Company size classification and the audit requirement

Why the size classification matters

Law No. 06/L-032 on accounting, financial reporting and auditing — in force since 1 January 2019 — divides companies into four categories: micro, small, medium-sized and large. This is not a formal classification for statistical purposes. Four very practical things follow from the category your company falls into.

• The reporting framework — whether you report under full IFRS, under IFRS for SMEs, or under a simplified package for micro-enterprises.
• The assurance required on the statements — whether a management signature is enough, whether a review report is needed, or whether a full audit opinion is required.
• Who signs the statements — the chief executive alone, or together with the chief financial officer and/or a certified accountant.
• The deadline and the liability — the filing date with the KCFR and the fines for late filing or failure to file.

Many owners learn their category only as 30 April approaches — and by then it is too late to engage an auditor. The calculator below does not stop at the name of the category: it also tells you the reporting framework, the assurance required, the signature, the deadline and the risk of a fine, so that you know in advance what is coming.

The company size criteria in Kosovo

Article 5 of Law 06/L-032 sets out three criteria, measured on the last day of the preceding financial year: the balance sheet total per the statement of financial position, the annual net turnover, and the average number of employees during the year. The thresholds are these:

The figures in the table are limits, not requirements: what matters is how many of them you exceed, not how many of them you reach.

How the “two out of three” rule is read

This is where the mistake is made most often. The law does not say “if your turnover is below X, you are a small enterprise”. It says:

• Micro — the company does not exceed at least two of the three limits of 350,000 EUR in assets / 700,000 EUR in turnover / 10 employees.
• Small — it is not micro and does not exceed more than two of the limits of 4,000,000 / 8,000,000 / 50.
• Medium-sized — it is neither micro nor small and does not exceed two of the limits of 20,000,000 / 40,000,000 / 250.
• Large — it exceeds at least two of the three limits of 20,000,000 / 40,000,000 / 250.

The practical consequence: a company may have high turnover and still not move up to the category above, because its assets and headcount stay below the limits. And the other way round — a construction company with large fixed assets and many employees may move up a category even without spectacular turnover. That is why the three figures must always be read together, never in isolation.

Two situations call for particular care. Newly established companies are classified on the figures of their first year, extrapolated to an annual basis — so if trading started in June, the six-month figures are projected over twelve. Groups of companies are classified on a consolidated basis, not on the figures of each entity separately; this often puts the group one category higher than each individual director expects.

The three classes of micro-enterprise

Article 9, together with the KCFR guidance, divides micro-enterprises into three classes according to annual net turnover. What differs between them is how much you report and what you report:

Class I — turnover below 50,000 EUR

Only an income statement is prepared, on either the cash basis or the accrual basis — the choice is yours. It is signed by the chief executive or the owner.

Class II — turnover of 50,000–300,000 EUR

A statement of financial position at period end is prepared together with an income statement, necessarily on the accrual basis. It is signed by the chief executive or the owner, together with the finance director or a certified accountant.

Class III — turnover above 300,000 EUR

Full annual financial statements are prepared under IFRS for SMEs. They are signed by the chief executive and the finance director; if the latter is not certified, a certified accountant signs as well.

All three classes, whatever their size, must disclose the average number of employees, total assets and total liabilities at the last day of the period, as well as the basis of preparation. One thing is clear for all of them: micro-enterprises are required to have neither an audit nor a review.

The 4,000,000 EUR threshold: when an audit is mandatory

For small and medium-sized companies, Article 8 requires reporting under IFRS for SMEs. But the assurance required on those statements does not depend on the name of the category — it depends on a single figure: annual net turnover of 4,000,000 EUR.

• Above 4,000,000 EUR of net turnover — an audit opinion is required, accompanied by a compliance statement signed by the chief executive and the chief financial officer.
• Up to 4,000,000 EUR of net turnover — a review report from an independent auditor is enough, carried out under the International Standards on Review Engagements (ISRE).

This means that a small enterprise with a turnover of EUR 4.6 million is subject to a full audit, while a medium-sized enterprise that moved up the categories through its assets and headcount, but with turnover below 4 million, stays with a review. So the question “does my business need an audit” cannot be answered by the category alone — the turnover has to be looked at as well.

For large enterprises, Article 7 is categorical: reporting under full IAS/IFRS and an audit opinion from an audit firm certified by the KCFR and registered in Kosovo. Filed together with the statements are the compliance statement, signed by the chief executive and the chief financial officer, and the management report — a fair review of the development, performance, position, principal risks and uncertainties of the company.

What public interest entities (PIEs) are

Article 1.14 defines three groups that are treated as public interest entities, regardless of the figures in their statements:

• Financial institutions licensed by the Central Bank of Kosovo — banks, insurance companies, microfinance institutions.
• Publicly and socially owned enterprises, as well as commercial companies that meet the criteria of large enterprises.
• Entities whose securities are traded on a regulated market.

If you are a PIE, the oversight and the reporting expectations are higher and the statutory audit is an inseparable part of the annual cycle. That is why the calculator has a separate box for this status: the three figures alone cannot detect it.

Audit or review — what the difference is

Both are engagements performed by an independent auditor, but the level of assurance they provide is fundamentally different.

An audit is carried out under the International Standards on Auditing (ISA) and gives reasonable assurance — the highest practical level of assurance. The auditor tests controls, confirms balances with third parties, verifies inventory, gathers evidence on material items and finally expresses an opinion on whether the statements fairly present the financial position.

A review is carried out under the International Standards on Review Engagements (ISRE) and gives limited assurance. The work rests mainly on inquiries of management and on analytical procedures; the auditor does not express an opinion, but a conclusion phrased in the negative — that nothing has come to their attention to indicate that the statements were not properly prepared.

A review therefore takes less time and costs less, but it also gives less assurance to banks, donors or potential buyers. Many businesses below the 4,000,000 EUR threshold choose an audit voluntarily when they seek financing or enter donor-funded projects. See our audit service to understand what each engagement involves in practice.

Filing deadlines and fines

Article 17 sets two deadlines that are not extended:

• 30 April of the following year — filing and publication of the audited statements with the KCFR, with a copy to the ministry responsible for trade and industry.
• 30 June — filing of the audited consolidated statements.

For failure to file or late filing, fines range from 1,000 EUR to 20,000 EUR, with the higher amounts applying to large enterprises. It is worth remembering that an audit does not start and finish within a week: if the statements are due on 30 April, engaging the auditor and preparing the documentation should begin early in the year. For the full calendar of obligations, see the tax deadlines, and for the underlying texts the legislation (in Albanian).

Who signs the financial statements

The signature is not a formality — it carries legal liability. In large enterprises the statements are signed by the chief executive and the chief financial officer; if the latter is not a certified accountant, a certified accountant from the public register signs as well. In small and medium-sized enterprises they are signed by the chief executive or general director, the finance director or chief financial officer, and/or the certified accountant for medium-sized companies and groups. In micro-enterprises the requirement rises with the class — from the owner’s signature alone to co-signature with the certified accountant.

If your statements are prepared by someone who does not appear in the public register of certified accountants, the filing may be rejected. This is part of what our accounting service covers, and if you want to understand the figures beyond the legal obligation, see our financial analysis.