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    Country by Country Financial Reporting and Auditing Framework

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    Portugal – Crowe Horwath Portugal (prepared December 2014)

    Preparation and Filing of Statutory Financial Statements

     

    Regardless of its size, all companies are required to prepare annual financial statements and file these with the Mercantile Register. Companies are required to file their financial statements after their approval in the General Meeting, until July 15th of each year. The approval must not be later than 3 months after the balance sheet date. If consolidated financial statements are prepared or the net equity method is used, this period is extended to 5 months.

     

    Listed companies are required to file their financial statements with the Portuguese Securities Market Commission 4 months after the balance sheet date, regardless of the requirement to file in the Mercantile Register.

     

    The financial statements are comprised of various documents, which are a balance sheet, an income statement by natures, a statement of changes in equity, a statement of cash flows by the direct method, and explanatory notes. These documents, which form part of a unit, should be drafted with clarity and show the true and fair image of equity, the financial position and the results of the company, always following regulation. It is also required that a management report accompany the financial statements.

     

    Companies, within certain limits, have an option to file abbreviated financial statements. Abbreviated financial statements provide for some reduced disclosure, e.g. condensed balance sheet, no statement of cash flows is required and less notes disclosures. Companies that do not exceed two of the following limits, on two consecutive economic periods, can file abbreviated financial statements. These limits are:

    • Total Assets of 1.500.000 €.
    • Net turnover of 3.000.000 €.
    • Average employees during the year 50.

    Financial Reporting Framework

     

    Listed companies in Portugal are required to prepare their group financial statements in accordance with International Financial Reporting Standards (IFRS).  IFRS is that adopted by the EU.

     

    All other companies in Portugal, subject to any other requirements which may be otherwise specified, have the obligation to prepare their annual financial statements in accordance with accounting principles promulgated by the Portuguese Commercial Code and the SNC (Sistema de Normalização Contabilística; "Portuguese GAAP").

     

    However:

    • Non-listed companies subject to SNC may opt to present the consolidated financial statements in accordance with IFRS, if such financial statements are subject to a statutory audit;
    • Non-listed companies subject to SNC that are included in the consolidation of companies referred to in the above bullet-point may opt to present the individual financial statements in accordance with IFRS-EU if such financial statements are subject to a statutory audit.

    Options referred in the above bullet points must be kept for a minimum of 3 periods, except for entities that opted for IFRS-EU and, subsequently are included in the consolidation of an entity that does not prepare financial statements in accordance with IFRS-EU.

     

    Also, the Portuguese GAAP statutory financial statements are the starting point for determining the taxable income of an entity for corporation and trade tax purposes in Portugal.

     

    Audit Requirements for Companies Registered in Portugal

     

    In general, all medium and large sized companies must have an audit on their statutory financial statements. Regardless of their size, all public limited and listed companies are subject to a statutory audit.

     

    In addition to the audit of separate statutory financial statements of certain parent companies, their group financial statements are also subject to an audit, if a preparation is required by law.

     

    Audit Exemption

    Subject to the above, small private companies may not need an audit of their annual accounts - unless the company's articles of association say it must or enough shareholders ask for one.  Alternatively, there may be a requirement specified by other third parties for an audit (i.e. in a bank loan/overdraft agreement).

     

    A small corporation might qualify for an audit exemption if the company meets two out of the following three criteria on two consecutive reporting dates.

    • Has an annual turnover of no more than 3.000.000 €
    • Has assets worth no more than 1.500.000 €
    • Has no more than 50 employees.

    Audit Appointment, Rotation and Joint Audits

     

    Auditors are appointed by the shareholders resolution or at the constitution of the entity.

     

    In all listed companies and entities of public interest, the auditor, the signatory partner and, where applicable, any other senior partner cannot certify the accounts for more than 7 consecutive years (partner rotation) with a two year cooling-off period.

     

    Whilst not prohibited, joint audits are very rare in Portugal.

     

    Auditing Standards

     

    All audit firms in Portugal are required to carry out their audits and express an opinion on the financial statements in accordance with auditing standards issued by the Institue of Chartred Accountants in Portugal (OROC - Ordem dos Revisores Oficiais de Contas). Those standards are based on the International Standards on Auditing (ISA).

     

    Ethical Framework

     

    All Portuguese audit firms are bound by the Code of Ethics promulgated by the Institute of Chartered Accountants (OROC). This is based on the IFAC Code of Ethics (IESBA) with additional commentary for Portugal.

     

    Audit Regulation

     

    Audit firms in Portugal are subject to the following external and internal monitoring processes with regard to their audit practice:

     

    External Monitoring

    The audit practices of all audit firms in Portugal are subject to periodic external peer reviews conducted by the Institute of Chartered Accountants in Portugal (OROC). The peer reviews have to be completed every six years. Member firms that also perform audits for public interest entities are required to have their peer reviews successfully completed every three years.

     

    In addition to the external monitoring through obligatory peer reviews, those audit firms carrying out statutory audits of public interest entities are additionally subject to regular inspections performed by the Portuguese auditor oversight commission (CNSA). The CNSA is the competent authority for the organisation and performance of inspections that are carried out at least every three years. These CNSA inspections particularly focus on audit quality matters that are unique to public listed entities.

     

    Internal Monitoring

    All audit firms in Portugal according to ISQC1, have to establish an annual firm wide monitoring process known as internal inspections. The internal inspections are led by the Quality Assurance Partner within the respective firm. The internal inspections are conducted following procedures defined by the OROC and cover all certified auditors of a firm who perform statutory audit engagements.

     

    Transparency Report

     

    Audit firms that perform audits for public interest companies are required to prepare an annual transparency report that is available on their websites and cover information about the respective audit firm´s governance and ownership structure, its quality control and monitoring system, its independence policies and measures, its continuing professional education processes and its remuneration policies for senior personnel.


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