Beruflich Dokumente
Kultur Dokumente
Country: Colombia
30/01/2018
GENERAL INFORMATION 4
1. Introduction and History ..................................................................................................... 4
2. Source of Accounting Standards........................................................................................ 6
a. Generally Accepted Accounting Principles ............................................................................. 6
b. Audit and Public Company requirements (including appointment and
qualification of auditors) ......................................................................................................................11
1. Audits............................................................................................................................................................. 11
2. Public Companies ..................................................................................................................................... 16
GENERAL ACCOUNTING: FINANCIAL STATEMENTS .......................................................... 18
1. Basic accounting concepts................................................................................................. 18
2. Contents of Financial Statements ................................................................................... 18
3. Format of financial Statements ....................................................................................... 18
a. Balance Sheet and Income Statement Presentation ..........................................................18
1. Balance Sheet ............................................................................................................................................. 19
2. Income Statement .................................................................................................................................... 21
3. Cash Flow Statement ............................................................................................................................... 24
4. Changes In Stockholders’ Equity Statement.................................................................................. 25
4. Disclosure of Accounting Policies ................................................................................... 25
a. Financial Period Requirement ..................................................................................................25
b. Current and Non-Current in the Balance Sheet ...................................................................25
c. Income Statement - Expenses Classification ........................................................................26
d. Changes in Equity Statement......................................................................................................26
e. Changes in the Financial Situation Statement .....................................................................26
ACCOUNTING PRINCIPLES FOR SPECIFIC ITEMS ................................................................ 27
1. Balance Sheet ......................................................................................................................... 27
a. Property, Plant and equipment.................................................................................................27
1. Revaluation ................................................................................................................................................. 27
2. Depreciation method .............................................................................................................................. 28
3. Additional accelerated depreciation permitted or not ............................................................. 28
4. Disclosure of current value of land and buildings ...................................................................... 28
b. Intangible assets .............................................................................................................................29
1. Capitalization: ............................................................................................................................................ 29
2. Amortization requirement ................................................................................................................... 29
3. Revaluation ................................................................................................................................................. 30
c. Leases .................................................................................................................................................30
1. Financial lease............................................................................................................................................ 30
2. Treatment of financial leasing or leasing ....................................................................................... 31
3. Lease back ................................................................................................................................................... 32
d. Investments cost value or market value? ..............................................................................32
1. Current investments ............................................................................................................................... 33
2. Non-current investments ...................................................................................................................... 34
3. Is portfolio basis of valuation permitted for current investments? .................................... 34
e. Accounts receivable ......................................................................................................................35
1. Treatment of trade discount and rebates ....................................................................................... 36
2. Allowance for doubtful accounts ....................................................................................................... 36
3. Inventories and work in progress ..................................................................................................... 37
4. Valuation of inventories ........................................................................................................................ 37
5. LIFO costing permitted? ........................................................................................................................ 38
6. Valuation method for long term contracts ..................................................................................... 38
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f. Current liabilities and contingencies ......................................................................................38
1. Hidden/ discretionary provisions permitted ............................................................................... 38
2. Treatment of contingencies ................................................................................................................. 39
g. Long term Debt................................................................................................................................39
h. Capital and reserves ......................................................................................................................39
2. Income Statement................................................................................................................. 41
a. Revenue and Expenses Recognition ........................................................................................41
b. Government grants and Assistance .........................................................................................42
c. Research and development ........................................................................................................43
d. Capitalized interest costs ............................................................................................................43
e. Extraordinary and unusual items ............................................................................................44
f. Income taxes (+ deferred income taxes when applicable)..............................................44
g. Pensions.............................................................................................................................................48
h. Discontinued operations .............................................................................................................49
3. ORGANISATION OF THE ACCOUNTING AND AUDITING PROFESSION ................ 50
4. Sources and References ..................................................................................................... 51
5. APPENDIX: ............................................................................................................................... 52
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Colombia and its financial accounting system
GENERAL INFORMATION
The history of accounting regulations in the world is remarkably ancient and has
been affected by the past foundations of each country, the international adaptations
and, nowadays, by the influence of globalization. Therefore, the accounting models
and governmental policies for every nation have been changing by the local and
international authorities, with the purpose to have a systematic approach to
communicate the financial information. Day by day, the reports are becoming
homogeneous, flexible and readable for every entity that is interested and willing to
know about the accounting status of public and private companies.
Moreover, Colombian financial system dates to the pre-Hispanic period and has a
long historical heritage. At the beginning and before the Spanish colonization, the
south American territory did not use currencies for trade between communities or
different tribes, which does not show a strong accounting system or important
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financial procedures to report. In 1492, when Cristopher Columbus found America,
the territories started to have an “old continent” accounting system. The feudal or
liege scheme that the Spaniards used before, helped to develop the trading structure
in south America. In fact, it was the origin of making recording books and marks of
the transactions between Spain and their colonies.
The agricultural and trading businesses were the most important members for the
Colombian accounting foundations. The Spanish colony system imposed several
social-economic institutions with the purpose to record all the transactions between
the organizations (businesses) or people (local or foreigners). Therefore, it helped to
track down the taxes for the Spanish crown. The tributes paid by the people forced to
have a clear report of purchases, sales, transfer and profits, because everybody
wants to pay the fair amount to the financial system2.
Since the independence and the conformation of the Republic of Colombia, the
accounting system has advanced and made relevant updates for the international
regulations. The government created the institutions in charge of monitoring the
accounting reports and financial statements that companies hand in to the local
authorities.
In 20th century, Colombia started receiving important foreign investments from the
United States, Europe and other South American countries like Venezuela. The
involvement of external and not domestic companies in the financial system initiated
the creation of international standard accounts for the multinational corporations
within the country. These guidelines made the information clear and accessible for
every organization.
Additionally, Colombia and its regulations started making a plan for integrating all the
international financial standards in the financial accounting system. In 2009, the law
1314 proposed making the convergence of the Colombian accounting principles to
those of International Financial Standards (“IFRS”)3. After that, legal resolutions or
2 “Evolución del proceso de planificación contable en Colombia “, Evolution of the accountable process in
Colombia, “Contaduría General de la Nación”, National Accounting Department, Colombia, 2018
3 “EY Business and Investment guides 2016 Colombia” report, EY Colombia, Colombia, 2016
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decrees 2784 of December 2012 and 3024 of December 2013, established a criteria
and dates for the implementation plan, classifying the companies in three groups,
according to certain information and aspects. The government organizations, like the
Superintendence, have been the entities in charge of the supervision of the
implementation process.
The local standards accepted by the regulation institutions and the Colombian
government goes according to the law and the constitution of the country. The norms
define Accounting as a complete system to report the budget structure, transactions,
value creation, financial investments and the value of assets, liabilities and equity
within the legal framework.
It tries to solve the traditional problems that the financial system faced over the like
imprecise definitions of transactions and accounts, lack of costs and expenses
structure, inconsistent information between budget, transactions, business plan of
the institutions and concepts informed to the governmental authorities.
The general accounting principles in Colombia are showed in the legal resolution;
article 6, 43th law of 1993 within the national constitution of the republic. It
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demonstrates which concepts and statements should be provided by the
organizations and the reasons of each element.
The key elements for the companies in Colombia and the financial accounting
system are the following:
1. Objectives:
a. Knowing the resources of the business and economic activities by the
organization, clearly justifying transactions to other entities and the
trace of assets, liabilities, equity, expenses and revenues in a period of
time.
b. Presenting the cash flows of the company or organization.
c. Proof and support of the management decisions about the financial
planning, governance and business development.
d. Guidelines for decision making about investments and debt costs.
e. Performance assessment for managers and CEO.
f. Controlling and tracking the operations within the company
g. Support taxes payments and fiscal rates for the company or institution
h. Contributing information for financial statistics, governmental reports
and national measurements
i. Promote the benefit for social impact within corporations according to
the corporate social responsibility.
2. Attributes: The characteristics of the information must be readable,
comprehensive and clear. The information has to be reliable and useful
regarding the performance of the company. Primarily, the data possess all the
value creation, financial movements and costs by the company. The material
is neutral, verifiable and faithful to the economic facts based on corporation’s
reports and activity.
3. Entity: Definition of the business unit and the legal constitution of the
corporation. The recognition by the government in the legal framework and
registered in the chamber of commerce.
4. Continuity: The obligation and commitment to report, during every period, the
necessary documents and information for the legal framework. All the
transactions and financial movements must be recorded, even if the entity is
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facing extraordinary situations of performance or having negative results or
tendencies.
5. Currency: The information has to be in the local currency, Colombian Peso
(COP). The adjustments of foreign currencies must be made according to a
trustworthy resource and entity recognized by the government.
Regarding to the previous guides, COLGAAP and the principles for Colombia’s
accounting system are4:
4 “USGAAP vs IFRS y COLGAAP, the basic”, Ernst & Young Colombia, 2015
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nomenclature showed in the “Unique Account Plan” of reporting that is part of
the decree 2650 of 1993. In order to identify the type of transaction that the
company or organization did during the period and previous reports.
4. Book records: The institution’s records and the financial transactions carried
out during the term support the information. The financial situation is clearly
an overview of the book records of the company and it is the foundation of the
financial statements like balance sheet, income statement and cash flow
statement. For the application of IFRS guides and standards, the inclusion of
technological resources and regulatory frameworks required.
Group 1
The set of companies is composed of the organizations that will apply the technical
regulatory framework approved in Colombia every year. Currently it includes the
standards issued by the IASB (International Accounting Standards Board) in
December 31, 2012. These companies will prepare the financial statements under
IFRS standards including the figures of the transition period (2014) and the opening
balance (January 1, 2014). Also, they have the obligation to report the separated and
consolidated financial statements to the Superintendence of Companies (public
institution).
5 “EY Business and Investment guides 2016 Colombia” report, EY Colombia, Colombia, 2016
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b. Be a subordinate or branch office of a foreign company which applies
full IFRS, or be a subordinate or home office of a company that must
apply full IFRS, or be a home office, associate or joint business of one
or more foreign entities which apply full IFRS, or carry out importations
or exportations representing more than 50% of purchases or sales,
respectively.
Group 2
This group of companies will apply IFRS standard for Small and Medium Enterprises
issued by IASB. The group is comprised of large size companies, which do not meet
the requirements of Group 1, medium and small size companies as well as
microenterprises, which revenues are equal or higher than 6.000 legal monthly
salaries6.
The companies in this group should produce financial statements under the new
standards, so the year 2016 is considered. These companies had to prepare the
opening balance for January 1, 2015. During 2015 the financial statements are
prepared under COLGAAP (Colombian Accounting Guides), but in addition the
companies are required to have information under IFRS standards for comparative
purposes.
Group 3
The companies that are not in the Group 1 or 2 belong to Group 3. A simplified
accounting standard and financial statements will be applied to this group of
companies, which was established in the law s2706 of 2012, and 3019 of 2013.
Tax
Additionally, to the new accounting approach, the organizations have the obligation
of maintaining a tax book record to keep the differences between tax bases (which
6 “EY Business and Investment guides 2016 Colombia” report, EY Colombia, Colombia, 2016
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requires the application of COLGAAP) and the new regulatory frameworks under
IFRS.
The audit constitutes a feedback tool of the Internal Control System that analyzes
the weaknesses and strengths of control, also the deviation of the progress, goals
and objectives that impact the results and operations proposed in the entity.
1. Audits
In Colombia, the NIA 520 (International Norm for Auditing) defines the analytical
procedure to evaluate the financial information and statements, and how to discern
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key features of financial and non-financial data. The NIA 520 demonstrates the key
resources and useful research with the purpose to find, identify and evaluate
variations or relations that shows inconsistent or incoherent information, data,
performances. Therefore, the auditing process has to be highly transparent and
organized to conclude consistent assessment and achieve the client and market
expectation.
1. Gather all trustworthy data and relevant information for making the
substantive procedures and conclusions
2. Design and apply analytical framework to have a final auditing report and key
indicators of consistent information and financial statements. It has to be
readable and coherent with the company and legal regulation of the country.
I. Analytical Procedures
The analytical procedures are the evaluation process and continuous assessment
that the auditors use for the financial statements and are based of different types of
expectations.
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Types of analytical prospects:
Industry Analysis: Comparing the financial information and non-financial
data with the industry performance and competitors market behavior with
macroeconomic variables. Furthermore, make a comparison between the
audited company and similar companies with liquidity and debt indicators,
investments insights and business activity
Client Analysis: Comparing the financial information and non-financial data
with the client’s expectations made before during planning. In fact, making a
comparison with the financial projections of previous periods and have
indicators of relevant variations or irregularities of expenses, revenues, costs
or investments.
Auditor Analysis: Estimating the reliability of the financial statements
according to the operational and financial information. Taking previous
auditing norms and making assumptions regarding the client's industry and
business core.
Statements and Accounts Analysis: Certify the composition of each
account and the amounts shown in each code regarding the Unique Account
Plan. Besides that, estimating tendencies (positive or negative) about the
financial information that is the statements: ROE, ROIC, net working capital,
provision, and liquidity indicators.
The steps regarding the audit process in private and public companies should be
structured like the following steps:
Planning:
Prepare an audit program.
Start the audit.
Define the objectives, scope and criteria.
Define resources.
Review the procedure.
Appoint the lead auditor.
Determine viability.
Conform the audit team.
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Review documents.
Prepare the field audit.
Prepare work documents: audit plan, checklist and request for corrective
actions.
Assign work to the audit team.
Executing:
Carry out the field audit.
Carry out the opening meeting.
Define the communication channels.
Collect and verify information.
Generate the findings of the audit.
Prepare the conclusions of the audit.
Hold the closing meeting.
Concluding:
Prepare, approve and distribute the report.
Complete the audit.
Monitoring and reviewing.
Identify the need for corrective, preventive and / or improvement plans.
Identify opportunities for improvement.
In that order, the skills and competences that an auditor must have are the following:
Lead auditor:
Plan and manage all the steps of the audit.
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Conduct the audit.
Accompany in the selection of the team and in its instruction.
Control conflicts and promote the overcoming of difficult situations.
Conduct and control all meetings with the audited team and company.
Make decisions on audit issues.
Communicate the results of the audits without delay.
Communicate the biggest obstacles encountered.
Immediately report critical non-conformities.
Have effective communication skills.
The training of the lead auditor involves a course of 40 hours that has the following
structure:
Additionally, the team for the audit must have plenty characteristics to make a good
audit performance.
Auditor’s team:
Support the team leader.
Be prepared for the development of the audit.
Participate in the opening and closing meetings.
Fulfill the designated tasks.
Maintain the programming and objective of the audit.
Document and support all findings.
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Keep the audit team informed.
Protect all documents.
Maintain confidentiality.
Be objective and ethical.
Furthermore, and in order to have a successful audit, the entity has to be informed
and give the complete financial information about every transaction and movement
that the organization did for value creation, operational cost, debt and revenues, and
that is included in the statements and report the assets, liabilities and equity results.
2. Public Companies
The article 269 of the Political Constitution declares that the public entities are
obliged to design and apply, according to the nature of their functions, internal
control methods and procedures, in accordance with the provisions of the law, which
may establish exceptions and authorize services with Colombian private companies
The article 5 of the legal resolution 354 of 2007 establishes that the accounting
regime must be applied to every organization and entity that is part of the state and
government. Besides that, it also has to be implemented by independent institutions
and autonomous associations that were created for governmental functionalities and
activities. In fact, mixed corporations (public and private institutions) must inform and
report the same financial information and statements to the National Accounting
Department in Colombia, just in the case if the public shareholders’ participation
reach equal or above of the 50% of the capital. Additionally, the companies offering
public services, like electricity or water, are included in the list.
Regarding the resolution of the law 375 of 2007, the public companies must submit
its reports quarterly and containing the information according to the economic,
financial, social and environmental data on in the following dates in Colombia:
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30th of September 31th of October
31th of December 15th of February (Next year)
In the article 689 of the constitution declares that to encourage voluntary compliance
with tax obligations, the government will indicate, through regulations, conditions and
percentages by which taxpayers are guaranteed to increase their taxation benefits.
The verification and permanent evaluation will require that internal auditors be
enabled in the entity, which must be coordinated by the Internal Control or Internal
Audit Office. In fact, its role is as independent evaluator, must perform evaluations
and permanent monitoring to the degree of progress and development in the
implementation, regarding the action plan that the organization previously
established and approved.
An audit process can include one or more audits depending on the size, nature and
complexity of the organization. These audits may have different objectives and may
include mixed processes. A program of these also includes all the activities and the
resources involved in carrying them out effectively and efficiently within the
established deadlines or goals. In addition, the audit program must have the
following concepts:
The previous program is established also for the companies that are listed in the
stock market and mentioned in the Group 1, 2 and 3 that the document shows
before.
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GENERAL ACCOUNTING: FINANCIAL STATEMENTS
The article 34 of Decree 2649 identifies the elements of financial statements such as
assets, liabilities, equity, income, costs, expenses and monetary corrections (up to,
when applied in Colombia, the adjustment for inflation). The accounting equation
related to the balance of the financial performance and action plan of the company,
is the sum of the assets accounts must be equal to the sum of the liabilities accounts
and the sum of equity or capital accounts (own funds), including its adjustments and
income calculated to certain chosen period or closing date.
These are general purpose financial statements those that are prepared at the close
of a period to be known by indeterminate users, with the main purpose of satisfying
the interest among the public in assessing the capacity of an economic entity to
generate favorable flows of money. Article 22 defines the basic financial statements
as follows: Balance Sheet, Income Statement, Changes in Equity Statement,
Changes in the Financial Situation Statement and Cash Flow Statement.
Companies must apply the “Plan Único de Cuentas” or PUC (Unique Account Plan)
and present their financial statement according to this classification. The article 34 of
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Decree 2649 identifies the elements of the financial statement as assets, liabilities,
equity, revenues, costs, expenses, and monetary policy adjustment.
1. Balance Sheet
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2. Income Statement
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3. Cash Flow Statement
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4. Changes In Stockholders’ Equity Statement
Deferred taxes are presented as current or non-current based on the nature of the
asset or respective liability.
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c. Income Statement - Expenses Classification
The expenses in the Income Statement are classified by their function. The
requisites of revelation are not so demanding as US-GAAP and IFRS.
Article 118 of decree 2649 determines the necessary disclosures such as: (i)
Distribution profits or surpluses declared during the period, (ii) Regarding dividends,
shares or surpluses declared during the period, it is necessary to indicate the
amount paid, dates and forms of payment, (iii) Changes of profits not appropriate,
(iv) Changes of each one of the reserves or other accounts included in the
appropriate utilities, v) Changes of the premium in the placement of contributions
and valuations. (vi) Changes of the evaluation of the equity, (vii) Changes of other
accounts belonging to the equity.
Also, known as the state of sources and uses, or, state of origin and application of
funds; it is the state that summarizes the financial and investment activities of the
economic entity.
It shows the dynamics that the working capital of a company has had over a period
of time, explaining the variation of it revealing where the resources come from and
where they are used or applied. It is done at the balance sheet date.
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The changes in the financial situation statement must be elaborated in order to
identify:
Net profit
Items that do not affect the working capital
External sources from which the working capital has been obtained
Uses of the resources
1. Balance Sheet
Article 64 of Decree 2649 defines property, plant and equipment as tangible assets
acquired, constructed, or in the process of construction, with the intention of using
them permanently for the production or supply of other goods and services, leasing
them, or using them in the administration of the economic entity, which are not
intended for sale in the normal course of the business and whose useful life exceeds
one year.
The useful life is understood as the period during which the property, plant or
equipment is expected to contribute to the generation of income. For its
determination, it is necessary to consider, among others reasons, factory
specifications, deterioration due to use, the action of natural factors, the
obsolescence due to technological improvements and the changes in the demand for
goods or services to which they contribute.
1. Revaluation
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2. Depreciation method
The normal estimated useful lives of various assets are as follows: motor vehicles
and computers, 5 years (annual depreciation rate of 20%); machinery, equipment,
boats and aircraft, 10 years (10% rate); and buildings, 20 years (5% rate).
Taxpayers generally can amortize the cost of acquired intangible assets over a
period of at least five years, unless the taxpayer can demonstrate that the
amortization period should be shorter due to the nature of the intangible or business
conditions.
When the additional accelerated depreciation is permitted the taxpayer may increase
the depreciation rate determined in article 137 of this statute by twenty-five percent
(25%), if the depreciable good is used daily for 16 hours and proportionately in
higher fractions8.
The treatment provided herein will not be applicable to the real estate.
It is no contemplated.
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b. Intangible assets
1. Capitalization:
III. Purchased
The costs of advertising and promotion become expenses as they are incurred. You
can recognize a payment in advance as an asset, only when the payment of the
goods or services is made before the entity has access to the goods or receives the
services.
The development costs are capitalized when the technical and economic feasibility
of a project with specific criteria can be demonstrated.
2. Amortization requirement
The admissible methods to amortize intangible assets are straight line, units of
production and others of recognized technical value, that are adequate according to
the nature of the corresponding asset.
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The amortization of intangible assets will be done in the following terms:
The base of amortization will be the cost of the intangible assets.
The method for the amortization of the intangible assets will be determined
accordingly with the accounting techniques, as long as the annual rate does
not exceed 20% of the fiscal cost.
Non-deductible amortization expenses because they exceed the 20% limit, in the
year or taxable period, will generate a difference that will be deductible in the
following periods at the end of the useful life of the intangible asset, without
exceeding 20% of the fiscal cost of the asset per year or taxable period.
3. Revaluation
c. Leases
1. Financial lease
Financial leasing is a contract, with the financial objective of acquiring an asset and
can meet one or more of the following characteristics:
At the end of the contract the ownership of the asset is transferred to the lessee or
tenant.
The lessee or tenant has the option to buy the asset at a price that is sufficiently
lower than its commercial value at the time when he purchase option is executed.
The term of the lease covers most of the economic life of the asset even if the
property is not transferred at the end of the operation.
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At the beginning of the lease, the present value of the minimum payments for the
lease is at least equivalent to the commercial value of the asset.
The leased assets are of such specialized nature that only the lessee can use them
without making significant changes to them. International leasing contracts are
subject to the above rules.
At the beginning of the contract, the lessee must recognize an asset and a liability,
corresponding to the present value of the lease fees, the purchase option and the
residual value of the guarantee, if applicable, calculated on the starting date of the
contract, and at the rate agreed in the contract. The sum recorded as a liability by
the lessee must coincide with that registered by the lessor as lease assets.
The Colombian norm is based on the name of the contract, however the article 127-1
of the Tax Statute indicates that the financial lease contracts of real estate, whose
term is equal or more than 60 months; of machinery and equipment, furniture and
equipment whose term is equal to or greater than 36 months; of vehicles for
productive use and computer equipment, whose term is equal to or greater than 24
months will be considered as an operating lease.
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3. Lease back
The lease back only may be given on productive fixed assets, computer equipment,
machinery, loading vehicles, public transport or on real estate.
Investments lines includes the accounts that register shares, quotas or commercial
papers or any other negotiable document acquired by the economic entity on a
temporary or permanent basis, in order to maintain a secondary reserve of liquidity,
establish economic relations with other entities or to comply with legal or regulatory
provisions.
The historical cost includes the amounts that are incurred for the purchase of the
investment, which, in the case of investments represented in shares, will be adjusted
monthly or annually, recognizing the inflationary effect in accordance with what is
provided in the legal provisions in force.
If these investments are made in the development of secondary activities, when the
value of the sale is greater than the book value, the difference will be credited to
account 4240, but if the sale value is lower, it will be charged to the respective
provision account. If the provision does not exist or is insufficient, the balance must
be debited to subaccount 531005 - sale of investments.
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In fact, the investments show a nominal value and the market value in
complementary accounts with their valuation through recognized financial tools in the
market like MUREX or KONDOR.
1. Current investments
Any asset that does not meet the terms of this definition is excluded from the
classification of Current Assets.
Current Assets are separated from Non-Current Assets due to their importance of
the short-term situation of a company. The short-term situation is another concept,
dependent on the general notion of Financial Situation and is related to the ability of
a company to meet its immediate obligations in the normal course of operations with
the available assets9.
11. Cash
12. Investments (except the 1215 Permanent Investments Account, and
129010 Provision for Permanent Investments)
o 1205 - Shares
o 1215 - Bonds
o 121505 - Public bonds national currency
o 121510 - Public bonds foreign currency
o 121515 - Ordinary bonds
o 121520 - Bonds convertible into shares
o 1225 - Certificates
o 1230 - Commercial Certificates
o 1235 - Titles of Investments
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o 1240 - Bank or financial acceptances
o 1245 - Fiduciary rights
o 1250 - Rights of repurchase of negotiated investments (REPOS)
o 1255 - Mandatory Bonds
o 1260 - Accounts in participation
o 1295 - Other investments
13. Inventories
14. Associated Loan Portfolio (except the non-current part of the 140502 Long
Term Account).
15. Non-Associated Credit Portfolio (except for the non-current portion of
Account 150502 Long Term).
16. Accounts Receivable
In conclusion, all the current investments are in the account that starts with “12” and
the specific accounts are mentioned previously.
2. Non-current investments
The non-current investments are different from current investments when those are
not liquid or not expected to be manufactured, sold or consumed during the normal
operating cycle of the company. In that order, the accounts that are non-current
investments are the following:
1215 - Bonds
o 121595 Permanent Investments Account (Others)
1299 Provision for Permanent Investments.
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securities and, in general, any type of asset that may be part of the investment
portfolio10.
Debt securities are understood as those that grant the holder of the respective
value the creditor quality of the issuer.
Participatory values are understood as those that grant the holder of the
respective value the quality of co-owner of the issuer.
The mixed securities from securitization processes that simultaneously
recognize credit and participation rights are part of the equity securities.
Bonds convertible into shares are understood as debt securities, if they have
not been converted into shares.
e. Accounts receivable
Accounts Receivables includes the value of debts owed by third parties and in favor
of the economic entity, including commercial and non-commercial debts.
This group includes, among others, the following accounts: customers, commercial
current accounts, accounts receivable from the parent company, accounts receivable
from economic associates, accounts receivable from partners and shareholders,
contributions receivable, advances and advances, accounts of joint operation,
deposits and promises of purchase and sale.
This group also includes the value of the relevant provision, of a credit nature,
constituted to cover contingencies of loss, which must be justified, quantifiable and
reliable.
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1. Treatment of trade discount and rebates
Discount and rebates are recorded as a reduction of revenues, and are considered
as a debit to a contra-revenue account. The net effect of the transaction reduces the
amount of gross sales, resulting in a smaller net sales figure. When the buyer
receives a discount, this is recorded an expense reduction associated with the
purchase, or in a separate account that tracks discounts.
Doubtful accounts record the value of debts in favor of the economic entity that have
not been answered in a timely manner, either due to financial difficulties of the debtor
or any other cause. In order to give such treatment, the stipulated term must expire
and its cancellation only comes once the relevant collection procedures have been
exhausted.
1. Method
An entity will assess whether there is objective evidence of impairment for financial
assets measured at amortized cost or at cost value. In there is objective evidence
the company must recognize a loss in income statement. The entity may use a
regulatory account "Provision for Impairment" as a counterpart of the loss.
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For an asset measured at cost, the impairment is the difference between the
book value of the asset and the estimated sale price that would be received
for the asset in the case of a sale at the closing date of the financial
statements.
2. Disclosure
The allowance for doubtful accounts appears in the balance sheet as a reduction of
account receivable and as a deduction of a contra asset account
The inventories are defined by article 63 of decree 2649 and represent tangible
assets intended for sale in the normal course of business; as well as those who are
in the process of production or that will be used or consumed in the production of
others that are going to be sold. As well materials or supplies are considered
inventories, to be consumed in the process of production, or in the provision of
services.
4. Valuation of inventories
The value of inventories, which includes all disbursements and direct and indirect
charges needed to put them in conditions of use or sale, must be determined using
the FIFO method (First In, First Out), LIFO (Last In, First Out) or weighted average.
Special rules can authorize the use of other methods of recognized technical value.
Inventories will be remedied at the cost or net realizable value, the smaller of the
two. At the end of the period they should recognize the contingencies of loss of the
expressed value of the inventories, through provisions necessary to adjust them to
their net value of realization.
Impairment losses previously recognized are reversed up to the value of the original
loss due to the impairment when the reasons for the deterioration no longer exist.
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5. LIFO costing permitted?
One of the main benefits of adopting the IAS in Colombia is the fact that it creates
ample possibilities for the interpretation of long term contracts that allow for a better
accounting record, under accounting premises and not under fiscal premises as it
usually occurs in Colombia.
In Colombia the accounting treatment of long-term contracts has not been
established. Only tax regulations refer to the determination of the sales
taxable base. The IAS 11, on the other hand, is broad and detailed and
establishes a single method to recognize the revenue of this type of contracts:
the percentage method.
The Colombian tax regulations admitted two methods of recognition for this
type of operations: the fee method and the gross profit method. However, it is
not clearly determined in either of the two methods when there is room for
income recognition.
In Colombia each company uses the method that it considers best and may
record the revenue based on the invoice or register it according to the
progress of the work.
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2. Treatment of contingencies
They are the obligations to be canceled in a term greater than one year, that is, more
than one accounting period is given. It also considers the income that the company
has received in advance.
It basically corresponds to the non-current part (Long Term) of the groups: Financial
Obligations, Suppliers, Payables, Labor Obligations. Investments and Debtors.
Deferred and Other Liabilities.
Capital
The Capital includes the total value of the initial contributions and the subsequent
increases or decreases that the partners, shareholders, companies or contributors,
make available to the economic entity through quotas, shares, assigned amount or
value contributed, respectively, in accordance with public deeds of incorporation, or
reforms, subscription of shares according to the type of company, association or
business, with full legal requirements.
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The capital to subscribe, which comprises the authorized capital minus the
value of the subscribed shares.
The subscribed capital is the value that the shareholders are obliged to pay,
not less than 50% of the amount authorized when the company is
incorporated.
The subscribed capital receivable, which corresponds to the value pending
payment by the shareholders in the subscription of the respective shares.
Reserves
Regarding the decree 2649 of 1993, article 87 declares that reserves or patrimonial
funds represent resources retained by the economic entity, taken from their utilities,
in order to satisfy legal, statutory or occasional requirements.
Types of reserves:
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made and the same may change its destination or distribute them when they
are unnecessary.
In some cases, the creation of occasional or eventual reserves by the
maximum authority of the company is a important fact or issue for the financial
statements. The law establishes limitations to create this kind of reserves with
a view to preventing abuse in the deduction of profits from curtailing or
impairing the essential right of the associate to participate in the utilities.
Hence, articles 154 and 453 of the Commercial Code indicate, on the one
hand, the conditions to which its creation is subordinated; and on the other, its
characteristics.
2. Income Statement
It is likely that any future economic benefits associated with the item will reach
or leave the entity
The item has a cost or value that can be measured reliably
The administration must recognize the transactions in the same way every period,
unless it is indispensable to make changes to improve the information.
However, some special rules may allow the recognition made based on statistical
basis for the preparation and presentation of intermediary financial statements (Art.
47 D. 2649/93).
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other activities, carried out during a period, which do not come from capital
contributions (Art. 38 D. 2649/93).
It is understood that an economic event has been carried out whenever it can be
proven that, as a consequence of past or internal transactions or events, the
economic entity has or will have an economic benefit or sacrifice, or has experienced
a change in its resources, in both cases reasonably quantifiable (Article 12 D. 2649
of 1993).
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Government grants related to assets, including non-monetary grants at fair value,
are presented in the statement of financial position either by setting up the grant as
deferred income or by deducting the grant in arriving at the carrying amount of the
asset.
IAS 23 prescribes the treatment that should be provided for borrowing costs that are
directly attributable to the acquisition, construction or production of a qualifying
asset. IAS 23 establishes as a general rule, the recognition of interest payments as
expenses in the period in which they are incurred.
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Accordingly, with Colombian national accounting practice, this recognition of financial
income or expense is not presented throughout the period. Generally, the financial
component of assets or liabilities is not recognized, but financial expenses or
incomes are recognized at the maturity of the corresponding asset or liability.
This practice of measuring financial assets and liabilities also generates differences
compared to the tax bases and due to this the resulting temporary differences must
be considered in the account.
Three different conditions that must be fulfilled in order for the capitalization of
borrowing costs to begin are:
Unusual items must be disclosed. In practice, significant gains or losses that are not
recurrent and that result from transactions other than the company's normal activity
are included separately in the statement of income.
Tax Rate
The corporate income tax rate is 25%. A special reduced corporate income tax rate
of 15% applies to legal entities qualified as industrial users of goods and/ or services
or operator users in a free-trade zone, either permanent, special or offshore.
Commercial Users in a free-trade zone are subject to the general corporate income
tax rate.
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Reduced and gradual income tax rates are available for companies that qualify as
small companies (small companies are understood to be those with no more than 50
employees and total assets below 5.000 legal monthly salaries (approx. USD
1.100.000)). The starting rate is 0% for the first two years, and then it increases by
25% of the applicable rate every year, until the full rate becomes applicable in the
sixth year. The beneficiaries of this income tax rate reduction will not be subject to
the determination of the income tax under the presumptive income system and will
not be subject to tax withholdings during the term of application of the benefits.
Pursuant to the interpretation of the DIAN, branch offices of foreign companies are
not eligible for these benefits.
The result of temporary differences that involve the payment of a lower amount of tax
in the current year, calculated at the current rates, should be recorded as a deferred
tax whenever there is a reasonable expectation that such differences will be
reverted.
Taxable income
The base for the calculation of the annual corporate income tax is the higher amount
between “ordinary taxable income” and the “presumptive income”. Ordinary taxable
income is calculated by subtracting deductible costs and expenses from net
revenues (gross taxable revenues minus rebates and discounts). If this results in a
tax loss, such loss may be carried forward with no time limitation. Additionally, tax
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laws provide no limitations on the amount of tax losses available to be offset against
ordinary taxable income each year.
Special deductions
Exempt income
Income generated from the following activities is income tax exempt: (i) sale of
electricity generated from wind resources, biomass or agricultural waste; (ii) the
provision of transport services with river boats; (iii) hotel services provided by new
and refurbished hotels until December 31, 2017; (iv) ecotourism services; (v)
utilization of new forest plantations; (vi) new software and medical patents; (vii)
publishing; (viii) most of the income obtained in Andean Community countries
(Bolivia, Ecuador and Peru); (ix) the payment of principal, interests, bank charges
and other financial returns, capital gains or differences between the present and
future value related to financial activities carried out in Colombia by governmental
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financial and development cooperation institutions from countries with which
Colombia has entered into cooperation agreements for the mentioned matters.
The assets used in the activities mentioned in numerals (i), (ii), (iii) and (v) are not
built in the base used in the determination of presumptive income. Payment of
capital and interests, commissions, and other fees associated with external public
credit transactions, and similar credits, is exempt from all national taxes, levies and
contributions, provided that the recipient has no domicile in Colombia or is not
considered a Colombian resident.
In general terms, costs and expenses may be deducted for corporate income tax
purposes as long as they are (i) necessary; (ii) related to the generation of taxable
income; and (iii) proportionate or reasonable. The fulfillment of requirements (i) and
(iii) must be evaluated according to common commercial practices for each industry
or activity.
Provisions
As a general rule, provisions are not deductible for corporate income tax calculation
purposes, except for bad debt provisions and, subject to special rules, provisions for
the payment of pensions.
Depreciation
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Certain low-value assets may be fully depreciated in the year of acquisition. Also, the
use of assets during extra shifts above the regular 8-hours shift per day allows the
taxpayer to increase the depreciation rate by 25% for each additional 8-hour shift.
Where the taxpayer has claimed the special 40% or 30% capital expenditure
deduction for investments made in tangible productive fixed assets, the depreciation
of these assets must be calculated using the straight-line method only. This special
fixed asset deduction has been eliminated effectively by January 1st, 2011, but it is
still applicable for certain taxpayers, provided specific conditions are met (e.g., they
are covered by a legal stability agreement).
The useful lives of assets for income-tax depreciation purposes are: 20 years for
buildings (including pipelines); 10 years for machinery and equipment; and 5 years
for vehicles and computers.
Amortization
g. Pensions
They are labor obligations that originate in a work contract. The liabilities in favor of
the workers must always be recognized if the payment is due or probable and the
amount can be reasonably estimated.
For the year 2018, the contribution to the pension fund continues to be 16% of the
contribution base income (IBC) for both, the dependent worker and the independent
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worker. For dependent workers, the contribution is divided into two: 12% contributed
by the employer and 4% by the worker, while the independent worker will contribute
about 16% of the reported IBC.11
h. Discontinued operations
Once the discontinuity is decided, the company must establish the period in which
the operation is liquidated. For this purpose, the result of the operation should be
considered.
The Colombian normative establishes that if there is a profit, it will not be recognized
until the profit turns into cash or is easily convertible into cash (in contrast to IFRS 5
which recognized a profit even if it is not converted into cash).
On the other hand, if there is a loss, it must be recognized on the date in which the
administrators of the entity took the formal decision to liquidate the operation.
11https://actualicese.com/actualidad/2017/12/28/aportes-a-fondos-de-pensiones-continuan-en-16-
durante-2018/, visited 28th January 2018
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The determination of the gain or loss is made in relation to the realization value of
the respective assets and liabilities.
The international standard stipulates that non-current assets available for sale must
be recorded at their book value or their fair value, the smaller of the two, whilst the
Colombian normative considers the realization value.
In the balance sheet the transferable groups of elements that are part of
discontinued operations are presented as assets until their sale.
In the income statement the total of the net tax result of the discontinued activity is
recorded.
The Internal Audit Certification (IAC) is the only globally accepted designation for
Internal Auditors and maintains that standard thanks to the fact that the professionals
demonstrate their knowledge, skills and professionalism in the field of Internal
Auditing, allowing a better management of the complex responsibilities which today's
auditors face.
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o A master's degree or work experience in related business professions
(for example, accounting, law or finance) can be substituted for 12 of
the required 24 months of professional experience in internal auditing.
Specialization certifications:
CGAP: Certified Professional in Government Auditing. It is a certification
specially designed by and for professionals in internal auditing, internal
control, or whoever works in the public sector, among others - state, central
sector, municipalities, mixed economy entities, autonomous entities, judicial
branch.
CCSA: Certification in Self-Assessment of Control This certification tests the
necessary skills to successfully practice self-assessment of control (CSA).
CFSA: Auditor of Financial Services Certificate. This certification especially
measures the knowledge of the candidates and their competence in the
application of the principles of auditing and their practices in the field of
insurance, banking and security of financial services in the industry.
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7. “Contabilidad - Reglamentación en general y principios o normas
generalmente aceptadas”, “Accounting - Regulations in general: Accepted
principles or standards ", University of Javeriana, Colombia, 2017
8. “Accounting principles in Colombia “, Gerencie,
https://www.gerencie.com/principios-de-contabilidad-en-colombia.html,
Colombia, visited 28th of January 2018
9. National Institute of Public Accountants of Colombia,
http://www.incp.org.co/incp/document/procedimientos-analiticos-en-las-
auditorias-de-estados-financieros/, visited 28th of January 2018
10. “Internal Audit Guide of the Integrated Management System” , Bogota Town
Hall,http://portel.bogota.gov.co/secretariageneral/dddi/educacion/docs/guia_a
uditoria_interna_sig.pdf , visited 28th of January 2018
11. “Estatuto Tributario Nacional”, National Tax Statute, Colombia,
http://estatuto.co/?e=324 , visited 28th of January 2018
12. Financial Superintendence of Colombia,
https://www.supersociedades.gov.co/nuestra_entidad/normatividad/normativid
ad_conceptos_contables/28051.pdf , visited 28th of January 2018
13. General Accounting Plan- Colombia, www.plangeneralcontable.com , visited
28th of January 2018
5. APPENDIX:
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