Croatia

As a member of the European Union (EU), the financial reporting requirements for commercial entities and financial institutions in Croatia are stipulated in EU Directives and Regulations, which are then transposed into Croatian national laws.

The Companies Act regulates business activities in Croatia and sets basic financial reporting requirements. This Act is complemented by the Accounting Act (as amended in 2020) which establishes requirements for mandatory contents of bookkeeping documents and bookkeeping procedures. Under the Accounting Act, public interest entities (PIEs) are required to apply International Financial Reporting Standards (IFRS) as endorsed and published by the European Commission and translated into Croatian. PIEs include large entrepreneurs, listed companies, companies of specific national interest, banks and savings institutions, insurance and reinsurance companies, pension funds, leasing companies, and investment funds, among others. All other companies are classified as either “medium entrepreneurs” or “small entrepreneurs” and are required to prepare their standalone and consolidated financial statements in accordance with Croatian Financial Reporting Standards issued by the Financial Reporting Council (FRC) of the Ministry of Finance.

The Audit Act (amended in 2017), and the Accounting Act regulate auditing activities and establishes mandatory audit requirements for the following types of companies: (1) large; (2) medium-sized; (3) PIEs; (4) limited partnerships and limited liability companies that exceed certain thresholds in terms of their size and number of employees; and (5) statements of entrepreneurs included in mergers or divisions. Under the Audit Act, audits must be conducted in accordance with ISA as promulgated by the International Auditing and Assurance Standards Board. The responsibility for translating ISA lies with the Croatian Audit Chamber, under the oversight of the MoF.

In the Republic of Croatia, only certified auditors are regulated. The Audit Act (amended in 2017) regulates auditing activities in Croatia. It sets out the conditions of access to the profession, the main powers and responsibilities of the Ministry of Finance, the Croatian Audit Chamber (CAC), and general audit requirements.

Certified auditor candidates must meet the following requirements: (i) a university or post-graduate degree (a minimum of 300 ECTS credits); (ii) five years of practical experience, of which three years must be conducting statutory audits under the supervision of a certified auditor; and (iii) fulfillment of a mandatory initial professional development (IPD) program before passing audit examinations. All certified auditors are required to become members of CAC and obtain a license from the Ministry of Finance.

The amended Audit Act of 2017 resulted in a shift of certain regulatory responsibilities from the CAC to the Ministry of Finance (MoF). Effective January 1, 2018, the MoF became responsible for the following activities: (i) establishment of IPD requirements for certified auditors; (ii) establishment of continuous professional development (CPD) requirements for certified auditors; (iii) issuance of licenses for certified auditors and audit firms; (iv) maintenance of the register of certified auditors and audit firms; (v) conduct the aptitude test for foreign candidates; (vi) establishment and operation of a QA review system for certified auditors and audit firms; (vii) establishment and operation of an investigation and discipline system for certified auditors and audit firms; and (viii) oversight of CAC’s activities.

Under the MoF’s oversight, CAC has the authority to: (i) conduct mandatory IPD training with respect to the audit examinations as one of the IPD providers; (ii) conduct CPD courses for certified auditors along with other CPD providers; (iii) conduct the audit examinations; and (iv) translate auditing standards and ethical requirements for certified auditors.

The accounting profession in Croatia is not regulated, with a degree in accounting being the only requirement for providing bookkeeping and other accounting services. Although the Croatian Association of Accountants and Financial Experts unites accountants in the jurisdiction through voluntary membership of individual practitioners in its regional branches, it does not establish entry, educational, ethical, or other requirements for its members.

The Audit Act was amended in 2017 and the Ministry of Finance assumed the role for the oversight of the audit profession with responsibility for the following activities: (i) establishment of initial professional development requirements for certified auditors; (ii) establishment of continuous professional development requirements for certified auditors; (iii) issuance of licenses for certified auditors and audit firms; (iv) maintenance of the register of certified auditors and audit firms; (v) establishment of a QA review system for certified auditors and audit firms; (vi) conduct the aptitude test; (vii) establishment of an investigation and discipline system for certified auditors and audit firms; and (viii) oversight of Croatian Audit Chamber’s activities. The Ministry of Finance is a member of the International Forum of Independent Audit Regulators.

The Croatian Audit Chamber (CAC)

The CAC is a professional accountancy organization that unites all certified auditors in Croatia; membership in the PAO is mandatory. The Audit Act, as amended in 2017 regulates the CAC, which operates under the oversight of the Ministry of Finance. According to the Audit Act, CAC’s responsibilities include the following: (i) conduct IPD training with respect to the audit examinations; (ii) conduct continuing professional development courses for certified auditors; (iii) conduct audit examinations; and (iv) translate auditing standards and ethical requirements for certified auditors. In addition to being an IFAC Associate member, CAC is an associate member of Accountancy Europe.

Revisions to the Audit Act are expected to be adopted by the end of 2023 with an application beginning in January 2024. Revisions include changes to education requirements, such as changing university credits to 100 ECTS (from 300); stipulating four years of practical experience (from 5 years’ experience with 3 being in audit specifically); and changing the structure and content of the audit exam to 5 modules with a focus on problem solving questions and case analysis (demonstrating competencies) instead of 7 written papers. The Croatian Audit Chamber will also assume responsibility for the aptitude test for foreign practitioners that wish to practice audit in Croatia.

The Audit Act in Croatia sets provisions for the establishment and implementation of a mandatory quality assurance (QA) review system for all audits. The Act was amended in 2017 and effective January 1, 2018, the QA review system is under the purview of the Ministry of Finance (MoF). According to the Act, audit firms carrying out audits of public interest entities are subject to a three-year review cycle. All other audit firms carrying out statutory audits are subject to a six-year review cycle.

According to the Croatian Audit Chamber (CAC), in 2019, the MoF established an independent unit to carry out inspections using the Committee of European Audit Oversight Bodies (CEAOB) methodology accepted at the EU-level and the SMO 1 requirements. The MoF has issued annual reports on the results of its QA work.

In August 2022, CAC adopted ISQM 1 and 2 and ISA 220 (revised) in advance of the December 2022 effective date as issued by the IAASB.

Current Status: Adopted

Only auditors in Croatia are subject to professional education requirements.

Under the Audit Act (amended in 2017), the Ministry of Finance (MoF) is responsible for establishing initial professional development requirements (IPD) for certified auditors and for continuous professional development (CPD) requirements for certified auditors. The Croatian Audit Chamber (CAC), subject to MoF oversight, is empowered to provide IPD training courses for candidates preparing to take the audit examinations and conduct the audit examinations supervised by the MoF. The CAC also conducts CPD for auditors.

Certified auditor candidates must meet the following requirements: (i) a university or post-graduate degree (a minimum of 300 ECTS credits); (ii) five years of practical experience, of which three years must be conducting statutory audits under the supervision of a certified auditor; and (iii) fulfillment of a mandatory IPD program before passing audit examinations.

The IPD program and audit examination content are prescribed by an MoF Rulebook. CAC indicates that it continuously reviews & improves both components of the qualification process to assess candidates’ theoretical and practical knowledge and incorporate the latest versions of IES 2, 4, and 6. CAC also notes that it monitors candidates’ practical experience and verifies experience with employers prior to permitting candidates to sit for the exam consistent with IES 5.

Auditors are required to fulfill 120 hours of CPD over a 3-year period – aligned with IES 7. CAC also offers CPD for engagement partners in line with IES 8 and is promoting the formal adoption of IES 8 to the MoF’s CPD Rulebook. CAC is also preparing to conduct post-CPD assessments for members to assess competencies instead of just relying on the input-method.

In 2022 – 2023, CAC indicates that it is proposing amendments to the Audit Law that would change the auditor’s qualification process and enhance incorporation of the IES requirements (CAC’s SMO Action Plan & SMO 2 note contain details). CAC notes that it is collaborating with PAOs in Germany, Czech Republic, Slovenia, Slovakia, and has signed an MoU with the ACCA-UK to advance these changes. CAC also cooperates with the Faculty of Economics, University of Zagreb to support university alignment with the IES.

Current Status: Adopted

The Audit Act (amended in 2017) and the Accounting Act regulate auditing activities and establish mandatory audit requirements for the following types of companies: (1) large; (2) medium-sized; (3) PIEs; (4) limited partnerships and limited liability companies that exceed certain thresholds in terms of their size and number of employees; and (5) statements of entrepreneurs included in mergers or divisions. Under the Audit Act, audits must be conducted in accordance with ISA as promulgated by the IAASB and translated into Croatian. The responsibility of translating ISA lies with the Croatian Audit Chamber (CAC), under the oversight of the Ministry of Finance.

The CAC has established processes to translate, gazette, and adopt new and revised ISA on an ongoing basis. The CAC is translating all standards that are applicable for audits on or after December 15, 2023 for adoption (i.e., within the 2022 Handbook Of International Quality Management, Auditing, Review, Other Assurance, And Related Services Pronouncements).

Current Status: Adopted

Under the Audit Act, all auditors, the only regulated segment in the country, are required to abide by the IESBA Code of Ethics as translated by the Croatian Audit Chamber (CAC), under the oversight of the Ministry of Finance. In line with this mandate, the CAC has translated and adopted the 2022 International Code of Ethics for Professional Accountants (including International Independence Standards) and is translating the Technology-Related Revisions To The Code effective December 2024.

Current Status: Adopted

The Ministry of Finance is responsible for setting public sector accounting standards. According to the IFAC/CIPFA International Public Sector Financial Accountability Index (2020) and the CFRR / World Bank’s Stocktaking of Public Sector Accounting and Reporting Environment in PULSAR Beneficiary Countries: Croatia (2020), the current standards are national standards on an accrual-basis. No plans on the adoption of IPSAS had been indicated.

Current Status: Partially Adopted

The Audit Act in Croatia (amended in 2017) sets provisions for the establishment and implementation of a mandatory investigation and discipline (I&D) system for all certified auditors and audit firms. Previously, the Audit Act empowered the Croatian Audit Chamber (CAC) to implement the I&D system for the profession. The Act was amended in 2017 and effective January 1, 2018, the I&D system is under the purview of the Ministry of Finance. The CAC assessed the current I&D system of the MoF and reports that it aligns with a majority of SMO 6 requirements except that the composition of the various committees do not include professional accountants or non-accountants.

In accordance with the amended Audit Act, the CAC has established a Court of Honor to serve as a supplementary enforcement mechanism. The Court of Honor will conduct proceedings for settling disputes arising between a member and CAC concerning any violation of obligations towards the organization (e.g., financial obligations; violations of the CAC Statue and other acts) as well as disputes between members.

Current Status: Partially Adopted

As a member of the European Union (EU), the financial reporting requirements for commercial entities and financial institutions in Croatia are stipulated in EU Directives and Regulations, which are then transposed into Croatian national laws.

The Companies Act regulates business activities in Croatia and sets basic financial reporting requirements for companies. This Act is complemented by the Accounting Act (as amended in 2020) which establishes requirements for mandatory contents of bookkeeping documents and bookkeeping procedures. Under the Accounting Act, public interest entities (PIEs) are required to apply International Financial Reporting Standards (IFRS) as endorsed and published by the European Commission translated into Croatian. PIEs include large entrepreneurs, listed companies, companies of specific national interest, banks and savings institutions, insurance and reinsurance companies, pension funds, leasing companies, and investment funds, among others.

As per the IFRS Foundation, IFRS Standards as adopted by the European Union, which are IFRS Standards as issued by the IASB Board with some limited modifications such as the temporary 'carve-out' from IAS 39 Financial Instrument: Recognition and Measurement and a temporary extension of the scope of applying IFRS 9 Financial Instruments with IFRS 4 Insurance Contracts. The modifications affect a limited number of companies; most companies that do not apply the modifications can still state full compliance with IFRS Standards.

All other companies are classified as either “medium entrepreneurs” or “small entrepreneurs” and are required to prepare their standalone and consolidated financial statements in accordance with Croatian Financial Reporting Standards issued by the Financial Reporting Council (FRC) of the Ministry of Finance. IFRS for SMEs has not been adopted.

Current Status: Adopted

Relevant Organizations

• Croatian Audit Chamber (CAC)
• Croatia Ministry of Finance

Relevant Legislation

• Accounting Act
• Audit Act, 2017
• Audit Regulations
• Companies Act

Relevant Publications

• Accountancy Europe, “Structure and organization of the profession – key features – 2020 update: Croatia.”
• CAC, SMO Action Plan, 2022.
• CFRR / World Bank Stocktaking of Public Sector Accounting and Reporting Environment in PULSAR Beneficiary Countries: Croatia, 2020.
• IFAC/CIPFA International Public Sector Financial Accountability Index, 2020.
• IFIAR, “IFIAR: Member Profile”. 
• IFRS Foundation, IFRS Application Around the World, Jurisdictional Profile: Croatia, 2016.
• --, IFRS Application around the World – Jurisdictional Profile: European Union, April 2021
• KPMG Croatia website.
• World Bank, Croatia: Report on the Observance of Standards and Codes, Accounting and Auditing, 2007.