“The Corporate Sustainability Reporting Directive responds to more efficient management of sustainable growth, financial risks due to climate change, resource depletion, environmental degradation, increased transparency and long-term planning of financial and economic activities. A prerequisite for achieving these European targets is the disclosure of relevant, comparable and reliable information on sustainability issues by large companies. The most important financial statements of companies to date are projected to share the importance with sustainability reports. Companies reporting on sustainability will have easier and more favourable access to finance, will be considered as more attractive employers, will have a better reputation, higher value for their business and will be more likely to better manage risks. The package of proposals also covers improving the quality of financial reporting and reducing the administrative burden and business obligations”, says Vice-Minister R. Bilkštytė.
The package of draft legislation consists of amendments to sixteen laws, including the revised version of the Law on Accountability of Companies and Groups of Companies (LACGC), the Law on Auditing of Financial Statements (LAFS).
Implementation of the provisions of the Corporate Sustainability Reporting Directive
The Corporate Sustainability Reporting Directive is one of the components of the European Green Deal. At European level, the aim is to transform the existing economy into a modern, competitive, resource-efficient economy as well as an economy without net greenhouse gas emissions by 2050. Transposition of the European requirements by draft legislation will ensure that business provides clear, reliable, relevant and comparable information on sustainability issues on a regular basis, allowing customers, investors, non-governmental organisations to assess and make informed decisions.
Implementing the provisions of the Corporate Sustainability Reporting Directive, first, sustainability reports will have to be prepared by large listed companies, banks and insurance firms with an average annual number of employees above 500. These companies will have to report for 2024. For the financial year starting in 2025, sustainability reports will have to be prepared by other large companies – public and private limited liability companies, state and municipal companies, while for 2026 and beyond – small and medium-sized listed companies. It is estimated that the provision of information on sustainability issues in Lithuania will be mandatory for about 250 companies.
Information on sustainability will have to be reported in the company’s management report in accordance with a uniform European standard, in electronic format. The information thus provided will be clearly comparable, transparent and user-friendly.
It is envisaged that both auditors, audit firms and non-auditors (independent assurance service providers) will be able to provide sustainability reporting mandatory verification services.
Addressed financial reporting quality issues
As regards the reliability of financial statements, it is proposed to harmonise the criteria for both profit and non-profit entities subject to the audit of financial statements: monetary financing of more than 50 employees from the State budget or municipal budgets or the aid used exceeding half a million euros. It should be noted that in case of mandatory audit of statements, the financial statements to be submitted to the LER manager will have to be accompanied with the auditor’s report.
The draft legislation proposes to expand the scope of reporting quality monitoring by introducing monitoring not only of the financial statements, but also of the activity report and the management report, as well as by granting more rights to the AAVI.
In order to ensure transparency, it will be mandatory to provide information to the LER manager on deficiencies in the quality of the financial statements, management report, auditor’s report identified in the course of monitoring and supervision.
Reduced administrative burden on business
The package of amendments prepared by the Ministry of Finance proposes to reduce the administrative burden on business by adjusting the criteria that determine the need for reporting. It is proposed to increase by 25 % the criteria determining the category of companies and group of companies (income earned during the year and assets). In addition, using the option provided by the EC, it is proposed to increase by about 50 % the criteria for small companies and small group of companies. It is expected that due to these amendments, about 3,000 Lithuanian companies will have the opportunity to prepare financial statements with less administrative burden, to provide less information in the explanatory note and not to draw up a management report.
At the same time, it is proposed to increase the monetary criteria for the size of companies (earned income and assets) setting the requirement for the audit of financial statements – once these criteria enter into force, the mandatory audit would no longer be applied to an additional 570 companies.
The amendments also remove stricter restrictions for auditors than those imposed by the Audit Directive and the Audit Regulation.
It is proposed that, where a company chooses to draw up reports at its own discretion, the company itself should be able to choose the requirements applicable to these reports from the statutory obligations.
As an obsolete in the context of electronic reporting, it is proposed to waive the requirement to sign financial statements. In addition, it is envisaged to reduce the number of reports drawn up in the event of reorganisation and liquidation. It is proposed to exempt exclusively public and private limited liability companies from the interim management report (mandatory in distributing dividends for less than one year), leaving the requirement to prepare and submit only interim financial statements.
