Accounting Act

Passed 20 November 2002

(RT¹ I 2002, 102, 600),

entered into force 1 January 2003,

amended by the following Acts:

27.10.2005 entered into force 01.12.2005 - RT I 2005, 61, 478;

08.12.2004 entered into force 01.01.2005 - RT I 2004, 90, 616;

17.12.2003 entered into force 01.01.2004 - RT I 2003, 88, 588.

Chapter 1

General Provisions

§ 1. Purpose of Act

The purpose of this Act is to create the legal bases and establish general requirements for organising accounting and financial reporting pursuant to internationally recognised principles.

§ 2. Accounting entity

(1)       All persons specified in this section (hereinafter accounting entities) are required to organise their accounting and financial reporting pursuant to this Act.

(2)       The Republic of Estonia as a legal person in public law (hereinafter the state), local governments, all legal persons in private or public law registered in Estonia, sole proprietors, and branches of foreign companies registered in Estonia (hereinafter branches) are accounting entities.

(3)       The state organises its accounting and financial reporting through the state accounting entities.

(4)       All ministries and the State Chancellery within the scope of its area of government and administration, and the constitutional institutions – the Riigikogu², the President of the Republic, the State Audit Office, the Chancellor of Justice and the Supreme Court – are state accounting entities.

(08.12.2004 entered into force 01.01.2005 - RT I 2004, 90, 616)

(5)       The provisions of this Act concerning accounting entities apply to the state accounting entities unless otherwise provided by law.

§ 3. Definitions used in Act

In this Act, the following definitions are used:

1)         “asset” – a monetarily measurable object or right belonging to an accounting entity;

2)         “liability” – a monetarily measurable obligation of an accounting entity;

3)         “owner’s equity (net assets)” – the difference between the assets and liabilities of an accounting entity;

4)         “income” – an increase in economic benefits, except contributions to owner’s equity made by owners, during an accounting period which take the form of an increase in assets or a reduction in liabilities and which increase the owner’s equity of the accounting entity;

5)         “expenses” – a reduction in economic benefits, except payments made to owners from owner's equity, during an accounting period which takes the form of a reduction in assets or an increase in liabilities and which reduce the owner’s equity of the accounting entity;

6)         “profit (loss)” – the difference between the income and expenses of an accounting entity during an accounting period;

7)         “accounting principles generally accepted in Estonia” – an accounting framework based on internationally accepted accounting and reporting principles, as prescribed by this Act and supplemented by guidelines issued pursuant to subsection 32 (1) of this Act by the Accounting Standards Board (hereinafter guidelines of the Standards Board) and, in the case of the state, the state accounting entities, local governments, other legal persons in public law and other accounting entities over which the abovementioned persons have dominant influence directly or indirectly or through other persons who are under dominant or significant influence, by requirements provided for in the general rules for state accounting (hereinafter general rules) established on the basis of subsection 36 (1) of this Act;

(08.12.2004 entered into force 01.01.2005 - RT I 2004, 90, 616)

8)         “internationally accepted accounting and reporting principles” – the accounting directives of the European Union, international financial reporting standards and, in the case of persons in public law, international public sector accounting standards;

9)         “international financial reporting standards (IFRS)” – the standards and interpretations (SIC Interpretations) approved by the International Accounting Standards Board (IASB);

10)       “international public sector accounting standards (IPSAS)” – the standards approved by the Public Sector Committee of the International Federation of Accountants (IFAC);

11)       “management” – the person or persons entitled to direct the daily activities of and conclude transactions for an accounting entity (except a sole proprietor), (for example, the management board of a company);

12)       “highest supervisory body” – the body of an accounting entity which is formed on the basis of an Act or on the basis of articles of association or statutes and which exercises direct supervision over the management (for example, the supervisory body of a company).

Chapter 2

Organisation of Accounting

§ 4. General requirements for organisation of accounting

An accounting entity is required:

1)         to organise its accounts in such a way as to ensure the provision of up-to-date, relevant, objective and comparable information concerning the financial position, economic performance and cash flows of the accounting entity;

(27.10.2005 entered into force 01.12.2005 - RT I 2005, 61, 478)

2)         to document all its business transactions;

3)         on the basis of source documents or summary documents prepared on the basis thereof, to post and record all its business transactions in accounting ledgers and journals;

4)         to prepare and submit annual reports and other financial statements pursuant to the procedure provided for in this Act and other legislation;

5)         to preserve accounting documents.

§ 5. Accrual based and cash based accounting

(1)       “Cash based accounting” means that business transactions are recorded when cash is paid or received for the transactions.

(2)       “Accrual based accounting” means that business transactions are recorded when they occur, regardless of when cash is received or paid for the transactions. Upon the preparation of financial statements, adjusting and closing entries shall be made which allow for the correct measurement and reporting of the income and expenses of the accounting period.

(3)       Accounts shall be maintained on an accrual basis unless otherwise provided by this Act.

§ 6. Documenting and recording business transactions

(1)       For the purposes of this Act, “business transaction” means a transaction concluded by an accounting entity, a transaction between third parties, or an event relevant to an accounting entity, as a result of which changes occur in the assets, liabilities or owner’s equity of the accounting entity.

(2)       An accounting entity is required to document and record all its business transactions in journals and ledgers within a reasonable period of time following a business transaction such that the submission of reports prescribed by legislation within the specified term is ensured.

(27.10.2005 entered into force 01.12.2005 - RT I 2005, 61, 478)

(3)       Business transactions shall be recorded on a double-entry basis where the same amount is debited to one account and credited to another account.

(4)       All accounting entries shall be supported by source documents certifying the corresponding business transactions or by summary documents prepared on the basis of source documents.

(5)       An accounting entry shall contain the following information:

1)         the date of the business transaction;

2)         the number of the accounting entry;

3)         the accounts debited and credited and the corresponding amounts;

4)         a short description of the business transaction;

5)         the name and number of the source (summary) document.

§ 7. Source documents

(1)       An accounting source document is a document which certifies a business transaction and which contains the following information:

1)         the name and number of the document;

2)         the date of preparation of the document;

3)         the economic substance of the transaction;

4)         the figures relating to the transaction (quantity, price and total amount);

5)         the names of the parties to the transaction;

6)         the addresses of the seats or places of residence of the parties to the transaction;

7)         the signature(s) certifying the business transaction, given by the person representing the accounting entity who records the business transaction in the accounts thereof;

8)         the number of the corresponding accounting entry.

(2)       The requirements provided for in clauses (1) 6)–8) of this section do not apply to source documents if the information specified in those clauses has been recorded in a summary document prepared on the basis of the corresponding source documents.

(3)       Adjusting entries made upon preparation of financial statements shall be supported by adjusting entry documents. In an adjusting entry document, the requisite information specified in clauses (1) 5) and 6) of this section shall be replaced by the name of the person who prepared the source document.

(4)       It shall be possible for source documents preserved in electronic form to be reproduced in writing.

(27.10.2005 entered into force 01.12.2005 - RT I 2005, 61, 478)

§ 8. Chart of accounts

(1)       An accounting entity shall prepare a chart of accounts for recording business transactions and adjusting entries.

(2)       A state accounting entity shall prepare a chart of accounts in accordance with the requirements of the general rules.

§ 9. Accounting journals and ledgers

(1)       Accounting journals and ledgers are bodies of information which contain information on the accounting entries and balances set out in the accounts and also bodies of information which contain detailed information which is the basis for accounting entities.

(2)       The accounting journals and ledgers shall enable extracts to be made of recorded business transactions in chronological order.

(3)       Journals and ledgers may be prepared:

1)         as hand-written or printed documents;

2)         on data media enabling written reproduction if the authenticity of the information preserved thereon is ensured.

(27.10.2005 entered into force 01.12.2005 - RT I 2005, 61, 478)

§ 10. Corrections to documents, journals and ledgers

(1)       Information and entries in accounting source and summary documents shall not be deleted, nor shall they be corrected without adjusting entry documents. An incorrect accounting entry shall be corrected by an adjusting entry which shall contain a reference to the number of the corrected entry. If a correction is not supported by a source document, an adjusting entry document (correction document) explaining the correction shall be prepared.

(2)       In addition to the requisite information to be contained in an adjusting entry document in accordance with the provisions of subsections 7 (1) and (3) of this Act, a correction document shall set out the content of the correction. The original source document and the original entry shall be supplemented by a reference to the correction document and entry.

§ 11. Accounting policies and procedures

(1)       An accounting entity is required to establish accounting policies and procedures which establish the charting of accounts together with a description of the contents of the accounts and which regulate, among other things, the documentation and recording of business transactions, the flow and preservation of source documents, the maintenance of accounting journals and ledgers, the presenting of revenue and expenditure under Income Statement items, physical inventory of assets and liabilities, the accounting policy and presentation format used by the accounting entity, the procedure for preparing financial statements, usage of accounting software, and the circumstances relating to the organisation of accounting and the implementation of related internal audit measures.

(27.10.2005 entered into force 01.12.2005 - RT I 2005, 61, 478)

(2)       A state accounting entity shall prepare accounting policies and procedures in accordance with the requirements of the general rules.

§ 12. Obligation to preserve accounting documents

(1)       An accounting entity shall preserve accounting source documents for seven years as of the end of the financial year during which the source document was recorded in the accounts.

(2)       Accounting ledgers, journals, contracts, financial statements, reports and other business documents which are necessary for reconstructing business transactions during audits shall be preserved by the accounting entity for seven years as of the end of the corresponding financial year.

(3)       Business documents relating to long-term rights or obligations shall be preserved for seven years after the expiry of their term of validity.

(4)       Accounting rules and procedures shall be preserved for seven years after the amendment or replacement thereof.

(5)       An accounting entity is required to also preserve in electronic form the accounting journals and ledgers which are created electronically. The legibility of electronic information shall be ensured during the whole retention period.

(27.10.2005 entered into force 01.12.2005 - RT I 2005, 61, 478)

Chapter 3

Annual Report

§ 13. Financial year

(1)       The length of a financial year is twelve months.

(2)       In the event of an accounting entity being founded or terminated or the date of the commencement of its financial year being changed, or in other cases prescribed by law, the financial year of the accounting entity may be shorter or longer than twelve months but shall not exceed eighteen months.

(3)       The financial year of an accounting entity is deemed to be a calendar year, unless otherwise provided for in the articles of association of the accounting entity or any other document regulating the activities thereof.

(4)       The financial year of the state and the state accounting entities is the budgetary year.

§ 14. Preparation of annual report

(1)       At the end of each financial year, an accounting entity is required to prepare an annual report which consists of the annual accounts and the management report. The auditor’s report and, in the case of a company, the profit distribution proposal for the financial year shall be annexed to the annual report. The auditor’s report need not be annexed to the annual report if auditing is not compulsory.

(27.10.2005 entered into force 01.12.2005 - RT I 2005, 61, 478)

(2)       The preparation and submission of an annual report entails the following steps:

1)         preparation of the annual accounts;

2)         preparation of the management report;

3)         auditing;

4)         in the case of a company, preparation of the profit distribution proposal for the financial year;

5)         submission of the annual report for approval.

(3)       In addition to the other cases provided by law, the annual report of an accounting entity shall be audited if at the balance sheet date of the accounting year the accounting entity exceeds the limits of at least two of the three following criteria: sales revenue (net turnover), in the case of a company, or income, in the case of other accounting entities: 10 million kroons; balance sheet total: 5 million kroons; number of employees: 10. An accounting entity which is a consolidating entity pursuant to subsection 27 (1) of this Act shall determine whether an audit is compulsory on the basis of the consolidated indicators.

(08.12.2004 entered into force 01.01.2005 - RT I 2004, 90, 616)

§ 15. Annual accounts

(1)       The purpose of the annual accounts is to give a true and fair view of the financial position, economic performance and cash flows of the accounting entity.

(2)       The annual accounts shall comprise the main statements (balance sheet, income statement, cash flow statement and statement of changes in owner’s equity) and notes on the accounts. The management’s declaration specified in section 23 of this Act which shall be submitted together with the annual accounts shall constitute an integral part of the annual accounts.

(27.10.2005 entered into force 01.12.2005 - RT I 2005, 61, 478)

(3)       Annual accounts shall be prepared on the basis of the business transactions and adjusting entries recorded in the journals and ledgers during the financial year. For the purposes of preparing annual accounts, physical inventory shall be taken of the balances of the assets and liabilities of the accounting entity, the conformity of the value of the assets and liabilities recorded in the journals and ledgers to the accounting policies provided for in §§ 16 and 17 of this Act shall be assessed, adjusting and closing entries shall be made and the main statements and notes shall be prepared.

(4)       The accounting policies used for preparing annual accounts shall be chosen and information shall be published in accordance with the requirements provided for in §§ 16 and 17 of this Act.

(5)       Annual accounts shall be prepared in Estonian and in the currency officially applicable in Estonia, and the degree of precision used for the figures shall be indicated (for example, in thousands of currency units).

§ 16. Basic principles for preparation of annual accounts

The following basic principles forming a part of the internationally accepted accounting and reporting principles shall be primary factors taken into consideration in preparation of annual accounts:

1)         business entity – the accounting entity keeps separate accounts of its assets, liabilities and business transactions and the assets, liabilities and business transactions of its owners, creditors, employees, customers and other persons;

2)         going concern – in the preparation of financial statements, the accounting entity is presumed to be carrying on its activities as a going concern and not to have the intention of or need for terminating its activities. If a financial statement is not prepared in accordance with the going concern assumption, the accounting principle applied shall be set out in the statement;

3)         understandability – the information disclosed in financial statements shall be concise and unambiguous to users of the statement who have sufficient financial knowledge to understand the statement;

4)         materiality – financial statements shall set out all material information which affects the financial position, economic performance and cash flows of the accounting entity. Information in financial statements is considered material if failure to disclose the information could influence the business decisions made by the users of the statements on the basis thereof. Immaterial items may be accounted for and recorded in the financial statements using a simplified method;

5)         consistency and comparability – the same accounting policies, presentation formats and financial statement formats are used on an on-going basis in preparation of financial statements;

6)         matching principle – expenses relating to the revenue earned during a given accounting period are deducted from such revenue. Costs incurred during an accounting period other than the period in which they benefit the accounting entity shall be recorded as expenses during the period in which they benefit the entity;

7)         objectivity – information presented in financial statements shall be objective and reliable;

8)         conservatism – financial statements shall be prepared on a prudent and cautious basis in order to avoid overestimation of assets or revenue or underestimation of liabilities or expenses. At the same time, it is prohibited intentionally to understate assets or revenue, overstate liabilities or expenses, or create reserves hidden from the users of the statements;

9)         disclosure – financial statements shall disclose all the information necessary to present a true and fair view of the financial position, economic performance and cash flows of the accounting entity;

10)       substance over form – business transactions are recorded in accounts and financial statements based on their substance even if this does not correspond to their legal form.

§ 17. Accounting framework applied

(1)       The accounting policies and presentation formats used in accounting shall be in accordance with the requirements and basic principles provided for in this Act and with at least one of the following two accounting frameworks:

1)         accounting principles generally accepted in Estonia;

2)         international financial reporting standards.

(2)       The accounting policies and presentation formats used in the preparation of financial statements by a credit institution, financial holding company, mixed financial holding company, investment firm, insurer or by a company, the securities issued by which are admitted for trading on a regulated securities market of Estonia or another Contracting State of the EEA Agreement (hereinafter Contracting State), shall be in accordance with international financial reporting standards adopted by the European Commission according to the procedure provided for in Regulation No 1606/2002/EC of the European Parliament and of the Council on the application of international accounting standards (OJ L 243, 11.09.2002, p. 1–4).

(08.12.2004 entered into force 01.01.2005 - RT I 2004, 90, 616)

(3)       The accounting policies and presentation formats used in the preparation of the financial statements of Eesti Pank shall be determined by the Governor of Eesti Pank in accordance with the accounting rules of the European Central Bank or, in issues not regulated thereby, in accordance with one of the two accounting frameworks specified in subsection (1) of this section.

§ 18. Balance sheet and income statement

(1)       “Balance sheet” means a financial statement which shows the financial position (assets, liabilities and owners’ equity) of an accounting entity at a given date.

(2)       “Income statement” (statement of gains and losses) means a financial statement which shows the economic performance (income, expenses and profit or loss) of an accounting entity during an accounting period.

(3)       An accounting entity which prepares its annual accounts in accordance with accounting principles generally accepted in Estonia shall use the balance sheet format set out in Annex 1 to this Act and one of the two income statement formats set out in Annex 2 to this Act in its annual accounts on an on-going basis. A more detailed subdivision of items in the formats of the balance sheet and income statement is permitted and new items may be added to the existing items if this makes for greater clarity.

(17.12.2003 entered into force 01.01.2004 - RT I 2003, 88, 588)

(4)       In certain areas of activity where the specific nature of the business activities of an accounting entity (including credit institutions, insurers, investment firms, management companies, non-profit associations, the state and the state accounting entities) so requires, balance sheet and income statement formats other than those set out in the Annexes to this Act may be used. A format other than those set out in the Annexes to this Act shall be chosen in accordance with one of the accounting frameworks specified in § 17 of this Act and the requirements of other legislation regulating the given field of activity.

§ 19. Cash flow statement

(1)       “Cash flow statement” means a financial statement which presents the cash flows (receipts and payments of cash and cash equivalents) of an accounting entity during an accounting period.

(2)       A cash flow statement presents the amounts received or paid out by the accounting entity during the accounting period and classifies the cash flows according to their objective into cash flows from operating, investing or financial activities.

(3)       Cash flows from operating activities may be presented using either the direct method which shows all major types of receipts and payments as gross amounts or the indirect method where the profit for the accounting period is adjusted to the impact of non-cash business transactions, changes in the balances of assets and liabilities relating to operating activities and the revenue and expenses relating to the cash flows arising from investing or financing activities.

(4)       Cash flows arising from investing and financing activities shall be presented using the direct method.

§ 20. Statement of changes in owner’s equity

(1)       “Statement of changes in owner’s equity” means a financial statement presenting the changes which have occurred in the owner’s equity of an accounting entity during an accounting period.

(2)       A statement of changes in owner’s equity presents the changes which have occurred in the owner’s equity items of an accounting entity during an accounting period, showing separately owners’ investments and withdrawals of capital, the profit or loss for the accounting period, the impact of changes in accounting policies, the increases and decreases in reserves, and other business transactions which have had an impact on the owner’s equity items.

(3)       An accounting entity which is a company who prepares the annual report of the consolidation group shall take guidance from the adjusted unconsolidated owner’s equity upon calculating compliance with the requirements established for the owner’s equity in the Commercial Code. The adjusted unconsolidated owner’s equity is equal to unconsolidated owner’s equity of the company from which the book value of the holdings under significant influence set out in its balance sheet has been deducted and to which the value of such holdings calculated by using the equity method has been added. The procedure of calculating the adjusted unconsolidated owner’s equity shall be disclosed in the statement of changes in owner’s equity.

(27.10.2005 entered into force 01.12.2005 - RT I 2005, 61, 478)

§ 21. Notes on annual accounts

(1)       An accounting entity is required to disclose the following information in the notes on the accounts:

1)         which of the accounting frameworks provided for in § 17 of this Act was taken as the basis for preparation of the annual accounts;

2)         the accounting policies used in the preparation of the annual accounts;

3)         explanations concerning the material items in the main statements and the changes in such items during the accounting period;

4)         other circumstances relevant to the provision of a true and fair view of the financial position, economic performance and cash flows of the accounting entity.

(2)       The notes on the accounts shall be in compliance with one of the accounting frameworks specified in § 17 of this Act and with the provisions of Annex 3 to this Act.

§ 22. Comparability of annual accounts

(1)       Annual accounts shall show comparable figures for both the current financial year and the preceding financial year. Items for which there is no amount shall be shown only if there is a corresponding item for the preceding financial year.

(2)       If the figures for the accounting year and the previous financial year are not comparable due to changes made in the presentation format or accounting policies during the accounting year, the comparable figures for the previous financial year shall be recalculated and brought into compliance with the presentation format and accounting policy used in the accounting year. The reasons for recalculating comparable figures, and the amounts adjusted in comparison to the figures of the annual accounts of the previous financial year shall be disclosed in the notes on the accounts. If it is not possible or expedient to recalculate comparable figures, this fact shall be presented in the notes on the accounts together with the reasons therefor.

§ 23. Management’s declaration

(1)       The written management’s declaration submitted together with the annual accounts shall be signed and dated by the entire management of the accounting entity declaring their liability for the preparation of the annual accounts and confirming that:

1)         the accounting policies applied in the preparation of the annual accounts are in compliance with one of the accounting frameworks specified in § 17 of this Act;

2)         the annual accounts give a true and fair view of the financial position, economic performance and cash flows of the accounting entity;

3)         the accounting entity is carrying on its activities as a going concern.

(27.10.2005 entered into force 01.12.2005 - RT I 2005, 61, 478)

(2)       If any of the requirements provided for in subsection (1) of this section is not complied with, this fact shall be disclosed in the declaration together with the reasons therefor.

§ 24. Management report

(1)       A management report shall provide an overview of the activities of the accounting entity, circumstances which are material to the assessment of the financial position and business activities of the accounting entity, significant events which have occurred during the financial year and the likely future developments in the following financial year.

(2)       The management report shall set out, inter alia:

1)         the main areas of activity, product and service groups;

2)         the most significant investments made during the financial year and planned in the immediate future;

3)         significant projects in the field of research and development and the related expenditure in the accounting year and the following years;

4)         the remuneration and other significant benefits (calculated on an accrual basis) calculated by the accounting entity for the members of the management and the highest supervisory body during the accounting year, and the contingent liabilities related to such members and the total amount of remuneration paid to employees and the average number of employees during the financial year;

5)         significant events which have occurred during the period of preparation of the annual accounts and which are not presented in the annual accounts but which have or may have a material effect on economic performance for the following financial years.

(3)       An accounting entity whose annual reports are audited or must be audited pursuant to law shall describe in the management report, in addition to the provisions of subsection (2) of this section:

1)         general (macroeconomic) development of the activities environment of the accounting entity and the impact of such development on its economic performance;

2)         whether the operating activities of the accounting entity take place on a seasonal basis, or whether their business activities are cyclical;

3)         significant environmental and social impacts resulting from the activities of the accounting entity;

4)         risks related to changes in foreign exchange rates, interest rates and stock exchange rates which have occurred during the financial year or during the period of preparation of the report;

5)         the main financial ratios concerning the financial year and the preceding financial year, and the methods for calculating the ratios.

(4)       If at the balance-sheet date the owner’s equity of the accounting entity does not comply with the requirements established by the Commercial Code the activities planned for restoration of owner’s equity shall be described in the management report.

(27.10.2005 entered into force 01.12.2005 - RT I 2005, 61, 478)

§ 25. Signatures to annual report

(1)       The annual report of an accounting entity shall be signed and dated by the members of the management of the accounting entity and the members of the highest supervisory body of the accounting entity if that body exists immediately after the relevant body has approved the report.

(2)       An annual report shall be signed and dated by the sole proprietor immediately after the preparation thereof.

(3)       By signing the annual report, the persons specified in subsections (1) and (2) of this section confirm the correctness of the information set out in the annual report.

(27.10.2005 entered into force 01.12.2005 - RT I 2005, 61, 478)

§ 26. Reports of accounting entity upon founding, liquidation and termination thereof

(1)       An accounting entity which is being founded or for which the obligation to maintain accounts has arisen shall prepare an opening balance sheet showing its assets, liabilities and owner’s equity before the commencement of business activities or before the obligation to maintain accounts had arisen.

(2)       In the first annual accounts following the foundation of an accounting entity, the balances of the opening balance in comparable figures shall be shown in the balance sheet. Comparable figures shall not be shown in income statements and cash flow statements. The cash flow statement shall show the total sum of cash and cash equivalents presented in the opening balance as the opening balance of cash and cash equivalents.

(3)       Upon termination of liquidation proceedings of an accounting entity or extinguishment of the obligation to maintain accounts, the accounting entity shall prepare a closing balance sheet.

(27.10.2005 entered into force 01.12.2005 - RT I 2005, 61, 478)

Chapter 4

Annual Reports of Consolidation Groups

§ 27. Consolidation group and entities thereof

(1)       “Consolidating entity” means a parent undertaking or any other accounting entity exercising dominant influence over another accounting entity. Dominant influence may, inter alia, arise from the following circumstances:

1)         a holding of more than 50 per cent of the voting rights in the consolidated entity;

2)         a direct or indirect right arising from law or a contract to appoint or remove a majority of the members of the management or the highest supervisory body by exercising the rights of a founder or by a decision of the general meeting.

(2)       “Consolidated entity” means a subsidiary undertaking or any other accounting entity over which another accounting entity (the consolidating entity) exercises dominant influence.

(3)       A consolidating entity together with one or more consolidated entities form a consolidation group.

(4)       “Consolidation” means combination of the financial statements of the accounting entities belonging to the consolidation group as if they were a single accounting entity.

§ 28. Annual report of consolidation group

(1)       At the end of each financial year, an accounting entity which is a consolidating entity shall prepare an annual report as specified in subsection 14 (1) of this Act in the form of the annual report of the consolidation group and consisting of the annual accounts and management report of the consolidation group to which the auditor’s report, if auditing is compulsory, and, in the case of a consolidating entity which is a company, a profit distribution proposal shall be annexed.

(2)       The provisions of this Act and, in the case of companies, of the Commercial Code (RT I 1995, 26–28, 355; 1998, 91–93, 1500; 1999, 10, 155; 23, 355; 24, 360; 57, 596; 102, 907; 2000, 29, 172; 49, 303; 55, 365; 57, 373; 2001, 34, 185; 56, 332 and 336; 89, 532; 93, 565; 2002, 3, 6; 35, 214; 53, 336; 61, 375; 63, 387 and 388; 96, 564; 102, 600; 110, 657; 2003, 4, 19; 13, 64; 18, 100; 78, 523; 88, 591) concerning annual reports and the parts thereof apply to the annual reports and parts of the annual reports of consolidation groups, unless otherwise provided for in this Chapter.

(3)       (Repealed - 27.10.2005 entered into force 01.12.2005 - RT I 2005, 61, 478)

§ 29. Exceptions

(1)       The following consolidating entities are exempt from the obligation to prepare an annual report of the consolidation group:

1)         a company if at least 90 per cent of its votes represented by shares belong to a consolidating entity which is registered in Estonia and has the obligation to prepare and disclose the audited annual report of the consolidation group;

2)         a company if at least 90 per cent of its votes represented by shares belong to a consolidating entity which is registered in a Contracting State and has the obligation to prepare and disclose the audited annual report of the consolidation group under the law of the home country of the entity;

3)         a consolidating entity if, at the balance sheet date of the accounting year, the entity does not exceed the limits of two of the three following consolidated criteria: sales revenue (net turnover), in the case of a company, or income, in the case of other accounting entities: 10 million kroons; balance sheet total: 5 million kroons; number of employees: 10;

4)         a consolidating entity if the total amount of the balance sheet totals of each of the consolidated entities added together does not exceed 5 per cent of the balance sheet total of the consolidating entity and if its sales revenue does not exceed 5 per cent of the sales revenue of the consolidating entity;

5)         a consolidating entity regarding those consolidated entities which are companies whose shares have been acquired for trading or with a view to reselling them over a short period.

(08.12.2004 entered into force 01.01.2005 - RT I 2004, 90, 616)

(2)       Upon determination of the participation provided for in clauses (1) 1) and 2) of this section, the shares which belong to members of the management or the highest supervisory body of the same company shall not be taken into account. A company shall be exempt, pursuant to clauses (1) 1) and 2) of this section, from the obligation to prepare the annual report of the consolidation group if all other shareholders or partners have approved the exemption.

(3)       A company which is exempt from the preparation of the annual report of the consolidation group pursuant to clause (1) 1) or 2) of this section shall disclose in its annual report the business name and the registered seat of the consolidating entity which prepares the annual report of the consolidation group.

(4)       The exemptions provided for in clauses (1) 1)–3) of this section do not apply to consolidating entities which are credit institutions, financial holding companies, mixed financial holding companies, investment firms, insurers or companies, the securities issued by which are admitted for trading on a regulated securities market of Estonia or another Contracting State.

(08.12.2004 entered into force 01.01.2005 - RT I 2004, 90, 616)

§ 30. Annual accounts of consolidation groups

(1)       The purpose of the annual accounts of a consolidation group is to give a true and fair view of the financial position, economic performance and cash flows of the consolidation group taken as a whole.

(2)       The annual accounts of a consolidation group shall comprise the consolidated balance sheet, income statement, cash flow statement and statement of changes in owner’s equity (consolidated reports) and the corresponding notes which shall be submitted together with the unconsolidated annual accounts of the consolidating entity and the management’s declaration (unconsolidated reports). A declaration provided for in § 23 of this Act regarding the consolidation group and the consolidating entity, which is signed by the management of the consolidating entity shall be submitted together with the annual accounts. The accounting entity which prepares the annual accounts of the consolidation group is not required to prepare the annual accounts specified in § 15 of this Act.

(08.12.2004 entered into force 01.01.2005 - RT I 2004, 90, 616; 27.10.2005 entered into force 01.12.2005 - RT I 2005, 61, 478)

(3)       The accounting policies used for preparing the annual accounts of a consolidation group shall be chosen and information shall be published in accordance with the requirements provided for in §§ 16 and 17 of this Act. The accounting policies used for preparing the annual accounts of a consolidation group an accounting entity of which is an undertaking specified in subsection 17 (2) of this Act shall be chosen and information shall be published in accordance with the provisions of the specified section.

(08.12.2004 entered into force 01.01.2005 - RT I 2004, 90, 616)

§ 31. Management report of consolidation group

(1)       The management report of a consolidation group shall provide an overview of the activities of the consolidation group, circumstances which are of material importance to the assessment of the financial position and activities of the consolidating entity and the consolidation group, significant events which have occurred during the financial year and the likely future developments in the following financial year.

(2)       In addition to complying with the requirements provided for in § 24 of this Act, the management report of a consolidation group shall set out:

1)         the structure of the consolidation group and the direct and indirect participation of the consolidating entity in the consolidated entities. If the consolidating entity does not hold a majority of votes in the consolidated entity either directly or indirectly, the basis of the dominant influence shall be indicated;

2)         changes which occurred or were expected to occur within the consolidation group during the financial year (any planned merger, division, transformation, or acquisition or transfer of participation) and changes in the fields of activity of the entities belonging to the consolidation group;

3)         significant events and circumstances which have affected or may affect the financial position or the economic performance of the consolidating entity and the consolidation group during the financial year or forthcoming periods;

4)         whether the operating activities of the consolidating entity and the consolidated entities take place on a seasonal basis, or whether their business activities are cyclical;

5)         changes in the investment and financing strategy, financing structure, risk management policies and liquidity of the consolidating entity and the consolidation group;

6)         in the case of a consolidating entity which is a company, the dividend policy of the consolidation group;

7)         circumstances or developments of a general economic nature or specific to operating activities which affect the economic development of the consolidating undertaking and the consolidation group and which have affected the financial position or economic performance of the consolidating entity or the consolidation group during the financial year or may affect them during the forthcoming years;

8)         (Repealed - 27.10.2005 entered into force 01.12.2005 - RT I 2005, 61, 478)

9)         the main financial ratios concerning the financial year and the preceding financial year of the consolidating entity, and the methods for calculating the ratios.

Chapter 5

Direction and Organisation of Activities in Field of Accounting

§ 32. Accounting Standards Board

(1)       The Government of the Republic shall establish the Accounting Standards Board (hereinafter Standards Board) whose function is to issue accounting guidelines explaining and specifying this Act and to direct activities in the field of accounting.

(2)       The Standards Board is an independent committee whose rules of procedure (hereinafter rules of procedure) shall be approved by the Government of the Republic on the proposal of the Minister of Finance. The Standards Board shall be served by the Ministry of Finance.

(3)       The amount of remuneration paid to the chairman and members of the Standards Board and the procedure for payment thereof shall be determined by the Minister of Finance.

(4)       The Ministry of Finance, the Government of the Republic and other government authorities shall not interfere with the content of the guidelines issued by the Standards Board or with the process of preparation thereof.

(5)       The Minister of Finance has the right to issue mandatory precepts to the Standards Board for the performance of the obligations arising from the this Act and the rules of procedure.

§ 33. Appointment and removal of members of Standards Board

(1)       The Standards Board shall be appointed for three years by the Government of the Republic on the proposal of the Minister of Finance and it shall consist of seven members who are accounting specialists, experts in accounting theory or practising accountants.

(2)       Members of the Standards Board are removed by the Government of the Republic on the proposal of the Minister of Finance.

(3)       A member of the Standards Board shall be removed immediately if:

1)         a judgment of conviction in a criminal matter has entered into force with regard to him or her;

2)         it becomes evident that he or she has failed to perform his or her duties to a material extent, has damaged the interests of the Standards Board or is unsuitable to perform the duties of a member of the Standards Board for any other reason.

(4)       A member of the Standards Board may be removed before the expiry of his or her term of authority if he or she suffers from an illness lasting for more than four months and is unable to perform his or her duties due to the illness.

(5)       Upon the removal, resignation or death of a member of the Standards Board, he or she shall be replaced by a new member whose authority continues until the expiry of the term of authority of the Standards Board.

(6)       The specific procedure for the appointment, removal and resignation of members of the Standards Board shall be provided for in the rules of procedure.

(7)       If a new membership of the Standards Board has not been appointed by the expiry of the term of authority of members of Standards Board, the authority of the members of the Standards Board shall extend until the appointment to office of a new membership of the Standards Board.

(27.10.2005 entered into force 01.12.2005 - RT I 2005, 61, 478)

§ 34. Guidelines of Standards Board

(1)       The guidelines of the Standards Board shall be prepared on the basis of the international financial reporting standards although, in justified cases, they may prescribe derogations from the standards or simplified application or non-application of the standards with regard to all or specific types of accounting entities. In the event of derogations, the corresponding guideline shall describe the derogations and set out the reasons why they are necessary.

(2)       The guidelines of the Standards Board are issued in order to explain and specify this Act. If a guideline is in conflict with this Act, the provisions of this Act shall apply.

(3)       The guidelines of the Standards Board shall include references to the international financial reporting standards pursuant to which they were prepared.

(4)       The draft guidelines of the Standards Board shall be available to the public on the website of the Standards Board and they shall be open for public discussion for at least two months before approval thereof by the Standards Board.

(5)       The guidelines of the Standards Board shall be published in the Riigi Teataja.

Chapter 6

Specifications Concerning Organisation of State Accounting

§ 35. Organisation of state accounting and reporting

(1)       The Ministry of Finance shall organise state accounting and financial reporting pursuant to subsection 2 (3) of this Act and the performance of the obligations of the Republic of Estonia regarding international accounting and financial reporting.

(17.12.2003 entered into force 01.01.2004 - RT I 2003, 88, 588)

(2)       The Minister of Finance has the right to establish, in the general rules, accounting policies, report formats and the procedure for the submission thereof for state accounting entities, local governments, other legal persons in public law and other accounting entities over which the abovementioned persons have dominant influence directly or indirectly or through other persons who are under dominant or significant influence.

(17.12.2003 entered into force 01.01.2004 - RT I 2003, 88, 588)

(3)       The Minister of Finance has the right to establish, in the general rules, report formats and the procedure for the submission thereof for accounting entities which are, directly or indirectly or through other persons who are under dominant or significant influence, under the dominant influence of state accounting entities, local governments, other legal persons in public law or other accounting entities.

(17.12.2003 entered into force 01.01.2004 - RT I 2003, 88, 588)

§ 36. General rules for state accounting

(1)       The Minister of Finance shall establish general rules for organisation of the accounting and financial reporting of the state and the state accounting entities which are based on and are in compliance with the accounting principles generally accepted in Estonia and the international public sector accounting standards and in accordance with which the state accounting entities are required to organise their accounting and financial reporting.

(2)       Regardless of the provisions of subsection (1) of this section, the general rules may, in justified cases, prescribe derogations from the international public sector accounting standards or the guidelines of the Standards Board or simplified application or non-application of such standards or guidelines with regard to the state as a whole or all or particular state accounting entities, local governments or legal persons in public law. In the case of derogations, the general rules shall describe the derogations and set out the reasons why they are necessary.

(3)       The general rules explain and specify the requirements of the accounting principles generally accepted in Estonia as regards the state and the state accounting entities and serve as the accounting policies and procedures within the meaning of § 11 of this Act for the state as a whole. The existence of the general rules does not release the state accounting entities from the obligation to establish their own accounting policies and procedures.

(4)       (Repealed - 17.12.2003 entered into force 01.01.2004 - RT I 2003, 88, 588)

§ 37. Annual reports of state and state accounting entities

(1)       The state accounting entities shall prepare their annual reports and the Ministry of Finance shall prepare the consolidated annual report of the state in the form of the annual report of the consolidation group of the state in accordance with the requirements of this Act.

(17.12.2003 entered into force 01.01.2004 - RT I 2003, 88, 588)

(2)       The aim of submitting the annual report of the state is to enable the Riigikogu to exercise its auditing function with regard to the government, provide the government with the opportunity to explain its activities during the accounting year, and submit the information necessary for the Riigikogu to make new resolutions regarding the budget.

(3)       Upon assessment of the accuracy of the consolidated annual report of the state and the annual reports of the state accounting entities and upon assessment of the legality of the transactions, the provisions of the State Budget Act (RT I 1999, 55, 584; 2002, 67, 405; 2003, 13, 69; 24, 148; 88, 588) apply.

(17.12.2003 entered into force 01.01.2004 - RT I 2003, 88, 588)

§ 38. Annual accounts of state and state accounting entities

(1)       The annual accounts of the state shall contain an additional report on the implementation of the state budget, which shall be prepared at least to the extent set out in the state budget for each item of the budget classification in force at the time of the adoption of the state budget.

(17.12.2003 entered into force 01.01.2004 - RT I 2003, 88, 588)

(2)       The annual accounts of a state accounting entity shall contain an additional report on the implementation of the state budget within the corresponding area of government or administration.

§ 39. (Repealed - 17.12.2003 entered into force 01.01.2004 - RT I 2003, 88, 588)

§ 40. (Repealed - 17.12.2003 entered into force 01.01.2004 - RT I 2003, 88, 588)

Chapter 7

Specifications Concerning Organisation of Accounting by Other Persons

§ 41. Annual accounts of local governments

The annual accounts of a local government shall contain an additional report on implementation of the budget of the corresponding rural municipality or city.

§ 42. Specifications concerning organisation of accounting and reporting of Eesti Pank

Eesti Pank is not required to prepare the cash flow statement provided for in §§ 15 and 19 of this Act.

§ 43. Specifications concerning accounting by sole proprietors

(1)       A sole proprietor may maintain his or her accounts on a cash basis.

(2)       A sole proprietor who maintains his or her accounts on a cash basis, must comply only with §§ 1–3, 4 (except clause 4)), 5, 6 (except clause 3)), 7, 9, 10 and 12 of this Act and other requirements of the accounting principles generally accepted in Estonia which regulate cash based accounting.

(3)       A sole proprietor who maintains his or her accounts using the accrual method shall comply with this Act.

(4)       A sole proprietor entered in the commercial register shall prepare a balance sheet showing the sole proprietor’s assets placed at the disposal of his or her undertaking as at the date of entry in the commercial register. The assets placed at the disposal of the undertaking shall be valued in accordance with the generally accepted accounting frameworks.

§ 44. Specifications concerning accounting by branches

Branches shall organise their accounting pursuant to §§ 1–12 of this Act.

§ 45. Additional requirements for public undertakings, undertakings with special or exclusive rights and undertakings providing services of general interest

(1)       Public undertakings, undertakings enjoying special or exclusive rights and undertakings providing services of general interest within the meaning of § 14 and subsections 31 (3¹) and (3²) of the Competition Act (RT I 2001, 56, 332; 93, 565; 2002, 61, 375; 63, 387; 82, 480; 87, 505; 102, 600; 2003, 23, 133) shall, to the extent and pursuant to the procedure established by a regulation of the Minister of Finance, ensure the transparency of their accounting and the transparency of funds allocated to such undertakings by the state or a local government and of the use of such funds.

(2)       At the request of the Minister of Finance, the persons specified in subsection (1) of this section are required to submit information concerning their accounting and the organisation thereof if such information is necessary to assess the transparency of their accounting.

(3)       If at least 50 per cent of the turnover of a public undertaking comprises manufacturing activities, the undertaking shall submit its annual report to the Minister of Finance not later than one month as of approval of the report. Together with the annual report, the undertaking shall submit a report established by the Minister of Finance on the transparency of funds allocated to the undertaking by the state or a local government and of the use of such funds and on the transparency of accounting broken down by area of activity. Activities specified in Section D Manufacturing of the Classification of Economic Activities (EMTAK) are deemed to be manufacturing activities.

(4)       Subsections (1)–(3) of this section do not apply to:

1)         public undertakings, undertakings enjoying special or exclusive rights or undertakings providing services of general interest whose turnover during the given financial year and the two immediately preceding financial years has been lower than 95 million kroons, unless otherwise provided by other Acts;

2)         a public undertaking if at least 50 per cent of the turnover of the undertaking comprises manufacturing activities and the turnover of the undertaking during the given financial year was lower than 500 million kroons;

3)         credit institutions who are public undertakings, as regards funds allocated thereto by the state or a local government under market conditions.

Chapter 8

Implementation of Act

§ 46. Amendment of Commercial Code

The Commercial Code (RT I 1995, 26–28, 355; 1998, 91–93, 1500; 1999, 10, 155; 23, 355; 24, 360; 57, 596; 102, 907; 2000, 29, 172; 49, 303; 55, 365; 57, 373; 2001, 34, 185; 56, 332 and 336; 89, 532; 93, 565; 2002, 3, 6; 35, 214; 53, 336; 61, 375; 63, 387 and 388; 96, 564; 102, 600; 110, 657; 2003, 4, 19; 13, 64; 18, 100; 78, 523; 88, 591) is amended as follows:

1)         subsection (1¹) is added to § 97 worded as follows:

“(1¹)     If a general partner is a private limited company, a public limited company, a commercial association or a non-profit association, a copy of the signed annual report shall be submitted to the commercial register for permanent preservation together with the auditor’s report, if auditing is compulsory, and the profit distribution proposal within six months as of the end of the financial year.”;

2)         the first sentence of subsection 179 (2) is amended and worded as follows:

“The management board shall present the annual accounts and management report (annual report) and the profit distribution proposal to the shareholders.”;

3)         the first sentence of subsection 179 (4) is amended and worded as follows:

“The management board shall submit the approved annual report to the commercial register together with the profit distribution proposal and the auditor’s report, if auditing is compulsory, not later than six months after the end of the financial year.”;

4)         the first sentence of subsection 334 (2) is amended and worded as follows:

“The management board shall submit the approved annual report to the commercial register together with the profit distribution proposal and the auditor’s report not later than six months after the end of the financial year.”;

5)         subsection 332 (2) is amended and worded as follows:

“(2)      The management board shall present the annual accounts and management report (annual report), the auditor’s report and the profit distribution proposal to the general meeting.”;

6)         Subsection 388 (2) is amended and worded as follows:

“(2)      The director of a branch of a foreign company shall submit an unattested copy of the audited and approved annual report of the company to the commercial register of the location of the branch not later than one month after approval of the annual report or seven months after the end of the financial year. This requirement does not apply to companies of the states which are Contracting Parties to the EEA Agreement if the legislation of the country of the seat of the company does not require the annual report to be disclosed.”;

7)         section 388 is amended by adding subsection (5) worded as follows:

“(5)      The reports specified in subsections (2) and (3) of this section shall be prepared in compliance with the accounting frameworks specified in clause 17 (1) 2) of the Accounting Act. This requirement does not apply to companies of the states which are Contracting Parties to the EEA agreement or any other state entered in the list approved by the Minister of Finance if the accounting frameworks applicable in their country of location are similar to any of the frameworks specified in subsection 17 (1) of the Accounting Act.”;

8)         section 500 is amended by adding subsection (4) worded as follows:

“(4)      The shares of a private limited company being transformed shall be registered with the Estonian Central Register of Securities before submission of the application specified in § 485 of this Code to the commercial register.”

§ 47. Amendment of Investment Funds Act

The Investment Funds Act (RT I 1997, 34, 535; 1998, 61, 979; 2000, 10, 55; 57, 373; 2001, 48, 268; 79, 480; 89, 532; 93, 565; 2002, 23, 131; 53, 336; 63, 387; 102, 600; 105, 612; 2003, 23, 133; 51, 355; 88, 591) is amended as follows:

1)         subsection 10 (3) is amended and worded as follows:

“(3)      In order to ensure the financial soundness of a management company and sufficient protection for the interests of investors, the Minister of Finance may establish additional requirements for:

1)         the amount of equity capital and legal reserve of a management company depending on the value of the assets of the funds managed by the management company;

2)         the valuation methods and size of the own funds of the management company if it provides investment services specified in subsection 3 (4) of this Act.";

2)         subsection 10 (4) is repealed;

3)         section 105 is amended by adding subsection (6) worded as follows:

“(6)      The provisions of this section concerning securities do not apply to investment in units of a fund.”;

4)         the words “not specified in § 107 of this Act” are omitted from subsection 108 (2)”;

5)         subsection 114 (1) is amended and worded as follows:

“(1)      The accounting and reporting of funds shall be organised pursuant to the Accounting Act unless otherwise provided for in this Act. The provisions of § 14, subsections 15 (2) and 18 (3) and §§ 25 and 26 of the Accounting Act do not apply to the accounting and reporting of contractual funds.”;

6)         section 116 is amended by adding subsection (9) worded as follows:

“(9)      Management companies are required to use the balance sheet and income statement formats established for their area of activity. The balance sheet and income statement formats of management companies, requirements for the content of the items, and the methods of preparation and the procedure for submission of financial statements shall be established by the Minister of Finance.”;

7)         section 148 is repealed.

§ 48. Amendment of Riigi Teataja Act

The Riigi Teataja Act (RT I 1999, 10, 155; 2001, 24, 133; 93, 565; 2002, 44, 283; 102, 600; 2003, 4, 19; 22) is amended as follows:

1)         clause 16²) is added to § 2 worded as follows:

“16²)    the guidelines of the Accounting Standards Board;”;

2)         the words “and the guidelines of the Accounting Standards Board” are added to the end of clause 9 (4) 1)”.

§ 49. Amendment of Credit Institutions Act

^{Clauses 721 (2) 3) and 4) of the Credit Institutions Act (RT I 1999, 23, 349; 2002, 17, 96; 21, 117; 23, 131; 53, 336; 63, 387; 102, 600; 105, 612; 2003, 17, 95; 23, 133; 81, 544) are repealed.}

§ 50. Amendment of Competition Act

The Competition Act (RT I 2001, 56, 332; 93, 565; 2002, 61, 375; 63, 387; 82, 480; 87, 505; 102, 600; 2003, 23, 133) is amended as follows:

1)         subsection 30 (1) is amended and worded as follows:

“(1)      State aid is an advantage granted directly or indirectly in any form whatsoever by the state or a local government (hereinafter grantor of state aid) or from their resources which favours certain undertakings or the production or sale of certain goods or which distorts or threatens to distort competition by prejudicing trade between Estonia and the Member States of the European Union or between Estonia and other states with which Estonia has entered into an international agreement containing provisions concerning state aid. Financial aid, postponement of the payment of tax arrears, debt write-offs, the grant of loans under more favourable conditions than usually granted to other undertakings, and other forms of aid may be considered state aid.”;

2)         in subsection 30 (4), the words “person specified in subsection (2) of this section” are substituted by the words “grantor of state aid”;

3)         clause 5) is added to subsection 31 (3) in the following wording:

“5)       state aid to public undertakings and undertakings providing services of general interest, for the provision of services of general interest.”;

4)         subsections (3¹) and (3²) are added to § 31 in the following wording:

“(3¹)     For the purposes of this Act, a public undertaking is a person specified in clauses 30 (2) 3)–5) and any other person over which the state or a local government exercises a dominant influence either directly or indirectly by virtue of right of ownership or financial participation, on the basis of the legislation applicable to the person or in any other manner.

(3²)      An undertaking providing services of general interest is an undertaking to which the state or a local government has assigned the duty to provide a service of general interest which is not available on the market and the provision of which the state or the local government considers necessary. Services of public interest shall be defined and the duty to provide such services shall be established by legislation or a contract.”;

5)         in the first sentence of clause 49 (1), the word “format” shall be replaced by the word “formats”, and in the last sentence of the same clause the words “de minimis state aid” shall be replaced by the words “de minimis aid”.

§ 51. Amendment of Funded Pensions Act

The Funded Pensions Act (RT I 2001, 79, 480; 2002, 23, 131; 44, 284; 102, 600; 105, 612; 111, 662; 2003, 82, 549; 88, 591) is amended as follows:

1)         clauses 10 (1) 1) and 2) are amended and worded as follows:

“1)       check with the Estonian Central Register of Securities whether a recipient of remuneration specified in subsection 7 (1) of this Act is an obligated person and withhold contributions at the rate specified in § 8 of this Act on such remuneration of the obligated person, taking account of the provisions of clause 2) of this subsection;

2)         check with the Estonian Central Register of Securities whether a recipient of remuneration specified in clauses 2 (1) 4) and 6) of the Social Tax Act is an obligated person and withhold contributions on such remuneration of the obligated person, unless the recipient of the remuneration is entered in the commercial register or registered with the local Tax Board Office of his or her residence or place of business as a sole proprietor and the remuneration is his or her business income;”;

2)         subsection 38 (1) is amended by adding a sentence worded as follows:

“This restriction does not apply upon exchange of the units of a mandatory pension fund which was designated for the person by drawing lots pursuant to subsection 16 (2) of this Act.”;

3)         clause 77 (2) 2) is amended and worded as follows:

“2)       a pension management company which holds an activity licence for the management of mandatory pension funds has not, within a period of six months, managed any mandatory pension funds meeting the requirements provided for in subsection 129 (4) of this Act;”;

4)         section 129 is amended by adding subsection (4) worded as follows:

“(4)      A pension management company holding an activity licence for the management of mandatory pension funds is required to manage at least one mandatory pension fund, the rules of which prescribe that the pension management company may only enter into contracts specified in § 108 of the Investment Funds Act and may only invest the assets of the pension fund in:

1)         securities specified in clauses 2 (1) 2) and 5) of the Securities Market Act;

2)         derivative instruments specified in § 107 of the Investment Funds Act;

3)         deposits specified in § 109 of the Investment Funds Act;

4)         investment funds which may only enter into contracts specified in § 108 of the Investment Funds Act or may only invest the assets of the fund in the securities or deposits specified in clauses 1)–3) of this subsection.”;

5)         subsection 133 (2) is amended and worded as follows:

“(2)      The assets of a pension fund may only be invested in the units or shares of investment funds which are registered in Estonia, a State which is a Contracting Party or another state provided for in the pension fund rules. The assets of a mandatory pension fund may be invested in the units or shares of investment funds only to the extent provided for in the pension fund rules, and the corresponding restrictions shall be provided broken down by the state where the investment fund is registered.”;

6)         section 133 is amended by adding subsection (6) worded as follows:

“(6)      In order to protect the interests of unit-holders, the Minister of Finance may establish additional restrictions on investment of the assets of mandatory pension funds in the units of investment funds.”;

7)         subsection 162 (6) is amended by adding a sentence worded as follows:

“A choice application which has been submitted cannot be withdrawn.”;

8)         Subsection 163 (2) is amended and worded as follows:

“(2)      Mandatory pension funds may be changed as of 1 January 2005 pursuant to the procedure provided for in this Act.”

§ 52. Amendment of Securities Market Act

The Securities Market Act (RT I 2001, 89, 532; 2002, 23, 131; 63, 387; 102, 600; 105, 612; 2003, 81, 544; 88, 591) is amended as follows:

1)         subsection 14 (1) is amended and worded as follows:

“(1)      The provisions of Chapters 3 - 6 of this Act regarding securities are applicable with respect to the securities specified in clauses 2 (1) 1)–3) of this Act and the depositary receipts thereof and to the money market instruments specified in clause 2 (1) 5) of this Act which are not issued by a credit institution.”;

2)         subsections 91 (1) and (2) are amended and worded as follows:

“(1)      An investment firm shall notify the Supervision Authority of each transaction with securities which are admitted for trading on the regulated market if such transactions are conducted in connection with the provision of investment services (hereinafter in this Chapter transaction).

(2)       An investment fund shall notify the Supervision Authority of each transaction by means of data carriers or the public data communication network not later than on the working day following the transaction.”;

3)         clause 96 (3) 3) is repealed;

4)         section 94¹ is added to the Act worded as follows:

“§ 94¹. Minimum amount of net own funds

(1)       The net own funds of an investment firm shall at all times be equal to or larger than the following:

1)         the minimum amount of share capital provided for in subsection 93 (1) of this Act;

2)         25 per cent of the fixed overheads of the investment fund.

(2)       On the basis of prior written consent from the Supervision Authority, non-recurring exceptional expenses may be deducted upon calculation of fixed overheads.

(3)       Fixed overheads shall be calculated on the basis of the last annual report approved by the general meeting of the shareholders.

(4)       The Supervision Authority has the right to demand that the amount of fixed overheads which was taken as the basis for calculating the minimum amount of net own funds be adjusted after approval of the annual report if significant changes have occurred in the operating activities of the investment firm or the consolidation group of the investment firm.

(5)       The minimum amount of net own funds intended to cover the fixed overheads of an investment firm commencing its activities or which has operated for less than one year shall be calculated on the basis of the fixed overheads projected in its business plan.

(6)       The Supervision Authority has the right to demand amendment of a business plan specified in subsection (5) of this section if the Supervision Authority finds that the business plan does not correspond to the real situation and the minimum amount of net own funds calculated on the basis of the fixed overheads projected in the business plan does not correspond to the needs of the investment firm.

(7)       The instructions for calculating the net own funds, the minimum amount of net own funds and the fixed overheads of investment firms, and the procedure for reporting on net own funds shall be established by a regulation of the Minister of Finance.”;

5)         clauses 97 (2) 3) and 4) are repealed;

6)         clause 97 (2) 6) is amended and worded as follows:

“6)       the contract prescribes the right of the investment firm to postpone the payment of interest if, after payment of the corresponding amounts, the own funds of the investment firm would be insufficient to comply with the prudential ratios specified in § 94 of this Act.”;

7)         clause 106 (1) 3) is amended and worded as follows:

“3)       the investment firm fails to comply with the limitations provided for in subsections 105 (2), (4) and (5) of this Act or the prudential ratios provided for in subsections 98 (3), 103 (2) or 104 (2) of this Act.”;

8)         subsection 138 (1) is amended and worded as follows:

“(1)      An operator shall keep a daily chronological record of all transactions conducted on the market.”;

9)         in subsection 157 (4), the words “Supervision Authority” are substituted by the words “body of the operator of the exchange which decides on listing”;

10)       section 237¹² is amended and worded as follows:

“§ 237¹². Failure of an operator of a regulated market to perform the obligation to register transactions conducted on the regulated market is punishable by a fine of up to 50 000 kroons.”;

11)       section 265 is amended by adding subsection (3) worded as follows:

“(3)      The notification requirement provided for in § 91 of this Act applies to investment firms as of 1 January 2004.”

§ 53. Amendment of Commercial Associations Act

The Commercial Associations Act (RT I 2002, 3, 6; 102, 600) is amended as follows:

1)         the first sentence of subsection 72 (2) is amended and worded as follows:

“(2)      The management board shall present the annual accounts and management report (annual report) and the profit distribution proposal to the general meeting.”;

2)         subsection 72 (3) is amended and worded as follows:

“(3)      “The management board shall submit the approved annual report together with the profit distribution proposal to the commercial register not later than within six months after the end of the financial year.”

§ 54. Amendment of Guarantee Fund Act

The Guarantee Fund Act (RT I 2002, 23, 131; 57, 357; 102, 600) is amended as follows:

1)         the first sentence of subsection 27 (1) is amended by adding the words "to the same" after the words “are guaranteed”;

2)         subsection 43 (1) is amended and worded as follows:

“(1)      For the purposes of this Act, the following are investment institutions:

1)         investment firms within the meaning of the Securities Market Act (RT I 2001, 89, 532; 2002, 23, 131; 63, 387);

2)         credit institutions;

3)         management companies.”;

3)         subsection 54 (2) is amended and worded as follows:

“(2)      The volume of investments specified in subsection (1) of this section and the value of money and securities shall be calculated pursuant to the procedure established by the Minister of Finance.”;

4)         Subsection 88 (3) is amended and worded as follows:

“(3)      The content and the procedure for preparation of the annual reports of the Fund shall be established by the Minister of Finance.”

§ 55. Amendment of Insurance Activities Act

The Insurance Activities Act (RT I 2000, 53, 343; 2001, 43, 238; 48, 268; 59, 359; 87, 529; 93, 565; 2002, 35, 215; 63, 387; 102, 600; 105, 612; 2003, 17, 95) is amended as follows:

1)         subsection 6 (3) is repealed;

2)         the second sentence of subsection 6 (4) is omitted;

3)         in subsection 34 (2), the words “the book value of participation indicated pursuant to subsection 28 (2) of the Accounting Act (RT I 1994, 48, 790; 1995, 26/28, 355; 92, 1604; 1996, 40, 773; 42, 811; 49, 953; 1998, 59, 941; 1999, 55, 584; 101, 903) exceeds the acquisition cost thereof” are replaced by the words “the book value of a subsidiary or associated undertaking shown as a long-term financial investment using the equity method exceeds the acquisition cost thereof”.

§ 56. Amendment of Notaries Act

Subsection 13 (5) of the Notaries Act (RT I 2000, 104, 684; 2001, 93, 565; 2002, 57, 357; 61, 375; 64, 390; 102, 600; 2003, 18, 100; 78, 527) is amended and worded as follows:

“(5)      For accounting and taxation purposes, notaries are considered to be sole proprietors. A notary shall pay value added tax. Notaries operating a common office may maintain common accounts.”

§ 57. Amendment of Bailiffs Act

Subsection 4 (6) of the Bailiffs Act (RT I 2001, 16, 69; 2002, 61, 375; 102, 600; 2003, 17, 95; 23, 146; 63, 417) is amended and worded as follows:

“(6)      For accounting purposes, bailiffs are considered to be sole proprietors. Bailiffs operating a common office may maintain common accounts.”

§ 58. Amendment of Sworn Translators Act

Subsection 9 (3) of the Sworn Translators Act (RT I 2001, 16, 70; 2002, 61, 375; 102, 600; 2003, 18, 100) is amended and worded as follows:

“(3)      For accounting and taxation purposes, sworn translators are considered to be sole proprietors. Sworn translators operating a common office may maintain common accounts.”

§ 59. Application of Act to Eesti Pank

Subsection 17 (3) of this Act applies to accounting periods ending not later than by 31 December 2005 to the extent established by the Governor of Eesti Pank.”

§ 60. Repeal of earlier legislation

The Accounting Act (RT I 1994, 48, 790; 1995, 26–28, 355; 92, 1604; 1996, 40, 773; 42, 811; 49, 953; 1998, 59, 941; 1999, 55, 584; 101, 903; 2001, 87, 527; 2002, 23, 131; 53, 336; 57, 355) is repealed.

§ 61. Continuation of authority of members of Accounting Standards Board

The authority of the chairman and members of the Accounting Standards Board of the Republic of Estonia appointed on the basis of the Accounting Act repealed pursuant to § 60 of this Act continues until the expiry of their term of authority.

§ 62. Entry into force of the Act

(1)       This Act enters into force on 1 January 2003 and applies to annual reports for accounting periods beginning on 1 January 2003 or later and, in the case of the state, state accounting entities, local governments and legal persons in public law, for accounting periods beginning on 1 January 2004 or later. The annual reports for earlier accounting periods shall be prepared in accordance with the Accounting Act in force until the entry into force of this Act. The state, state accounting entities, local governments and legal persons in public law which are under the dominant influence of the state shall, when preparing annual reports for 2003, bring the balances of balance sheet items into conformity with the accounting policies in force as of 1 January 2004. In connection with the transition to the preparation of consolidated reports, deviations arising from consolidation are permitted in the annual reports of the state, state accounting entities, local governments and legal persons in public law which are under the dominant influence of the state for 2003 and 2004, provided that a corresponding explanation concerning the deviations is given in the annual accounts.

(17.12.2003 entered into force 01.01.2004 - RT I 2003, 88, 588)

(2)       Subsection 17 (2) of this Act enters into force on 1 January 2005 and applies to annual reports for accounting periods beginning on 1 January 2005 or later.

(3)       Clause 46 8), clauses 47 1)–4), 6) and 7), §§ 49–52, § 54 and clauses 55 1) and 2) of this Act enter into force on the tenth day following the date of publication of this Act in the Riigi Teataja.

(4)       The provisions of subsection 14 (3), subsections 29 (1) and (4), subsections 30 (2) and (3) of this Act in the wording which was in force before 1 January 2005, and the provisions of clause 4 1), subsection 6 (2), subsection 7 (4), § 9, subsection 11 (1), subsection 12 (5), subsection 14 (1), subsection 15 (2), subsection 20 (3), subsection 23 (1), §§ 24–26, subsection 28 (3), clause 31 (2) 8), Annex1, Annex 2 and Annex 3 of this Act in the wording which was in force before 1 December 2005 apply to accounting periods which commenced before 1 January 2005 and the reports prepared concerning such periods.

¹ RT = Riigi Teataja = State Gazette

² Riigikogu = the parliament of Estonia

Annex 1

Balance Sheet

Subdivisions of balance sheet items may be disclosed in the notes on the accounts instead of in the balance sheet. Taking into account the materiality principle, immaterial balance sheet items may be aggregated. The titles of balance sheet items may be further specified and additional items or subdivisions of items may be added if this makes for greater clarity and legibility of the balance sheet.

Assets

Current assets
Cash
Short-term investments
Receivables and prepayments
	Trade receivables
	Prepaid and deferred taxes
	Other short-term receivables
	Prepayments for services
	Total
Inventories
	Raw materials
	Work in progress
	Finished goods
	Goods for resale
	Prepayments for inventories
	Total
Total current assets
Fixed assets
Long-term investments
	Shares in subsidiaries
	Shares in associated undertakings
	Other shares and securities
	Long-term receivables
	Total
Investment properties
Tangible assets
	Land
	Buildings
	Machinery and equipment
	Other tangible assets
	Construction-in-progress and prepayments
	Total
Intangible fixed assets
	Goodwill
	Development costs
	Other intangible assets
	Prepayments for intangible assets
	Total
Total fixed assets
Total assets
Liabilities and owners’ equity
Obligations
Current liabilities
Loan liabilities
	Short-term loans and notes
	Current portion of long-term loan liabilities
	Convertible debt
	Total
Debts and prepayments
	Trade creditors
	Employee-related liabilities
	Taxes payable
	Other payables
	Prepayments received
	Total
Short-term provisions
Total current liabilities
Long-term liabilities
Long-term loan liabilities
	Loans, notes and financial lease payables
	Convertible debts
	Total
Other long-term payables
Long-term provisions
Total long-term liabilities
Total liabilities
Owner’s equity
Minority shareholding1
Owner’s equity of shareholders or partners of parent undertaking
Share capital (nominal value)3
Share premium
Less: Own shares
Legal reserve
Other reserves
Retained profit/loss
Net profit/loss for financial year
Total owners’ equity
Total liabilities and owners’ equity

¹           The item is used only in consolidated reports.

²           The item is used only in consolidated reports.

³           Accounting entities which do not have share capital shall replace it with an item characteristic to the corresponding category of owner’s equity.

(27.10.2005 entered into force 01.12.2005 - RT I 2005, 61, 478)

Annex 2

Income Statement Formats

Subdivisions of income statement items may be disclosed in the notes on the accounts instead of in the income statement. The titles of income statement items may be further specified and additional items or subdivisions of items may be added if this is makes for greater clarity and legibility of the income statement.

Format 1
Sales revenue
Other operating revenue
Changes in inventories of finished goods and work in progress
Work performed by the undertaking for its own purpose and capitalised
Goods, raw materials and services
Other operating expenses
Staff costs
	wages and salaries
	social security costs
	pension expenses
Depreciation and impairment of fixed assets
Other operating charges
Operating profit (loss)
Financial income and expenses
	financial income and expenses from shares in subsidiaries
	financial income and expenses from shares in associated undertakings
	financial income and expenses from other long-term financial investments
	interest expense
	profit (losses) on translation of foreign currencies
	other financial income and expenses
Total financial income and expenses
Profit (loss) before income tax
Income tax expense
Net profit/loss for financial year
Incl:	Share of profit of shareholders or partners of parent undertaking4
	Share of profit of minority holding
Format 2
Sales revenue
Cost of sales
Gross profit (loss)
Marketing expenses
Administrative and general expenses
Other operating revenue
Other operating charges
Operating profit (loss)
Financial income and expenses
	financial income and expenses from shares in subsidiaries
	financial income and expenses from shares in associated undertakings
	financial income and expenses from other long-term financial investments
	interest expense
	profit (losses) on translation of foreign currencies
	other financial income and expenses
Total financial income and expenses
Profit (loss) before income tax
Income tax expense
Net profit/loss for financial year
Incl:	Share of profit of shareholders or partners of parent undertaking6
	Share of profit of minority holding7

⁴              The item is used only in consolidated reports.

⁵           The item is used only in consolidated reports.

⁶           The item is used only in consolidated reports.

⁷           The item is used only in consolidated reports.

(27.10.2005 entered into force 01.12.2005 - RT I 2005, 61, 478)

Annex 3

Notes on the Accounts

The notes describe the valuation methods used in the preparation of the annual accounts and disclose other information which is necessary to provide a true and fair view of the financial position, economic performance and cash flows of the accounting entity.

Notes on accounts which are prepared in accordance with this Act shall set out at least the following information:

(1)       The accounting framework specified in § 17 of this Act pursuant to which the annual accounts were prepared.

(2)       A description of the accounting policies used. If the valuation methods or presentation formats have been changed from the preceding accounting period, the content of and reasons for the changes and their effect on the figures presented in the accounts shall be disclosed.

(3)       Information concerning material balance sheet items, including:

1)         an analysis of shares, notes and other securities broken down by group, as at the beginning and end of the accounting period;

2)         a description of inventories broken down by group, and material amounts of write-downs of inventories;

3)         changes in investment properties and tangible and intangible assets broken down by group (acquisition cost, accumulated depreciation and net carrying value at the beginning and end of the period; fixed assets acquired and sold during the period; write-downs and write-ups of fixed assets; depreciation and other changes during the period; fixed assets acquired under financial lease conditions);

4)         a description of individually important loans, financial leases and other claims and liabilities (terms of payment, interest rates, underlying currency, other material conditions);

5)         a list of subsidiaries and associated undertakings, participation in their owner’s equity, and participations acquired or transferred during the accounting period;

6)         an analysis of tax liabilities and claims broken down by type of tax;

7)         a description of material provisions and the expected timing of their realisation.

(4)       The information concerning significant income and expenses which affect the economic performance during an accounting period, including:

–          sales revenue broken down by field of activity and geographical area;

–          significant write-downs, provisions and other income and expenses not directly related to regular operating activities or occurring rarely.

(5)       An explanation of material cash flow statement items.

(6)       Owner’s equity – the number and nominal value, at the beginning and end of the period, of shares issued and subscribed (broken down by type of share); the number and nominal value of shares issued during the period and the amounts received for the issue; the number and book value of shares redeemed, sold or cancelled during the period; the dividends and other changes in owner’s equity approved by the general meeting if these are not shown in the statement of changes in owner’s equity.

(7)       If an accounting entity which is a company has acquired or taken as security its own shares during the financial year, the number and nominal value of the shares acquired or taken as security and transferred during the financial year and the number and nominal value of the shares acquired or taken as security and held by the company during the financial year, the proportion of the share capital which they represent, the amounts paid for such shares and the reasons for acquiring the shares or taking them as security.

(8)       Other relevant information, including:

–          a description and the book value of pledged assets;

–          commitments, guarantees and contingent liabilities and the probability of their realisation;

–          transactions with members of the management and the highest supervisory body and with other related parties (a description of the parties, the volume and balances of the transactions as at the balance sheet date);

–          an overview of the funds allocated to the accounting entity directly or indirectly from the state budget or a local government budget during the accounting year, the use of such funds, and state aid received (this requirement does not apply to business transactions concluded under usual market conditions or to state accounting entities);

–          significant events after the balance sheet date.

(27.10.2005 entered into force 01.12.2005 - RT I 2005, 61, 478)