IFRS reporting in Georgia is governed by the Law of Georgia on Accounting, Financial Reporting and Audit. The law establishes the legal grounds for accounting, financial and management reporting, reporting on payments to the state, professional certification, audit activity, state supervision over these fields, and liability. Its purpose is to promote financial transparency and economic growth by bringing reporting and audit regulation closer to European Union directives. The law does not apply to budgetary organisations, except in cases provided for by Georgian legislation.
The system of reporting standards
Accounting and financial reporting are regulated by this law and other normative acts of Georgia and must comply with international standards of accounting and financial reporting. The standards system rests on four tiers: full International Financial Reporting Standards (IFRS); the standard for small and medium-sized enterprises (IFRS for SMEs); the standard established for fourth-category enterprises; and the standard established for non-entrepreneurial (non-commercial) legal entities. IFRS comprises the full standards adopted and issued by the International Accounting Standards Board (IASB), together with the interpretations adopted by IFRIC and SIC. The application of these standards is mandatory, and the Service introduces updated versions into force within 6 months of their update. An entity is entitled to use the current English-language version of the standards. This keeps the text of the obligations synchronised with international amendments, without waiting for a translated official version.
Which standard applies to whom
For the purposes of applying the standards, entities are divided into size categories. Public-interest entities (PIEs) and first-category enterprises maintain accounting and financial reporting in accordance with IFRS. Second and third category enterprises apply IFRS for SMEs, while retaining the right to use full IFRS. Fourth-category enterprises and non-entrepreneurial (non-commercial) legal entities apply standards established by the Service, although they too may elect IFRS for SMEs or IFRS. An audit firm registered in the registry must comply at least with IFRS for SMEs. Where sectoral normative acts provide for different standards for an entity's activity, the size-category obligation does not apply, provided standards of a lower rank are not required.
Category changes and group reporting
If a subject or group, at the end of 2 consecutive reporting periods, no longer satisfies at least two of the three criteria laid down by the law, the size category of the enterprise or group changes and the requirements established for the corresponding category apply. This rule does not apply to an enterprise whose category has grown by two or more categories compared with the previous reporting period. If the category is unchanged, a different standard may be chosen only from a higher size category. A group's category is determined by the consolidated assets, revenue and average number of employees of the parent enterprise at the end of the reporting period. PIE status is granted by the relevant supervisory authority, and a supervised entity is regarded as a PIE for at least 3 reporting periods from the granting of the status.
Transitional deadlines and sanctions
The law also sets transitional deadlines by size category: PIEs and first and second category enterprises had to comply with the reporting requirements for the reporting period ending 31 December 2017 and subsequent periods; third category enterprises — for the period ending 31 December 2018; and fourth category enterprises — for the period ending 31 December 2020. An individual or legal entity that maintains accounting records or prepares financial statements within the framework of professional services must register in the relevant registry no later than 1 July 2023. For non-compliance by fourth-category enterprises, the Service may apply only a written warning, in relation to reports up to and including the 2023 reporting period. Supervisory practice therefore treats the transition period and the sanction rule as separate questions: the first concerns timing, the second consequences.
Frequently asked questions
Which standard applies to a second-category enterprise?
Second and third category enterprises prepare their reports under the international standard for small and medium-sized enterprises (IFRS for SMEs), and they are entitled to apply full IFRS.
Within what period does an updated standard enter into force?
The Service must introduce updated versions of the international standards into force within 6 months of the update, and entities may use the current English-language version of the standards.
When does an enterprise's size category change?
If a subject or group no longer satisfies at least two of the three criteria at the end of 2 consecutive reporting periods, the category changes. Where the category has grown by two or more categories, this period does not apply.
By what deadline must registration in the registry take place?
A person who maintains accounting records or prepares financial statements as a professional service must register in the relevant registry no later than 1 July 2023.
How We Help on Legal.ge
The Legal.ge team supports you at every stage of IFRS reporting: we determine your enterprise's size category and applicable standard, align the reporting process with the law, and assist with supervisory authorities. Get qualified assistance with reporting and compliance on Legal.ge.