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According to the 2005 World Bank Report on the Observance of Standards and Codes on Accounting and Auditing, national Latvian laws and regulations for financial reporting were generally in line with European Union (EU) directives, but some fundamental differences with International Financial Reporting Standards (IFRSs) existed. Latvian accounting rules, which must be complied with in the preparation of annual accounts of listed and non-listed companies, are developed based on IFRSs; however, as stated in the 2006 self-assessment prepared by the Latvian Association of Certified Auditors (LACA), the alternatives which contradict Latvian accounting legislation are excluded, disclosure requirements for financial information are reduced, and additional illustrations to the standards are added. In a way, these Latvian standards are a simplified version of IFRSs suitable for the needs of small and medium-size enterprises. Being a member of the EU, Latvia complies with the European Commission (EC) Regulation No. 1606/2002, which requires all EU listed companies to prepare their consolidated financial statements in accordance with IFRSs endorsed by the EU from January 1, 2005. As far as the option for the extended use of IFRSs provided for in the EC regulation is concerned, Latvia requires the application of IFRSs in the annual and consolidated accounts of banks, insurance companies, and other supervised financial institutions, and permits the use of IFRSs in the consolidated accounts of all other companies.

The World Bank in its 2005 ROSC on Accounting and Auditing noted that under the Commercial Law financial statements of all limited liability companies are required to be audited. However, some companies that that do not exceed two of three size thresholds are exempt from audit requirements. With the enactment of Directive 2006/43/EC of the European Parliament and Council, all statutory audits of annual and consolidated accounts in European Union member states must be carried out on the basis of International Standards on Auditing (ISAs) as adopted by the European Commission. According to the information provided on the European Commission website, Latvia has fully transposed the above-mentioned Directive into its national legislation. Per a 2006 self assessment by the Latvian Association of Certified Auditors (LACA), pursuant to the Law on Sworn Auditors, statutory audits must be carried out in accordance with ISAs issued by the International Federation of Accountants (IFAC), and approved by the LACA. As stated in the LACA self-assessment, as of 2006, the 2004 version of ISAs was effective in Latvia and the 2005 IAASB Handbook was in the process of being translated. Further, the IFAC Code of Ethics for Professional Accountants was fully adopted in December 2004. In the 2005 ROSC the World Bank expressed its concern about the low quality of the actual statutory audits carried out in Latvia. In this respect, the World Bank recommended that Latvia enhance enforcement mechanisms, improve systems of professional education and quality assurance, and increase public oversight of the audit profession.