In recent years, ESG – Environmental, Social and Corporate Governance, and CSR – Corporate Social Responsibility, are leading factors in the strategy and good practice planning of modern European enterprises. ESG regulations in the European Union are growing significantly every year and with them the demands placed on businesses wanting to be sustainable and visible to EU investors.

In order to comply with the new requirements, on 27.08.2024 in issue No. 72 of the State Gazette was promulgated an Act amending and supplementing the Accountancy Act, which transposes into our national legislation the provisions of two European Directives – Directive (EU) 2022/2464 of the European Parliament and of the Council of 14 December 2022 amending Regulation (EU) No. 537/2014, Directive 2004/109/EC, Directive 2006/43/EC and Directive 2013/34/EU as regards the reporting by enterprises in relation to sustainability and Delegated Directive (EU) 2023/2775 of the Commission of 17 October 2023 amending Directive 2013/34/EU of the European Parliament and of the Council as regards amendment of the size indicators for micro-, small-, medium- and large-sized enterprises and groups.

The amendments fulfil the obligation to harmonise national and European legislation regarding the reporting of enterprises in relation to sustainability and regarding the amendment of size indicators for micro-, small-, medium- and large-sized enterprises.

1. Amendments related to the reporting by enterprises related to sustainability

In accordance with the purpose of Directive 2022/2464 to respond to the increased demand for information in relation to sustainability, the amendments adopted by the National Assembly in the field of accounting expand the scope of non-financial information reported in the activity report and increase the scope of the reporting enterprises. Large enterprises, as well as small- and medium-sized enterprises that are enterprises of public interest, excluding micro-enterprises, are also required to include in the activity report information on major intangible resources and an explanation of the manner in which the enterprise’s business model depends on them as well as the manner in which these resources are a source of value creation for the enterprise.

Large enterprises, as well as small- and medium-sized enterprises that are enterprises of public interest, as well as parent enterprises of large groups of enterprises, are obliged to include in their activity report a separate, clearly distinguishable section with information in relation to sustainability matters – a sustainability report carried out by registered auditors as required by law. The sustainability report shall contain information necessary to understand the enterprise’s impacts on sustainability matters, as well as the information necessary for understanding the way in which those matters impact the development, results and condition of the enterprise. This does not apply to: 1. micro-sized enterprises; 2. supplementary pension funds, funds for payments and insurance funds; 3. The Bulgarian National Bank and postal operators carrying out postal money transfers; 4. alternative investment funds and collective investment schemes; 5. enterprises in insolvency proceedings or in liquidation, as well as enterprises which have not carried out activities during the reporting period and have declared this fact in accordance with the law.

The obligation of preparing an activity report containing a sustainability report is foreseen to come into force for the reporting year 2024 for large enterprises which are enterprises of public interest and which as of December 31 of the reporting period exceed the criteria for the average number of employees in the financial year of 500, as well as enterprises of public interest which are parent enterprises in a large group which as of December 31 of the reporting period exceeds on a consolidated basis the criteria for the average number of employees in the financial year of 500. The obligation for the remaining enterprises shall arise in phases in the following reporting years – until 2028.

As a result of the amendments, investors will be given the opportunity to better understand the risks and opportunities that sustainability matters pose for their investments, as well as the impacts of these investments on people and the environment. The amendments are a response to the drive to strengthen social responsibility of companies.

With the amendments to the Accountancy Act an obligation to prepare and publish a sustainability report under certain conditions is also provided for the subsidiaries and branches of enterprises regulated by the legislation of a third country.

Fines and pecuniary penalties of between BGN 500 and BGN 15,000 have also been introduced for individuals or legal entities who fail to include a sustainability report in the activity report, respectively in the consolidated activity report – consolidated sustainability report, or fail to comply with the required format, or include incomplete or incorrect information, as well as for failure to publish the sustainability report within the deadlines provided for by law.

1. Amendments related to changes in size indicators for micro-, small-, medium- and large-sized enterprises

The amendments to the Accountancy Act also introduce the provisions of the Delegated Directive 2023/2775. The adopted amendments set new, higher values for the financial indicators of balance sheet value of assets and net turnover when categorising the enterprises and groups according to their size. The reason for the change is dictated by the significant inflationary processes in 2021-2022 and the reported inflationary growth in 2013-2023 with the aim of preventing micro- and small-sized enterprises from applying publication and reporting regimes that are applicable to larger companies.

The Act on Amendment and Supplement to the Accountancy Act shall enter into force for the most of its part retroactively from 6 July 2024 and for the rest – from the day of its promulgation in the Official Gazette – 27 August 2024.