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    Country by Country Financial Reporting and Auditing Framework

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    Lebanon – Crowe Horwath Professional Auditors (prepared March 2015)

    Preparation and Filing of Statutory Financial Statements

     

    Corporations (SAL, Holding, Offshore, SARL, and Commandite Shareholding), Partnerships (Joint venture, General partnership and Simple Commandite), Sole Proprietorships, and foreign enterprises (branches or representatives), GPOs and NGOs registered in Lebanon are required to prepare annual financial statements. These statements must be prepared in accordance with International Financial Reporting Standards (IFRS) and to the provisions of the Lebanese Chart of Accounts, as required by Decree no. 4665 dated December 26, 1981.

     

    Further, Ministerial Decree No. 8089 (1996) requires annual financial statements to be prepared and presented in accordance with International Financial Reporting Standards (IFRS). These statements consist of: Financial Position, Comprehensive Income Statement, Cash flow statement, Changes in equity statement, and Notes to the financial statements.

     

    All businesses in Lebanon are required to keep books and records complying with accounting principles. These Books and records must be kept in Arabic, French or English.

     

    Financial statements must be declared in Lebanese Pounds. However, Holding and Offshore companies can be declared in foreign currencies.

     

    Lebanon's fiscal year runs from January to December and is based on the Gregorian calendar. With the special permission of the local tax authorities, companies may, however, use their own accounting year.

     

    Filing Requirements

     

    Tax return declaration must be submitted annually to the Income Tax Department within five months after the end of the fiscal year. (Three months in the case of sole proprietors or partnerships). Audited financial statements must also be submitted within eight months after the end of the fiscal year (six months in case of partnerships). Penalties are imposed in case of non‐compliance with the filing due dates.

     

    Financial Reporting Framework

     

    A number of laws, decrees, and ministerial orders govern Lebanese private sector accounting and auditing. The Code of Commerce (1942) sets out the rules and regulations regarding auditor appointments and audits of financial statements.

     

    Banks in Lebanon, covered under the Code of Money and Credit, the Banking Law (1963), are closely monitored by the Central Bank of Lebanon (CBL) and Banking Control Commission (BCC), in addition to their compliance with Ministry of Finance. These two bodies issue circulars and instructions to banks and financial institutions, such as liquidity requirements, money laundering requirements, solvency requirements and other related matters. There are several reports, including balance sheet and income statements and other statistical reports that should be submitted to CBL and BCC on a monthly, quarterly, semi-annual and annual basis.

     

    In accordance with Decree No. 1/6258, dated 21 August 1996, International Accounting Standards were introduced over a three-year period, applying first to companies quoted on the stock exchange, then to banks and insurance companies and finally to large companies followed by all others.

    Although the above-mentioned Ministerial Order mandates the use of IAS, Law No. 27 (1980) still requires all commercial entities, except banks, to follow a unified chart of accounts. Since the tax authorities enforce the unified chart of accounts, the companies that prepare IAS-compliant financial statements also prepare a tax return in accordance with the accounting and reporting requirements in Law No. 27.

     

    Audit Requirements for Companies Registered in Lebanon

     

    According to Ministerial Decree No. 8089 issued in 1996 by the Ministry of Finance, the following are the legal requirements as to which companies are subject to annual audit:

     

    • Corporations (SAL, Holding, Offshore, SARL, and Commandite Shareholding), Partnerships (Joint venture, General partnership and Simple Commandite);
    • All sole proprietorships and partnerships whose total number of employees exceeds 25 or that have annual turnover above LBP750 million (US$500,000); and
    • All branches of foreign companies operating in Lebanon.

     

    Audited financial statements together with the auditor's report, the Board of Directors report (for SAL), or managersʹ report (for SARL), must be submitted annually to the annual general assembly of the shareholders or partners.

     

    Auditors are also required to issue special reports commenting on existing or planned agreements between the company and its Board of Directors and main shareholders in fulfillment to article 158 (code of commerce) for SAL companies, including Holding and Offshore, and to article 152 (code of money and credit) for banks.

    The audited balance sheet, names of the members of the board of directors, statutory auditors and court auditor are required by law to be published in the Official Gazette, a business publication and a daily local newspaper, within two months after the date of the annual general assembly.

     

    Auditor's Appointment, Rotation, and Joint Audits

     

    SAL entities, must in all cases have one or more statutory auditors. The statutory auditor is appointed at the general meeting of shareholders for one year period.Banks, Holding, Offshore, and SARL companies, auditors are appointed for a three-year period. At the end of this period, the auditor may be reappointed.

     

    A complementary auditor appointed by the Commercial Court is required for SAL companies, while Holding, Offshore, SARL and banks are not required to appoint a complementary auditor.

     

    The auditor must be registered in the Lebanese Association of Certified Public Accountants LACPA.

     

    Lebanon does not currently have any rules relating to mandatory rotation of the audit firm, except for banks which adopted the principle of partner rotation within the audit firm every five years. Banks also adopted the joint audit appointments starting the audit of 2010.

     


     

    Auditing Standards

     

    In April 2002, the Ministry of Finance issued circular No 742 which stated that auditors are obliged to make sure their clients adopt international accounting standards. Auditors are also obliged to apply the International Standards on Auditing when performing their audit of the financial statements. The said circular introduced ISA No. 700, The Auditor's Report on Financial Statements, as the official format to be followed for audit reports in Lebanon.

     

    The rules of the Beirut Stock Exchange and the Banking Control Commission require that the financial statements of all listed companies and all local banks should be audited in accordance with ISA.

     

    Ethical Framework

     

    All audit firms in Lebanon follow ethical standards issued by the IFAC which are adopted by the Lebanese Association of Certified Public Accountants (LACPA) without modifications, and approved by the Ministry of Finance.

     

    Audit Regulation

     

    Law No. 364 of 1 August 1994 governs the accounting profession in Lebanon. Lebanese Association of Certified Public Accountants (LACPA) is responsible for registering auditors and issuing practicing certificates.

     

    To qualify as a Certified Public Accountant, a person must hold a practicing Certificate awarded by the above mentioned body in order to audit and issue the auditors' report for the companies that are registered in Lebanon.

     

    External Monitoring

     

    LACPA has taken various actions in order to monitor the profession in Lebanon. Through its General Assembly dated 03/12/2013, LACPA amended its bylaws under article No 31 to establish two Committees, namely Quality Control Supervisory Commission (QCSC) and Quality Control Technical Committee (QCTC).

     

    In a process to establish a Quality Assurance Review System, LACPA has accomplished the following:

     

    • Developed an Audit Manual and related working papers to be used as guidance for small, medium and large practice firms as well as sole practitioners.
    • Arranged specialized workshop trainings concerning the Audit Manual.
    • Updated the Quality Control Manual in accordance with the revised ISQC1 by the designated Technical Committee.
    • Prepared the Peer Review Guide with a deadline to put into action on October 2015.
    • Raised LACPA members' awareness of the Quality Assurance Program through arranging technical workshops training on the Quality Control and Peer review manuals.

     

    As for bank audits, The Banking Control Commission monitors compliance with the accounting and disclosure requirements. Specific measures are taken by the BCC to enforce the accounting and reporting requirements, including desk reviews and field meetings with the auditors. The BCC has the authority to require additional details about the financial statements to ensure compliance with the Central Bank circulars and directives.

     


     

    Internal Monitoring

     

    Internal monitoring is applied by the firm professionals according to international standards and under carefully defined procedures and tools.

     

    Transparency Reporting

     

    There is no transparency reporting requirement in Lebanon.

     

     



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