Objectives of National Accounting Standard No 6

National Accounting Standard No. 6 (hereinafter: CRS No. 6)[1], is how you can read Under point 1.1. of this document: ‘Determining uniform rules for the entry into the accounts of reserves, passive accruals and contingent liabilities, as well as their valuation and presentation and disclosure criteria in financial statements’[2].

According to the above point, the disclosure of the provisions, passive accruals of costs and contingent liabilities ‘allow users of financial statements to have a proper understanding of their nature, time limits, amounts and changes thereof, and the correct determination of the amounts of liabilities including provisions requiring the outflow of assets, thereby contributing to a reliable and reliable mapping of the assets, financial and financial performance of the reporting entity’[3].

Therefore, CRS No 6 provides an explanation for the provisions of the Accounting Act[4] to the above extent. These rules are Article 7(1)(5) and section 2, Article 6(1)(2) and Article 8(1) Accounting Act.

According to Article 7(1) The Accounting Act ‘The individual assets and liabilities shall be valued using the actual costs incurred for their acquisition (production) of the price (costs), with caution. In particular, for this purpose, the financial result, whatever its amount, must be taken into account: ...

5) reserves on a known entity risk, threatening losses and other events.’ However, according to section 2 „Events in question Under section 1, it must also be taken into account when they are disclosed between the balance sheet date and the date on which the accounts are actually closed.’ Article 6 The Accounting Act speaks of the principle of accrual and the principle of proportionality.

According to section 1 The above Article ‘In the accounting books of the entity, account must be taken of all revenue generated by it and the cost of the revenue relating to the financial year in question, regardless of the time limit for payment’.

Article 6(2) The accounting act sets out the principle of proportionality, according to which, in order to ensure that the revenues and related costs are commensurate with the assets or liabilities of the relevant reporting period, costs or revenues relating to future periods and the related costs which have not yet been incurred will be accounted for.

The last mentioned provision, i.e. Article 8(1) The Accounting Act sets out the principle of relevance. In accordance with the above provision, it is appropriate to provide for the separation in accounting of all events relevant for the assessment of the asset and financial situation and the financial result of the entity, while respecting the precautionary principle in question under Article 7.

point 1.6. CRS No 6 also refers to International Accounting Standard No. 37 „Reserves, contingent liabilities and contingent assets’ and International Accounting Standard No. 19 „Staff benefits’. According to point CRS No. 6, differences between this document and IAS No 19 and IAS No 37 include:

Different treatment of provisions for future benefits to employees, including pensions and provisions created for guarantee and warranty repairs for sold products of long-term use. According to CRS No 6 such reserves shall be treated at the stage of their inclusion in the accounting records as passive accruals of costs, and in accordance with IAS No. 19 and IAS No 37 they are included in the reserve category.

Different entry in the reserve accounting records. In accordance with IAS No 37 in the creation of certain reserves, operating costs shall be charged. According to CRS No 6 reserves shall be created in other operating costs, financial costs or exceptional losses.

Difference in the definition of contingent liabilities.

In accordance with IAS No 37 they cover not only the effects of possible obligations arising from past events and which will be confirmed only at the time of occurrence or non-execution one or more uncertain future events that are not fully subject to the control of an entity, but also to the fulfilment of current obligations arising from past events which are not, however, included in the financial statements because: (a) it is unlikely that funds containing economic benefits should be spent in order to fulfil the obligations, or (b) the amount necessary to fulfil the obligations may not be sufficiently reliably valued.

In contrast, CRS No. 6 predicts, similar to MSR 37, the way in which the financial statements disclose the consequences of such current obligations.

Differences in contingent assets, namely that they are not subject to CRS scope No. 6.

Profit and loss recognised by actuarial revaluation of defined benefit obligations after the period of employment. According to CRS No 6 These gains and losses must be recognised in the profit and loss account. In accordance with IAS No 19 other total income is required.

According to the above mentioned point 1.6. CRS No 6 source of discrepancies in two first The above paragraphs ‘is a different criterion for recognising provisions and passive accruals of costs: this criterion in IAS is the degree of certainty in the implementation of the obligation and in [accounting] Act, the type of activity to which the liability event relates. In addition, this standard, in accordance with the provisions of the Act, complies with the principle of proportionality of revenues and costs.’[5].

To supplement the issue related to the objectives of National Accounting Standard No. 6, It is also worth looking at the definitions of the most important wordings used in the document. Under point 2.1. CRS No 6 We will find a definition of commitments that explicitly refers to Article 3(1)(20) Accounting Act.

Under this provision, liabilities arising from past events are obligations to perform benefits of a reliable value which will result in the use of the entity's already held or future assets. CRS No 6 provides examples of such past events, i.e.

‘sale of products and goods, purchase of goods, materials and services, use of employment, create a tax obligation’. For example, the benefits are listed as ‘payment, issue or repair of goods or products, removal of damage’.

Under point 2.2. CRS No 6 is presented the definition of reserves in which the reference to the provision of the Accounting Act, this time to Article 3(1)(21).According to that provision, reserves are liabilities whose maturity or amount is uncertain. According to further explanations included Under point 2.2.

CRS No 6: „The provisions shall be created in accordance with the legal obligation or the usual commercial obligation, that is, where there is a high likelihood that an entity will have to comply with its obligation and the costs or losses required to comply with that obligation are sufficiently significant that their failure to take account of the financial result of the period in which the obligation arises would result in a material distortion of the image of the entity’s financial, financial and financial situation.’[6]

Under point 2.3. CRS No 6 there is talk of passive accruals of costs. There is a reference to Article 39(2)(2) and Article 39(2a) Accounting Act.

According to first the entity's provision provides for passive accruals of costs in the amount of probable liabilities for the current reporting period, arising in particular (...) from the obligation to carry out, related to the current business, future benefits to employees, including pension benefits, as well as future benefits to unknown persons whose amount can be reliably estimated, even though the date of establishment of the undertaking is not yet known, including for guarantee and warranty repairs for the products sold for long-term use.

Under Article 39(2a) The Accounting Act goes on to read that the liabilities in question Under section 2 point 2, shall be shown in the balance sheet as a liability reserve. To put it simply, point 2.3. CRS No 6 defines passive accruals of costs as reserves directly linked to operational activities, i.e.

production, sale (and more generally trade) and after-sales phase and overall management. It is also clarified that when in CRS No. 6 it is referred to as passive accruals of accruals of costs, which must be understood to mean passive accruals of accruals of the reserve costs.

Under the above item CRS No. 6 it has also been detailed, which should not be included in passive accruals of costs. These are primarily:

„(a) costs for the execution of pending service contracts, including construction referred to in the CRS 3 „Unfinished construction services’,

(b) obligations resulting from the non-invoiced supplies and services accepted by the entity. They shall be included in the delivery and service obligations, including where the unit's determination of the exact quantity and/or price of the supply/service may require estimates."[7]

Conditional liability, according to Article 3(1)(28) The Accounting Act is the obligation to perform benefits which arise on the basis of certain events. point 2.4. CRS No 6 it further specifies that as long as the liabilities are conditional, they are not included in the balance sheet and in the profit and loss account.