IMPLEMENTING THE STATUTORY AUDIT DIRECTIVE IN CROATIA

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1 MINISTRY OF FINANCE IMPLEMENTING THE STATUTORY AUDIT DIRECTIVE IN CROATIA MSc Žana Pedić Head of the Financial System Directorate

2 Directive 2006/43/EC of the European Parliament and of the Council of 17 May 2006 on statutory audits of annual accounts and consolidated accounts, amending Council Directives 78/660/EEC and 83/349/EEC and repealing Council Directive 84/253/EEC Key challenges: organizing effective quality assurance system establishing audit public oversight system ensuring high quality follow up (conduction of corrective measures, effective sanctions, improvement of the audit system, repeated inspections if needed etc)

3 Quality Assurance System of the audit firms, independent auditors and certified auditors Croatian Audit Chamber -established in 2006 Quality Assurance Team within the Chamber (5 audit experts -legal requirements prescribed by the Audit Act) Funding membership fee paid to the Chamber (not an ideal solution) QA process initiated in the first quarter of 2010 by administrative supervision through dissemination of obligatory questionnaires to audit firms and independent auditors IDF Grant for Enhancing Corporate Financial Reporting in Croatia funded by the World Bank 22 November, November, 2010 Quality Assurance Methodology Manual developed by the ICAEW in 2010 training of the Quality Assurance Team

4 Outcomes of the quality assurance Due to the previous lack of QA system- at the beginning huge inconsistency in aplication of auditing standards among auditors and auditing firms Report of the Croatian Audit Chamber on the quality assurance (6/ / 2012) 60 conducted inspections Outcome:Disciplinary measures: 9 immediate disiplinary proposals in process, 15 in consideration Report of the Croatian Audit Chamber (7/ /2012) 14 conducted inspections Outcome:Disciplinary measures: 3 immediate disciplinary proposals in process

5 Outcomes of the quality assurance Findings for 2010 available at the: Conclusions: in order to enhance inspectors work, they need undergo continues training education system for all auditors needs to be improved, certification system exists, but needs to be improved (withdrawal), The most problematic among inspected entities are small and medium (lack of administrative capacity, technical equipment, training)

6 Main goals in the process of improving quality assurance system To solve remaining issues related to independency of inspection body within the Chamber To enhance Administrative capacity (employment of competent audit experts) determining adequate number of experts who will conduct the inspections (requirements from the EU) Better cooperation between Croatian Audit Chamber, Audit Public Oversight Committee and the Ministry of Finance Proper education of auditors and inspectors, sufficient level of knowledge Proper licensing system Strengthening the capacity of small and medium companies to implement QA requirements Effective disciplinary and corrective measures

7 Audit Public Oversight System in Croatia Audit Public Oversight Committee Funding state budget 7 members appointed in February 2009 by the Government of Croatia upon proposal of the Ministry of Finance (changes in the composition of the Committee , 2012) Members: - Ivan Čevizović PhD (Chairman), - Žana Pedić MSc(Vice Chairman) - Željko Andrijanić (Ministry of Finance) - Edita Čulinovec-Herc PhD (Faculty of Law, University of Rijeka) - Željko Faber (audit practitioner) - Olivera Novačić (Ministry of Finance) - Lajoš Žager PhD (University of Zagreb, Faculty of Economics and Business)

8 Audit Public Oversight System in Croatia Obligation to publish annual work programme on the website and to submit to the Government the annual activity report (published on the: IDF Grant Public Oversight Methodology Manual developed by the AARC and training of members of the APOC (2010) Main importance of the APOC: Corrective role towards Croatian Audit Chamber Key challenges: Selection of members Administrative capacity within the Ministry of Finance (Department for Financial Reporting) Organization of meetings monthly according to the Rules of Procedure of the APOC

9 Audit Public Oversight Committee Audit Public Oversight Committee is responsible for the oversight of: issuance and withdrawal of certificates and registration of certified auditors, independent auditors and audit firms adoption and implementation of International Standards on Auditing adoption and implementation of professional ethics internal quality controls of audit firms/independent auditors realization of permanent education programme, organization of exams and certification, validation of certificates,

10 Audit Public Oversight Committee Methodology for quality control applied by the Croatian Audit Chamber, quality reviews performed by the Chamber, audit fees charged, disciplinary and other measures taken for rectification and sanctioning of irregularities translations, interpretations, expert opinions and explanations issued by the Chamber APOC supervision of the Chamber : is authorized to nullify, abolish or amend the acts adopted by the Chamber has to review the annual activity report of the Chamber (to be submitted to Audit Public Oversight Committee 30 days upon adoption by the Chamber s Assembly) Audit Act, Article 42b may request relevant reports and information on the activities and tasks performed by the Chamber

11 Audit Public Oversight Committee-recent activities APOC asked for the clarifications regarding inspections (number of finished inspections, imposed sanctions, follow up measures- possible repeated inspections etc.) APOC did not give consent to the proposed Program and fee for education organised by the Chamber

12 Audit Public Oversight Committee International cooperation: member of the IFIAR International Forum of Independent Audit Regulators, UNCTAD (United Nations Conference on Trade and Development) ISAR (Intergovernmental Working Group of Experts on International Standards of Accounting and Reporting pilot testing) June 2011, June 2012)

13 Audit Act (OG 146/05, 139/08) Article 3 paragraph (1) subparagraph (1), Article 4, Article 6, Article 26a, Article 27 paragraph (2) point (b), Article 64a and 64b enter into force on the day of accession Croatia in European Union.

14 Transparency Report The audit firm and the independent auditor that carry out audits of public-interest entities are obliged to publish on their websites or websites of the Chamber, within three months of the end of each business year, annual transparency reports. The transparency reports are signed by the independent auditor or a the person authorized to represent the audit firm (Article 17 a of the Audit Act) There is no check of the Report before publishing, but Reports are checked in the course of inspection

15 Public-interest entities Companies whose securities are quoted on the stock exchange in the first quotation or in the public companies quotation large undertakings pursuant to the Accounting Act special state interest companies, the registered capital of which exceeds HRK 300,000,000.00, in accordance with the decision of the Government of the Republic of Croatia on the listing of companies of the special state interest (Audit Act, Article 27) Public interest entities have to have Audit Committee

16 CONCLUSION Key objectives for the Ministry of Finance: Monitoring recent developments in the EU regarding: - Proposal for a Regulation of the European Parliament and of the Council on specific requirements regarding statutory audit of public-interest entities - Proposal for a Directive of the European Parliament and of the Council amending Directive 2006/43/EC on statutory audits of annual accounts and consolidated accounts Improvement of the process of issuing auditors certificates and introduction of licensing, introduction of proper education system for auditors and inspectors Further improvement of the quality assurance with the aim of increase in the quality of audit work