In Issue 72 of 27.08.2024 of the State Gazette, a Law amending and supplementing the Accounting Act (“LASAA”) has been promulgated, introducing significant ESG obligations for some enterprises.
The main objectives pursued by the LASAA, are two: 1) the introduction of a so-called “business sustainability model”, which includes both an analysis of the property and financial performance of companies and an analysis of the socio-economic impact as a result of that performance; and 2) the drive to strengthen corporate social responsibility in the European Union (“EU”) as part of the commitment under the European Green Pact to achieve a fair transition to a sustainable economic system.
In this regard, the LASAA proposes to expand the non-financial information reported so far and to increase the number of reporting companies (obliged entities).
The obliged entities should include in their annual activity report a separate section with information on sustainability issues (the so-called “sustainability report”).
The sustainability report will be prepared by large enterprises as well as by those small and medium-sized enterprises that have the status of “public interest entities”, i.e. insurers, credit institutions, companies admitted to trading on a regulated market in an EU Member State, etc. Micro-enterprises are excluded from the scope of the Law.
Parent companies of large groups of enterprises, as well as subsidiaries and branches of enterprises regulated by the law of a third country, will also be obliged, subject to certain conditions.
The sustainability report includes information on environmental, social and human rights factors and governance issues that is necessary to understand the impacts of the company on these areas. It shall also include the information necessary to understand how these areas affect the development, performance and the good-standing of the company - a description of the business model, the sustainability objectives and timelines, a description of the company’s internal policies, etc.
Following the preparation of the activity report, including the sustainability report, it will be subject to a statutory audit under the Independent Financial Audit Act.
The LASAA envisages explicit responsibility of the head and members of the management and supervisory body of a company for the preparation and publication of the annual financial statements, consolidated financial statements and annual reports (including the sustainability report), as well as for conducting an independent financial audit and expressing assurance on sustainability.
Another significant change stipulated in the LASAA is related to the criteria for determining the categories of enterprises. The changes introduce new thresholds for defining micro-, small, medium-sized and large enterprises, the idea being that higher thresholds will lead to a reduction in costs and an easing of the administrative burden, to the greatest extent for micro- and small enterprises.
The proposed thresholds are as follows:
· for micro-enterprises: book value of assets - up to BGN 900 thousand (approx. EUR 450 thousand); net sales - up to BGN 1.8 million (approx. EUR 0.9 million);
· for small enterprises: book value of assets - up to BGN 10 million (approx. EUR 5 million); net sales - up to BGN 20 million (approx. EUR 10 million);
· for medium-sized enterprises: book value of assets - up to BGN 50 million (approx. EUR 25 million); net sales - up to BGN 100 million (approx. EUR 50 million);
· for large enterprises: book value of assets - over BGN 50 million (approx. EUR 25 million); net sales - over BGN 100 million (approx. EUR 50 million).
Certainly, the changes are essential for the large business and, in some cases, small and medium-sized businesses. In order to comply with all the new requirements and compile sustainability reports, it will be necessary to involve relevant experts. Sanctions of up to BGN 15 000 are provided for if a sustainability report is not issued or does not meet the regulatory criteria, the penalty being double for each subsequent breach.
