A LAW amending rules governing audit services, including the rights and obligations of auditors, becomes effective on January 1, 2003.
According to the new law (no.466/2002 coll.), audit services are defined as the audit of all kinds of financial statements defined by the Slovak Accounting Law and of financial statements prepared according to the international accounting standards (IAS) or other accepted standards, for example US GAAP.
In the new law, 'audit services' also refers to accounting services, analyses of accounting systems, economic and financial counselling, the valuation of assets, recommendations and consulting with respect to the evaluation of business plans, if these services are provided by licensed auditors.
The new definition of audit services contained in the law corresponds to the changes of other laws that were amended to be in harmony with European Commission (EC) standards. For example, according to the Slovak commercial code, the auditor must review and authorize contracts in the event of a company merger, consolidation or split, according to the further law provisions.
The new law clarifies auditor's rights and obligations. For example, the auditor cannot ask an audited company to change anything in its financial statements, as it is not in accordance with the purpose of audits, ie the auditor is responsible for reviewing financial statements and concluding whether or not they reflect the real situation. This should partially remove one current practical problem, that of auditors forcing Slovak companies to change the data in their financial statements.
The auditor still has the right to ask an audited company to provide him with all the documents, information and explanations necessary for the performance of audit services. However, the audited company can provide this information in any acceptable form. This means that the auditor cannot force the audited company to fill in any special tables that would make his job easier. In addition, the auditor is entitled to be present during the inventory process and to ask the audited company to perform an inventory in any field where he has identified incorrectness or insufficiencies.
The auditor is obliged to take into consideration all the facts and information that he has obtained. He has to report on all findings that will influence his statement about whether the financial statements truly reflect the financial situation and economic results of the audited company.
In general, the auditor is responsible for keeping secret all the information that he has obtained during the audit, apart from in special cases stipulated by the law. For example, the auditor has to report on material and important insufficiencies identified during the audit of banks to the National Bank of Slovakia.
The auditor cannot audit a company if he provides accounting services to, or values the assets of, this company. This provision should ensure the independence of auditors. However, in my opinion, this is insufficient, as the auditor can still provide other services to the audited company, for example counselling and evaluating business plans. In addition, the current practice of audit companies in Slovakia is to establish another company to provide tax advisory services and other counselling services. These companies are internally interconnected and 'behave' as one entity in relation to the clients.
According to the new law, the Slovak Chamber of Auditors is liable to control the quality of the provision of audit services. This can be used by companies that have a different opinion from the auditor. They can ask the chamber to review the auditor's approach. In this respect, the auditor is always obliged to prepare a report summarizing the process and results of the audit services. However, this report is not available to companies, only to the chamber.
As under the current law, auditors will be liable for damage caused by them during the performance of audit services. In this respect, provisions of the Slovak commercial code apply. Thus, in general, the auditor's clients, ie mainly the companies audited, can claim a reimbursement of the actual damages, including extra costs incurred due to the auditor's breach of obligation, and lost profits (as I am not a lawyer, I recommend discussing this issue with lawyers in more detail). And, as under the current law, auditors are obliged to be insured for damages caused when performing audit services, including, for example, the accounting services mentioned above.
Auditors have to be registered with the Slovak Chamber of Auditors. This register is available to the public at the headquarters of the chamber in Bratislava and on the Internet.
Ingrid Jalčová, ACCA, is a chartered accountant and licensed tax advisor with five years of experience with global advisory firms. She invites comments and questions at email: firstname.lastname@example.org
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