Cambodia

5 Chapter Accounting

    • Accounting Concept

      There are general rules and concepts that govern the field of accounting. These general rules referred to as basic accounting principles and guidelines form the groundwork on which more detailed, complicated, and legalistic accounting rules are based. For example, the FinancialAccounting Standards Board (FASB) uses the basic accounting principles and guidelines as a basis for their own detailed and comprehensive set of accounting rules and standards.
       The phrase "generally accepted accounting principles" (or "GAAP") consists of three important sets of rules:
      (1) the basic accounting principles and guidelines,
      (2) the detailed rules and standards issued by FASB and its predecessor the Accounting Principles Board (APB), and
      (3) the generally accepted industry practices. 
      If a company distributes its financial statements to the public, it is required to follow generally accepted accounting principles in the preparation of those statements. Further, if a company's stock is publicly traded, federal law requires the company's financial statements be audited by independent public accountants. Both the company's management and the independent accountants must certify that the financial statements and the related notes to the financial statements have been prepared in accordance with GAAP. GAAP is exceedingly useful because it attempts to standardize and regulate accounting definitions, assumptions, and methods. Because of generally accepted accounting principles we are able to assume that there is consistency from year to year in the methods used to prepare a company's financial statements. And although variations may exist, we can make reasonably confident conclusions when comparing one company to another, or comparing  one company's financial statistics to the statistics for its industry. Over the years the generally accepted accounting principles have become more complex because financial transactions have become more complex. 
       
      ■Accounting System Accounting is a set of concepts and techniques that are used to measure and report financial information about an economic unit. The economic unit is generally considered to be a separate enterprise. Accounting is a means of collecting, summarizing, analyzing and reporting in monetary terms, information about the business. The information is reported to a variety of different types of interested parties. These include business managers, owners, creditors, governmental units, financial analysts, and even employees. In one way or another, these users of accounting information tend to be concerned about their own interests in the entity. Business managers need accounting information to make sound leadership decisions.  Investors hope for profits that may eventually lead to distributions from the business (e.g., “dividends”). Creditors are always concerned about the entity‟s ability to repay its obligations.

      Governmental units need information to tax and regulate. Analysts use accounting data to form opinions on which they base investment recommendations. Employees want to work for successful companies to further their individual careers, and they often have bonuses or options tied to enterprise performance. Accounting information about specific entities helps satisfy the needs of all these interested parties.

       

      The diversity of interested parties leads to a logical division in the discipline of accounting. Financial accounting is concerned with external reporting to parties outside the firm. In contrast, managerial accounting is primarily concerned with providing information for internal management. One may have trouble seeing the distinction; after all, aren‟t financial facts being reported? The following paragraphs provide a closer look at the distinctions.

       

      ■ General Information

      Accounting provides companies with various pieces of information regarding business operations. It is often conducted by a company internal accounting department and reviewed by a public accounting firm. Small businesses often have significantly less financial information recorded during the accounting process. However, business owners often review this financial information to determine how well their business is operating. Accounting information can also provide insight on growing or expanding current business operations.

       

      Ø  Performance Management

      A common use of accounting information is measuring the performance of various business operations. While financial statements are the classic accounting information tool used to assess business operations, business owners may conduct a more thorough analysis of this information when reviewing business operations. Financial ratios use the accounting information reported on financial statements and break it down into leading indicators. These indicators can be compared to other companies in the business environment or an industry standard. This helps business owners understand how well their companies operate compared to other established businesses.

       

      Ø  Create Budgets

      Business owners often use accounting information to create budgets for their companies. Historical financial accounting information provides business owners with a detailed analysis of how their companies have spent money on certain business functions. Business owners often take this accounting information and develop future budgets to ensure they have a financial road map for their businesses. These budgets can also be adjusted based on current accounting information to ensure a business owner does not restrict spending on critical economic resources.

       

      Ø  Business Decisions

      Accounting information is commonly used to make business decisions. Decisions may include  expanding current  operations,  using different  economic  resources, purchasing new

       

      equipment or facilities, estimating future sales or reviewing new business opportunities. Accounting information usually provides business owners information about the cost of various resources or business operations. These costs can be compared to the  potential income of new opportunities during the financial analysis process. This process helps business owners understand how current business operations will be affected when expanding or growing their businesses. Opportunities with low income potential and high costs are often rejected by business owners.

       

      Ø  Investment Decisions

      External business stakeholders often use accounting information to make investment decisions. Banks, lenders, venture capitalists or private investors often review a company accounting information to review its financial health and operational profitability. This provides information about whether or not a small business is a wise investment decision. Many small businesses need external financing to start up or grow. The inability to provide outside lenders or investors with accounting information can severely limit financing opportunities for a small business.

       

      ■Cambodian Accounting Standard (CAS)

      Cambodian Accounting Standards (CAS) to establish accounting standards applicable to all corporate entities that are required under any Cambodian laws to prepare financial statements. The CAS shall be responsible for establishing accounting standards for Cambodia based on IFRS issued by the IASB. The specific functions of the CAS shall be:

      ·    To develop a strategy and work program for the implementation of accounting standards based on IFRS

      ·    To institute a due process and effective working procedures for the adoption of IFRS for application in Cambodia;

      ·    To develop a conceptual framework for evaluating proposed accounting standards;

      ·   To submit proposed accounting standards approved by the CASB to the NAC for endorsement and issuance as exposure draft for public comment;

      ·   To conduct public consultation on proposed accounting standards;

      ·   To submit final accounting standards approved by the CASB to the NAC for endorsement and issuance as Cambodian International Financial Reporting Standards (CIFRS) by publication of official notice;

      ·   To develop and issue practical guidance on the application of CIFRS

      ·   To oversee the translation of CIFRS into Khmer language.

      The AOB shall carry out on behalf of the NAC the responsibilities for providing independent oversight of the audit function through licensing of auditors, monitoring audit quality, and administering a disciplinary mechanism to deal with infractions of auditing and ethical standards and statutory requirements governing audits of corporate entities.

      The specific functions of the AOB shall be:

       

      ■Licensing of auditors and audit firms

      ·   To keep and maintain:

      ·   A register of licensed auditors

      ·   A register of licensed audit firms that are approved to act as auditors of entities with public accountability; and

      ·   A register of licensed audit firms that are approved to act as auditors of entities other than entities with public accountability ;

      ·   To determine the requirements for the granting of audit license to individual auditors and practice license audit firms;

      ·   To consider the applications and as appropriate, grant an audit license to any person who satisfies the requirements prescribed by the AOB to be an auditor;

      ·   To consider the applications and as appropriate, grant a practice license to an audit firm that satisfies the requirements prescribed by the AOB to act as auditors of entities with public accountability or as auditors of other entities.

      ■Audit inspections

      ·  To monitor audit quality by conducting inspections of licensed audit firms to assess compliance with auditing and ethical standards and relevant statutory requirements in connection with the performance of audits;

      ·  To appoint quality control reviewers to assist the AOB in carrying out inspections of licensed audit firms in accordance with the procedures determined by the AOB;

      ·  To review the inspection reports prepared by quality control reviewers and determine the actions to be taken with regard to the audit firms inspected;

      ·  To submit a written report on each inspection to the NAC, setting out its findings and any sanctions imposed against the audit firm and /or licensed auditor.

      ■Inquiry and sanctions 

      ·    To conduct inquiry, arising from inspections of licensed audit firms, of non- compliance with auditing and ethical standards and statutory requirements governing audits of financial statements;

      ·     To conduct hearing of cases where inquiry leads to alleged violations;

      ·    To impose appropriate sanctions where alleged violations have been established, which may include one or more of the following orders:

      ·    Improvements in the licensed audit firm‟s quality control;

      ·    Completion of prescribed remedial training program by the licensed auditors concerned;

      ·     Restrictions on the provision of audit and related services by the licensed audit firm and/or licensed auditor concerned ;

      ·    Suspension or revocation of the audit firm‟s practice license

      ·   Suspension or withdrawal of the audit license of the auditors concerned

      ·   Money penalties.


      4.  International Accounting Standard (IAS)

      International Accounting Standards (IASs) were issued by the antecedent International Accounting Standards Council (IASC), and endorsed and amended by the International Accounting Standards Board (IASB). The IASB will also reissue standards in this series where it considers it appropriate.

      International Accounting Standard (IAS) had descripted around 41 IASs:

      1)        Presentation of Financial Statements

      2)        Inventories

      3)        Consolidated Financial Statements.

      4)        Depreciation Accounting

      5)         Information to Be Disclosed in Financial Statements

      6)         Accounting Responses to Changing Prices

      7)        Statement of Cash Flows

      8)         Accounting Policies, Changes in Accounting Estimates and Errors

      9)         Accounting for Research and Development Activities

      10)       Events After the Reporting Period

      11)       Construction Contracts

      12)      Income Taxes

      13)      Presentation of Current Assets and Current Liabilities

      14)       Segment Reporting

      15)       Information Reflecting the Effects of Changing Prices

      16)       Property, Plant and Equipment

      17)       Leases

      18)       Revenue

      19)       Employee Benefits

      20)       Accounting for Government Grants and Disclosure of Government Assistance

      21)       The Effects of Changes in Foreign Exchange Rates

      22)       Business Combinations

      23)      Borrowing Costs

      24)      Related Party Disclosures

      25)      Accounting for Investments

      26)      Accounting and Reporting by Retirement Benefit Plans

      27)      Consolidated and Separate Financial Statements

      28)      Investments in Associates

      29)      Financial Reporting in Hyperinflationary Economies

      30)      Disclosures in the Financial Statements of Banks and Similar Financial Institutions

      31)      Interests In Joint Ventures

      32)      Financial Instruments: Presentation

      33)     Earnings Per Share

      34)     Interim Financial Reporting

      35)     Discontinuing Operations.

      36)     Impairment of Assets

      37)     Provisions, Contingent Liabilities and Contingent Assets

      38)     Intangible Assets

      39)     Financial Instruments: Recognition and Measurement

      40)     Investment Property

      41)    Agriculture

       

      ■Comparison CAS Vs IAS

       ØThe CASs that have been issued conform to IAS. These standards are applicable for FS covering period beginning Jan 1 2008.

       

       

      IAS and CAS

       

      Current Status

       

      Key Different

       

      IAS 1 : Presentation of Financial Statements CAS 1

       

      Fully implemented

       

      -

       

      IAS 2 : Inventories CAS 2

       

      Fully implemented

      -

       

      IAS 7 : Cash Flow statement

      CAS 7

       

      Fully implemented

      -

       

      IAS 8 : Accounting Policies, Change in Accounting Estimated and Errors

      CAS 8

       

      Fully implemented

       

      -

       

      IAS 10 : Event after the Balance Sheet date CAS 10

       

      Fully implemented

       

      -

       

      IAS 11 : Construction Contract

       

      Fully implemented

       

      -

      CAS 11

       

       

       

      IAS 12 : Income Taxes CAS 12

       

      Fully implemented

       

      -

       

      IAS 14 : Segment Reporting

      No effective CAS

       

      No effective CAS

       

      No existing CAS which is equivalent to IAS 14.

       

      IAS 16 : Property, Plant and Equipment

      CAS 16

       

      Fully implemented

       

      -

       

      IAS 17 : Lease CAS 17

       

      Fully implemented

       

      -

       

      IAS 18 : Revenue CAS 18

       

      Fully implemented

       

      -

       

      IAS 19 : Employee benefit No effective CAS

       

       

      No effective CAS

       

       

      No existing CAS which is equivalent to IAS 19.

       

      IAS 20 : Accounting for Government Grants and Disclosure of Government Assistance

       

      No effective CAS

       

       

       

      No effective CAS

       

       

       

      No existing CAS which is equivalent to IAS 20.

       

      IAS 21 : Employee benefit CAS 21

       

       

      Fully implemented

       

       

      -

       

      IAS 23 : Borrowing Cost CAS 23

       

       

      Fully implemented

       

       

      -

       

      IAS 24 : Related Party Disclosure

       

      CAS 24

       

       

      Fully implemented

       

       

      -

       

      IAS 26 : Accounting and Reporting by Retirement Benefit Plans

       

      No Effective CAS

       

       

       

      No Effective CAS

       

       

       

      No existing CAS which is equivalent to IAS 26.

       

      IAS 27 : Consolidated and Separate Financial Statement

       

      CAS 27

       

       

      Fully implemented

       

       

      -

       

      IAS 28 : Investment in Associated

       

      No Effective CAS

       

       

      No Effective CAS

       

       

      No existing CAS which is equivalent to IAS 28.

       

      IAS 29 : Financial Reporting in Hyperinflationary

       

      No Effective CAS

       

       

      No Effective CAS

       

       

      No existing CAS which is equivalent to IAS 29.

       

      IAS 31 : Interests in Joint Ventures

       

      No Effective CAS

       

       

      No Effective CAS

       

       

      No existing CAS which is equivalent to IAS 31.

       

      IAS 32 : Financial Instruments Presentation

       

      No Effective CAS

       

       

      No Effective CAS

       

       

      No existing CAS which is equivalent to IAS 32.

       

      IAS 33 : Earning per Share No Effective CAS

       

       

      No Effective CAS

       

       

      No existing CAS which is equivalent to IAS 33.

       

      IAS 34 : Interim Financial Reporting

       

      No Effective CAS

       

       

      No Effective CAS

       

       

      No existing CAS which is equivalent to IAS 34.

       

      IAS 36 : Impairment of Assets

       

      No Effective CAS

       

       

      No Effective CAS

       

       

      No existing CAS which is equivalent to IAS 34.

       

      AS 37 : Provision, Contingent Liabilities and Contingent Assets

       

      CAS 37

       

       

      Fully implement

       

       

      -

       

      AS 38 : Intangible Assets CAS 38

       

       

      Fully implement

       

       

      -

       

      AS 39 : Financial Instrument: Recognition and Measurement

       

      No Effective CAS

       

       

      No Effective CAS

       

       

      No existing CAS which is equivalent to IAS 36.

       

      AS 40 : Investment

       

       

       

      Property CAS 40

      Fully implemented

      -

      AS 41 : Agriculture CAS 41

       

       

      Fully implemented

       

       

      -

       

      ■Cambodia International Financial Reporting Standard (CIFRS) 

      ADOPTION HISTORY CAMBODIA IFRS:

       

      ØThe Cambodia Accounting Standards were issued by the National Accounting  Council which is a division of Ministry of Economy and Finance (MEF) in Cambodia since 2003.

      There are four types of companies in Cambodia:

      -  General partnership

      -  Limited partnership

      -   Private limited companies

      -   Public limited companies.

      Cambodia Accounting Standard were prepared on the basic of 2002 IFRS/IASs that were translated into local Khmer language, with some adaptations or modification.Article 4 of the Accounting Law required that enterprise must comply with Cambodia Accounting Standard which were proclaimed by MEF and in line with IASs (MEF, 2008).Parallel to this, since June 2006, the ministry of Economy and Finance has allowed  the small and medium enterprise to either follow simplified financial reporting requirements or prepares their financial statements using the MEF-issued Financial Reporting Template for small-and Medium-Sized Enterprise .According to Prakas NO.068 and NO.097/09 in 2009,  all companies in Cambodia that are publicly issuing equity securities must follow IFRS until the Prakas NO.101 become effective in December 31, 2011.

      Ø This has been set in regulation by a Ministry of Economy and Finance proclamation (in Cambodia referred to as a „Parkas‟) dated 8 January 2009. The standards were thereby renamed Cambodian International Financial Reporting Standards (CIFRS). The dates for companies to implement CIFRS and CIFRS for SMEs was then set by an announcement/notification of the Ministry and Economy and Finance dated 28 August 2009. The date for application of full IFRS in Cambodia was set for periods beginning on or after 1 January 2012.

      Ø  Cambodia has adopted IFRS and the IFRS for SMEs.

      Ø  Mandatory implementation of IFRS for commercial banks and microfinance institute has been postponed until period beginning 1 January 2016.

      EXTEND OF IFRS APPLICATION

       

      v  For DOMESTIC companies whose debt or equity security trade in a public market in the jurisdiction.

      Ø  All domestic companies whose securities trade in a public market required to use IFRS in their consolidated financial statement.

      Ø  IFRS also required or permitted for more than the consolidation financial statement of companies whose securities trade in public market.

      Ø  For instance IFRS required in separate company financial statement of companies whose securities trade in public market.

      Ø  IFRS are required for publicly trade entities, financial institute, and large entities, other companies may use IFRS or the IFRS for SMEs.

       

      v For FOREIGN companies whose debt or equity securities trade in a public market in the jurisdiction.

      Ø All or some foreign companies whose securities trade in a public market either required or permitted to use IRFS in their consolidation financial statement.

       

      IFRS ENDORSEMENT

      Ø Non-publicly accountable domestic companies have a choice between IFRS and IFRS for SMEs as issued by the IASB, which are adopted without modification as Cambodia International Financial Reporting Standard (CIFRS) and Cambodia International Financial Reporting Standard for SMEs (CIFRS for SMEs). Publicly accountable domestic companies must use IFRS/CIFRS.

      Ø The audit report must state compliance with Cambodia International Financial Reporting Standard (CIFRS). However, the audit report may also refer to compliance with IFRS in addition to compliance with CIFRS.

      Ø IFRS incorporated into law or regulation. English translations of the regulation setting IFRS and IFRS for SMEs as CIFRS and CIFRS for SMEs without modification.

      Ø By law, accounting standard are set by the National Accounting Council (NAC), a body under the Ministry of Economy and Finance. The NAC is composed of a mix of technical civil servants and private sector accounting profession.

      Ø The ministerial proclamation that originally adopted IFRS is worded so that all new standard, amendments and interpretation are automatically adopted without any additional adoption or endorsement process.

       

      TRANSLATION OF IFRS

      Ø The IFRS for SMEs has been translated into Khmer (The Cambodian language) and published.

      Ø     Full IFRS has been translated into Khmer, but has not yet been published.

      Ø  IFRS and IFRS for SMEs are translated by the National Accounting Council on a continual basic. The National Accounting Council has a copyright agreement with the IFRS Foundation.

       

      APPLICATION OF THE IFRS FOR SMEs

      Ø The IFRS for SMEs is available for use by all SMEs. However, it is mandatory only for SMEs that are subject to a statutory audit.

      Ø All SMEs are permitted to use the IFRS for SMEs. However, only SMEs subject to a statutory audit are required to use IFRS for SMEs. Non-publicly accountable SMEs subject to a statutory audit have a choice of either IFRS for SMEs or IFRS. The statutory audit is required when a company meets certain threshold of revenue, asset values, and number of employee.

      Ø SMEs not required to use IFRS for SMEs due to not meeting the threshold criteria for a statutory audit are not required to follow any specific accounting framework.

       

      ■International Financial Reporting Standard (IFRS)

      ØInternational Financial Reporting Standards (IFRS) is a set of accounting standards developed by an independent, not-for-profit organization called the International Accounting Standards Board (IASB).

      The goal of IFRS is to provide a global framework for how public companies prepare and disclose their financial statements. IFRS provides general guidance for the preparation of financial statements, rather than setting rules for industry-specific reporting.

       

      Having an international standard is especially important for large companies that have subsidiaries in different countries. Adopting a single set of world-wide standards will simplify accounting procedures by allowing a company to use one reporting language throughout. A single standard will also provide investors and auditors with a cohesive view  of finances.

       

      ØInternational Financial Reporting Standards (IFRS) are designed as a common global language for business affairs so that company accounts are understandable and comparable across international boundaries. They are a consequence of growing international shareholding and trade and are particularly important for companies that have dealings in several countries. They are progressively replacing the many different national accounting standards. The rules to be followed by accountants to maintain books of accounts which is comparable, understandable, reliable and relevant as per the users internal or external.

       

      International Financial Reporting Standards (IFRS) is a set of international accounting standards that states how certain transactions and events should be reported in financial statements. It is based upon principles rather than hard set rules, which is in contrast to U.S. GAAP, a rules-based accounting standard. As a result of this fundamental difference, IFRS allows management to use greater discretion and flexibility when preparing a company's financials

       

      The goal of IFRS is to provide a global framework for how public companies prepare and disclose their financial statements. IFRS provides general guidance for the preparation of financial statements, rather than setting rules for industry-specific reporting.

       

      Having an international standard is especially important for large companies that have subsidiaries in different countries. Adopting a single set of world-wide standards will  simplify accounting procedures by allowing a company to use one reporting language throughout. A single standard will also provide investors and auditors with a cohesive view   of finances.

       

      Currently, over 100 countries permit or require IFRS for public companies, with more countries expected to transition to IFRS by 2015. Proponents of IFRS as an international standard maintain that the cost of implementing IFRS could be offset by the potential for compliance to improve credit ratio

       

      There are many accounting standards in the world, with each country using a version of their own generally accepted accounting principles, also known as GAAP. These allow firms to report their financial statements in accordance to the GAAP that applies to them. The complication lies within whether the firm does business in multiple countries. How can investors then deal with multiple standards, which ones are accurate, and how can corporations be compared based upon their financials? The answer to these questions lies within the adoption of the International Financial Reporting Standards, or IFRS, which is being developed and supported by the International Accounting Standards Board (IASB).

       

      With more and more countries adopting the IFRS as their accounting standard, over 120 as of April 2011, investors and analysts should be well advised on how this transition affects company's reporting, and what it means moving forward. To do this, this article will look at the background of IFRS, the benefits, its goals, the fundamental differences between IFRS and U.S. GAAP, and go into a few of the major changes that occur within the various financial statements when converting to IFRS from U.S. GAAP..

       

      Ø  Benefits of IFRS

       

      It is believed that IFRS, when adopted worldwide, will benefit investors and other users of financial statements by reducing the cost of investments and increasing the quality of the information provided. Additionally, investors will be more willing to provide financing with greater transparency among different firms' financial statements. Furthermore, multinational corporations serve to benefit the most from only needing to report to a single standard and,

       

      hence, can save money. It offers the major benefit where it is used in over 120 different countries, while U.S. GAAP is used only in one country.

       Ø  Property and Equipment

       

      Also known as the fixed assets of the firm, property and equipment are reported at their initial cost less the accumulated depreciation. U.S. GAAP does not allow any upward adjustments of property and equipment, whereas under IFRS they can. This can have a profound impact on a firm's reporting. For example, if equipment is marked down, it results in a loss on a firm's income statement. However, if the asset is then marked back up under IFRS from an increase in value, then the adjustment is recorded as a gain, up to the initial cost. Any further upward adjustment will be reported directly to equity.

       Ø  Goodwill

       

      An intangible asset, goodwill is treated similarly to property and equipment. Just like with property and equipment, it is reported on the balance sheet at the initial cost less accumulated amortization. Any downward revaluation will cause a loss on the income statement and if it is marked up, which is not allowed under U.S. GAAP, and then a gain is recorded up to the initial cost amount. Any adjustment beyond that will be reported directly to equity.

       Ø  Differences in the Income Statement

       

      The criteria for revenue and revenue recognition under U.S. GAAP and IFRS are slightly different. The main philosophies are similar but U.S. GAAP provides more industry specific guidance than IFRS. A few of the differences lie within how cost of goods sold is determined, the operating expenses of the firm, and construction contracts.

       Ø  Revenue Differences in Regards to Construction Contracts

       

      Depending on the accounting method adopted, the revenue and profit for construction projects can be affected. Under U.S. GAAP, if the outcome of a project cannot be estimated, then the completed contract method is required. However, under IFRS, if the outcome of a project cannot be estimated, revenue is recognized only to the extent of contract costs, and profit is only recognized at project completion.

       Ø  Cost of Goods Sold

       

      Since LIFO is not allowed under IFRS, LIFO firms have to convert their inventory into FIFO terms in the footnotes of the financials. This difference is known as the LIFO reserve, and is calculated between the COGS under LIFO and FIFO. The benefit in doing this is an increase in the comparability of LIFO and FIFO firms. However, since everything is moving towards IFRS, FIFO will be the standard moving forward if the U.S. passes the legislation.

      ■Comparison CIFRS Vs IFRS Ø     The CIFRS that have been issued conform to IFRS. 

       IFRS and CIFRS  Current Status  Key Different
       IFRS 4 : Insurance Contracts CIFRS 4   Fully implement   -
       IFRS       7       :        Financial Instrument : Disclosures CIFRS 7   Fully implement   -
       

       

       

    • Responsibility Obligation Accountability Duties

       The board of directors and/or other governing body of an enterprise is responsible for the preparation and presentation of its financial statements, as stated in the Cambodia Law on Accounting.
       
      ■Obligation

      Accounting concepts in Cambodia is follow by the Cambodia Law on Accounting.

      The Cambodia Law on Accounting shall determine the organization, management, and function of accounting system based on international accounting standards for enterprises either natural persons or legal entities having independent profession in the Kingdom of Cambodia.

      The financial statements shall include the balance sheet, the income statement, the cash flow statement and explanatory notes. They shall be considered as an integral part of the financial statements.

      The duration of the accounting period shall be twelve months. The accounting period shall begin on the first day of January and end on the 31st day of December of the same year. As for the newly established enterprises, the annual financial reporting for the first fiscal year could start from the date of its formation and end on the date of the 31st day of December. of the next year. Another date for fiscal year may otherwise be set for the activities of

       

      a specific company.

       

      The financial statements shall be prepared within three months following the closure of the financial year. In the event of an enterprise not being in a position to comply with this deadline, it shall request authorization from the Minister of Economy and Finance to close  the accounts and to prepare them on another date.

       

       

      The financial statements and the corresponding ledgers and documentary evidence shall be kept for at least ten years. Such ledgers include a general journal, accounting ledger and inventory book.

       

       

      ■Duties

       

      Financial statements should present fairly the financial position, financial performance and cash flows of an enterprise.

       

      ■Audit

       

      Audit means the systematic review or examination of the assertions or actions of a business entity to evaluate whether that entity is complied with the standards. Audit services include financial  statement  audits,  performance  audits,   compilation,   reviews,   and   agreed   upon procedures. Only a registered auditor complying with this Law may perform these services and sign such reports as an auditor.

      Auditors of financial statements can be classified into two categories:

       

      ■External Auditor

       

       

      External audit is an examination or review of the accounting records, operation management systems and the control of government institutions in compliance with generally accepted auditing standards and Royal Government standards of auditing to provide assurance that:
      (a)  Financial and economic activities are fairly presented in statements and report
      (b)  These activities are in accordance with generally accepted accounting principles
      (c)  Control of procedures and practices are in compliance with laws, regulations, agreements, management systems, contracts, programs and other criteria related to revenues, expenditures and usages of the Royal Government resources.
       
      External audit includes the implementation of the following types of audits:
      (a)     Audit on Financial statements
      (b)     Audit on the management of credit project financed by external sources
      (c)     Audit on management systems and operations of all institutions
      (d)     Audit on evaluation, efficiency and effectiveness of operations
      (e)        Audit on non-profit organizations, associations, political parties and private investment enterprises as stated in article 2 of this Law
      (f)    Audit upon the special request

       

       

      Audit on the financial statements and reports of ministries and institutions which constitutes the basis in preparing the consolidated financial statements of the Royal Government for the year ended which are prepared by the Ministry of Economy and Finance prior to submission to the legislative body.

       

      Audit on the accuracy, completeness, authorization, validation and consistency of financial data appearing on the statements of ministries, institutions and the consolidated financial statements of the Royal Government.

       

      Audit on the financial statements of public enterprises and authorities are comprised of balance sheet, profit and loss statement and notes to the accounts forming a part of the financial statements. This audit also includes the financial statements of the business enterprises of the ministries, institutions, provinces, municipalities, and local government offices.

       

       

      Audit on the financial statements and other reports requested by international aid  agencies and lenders under the external funded projects. This audit shall certify the accuracy and the appropriateness of the required documents to withdraw and make the payment on each  project together with minutes showing the compliance with the terms and conditions of the credit and project agreements. The audit shall further evaluate the performances of the operation after their completion.

       

       

      Audit on the control systems to form an opinion on the adequacy of controls in the management systems and processes established by management over activities and operations

       

       

      Audit on functions or ongoing operations within government institutions to ensure that their operations are complied with applicable laws, regulations and principles. This audit includes public procurement, personnel payroll, contracts, public property management and mission.

       

       

      Audit evaluated the economy, efficiency, effectiveness of operations and outcomes of the Royal Government program. This audit includes the review of operations of public institutions either financial or non-financial institutions.

       

       

      Audit on compliance with the defined provisions related to operations of non-profit organizations, associations and political parties which have received financial assistance from the Royal Government in form of exemptions from customs duties, salary tax, other taxes as well as privileges and immunities not provided by the law. The objective of this audit is to ensure that the Royal Government would not loss of revenue associated with the tax exemptions and ensure that the relevant institution operates within the pre-defined framework of its purpose.

       

       

      Audit on compliance of private investment enterprises that have received exemptions and concessions from the Royal Government of Cambodia to exploit the natural resources in the Kingdom of Cambodia. This audit focuses on compliance with the agreements, the terms and conditions of the Royal Government approvals.

       

      Audit at the request of the Finance and Banking Commission of the National Assembly, National Assembly, Senate, ministries, institutions or authorities for a special review on part or the entire audit operation raised by request party. The performance of the audit mentioned in this article shall be at the discretion of the Auditor-General.

      ■Internal Auditor  

      An internal audit shall be established within each institution, ministry and public enterprise. The internal audit shall report to the head of each institution, ministry and public enterprise and shall submit its report and conclusion to the National Audit Authority. The procedures  for the organizing and functioning of the internal audit shall be determined by sub-decree.  

      The function of internal audit is to independently examine and evaluate the effectiveness on the implementation of the internal control system within institutions, ministries and public enterprises.   An internal control system is the means of the Royal Government established by the management of the institutions, ministries and public enterprises in order to provide reasonable assurances which regard to the following:

      (a)     Effectiveness of operations

      (b)     Reliability of financial reports

      (c)        Compliance with the applicable laws, regulations, policies, procedures and! Implementation arrangements.