Bulgaria

As a Member State of the European Union (EU), Bulgaria’s financial reporting and auditing requirements are primarily derived from EU Directives and Regulations, which are transposed into national legislation. The principal legal instruments governing accounting and auditing are the Accountancy Act of 2015 and the Independent Financial Audit Act of 2016.

Under the Accountancy Act, accounting requirements are differentiated based on the size and public interest status of entities. Public interest entities (PIEs) are required to prepare their financial statements in accordance with International Financial Reporting Standards (IFRS) as endorsed by the EU, effective January 1, 2017. PIEs include, inter alia, listed companies, credit institutions, insurance undertakings, pension funds, and certain state-owned and utility entities.

All other entities are required to apply National Accounting Standards established by the Ministry of Finance, although entities that previously applied IFRS may continue to do so under certain conditions. The IFRS for SMEs has not been adopted in Bulgaria, and there are no immediate plans for its adoption.

Statutory audit requirements are also established under the Accountancy Act of 2015, which sets thresholds based on size criteria. Financial statements subject to mandatory audit include those of medium and large entities, public interest entities, qualifying small entities exceeding specified thresholds, and certain legal forms such as joint-stock companies.

The Independent Financial Audit Act of 2016 governs audit practice in Bulgaria and requires that all statutory audits be conducted in accordance with International Standards on Auditing (ISA) and other pronouncements issued by the International Auditing and Assurance Standards Board (IAASB).

The accountancy profession in Bulgaria, comprised of Certified Public Accountants (CPAs) and Registered Auditors, is regulated under the Independent Financial Audit Act of 2016. The regulatory framework operates under a shared model in which the Commission for Public Oversight of Statutory Auditors (CPOSA) serves as the independent public oversight authority, while the Institute of Certified Public Accountants in Bulgaria (ICPAB) is responsible for implementing key professional and regulatory functions under CPOSA’s supervision.

The Independent Financial Audit Act of 2016 establishes the requirements for entry into the profession, including initial professional development, practical experience, professional examinations, and continuing professional development. Individuals seeking to qualify as Certified Public Accountants are required to obtain a university degree at the bachelor’s or master’s level, complete a prescribed period of relevant professional experience ranging from four to ten years depending on the academic qualification, complete a professional accountancy education program, and pass professional examinations in accounting, auditing, commercial law, and tax and social security law. In addition, candidates must complete at least one year of practical experience as an assistant auditor prior to sitting the independent financial audit examination.

Upon successful completion of the examination requirements and a minimum period of practical experience, individuals may apply for registration as statutory auditors with CPOSA, which is responsible for maintaining the official register of registered auditors.

CPOSA is responsible for the public oversight of the audit profession and operates under a mandate established in the Independent Financial Audit Act of 2016. Its responsibilities include granting, suspending, and revoking the right to practice as a statutory auditor, maintaining the register of registered auditors including third-country auditors, overseeing the activities of ICPAB, monitoring compliance with auditing, ethical, and quality management standards, approving quality assurance review methodologies, and operating a system of investigation and discipline for registered auditors.

ICPAB operates under the oversight of CPOSA and is responsible for the implementation of several regulatory and professional functions. These include maintaining and publishing the register of certified public accountants, organizing and administering professional examinations in accordance with CPOSA requirements, conducting quality assurance reviews for audits of non-public interest entities under CPOSA supervision, monitoring compliance with ethical requirements, supporting the adoption and implementation of international standards through engagement with regulators and stakeholders, and providing continuing professional development, training, and technical guidance to its members.

The Commission for Public Oversight of Statutory Auditors (CPOSA) carries out independent public oversight of the audit profession in Bulgaria according to the Independent Financial Audit Act of 2016. CPOSA is a member of the International Forum of Independent Audit Regulators.

CPOSA’s main oversight responsibilities include: (i) acquisition and revocation (where necessary) of the right to practice as a registered auditor, and registration of registered auditors including third country auditors; (ii) oversight of the Institute of Certified Public Accountants in Bulgaria (ICPAB) to which it delegates some of its oversight duties subject to appropriate supervision and approval mechanisms; (iii) review of adoption and compliance with standards of professional ethics, internal control quality in audit entities and during the performance of audits; (iv) approval of the rules and procedures for quality assurance reviews; and (v) operation of a system of investigation and discipline for registered auditors.

The Institute of Certified Public Accountants in Bulgaria (ICPAB)

The ICPAB was established by the Accountancy Act of 1996. Membership in ICPAB is mandatory for Certified Public Accountants and Registered Auditors.

The main functions and responsibilities of ICPAB under the Independent Financial Audit Act of 2016 include, but are not limited to: (i) maintaining and publishing the register of certified public accountants; (ii) organizing certification exams in accordance with the Commission for Public Oversight of Statutory Auditors’ (CPOSA) requirements; (iii) organizing a quality assurance system for its members and conducting reviews based on directives from CPOSA; (iv) monitoring compliance with relevant ethics requirements; (v) liaising with authorities on activities that support adoption of international standards and best practices in accounting and auditing, including providing comments on draft laws and regulations; (vi) supporting its members through delivery of training and dissemination of materials for certification exams and for continuing professional development, and adoption and implementation of professional guidance; and (vii) conducting research in audit, accountancy, financial analysis and other areas.

In addition to being an IFAC Member, ICPAB is also a member of Accountancy Europe.

According to Chapter 9 of the Independent Financial Audit Act of 2016, all registered auditors and audit firms are subject to a mandatory system of quality assurance (QA) reviews. The Commission for Public Oversight of Statutory Auditors (CPOSA) has a legal mandate, as outlined in the Independent Financial Audit Act of 2016, to establish and operate the QA review system through its rules, regulations, and activities. CPOSA’s system of quality assurance, initially developed by the Institute of Certified Public Accountants in Bulgaria (ICPAB), distinguishes between audits of public interest entities (PIEs) and non-PIEs with respect to the frequency of reviews and whether the reviews are conducted by CPOSA or ICPAB. PIEs are subject to QA reviews at least once every three years by CPOSA inspectors, while ICPAB conducts QA reviews of auditors of non-PIEs at least once every six years.

Based on the self-assessment conducted by ICPAB, the QA review system is operational and incorporates the main requirements of SMO 1, including the adoption of relevant standards such as ISQM 1, ISQM 2, and ISA 220 (Revised).

Current Status: Adopted

The Independent Financial Audit Act of 2016 outlines the requirements for initial professional development (IPD) and continuing professional development (CPD) for certified public accountants and registered auditors. Specifically, it establishes mandatory university education, prescribed subject areas, and a range of practical experience requirements depending on the type of university degree required to enter the certified public accountant education program and qualify for the certification examination. Responsibility for IPD is shared between Bulgarian universities, as stipulated in the Higher Education Act, and the Institute of Certified Public Accountants in Bulgaria (ICPAB).

To qualify as a Certified Public Accountant, individuals are required to obtain an academic degree at the bachelor’s or master’s level, complete a prescribed period of relevant professional experience ranging from four to ten years depending on the academic qualification, complete a professional accountancy education program, and pass professional examinations in accounting, commercial law, tax and social security law, and auditing. Candidates must also complete at least one year of practical experience as an assistant auditor prior to sitting the independent financial audit examination. Following successful completion of these requirements and at least three years of practical experience, individuals may apply to CPOSA to be registered as statutory auditors.

CPOSA oversees ICPAB in organizing and administering CPD for certified public accountants and registered auditors. ICPAB has established CPD requirements of 40 hours annually and maintains CPD Rules and Procedures that are aligned with the requirements of IES 7 (2015).

ICPAB reports that it seeks to ensure that national education requirements are aligned with the International Education Standards, EU Directives, and national legislation. However, additional information is needed to confirm full alignment with the latest IES in effect as of the time of the assessment, particularly revisions to IES 2, 3, 4, and 8 effective from the 2019 Handbook. Accordingly, not all requirements of the IES in effect as of the time of the assessment are demonstrably adopted.

Current Status: Partially Adopted

According to Article 9 of the Independent Financial Audit Act of 2016, audits must be conducted in accordance with International Standards on Auditing (ISA) and other pronouncements as issued by the International Auditing and Assurance Standards Board (IAASB). The most recent Handbook of International Quality Management, Auditing, Review, Other Assurance, and Related Services Pronouncements has been translated and is available for application in the jurisdiction.

Current Status: Adopted

Article 10 of the Independent Financial Audit Act of 2016 requires application of the International Code of Ethics for Professional Accountants (including International Independence Standards) as issued by the International Ethics Standards Board for Accountants (IESBA) for registered auditors. The Code is adopted and implemented by the Institute of Certified Public Accountants in Bulgaria (ICPAB) under the oversight of the Commission for Public Oversight of Statutory Auditors (CPOSA). Furthermore, ICPAB requires its members, including both registered auditors and certified public accountants, to comply with the Code.

ICPAB has established an ongoing process for reviewing, translating, and adopting new and revised pronouncements issued by the IESBA. As of the date of the assessment, the latest version of the International Code of Ethics for Professional Accountants has been translated and is applied for all professional accountants in the jurisdiction.

Current Status: Adopted

The Ministry of Finance is responsible for establishing public sector accounting standards in Bulgaria and has adopted partial accrual-based national accounting standards for application in the public sector. Public sector financial reporting is therefore based on national standards rather than International Public Sector Accounting Standards (IPSAS).

According to the CIPFA/IFAC International Public Sector Financial Accountability Index (2020), there have been plans to move toward partial-accrual IPSAS; however, IPSAS have not been adopted for application in the jurisdiction as of the time of the assessment.

Current Status: Not Adopted

The Commission for Public Oversight of Statutory Auditors (CPOSA) is required under the Independent Financial Audit Act of 2016 to establish and operate a system of investigation and discipline for registered auditors. CPOSA’s system adopts both complaints-based and information-based approaches for initiating proceedings. Based on CPOSA’s publicly available information, the system includes investigation by CPOSA staff, communication of findings to the relevant individual or entity, the application of sanctions ranging from enhanced quality control inspections to revocation of the right to conduct audits for a specified period, and an appeals process that allows for suspension of enforcement actions. ICPAB indicates that CPOSA’s system incorporates the main requirements of SMO 6.

In addition, the Institute of Certified Public Accountants in Bulgaria (ICPAB) has established an investigation and discipline system for its members, including both registered auditors and certified public accountants. Cases identified by the Ethics Council, the Quality Control Committee, or the Supervisory Board are referred to the Disciplinary Council, with notification to ICPAB’s Board. Disciplinary procedures and sanctions are defined in the Independent Financial Audit Act of 2016 and ICPAB’s by-laws. ICPAB reports that its system incorporates most of the requirements of SMO 6; however, a gap remains in relation to the composition of the disciplinary committee, which consists solely of professional accountants.

Current Status: Partially Adopted

The Accountancy Act of 2015 stipulates the accounting standards applicable in Bulgaria and requires the application of International Financial Reporting Standards (IFRS) as endorsed by the European Union (EU) and published in the EU Official Journal.

EU-endorsed IFRS contain limited modifications to IFRS as issued by the International Accounting Standards Board, including a temporary carve-out from IAS 39 Financial Instruments: Recognition and Measurement and a temporary extension permitting the application of IFRS 9 Financial Instruments with IFRS 4 Insurance Contracts. However, according to the IFRS Foundation, most entities are able to assert full compliance with IFRS.

As of January 1, 2017, all public interest entities are required to prepare their financial statements in accordance with EU-endorsed IFRS. Public interest entities include listed companies, credit institutions, insurance undertakings, pension funds, and certain state-owned and utility entities.

All other entities are required to apply National Accounting Standards established by the Ministry of Finance, although they may elect to apply IFRS under certain conditions. IFRS for SMEs has not been adopted and there are no immediate plans for its adoption in the jurisdiction.

Current Status: Adopted

Relevant Organizations

• Commission for Public Oversight of Statutory Auditors (CPOSA)
• Institute of Certified Public Accountants of Bulgaria

Relevant Legislation

• Accountancy Act, 2015
• ICPAB By-Laws
• Independent Financial Audit Act, 2016
• ICPAB Reports, Rules & Procedures – all available in Bulgarian

Relevant Publications

• Accountancy Europe, Member State Implementation of Directive 2014/95/EU, 2017.
• --, Organization of the Public Oversight of the Audit Profession in Europe, a Survey, March 2018.
• --, Definition of Public Interest Entities in Europe, March 2019.
• --, Structure and organisation of the profession – key feature update – Bulgaria, 2020.
• Deloitte and Touche, IPSAS in Your Pocket, 2015.
• EY, New Accountancy Act, 2016.
• ICPAB, SMO Action Plan, 2021.
• IFIAR, Member Profile: CPOSA.
• IFRS Foundation, IFRS Application Around the World, Jurisdictional Profile: Bulgaria, 2016.
• --, IFRS Application around the World – Jurisdictional Profile: European Union, April 2021
• KPMG, New Independent Financial Audit Act, 2016.
• World Bank, Report on the Observance of Standards and Codes (ROSC), Accounting and Auditing: Bulgaria, June 2008.