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LAW OF MONGOLIA 

June 19, 2015 Ulaanbaatar city

ON ACCOUNTING

/New revision/

CHAPTER ONE

GENERAL PROVISION

Article 1. The Purpose of the law

1.1.The purpose of this law is to determine the accounting principles, the legal basis of management and organisation, to regulate the relationships concerning the bookkeeping and preparation of financial statements of a business entity and organisation (a business entity) and to monitor the accounting activities.

Article 2. Accounting Legislation

2.1.The accounting legislation will comprise of the Constitution of Mongolia and other legislative acts issued in accordance with this law.

2.2.If an international treaty to which Mongolia is a party states otherwise than this law, then the provisions of the international treaty will prevail.

Article 3. Definition of the Terms

3.1.The terms used in this Law will have the following meanings:

3.1.1.“Accrual basis of accounting” means the accounting method recording income as it is earned or costs as they are incurred each time, regardless of when actual payments are received or made; 

3.1.2.“Double Entry” means the dual records of transactions in both debit and credit accounts;

3.1.3.“Primary accounting documents” means agreements, invoices, payment slips and other evidence collected for confirming incurred transactions;

3.1.4.“Journal” means an initial chronological record of the transactions before the entry into the general ledger;

3.1.5.“General Ledger” means all accounts, which comprise the financial statement of a business entity;

3.1.6.“Professional accountant” means an individual who has graduated from a university or college as an accountant with a bachelor degree or higher;

3.1.7.“Certified public accountant” is a professional accountant, financier and economist who has obtained a Professional Accountant Certification;

3.1.8.“Chief accountant” means a professional accountant appointed by the management of a business entity and is responsible for maintaining and managing the accounting books;

3.1.9.“Accounting policy document” means a document containing regulations, guidance and methodology, which determines the accounting principles governing the preparation of financial statements and the accounting basis;

3.1.10.“Corresponding financial organisation” means a financial organisation under the state central administrative organisation in charge of financial and accounting issues or under the Governors of aimag and capital city;

3.1.11.“Consolidated Financial Statement” means a financial statement stipulated in Article 6.4 of the Company Law;

3.1.12.“Executive management” means the following persons;

3.1.12.а.a person specified in Article 83 of Company Law; and;

3.1.12.б.for legal entities other than companies, a person defined as the executive management in the charter of such legal entity.

3.1.13.“Institute" means an organisation authorized to represent Mongolia to the Association of International Accountants, who ensures compliance with Articles 24-26 of this law in accordance with Article 19 of the Law on Government of Mongolia;

3.1.14.“A contracted accountant” means a professional accountant authorized to provide accounting and professional consulting services on a contractual basis;

3.1.15.“An organization providing professional accounting consulting services” means a legal entity authorized to provide professional accounting services on a contractual basis. 

/Sub-paragraphs 3.1.14 and 3.1.15 were added by the law of 17 January, 2020/

CHAPTER 2

ACCOUNTING PRINCIPLES AND STANDARDS

Article 4. Accounting standards

4.1.Economic entities and organisations will comply with the following standards: 

4.1.1.International Financial Reporting Standards (IFRS);

4.1.2.IFRS for small and medium entities;

4.1.3.IFRS for the state sector.

4.2.Classification and requirements for entities which will comply with Article 4.1.1 of this law will be established and publicly announced by a government member in charge of financial and accounting issues. This classification must cover the following entities:

4.2.1.any joint stock companies listed in a local or international stock exchange;

4.2.2.a company which has applied for a listing in a local or international stock exchange;

4.2.3.entities that hold licenses stipulated in Articles 15.2, 15.3, 15.4; 15.10.5, 15.10.6 and 15.10.13 of the Law on Licensing of Business Activities;

4.2.4.state or locally owned entities and entities in which they have ownership participation; 

4.2.5.public service entities that supply electricity, water or heating; 

4.2.6.political parties and non-governmental organisations performing governmental functions on a contractual basis in accordance with Article 19 of the Law on Government of Mongolia;

4.2.7.A business entity operating in the sectors of commercial banking, as a special purpose company or investment funds.

4.3.Standards stipulated in Article 4.1.2 of this law will be applicable to business entities that satisfy the requirements specified in Article 5.1 of the Law on Small and Medium Enterprises. 

4.4.Standards stipulated in Article 4.1.3 of this law will be applicable to the organisations specified in Article 4.1.34 of the Law on Budgets.

Article 41. General Duty of Accountant

41.1.Accountant shall comply with the legislation of Mongolia in professional operation.

/This article was added by the law of 17 January, 2020/

Article 5. Accounting principles

5.1.A business entity will obey the following accounting principles:

5.1.1.to be independent; 

5.1.2.to be continuous;

5.1.3.to be based on genuine implementation;

5.1.4.to be true and accurate;

5.1.5.to be measurable;

5.1.6.to be coherent.

Article 6. Accounting basis

6.1.Business entities will carry out their bookkeeping on an accrual basis.

Article 7. Accounting language and currency

7.1.A business entity, organisation, foreign business entity, organisation and their representative offices operating in the territory of Mongolia will carry out their bookkeeping in Mongolian language. 

7.2.A business entity operating in the territory of Mongolia will record and report its transactions in the national currency.

7.3.A business entity, organisation and their representative office may record their transactions in foreign currencies upon having the consent of the state central administrative organisation in charge of financial and accounting issues. In this case, items in their financial statements will be expressed and reported in togrog, the national currency.

CHAPTER 3

ACCOUNTING RECORDS

Article 8. Financial statements

8.1.The financial statements of legal entities and organisations subject to the accounting and reporting obligations of IFRS will have the following components: 

8.1.1.they will report on financial standing;

8.1.2.comprehensive income statement;

8.1.3.report on equity changes;

8.1.4.cash flow statement;

8.1.5.clarifications to the financial statement.

8.2.Entities stated in Article 4.4 of this law will conduct the accounting and reporting in accordance with Article 26.3 of the Law on Budgets.

8.3.A business entity with one or more subsidiaries will prepare the Consolidated Financial Statements stated in Article 3.1.11 of this law. In the case of a chain where the subsidiaries have subsidiaries then the ultimate parent company will prepare the Consolidated Financial Statements. If the ultimate parent company is registered in a foreign country, then the ultimate parent company registered in Mongolia from its subsidiaries will prepare the consolidated interim financial statement. 

8.4.Financial statements will be signed and stamped by the executive director and chief accountant of the business entity and the executive management will be responsible for the accuracy of the financial statements.

Article 9. Reporting of financial statements

9.1.A business entity will submit its financial statements electronically to the corresponding financial institution within a period prescribed by this law. 

9.2.The corresponding financial institution which received the financial statements electronically will be responsible for the following obligations: 

9.2.1.monitoring whether reports are submitted within the time prescribed by this law; 

9.2.2.monitoring whether reports have been prepared by a professional or certified accountant; 

9.2.3.processing the data stated in the financial statement for the purposes of statistic survey.

9.3.Information stated in the financial statement will be disclosed to interested persons in the following cases:

9.3.1.The financial statement information of business entities subject to a standard specified in Article 4.1.1 of this law will be disclosed to interested persons; 

9.3.2.to any interested person if consented to by the management of such a business entity. 

9.4.Budget funded organisations will prepare and submit their financial statements in accordance with Article 8 of the Law on Budgets.

9.5.The financial statements of a business entity to be submitted electronically to the corresponding financial institution should be certified by the signature of the executive management or chief accountant.

9.6.The relevant authorities will settle the tax, premium and fees based on the electronic financial statements certified by the corresponding financial institution. Moreover, competent authorities will use the certified financial statements and clarifications of the business entity provided in the electronic database. 

9.7.A business entity may disclose only the audited annual financial statements and its auditor’s report by uploading these to its website.

Article 10. Financial year and submission period for financial statements

10.1.The financial year of business entities will commence on 1 January and end on 31 December of each year.

10.2.The financial year of a newly established business entity will start on a day the new business entity is registered with the state registration and end on 31 December of that year. 

10.3.The first semi-annual financial statements of business entities subject to the standards specified in Article 4.1.1 of this law should be submitted by 20 July, while the annual financial statements should be submitted by 10 February of the following year in an electronic format to the corresponding financial institution.

10.4.The annual financial statements of business entities subject to preparing Consolidated Financial Statements should be submitted by 1 March of the following year in an electronic format to the corresponding financial institution dealing with the parent company. 

10.5.A business entity except those specified in Article 10.3 and those participating in consolidated financial statements should submit its financial statements within 10th February of following year in an electronic format to the corresponding financial institution.

10.6.Financial organisations under the governor of an aimag or capital city should deliver the consolidated annual financial statements of the corresponding business entities by 20 March of the following year to the state central administrative organisations in charge of financial and accounting issues.

Article 11. Keeping the accounting documents and financial statements

11.1.Business entities will keep accounting documents and financial statements for not less than 10 years unless otherwise stated in the legislation on Archives Archive and Official Documentation. 

/This part was revised by the law of 24 April, 2020/

Article 12. Inventory and settlement counting

12.1.The executive management and chief accountant of a business entity will be responsible for organizing the counting of the inventory and settlements. 

12.2.Compulsory counting of the inventory and settlements must be conducted in the following cases: 

12.2.1.Prior to the issuance of the annual financial statements; 

12.2.2.Where there is replacement of a stock-keeper and employee dealing with the inventory of the properties; 

12.2.3.In the case of missing properties or deemed illegal disposal of properties; 

12.2.4.After the occurrence of a sudden disaster such as natural disasters, fire disaster, dangerous phenomenon, accident; 

/This part was revised by the law of 02 Feb, 2017/

12.2.5.In the case where a decision about the reorganisation or liquidation of a business entity is made, when the bankruptcy case has been initiated;

12.2.6.Other cases specified in the law. 

12.3.Counting of state properties and settlements will be carried out within the term specified in the Law on State and Local Property and other laws or when its inevitably required.

12.4.A business entity wholly or partially owned by the state will settle a missing or mislaid properties' estimate by whichever is the higher of the cost and market price of the properties.

Article 13. Primary accounting documents

13.1.The primary accounting documents will be the basis for bookkeeping and true and accurate financial statements and information. 

13.2.A Cabinet member in charge of financial and accounting issues will approve the forms for, and compilation methodology of, the primary accounting documents to be commonly followed by business entities.

13.3.Except for those prescribed in Article 14.2 of this law, a business entity may use internal documents and forms which are appropriate for the nature of the activities subject to the approval of its governing body specified in the charter. 

13.4.The executive management and accountants of a business entity will be responsible for verifying in writing and electronically the compilation of the primary accounting documents and preparing entries for each movement and change of assets and liabilities, which occurred within the scope of the service and production stages and business operation of the entity. 

13.5.The primary accounting documents will become valid when they are signed and affixed with a seal by the persons who have prepared, accepted and approved them. The primary accounting documents which have been prepared electronically should be certified by electronic signature. 

13.6.An employee who has prepared, agreed and accepted the primary document based on the checking of it will be responsible for the accuracy of the primary accounting documents. 

13.7.It is prohibited to record and reflect the work and transactions that have no primary accounting documents in the financial statement.

Article 14. Accounting record

14.1.Business entities, organisations and representative offices of foreign business entities and organisations operating within the territory of Mongolia will carry out the bookkeeping and issue financial statements. 

14.2.A business entity will apply the double entry bookkeeping system. 

14.3.The processing of accounting information will be undertaken in the following order: 

14.3.1.preparing the primary accounting documents; 

14.3.2.making journal entries; 

14.3.3.keeping the detailed and general ledger accounts;

14.3.4.making the date of transactions;

14.3.5.preparing financial statements.

14.4.The following must be recorded in the accounting records:

14.4.1.all business transactions; 

14.4.2.all assets, investments and receivables; 

14.4.3.all liabilities; 

14.4.4.financial resources of business operations; 

14.4.5.all incomes;

14.4.6.all expenses; and

14.4.7.other items prescribed by IAS. 

14.5.The relevant primary accounting documents for the transactions of business entities and registration forms should be kept along with the other documents and forms regardless of in which territory or country the transaction was made.

Article 15. Rectify the accounting errors

15.1.Correction of errors which have occurred during the preparation of accounting records will be made based on documents and reports reflecting the reason for such error and the methods of correction, and it should be certified by the signature of officers who approved and made the rectification. 

15.2.Errors occurring in accounting records should be rectified by way of stating the error in the financial statements of that reporting period.

Article 16. Rights to demand additional financial information and clarifications

16.1.The following authorities and such other persons authorised by law have a right to demand additional explanation and clarification regarding the items stated in the financial statements:

16.1.1.a corresponding financial institutions;

16.1.2.state and non-governmental organisations that oversee and regulate banking and financial markets.

16.2.The chief accountant of a business entity will provide an additional explanation and clarification if requested by persons referred in Article 16.1 of this law accurately, completely and in a timely manner.

CHAPTER FOUR 

MANAGEMENT AND ORGANISATION OF ACCOUNTING

Article 17. Management structure of accounting

17.1.The state central administrative body in charge of finance and accounting will implement the following functions: 

17.1.1.implement, manage and organise a united policy on accounting, auditing, tax authorised consulting and asset evaluation at a national level;

17.1.2.organize and monitor the implementation of relevant legislation;

17.1.3.approve and implement the national and relevant accounting standards, and regulations applicable to business entities; 

17.1.4.approve and implement the economic sector accounting regulations, guidance, methodology and forms jointly with the relevant government authorities; 

17.1.5.set the regulations governing the electronic submission of financial statements to the corresponding financial institutions and application of consolidated information, and consolidate the financial statements of business entities nationwide, conduct surveys and draw conclusions;

17.1.6.cooperate with the state central administrative body in charge of education with respect to monitoring training programs for the preparation of accounting professionals and qualification; 

17.1.7.monitor jointly with the corresponding financial institution the compliance with IFRS by the business entities subject to it;

17.1.8.monitor the operations of a non-governmental organisation which has been delegated with some of the accounting functions on a contractual basis pursuant to Article 19 of the Law on Government; 

17.1.9.adopt the regulation on the granting and extending of authorisation of certified public accountants and approve the examination committee composition; 

17.1.10.approve the regulation on the granting of a right to be a certified public accountant to the individuals who have passed the relevant examinations organised in Mongolia or overseas by internationally recognised organisations;

17.1.11.publicly inform about permitted accounting softwares to be used by business entities and organisations operating in the territory of Mongolia.

17.2.Within the structure of the state central administrative organisation in charge of financial and accounting issues, it will have departments responsible for accounting, auditing, qualified tax consulting, assessment policy and methodology.

Article 18. Management and organisation of accounting for a business entity

18.1.The executive management of a business entity will be responsible for the management of accounting. 

18.2.The management of a business entity will approve and comply with the accounting policy document which complies with the accounting legislation, standards, rules, regulations and guidances. 

18.3.A person who will keep the accounting records and prepare the financial statements of business entities or organisations must be either a professional or a certified accountant.

18.4.A business entity may hire a contracted accountant or a consultancy rendering professional accounting services. 

18.5.An accountant or contracted accountant being hired or employed by a business entity with the vacancy of one accountant will serve as a chief accountant. 

18.6.An organisation providing a professional consultancy service to a business entity will appoint a person who will exercise the rights and obligations of the chief accountant in such business entity. 

18.7.Article 18.3 of this law will not apply to the executive management of business entities other than those subject to the standards stipulated in Article 4.1.1 of this law, if he/she is either a professional or certified accountant. 

18.8.An agreement for professional consultancy services should provide for the rights, obligations, and liabilities of the chief accountant appointed as per Article 18.6 of this law along with issues related to potential disputes that may arise during the provisions of the consultancy services. 

18.9.The Institute shall issue a permit to conduct accounting operations and to provide professional consulting services on a contractual basis.

/This paragraph was added by the law of 17 January, 2020/

18.10.Failure to comply with legislation of Mongolia in providing accounting and professional consulting services shall serve as the ground to revoke the permit by the Institution.

/This paragraph was added by the law of 17 January, 2020/

Article 19. Internal monitoring of accounting

19.1.An authorised person at a business entity will determine the policy, management of the internal monitoring of accounting. 

19.2.Business entities subject to the standards stated in Article 4.1.1 of this law may have their own internal auditing unit.

Article 20. Rights and duties of a chief accountant

20.1.In addition to being highly qualified and complying with ethical requirements, a chief accountant of business entities will have the following authority: 

20.1.1.demand and secure primary accounting documents, other related documents, data and information within the specified timeframe;

20.1.2.refuse to implement any decision inconsistent with international accounting standards and legislation; 

20.1.3.countersign on income and expenditure supporting documents and financial statements of business entities; 

20.1.4.refuse to record transactions where the primary documents are invalid or the transactions are not confirmed by the primary documents;

20.1.5.in order to protect their own rights file a request to the relevant authority in the case of the unreasonable imposition of liabilities or dismissal by the management of a business entity in relation to the implementation of his/her rights provided under this law. 

20.2.A chief accountant will have the following obligations: 

20.2.1.implement the lawful requirements set out by the authorised persons specified in Article 17.1 of this law, in a complete and timely manner;

20.2.2.preparing the accounting policy of a business entity and arranging its approval and implementation; 

20.2.3.carrying out the accounting records and issuing the financial statements in accordance with the relevant international standards, regulations, standards and guidances, approved by the competent state authority and principles stipulated in Article 6 of this law; 

20.2.4.checking whether the accounting records are in compliance with the requirements provided for under this law and other financial laws and regulations;

20.2.5.checking the account's payables, receivables and payments and reviewing and confirming the transactions before the actual transaction is made;

20.2.6.performing inventory and settlement counting, and resolving the results of this counting, undertaking settlements with suppliers and buyers and arranging and managing the verification and documentation of the balances; 

20.2.7.checking and reviewing the calculations of tax, payments, fees and premiums payable by a business entity and procuring a professional service advice and assistance;

20.2.8.providing professional assistance, in relation to accounting related matters, to the management of a business entity; 

20.2.9.organising the provision of timely and accurate information to the management and users of the financial statements of a business entity;

20.2.10.conducting a professional review of the recommendations, made by the auditing organisation, on the adjustment of accounting errors, introducing it to management, and making those adjustments to the quarterly or annual financial statements of the relevant period subject to management’s approval and if not approved by management then submitting a reasonable explanation to the auditors; 

20.2.11.monitoring the work performance of accountants working under her/his direct supervision and taking actions regarding their qualifications and involving them in training;

20.2.12.submitting the financial statements of a business entity to an authorised organisation under this law and within the period stipulated by the law; 

20.2.13.complying with the professional code of ethics approved by the authorised organisation.

Article 21. Accounting and Audit Standards Committee

21.1.Accounting and Audit Standards Committee (Standards Committee) will comprise of not less than 9 members qualified in accounting and auditing and are appointed by the resolution of the Cabinet member in charge of financial and accounting issues.

21.2.Regulations governing the activities and financing of the Standards Committee will be approved by the Cabinet member in charge of financial and accounting issues.

21.3.The Standards Committee will have following functions:

21.3.1.reviewing the official translation of IFRS and ISA and approving the consumer interpretation and recommendations; 

21.3.2.submitting a national accounting and relevant standards and regulations to a Cabinet member in charge of financial and accounting issues for review and approval;

21.3.3.other activities as determined by the operating regulations of the Standards Committee.

Article 22. A state inspector of accounting

22.1.There will be a state inspector authorized to monitor the implementation of the Accounting Law and the Audit Law. The State inspector will be classified as a state chief inspector, state senior inspector and state inspector. 

22.2.The Government will grant the title of a state chief inspector of accounting. 

22.3.A state chief inspector will grant the title of a state senior inspector and state inspector of accounting. 

22.4.A state senior inspector and state inspector must be certified public accountants. 

22.5.A state inspector of accounting will use printed penalty sheets and form of the penalty sheet will be approved by a Cabinet member in charge of the financial and accounting issues.

22.6.The Government will adopt a regulation regarding the state inspector of accounting.

Article 23. Additional salary and bonus for accounting personnel

23.1.Pursuant to a management decision of a legal entity and organisation, an additional salary may be given to the accounting personnel for the certification. 

23.2.A bonus may be granted to accounting personnel who have worked with effective performance.

CHAPTER FIVE

CERTIFIED PUBLIC ACCOUNTANT (CPA)

Article 24. Eligibility criteria of the person to sit a CPA exam

24.1.The following requirements must be met in order to take the CPA Exam: 

24.1.1.graduated from a university and institute with a bachelor degree or higher in accountancy and worked as an accountant for not less than 2 years; and 

24.1.2.completed the accounting credits as included in the training programs of a university, institute or college, graduated with a bachelor degree or higher in finance, economics or management and worked as accountant for not less than 4 years.

Article 25. CPA title and its revocation

25.1.The CPA title will be granted for 4 years upon passing the first level exam, and for an indefinite period upon passing the second level exam. 

25.2.An accountant's CPA title will be terminated in the following cases as per the decision of the board of the Institute: 

25.2.1.if they are deceased; 

25.2.2.if they have self-refused; 

25.2.3.if they have failed to either pass the next level exam or have not taken the next level exam within 2 years without justifiable reasons; 

25.2.4.if it was confirmed that s/he has breached the professional code of ethics, laws and regulations and relevant standards.

25.3.It is prohibited for an individual, whose CPA title has been terminated, to take the CPA title examination within one year.

Article 26. Functions of the Institute

26.1.The Institute will have the following functions as per the decision and agreement set forth in Article 17.1.8 of this law:

26.1.1.granting of the CPA title and organising continuous qualification trainings; 

26.1.2.approving and monitoring the implementation of the code of ethics of CPA and auditors; 

26.1.3.translating the IAS and ISA and their amendments thereof and preparing the national standards and publicising a consumer interpretation and guidelines; 

26.1.4.providing methodological management, advice and information to auditing legal entities;

26.1.5.developing reporting methodology that provides for the correlation between strategy, governance, performance and projections of legal entities and organisations;

26.1.6.revoking the CPA title of auditors who have breached the code of ethics and operational standards of auditors; 

26.1.7.supervising and enforcing the party set out in 4.1.9 of the Law against Money Laundering and Terrorism Financing to fulfil the obligation set out in that law.

/This sub paragraph was added by the law of 10 October, 2019/

CHAPTER SIX

MISCELLANEOUS

Article 27. Sanctions for breach of accounting legislation

27.1.Unless an official who has breached the accounting legislation is subject to criminal liability, he or she shall be held liable as provided by the Law on Public Service.

27.2.An individual, legal person who has breached this law is subject to the liability in accordance with Criminal law or Law on Offence.

/This Article has been revised by the law of 04 December, 2015/

Article 28. Effective date of the law

28.1.This law will become effective as of 1 January 2016.

SPEAKER OF THE PARLIAMENT OF MONGOLIA ENKHBOLD.Z