Montenegro is transitioning to an accrual-based accounting system, with the secondary legislation to be adopted by the end of 2020. The Slovak Ministry of Finance, together with the UNDP, is supporting the transition by advising on bylaws and rulebooks.
The Government of Montenegro adopted the new Public Sector Accounting Law on 5 September 2019, guided by the Strategy for Transition to Accrual Accounting of 2015 and the Action Plan of 2018. The law addressed accrual accounting principles and prescribed the qualification requirements for accountants in public sector institutions. However, some reservations related to the legal solution remained.
The law determines various areas of accrual accounting in general terms and the definition of the specific accounting methodologies had remained open until elaboration of the bylaws. Additionally, due to a limited availability of data and limited functionality of the information system, the new law did not address all accounting policies in line with International Public Sector Accounting Standards (IPSAS). It is planned that these policies will be further developed in secondary legislation once the data reporting processes have been redesigned, and the central government IT infrastructure supports full accrual accounting implementation. The secondary legislation drafting will require substantial effort, as it must be very specific and detailed in order to provide sufficient and clear guidance for the accountants and all future legislation users.
Thanks to the partnership with the UNDP, the Slovak Ministry of Finance has been supporting Montenegro in this exercise and will continue doing so throughout 2020. The “Advice on preparation of the public sector accounting bylaws,” prepared by a Slovak expert, summarizes the rulebooks, decrees and instructions which will, together with the Law of Accounting, form the legal accrual accounting framework in the public sector. The document analyses every rulebook in terms of current status, issues to be considered, and suggestions for improvement or adjustments.
The Slovak know-how
To support the Montenegrin Ministry of Finance in the development of the secondary legislation, the Slovak expert prepared recommendations regarding future financial statement reporting formats and reports. The document summarized the minimum IPSAS requirements regarding the items disclosed in the financial statements. It has been recognized as a good starting point for improved reporting formats, tailored to requirements of the future public sector accounting framework, specific to the accounting methodology and the chart of accounts.
Currently, the Slovak Ministry of Finance and the UNDP are assisting with the elaboration of seven rulebooks that are being delivered in coordination with several international partners such as Centre of Excellence in Finance, which involves Croatian expertise, and the European Union. The secondary legislation should be developed and adopted by the end of 2020.
Montenegro took up the idea of transitioning from cash-based to an accrual method back in 2010. The accrual-based public sector accounting system ensures complete and timely information for effective public financial management, accuracy in reporting to international financial institutions, and allows for comparability with other countries. The review of the existing public sector accounting and reporting system in Montenegro had resulted in identification of several shortcomings. For example, the analysis revealed that diverse treatment of the same transaction among accounting entities was possible, as Montenegro had been missing the general accounting legislation, which would prevent it.
In order to remove this inconsistency, a specific accounting legislation was needed. The new law was to define basic accounting principles, terms (such as liabilities and assets,) specific rules for their valuation, and anchor an obligation to record all economic transactions, preparing financial statements accordingly.