Pursuant to the new amendments to the Accounting Act, large companies will also have to disclose non-financial information in their annual reports. This includes reporting on their ESG aspects along with the traditional financial reporting
After a certain amount of delay compared to the European deadlines, in August 2024 Bulgaria adopted amendments to the Accounting Act. Amendments were also adopted to the Independent Financial Audit Act (the Independent Financial Audit and Assurance on Sustainability Act after the amendments), which regulate the activities of auditors and the rules for acquiring legal capacity of a registered sustainability auditor.
Pursuant to the new amendments to the Accounting Act, large companies will also have to disclose non-financial information (sustainability data) in their annual reports. This includes reporting on their ESG aspects (i.e. environmental, social and governance) along with the traditional financial reporting. For some sectors and obligated companies, these requirements start to apply almost immediately.
The new rules also provide for higher financial audit thresholds. They are part of the EU’s efforts to encourage sustainable business practices. As a reminder, with these amendments Bulgaria transposes two European directives: (i) Directive (EU) 2022/2464 of the European Parliament (the so-called CSRD Directive or ESG-Reporting) and (ii) Commission Delegated Directive (EU) 2023/2775 of 17 October 2023 as part of the Green Deal.
The sustainability report is prepared by the obligated enterprises and is included in their annual activity report, where the latter is subject to announcement in the Commercial Register. The sustainability report must contain non-financial information on the impacts of the enterprise on “sustainability issues”, including how these issues affect the development, performance and condition of the enterprise.
The Accountancy Act also introduces a definition of “sustainability issues” and these are environmental, social and human rights factors as well as governance issues. Thus, the European standards for the so-called ESG – reporting are introduced in the Bulgarian legislation, which examine the enterprises impact on these factors.
The reporting will be based on the European Corporate Sustainability Standards (ECSS), which cover various aspects of the enterprises environmental, social and governance activity. The standards require enterprises to report data on more than 1,200 indicators, some of which may not be reported based on the enterprises activity.
The prepared sustainability report is subject to a mandatory assurance on sustainability reporting. This means that the sustainability report must be audited by a registered auditor. The latter forms an audit opinion on whether the sustainability report has been prepared in accordance with the sustainability reporting framework applicable to the respective enterprise. The audit opinion must be expressed in a written report which is different from the auditor’s report on the financial audit.
The following enterprises are obliged to prepare a sustainability report:
Under the law certain enterprises are not obliged to prepare a sustainability report – e.g. microenterprises, supplementary pension funds, BNB, etc.
For the large public-interest enterprises and for public-interest enterprises that are parent enterprises the first reporting period is 2024 in case their average number of employees is above 500 as of 31 December 2024. Large enterprises and parent enterprises that are not public-interest enterprises are obligated to prepare a sustainability report on their activities for the accounting year 2025. For all other categories of enterprises, the obligation will arise periodically in the following years until 2028.
The financial sector, including banks, insurers and pension companies will face significant challenges in reporting, particularly when it comes to tracking indirect emissions linked to the financial services they provide to end customers.
Pursuant to the new requirements, small enterprises subject to financial audit must exceed a threshold of BGN 4,000,000 (double the previous threshold of BGN 2,000,000) book value of assets and/or net sales revenue of BGN 8,000,000 (double the previous threshold of BGN 4,000,000). There are no changes to the requirements for average staff number (i.e. 50 employees). In practice, the amendments ease the administrative and financial burden for enterprises, as most of the companies in Bulgaria will no longer be obliged to carry out a financial audit.
In addition, the smallest enterprises that are part of a consolidated financial audit are not subject to independent financial audit when the following criteria are met:
It is expected that more standards related to ESG reporting will be introduces in the future, and companies will be required to report more detailed information on their environmental and social risks. Those who fail to comply with the new requirements will face penalties. However the reputational risks from reporting false information seems to be more significant than the financial penalties which currently range between BGN 2,000 and BGN 15,000.
