arising in this field in the manner established by legislation, and to harmonize the legal and technical formalization rules of laws.

Article 32. Liability for Violation of Legislation on Accounting.

This article remained unchanged.

In general, the new edition of the Law "On Accounting" serves to increase the transparency of accounting, ensure an internal control system, increase the legal culture of heads of business entities and accountants, strengthen their professional responsibility, increase the status of republican professional public associations of accountants, and prevent violations in this field.

Department of Accounting, Reporting, and State Budget Cash Execution Executor: M.D. Marpotov Tel: 61-08