The question of which enterprises in Bulgaria are obliged to keep accounts is essential for small, medium and large businesses, as well as for non-profit organizations. Every company operating on the Bulgarian market should be aware of the accounting requirements according to the national accounting standards and legislation in the country. This topic covers not only the obligation to keep accounting books and registers, but also compliance with the regulations related to the accountability, transparency and reliability of financial statements.
Clients are often interested in what are the specific requirements for accounting for different types of business entities in Bulgaria. The questions that arise include: “Which enterprises fall under the accounting obligation in the country?”, “What types of documents and reports are mandatory according to the regulatory standards?”, “How are the requirements of international accounting standards applied in Bulgaria?”, and “What is provided for small and medium-sized enterprises in this area?”
The consulting company “Elan Consulting” provides assistance in the entire process of accounting and financial reporting of enterprises in accordance with Bulgarian legislation, offering professional services for companies in Sofia, Burgas, Pomorie, Karnobat, Sunny Beach, Aytos, Nessebar, Sozopol, Primorsko and the whole country. In this article, we will consider which enterprises are obliged to keep accounting, what are the peculiarities of reporting requirements and what are the legal consequences of non-compliance with these obligations.
The term “enterprise” within the meaning of Bulgarian legislation has a certain meaning, covering various legal entities that carry out business or non-profit activities and are subject to accounting. According to Art. 2 of the Accounting Act, “enterprises” are not only traders within the meaning of the Commercial Law, but also a number of other legal and organizational forms that carry out economic activity or manage financial resources.
In particular, the following shall be considered as' undertakings':
In other words, the concept of “enterprise” under Bulgarian accounting legislation covers a wide range of legal and organizational forms engaged in economic or financial activities, including both business and non-profit entities, which should keep accounts in accordance with legal requirements.
The terms “unilateral” and “bilateral” accounting entry refer to different methods of accounting for the business operations of an enterprise.
Unilateral accounting is a method in which each business operation is recorded only once, without the corresponding link between debit and credit. This method is simpler and is usually used by small enterprises or sole traders that do not exceed a certain volume of activity. According to Art. 3, para. 4 of the Accounting Act, “sole traders with net sales revenue for the previous reporting period in an amount not exceeding BGN 50,000 may report their activities by means of unilateral accounting entry”. This allows these entities to keep a simplified form of accounting, basically by recording income and expenses, without creating a complex balance of assets and liabilities.
Bilateral accounting, on the other hand, is a method in which each business operation is recorded twice, once in the debit side of one account and once in the credit side of another account, which guarantees a balance between debit and credit. This requirement is imposed on enterprises that are subject to mandatory accounting according to internationally recognized principles, since it provides greater precision and completeness of reporting. According to Art. 3, para. 1 of the Accounting Act, “current accounting is organized in accordance with the procedure of this Law and is carried out by means of bilateral accounting entry”. Bilateral recording is applied by enterprises that must prepare annual financial statements, thus ensuring a detailed and accurate presentation of the financial position of the enterprise.
The application of the method depends on the scale and legal status of the enterprise.
In Bulgaria, enterprises that keep accounting by the method of unilateral or bilateral registration are determined on the basis of their legal status, scale of activity and legal requirements.
Enterprises that keep accounting using the method of unilateral accounting entry:
According to Art. 3, para. 4 of the Accounting Act, sole traders with net sales revenues for the previous reporting period, which do not exceed BGN 50,000, are entitled to keep accounting by unilateral recording. This method is suitable for smaller enterprises with limited activity, as it provides a simplified system for accounting for income and expenses, without a detailed distribution by accounts and without a requirement for a balance sheet. In this method, mainly income and expenses are recorded, which is sufficient for small businesses with low turnover, which are not subject to mandatory annual closure and publication of annual financial statements.
Enterprises that keep accounting using the method of bilateral accounting entry:
All other enterprises that do not fall into the category of small sole traders are obliged to keep accounting using the method of bilateral recording. This includes traders within the meaning of the Commercial Law, non-profit legal entities, local legal entities that are not traders, budget enterprises and foreign legal entities with a place of business in Bulgaria. According to Art. 3, para. 1 of the Accounting Act, all enterprises that do not fall into the category of small sole traders with revenues of less than BGN 50,000 are obliged to apply the method of bilateral accounting entry. This approach is necessary for enterprises that are subject to mandatory annual accounting closure and presentation of financial statements. Bilateral recording provides reporting that not only meets national accounting standards, but also allows companies to meet the requirements of transparency and accuracy of financial information, as well as to meet the interests of investors, shareholders and regulators. Thus, an objective and true presentation of the financial results and position of the enterprise is achieved, ensuring a high degree of trust and protection of the interests of all interested parties.
Enterprises that are obliged to keep accounting by the method of bilateral recording include:
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The classification of enterprises according to their size in Bulgarian legislation is based on criteria related to financial indicators and the number of employees. This classification was introduced in order to define different reporting and reporting obligations that adapt to the capabilities and needs of enterprises of different scale. According to the Law on Accounting, enterprises are divided into micro, small, medium and large enterprises on the basis of three main indicators: total value of assets, net sales revenue and average number of personnel during the reporting period.
This classification provides flexibility in reporting requirements and allows smaller enterprises to benefit from relaxed accounting rules, while ensuring transparency and accuracy in reporting for larger and publicly significant enterprises.
The types of reports that the various enterprises in Bulgaria are obliged to submit are determined by their legal status, scope of activity and the specifics of their economic or financial role. According to the Law on Accounting, all enterprises are obliged to submit an annual financial report, which includes data on their activities, property and financial condition and results for the reporting period. These reports shall ensure transparency and reliability of the information provided to stakeholders such as government authorities, investors and creditors.
According to Art. 29, para. 1 of the Accounting Act, the annual financial statement of all enterprises must include the following components: balance sheet, income statement, statement of equity, statement of cash flows and an annex containing additional explanatory notes and other information. In addition, enterprises with turnover above certain thresholds or in the public interest must also prepare reports on their activities, as provided for in Art. 40 of the law. These reports provide a description of the financial results, current situation and risks associated with the activities of the entity.
Larger enterprises, defined as those that exceed certain thresholds for assets, revenues and number of employees (Art. 19 para. 2 of the Accounting Act), are required to be audited by a registered auditor and must accordingly include an audit report as part of their financial statements. These audit requirements apply to large and medium-sized enterprises, as well as to certain small enterprises that are publicly significant entities, such as financial institutions and insurers. The auditor's report certifies the accuracy and veracity of the financial information presented.
Non-profit legal entities, including associations and foundations that carry out activities in the public interest, are also obliged to prepare an annual financial report and a report on the activity, and subject to certain conditions they are subject to audit (Art. 38, para. 1 of the Accounting Act). These organizations are obliged to publish their reports and thus ensure the publicity and transparency of their financial information.
Budgetary enterprises, including state and municipal institutions, must also submit annual financial statements, these statements being in accordance with specific budget accounting standards and requirements. In addition, budget enterprises must include a report on the implementation of their budget and other reports required by the Ministry of Finance to provide complete information on the management of public resources and expenses (Art. 37, para. 1 of the Accounting Act).
Microenterprises that qualify for exemption from preparing full financial statements (Art. 19 para. 2 of the Accounting Act) may submit a simplified financial statement, which includes a condensed balance sheet and a condensed statement of income and expenses. This simplification aims to reduce the administrative burden for small businesses while preserving basic accounting information about their activities.
Thus, according to the Accounting Act, the type and scope of the accounts depend on the size and legal status of the enterprise, and larger and significant for society organizations are obliged to submit more detailed and audited reports to ensure maximum transparency and accuracy in reporting.
The term “mandatory independent financial audit”refers to an audit of the financial statements of an enterprise carried out by a qualified external person or organisation in order to ascertain whether the accounts have been prepared correctly and in accordance with accounting standards and legal requirements. According to Art. 37 of the Accounting Act, this audit is mandatory for certain enterprises depending on their size, scope and public importance. An independent financial audit is performed by a Certified Еxpert Accountant (CEA or "ДЕС" in Bulgarian) or a licensed audit firm, which ensures that the auditor has no personal interest in the statements and can provide an objective opinion on the financial condition and accountability of the entity.
Certified Еxpert Accountant (CEA or "ДЕС" in Bulgarian) is a person who has received specialized qualifications and a license to conduct an independent financial audit. To obtain the title of ESS, the applicant must pass training and exams that cover the areas of accounting, finance, law and auditing. This professional has the right to verify and certify the financial statements of enterprises and provide independent conclusions about their reliability. The CEA plays a key role in ensuring a high level of accountability and confidence in the financial information presented, especially for entities subject to mandatory independent audits.
A consolidated report is a financial statement that brings together the financial information of a group of enterprises (usually parent and subsidiaries), presenting them as a single entity. This statement includes the balance sheet, income statement and other financial documents that show the total assets, liabilities, income and expenses of the group. According to the Accounting Act, the consolidated statement is mandatory for groups of enterprises that exceed certain thresholds or contain public interest enterprises. This report is important because it provides investors and regulators with a complete picture of the financial position and performance of the entire group, thus providing more comprehensive information than what the individual statements of each entity could offer.
According to Art. 37 of the Accounting Act, the following categories of enterprises in Bulgaria are subject to mandatory independent financial audit:
Annual Activity Reportis a document that provides a comprehensive overview of the current state, development and results of the enterprise for the reporting period. This report is not just an accounting report; it gives extended information that also includes non-financial aspects such as environmental issues, human resource management, social responsibilities and other strategic elements. According to Art. 39 of the Accounting Act, the annual activity report contains an objective overview of the state of the enterprise, a description of the main risks, information about events after the reporting period, future prospects and activities in the field of research activity. This report is mandatory for large enterprises and public interest enterprises, as it provides stakeholders (investors, shareholders, government bodies) with a detailed picture of the state and strategy of the enterprise.
Intangible resourcesin the context of the annual activity report, include resources that are not physical assets but constitute a substantial part of the value of the entity. This may include intellectual property, patents, trademarks, human capital, corporate culture, innovation processes and reputation. These resources are important for value creation, and large enterprises and those of public interest are required to include in their report information on their relevance to the business model and strategy of the enterprise (Art. 39 para. 2 of the Accounting Act).
Enterprises of public interestare enterprises that have a significant impact on society and the economy, usually due to their size, financial importance or specificity of activity. Such enterprises include banks, insurance companies, investment companies, large public companies and other entities that attract the attention of the general public and regulators. These enterprises are subject to increased transparency and accountability requirements and are required to prepare more detailed reports, including an annual activity report, corporate governance statement and sustainability report (Art. 40 and Art. 41 of the Accounting Act).
Corporate Governance Statementis a specific document included in the public interest enterprise activity report that explains how the entity manages its activities in accordance with the principles of corporate governance. This statement describes the structure of management bodies, their roles and responsibilities, risk management practices, and transparency and accountability policies. According to Art. 40 of the Accounting Act, this declaration may be presented as a separate report or as a publicly available document on the enterprise's website. The aim is to ensure that shareholders and other stakeholders are informed about management practices and risk control.
Consolidated activity reportis a statement that is prepared by a parent undertaking required to compile a consolidated financial statement consolidating information on the activities of the enterprise and its subsidiaries as a whole. This report covers all the components of the annual activity report, making adjustments to present summary information for the whole group. The consolidated report provides investors, creditors and regulators with an overview of the financial and non-financial situation of all group companies, and also includes information on acquired own shares and risk management (Articles 45 and 47 of the Accounting Act).
Consolidated Sustainability Reportis part of the consolidated activity report and is required for public-interest parent undertakings where it is necessary to disclose information and policies related to the sustainable development of the group. This includes reporting data related to the group's environmental and social responsibility, as well as its contribution to sustainable development. The aim is to show how the group of enterprises works to minimize the negative impact on the environment and society, and how it maintains sustainable practices in resource management (Art. 41 and Art. 47 of the Accounting Act).
These additional documents and requirements set out in the law are aimed at ensuring a high degree of transparency and accountability for companies of public importance, thus ensuring that the public and regulators are aware of their financial situation and management practices.
