Audit and Compliance in Laos: A Guide for Foreign Investors

• Mandatory audits are required for companies with total assets of more than 50 billion kip (US$5.4 million).
• The Enterprise law and the Law on Independent Audit are the main laws that establish audit requirements in Laos.
• The Ministry of Finance is responsible for setting the auditing standards, which is the International Standards on Auditing (ISA).

The Enterprise law and the Law on Independent Audit are the main laws that establish audit requirements in Laos.

Mandatory audits are required for companies with total assets of more than 50 billion kip (US$5.4 million). This is also the case for public interest entities (PIE), foreign enterprises, state-owned enterprises, and other external loan and grant projects. These companies must strictly conduct bookkeeping obligations and responsibilities from the date of its registration.

Appointing auditors

The Ministry of Finance is responsible for setting the auditing standards, which is the International Standards on Auditing (ISA).

There are two types of independent audits:

• Statutory audits – this is a mandatory audit of the auditee’s financial statements; and
• Contractual audits – this is the voluntary audit requested by the auditee for the examination of its financial statements.

The audit process for non-PIE is as follows:

1. Auditor selection – this is done by shareholder votes or upon the proposal by an investor;
2. Audit engagement and preparation;
3. Audit planning – defining an audit strategy and program as well as engaging in evidence;
4. Audit performance – performing the audit in accordance to the audit strategy; and
5. Auditor’s report preparation.

For PIEs, the audit process is:

1. Selection of statutory auditor – this is done at least 60 days before the shareholders’ meeting;
2. Timing and termination of audit agreement – the audit agreement between the PIE and the audit firm is five years, which is renewable only once; and
3. Disclosure of audit firm fees – the auditor must publish its fees related to the audit of the PIE in the gazettes of the Ministry of Finance.

Audit practitioners must adhere to the Code of Ethics for Professional Accountants.

Fiscal periods

The fiscal period generally starts from January 1 to December 31, and the Minister of Finance can approve reporting period start dates, although the reporting period must remain 12 months. Annual returns are due by January 20 and the filing of financial statements are due on March 31 of the following tax year.

Accounting standards

Public interest entities (PIEs) in Laos are required to apply the IFRS principles when preparing their financial statements. PIEs comprise of financial institutions, listed companies, and banks.

Non-public interest entities (non-PIEs) — which comprise of large, medium, and small companies — can apply the Laos Financial Reporting Standards for Non-Public Interest Enterprises (FRS for Non-PIEs). FRS for Non-PIEs is based on the FRS for SMEs standards.

Micro-enterprises shall apply under the Guideline for Micro-enterprises Accounting.

FRS applies to businesses that meet two of the three criteria:

For small enterprises

• Employ no more than 19 people throughout the financial year;
• Have total assets of no more than 250 million kip (US$27,000); and
• Have an annual income of no more than 400 million kip (US$43,700).

For medium-sized enterprises

• Employ no more than 99 people throughout the financial year;
• Have total assets of no more than 1.2 billion kip (US$131,200); and
• Have an annual income of no more than 1 billion kip (US$109,400).

For large enterprises

• Employ no more than 99 people throughout the financial year;
• Have total assets of no more than 1.2 billion kip (US$131,200); and
• Have an annual income of no more than 1 billion kip (US$109,400).

Annual reports

The accounting entries must be kept in the Lao language and in the Kip currency unless otherwise given permission by the Ministry of Finance. If financial statements are in another language and currency, they must be translated and reported jointly.

The required documents needed to file annual reports are:

• Income statement;
• Statement of financial position; and
• Any explanatory notes to the financial statements.

Penalties for non-compliance

There is a fine of 0.1 percent per day based on the tax payable for late filing and payment of taxes.

For the under-reporting or underpayment of taxes, the penalties are:

• First offense – fine of 30 percent of the tax payable;
• Second offense – fine of 60 percent of the tax payable; and
• Third offense – fine of 100 percent of the tax payable and the permanent closure of the business.

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