Montenegro

The accounting, auditing, and financial reporting framework in Montenegro is defined by the Law on Business Organization of 2002, the Law on Accounting No. 052 of 2016, and the Law on Auditing No. 001 of 2017.

The Law on Business Organizations outlines the formation, operation, and dissolution of all legal entities in Montenegro. For joint stock companies, it establishes financial reporting requirements, including preparing and submitting audited financial statements to shareholders.

Key pieces of secondary legislation aimed at enabling implementation of the requirements in the aforementioned laws include the (i) Decree on Entrusting of Affairs of Public Administration Bodies Competent for Accounting and Auditing No. 33/10 of 2010 (Decree No. 33/10); (ii) Rulebook on Form and Content of Forms of Financial Statement of Companies and Other Legal Entities of 2011; and (iii) Rulebook on Form and Content of Forms of Financial Statement of Investment Funds of 2012.

In addition to the requirements of the above laws and regulations, banks, insurance companies, and listed entities must comply with financial reporting requirements specified in the Law on Banks of 2008, Law on Insurance Companies of 2006, and Law on Securities of 2000, respectively.

Accounting Framework

Article 5 of the Law on Accounting No. 052 of 2016 introduces the following categories of entities for financial reporting purposes based on their size:

• Micro entities: an average number of employees that does not exceed 10; total annual revenue that does not exceed EUR 700,000; and total assets that do not exceed EUR 350,000;
• Small entities: an average number of employees higher than 10, but less than 50; total annual revenue in excess of EUR 700,000.00 and less than EUR 8,000,000; and total assets increased by EUR 350,000.00 and less than EUR 4,000,000;
• Medium entities: an average number of employees greater than 50, but less than 250; total annual revenue in excess of EUR 8,000,000, and less than EUR 40,000,000; and total assets increased from EUR 4,000,000, and less than EUR 20,000,000; and
• Large entities: an average number of employees greater than 250; total annual revenue is in excess of EUR 40,000,000; and total assets above EUR 20,000,000.

The Law also defines public interest entities (PIEs) as (i) issuers of securities and other financial instruments traded on a regulated market; (ii) banks and other financial institutions; (iii) insurance companies; and (iv) large entities.

The Law on Accounting No. 052 of 2016 stipulates that all companies are required to prepare financial statements in accordance with IAS/IFRS as adopted and promulgated by the Ministry of Finance or a Competent Authority. The competent authority must be a member of IFAC and obtain related rights. The Decree No. 33/10 acknowledges the Institute of Certified Accountants of Montenegro (ICAM) as the competent authority for accounting and auditing activities referred to in the Law on Auditing No. 001 of 2017 and the Law on Accounting No. 052 of 2016.

Auditing Framework

The Law on Auditing No. 001 of 2017 regulates the conditions and manner of performing audits of financial statements. Under the Law, audits are mandatory for PIEs and medium-sized entities. The Law requires audits to be conducted in accordance with ISA as issued by the IAASB and adopted and promulgated by the Ministry of Finance or a competent authority entrusted by the Ministry.

Certified Accountants and Certified Auditors are the only categories of accountancy professionals regulated by Law in Montenegro. They are regulated at the state level by the Ministry of Finance and the HYPERLINK "http://www.szr.gov.me/direktor" Council for Audit. Additionally, some of the regulatory functions were delegated from the Ministry of Finance to the Institute of Certified Accountants of Montenegro (ICAM) through the Decree No. 33/10.

Certified Accountants

The Law on Accounting No. 052 of 2016 establishes initial professional development (IPD) requirements for Certified Accountants and authorizes the Ministry of Finance to oversee the certification of Certified Accountants, a responsibility that has been delegated to ICAM in accordance with the same Law and the Decree No. 33/10.

A candidate can apply for the professional title Certified Accountant if they (i) acquired a university degree; (ii) completed three years of practical experience; (iii) passed the examinations for acquiring the title Certified Accountant administered by ICAM; and (iv) provided proof that they have not been convicted of a crime that makes them unworthy to perform accounting tasks.

The Law on Accounting also provides that individuals with foreign qualifications are eligible to acquire the Certified Accountant qualification if their qualification is obtained from a member of IFAC and provided the certification and training process is equivalent to those of ICAM.

ICAM is entrusted with the responsibility to (i) translate and publish international accounting and auditing standards as well the IESBA Code of Ethics for Professional Accountants; (ii) organize and conduct the certification program for certified accountants; (iii) maintain a registry of certified accountants; and (iv) impose sanctions against individuals that violate any provisions of the Law.

Certified Auditors

Certified Auditors are regulated under the Law on Auditing No. 001 of 2017, which outlines the procedures for licensing, registration, and initial and continuing professional development of Certified Auditors; establishes auditing standards; requires maintaining an audit registry; establishes the Council for Audit as an oversight body; and authorizes the Ministry of Finance to regulate the audit activity.

Prospective Certified Auditors are required to satisfy the following criteria (i) acquire the title of Certified Accountant from ICAM; (ii) complete practical experience in auditing for a minimum of three years, of which at least two years are under the supervision of another Certified Auditor; and (iii) provide proof that they do not have criminal record.

The Ministry of Finance is responsible for (i) issuing/revoking auditor licenses; (ii) managing the registry of Certified Auditors; (iii) validating licenses for candidates from the European Union (EU); (iv) ensuring implementation of IPD and CPD requirements for Certified Auditors; (v) conducting quality assurance reviews; and (vi) maintaining an investigation and disciplinary (I&D) system.

Article 11 of the Law on Auditing No. 001 of 2017 stipulates that an auditor license can also be obtained by recognition of titles granted by EU Member States. The procedures require verification of compliance with the abovementioned initial professional development requirements.

The Law on Auditing No. 001 of 2017 mandates the establishment of a Council for Audit to (i) monitor the implementation of auditing standards; (ii) provide advice to policy-makers, regulators and government entities; (iii) provide technical assistance to improve the quality of financial reporting; (iv) publish reports on the transparency of auditing firms and/or Certified Auditors; (v) provide opinions on various issues such as CPD and training; and (vi) improve audit practices in Montenegro.

Other segments of accountants can also choose to become members of a professional accountancy organization (PAO), in which case they become subject to the PAO’s regulations. In addition to ICAM, the Institute of Accountants and Auditors of Montenegro (IAAM) unites accountancy professionals on a voluntary basis and offers a two-tiered certification scheme which recognizes progress and achievement at two different levels: Accounting Technician and Authorized Accountant. These individuals can provide accounting services to businesses, primarily SMEs. IAAM states that it also establishes CPD requirements for its members, requires its members to adhere to ethical requirements, and has established an investigation & disciplinary system for members.

The Law on Auditing No. 001 of 2017 established the system of public oversight of auditing activity in Montenegro. It provided for the establishment of the Council for Audit, which became operational 2018, with the responsibility for (i) monitoring the implementation of auditing standards; (ii) providing advice to policy-makers, regulators and government entities; (iii) providing technical assistance to improve the quality of financial reporting; (iv) publishing reports on the transparency of auditing firms or Certified Auditors; (v) providing opinions on various issues such as CPD and training; and (vi) improving audit practices in Montenegro. It is not a member of IFIAR.

The Institute of Accountants and Auditors of Montenegro (IAAM)

IAAM was established under the Law on Accounting and Auditing of 2002. It unites accountancy professionals on a voluntary basis and offers a two-tiered certification scheme which recognizes progress and achievement at two different levels: Accounting Technician and Authorized Accountant. IAAM states that it promotes the profession in Montenegro, trains and educates accounting professionals and also establishes CPD requirements for its members, requires its members to adhere to ethical requirements, and has established an investigation & disciplinary system for members.

The Institute of Certified Accountants of Montenegro (ICAM)

ICAM was established in 2006 as a professional association of accountants and auditors. ICAM’s membership is mandatory for Certified Auditors and for Certified Accountants and voluntary for Authorized Accountants and Bookkeepers.

It is acknowledged by the Decree on Entrusting of Affairs of Public Administration Bodies Competent for Accounting and Auditing No. 33/10 of 2010 (Decree No. 33/10) as the competent authority for accounting and auditing activities referred to in the new Law on Accounting No. 052 of 2016 and the new Law on Auditing No. 001 of 2017. ICAM is entrusted with the responsibility to (i) translate and publish international accounting and auditing standards as well the IESBA Code of Ethics for Professional Accountants; (ii) organize and conduct the certification program for Certified Accountants; and (iii) maintain a registry of Certified Accountants. In addition to being a member of IFAC, ICAM is a member of Accountancy Europe.

The Law on Auditing No. 001 of 2017 introduced the requirement to establish a mandatory quality assurance (QA) review system for all audits to be implemented by the Ministry of Finance under the oversight of the Council on Audit. The Audit Council has carried out QA reviews since 2018.

With the assistance of the World Bank under the Capacity Building for Effective Audit Oversight Project IDF Grant No. TF 013555, the Audit Council developed a manual and guidelines for the minimum required audit methodology and working papers, as well as the methodology and manuals for inspectors who have oversight roles. It also developed a questionnaire to collect information about certified auditors and audit firms, internal organization of audit firms, their relationship with other auditors, and information about audit engagements and risk analysis that was used as a starting point for planning the oversight of audit work.

However, the extent of alignment of the QA review system with the requirements of SMO 1 remains to be established.

Current Status: Partially Adopted

Initial and continuing professional development (IPD and CPD, respectively) requirements for bookkeepers, Authorized Accountant, Certified Accountants, and Certified Auditors are established in the Montenegrin National Accounting Educational Standard (CORS-1), the Law on Accounting No. 052 of 2016 and the Law on Auditing No. 001 of 2017, and are implemented by the Ministry of Finance, the Institute of Certified Accountants of Montenegro (ICAM), and the Institute of Accountants and Auditors of Montenegro (IAAM). Provision of IPD and CPD for auditors is overseen by the Council on Audit.

Tertiary education is provided by universities, and, according to the World Bank 2017 Accountancy Education: Benchmarking Study, master’s and undergraduate programs compare well against the revised 2015 IES requirements.

The Law on Accounting No. 052 of 2016 and CORS-1 establish IPD requirements for Certified Accountants and authorize the Ministry of Finance to oversee the certification process implemented by ICAM.

A candidate may apply for the professional title Certified Accountant if they (i) acquired a university degree; (ii) completed three years of practical experience; (iii) passed examinations; and (iv) provided proof that they have not been convicted of a crime. Certified Accountants must be members of ICAM.

Prospective Certified Auditors are required to (i) acquire the title of a Certified Accountant; (ii) complete practical experience in the area of auditing for a minimum of three years, of which at least two years are under the supervision of another certified auditor; and (iii) provide proof that they do not have criminal record. To be able to provide auditing services, prospective auditors must obtain a license from the Ministry of Finance.

ICAM developed its professional education and training program in line with the Montenegrin National Accounting Educational Standard (CORS-1), which is based on 2009 IES requirements. CORS-1 was published in the Official Gazette of Montenegro in August 2014 and must be applied by accountancy education providers.

The Centre for Financial Reporting Reform (CFRR) of the World Bank provided support to the Government of Montenegro as well as ICAM (see 2017 Accountancy Education: Benchmarking Study) to enhance educational requirements. The World Bank determined that although ICAM’s program incorporates most of the IES requirements related to IPD, a structured review and update to the education program and the teaching resources of ICAM is needed. Specifically, greater alignment in areas such as governance, risk and ethics, and advanced financial and performance management would be beneficial. Practical experience requirements, as well as the enforcement of the requirements, also need to be further aligned with those of IES. ICAM’s CPD requirements follow both an input and competency-based approach in line with the IES 7 requirements.

The Institute of Accountants and Auditors of Montenegro (IAAM), the second IFAC member organization in the jurisdiction, maintains a two-tiered certification scheme that offers voluntary qualifications of accounting technician and authorized accountant.

In 2023, IAAM completed a self-assessment of the IPD and CPD requirements of its two certifications against the latest IES requirements. According to the self-assessment, IAAM’s requirements do incorporate some of the IES requirements to the extent permitted by CORS-1. There are some areas for improvement within IES 2, 3, 4, and 5 regarding prescribed competencies, learning outcomes, and vertification / demonstration of competencies.

A new CPD Rulebook is effective January 2022 which IAAM indicates addresses IES 7.

Current Status: Partially Adopted

The Law on Auditing No. 001 of 2017 requires all mandatory audits to be conducted in accordance with ISA as issued by the IAASB and adopted and published by the Ministry of Finance or a competent authority entrusted by the Ministry — which in this case is the Institute of Certified Accountants of Montenegro. Under the Law, audits are mandatory for public interest and medium-sized entities.

ICAM has a formal agreement with the Serbian Association of Accountants and Auditors to access the Serbian translation of the standards for application in the jurisdiction. As of the date of the assessment, the Serbian translation of 2016–2017 ISA is available.

Current Status: Partially Adopted

The Law on Accounting No. 052 of 2016 and the Law on Auditing No. 001 of 2017 require Certified Accountants and Certified Auditors, the two legally protected designations, to adhere to the Code of Ethics as issued by IESBA and adopted and published by the designated competent authority — the Ministry of Finance delegated this to the Institute of Certified Accountants of Montenegro (ICAM).

ICAM has a formal agreement with the Serbian Association of Accountants and Auditors (SAAA) and the Association of Accountants and Auditors of Republic Srpska (AAARS) to access a common translation of the IESBA Code. SAAA has translated the 2018 version of the Code, which ICAM states is the current baseline.

Other segments of accountants can also choose to become members of a professional accountancy organization (PAO), in which case they become subject to the PAO’s regulations. While the Law does not prescribe mandatory use of the IESBA Code of Ethics for all accountants, the Institute of Accountants and Auditors of Montenegro (IAAM) reports that its members are required to follow the IESBA Code of Ethics applicable to Certified Accountants and Auditors.

Current Status: Partially Adopted

The Law on State Property of 2009 and the Law on Financing of Local Self-Government of 2010 prescribe accounting standards for the public sector in Montenegro, with the Ministry of Finance responsible for their adoption.

The Rulebook on the Method of Making and Submitting of Financial Statements of the Budget, State Funds and Units of Local Self-Government of 2010 prescribes the application of national accounting standards that use a modified cash-basis of accounting.

In November 2019, the Government of Montenegro adopted the Law on Accounting in Public Sector. The Law, which will came into effect in 2022, introduces accrual accounting with national standards that reference IPSAS (2020 IFAC/CIPFA Public Sector Financial Accountability Index; World Bank/CFRR’s 2020 Stocktaking of Public Sector Accounting and Reporting Environment in PULSAR Beneficiary Countries: Montenegro). The transition to accrual-basis standards will begin in 2024.

Current Status: Partially Adopted

The Law on Auditing No. 001 of 2017 establishes investigation and disciplinary provisions for Certified Accountants and Certified Auditors, the two protected designations in the jurisdiction.

Under the Law, the Ministry of Finance establishes and operates an I&D system for auditors under the oversight of the Council on Audit. The Law outlines requirements for conduct as well as applicable sanctions for any misconduct.

ICAM reports that it operates its own system for its members (Certified Accountants and Certified Auditors must be members of ICAM) that is in line with SMO 6 requirements.

The Institute of Accountants and Auditors of Montenegro (IAAM), which unites other accountants on a voluntary basis, reports that the mechanisms it established for the I&D of its members are partially in line with SMO 6 requirements.

Current Status: Partially Adopted

The Law on Accounting No. 052 of 2016 requires that all legal entities prepare financial statements in accordance with IAS/IFRS as issued by the IASB and adopted and published by the designated competent authority — in this case, the Ministry of Finance delegated this to the Institute of Certified Accountants of Montenegro.

Per the IFRS Foundation, there is a time delay between the IASB issuing a new or amended IFRS Accounting Standard and obligatory adoption in Montenegro, due to translation, harmonization with tax laws and other processes in the local jurisdiction. The latest translation of IFRS Accounting Standards officially applied in Montenegro is IFRS Accounting Standards as issued in 2020; however, application of some standards is delayed. IFRS 9 and 15 will be effective in 2024 and IFRS 14, 16, and 22 were effective as of 2021.

Current Status: Partially Adopted

Relevant Organizations

Institute of Accountants and Auditors of Montenegro (IAAM)

Institute of Certified Accountants of Montenegro (ICAM)

Central Bank of Montenegro

Insurance Supervision Agency of Montenegro

Ministry of Finance

Montenegro State Audit Institution

Relevant Legislation

Decree on Entrusting of Affairs of Public Administration Bodies Competent for Accounting and Auditing No. 33/10, 2010

Directive 2014/56/EU 

Law on Accounting, 2016

Law on Accounting and Auditing, 2005

Law on Business Organizations, 2002

Regulation (EU) No 537/2014

Relevant Publications

Accountancy Europe, Definition of Public Interest Entities in Europe, November 2017.

Accountancy Europe, Member States’ Implementation of New EU Audit Rules, January 2017.

Accountancy Europe, Organisation and structure of the profession – key features – 2020 update: Montenegro, 2020.

Centre for Financial Reporting Reform, Accountancy Education: A Collection of Good Practices—Albania, Bosnia and Herzegovina, Kosovo, Macedonia FYR, Montenegro, and Serbia, 2017.

Centre for Financial Reporting Reform, Accountancy Education Benchmarking Study—Albania, Bosnia and Herzegovina, Kosovo, Macedonia FYR, Montenegro and Serbia, 2016.

Deloitte & Touche, IPSAS in Your Pocket, 2019.

European Commission, Montenegro 2019 Report, May 2019.

IAAM, SMO Action Plan, 2023.

ICAM, SMO Action Plan, 2021.

IFAC & OECD, Accrual Practices and Reform Experiences in OECD Countries, February 2017.

IFAC/CIPFA, Public Sector Financial Accountability Index, 2020

IFRS Foundation, IFRS Application Around the World—Jurisdiction Profile: Montenegro, March 2017

International Monetary Fund, Montenegro: Financial Sector Assessment Program—Financial Crisis Preparedness and Management, June 2016.

World Bank, Doing Business 2020 - Economic Profile Montenegro

World Bank, Report on the Observance of Standards and Codes (ROSC)—Montenegro, May 2007.

World Bank, Road to Europe: Program of Accounting Reform and Institutional Strengthening, 2013.

World Bank, Southeast Europe Regular Economic Report, 2016.

World Bank/CFRR, Stocktaking of Public Sector Accounting and Reporting Environment in PULSAR Beneficiary Countries: Montenegro, 2020.

World Bank/CFRR, Book on Public Sector Accounting Reforms Implementation Status in PULSAR Countries, 2022.

Moneyval - Council of Europe, Mutual evaluation of Montenegro – revised follow-up report, 2020