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03.07.2019

Business secrets in accounting

The July 2019 issue of magazine iFinanses published an article by PRIMUS DERLING Partner Sintija Radionova and Attorney at Law Kristīne Sakārne on the business secrets in accounting.

The law entered into force on 1 April 2019. According to the new law, a business secret means undisclosed business information, technological know-how and scientific and other information that is sensitive, has commercial value by virtue of its secrecy and is the subject of targeted secrecy activities.

The law contains special provisions concerning accounting information. The new law divides information into two groups, of which only one group is viewed as a business secret. Information to be presented in reports of natural and legal persons carrying on economic activities does not constitute a business secret, while any other accounting information is regarded as such. The law does not introduce any new provisions with respect to accounting information as its wording is very similar to Article 4 of the Accounting Law, which lays down that, for accounting purposes, information and data to be included in reports of an undertaking in accordance with the existing laws and regulations are not deemed to be a business secret.

According to the Law on the Protection of Business Secrets and the Accounting Law, the secret part of accounting information must be available for audit, tax and other authorities in the cases referred to in laws. If the Consumer Rights Protection Centre requests information about transactions, an undertaking must disclose the requested information regardless of whether it constitutes a business secret for accounting purposes.

Tenderers participating in public tenders may be requested to provide contracting authorities with information from which information about past transactions, expected transaction amounts and pricing policies can be inferred. In such cases, the legislator has introduced restrictions to be observed by organisers of tenders – namely that contracting authorities may not disclose information handed over by other candidates and tenderers as a business secret or confidential information. Undertakings submitting information to contracting authorities must specify which information is a business secret.

When disclosing business secrets to public authorities, undertakings may exercise their rights laid down in Article 7 of the Freedom of Information Law, i.e., undertakings may specify whether and why respective information is a business secret. Information retains this special status until the undertaking notifies an institution about the termination of business secret status or the information concerned becomes publicly available. Then, according to the existing legislation, any person may obtain information about the financial performance of a specific undertaking for the past year.

As regards the exchange of information constituting a business secret, a solution would be to define certain information as a business secret and apply penalties for unauthorised disclosure. Based on the Accounting Law and the Law on the Protection of Business Secrets, parties must agree on penalties to be imposed in the event of unauthorised disclosure of secret information and be ready to face consequences in this situation.

With regard to the part of accounting information presented in annual reports, it is recommended to omit information that is not expressly required by law.

No one is granted a right to business secrets by the Law on the Protection of Business Secrets but anyone may protect their sensitive information, including secret information entrusted by other people. As regards secrecy and non-secrecy, the new law contains only general provisions to ensure that an undertaking’s employees know how best to act in any situation.

Read the full text of the article in the July issue of iFinanses.

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