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TAX & AUDIT - FINANCIAL SCANDALS TRIGGER GLOBAL TREND TO CRACK DOWN ON CORPORATE FRAUD

Ministry proposes audit oversight office

THE EUROPEAN Union is trying to establish an oversight authority to supervise auditing firms. The desire to tighten controls over financial companies arose after some internationally acclaimed auditing firms were found to have helped corporations falsify financial statements, such as Arthur Anderson in the case of US energy giant Enron and Grant Thornton for Parmalat in Italy.

FINANCIAL scandals inspired the idea of a supervisory office.
photo: TASR

THE EUROPEAN Union is trying to establish an oversight authority to supervise auditing firms. The desire to tighten controls over financial companies arose after some internationally acclaimed auditing firms were found to have helped corporations falsify financial statements, such as Arthur Anderson in the case of US energy giant Enron and Grant Thornton for Parmalat in Italy.

With respect to the EU's efforts, the Slovak Finance Ministry submitted a proposal to the cabinet in August to establish an Office for Financial Reporting and Supervision of Auditing Professions. The goal is to improve the quality of the country's financial reporting and auditing.

According to Ivan Bošela, president of the Slovak Chamber of Auditors, the proposal is an extension of the global movement to crack down on the "accounting deceits of large international corporate managers in the US and Europe that auditors have failed to reveal early enough".

Governments, including Slovakia's, have responded "by lowering trust in the auditing professions and placing stricter controls over their activities", Bošela told The Slovak Spectator.

Based on the Finance Ministry's proposal, the Office for Financial Reporting and Supervision of Auditing Professions would be independent from other state bodies and would have direct contact with European Union bodies as well as the International Accounting Standards Board.

The proposed office would be responsible for issuing auditing standards in compliance with international auditing standards and the Ethical Code of International Federation of Accountants (IFAC) and coordinate activities in the area of accounting and financial reporting.

The body would also monitor audits for distortions and discipline transgressors.

Currently, the Slovak Chamber of Auditors supervises Slovakia's auditing profession. Bošela defends the role the chamber played as regulatory body.

"The Slovak Chamber of Auditors was not without results. Our controls, conducted according to internationally approved procedures, led to a series of disciplinary actions, including court procedures," he told the Spectator.

The Finance Ministry thinks the Office for Financial Reporting and Supervision of Auditing Professions will complement the chamber's role, and Bošela agrees.

"The Slovak Chamber of Auditors will continue to conduct controls of auditors' activities; however, the controls will be based on procedures set by the Office for Financial Reporting and Supervision of Auditing Professions. We will report to the office on our results and be responsible for publishing activities," Bošela explained.

The Finance Ministry has designed the Office for Financial Reporting and Supervision of Auditing Professions so that it can conduct independent investigations of any auditing firm in case of threatened public interest, based on a motion filed by any party involved in the financial reporting process. The office can also impose sanctions based on its findings.

According to the official document submitted to the government, the candidate qualified to lead the organization will have executive management experience in the auditing field. He or she will also "represent Slovakia at an international level and thus knowledge of English language is a must". Compensation offered will be equivalent to that offered top-level managers at international auditing firms.

The Finance Ministry says that global trends demand improvements in all phases of accounting and reporting. Auditors as well as those who come into contact with financial information must increase their awareness.

Auditors as well as financial analysts, rating agencies, investments banks, internal and external lawyers are supposed to respect ethical codes. Companies are expected to introduce more effective mechanisms to audit themselves. And management is being told to take responsibility for internal accounting.

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