A 2003 World Bank review of the accounting and auditing environment in Lebanon noted that the ministerial order of 1996 required the adoption of International Financial Reporting Standards (IFRSs) (formerly known as International Accounting Standards, or IASs). Although listed companies are required to follow IFRSs, banks must follow rules set by the Banking Control Commission, which differ in some instances from IFRSs, according to the World Bank. Small companies are exempt from IFRSs requirements. The World Bank noted that despite the adoption of international standards, significant compliance gaps exist in both accounting and auditing practices, although fewer gaps were observed with banks and listed companies. Camille C. Sifri, in a 2004 PricewaterhouseCoopers presentation, reiterated that mandatory implementation as well as effective enforcement of IFRSs was limited to publicly listed companies and banks. Among other suggestions, the World Bank recommended adopting new laws regulating accounting and auditing, requiring the application of IFRSs by all public interest entities, reforming the role of the Higher Council on Accounting as the professional oversight body, and upgrading the licensing procedure for accountants in public practice.

General Overview

A World Bank review of the accounting and auditing environment in Lebanon led to the publication of a Report on the Observance of Standards and Codes (ROSC) in May 2003. International Financial Reporting Standards (IFRSs) (formerly known as International Accounting Standards, or IASs) and International Standards on Auditing (ISAs) were used as the benchmarks for assessing national standards. As pointed out in the ROSC, the Ministry of Finance (MoF) issued Order No. 1/6258 in 1996, announcing the adoption of IFRSs, although with exceptions. At the time of the assessment, a list of applicable IFRSs was being published annually in the Official Gazette. Additionally, the World Bank noted that the Ministerial Order authorized the use of the official English version when resolving differing interpretations of accounting standards. However, the World Bank noted that, despite the adoption of international standards, significant compliance gaps existed both in accounting and auditing practices, though fewer gaps were observed with banks and listed companies. The World Bank advised the Lebanese government to review the legislative base underlying accounting, auditing, corporate financial reporting, and the accounting profession in the country, to introduce mandatory requirement for public interest entities to follow IFRSs, to reform the role of the Higher Council on Accounting (HCA) as the professional oversight body, and to upgrade the licensing procedure for accountants in public practice.

The Lebanese legal framework for accounting and auditing practices, as described in the World Bank assessment of 2003, is primarily governed by the Code of Commerce of 1954, which covers joint stock companies, limited liability companies, and partnerships. The World Bank pointed out that although Lebanon adopted IFRSs (with exceptions), the use of IFRSs for regulated entities could conflict with a few of the provisions in the Code of Commerce. Furthermore, the assessment noted that general purpose accounting was largely driven by tax laws and decrees. As a result, treatment of certain elements deviated from the requirements of IFRSs. The World Bank explained that "although the Ministerial Order mandates the use of IAS, Law No. 27 (1980) still requires all commercial entities, except banks, to follow a unified chart of accounts" (p. 2), which is enforced by Lebanese tax authorities.

Under the Code of Money and Credit, banks are required to follow reporting rules specified by the Banking Control Commission (BCC), a banking supervisory authority. These requirements were "largely consistent with IAS, but with some significant deviations" (p. 3). In accordance with the Beirut Stock Exchange (BSE) directives, listed companies are required to prepare legal entity and consolidated financial statements in accordance with IFRSs. Listed companies are required to file annual and semi-annual financial statements, and the BSE also gets the annual financial statements of listed companies reviewed by external auditors, in order to monitor their compliance with IFRSs. The World Bank assessment noted that although the BSE has the power to suspend trading or to delist non-compliant companies, it "lacks the necessary authority to penalize or blacklist financial statements preparers and auditors" (p. 7). The insurance sector is regulated by the Insurance Control Commission (ICC). At the time of the World Bank assessment, annual financial statements for insurance companies were required to comply with IFRSs and the ICC was in the process of developing new laws with specific accounting requirements for insurers. The World Bank pointed out that there was no securities market regulatory authority in Lebanon.

The HCA performs the oversight function for the accounting and auditing professions. The World Bank assessment recommended redefining its role and functions to improve supervision of practicing auditors and enhance the quality of professional education and training. According to the assessment, the 1994 Act of Regularization of the Certified Public Accountants' Practice provides the regulatory framework for the accounting profession and empowers the Lebanese Association of Certified Public Accountants (LACPA) for the regulation of public accountants and auditors. According to the 2007 self-assessment, the LACPA adopted the International Federation of Accountants (IFAC) Code as issued, without modifications. The LACPA is listed as a member on the IFAC website.

The Principles

IFRS 1: First-time Adoption of International Financial Reporting Standards (effective 2006)

II

According to the 2003 World Bank assessment, the MoF issued Order No. 1/6258 in 1996 adopting IASs as national standards. However, since the publication of the assessment in 2003, the IASB has revised IASs and issued new IFRSs, and there is insufficient publicly available information regarding their consequent adoption in Lebanon.

IFRS 2: Share-based Payment (effective 2005)

II

See Principle 1.

IFRS 3: Business Combinations (effective 2004)

II

According to the 2003 World Bank assessment, the MoF issued Order No. 1/6258 in 1996 adopting IASs as national standards. The World Bank assessed compliance with existing requirements and noted that "in several banks, the amortization of goodwill appeared to be determined by the BCC rather than by the useful life of that goodwill" (p. 9). However, since the publication of the assessment in 2003, the IASB has revised IASs and issued new IFRSs, and there is insufficient publicly available information regarding their consequent adoption in Lebanon.

IFRS 4: Insurance Contracts (effective 2006)

II

According to the 2003 World Bank assessment, the MoF issued Order No. 1/6258 in 1996 adopting IASs as national standards. The World Bank assessed compliance with existing requirements and noted that "when the insurance sector is covered under IASs, the Insurance Control Commission plans to adopt this IFRS to serve as a basis for public, shareholder and supervisory purposes" (p. 4). However, since the 2003 assessment, the IASB has revised IASs and issued new IFRSs, and there is insufficient publicly available information regarding their adoption in Lebanon.

IFRS 5: Non-current Assets Held for Sale and Discontinued Operations (effective 2005)

II

See Principle 1.

IFRS 6: Exploration for and Evaluation of Mineral Resources (effective 2006)

II

See Principle 1.

IFRS 7: Financial Instruments: Disclosures (effective 2007)

II

See Principle 1.

IAS 1: Presentation of Financial Statements (effective 2007)

II

According to the 2003 World Bank assessment, the MoF issued Order No. 1/6258 in 1996 adopting IASs as national standards. The World Bank assessed compliance with existing requirements and noted that "contrary to the applicable standard, the financial statements of many companies do not include the statement of changes in equity" (p. 10). However, since the 2003 assessment, the IASB has revised IASs and issued new IFRSs, and there is insufficient publicly available information regarding their adoption in Lebanon.

IAS 2: Inventories (effective 2005)

II

According to the 2003 World Bank assessment, the MoF issued Order No. 1/6258 in 1996 adopting IASs as national standards. The World Bank assessed compliance with existing requirements and noted that "few companies follow all the requirements related to measuring and disclosing inventory between the lower of cost or market value" (p. 10). However, since the 2003 assessment, the IASB has revised IASs and issued new IFRSs, and there is insufficient publicly available information regarding their adoption in Lebanon.

IAS 7: Cash Flow Statements (effective 1994)

II

According to the 2003 World Bank assessment, the MoF issued Order No. 1/6258 in 1996 adopting IASs as national standards. The World Bank assessed compliance with existing requirements and noted that " the sampled banks use differing definitions of cash and cash equivalents, which make comparison among banks difficult" (p. 9). However, since the 2003 assessment, the IASB has revised IASs and issued new IFRSs, and there is insufficient publicly available information regarding their adoption in Lebanon.

IAS 8: Accounting Policies, Changes in Accounting Estimates and Errors (effective 2005)

II

See Principle 1.

IAS 10: Events after the Reporting Period (effective 2005)

II

See Principle 1.

IAS 11: Construction Contracts (effective 1995)

II

See Principle 1.

IAS 12: Income Taxes (effective 2001)

II

According to the 2003 World Bank assessment, the MoF issued Order No. 1/6258 in 1996 adopting IASs as national standards. The World Bank assessed compliance with existing requirements and noted that " none of the sampled companies provided for deferred taxes on temporary differences" (p. 9). However, since the 2003 assessment, the IASB has revised IASs and issued new IFRSs, and there is insufficient publicly available information regarding their adoption in Lebanon.

IAS 14: Segment Reporting (effective 1998)

II

See Principle 1.

IAS 16: Property, Plant and Equipment (effective 2005)

II

According to the 2003 World Bank assessment, the MoF issued Order No. 1/6258 in 1996 adopting IASs as national standards. The World Bank assessed compliance with existing requirements and noted that "all sampled companies appeared to use tax rules to determine accounting depreciation, which may not comply with IAS 16, Property, Plant, and Equipment" (p. 9). However, since the 2003 assessment, the IASB has revised IASs and issued new IFRSs, and there is insufficient publicly available information regarding their adoption in Lebanon.

IAS 17: Leases (effective 2005)

II

See Principle 1.

IAS 18: Revenue (effective 1995)

II

According to the 2003 World Bank assessment, the MoF issued Order No. 1/6258 in 1996 adopting IASs as national standards. The World Bank assessed compliance with existing requirements and noted that "in certain cases, when dealing with government contracts, revenues are reported only when received rather than when earned, as required under accrual accounting" (p. 10). However, since the 2003 assessment, the IASB has revised IASs and issued new IFRSs, and there is insufficient publicly available information regarding their adoption in Lebanon.

IAS 19: Employee Benefits (effective 2006)

II

According to the 2003 World Bank assessment, the Ministry of Finance issued Order No. 1/6258 in 1996 adopting IASs as national standards. The World Bank assessed compliance with existing requirements and noted that "while sampled companies recognized the existing difference based on current salaries, the amounts recognized may not comply with IAS 19, Employment Benefits, because they are not based on an actuarial computation" (p. 9). However, since the 2003 assessment, the IASB has revised IASs and issued new IFRSs, and there is insufficient publicly available information regarding their adoption in Lebanon.

IAS 20: Accounting for Government Grants and Disclosure of Government Assistance (effective 1984)

II

See Principle 1.

IAS 21: The Effects of Changes in Foreign Exchange Rates (effective 2005)

II

See Principle 1.

IAS 23: Borrowing Costs (effective 1995)

II

See Principle 1.

IAS 24: Related Party Disclosures (effective 2005)

II

According to the 2003 World Bank assessment, the MoF issued Order No. 1/6258 in 1996 adopting IASs as national standards. The World Bank assessed compliance with existing requirements and noted that " a reader of financial statements may not be able to form a view about the effects of related party relationships on a reporting enterprise" (p. 9). However, since the 2003 assessment, the IASB has revised IASs and issued new IFRSs, and there is insufficient publicly available information regarding their adoption in Lebanon.

IAS 26: Accounting and Reporting by Retirement Benefit Plans (effective 1998)

II

See Principle 1.

IAS 27: Consolidated and Separate Financial Statements (effective 2005)

II

According to the 2003 World Bank assessment, the MoF issued Order No. 1/6258 in 1996 adopting IASs as national standards. The World Bank assessed compliance with existing requirements and noted that the BSE requires all listed companies to prepare legal entity and consolidated financial statements under IASs. Further, the Banking Law requires all banks to follow accounting and auditing requirements set by the BCC. However, the assessment pointed out that "these requirements are largely consistent with IASs, but with some significant deviations" (p. 3). However, since the 2003 assessment, the IASB has revised IASs and issued new IFRSs, and there is insufficient publicly available information regarding their adoption in Lebanon.

IAS 28: Investments in Associates (effective 2005)

II

See Principle 1.

IAS 29: Financial Reporting in Hyperinflationary Economies (effective 1990)

II

See Principle 1.

IAS 31: Interests in Joint Ventures (effective 2005)

II

See Principle 1.

IAS 32: Financial Instruments: Disclosure and Presentation (effective 2005)

II

See Principle 1.

IAS 33: Earnings per Share (effective 2005)

II

See Principle 1.

IAS 34: Interim Financial Reporting (effective 1999)

II

According to the 2003 World Bank assessment, the MoF issued Order No. 1/6258 in 1996 adopting IASs as national standards. The World Bank assessed compliance with existing requirements and noted that the BSE requires all listed companies file annual and semi-annual financial statements. However, there is insufficient information available regarding Lebanon's compliance with this principle. However, since the 2003 assessment, the IASB has revised IASs and issued new IFRSs, and there is insufficient publicly available information regarding their adoption in Lebanon.

IAS 36: Impairment of Assets (effective 2004)

II

See Principle 1.

IAS 37: Provisions, Contingent Liabilities and Contingent Assets (effective 1999)

II

See Principle 1.

IAS 38: Intangible Assets (effective 2004)

II

See Principle 1.

IAS 39: Financial Instruments: Recognition and Measurement (effective 2006)

II

According to the 2003 World Bank assessment, the moF issued Order No. 1/6258 in 1996 adopting IASs as national standards. The World Bank assessed compliance with existing requirements and noted that "interest revenue recognition on bad loans differs from IAS 39 requirements" (p.9). However, since the 2003 assessment, the IASB has revised IASs and issued new IFRSs, and there is insufficient publicly available information regarding their adoption in Lebanon.

IAS 40: Investment Property (effective 2005)

II

See Principle 1.

IAS 41: Agriculture (effective 2003)

II

See Principle 1.