Mandatory audit criteria to be eased

MORE companies in Slovakia may be exempt from mandatory financial audits, with parliament working on a draft revision to raise audit limits. The Finance Ministry believes this will reduce red tape, but auditors say that businesses should view audits as valuable, independent insight into their finances, rather than an administrative burden.

MORE companies in Slovakia may be exempt from mandatory financial audits, with parliament working on a draft revision to raise audit limits. The Finance Ministry believes this will reduce red tape, but auditors say that businesses should view audits as valuable, independent insight into their finances, rather than an administrative burden.

The current legislation requires companies and sole proprietors in Slovakia to undergo financial audits if they exceed at least two of the three limits: a balance sheet totalling €1 million, a net turnover of €2 million, and/or an average of 30 employees. The Finance Ministry is proposing to increase the balance sheet requirement to €1.5 million, and the net turnover to €3 million. The new limits should become effective at the start of 2014.

The Finance Ministry, when introducing the draft revision to the Act on Accounting, said that it will reduce the administrative burden for entrepreneurs. For the time being about 6,500 companies in Slovakia are obliged to have their financial statements audited.

Róbert Kičina, executive director of the Business Alliance of Slovakia (PAS), agrees that the elevated limits mean a lower administrative burden and thus also a reduction of costs. He expects that the revision and the changes it brings will especially help small companies.

The Slovak parliament advanced the draft revision to the second reading on September 4.

The Slovak Chamber of Auditors (SKAU) does not support increasing the limits, and warns that reducing the number of audited companies is currently unacceptable for Slovakia.

“Auditing is one of the keys of order during the collection of taxes,” Ondrej Baláž, president of the SKAU, told The Slovak Spectator. “If the limit of the turnover, from which the audit is obligatory, were increased, the number of such overseen companies will decrease, which will create room for avoiding the tax duty. Slovakia cannot afford this.”

The SKAU does not agree that audits increase the administrative burden and raise company costs. It believes that companies required to undergo audits should be seen as having a competitive advantage, as their reputation is better than of those whose financial statements are not audited.

“Audited companies can more easily get a loan, state incentives or EU funds,” Baláž said.
Luboš Vančo, managing partner of KPMG in Slovakia and a member of the presidium of the SKAU, believes that the current limits are reasonable for the size of the Slovak economy.

“We should not introduce limits which are more suitable for bigger countries, like Germany or France,” Vančo told The Slovak Spectator. “Only 3 percent of the companies in Slovakia have to be audited. This is not really too many.”

Vančo does not think that increasing the limits will decrease the administrative burden.
“An auditor is not asking for more documents than any normal company would have,” said Vančo. “I see the increased trend of financial collapse of companies. Auditor can help to warn the owner/management in advance that the financial situation of the company is not healthy.”

Bart Waterloos, partner of VGD - AVOS Bratislava, according to whom the increase of the mandatory auditing limits is only marginal, sees the fact that audits are viewed as an administrative burden as a problem.

“We like to see an audit as an added value for the business, whereby the owner/manager has the chance to obtain independent insight into his company,” Waterloos told The Slovak Spectator. “Especially when we review the internal processes of the company, we can provide a lot of valuable feedback to the client.”

Ján Bobocký, senior manager for energy and resources and auditing at Deloitte in Slovakia, added that the increased limits for mandatory audits do not save as much time or money for smaller companies.

“An audit fee is usually a fragment of the total costs of any corporation,” said Bobocký. “Definitely, a bigger and more tangible impact on how businesses run their accounting could come from recent laws on electronic invoicing that are already in place in the whole EU.”

Bobocký further pointed out that while the premise that auditors protect tax income for the state by executing mandatory audits of as many companies as possible appears to be fanciful, reality indicates otherwise.

“Slovakia has both one of the lowest limits for mandatory audits and one of the lowest success rates of VAT recoverability in the EU,” said Bobocký. “The audit is primarily focused on providing service to the owner or investors, and the management.”

According to Bobocký, increasing the limits for mandatory audits may actually create a good opportunity for innovation within the auditing profession.

“There would be a new segment for the auditing profession with a ‘free market’, i.e. there would be no law or other authority to prescribe to small businesses what they need and what they should order from audit firms,” said Bobocký. “There have already been mixed views on the benefits of statutory audits for this segment in the news. The major reason for this may be the relevance of statutory audit reports to the needs of small businesses.”

Bobocký quoted Warren Buffet as saying that accounting is the language of business.

“The natural role of auditors is to provide independent, objective and high quality service in providing opinion on financial information, which is a perfect fit to all kinds of situations,” said Bobocký. “Even small businesses need to speak accounting language when they make alliances, request credit from lenders, seek new investors, who all need to trust their financial affairs. All these situations create natural market demand for audit work regardless of any legal obligation.”

Other changes

The draft revision to the Act on Accounting also brings changes in accounting obligations to micro-companies. The legislation defines microcompanies as companies which do not exceed two of three indicators during two consecutive accounting periods: the balance sheet total should not exceed €350,000, the net turnover should not exceed €700,000 and the number of employees should be up to 10.

Waterloos welcomed the reduction in the required extent of financial statements and related documents for the micro-companies, saying that this “is for sure a step in the right direction”.

Peter Pašek, managing director of Accace, views the revision positively, “either due to re-particularisation of the provisions regulating the register of financial statements, the launch of which is planned for 2014, and also the related planned launch of electronic communication of most taxpayers with the tax administration”. Equally, Accace also sees the planned simplification in the posting and reporting of the so-called micro accounting entities as a positive step.

Pašek also sees the planned change in the period for the reviewing of non-current tangible assets and their extension to four years instead of the original two years as a positive step. Equally, he thinks that reviewing ready cash and its possible performance only at the date of financial statements is a positive step.

Get daily Slovak news directly to your inbox

Theme: Finances and Advisory

Read more articles by the topic

Top stories

Better times ahead for the Calvary in Bratislava

The last preserved station was restored this summer.

The last preserved station of the Stations of the Cross in Bratislava

Why you need to buy a belt

On this Black Friday, with society teetering on the brink of chaos, I ask that we all do our part.

Roundup: Bratislava’s Old Market Hall hosts Christmas markets

If you have not watched the 'Dracula' miniseries, filmed in Slovakia last year, it is about time.

Bratislava’s Old Market Hall will provide visitors with Christmas vibes in the coming four weeks. Each week, from Wednesday to Saturday, people can do a little bit of Christmas shopping at the venue.

Fico admits to ties with Bödör

Former prime minister stands by his praise for the state secretary who confessed to corruption and court interference.

Robert Fico during his November 26 press conference.