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The Chamber of Deputies is currently approving an amendment to the Act on Auditors, which introduces stricter European Union regulations. Across the EU, the statutory auditor is associated with the public interest, because auditors are subjected to very strict requirements for excellence, independence and ethical behaviour. The proposed amendment is to establish detailed rules to ensure sufficient quality of statutory audits mainly for public interest entities and also on the independence of auditors.
The commitment to incorporate appropriate EU legislation into the Czech law arises from the Czech Republic’s membership in the EU. Therefore, the deadline for the implementation of the related Regulation of the European Parliament from 2014 expires on June 16, 2016 and, thereafter, the amendment becomes part of our legislation without it being adopted by the Czech Parliament. This is the second amendment to the Act on auditors in a relatively short time. The present amendment brings new responsibilities to particular subjects of public interest and increases the demands on the statutory audit and the statutory auditors themselves.
Under the term public interest entity, everyone automatically imagines a bank or insurance company or investment fund, but I would like to draw your attention to the situation when you decide to obtain additional funding for the business through the issue of shares or bonds, which will be admitted to trading on European markets. In this case, you will become an issuer – a legal person – and also a public interest entity. The new law also imposes obligations of public interest entities. In case of violation the public interest entity commits an administrative delict with a fine of 10 MCZK (which is the maximum amount of the fine when appointing the auditor against the law) and 1 MCZK while other violations of the law.
An area that has undergone major change is the area of appointing an auditor in the subject of public interest and restrictions on the provision of non-audit services in these subjects. A public entity may designate an auditor for a maximum of 20 years, but must meet the condition that the audit services will be tendered after 10 years. Furthermore, some parts of the Act previously dealt with simply referring to the Code of Ethics, respectively to an International standard for quality management, which is now formulated directly by the Act itself. The auditors will have much more closely ascertain whether they may conduct the audit for the company and also will have to sufficiently prepare the audit documentation.
As part of an international network with a global reach, we have already implemented these rules and fulfilled all regulatory requirements as a matter of course. Therefore, you do not have to worry that the ongoing audits do not meet the quality criteria and that they would mean more time and administrative burden.