The Ministry of Finance and NCE have disagreed about the self-regulation of auditing activities

The Ministry of Finance of RK proposes to create a single authority for the external quality control of audit companies. The National Chamber of entrepreneurs believe that this idea negates the very idea of ​​the existence of professional auditing organizations - potential self-regulatory organizations, and, accordingly, calls into question the further evolutionary development of the audit profession in Kazakhstan.

"Auditing - is the only industry in Kazakhstan, where self-regulation has been developing for over 23 years. And now, coming to the final stage - the legalization of professional associations of audit companies as the self-regulatory organizations, the Finance Ministry proposes to destroy 23 years of experience and to create a system that is not supported by the business community ", - said the director of the department of legalislation and self-development of NCE RK Aizhan Bizhanova.

She added that originally in 1998 the Ministry of Finance has delegated certain functions of the control of audit companies and accreditation of candidates for auditors, and now all of a sudden the Ministry has unjustified objections.

So, one of the main problems identified by the Ministry, is the failure to comply with the requirements and auditing standards of the international audit companies. However, the question of how many audit reports declared invalid in court, i.e. with violations of the IFRS, the Ministry of Finance did not give an explanation, because since 1993 no license was revoked through a court. So the Ministry indicates poor quality of the examination modules, the lack of control over the activities of the Qualification Commission, as well as the lack of coordination of modules by the state body. At the same time, in accordance with the law "On Auditing", the Ministry of Finance is endowed with sufficient competence, unfortunately, unable to effectively solve the existing problems in the industry.

In addition, the Ministry of Finance indicates a conflict of interest in carrying out external audit of quality of audit organizations by professional audit organizations (PAO's interest in preserving its members), as well as the weakening of the requirements of PAO in the performance of external quality control. However, under Article 21 of the branch of the law, audit companies are required to be members of a professional organization (non-profit organization uniting auditors and audit organizations), accredited by the authorized body. Accreditation is an official recognition of powers of PAO by the Ministry of Finance for the implementation of external quality control and conducting qualification examinations. At the same time the Ministry of Finance has the competence to implement state control over the activity of PAO.

The Ministry informs about the presence of a lack of state influence on the auditing activities. At the same time, according to the sectoral laws, the Ministry of Finance is endowed with 18 regulatory and supervisory functions to audit companies and PAO.

The National Chamber jointly with the heads of professional associations of audit organizations (hereinafter - the PAO, there are 3 of them at the market) and large business entities (including international) analyzed the costs and benefits of the introduction of self-regulation, which have shown the benefits of this institution.

Firstly, the introduction of self-regulation in the field of auditing is the only tool that can improve the competitiveness of audit companies under the inevitable law of globalization by strengthening relationships of SRO and consumers of audit services and the introduction of the rating system of evaluation of SRO activity. In addition, according to the model of self-regulation, SRO bear joint liability for the shortcomings of its members, including property, which will ensure the effective development of the pre-trial regulation institute.

Secondly, SRO act as public organizations that require maximum transparency and openness in its activities for the service users, its members and the authorized body - the Ministry of Finance, including ensuring transparency in the conduct of candidates for certification procedures for auditors, as well as the obligatory harmonization of standards of SRO rules with the Ministry of Finance and the National Chamber.

Thirdly, in self-regulation will be more efficient monitoring and oversight mechanisms, voiced by the head of state. On the one hand, control of market participants is ensured by professional society itself that provides regular professional development of auditors, as well as improved standardization. On the other hand, to tighten control of state bodies over SRO activities through the introduction of state liability for unsatisfactory work of SRO (for example, a warning, suspension of SRO activities, exclusion from the register of SRO, the initiation of ARV for the return of licensing. In this way, will be minimized SRO risks in relation to its members, as well as, on the contrary, "cover" SRO separate groups).

NCE states that introduction of a single authority will triple burden on market actors. Now it is two-fold: control of the Ministry of Finance on licensing and the potential SRO, which also exercises control. NCE also proposes to abolish inefficient licensing and to make potential SRO official, so that they themselves are responsible for the quality control exercised by them.

"There is an opinion on the deliberate discrediting of the model of evolutionary development of audit activities by the Ministry of Finance and reluctance to improve the institution of self-regulation in the industry", - said Bizhanova.

At the same time, according to her, the Ministry is justifying its actions by the fact that a single body is able to protect the domestic audit companies from unfair competition from neighbors in the Customs Union. "In fact, for a single space it does not matter whether there is a licensing or special monitoring carried out by "a single body "(as proposed by the Ministry of Finance), and especially for entry into the profession through self-regulation, any auditor who has the authorization granted to it by national law, have the right to provide audit services in any territory, which is included in an international agreement in a single space without any barriers, set the country, where these services are provided. We can protect our audit organizations only by increasing their professionalism and competitiveness through the development of self-regulation and enhance the reputation of the Institute of SRO. Adequate assessment of the reputation of the SRO and its members can only give the customer audit services, in connection with which the further improvement of audit activity should be reoriented to increase consumer confidence in the audit services", - said the expert.

The transparency of the organization offered by the Ministry of Finance Also also arises doubts, since it is assumed that it will be created at the aforementioned Ministry, i.e. as a quasi-public body. In addition, the composition of a single body to be composed of non-practicing auditors, i.e. auditors, who once got a license, but are not engaged in auditing activities now. In this connection arise the question about the quality of auditors carried out by non-practitioners over practicing audit compnies?

Given that the state policy today is aimed at reducing state control, permits and simplification of licensing procedures, the introduction of self-regulation institute in the field of auditing is the most effective regulation that can improve the professional level of the auditor and the competitiveness of the audit organizations, in connection with which NCE together with  auditing entities will develop alternative ARVs, which will shortly be sent to the Ministry of national economy for subsequent submission to the Interdepartmental commission in the Government on the development of entrepreneurial activity.