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Decision for Recognizing the Audit Oversight System of Bulgaria

The Swiss Audit Oversight Act (AOA) exhibits certain extra-territorial properties that can affect audit firms headquartered outside Switzerland.
 
By its letter the Federal Audit Oversight Authority (FAOA) informed the Commission for Public Oversight of Statutory Auditors that on 1 July 2015, based on an assessment conducted bythe Federal Audit Oversight Authority (FAOA) and resulting recommendation, the SwissGovernment decided to recognise the audit oversight system of Bulgaria.
 
The Swiss Governmentalso decided to put the extra-territorial jurisdiction of the FAOA overauditors of foreign companies with equity listings on a Swiss stock exchange into force as of1 October 2015. As of this date, such foreign audit firms require a licence as an audit firm under state oversight in Switzerland and are subject to the oversight of the FAOA. Based on the recognition of the CPOSA by the Swiss Government,. the licensing and oversight Obligations for foreign audit firms headquartered in our jurisdiction will not apply to audit firms subject to the oversight of CPOSA

ANNUAL REPORT OF CPOSA’S ACTIVITIES FOR 2013 – SUMMARY

During the year 2013 the Commission of Public Oversight of Statutory Auditors has passed 5 years since its creation. The main challenge facing the Commission as a young Regulatory Body is to establish itself as effectivelyworking organization.
 
During the year the Commission’s efforts was aimedto increase the efficiency of quality control activities of statutory auditors certifying the annual financial statements of public-interest entities; an activeparticipation in the development, adoption and defending the position of our country inrelation to the proposed by the European Commission drafts for amending the Directive 2006/43/EC and Regulation for audit of public-interest entities;institutionalapprovalanddevelopmentof theCommission.
 
The actions, undertaken by the Commission in January 2013, were aimed at classify theinformationabout the activity of public-interest entities and as a result it was made a list with these organizations. In the process of making the list, the Commission has founded some problems related to two of the already discussed shortcomings of the Independent Financial Audit Act – one of them is related to the legal definition of the term „telecommunication services” and the criteria for identifying companies as public-interest entities. A very small part of the companies providing telecommunications services, as well as those which produce, transmit and sell electricity and/or heat might be considered significant for society with the volume of their activities or the impact they have on the market or the society as a whole. The Commission prepared a suggestion for creating criteria for identifying companies as public-interest entities, which will be discussed in the forthcoming change of the Independent Financial Audit Act, needed for transpositionof the Directive 2014/56/EC. The determination of the population of the firms was assessed as useful by the registered auditors, whose are subject of control by CPOSA. In case of need were defined by the Commission objective criteria for evaluating the adequacy of time and human resources, invested in performing audit engagements and during the year under review were undertaken to perform a statistic analysis of the relevant information from the Annual Activity Reports of the statutory auditors for the professional year which ended 30.06.2013. In this connection, it was made a suggestion to the professional organization for change in the content of the annual reports of the statutory auditors and it will be discussed soon.

ANNUAL REPORT OF CPOSA’S ACTIVITIES FOR 2012 – SUMMARY

ANNUAL REPORT OF CPOSA’S ACTIVITIES FOR 2012 – SUMMARY
In 2012 the main priorities of the Commission’s oversight activities were mainly focused on updating the secondary legislation regulating the quality control of the activities of statutory auditors in order to improve the effectiveness of inspections, active cooperation with the respective authorities of the European Union when discussing draft amendments of Directive 2006/43/EC and the proposal for a Regulation of the European Parliament on specific requirements regarding statutory audit of public-interest entities, as well as in regards to the activities of the ICPA.
The actions, undertaken by the Commission, were aimed at preventing and limiting the errors, inconsistencies and legal violations in the area of independent audit improving the interaction with other independent regulators. CPOSA continued its cooperation with the regulatory authorities of the EU Member States towards the implementation of best practices in the oversight activities regarding independence and implementation of the risk-based approach in its planning activities.
During the year under review 62 inspections were carried out of which 43 of sole practitioners and 19 of audit firms. Due to objective reasons, with a decision of CPOSA one planned inspection was postponed for 2013. Despite the higher evaluation criteria, judging on the outcomes, the trend of improving the quality of the activity of statutory auditors continues. The outcomes of the inspections show that 93% of practices were assessed with positive evaluations, while the unsatisfactory evaluations were only 7%. In comparison – the ratio from the previous year was 89% to 11%.
CPOSA conducts investigations on received upon signals for alleged violations and suggestions from interested parties, and also in other cases – at its discretion.
In 2012 CPOSA received 27 signals, 13 of which pertain to the activities of statutory auditors and were related to the quality of audit services and violations of ethical requirements; 13 requests or appeals were against decisions of the ICPA in connection to the acquisition of a diploma for a Certified Public Accountant, respectively registration of independent auditors, and 1 statutory auditor requested CPOSA to inspect his audit practice. In comparison, in 2011 the signals were 16, 9 of which were related to the work of the auditors. Whistle blowers were mostly government institutions, candidates for acquisition of a diploma for a Certified Public Accountant, audit committees and shareholders. Four signals were received by the Financial Supervision Commission.
Following the decisions of CPOSA, in 2012 were carried out 10 investigations. It was found out that 4 of the received signals were justified, while in the 6 rest the facts have not been confirmed by the investigating teams.
The trend from previous years of increase in the number of received signals in CPOSA continues – 68% for 2012. This trend is an indicator of increased trust in the activity of the Commission which could be attributed to its administrative capacity. It would be better to discuss the matter of anonymous complaints which currently are limited by internal rules. Undoubtedly, if it comes to such a decision, eligibility criteria for anonymous signals would have to be introduced.
As a result of investigations carried out:
- grounds for the imposition of administrative penalties of three statutory auditors have been established,
- acts of administrative violation and issued criminal warrants were drawn.
Irrespective of any identified violations of the provisions of the IFAA and on the condition that the one-year limitation period had expired an administrative and criminal liability was not sought after for one statutory auditor. The auditor’s practice has been planned for a regular inspection in the next campaign. The inability, stemming from the existing legislation, to impose sanctions because of the short limitation period does not in any way encourage unscrupulous auditors to work more efficiently.
At the end of the fiscal year was given the start of a procedure for establishing an intranet and electronic filing system, as well as improving the image of the Commission's website by upgrading its sections.
The analysis of the Commission's activities not only for the reporting year, but also for its first mandate, leads to one major conclusion – in order to increase the effectiveness of the supervisory activities of CPOSA the legislation should be revised. In our opinion it should be a two-stage process. The first stage involves urgent amendments to the IFAA arising from difficulties in the work process of the professional organization and the regulator, as well as amendments in the national legislation. The second stage includes the preparation and transposition of the European directives and regulations in the field of statutory audits.
On the basis of the upper-mentioned, the main priorities of the Commission for 2013 are:
•    increasing the efficiency of quality control activities of statutory auditors certifying the annual financial statements of public-interest entities by:
–    revisions in the legislation;
–    development and adoption of a methodology for evaluating the adequacy of time and human resources and audit fees;
–    wide application of the risk-based approach in determining the scope of the auditors to be inspected and when determining the sample size of engagements that should be reviewed.
•    continuing the active cooperation with EU respective bodies and the protection of our country's position in the discussion of draft amendments to Directive 2006/43/EC and the adoption of a Regulation.
•    institutional strengthening and development of CPOSA.
The ultimate goal for 2013 is to establish the Commission as a working oversight authority, effectively protecting the public interest.

Eighth meeting of the European Audit Inspection Group

On 19th and 20th March in "Sheraton Sofia Hotel Balkan" the Financial Supervisory Authority of Norway will chair the Eighth meeting of the European Audit Inspection Group (EAIG) which is organized by the Commission for Public Oversight of Statutory Auditors of Bulgaria.43 representatives from different European oversight authorities and a representative of the European Commission, as an observer, will participate.

The main topics of the discussion will be: the establishment of an electronic database with findings, the risk-based approach when carrying out inspections, an update of the information on the cooperation of the Public Company Accounting Oversight Board of the USA, professional skepticism, evaluation of the principle of going concern, as well as the Work Program and the priorities of the EAIG in the future.

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The Commission for Public Oversight on Statutory Auditors was established in compliance with the Directive 2006/43/EC of the European Parliament and of the Council.

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Sofia 1000
phone: +3592 983 55 39
fax: +3592 983 13 85
office@cposa.bg

 

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