Annual Consolidated Financial Statement 2022: improving the SRS tax report should be continued


In accordance with the law, the State Audit Office of Latvia has concluded the annual financial audit of the annual consolidated financial statement (ACFS), although it is still qualified opinion as every year, the “homework” to be done is very clear.


  • The ACFS 2022 consists of 73 reports; the total balance is 37.2 billion euros, the consolidated government debt is 16.6 billion euros, revenues constitute 16.8 billion euros, and expenditure is 16.3 billion euros.
  • Opinion of the State Audit Office of Latvia on ACFS 2022 is qualified due to significant limitations on scope regarding some balance sheet items, for which the State Audit Office of Latvia could not obtain sufficient and appropriate audit evidence and determine the amount of necessary corrections.
  • The most significant limitation on scope was impossibility to audit the information included in the tax report of the State Revenue Service of Latvia (SRS).
  • For the second year now, the State Audit Office of Latvia has the influence of the decisions of the Competition Council on the ACFS.
  • The cooperation of the SRS with clients in the monitoring of personal income tax (PIT) payments needs to be improved.

“Ensuring that the information included in the SRS tax report is auditable, that is, by ensuring that both analytical accounting and other controls would allow the auditors to gain confidence in the completeness of the claims and obligations presented in this report, a big step would be taken towards the possibility of receiving a positive opinion of the State Audit Office of Latvia on the ACFS. Therefore, we invite the SRS in cooperation with the Ministry of Finance to take all the necessary actions for the improvement of the SRS tax report,” as Ms Ilze Bādere, Council Member of the State Audit Office of Latvia outlined the future perspective for improving the quality of the ACFS.

SRS tax report

After the audit on the ACFS 2021, we already drew attention to the fact that for several tax report items of the SRS, a year-end inventory was not conducted, analytical records were not provided, they were both reduced unreasonably and increased unreasonably. The SRS undertook to eliminate the shortcomings as soon as possible and introduce recommendations for improving the SRS tax report.

However, audit results also showed this year that improvement of the SRS tax report still needs to be continued. This year, the tax report initially prepared by SRS (2 May 2023) was also corrected substantially (10 August 2023). The auditors found various errors and inconsistencies in the initially submitted report. For example: (1) unreasonably increased short-term claims in the amount of 69.8 million euros because the debts of deceased/liquidated taxpayers were not deleted; (2) information on claims and liabilities in the report notes does not correspond to the ledger data; (3) not all the announced improvements to the accounting functionality of the Payment Administration Information System (PAIS) have been implemented, there are still errors and unresolved problems in various algorithms that affect the correctness of accounting records. Although the revised report significantly reduced the balance amount at the beginning and end of the reporting year (by 399 million euros and by 1.14 billion euros), including long-term and short-term claims as well (by 308 million euros and 830 million euros respectively), as well as the SRS stated that these significant item reductions were created by solving the reported problem reports and making data corrections, however, the still missing analytical accounting prevented the auditors of the State Audit Office of Latvia from verifying that the information in the SRS tax report was correct as a result of the corrections made.  

“We appreciate the work done by SRS in improving PAIS accounting functionality. However, we believe that to be able to gain sufficient confidence about the veracity of the information disclosed in the balance sheet items of claims and liabilities in the SRS tax report, it is critically important to improve the internal control system and ensure the analytical accounting of the data of the items presented in the SRS tax report on taxpayers. Thus, the users of the report would be assured of the appropriate accounting of state budget revenues and related claims and liabilities, and the availability of true information for making decisions about the annual state budget,” emphasized Ilze Bādere.

Decisions made by the Competition Council in cartel cases and their impact on the ACFS

Having already completed auditing the ACFS 2021, we concluded that the Competition Council made decision on 30 July 2021 regarding so-called “Builders’ cartel” case, which had a significant impact on several state institutions and derived public entities (and their state-owned and municipal enterprises), as a large part of the 35 construction sites affected by this decision were financed from public funds. We also concluded that these transactions would have an impact on the financial indicators of ACFS in the future as well because contracting authorities: (1) of 18 construction sites, which are co-financed from the EU and the state budget program for Emission Quota Auction Instruments (EQAI), apply the financial corrections of 18.4 million euros as of 31 December 2021, (2) as a result of the violation of the Competition Law, increase in the cost of construction works of 22.3 million euros and other expenses related to the violation might occur.

Prohibited agreement is one of the most serious violations of the Competition Law, and the Competition Council has made its detection an operational priority. When evaluating the information published on the Competition Council’s website about the decisions made between 1 January 2006 and 1 June 2023, it was found that 69 decisions were made according to the classification of case “forbidden agreement”, of which 58 decisions or 84% have entered into force. Although the number of adopted decisions is decreasing, the dynamics of fines imposed show that prohibited agreements among large market players in Latvia are being detected increasingly. For example, regarding: (1) the pricing of Samsung products in 2009; (2) pricing of banking services of 22 banks in 2011; (3) for purchases of Volkswagen cars in 2014; (4) determination of retail prices of building materials and public transport tariffs in the City of Riga in 2017; (5) for construction procurements in 2021; and (6) for public transport services and road construction procurements in 2023.

Decisions taken by the Competition Council regarding the establishment of a prohibited agreement have a significant impact on the information on claims and liabilities (including potential liabilities) provided in the annual reports of state and municipal institutions and the ACFS. Also, these decisions will have an impact on the state budget in the future, because: (1) for the contracting authorities, who have concluded agreements with economic operators participating in cartels[i], for the implementation (delivery) of projects (goods) only for the construction cartel, the Central Finance and Contracting Agency (hereinafter - CFCA) and “Environmental Investment Fund” Ltd (hereinafter - the Fund) have applied a co-financing financial adjustment for EQAI funds  of 20,649,400 euros  on 31 December 2022; (2) as a result of the violation of the Competition Law, damages have been caused in the form of increased costs, as well as other expenses related to the violation, as well as (3) other expenses related to the violation have occurred.

The fine imposed by the Competition Council, as well as the right of the victims to claim damages, is an essential prerequisite to deter further dishonest behaviour in the future. However, the fines imposed usually amount to only a portion of an infringer’s ill-gotten gains. As the audit concluded, the loss recovery process was not active enough, thus not ensuring the efficient use of financial resources, and infringers had an opportunity to provide themselves with unjustified advantages and better market conditions if the victims did not demand compensation for the damages.

“In mutual cooperation with the State Treasury of Latvia, the State Audit Office of Latvia drew attention to the need to create a universal note that would provide users of the ACFS with information about the decisions made by the controlling institution and their impact and/or potential impact on the state budget and/or municipal budgets in the future, as well as ensure the accumulation of information and monitoring of actions. Taking into account that the Cabinet of Ministers instructed the responsible and co-responsible institutions to implement measures for reducing the risk of violation of the Competition Law but they have only been partially implemented, and the implementation of certain measures is in the process of implementation, the State Audit Office of Latvia will continue to monitor the progress of the implementation of the measures, as well as further decisions of the government to reduce the risk of violation of the Competition Law, as well as to ensure that the information is appropriately disclosed in the annual reports of budget institutions,” added Ilze Bādere.

SRS cooperation with customers in the monitoring of personal income tax contributions

Refund of overpaid taxes is one of the essential processes of tax administration and critical issues for taxpayers. Already during the audit of the ACFS 2016, deficiencies were identified regarding the refund of overpaid VAT and the SRS was recommended to take measures to educate taxpayers to reduce the deficiencies in future tax returns and inform them about the rights that taxpayers could use in the future.

When auditing the ACFS 2022, PIT overpayments of 42,000 euros were detected, which the SRS did not reimburse to taxpayers, although these taxpayers submitted other tax returns with PIT overpayment in 2022 and the SRS made reimbursement of those sums in 2022. It has been established that the mentioned PIT overpayments are formed from contributions made by taxpayers, for which there are no calculations. During the audit, the SRS assured that it would consider the deletion of these overdue overpayments.

Ilze Bādere points out, “Cases when a taxpayer’s contributions are not repaid for a long time and the SRS has not informed the taxpayer, indicate deficiencies in the cooperation between the SRS and customers. That is why we drew the attention of the SRS that such situations were not allowed in the future and recommended taking measures to ensure the monitoring of overpayments of taxes by taxpayers and the cancellation of overpayments of taxes fully or partially credited to the state budget and the amounts of payments wrongly paid into the unified tax account within the terms specified in the law.”

Additional information

About the State Audit Office of Latvia

The State Audit Office of the Republic of Latvia is an independent, collegial supreme audit institution. The purpose of its activity is to find out whether the actions with the financial means and property of a public entity are legal, correct, useful and in line with public interests, as well as to provide recommendations for the elimination of discovered irregularities. The State Audit Office conducts audits in accordance with International Standards of Supreme Audit Institutions of the International Organization of Supreme Audit Institutions INTOSAI (ISSAI), whose recognition in Latvia is determined by the Auditor General.


100 years of AUDIT STRENGTH

On 16 August 2023, the State Audit Law turned 100 years old. With the adoption of this Law, the State Audit Office from a formal de facto institution founded on 2 December 1918 became a de jure independent, collegial supreme audit institution of the Republic of Latvia. The State Audit Office is one of the independent state institutions enshrined in the Satversme (Constitution) of Latvia. The Constitution was signed by Roberts Ivanovs as the secretary of the Constitutional Assembly, who was then confirmed as the Auditor General. He worked as the first Auditor General for 12 years. His signature confirmed the text of our Constitution alongside that of Jānis Čakste.


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Mr Ivo Valdovskis

Communications Adviser to the Auditor General

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[i] A partnership (general partnership and other forms of cooperation), in which one of the participants in the cartel case has participated.