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Audit industry reform: dialogue with market participants

On 20 April 2018, the Bank of Russia Governor Elvira Nabiullina and deputy minister of finance of the Russian Federation Ilya Trunin held a meeting with the auditor community represented by self-regulatory organisations (SRO) and major audit firms on the audit industry prospects and the establishment of efficient cooperation between the regulator and independent auditors.

The first step of the reform was the draft law on the regulation of audit activity prepared by the Russian Ministry of Finance and the Bank of Russia and awaiting the second reading in the State Duma. It provides for transferring the authorities to regulate and supervise the audit activity to the Bank of Russia, clarifies the criteria of statutory audit and stipulates the minimum number of auditors that audit firms must have on the payroll.

Potential further directions of the industry’s development were the subject of the discussion. The representatives of audit firms voiced their concerns regarding the issues currently existing in the industry, such as unfair competition, polarisation of audit market, declining prestige of the profession, and the inflow of employees who are not ready to work in new conditions.

The meeting participants also indicated the challenges that the industry is facing, including those related to the transformation of the audit activity on the back of the application of international audit standards and to the increasing popularity of interaction with persons responsible for corporate governance.  Moreover, the meeting participants noted the importance of ensuring auditors’ independence and their ability to freely express their professional opinion, which is necessary for the application of the professional scepticism principle.

The discussion participants praised the role of SROs in the development of the professional methodology and the improvement of auditors’ qualification and indicated the potential areas for their operation in the audit market.

Auditors also specifically noted that the reliability of financial statements could not be ensured through proper auditor’s work only and pointed out that it was necessary to further improve the internal audit, internal control and risk management frameworks of financial institutions as well as increase the responsibility of audit firm’s management bodies for the reliability of accounting (financial) statements.

In conclusion, the meeting participants arrived to the consensus that further improvement of audit activity would require the cooperation between the mega-regulator and the professional auditors’ community pursuing the mutual goal that is to establish trust in financial information.

The Bank of Russia, the Ministry of Finance and the auditors’ community will continue to discuss potential ways to raise the quality of external audit, including the improvement of professional competence and increasing the efficiency of self-regulatory institutions, which will form the basis for the concept of the audit industry development in the medium term.

20 April 2018

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