There are many laws and regulations which organise corporate financial reporting practises in Libya. The legal and regulatory framework governing corporate reporting practices in Libya remains very limited in scope and is presented in general and loose terms. The following subsections attempt to present a brief overview of these laws and regulations.
2.3.1The Income Tax Law (ITL)
The first Income Tax Law (ITL) in Libya was issued in 1968 to overcome problems caused by legal differences in different laws being applied at the same time in the Libyan context during the period from 1952 to 1968. ITL No. 21 introduced in 1968, was replaced by ITL No. 64 (1973) with some limited changes, ITL No. 64 was then replaced by ITL No. 11 of 2004 with major changes to the Libyan taxation system. This ITL was introduced to reduce the burden of taxation to encourage foreign capital to invest in the country (Cholmeley- Eversheds & Mukhtar, 2008; El-Firjani et al., 2014). In Libya, both listed and non-listed firms are required to prepare their financial statements in accordance with the ITL despite
that fact that listed firms are required to comply with IFRS to prepare their annual reports. This failure of listed companies to comply with IFRS and instead comply with government laws such as ITL and LCC is caused by the week enforcement mechanisms in the LSM and the government intention to control the practices of corporate reporting in the country. Therefore, the ITL has played a major role in accounting practices particularly the preparation of financial statements.
The ITL No. 11 of 2004 focused specifically on identifying and clarifying the different kinds of direct taxes. This law was announced as part of the state’s plan to equally encourage foreign and national capital to invest in the Libyan economy through procedures to reduce the burden of taxation on those national and foreign businesses (ITL, 2004). According to this ITL, tax is imposed on various profits according to the company’s sector. According to article No. 1 of this law, any income from any activity generated in Libya must be subject to this law. In addition, according to Articles No. 2, 3 and 4, each taxpayer must submit a tax declaration to the Libyan tax authority. According to Article 59 of this law, all companies are required to submit their financial statements audited by a certified public accountant within seven months of the year end to the tax authority with a trading account, depreciation statement and a statement of the company’s expenses. Article No. 72 requires any income generated by branches of Libyan companies operating outside Libya and branches of foreign companies registered in Libya to be subject to this tax law. Furthermore, Article No. 76 provides the Tax Authority with the right to estimate the incomes of foreign companies’ branches operating in Libya. In 2010 the Tax Law No. 7 was issued to replace the ITL No. 11 of 2004 with some changes to the recognition and presentation of net income and profit (ITL, 2004; The Libyan Government, 1968, 1973, 2010).
2.3.2The Libyan Commercial Code (LCC)
The first Libyan Commercial Code (LCC) was enacted at the end of 1953. This LCC identified a list of 23 commercial activities (Article No. 5). The LCC had an influence on accounting practices as it highlighted and discussed issues of accounting such as accounting records, invested capital and distribution of profits. The LCC was amended in 1970 primarily to cover rules on corporation books and record keeping as well as financial reporting. Furthermore, the LCC focused partially on accounting practices through
stipulating requirements for accounting systems and reporting methods applied by Libyan companies (Buzied, 1998). According to Article No. 58 of the 1970 LLC, all firms must keep at least the following records: a journal that includes all daily transactions, a Balance Sheet book and inventory. All these books must be signed and notarised by an official from the court and must be kept free from erasures, blank spaces, insertions and marginal notes (El-Firjani et al., 2014).
The LCC requires all Libyan companies to establish three bodies namely: an Administration Board (Board of Directors), a General Assembly and an Independent Controlling Committee. The Administration Board or Board of Directors is responsible for running the company under the general policy of the General Assembly, while the primarily role of the Controlling Committee is to ensure that the management activities of the company are implemented in accordance with its rules. The General Assembly refers to the official meeting of the company’s shareholders where they have the right to vote for directors and on major company decisions and issues (Buferna et al., 2005). The LCC is the main foundation of the corporate governance system in Libya as it discusses issues related to the formulation and responsibilities of the Board of Directors. For example, Article No. 570 of the statement released in 1972 by the Libyan government regarding Joint-Stock Companies requires them to retain the following registers: a register of members; a register of bondholders; a minute book of members’ meetings; a minute book of directors’ meetings; a minute book of the executive committee’s meetings; and a record book of bondholders’ meetings.
Furthermore, Companies’ directors are assigned the responsibility of preparing the company’s accounts with a report about the firm’s performance during the fiscal year. Moreover, these financial statements must be approved by the general assembly of shareholders (The Libyan Government, 1972. Article 572 & 573). According to Article 572, all companies are required prepare their annual reports within 120 days after the year- end. Additionally, all annual reports must be available to the shareholders at the business’s headquarters at least fifteen days before the general assembly meeting for reports to be certified (Article 580). A copy of the approved profit and losses accounts and balance sheet, included with the directors’ and auditors’ report have to be submitted to the Commercial Register (CR) during the thirty days of that approval (The Libyan Government, 1972 Article 583).
The LCC was amended again in 2010 with some changes regarding requirements for accounting practices, reporting systems and methods, including the preparation of an annual balance sheet and profit and loss account, both of which must be obtainable at the company’s headquarters at least 15 days before the general meeting. However, the LCC did not pay much attention to the accounting standards and principles that should be applied in preparing the annual reports or auditing standards for those reports.
2.3.3The Libyan Banking Law (BL)
The main law in Libya that regulates the banking sector is the Banking Law (BL) No. 1 of 2005 which established the legal framework for banking and financial activities. The BL No. 1 of 2005 was enacted to replace the banking, monetary and credit law No. 1 of 1993 as part of reforming the financial and banking sector in the country. The administrative as well as financial transactions of both the Central Bank of Libya (CBL) and commercial banks were the main reason for designing the BL (Cholmeley-Eversheds & Mukhtar, 2008; El-Firjani et al., 2014). The BL is divided to three parts, and each part covers a specific function of the CBL. The first part addresses the functions of the CBL (articles 1 to 64), the second part deals with commercial banks in Libya (articles 65 to 100), while the third part stipulates penalties (articles 101 to 121) (Central Bank of Libya, 1993, 2005). For example, according to Article 83 of the BL No. 1, all commercial banks are required to appoint their annual auditing of their accounts to two chartered accountants nominated by the banks’ general assembly. Each one of the nominated auditors is required to prepare and send a report to the CBL within the period set by the director.