Introducing the Law on Accounting and Financial Reporting in Ukraine


On January 1, 2000 the Ukraine introduced The Law on Accounting and Financial Reporting that provided the National Regulations on Accounting. This law provides the accounting and reporting standards for the Ukraine. The regulatory body for accounting in the Ukraine is the Ministry of Finance. It approves regulations in the National Regulations on Accounting and other regulations. In addition to the Ministry of Finance there is also the National Bank of the Ukraine. It regulates how to maintain the accounting records and how to prepare the financial statements. These regulations are still to be according to the National Regulations on Accounting. Other government agencies can also add regulations to organizations under their control. These organizations include: The State Commission on Securities and Stock Exchange, the National Bank of the Ukraine, and the State Commission on Regulation of Financial Services Markets in Ukraine. (Financial Reporting and Auditing)

The fundamental principles of the National Regulations on Accounting are accruals, going concern, prudence, consistence, and substance over form. The Ukraine applies an accrual based system. (Financial Reporting and Auditing) This is according to a presidential decree requiring the government to adopt accrual based accounting. (IPSAS Adoption by Governments) Currently, fair value accounting is not practices widely in the Ukraine. Practice of fair value accounting is only historically done in the valuation of investment properties in real estate and biological assets by agricultural companies.(ACCA Policy Paper on Fair Value)

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Ukrainian financial statements cover the calendar year as well as important periods during the year. The managing director is responsible for the organization of the accounting function within the company. They are responsible for making sure that all economic transactions are in supporting documents, ledger, and financial statements. All financial statements must be in Ukrainian currency. (PwC Ukraine: Online Business Guide: Accounting and Audit Requirements Managerial Accounting) All transactions need support of sealed and signed documents. If there are not documents, the transactions will not show up in the financial statements. This creates statements that could be deficient. There are four different financial statements that all companies must have. These financial statements are: the balance sheet, income statement, cash flow statement, and statement of changes in equity. In addition companies also need to have notes to the financial statements. (UKRAINE CONSULTING - Accounting And Reporting US GAAP and IFRS in Ukraine) After completing the financial statements, the corporation presents them to the founder or shareholders of the company, labor collectives, and the state statistics authorities and registrar. (PwC Ukraine: Online Business Guide: Accounting and Audit Requirements)

Financial Statement Auditing in Ukraine

The Law of Auditing regulates the audit of Ukrainian financial statements. It regulates the methodology of those in the Chamber of Auditors of the Ukraine and the Professional Union of Auditors of the Ukraine. The Chamber of Auditors of the Ukraine is the body that is responsible for certifying audits in the Ukraine. Since 2004, the Ukraine adopted the International Standards of Auditing. Several other laws, such as the Law on Securities and Stock Markets and Law on Insurance, add requirements to the audit for industries they oversee. Audits are only mandatory for certain industries. In the Ukraine these include: banks, insurance companies, bond issuers, investment funds, trust, other financial enterprises, brokers and traders, and others that must publish their financial statements. (PwC Ukraine: Online Business Guide: Accounting and Audit Requirements)

Ukraine's IFRS Experience

As of now the Ukraine's National Regulations on Accounting has introduced twenty-seven standards with more in development. The Ukraine does not use the international accounting standards. However, the standards they do produce should not be in conflict with the international accounting standards. Though they are not to contradict each other, they do in several places including depreciation. The National Regulations on Accounting apply to all legal entities established under Ukrainian law. Though Ukrainian NRA covers most of the IAS standards, the Ukrainian standards are nowhere near as detailed as IAS standards. In addition, the NRA does not have interpretive guidance or the illustration of how the standards work that IFRS has. Not having the details and the interpretive illustrations leads to erratic application of the standards. This makes it difficult to compare financial statements between companies. (PwC Ukraine: Online Business Guide: Accounting and Audit Requirements)

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Ukraine, at least now, does not use IFRS as their official accounting standards. The National Bank of the Ukraine in 1998 adopted a requirement for banks to follow IAS's and IFRS's. However, there has been no enforcement of this requirement. Some companies do prepare their financial statements according to IFRS in addition to their prepared statements in the National Regulations on Accounting. This is done to make business in Europe easier. (IAS Plus - Jurisdictional Updates - Ukraine) There are several important differences between Ukrainian NRA and IFRS.

Managerial Accounting in Ukraine

Ukrainian accounting regulations with managerial accounting are very formalistic. Because of this, the financial statements have very little economic significance. Most in the Ukraine use other financial statements based off of other western systems, such as IFRS, because their financial statements have little significance. A lot of the traditional cost accounting that we do in the United States, such as cost centers and cost unit calculations, are not used in the Ukraine. Even the different cost categories of a company are not represented on the profit and loss statements. (UKRAINE CONSULTING - Accounting And Reporting Managerial Accounting.")

Ukraine has a very complex payroll system, even amongst most western countries. Ukrainian payroll accounting keeps track of extensive payroll documents that keep track of when and how much individual workers work. The Ukraine needs this complexity in record keeping because of the complexity of the workers' pay. For instance when a worker is on vacation they do not get their regular salary. They get a salary that is the average of what they made for the past twelve months. Calendar days are the base for vacation days. (UKRAINE CONSULTING - Accounting And Reporting Payroll Accounting)

Tax Accounting in Ukraine-General

Tax accounting plays a very large role in the Ukrainian accounting system. Collection of taxes represents seventy-three percent of Ukrainian revenue. Three quarters of those taxes are from corporate, personal, and value-added taxes. The State Tax Administration of the Ukraine administers the national taxes. Ukraine bases the distribution of tax revenue on its collection point. For instance, the income tax revenue collected by the State Tax Administration is distributed to local governments where it was collected. (PwC Ukraine: Online Business Guide: Tax System and Administration)

The tax system is rapidly changing. This tax reform has been a positive change however at times it has grown too fast has at times been too unpredictable. Tax laws have even been known to change within the same month. The Ukrainian parliament has passed several laws that have been contrary to the already set accounting principles. Another problem that happens is that these tax laws are so ambiguous it has been difficult to pay taxes. There have even been conflicts between the tax payer and the government over whether the taxpayer needs to pay a certain tax. (PwC Ukraine: Online Business Guide: Tax System and Administration)

The complicated tax requirements take an average of 98 payments for a medium sized business to pay all of their taxes. It also requires an average of 2,185 hours of work per year to comply with all of these tax requirements. As of 2007 there has been some talk about the consolidation of various revenue rules into a single tax code. This would make it easier to understand and therefore make it easier to comply with what the State Tax Administration wants. A taxpayer can seek clarification from the tax authorities who must give clarification. However, the clarifications received are not legally binding and do not provide protection from penalties if your taxes are wrong. (PwC Ukraine: Online Business Guide: Tax System and Administration)

Tax Accounting in Ukraine- Corporation

There is a very large amount of tax regulations for corporations in the Ukraine. The standard corporate tax rate in the Ukraine is 25%. One of the more interesting features of the Ukrainian tax system for corporations is the ability for qualifying sole proprietorships to use a simplified tax. This allows them to pay a fixed tax every year and other qualifying entities to pay a fixed rate on their revenues. This allows them to avoid paying income tax, potentially value-added tax, and other taxes. Another interesting tax feature happens in related party transactions. In these the tax authorities can change the price of the transaction for income tax purposes. (PwC Ukraine: Online Business Guide: Taxation of Corporations)

Tax Accounting in Ukraine- Individual

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Registering to file income taxes is very important to the individual. All taxpayers must register with the State Tax Administration and obtain a tax number. This is very important because without a tax number you cannot open a bank account, rent an apartment, or collect a tax credit. One interesting feature in the individual tax system is that a taxpayer can forgo filling a tax return. To do this they must have their entire income subject to withholding tax when paid. However, most do file if they qualify for a tax credit. Another interesting feature is that some income is double taxed. This happens with income created in the Ukraine by non-residents, except interest and dividends, and income from prize winnings. (PwC Ukraine: Online Business Guide: Taxation of Individuals)

Tax Accounting in Ukraine- VAT

The last major tax source of revenue is the value-added tax. Corporations file value added tax returns every month. The standard rate for the value-added tax on domestic goods and services and the importation of goods is 20%. All businesses with sales in the past twelve months of more than 300,000 UAH must register for the value added tax. Those registered for the simple tax, however, do not register. Like the personal tax, a business also needs to acquire a value added tax registration number. Value-added tax registered companies must keep separate accounts of taxable and non-VAT taxable accounts. (PwC Ukraine: Online Business Guide: Value Added Tax)

Property Rights in Ukraine

The property rights index is a subcomponent of the Index of Economic Freedom. It measures how much the country protects the property rights of the individual. The scores go from 0 to 100 with 0 being the worst and 100 being the best. The Ukraine has a property rights index value of 30. (Property Rights Index in Ukraine) This shows that the individual's right to property is very week. Unenforced contracts are one of the major reasons for the weak property rights. One recent positive is the increase in the interest in the mortgage market. This increased interest has increased the amount of mortgages. (Ukraine Information on Economic Freedom | Facts, Data, Analysis, Charts and More)

Intellectual property rights are also a big concern in the Ukraine. The Ukraine is sixth in the world in the pirating of intellectual property. Recently, the Interior Ministry has started to "step up the fight against" the theft of intellectual property. (Ukraine Steps up Fight against Property Rights Violations - Ministry) In 2003 the Ukrainian parliament finally adopted the United Nation's TRIPS Agreement into law to defend intellectual property rights. Included in this new law are regulations which will require holographic markers to protect software. (Ukrainian Intellectual Property Rights Meet International Standards - Minister)