In accordance with the applicable legislation of Bosnia and Herzegovina, the obligation to prepare and audit consolidated financial statements is prescribed for parent legal entities that control subsidiary companies. This obligation is essential to ensure business transparency and compliance with International Accounting Standards (IAS/IFRS).

I Which entities are required to consolidate?

The obligation to consolidate applies to parent legal entities that exercise control over subsidiary companies. The law exempts micro and small legal entities, while medium and large legal entities, including financial institutions, are required to prepare consolidated financial statements in accordance with relevant laws and regulations.

For parent companies that are not classified as small, the obligation arises in the year in which they gain control over a subsidiary and continues until the control ceases. Consolidated statements must be submitted to regulators, such as the Financial-Information Agency (FIA) in the Federation of BiH and the Banking Agency in the Republic of Srpska, no later than the end of April of the current year for the previous year.

II Audit obligation

The audit of consolidated financial statements is mandatory for all entities classified by law as medium and large legal entities. The audit must be conducted by an authorized audit firm. The audit report must be submitted in accordance with the audit agreement, and no later than September 30 of the year in which the audit report is prepared.

III Offense liability

Failure to comply with the obligations of consolidation and audit may result in financial penalties. In the Federation of BiH, fines for legal entities range from BAM 10,000 to 50,000, while responsible persons within legal entities may be fined between BAM 1,000 and 3,000. In the Republic of Srpska, penalties range from BAM 3,000 to 15,000 for legal entities, and from BAM 300 to 1,500 for responsible individuals.

IV Regulatory oversight

The Banking Agency of the Federation of BiH, as well as other relevant regulatory bodies, oversee compliance with the legislation. These authorities have the right to initiate misdemeanor proceedings in case of non-compliance. In practice, a warning is usually issued before initiating such proceedings.

Given the legal provisions relating to the consolidation and audit of financial statements, it is clear that any non-compliance represents a significant legal risk. Failure to submit timely consolidated reports or to conduct an audit can result in substantial financial penalties and may severely damage the integrity and credibility of the legal entity subject to these legal obligations.

Although the practice of regulatory bodies is often preventive, the imposition of sanctions and the initiation of misdemeanor proceedings for breaches of regulations is inevitable. It is therefore in the best interest of all legal entities to strictly adhere to the applicable laws and regulations, thereby ensuring compliance with international standards and protecting their business reputation.