Today, the Government has approved the draft law “On the Audit of Financial Reports and Audit Activity”.
The aim of the draft law developed by the Ministry of Finance is to improve the quality of audit services in Ukraine by adjusting the regulatory system to international standards.
What is the problem?
Due to defects in the current regulation of audit activity, Ukraine registers problems with the quality of the financial reports of companies and banks which increase their risk of going bankrupt and undermines the confidence of potential investors and citizens. Also, the current regulation of audit activity in Ukraine contradicts the European legislation. These were the reasons for the Ministry of Finance to take on a comprehensive reform in the audit sector.
The Ministry of Finance developed a model of the audit market reform which is presented in the draft law “On the Audit of Financial Reports and Audit Activity”.
According to the draft law, an absolutely new body for the public oversight of the audit activity must be created. The new body shall include the Council for the Oversight of Audit Activity and the Inspection for Quality Assurance.
The new body shall ensure quality control and impose sanctions on audit providers entitled to carry out the mandatory audit of companies which are of public interest.
The general principles of the regulation of audit activity and audit services which are listed in the draft law are mostly in line with European developments: requirements to the independence of auditors as well as to their objectivity and organization of their work are enhanced, international standards of audit are to be applied, requirements to audit reports are now subject to standards, a clear registration system for auditors is in place, requirements to companies which are of public importance are enhanced.
What are the advantages?
The Government’s decision improves the regulatory system for the audit sector in Ukraine and improves the quality of audit services in line with European standards as well as increases the trust of the society to the Ukrainian financial institutions.
This shall help:
• increase the confidence of investors in the financial reports of Ukrainian companies, including state-owned ones;
• increase the trust of citizens to Ukrainian banks and insurance companies;
• pave the way to the European market for Ukrainian auditors.
The adoption of this draft law shall also contribute to the financial stability of the economy and improvement of the investment climate in Ukraine.
The draft law is also useful for the audit companies. Thanks to the amendments proposed by the Ministry of Finance, Ukrainian auditors will receive a new approach to the regulation of their work. According to the new model, the number of registers shall be reduced from five to one which also means lower training and certification expenses for the audit companies as well as independence and fairness in decision-making compared to the current regulatory system.
The adoption of this draft law is in line with the Association Agreement Ukraine-EU. The adjustment of the audit regulations to European standards is also one of the benchmarks set by the strategy “Ukraine 2020”.
• the draft law was elaborated with the participation of the World Bank, the National, National Securities and Stockmarket Commission, the National Bank of Ukraine, National Commission for the State Regulation of Financial Services as well as the Parliament committee for tax and customs policy;
• the draft law shall ensure the adjustment of the Ukrainian legislation to the EU guidelines (Directive 2006/43/EC dated May 17, 2006, on statutory audits of annual accounts and consolidated accounts);
• the draft law was backed by the European Commission, the International Forum of Independent Audit Regulators (IFIAR), the Financial Reporting Council of Great Britain and the Audit Monitoring Commission of Germany.