Lithuanian Chamber of Auditors

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1 Lithuanian Chamber of Auditors Presentation in Audit and Oversight Community of Practice Workshop October 2010, Viena, Austria Rimas Butkevičius, member of Presidium of LCA

2 Republic of Lithuania: Geographical Location

Independence restored: 11 March 1990 EU accession: 1 May 2004 Area: 65,200 sq.

3 Lithuania at a glance State: Republic of Lithuania Flag: Coat of arms: Capital city: Vilnius Official language : Lithuanian Government: Semi-presidential republic Independence restored: 11 March 1990 EU accession: 1 May 2004 Area: 65,200 sq.metres Population (2009 estimate) : 3,281,000 GDP (nominal) per capita (2009 estimate)-$11,172

4 Lithuanian Chamber of Auditors At present (11 October 2010) the LCA unifies 409 certified auditors and 190 audit firms of Lithuania. Approximately 62 % of these certified auditors work in public practice, providing a wide range of services to clients. The other 38 % work in various areas in industry, government and education. At the end of 2003 the LCA became an associates of the International Federation of Accountants (IFAC) and on 13th of November 2008 LCA became member of IFAC. On 16th December 2004 the General Assembly of European Federation of Accountants (FEE) approved the LCA membership as member correspondent and on 18th of December 2008 LCA became member of FEE.

5 Structure of LCA CERTIFIED AUDITORS OF LITHUANIA (Members of LCA) GENERAL MEETING OF CHAMBER MEMBERS (408 members) AUDITORS COURT OF HONOUR (7 members: 3 LCA representatives) EXAMINATION COMMISSION (7 members: 3 LCA representatives) ETHICS COMMITTEE (7 members) AUDIT QUALITY CONTROL COMMITTEE (9 members) 4 LCA representatives, other - representatives of Ministry of Finance, Ministry of Justice, National Audit office, Association of Banks, Association of business) PRESIDENT and PRESIDIUM (9 members) STAFF OF LCA (6 employees) AUDIT COMMITTEE (11 members) TRAINING COMMITTEE (5 members)

6 Law on Audit The new Law on Audit (in effect since ) was prepared in compliance with the legal acts of the EU: 1. 78/660/EEC: fourth Council Directive of 25 July 1978, 2. 83/349/EEC: seventh Council Directive of 13 June 1983, 3. Directive 2003/51/EC of the European Parliament and of the Council of 18 June 2003, 4. Directive 2006/43/EC of the European Parliament and of the Council of 17 May 2006 (Audit directive).

7 I. QUALITY ASSURANCE OF THE AUDIT CARRIED OUT BY AUDITORS AND AUDIT FIRMS

8 Definition Quality Assurance of the Audit Carried out by Auditors and Audit Firms is: - Quality review of the selected auditors and audit firms according to the Methodology of carried out Audit Quality Review; - Procedures to be performed prior to the beginning of the quality review; - Evaluation of the results and recommendations of the carried out audit quality review; - Follow-up on the implementation of recommendations.

9 No. Func'ons Division of functions (1) Division of functions among Lithuanian Chamber of Auditors (LCA), Authority of Audit and Accounting (AAA) and controllers Lithuanian Chamber of Auditors Authority of Audit and Accoun'ng Controller 1 Implementa+on of Quality assurance of the audit carried out by auditors and audit firms 2 Establishment of the rules of implementa+on of quality assurance of the carried out audit (a?er approval by Authority of Audit and Accoun+ng) 3 Approval of the rules of implementa+on of quality assurance of the carried out audit 4 Organizing of quality reviews of the carried out audit so that all auditors and audit firms be checked at least once per 6 years (auditors and audit firms which carry out the audit of public interest companies should be checked at least every 3 years) 5 Prepara+on and Implementa+on of annual quality review plans

10 Division of functions (2) No. Func'ons Lithuanian Chamber of Auditors Authority of Audit and Accoun'ng Controller 6 Approval of annual quality review plans 7 Performance of the quality reviews 8 Establishment of the audit quality assurance procedure 9 Dra?ing the methodology of carried out audit quality review 10 Authoriza+on of the methodology of carried out quality review 11 Selec+on of the candidates to take posi+on of controller and submission to the Authority of Audit and Accoun+ng for approval 12 Approval of selected controllers 13 Coordina+on of the quality reviews performed by controllers

11 Division of functions (3) No. Func'ons Lithuanian Chamber of Auditors Authority of Audit and Accoun'ng Controller 14 Considera+on and approval of the report on quality review performed by controller 15 Establishment of the procedure for controller selec+on, prepara+on and qualifica+on development 16 Establishment of the requirements to the report on audit quality review 17 Impose disciplinary penal+es and give compulsory instruc+ons in case weaknesses during quality review were iden+fied

12 Scope of quality review When carrying out the quality review of the audit carried out by the auditor and audit firm: - it is established how the International Quality Control Standard is observed; - it is established how the International Auditing Standards are observed; - it is established how the principles of independence and other principles of professional ethics are complied with; - the quality and quantity of resources spent for audit, the received audit fee shall be assessed; - compliance with the requirements of Law on Audit shall be assessed.

13 Procedure of the preparation and approval of Annual Quality Review Plan

14 Procedure of the

17 II. PUBLIC OVERSIGHT OF AUDIT CARRIED OUT BY AUDITORS AND AUDIT FIRMS

18 Definion of Public Oversight Public oversight of auditors and audit firms (hereinafter referred to as public oversight) means the totality of measures whereby the Authority of Audit and Accounting seeks to assure the quality and security of financial statements.

19 Exclusive body-authority of Audit and Accounting Public oversight of audit carried out by auditors and audit firms (hereafter referred to as public oversight of audit) shall be performed by the Authority of Audit and Accounting. Form of the body: public authority Owner: Republic of Lithuania Rights and duties of the owner shall be implemented by the Government of the Republic of Lithuania or the institution authorised by it

20 Audit Supervisory Committee (1) A collegiate body operating in an advisory mode is formed in the Authority of Audit and Accounting the Audit Supervisory Committee. The Committee advises the director and the division on the issues of public oversight of the audit. The Audit Supervisory Committee is comprised of 7 members from which more than a half of the Committee members are non-practitioners.

21 Audit Supervisory Committee (2) Principal functions of the Supervisory Committee: - Considers draft rules of the audit public oversight prepared by Authority of Audit and Accounting; - Considers Reports of Quality Reviews and presents its opinion as regards the adoption of instructions or penalties; - Considers Reports of Investigations of Audits carried out.

22 Functions of Authority of Audit and Accounting in relation to the Public Oversight (1) 1) supervise the adoption of the decisions on the granting of the title of the auditor, on the issuing of the audit firm certificate and on its entry in the list of audit firms, the procedure of issuing the auditor s certificate and entry of the auditor in list of auditors; 2) approve the areas where the auditor s qualification examinations shall be held, consider the applications of persons who failed to pass the examinations and disagreed with the assessment of their examination results; 3) monitor the organisation of the qualification development courses of the auditors and, as necessary, make comments on the improvement of their organisation, participate in coordinating the programmes set in Article 28 of this Law, take decisions on the complaints by the auditors who heard other courses than those prescribed by paragraph 2 of Article 28 of this Law and auditors who took part in the equivalent professional qualification development courses on refusals made by the Chamber of Auditors to include the time of the courses into the time of hours specified in paragraph 1 of Article 28 of this Law;

23 Functions of Authority of Audit and Accounting in relation to the Public Oversight (2) 4) monitor the translation into the Lithuanian language of the Code of Ethics for Professional Accountants, the International Auditing Standards and the International Quality Control Standard and, as necessary, take actions to guarantee their proper translation when due; 5) together with the Chamber of Auditors implement the assurance of audit carried out by the auditors and audit firms, perform the investigations, impose the penalties established in paragraphs 1 and 2 of Article 39 of this Law and give the instructions established in Article 38 of this Law, assess the decisions proposed by the Chamber of Auditors on imposing the penalties or instructions or refusing to impose any sanctions according to the procedure established in paragraph 3 of Article 37 of this Law; 6) immediately transfer to the supervisory authorities, the Ministry of Finance, competent authorities of member states and non-member countries the information, including confidential information, required for carrying out their functions of supervision.

24 Functions of Authority of Audit and Accounting in relation to the Public Oversight (3) 7) cooperate with competent authorities of member states and non-member countries when carrying out investigation; 8) cooperate, share information with the supervisory authorities, the Ministry of Finance, competent authorities of member states and non-member countries; 9) according to its competence participate in the activities of committees and working groups formed by the European Commission.

25 III. INVESTIGATIONS AND PENALTIES SYSTEMS

26 Background (Audit directive) Criteria of quality assurance Article 29 <Quality assurance systems> defines that Each Member State shall ensure that all statutory auditors and audit firms are subject to a system of quality assurance which meets at least the following criteria:. (j) recommendations of quality reviews shall be followed up. If the recommendations referred to in point (j) are not followed up, the statutory auditor or audit firm shall, if applicable, be subject to the system of disciplinary actions or penalties referred to in Article 30.

27 Investigations and penalties (Audit directive) Purpose of the systems: 1. Member States shall ensure that there are effective systems of investigations and penalties to detect, correct and prevent inadequate execution of the statutory audit. (purpose of the systems). Requirements to penalties: 2. Member States shall provide for effective, proportionate and dissuasive penalties in respect of statutory auditors and audit firms, where statutory audits are not carried out in conformity with the provisions adopted in the implementation of this Directive. 3. Penalties shall include the possibility of the withdrawal of approval.

28 Instructions to auditors (Law on Audit) Lithuanian Chamber of Auditors or Authority of Audit and Accounting may: 1) instruct the auditor or the audit firm to rectify the established weaknesses within the specified time period; 2) instruct the auditor to additionally develop his professional qualification (to establish the number of hours and specify the time period).

29 Terms of penalties (Law on Audit) 1. If the auditor and/or the audit firm fails to perform the instructions received (see previous slide). 2. After performing the quality review of the audit carried out by auditor or audit firm and reestablishing the quality weaknesses established in former reviews. 3. Upon carrying out the investigation and after that having disclosed the weaknesses of the carrying out of audit.

30 Types of penalties in case of Quality Review Chamber of Auditors or the Authority of Audit and Accounting may impose one of the following penalties: 1) to warn the auditor or the audit firm; 2) to indicate to the Chamber of Auditors to suspend the validity of the auditor s certificate and to entrust the auditor to re-take one or several qualification examinations.

31 Penalties in case of investigation Having performed the investigation of the carried out audit and having established the material deficiencies of the carried out audit, the Authority of Audit and Accounting may impose on the auditor and/or audit firm one of the following penalties: 1) to take a decision to indicate to the Chamber of Auditors to cancel the title of the auditor; 2) to take a decision to indicate to the Chamber of Auditors to deprive the audit firm of the certificate and withdraw the audit firm from the list of audit firms.

32 Results of quality reviews for the Y2009 Auditors and audit firms under quality review according to plan for the Y2009 Weaknessess not established Weaknessess established Material weaknessess Quality review not performed Auditors Audit firms Auditors Audit firms Auditors Audit firms Auditors Audit firms Auditors Audit firms % 65,6% 21,9% 6,3% 6,3% 100% 56,9% 15,3% 2,8% 25,0%

33 Thank you for your attention! Questions?

Ukmerges str. 369A, LT-12142 Vilnius, LITHUANIA Tel.

34 Ukmerges str. 369A, LT Vilnius, LITHUANIA Tel.: Fax: Mob.: lar@lar.lt Visit our website:

Public audit oversight system in Lithuania. Audrius Linartas Director Audit and Accoun.ng Authority

Public audit oversight system in Lithuania Audrius Linartas Director Audit and Accoun.ng Authority Basis for establishment The Authority of Audit and Accoun9ng (AAA) was established in 2002, as the Ins.tute