A state of play report from Accountancy Europe has found that Norway, Iceland, Croatia, Slovenia and Liechtenstein have not yet implemented EU audit legislation at all, in comparison to the 26 countries in Europe that have already fully implemented.
The main topics on the EU audit legislation includes the prohibition of non-audit services, mandatory audit firm rotation (MAFR) and the public oversight and delegation of tasks to professional bodies. Some countries have begun the process of implementation but are at different stages.
Norway slow on the uptake
The implementation process has been delayed by the government in Norway but progress is being made, according to representatives of Den Norske Revisorforening (The Norwegian Auditors Association).
The Norwegian government appointed a Committee to assess the Norwegian audit legislation, and a proposal was released in June 2017 for a new auditors act that would include the EU audit rules. There was a public consultation on the proposal paper until 4 December 2017, which now awaits the Ministry of Finance to proceed.
“There is always a possibility that details will change, the committee was divided on issues such as tax advisory services, the principles for auditors liability and the scope of auditor responsibility,” national technical director of BDO Norway Terje Tvedt said.
Norway does not currently have any specific regulation for public interest entities (PIEs), but there are strict general independence regulations beyond the EU requirements, explained Tvedt. Under the EEA-agreement the PIE regulation has no direct effect, and must be implemented by Norwegian legislation. “I think the new act will implement the EU legislation and include PIE regulation, there will be an exception for valuation and tax services,” he added.
A similar process happened to the accounting act, wherein the consultation had some parties argue that that the principles were too strict and more alternatives should have been considered, Tvedt outlined. The Ministry of Finance decided there was more work to be done, for which the current status is not publicly known, it is speculated by Tvedt that the accounting act will be prioritised by the government, putting a further delay on the auditors act implementation. Both Tvedt and The Norwegian Auditors Association expect the auditors act to be implemented by 2019 or 2020 at the earliest.
“The main reason that Norway has not yet implemented the legislation is because of the priorities of the government and the Ministry of Finance, but of course there is no reason accountants wouldn’t be in favour of harmonising our regulation with the global society,” Tvedt said. “Another problem is the translation of EU audit legislation terminology.”
Guidance will be created by the institute as well as from working groups among the largest firms, it takes time and resources but there will be guidance, Tvedt added. “The main message is that Norway will implement at some point, there is no political or professional disagreements about that, it is just political and practical on the governments’ side.”
Croatia’s political problems halted progress
Croatia began the implementation of EU audit legislation in 2016 and the Ministry of Finance proposed a draft of the new auditing law on 9 August 2016. However, the elections and the fall of the government in June 2016 meant that other priorities were put forward by the Croatian Ministry of Finance. This was regardless of warnings from the Croatian Chamber of Auditors to adopt EU audit legislation as a priority.
The updated Auditing Law was open for public discussion on 21 June 2017 and on 23 November 2017 and in September 2017 the first draft of the new audit act with EU audit legislation was presented to the parliament, yet necessary changes were presented on 5 December.
“There are some provisions that need to be otherwise regulated due to the translation into the Croatian version of the EU audit legislation. The audit profession has been in support of it but the Ministry of Finance was not up to date,” Kopun Group (member of Nexia International) managing partner Dubravka Kopun.
Croatia passed its new auditing act in line with the EU audit legislation on 8 December in the parliament which is expected to come into effect on 1 January 2018. The new law states that the Ministry of Finance will be responsible for overseeing all auditing companies and certified auditors, in addition to the Auditing Committee ceasing its public oversight work and the Chamber of Auditors no longer having a supervisory role. The scope of work of the Chamber’s affairs is narrowed to translation of the International Standards on Auditing, organisation of professional training, preparation of national audit standards and organization and conduct of audit examinations.
Crowe Horwath Croatia partner Sonja Hecker Tafra said: “The strengthening of public oversight as well the independence of supervisors in the audit profession and this role is now given to the Ministry of Finance (as well the revenue from the membership fee collected from auditing companies).”
On the other hand, countries such as Iceland and Liechtenstein are not members of the EU and therefore have less pressure to follow the EU audit legislation in their own regulation.
Iceland is a member of European Free Trade Association (EFTA) and therefore has begun the implementation process expected to come into force 2018 or 2019. The Institute of Authorized Public Accountants in Iceland (Félag löggiltra endurskoðenda – FLE) has a working group, steered by the Ministry of Finance Iceland, working on the new audit laws that would be based on the EU audit legislation, FLE managing director Sigurður B. Arnþórsson explained.
Axalo Steuerberatung (member of Nexia International) audit expert Roger Baggiato added that Liechtenstein is a member of the European Economic Area (EEA) and therefore, EU directives are adopted with a time lag, formally a joint decision of the EEA expected in the first quarter of 2018. Baggiato expects that the Liechtenstein parliament will approve the EU audit legislation in June 2018, to be implemented around 1 January 2019.
The Slovenian government had reportedly released a draft in April 2017 affecting rules relating to the Court of Audit. The Slovenian institute and professional body were contacted for comment on this topic but had not responded at the time of publication.
The implementation database (http://www.8cld.eu/Pages/Index.aspx) provides an interactive map of the country status’ and rules, such as length of engagement periods, provisions, prohibitions and caps etc. However, this information has not been updated for these countries since November 2016.