Application of international auditing standards. Criteria for statutory audit There is always a possibility

04.04.2017

Despite the fact that 2016 is not yet closed for all companies and audits are in full swing, those who have already managed to obtain an audit opinion are starting to prepare for the next year's audit. A number of changes have been made to the current legislation, which should be taken into account when concluding an audit contract. Let's see what you need to pay attention to when working with auditors.

1) International Auditing Standards

Since January 1, 2017, International Auditing Standards (ISA) have been in force in Russia. The new requirements will affect both the auditors and the audited companies. Significantly increases the amount of data required to analyze the activities of audited entities, as well as increasing the degree of publicity of the results of the audit. The transition to ISA for many small audit companies will require serious methodological support, changes in internal regulatory documents. Before concluding a contract, it will not be superfluous to make sure that the auditor has the resources and experience to conduct an audit in accordance with ISAs, to analyze the contract proposed by the auditor for the presence of all conditions required for agreement in accordance with ISA 210 “Agreement of the terms of audit assignments”.

2) Membership in a self-regulatory organization

On January 1, 2017, amendments to the law on auditing came into force. They provide for an increase in the minimum number of members of SRO auditors from 500 to 2 thousand audit organizations or from 700 to 10 thousand auditors. These changes led to the fact that today only two self-regulatory organizations remain in the state register of SRO auditors: the Russian Union of Auditors (Association) and the Commonwealth Association. SRO "Audit Chamber of Russia", NP "Institute of Professional Auditors" and NP "Russian Collegium of Auditors" ceased to exist. But not all auditors have left the three SROs excluded from the state register. Therefore, before concluding an audit contract, be sure to check whether your auditor is a member of one of the current SROs.

3) Unified qualification certificate

Starting from January 1, 2012, the audit of a number of organizations that belong to socially significant economic entities (OSEA) can only be carried out by auditors with unified qualification certificates. The Ministry of Finance of the Russian Federation annually publishes a list of cases of a mandatory audit of accounting (financial) statements, which indicates who can audit an organization. Thus, the list of cases in 2016 was increased by 9 points compared to 2015, including three categories of companies that can be audited by an audit organization that has an auditor with a new qualification certificate. Thus, the scope of professional application of auditors with the "old" certificate is reduced over time. At the same time, there are many practicing auditors on the market who received a certificate on January 1, 2011. If your company falls into the SHS category, ask the auditors you plan to contract with if they have the workforce (including interchangeable) to comply with these legal requirements.

4) Reporting the results of the statutory audit

In connection with the change in the Federal Law "On Auditing" from October 1, 2016, the customer of the statutory audit must independently enter information about the results of the statutory audit into the Unified Federal Register of Information on the Facts of the Activities of Legal Entities (www.fedresurs.ru) in the form of a message indicating data identifying the audited entity (name of organization, PSRN, TIN, for individuals - last name, first name, patronymic, SNILS). Despite the fact that these requirements have already been established since the audit of financial statements for 2016, as practice has shown, not all organizations were ready for this. To enter information into the register of an organization, it is necessary to issue an electronic signature for an authorized employee through the Certification Authority (http://iitrust.ru/region/uc/tarif.php) or be ready to contact a notary with a package of documents, who will go to the website www.fedresurs .ru with its certificate and submit information to the Register on behalf of the organization. Information must be posted within three days from the date of issuance of the auditor's report.

5) Additional audit quality assurance

Auditors are regularly checked by SROs and the financial treasury. The issue of transferring part of the powers of the regulatory body to the Central Bank of the Russian Federation is being actively discussed. Information on the results of an audit company passing external quality control, as well as information on the application of disciplinary measures, is posted on the official website of the Ministry of Finance of the Russian Federation. The key point in the issue of the quality of services provided is an effectively functioning internal quality control system in the company. Such a system, among other things, may include an internal control department, consisting of independent controllers with the necessary experience, due skills and qualifications, who check the quality of the audit assignments. It is also important that the auditor has a professional liability insurance contract and the amount of liability limit specified in it. Separately, I would like to note the advantages of membership of audit companies in international networks. This allows auditors to use the experience and achievements of colleagues from abroad in their work. And of course, nothing characterizes the work of auditors as much as customer reviews and recommendations.

Of course, in the presence of a huge market for the company's proposals, it is difficult to solve the problem of choosing an auditor. We hope that the above nuances will help the company make the right choice.

Sources of information about the audit company:

• the register of audit organizations is posted on the official website of the Ministry of Finance of the Russian Federation on the Internet? http://minfin.ru/ru/perfomance/audit/reestr_audit/auditor_org/;
• corporate website of the audit company. On June 19, 2014, the Audit Council approved recommendations to audit organizations on disclosure of information on their official website, in accordance with which a list of data to be posted was established;
• A unified federal register operating at an address on the Internet? http://fedresurs.ru.

Anna Gulyaeva, Director of the Audit Department of the audit company MKPTs

In 2018, the rules for conducting audits of financial statements have changed. During the audit for 2017, auditors will be guided by International Standards on Auditing (ISA). Ekaterina Annenkova, an auditor certified by the Ministry of Finance of the Russian Federation, told what changes the company is waiting for.

In addition to the ISA, when conducting an audit for 2017, the following documents are used, adopted by the International Federation of Accountants and recommended for use in the territory of the Russian Federation by the Audit Council:

• The concept of audit quality: key elements that form the environment for ensuring audit quality;
• International concept of assurance engagements;
• Glossary of terms;
• Structure of the compendium of standards issued by the International Standards Board on Auditing and Assurance Engagements;
• Preface to a compendium of international standards for quality control, auditing and reviews, other assurance engagements and related service engagements.

Recall that back in 2017, the audit of financial statements was carried out in accordance with the federal rules (standards) for auditing activities approved by the Government of the Russian Federation and federal auditing standards approved by the Ministry of Finance. These documents became invalid as of January 1, 2018 and cannot be used in the audit of financial statements for 2017.

The requirements of international standards will affect not only the auditors and audit procedures, but also the audited taxpayers. The latter will have to provide more information to analyze their activities in accordance with the new requirements. And in connection with the disclosure of more information in the audit report, the degree of confidentiality of the audit results will significantly decrease.

At the same time, taxpayers should still be guided by native RAS, in rare cases remembering international standards (in the absence of specific accounting methods in PBU - for example, in connection with the organization's participation in non-state pension programs) and taking into account the requirements of IFRS (when reporting in accordance with with them).

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What changed

In accordance with the provisions of the Federal Law "On Auditing" No. 307-FZ dated December 30, 2008. ISAs are mandatory for application:

• audit organizations and auditors (clause 1, article 7 of law 307-FZ),
• audited and other persons who have entered into an agreement for the provision of audit services (clause 2, article 14 of Law 307-FZ).

By order of the Ministry of Finance No. 192n dated October 24, 2016. 30 international auditing standards (ISAs) were put into effect, and by order of the Ministry of Finance No. 207n dated November 9, 2016. - 18 more.

By the same orders, the Ministry of Finance established that ISAs come into force on the territory of the Russian Federation from the day they are officially published and are applied starting from the year following the year in which they entered into force, that is, from January 1, 2017.

At the same time, ISAs are used to audit the accounting (financial) statements drawn up for any reporting periods.

It was also established by orders No. 192n and No. 207n that in 2017, if the contract for auditing the financial statements of an organization was concluded before January 1, 2017, an audit organization, an individual auditor has the right to conduct an audit, including drawing up an audit report, in accordance with the auditing standards in force prior to the entry into force of ISAs.

The application of international standards should contribute to the fact that the audit reports will contain more information about the state of the business of the entity being audited.

In accordance with international standards, when auditing the financial statements of organizations whose securities are admitted to organized trading, as well as in other cases by the decision of the auditor, a separate section “Key audit issues” is included in the audit report.

This section provides users of financial statements with additional information necessary to understand matters that, according to the professional judgment of the auditor, were the most significant for the audit of financial statements for the reporting year.

In determining key audit matters, the auditor should consider:

• areas of increased assessed risk of material misstatement of reporting or significant risks identified in accordance with International Standard 315 “Identifying and assessing the risks of material misstatement by studying the organization and its environment”;
• its significant judgments in relation to areas of the financial statements that require the use of significant management judgments (including estimates) that have been assessed as having a high level of uncertainty;
• the impact on the audit of significant events or transactions that occurred during the reporting period.

The description of each key audit matter should include a link to the relevant disclosures in the financial statements (if any) and indicate:

• why the matter was considered to be the most significant for the audit and, therefore, was determined as a key audit matter.
• how the matter was examined during the audit.

At the same time, the inclusion of key audit issues in the auditor's report:

1. Does not replace:

• information disclosed by management in the financial statements;
• the expression by the auditor of a modified opinion when one is required due to the circumstances of a particular audit engagement in accordance with Standard 705 Modified Opinion in the Auditor's Report;
• reporting in accordance with Standard 570 Going Concern when there is a material uncertainty related to events or conditions that may cast significant doubt on the entity's ability to continue as a going concern.

2. Is not an auditor's opinion expressed on individual matters.

The "updated" audit report will be useful not only to the head and chief accountant, but also to the owners of the company, and any other interested users - both potential investors and government agencies.

To express a detailed opinion, auditors will need a larger amount of data necessary in the implementation of a full analysis of the activities of organizations.

In this case, it is necessary to take into account. The bill of the Ministry of Finance contains amendments to Articles 82 and 93.1 of the Tax Code of the Russian Federation. They provide that the tax authority, during the audit, will have the right to demand from audit organizations and individual auditors the documents of clients received by them, which serve as the basis for calculating and paying taxes, fees and insurance premiums. It is assumed that tax authorities will require such documents from auditors for the purposes of tax control if they are not submitted in the prescribed manner by the taxpayer himself. At the same time, audit firms and individual auditors will have to submit the required documents to the tax authorities, regardless of the consent of the taxpayers who received such services.

A year ago, it was assumed that these amendments to the Tax Code of the Russian Federation could come into force on January 1, 2018. However, the bill has not yet been passed.

Recall that the current legislation contains requirements for a mandatory audit with the subsequent provision of an opinion to Rosstat, as well as for the disclosure of information contained in the audit report within a certain time frame.

Who is subject to mandatory audit

Mandatory audit is carried out annually by companies that are required to conduct it in accordance with the requirements of Federal Law No. 307-FZ of December 30, 2008. "About audit activity".

In accordance with the provisions of paragraph 1 of article 5 of the above law, the following categories of taxpayers are subject to mandatory audit:

• joint-stock companies
• organizations whose securities are admitted to organized trading
• credit organizations
• professional participants of the securities market
• insurance and clearing organizations
• NPF, mutual investment and other funds
• joint-stock investment funds and management companies of such funds
• organizations whose revenue (preceding the reporting year) exceeds 400 million rubles or the amount of assets in the balance sheet as of the end of the previous reporting year exceeds 60 million rubles
• organizations that make up consolidated financial statements.
• other organizations, in cases where they are required to do so by federal law, for example, banking groups and bank holdings, state-owned companies and corporations, housing savings cooperatives and developers, microfinance companies, etc.

The audit report must be submitted to the statistical authorities either simultaneously with the provision of financial statements, or no later than 10 business days from the day following the date of the audit report, but no later than December 31 of the year following the reporting year (clause 2 of article 18 of law No. 402 -FZ "On Accounting").

In addition, in accordance with paragraph 6 of Article 5 of Law No. 307-FZ, information on the results of a mandatory audit is subject to entry into the Unified Federal Register of information on the facts of the activities of legal entities. This must be done promptly - within three business days after the date of the audit report. Placement of information in the register is paid. And it is better to pay it in advance, so as not to violate the three-day period.

But there is no need to provide an audit report to the Federal Tax Service, since it is not included in the financial statements in accordance with Article 14 of Law No. 402-FZ.

Penalties

The Administrative Code provides for penalties both for violation of the deadlines for the provision of an audit report / information on its results, and for failure to conduct a mandatory audit.

Thus, according to paragraph 2 of Article 15.19 of the Code of Administrative Offenses of the Russian Federation, non-disclosure or violation by an issuer, a professional participant in the securities market, a clearing organization, a joint-stock investment fund, a management company of a joint-stock investment fund, a mutual investment fund or a non-state pension fund, a specialized depository of a joint-stock investment fund, unit investment fund or non-state pension fund, or a person providing services for the public presentation of disclosed information, the procedure and timing of disclosure of information, as well as disclosure of information not in full, is punished very severely. Officials may be fined from 30,000 to 50,000 rubles or disqualified for a period of 1 to 2 years. Legal entities face an even more serious fine - from 700,000 to 1,000,000 rubles.

On the basis of paragraphs 6-8 of Article 14.25 of the Code of Administrative Offenses of the Russian Federation, late submission of information to the Unified Federal Register entails a warning of officials or the imposition of an administrative fine on officials in the amount of 5,000 to 10,000 rubles. In the event of a relapse and the commission of the same violation again, the fine will be 10,000 - 50,000, and in addition, an official may be disqualified for a period of one to three years.

In accordance with the provisions of Article 19.7 of the Code of Administrative Offenses of the Russian Federation, for failure to provide information to Rosstat (in compliance with the deadlines stipulated by law), liability is established in the amount of 300 to 500 rubles for officials and from 3,000 to 5,000 rubles for legal entities. In addition, under the same article 19.7, the company can also be fined separately for the fact that the information was provided in incomplete composition (Rosstat letter No. 13-13-2 / 28-SMI dated February 16, 2016)

According to the Federal Law "On Auditing", auditing activities (audit and audit-related services) are carried out in accordance with the International Standards on Auditing (ISA) adopted by the International Federation of Accountants (IFAC) and recognized in the manner established by the Government of the Russian Federation.

The Ministry of Finance of Russia has completed the recognition of currently valid ISAs. By Orders of the Ministry of Finance of Russia No. 192n dated October 24, 2016 (as amended by Order No. 220n dated November 30, 2016) and No. 207n dated November 9, 2016, these standards were put into effect on the territory of the Russian Federation.

ISAs recognized for use in Russia

Group standards	Name of the standard
International Quality Control Standards	ISQC 1, Quality Control in Auditing Firms Conducting Audits and Reviews of Financial Statements and Other Assurance and Related Services Engagements
International Auditing Standards	ISA 200 “Key Objectives of the Independent Auditor and Conducting an Audit in Accordance with International Standards on Auditing”
	ISA 210, Agreeing on the Terms of Audit Engagements
	ISA 220, Quality Control in an Audit of Financial Statements
	ISA 230 Audit Documentation
	ISA 240, The Auditor's Responsibilities Regarding Fraud in an Audit of Financial Statements
	ISA 250 Consideration of Laws and Regulations in an Audit of Financial Statements
	ISA 260 (Revised) Communication with those charged with governance
	ISA 265 Communications to those charged with governance and management of weaknesses in internal control
	ISA 300, Planning an Audit of Financial Statements
	ISA 315 (Revised) Identifying and Assessing the Risks of Material Misstatement Through Study of the Entity and Its Environment
	ISA 320, Materiality in Planning and Performing an Audit
	ISA 330, Audit Procedures in Response to Assessed Risks
	ISA 402, Considerations for an Audit of an Entity Using the Services of a Service Organization
	ISA 450, Evaluation of Misstatements Identified During the Audit
	ISA 500, Audit Evidence
	ISA 501, Considerations for Obtaining Audit Evidence in Specific Cases
	ISA 505 External Confirmations
	ISA 510, First Time Audit Engagements: Opening Balances
	ISA 520 Analytical Procedures
	ISA 530, Audit Samples
	ISA 540, Auditing Accounting Estimates, Including Fair Value Measurements, and Related Disclosures
	ISA 550 Related Parties
	ISA 560, Events after the Reporting Date
	ISA 570 (Revised) Going Concern
	ISA 580, Written Representations
	ISA 600, Specifics of an Audit of Group Financial Statements (Including the Work of Component Auditors)
	ISA 610 (Revised 2013), Using the Work of Internal Auditors
	ISA 620, Using the Work of the Auditor's Expert
	ISA 700 (Revised), Forming an Opinion and Reporting on the Financial Statements
	ISA 701, Communicating Key Audit Matters in the Auditor's Report
	ISA 705 (Revised), Modified Opinion in the Auditor's Report
	ISA 706 (Revised) "Sections 'Important Matters' and 'Other Matters' in the Auditor's Report"
	ISA 710 Comparative Information - Comparatives and Comparative Financial Statements
	ISA 720 (Revised), The Auditor's Responsibilities Relating to Other Information
	ISA 800, Considerations for an Audit of Financial Statements Prepared in Accordance with a Special Purpose Framework
	ISA 805, Audit Considerations for Individual Financial Statements and Individual Items, Groups of Line Items, or Line Items of Financial Statements
	SA 810, Engagements for Reporting on Summary Financial Statements
International audit practice reports	MOPA 1000 “Peculiarities of Auditing Financial Instruments”
International Standards for Reviews	IUCN 2400 (Revised) Engagements for Reviewing Historical Financial Statements
	IUCN 2410 Review of Interim Financial Information Performed by the Entity's Independent Auditor
International Standards for Assurance Engagements	MSAE 3000 (Revised) Assurance Engagements other than Audits and Reviews of Historical Financial Information
	MSZOU 3400 "Checking forward-looking financial information"
	MSSE 3402 Service Auditor's Assurance Report on the Service Organization's Controls
	MSAE 3410 Assurance Engagements for Reporting Greenhouse Gas Emissions
	MSSE 3420 Assurance Engagements Relating to the Compilation of Pro Forma Financial Information to Be Included in a Prospectus
International Standards for Related Services	ISAS 4400 Engagements to Perform Agreed-Upon Procedures on Financial Information
	ISA 4410 (Revised) Compilation Engagements

Additional IFAC documents recognized for use in Russia

When carrying out audit activities, in addition to those listed above, it is necessary to apply a number of IFAC documents related to ISAs, but not being them. The following documents are required for the correct application of ISAs:

The concept of audit quality: key elements that form the environment for ensuring audit quality;

International concept of assurance engagements;

Glossary of terms;

Structure of the compendium of standards issued by the International Standards Board on Auditing and Assurance Engagements;

Preface to a compendium of international standards for quality control, auditing and reviews, other assurance engagements and related service engagements.

Entry into force of the ISA

ISAs, put into effect by orders of the Ministry of Finance of Russia, come into force from the day of their official publication. At the same time, the official publication of the ISA is the first publication of its text in the official printed publication determined by the Ministry of Finance of Russia, or the first placement (publication) on the official website of the Ministry of Finance of Russia www.minfin.ru.

The texts of ISAs, put into effect by orders of the Ministry of Finance of Russia, are published on the official website of the Ministry of Finance of Russia www.minfin.ru on November 24-25, 2016.

Application of ISA

According to the Federal Law "On Auditing", ISAs are mandatory for audit organizations and auditors (part 1 of article 7), as well as audited entities and other persons who have entered into an agreement for the provision of audit services (part 2 of article 14). Auditing activities are carried out in accordance with ISAs starting from the year following the year in which ISAs are recognized for use in the territory of the Russian Federation.

Based on this, the ISAs, put into effect by orders of the Ministry of Finance of Russia, are subject to application starting from January 1, 2017.

At the same time, audit organizations and individual auditors in 2017 have the right to conduct (complete) an audit of financial statements for 2016 under an agreement concluded before January 1, 2017 in accordance with the federal rules (standards) of audit activity approved by the Government of the Russian Federation, and federal auditing standards approved by the Russian Ministry of Finance.

Information on the official website of the Ministry of Finance of Russia

On the official Internet site of the Ministry of Finance of Russia www.minfin.ru the section "Auditing activities - Standards and rules of auditing - International auditing standards" has been created. It contains:

official texts of the ISA, put into effect by orders of the Ministry of Finance of Russia;

official texts of IFAC documents related to ISAs and necessary for the correct application of the latter, but which are not;

normative legal acts regulating the introduction of the ISA into force on the territory of the Russian Federation;

information on the progress of ISA recognition.

_____________________________

* On the recognition of ISAs as applicable in the territory of the Russian Federation, see the Information Bulletin dated December 1, 2015 (www.minfin.ru section “Auditing Activities - General Information - New in Auditing Legislation: Facts and Comments”).

Document overview

The review of innovations in audit activity is given.

So, from January 1, 2017, the International Standards on Auditing (ISA) will be applied in our country. Corresponding orders of the Ministry of Finance of Russia have been issued.

At the same time, in 2017 it is allowed to conduct (complete) an audit of the financial statements for 2016 under an agreement concluded before January 1, 2017 in accordance with the rules approved by the Government of the Russian Federation and the Ministry of Finance of Russia.

The documents that will help to correctly apply the ISA are listed.

Dear Colleagues!

In connection with numerous appeals from SRO AAS members on the issue of performing audit assignments related to auditing the accounting (financial) statements for 2016 in accordance with international auditing standards (hereinafter referred to as ISAs) or in accordance with federal rules (standards) of auditing , approved by the Government of the Russian Federation, and federal auditing standards approved by the Ministry of Finance of Russia, the AAC SRO Committee on International Auditing Standards further explains the following.

By Order of the Ministry of Finance of the Russian Federation of October 24, 2016 No. 192n (as amended by Order of November 30, 2016 No. 220n), by Order of the Ministry of Finance of the Russian Federation of November 9, 2016 No. 207n, 48 documents containing international auditing standards were put into effect in the Russian Federation.

According to the Federal Law "On Auditing", ISAs are mandatory for audit organizations and auditors (part 1 of article 7), as well as audited entities and other persons who have entered into an agreement for the provision of audit services (part 2 of article 14). Auditing activities are carried out in accordance with the ISAs, starting from the year following the year in which the ISAs are recognized for use in the territory of the Russian Federation.

Since the documents containing international auditing standards are recognized for use on the territory of the Russian Federation, then, following Article 23 of the Federal Law "On Auditing" (parts 9.1, 9.2 of Article 23), audit activities should be carried out on their basis, starting from 01.01. 2017, and the federal rules (standards) of auditing, federal auditing standards, cease to be valid.

At the same time, taking into account the provisions of paragraphs 3 of these orders of the Ministry of Finance of the Russian Federation, if the contract for the audit of the accounting (financial) statements of the organization was concluded before January 1, 2017, the audit organization, the individual auditor has the right to audit the accounting (financial) statements, including drawing up an audit report under such an agreement in accordance with the auditing standards that were in force before the entry into force of the international auditing standards specified in paragraph 1 of the orders.

The Ministry of Finance of Russia, in its information message dated 12/21/2016 No. IS-audit-11, explains “At the same time, audit organizations and individual auditors in 2017 have the right to conduct (complete) an audit of financial statements for 2016 under an agreement concluded before January 1, 2017 in accordance with the federal rules (standards) of audit activity approved by the Government of the Russian Federation and federal standards of audit activity approved by the Ministry of Finance of Russia”.

Thus, based on the above:

1. if the contract for the audit was concluded before 01/01/2017, then following the provisions of the Federal Law "On Auditing" (part 1 of article 7, part 2 of article 14, part 9.1, 9.2 of article 23), taking into account the provisions of clauses 3 of orders of the Ministry of Finance of Russia dated October 24, 2016 N 192n, dated 09.11.2016 No. 207n, the audit organization has the right to audit the accounting (financial) statements, including drawing up an audit report, under such an agreement in accordance with the auditing standards that were in force before entry into force international auditing standards (that is, in accordance with the federal rules (standards) of auditing activities approved by the Government of the Russian Federation, and federal auditing standards approved by the Ministry of Finance of Russia).
2. if the contract for the audit was concluded after 01/01/2017, then following the provisions of the Federal Law "On Auditing" (part 1 of article 7, part 2 of article 14, part 9.1, 9.2 of article 23), taking into account the provisions of clauses 3 of orders of the Ministry of Finance of Russia dated October 24, 2016 N 192n, dated 09.11.2016 No. 207n, the audit organization is obliged to audit the accounting (financial) statements, including drawing up an audit report, under such an agreement in accordance with international auditing standards. At the same time, we draw attention to the fact that the contract for the audit of accounting (financial) statements cannot contradict the requirements of the Federal Law "On Auditing", applicable standards of auditing, the Rules for the Independence of Auditors and Audit Organizations, the Code of Professional Ethics of Auditors. When carrying out audit activities, in addition to ISA, it is necessary to apply a number of IFAC documents related to ISA, but not being them, these include:

• The concept of audit quality: key elements that form the environment for ensuring audit quality;
• International concept of assurance engagements;
• Glossary of terms;
• Structure of the compendium of standards issued by the International Standards Board on Auditing and Assurance Engagements;
• Preface to a compendium of international standards for quality control, auditing and reviews, other assurance engagements and related service engagements.

The texts of these documents are published on the official website of the Ministry of Finance of Russia www.minfin.ru, and are also posted on the SRO AAC website in the section:.
Please note that this clarification is for informational purposes only and was prepared only for the purpose of assisting members of the SRO AAS in applying the provisions of the legislation governing auditing activities in the Russian Federation.
The position of the ISA Committee cannot be considered as an official interpretation of the requirements of regulatory legal acts, replacing the auditor's own professional judgment on the issues set out.

Chairman of the SRO AAS Committee
according to international auditing standards
Mikhailovich Tatyana Nikolaevna

Vartan Khanferyan

The next, 23rd, annual issue of the rankings of the largest Russian audit organizations and groups, compiled by the agencyRAEX(RAEKS-Analytics), revealed a decrease in income in this service sector. The resumption of growth here is closely related to the state of the economy as a whole, an increase in the level of technological effectiveness of the industry, and in the medium term, to the impact of the planned regulatory changes.

The 2017 ranking, like the previous one, was created on the basis of an updated methodology (see the reference "As we thought"), which aims to increase the objectivity and reliability of the information taken into account when compiling the lists, as well as to separate the core activities of participants as clearly as possible from numerous side services. This approach, formed through active interaction with the audit community itself, is bearing fruit. Evidence of the support of the professional community for the updated methodology can be considered that a number of old-timers of this market took part in the current lists for the first time or after a long break, for example, the companies Inaudit, MKD, MKPTsN and others, as well as the fact that For the ranking of audit firms, all Big Four companies, without exception, provided information , some of which were previously included in the lists only as groups.

Angle of incidence

The total revenues of the largest audit organizations decreased in 2017 by 5%, amounting to 35.717 billion rubles (see the table "List of the largest Russian audit organizations (subjects of audit activities) in 2017"). A year earlier, we recall, there was an increase of 6%. The most significant contribution to the final disappointing result was made by the top participants of the list: although only a third of the ranking audit organizations (42 companies) ended the year with a negative result in terms of revenue, they accounted for 70% of the total indicator. In the list of 2016, there were slightly fewer such companies (36), but their share occupied only 11% of total revenue.

The drop in demand observed in the ranking affected the absolute market leaders – the Big Four. The reason for this was the reorientation of a number of large clients to companies perceived as unconditionally Russian, plus increasing price competition in the market.

However, the overall negative result in terms of the total revenue of audit organizations is the “average temperature in the hospital”, aggregating multidirectional trends in certain market sectors. If you look at them separately, the picture is less unambiguous, even variegated.

Revenues in the largest sector by size - statutory audits -- according to the results of 2017, they decreased by 5.9% (from 16.646 billion rubles a year earlier to 15.664 billion rubles). The desire to save money on the procedure imposed by law leads not only to the migration of clients from top companies, whose services cannot be cheap, but at the same time puts pressure on the general level of average market prices - the very ability to pay less for obtaining an audit report gives the client additional leverage even on the largest audit companies. Victoria Salamatina, Energy Consulting, head of HLB International's international network in Russia, explains: “In the procurement procedures, within the framework of which the selection of a supplier - an audit organization takes place, the pressure of the low price factor has not been overcome. Audit firms that do not want to accept the deterioration in the quality of their work are forced to minimize revenues, and sometimes even actually pay for maintaining a decent level of services at their own expense. Svetlana Romanova, General Director and Managing Partner of Nexia Pacioli, adds: “There are tenders in which we do not participate, because we cannot guarantee the proper quality of services at such low prices. Dumping in the audit still remains, but the reform is designed to eliminate this, and the prerequisites for this are observed. There is hope for the establishment of healthy competition between equivalent firms - market leaders.

A noticeable decrease in indicators was shown by the segment designated in the reporting as “ other services related to audit activity" -- Most of it is consulting. It brought the list participants 15.5% less than a year ago: 18.452 and 15.589 billion rubles, respectively (see Chart 1). The negative dynamics in this type of service is associated with a number of factors.

Firstly, in connection with the introduction of International Auditing Standards (ISA) in 2017, part of the income that was entered in the column “Other services related to audit activity” in 2016 is now recorded in the lines “Services related to audit” or “ Initiative audit. As a result, both of these sectors grew in 2017. So, audit related services , increased by a fantastic 170.5% and reached 1.903 billion rubles (against 703.6 million rubles a year earlier; see charts 2 and 3). At the same time, revenues from audit in the ranking of organizations increased by 5.5% over the year and amounted to 20.128 billion rubles, while from consulting, on the contrary, decreased by more than 15 percent to 15.589 billion rubles. The income from proactive audits – from 1.735 billion rubles in 2016 to 2.561 billion rubles in 2017: an increase of 47.6%. (Let's note in parentheses that the achievements of these two sectors made it possible to bring the total audit indicator, which is not limited to mandatory audits, into the positive zone).

Let's return, however, to the indicators of consulting. The second reason for the reduction in income from it, obviously, is economic turbulence - the customer saves as much as he can, including doing part of the work on his own. Nina Kozlova, managing partner of the international audit and consulting network FinExpertiza, gives an example: “The decrease in consulting volumes in 2017 was due to a decrease in the volume and decrease in the cost of transfer pricing projects. In addition, the number of IFRS audit projects has increased with a simultaneous decrease in demand for services for the transformation of IFRS reporting – companies are building up their own competencies in this area.”

And, finally, thirdly, in some cases, consulting projects of audit organizations can be transferred to affiliated consulting companies, due to the presence of the latter in the relevant specialization.

In a somewhat less pronounced form, the trends arising from the analysis of the ranking of audit organizations also follow from the results of the ranking of the largest audit groups and networks (see the table "List of the largest Russian audit groups and networks, according to the results of 2017"). Their total revenue in 2017 amounted to 66.4 billion rubles, having decreased by 1% over the year. At the same time, the total income from consulting fell by 2% 1 , while from audit, albeit slightly - by 0.8% - increased.

Among consulting practices, the largest part of revenue in 2017 came from services financial management – 3.447 billion rubles, or 19% of the total revenue of the ranking participants (hereinafter, the structure of consulting revenue is given without the Big Four data due to the lack of a detailed revenue structure for ranking purposes). During the year, this sector grew by 12%, primarily due to the demand for accounting outsourcing. “The main driver for the development of outsourcing is the savings in the cost of maintenance, which can reach 80% compared to the cost of maintaining your own accounting department,” shares his opinion Ruslan Rumyantsev, partner of CBS group.

Services tax and legal consulting in total brought to the ranking participants 2.636 billion rubles (14% in the total structure), having decreased by 2.6% over the year. The comparative stability of demand for tax consulting and legal services is explained by Marina Rizvanova, CEO of the Ural Union audit group: “On the one hand, the state continues to strengthen tax administration, and on the other hand, the demand for auditors’ services is updated due to the “digitalization” of tax authorities. It has led to an increase in the requirements for the submission of documents on various control ratios, which should be quickly and competently analyzed for validity in order to correctly answer them. The price of a mistake has increased today, since, for example, penalties have already been introduced at a double rate from the second month of the formation of arrears.

According to Viktoriya Salamatina, the demand for tax advice is also driven by legislative innovations related to the implementation of the requirements of the Action Plan on Base Erosion and Profit (BEPS) Action Plan on Base Erosion and Profit: the presence of controlled foreign companies, the expansion and improvement of the reporting of international groups of companies on intra-group transactions, the change in focus from formal compliance with the criteria of tax residency to the actual right to income and place of activity - all this has changed and will continue to change approaches to international tax planning, the application of agreements to avoid double taxation".

Another 2.335 billion rubles, or 9%, in 2017 amounted to total income from appraisal activities , which decreased by almost 18% over the year. Traditionally, a significant share of services IT consulting : 2.946 billion rubles (16%) - a decrease over the year by 10%. “In 2017, we saw demand for ERP solutions implementation services, including large complex business transformation programs based on SAP technologies. This confirms the current shortage of SAP specialists in ERP functionality in the market. At the same time, there is a clear trend towards the deployment of projects and the creation of their own digital laboratories for large clients to promote solutions for digital transformation of business (digital transformation) and corporate data management (data governance). As before, these topics are driven by vendors and consulting companies that actively offer new solutions and services in the field of business digitalization,” comments Andrey Yakymenko, Senior BDO Unicon Business Solutions.

When predicting trends in the consulting part of the business of audit organizations, market participants are quite cautious, although in general they tend to be optimistic. “The fundamental drivers of demand for consulting services are investment activity and the tasks of strategic development and management. And although we are currently seeing a decline in these areas, there are more and more consulting tasks related to increasing the transparency of business processes, automation and a risk-based approach - this is due to the general trend of strengthening control and responsibility of the business in many aspects,” says Vera Konsetova, CEO of AFK-Audit. A Vladislav Pogulyaev, General Director of BDO Unicon JSC, adds optimism to the indicated market factors due to the introduction of new technologies: “Their impact on the audit can significantly increase its efficiency, reduce labor costs and . For example, already well-established statistical computer processing of data and electronic means of working documentation complement data analytics technologies. They help to abandon the selective approach in favor of analyzing the entire array of data of audited companies and searching for logical relationships, as well as identifying anomalies that materially distort financial statements. Despite the fact that Russian audit lags behind many business sectors in terms of the speed of transformation, the largest Russian audit companies are actively implementing IT technologies, integrating them into the Russian legal field and are already ready to offer high-tech solutions to their clients.”

The impact of digitalization of business processes on customer needs is noted and Alexander Ivlev, EY Russia Managing Partner: “Companies have to adapt to this. More and more popular among our clients are services for the creation of a digital strategy, process robotization, predictive analytics, and cybersecurity. The further development of digital technologies forces us to develop innovative approaches to the audit process in order to ensure confidence and trust in the capital markets. Since companies are also seriously working on how to integrate new technologies, such as blockchain, into their financial processes, we apply innovative solutions in the audit process. For example, we recently announced the launch of a pilot version of the EY Blockchain Analyzer, a toolkit for auditing blockchain solutions that significantly expands the ability to audit transactions with cryptocurrencies. This technology is designed to support EY audit teams in the process of auditing companies working with cryptocurrencies, and will lay the foundation for automating the procedures for testing assets, liabilities, capital and smart contracts using blockchain technology, as its use in companies expands.”

Project of the future

In 2017, the audit services market was on the verge of significant changes associated with the transformation of the regulatory and supervisory system in the industry. And although the final decisions here are yet to be made, the general outline of the reforms has already taken shape. So, we can say that in the near future, the powers of the regulator of the audit market from the Ministry of Finance will be transferred to the Bank of Russia, which wants to purge the audit community from dealers in certifying seals. The Central Bank directly encountered the latter when clearing the banking market, when it turned out that some of the banks that were deprived of a license or fell under reorganization, on paper - according to reports certified by auditors - looked quite “white and fluffy”. Viktoria Salamatina explains the prerequisites for the reform: “The reason is the negative financial consequences of the increased revocation of licenses of credit institutions, whose statements, being certified by the auditor, contained indicators that differed from the data during the subsequent assessment by the Central Bank. In order to control the audits carried out in relation to the reporting of socially significant organizations (mainly the financial sector), the state decided that it is the Central Bank that should be involved in the regulation and control of the audit. Sergei Nikiforov, CEO of FBK-Povolzhye, chairman of the public organization National Union of Auditors, adds: attention to the fact that the existing criteria have stimulated the majority of organizations subject to statutory audit to either evade or feign it.

Throughout 2017, the Central Bank, together with the trade union community, worked on a draft package of amendments to the Law "On Auditing", which has already passed the first reading in the State Duma and should soon pass the second. “The opinion of the audit community was listened to. Discussions of the draft law were held in many regions with representatives of SROs and the business community. The problems of the industry were discussed at various venues, including now during the adoption of the bill at the expert council under the State Duma, where regional auditors are also invited, ”says Egor Churin, General Director of Invest-Audit LLC, Chairman of the Compulsory Audit Commission of the Ural branch of the SRO Russian Union of Auditors.

The draft amendments to the legislation can be divided into the following main groups. First, it is supposed to narrow the range of companies subject to mandatory audit. Secondly, the requirements for entering the audit market will be tightened. Thirdly, it is planned to strengthen the requirements for certification of financial statements of banks and other organizations supervised by the Central Bank. Fourth, it will become more difficult for auditors to confirm the statements of socially significant economic entities. Fifth, it is planned to introduce a qualification and reputational qualification for organizations included in the register of the Central Bank, as well as a rotation of auditors, limiting the period of work with one client to seven years. Finally, the model of self-regulation in the financial market should change, increasing the responsibility of SROs.

If the law is passed, and it is recognized by the market as practically inevitable (the only question is the timing and nuances of the wording), one of the most important consequences of the reform will be a decrease in the number of subjects and objects of audit activity. Elena Loss, president of RSM RUS, believes that “the reform may lead to a reduction in the number of small audit companies. As a result of such a reduction, the cost of auditing large companies, in particular, the statutory audit of the OHS, may increase due to a decrease in dumping. In addition, the exit from the audit market of small companies with a staff of three or four employees will improve the quality of audits.”

“The introduction of a requirement for the number of auditors with a single certificate for audit companies has already led to a market race for specialists - highly qualified auditors. At the same time, the implementation of projects by them, in addition to improving the quality of services, can cause an increase in the cost of the audit,” adds Elena Laskeyeva, Development Director of JSC Audit and Consulting Firm MIAN.

Vera Konsetova also predicts a reduction in the number of audit companies, however, according to her, after stabilization, the volume of revenue in the market should recover due to new approaches to pricing for the service. “Also, the forthcoming audit reform will help increase the prestige of the profession, which, in the medium term, can eliminate the shortage of qualified personnel,” she said.

More cautious in assessing the possible impact on the market Oleg Goshchansky, Chairman of the Board and Managing Partner of KPMG in Russia and the CIS: “In terms of the size of the audit market, I would point out two vectors that are often opposite. On the one hand, the market will shrink, because the list of those companies that will be subject to the mandatory market for audit services is shrinking. On the other hand, the pricing in the audit market is at such a depressing level that all measures to improve the quality of the audit will lead to the fact that these prices will no longer allow audit companies to maintain the normal quality and level of services. This should inevitably lead to a change in the pricing policy, to a decrease in dumping in the audit of socially significant organizations. I hope this will lead to a recovery in the audit market in terms of revenue, because a quality audit cannot be cheap.”

1 . Comparable figures excluding Big Four companies.