Since Mongolia has transitioned into democracy, there was a lot to catch up with when it came to financial reporting standards. First Accounting Law of Mongolia was passed in 1997, with subsequent amendments in 2001, 2003, 2005, 2006, 2011 and 2012 and a full replacement in 2015. In theory, International Financial Reporting Standards and its Small and Medium Enterprises version has been adopted in all private legal entities, however, in practice, these were not truly complied as many enterprises face additional cost and obstacles when trying to convert.
Companies operating in exploration or mining sector, or companies classified by Ministry of Finance as Large company have to apply for full IFRS. Companies with total assets over 0.5 billion MNT or revenue over 1.5 billion MNT are classified as Large company, per issued regulation by Ministry of Finance, dating 4th of February, 2016.
Some companies come across conflicting provisions between IFRS and other legal requirements. Specifically, in Accounting Law requires accounting records to be in Mongolian with Mongolian currency, which the currency may not be listed as functional currency under IFRS for entities that are operation internationally. In such occurrences, it is best to deal with the matter at the earliest opportunity to minimize the amount of complications that may arise from it, particularly with authorities. Ministry of Finance had recognized and tried to resolve the issue by passing a regulation for procedures of determining, changing functional currency and presenting financial statements on 18th of July, 2017. However, timing of change and conditions in functional currency may differ from IFRS. In order to change its functional currency, in accordance to the above regulation, the legal entity must provide proof that:
- Whether it affects the sale price and more than 75 percent of total sales are in that currency;
- Whether it affects to determine the cost of sales, the purchase that comprises of operating costs and whether more than 75 percent of the total transactions are in that currency;
- Whether the currency is 90 percent of total funding;
- Identify and mention the other factors and circumstances that are used to determine functional currency.
A second necessity which goes astray fairly from IFRS is the prerequisite to consolidate. Under the 2015 Accounting Law, any legal entity with an auxiliary is required to [re[are solidified fiscal summaries, except if it is itself remembered for a bigger solidification under a Mongolian parent organization. Contingent on the gathering structure, this may contrast from the necessity under IFRS and in this manner ought to be surveyed with care.
By law, the fiscal year starts on 1st of January and ends on 31st of December. Financial statements are required to be submitted to the Ministry of Finance, as outlined in Figure 6 below.
Under Company Law, the financial statements required to be lodged encompass a balance sheet, income statement, cash waft statement, adjustments in fairness statement, a detailed listing of all struggle of interest transactions and notes to the accounts. These reports are now primarily submitted electronically through the Ministry of Finance’s on-line framework. Paper filings are can be used if an organization decides to make them along with electronic entries, however are not compulsory and can’t be utilized as substitute of an electronic form.
