At the beginning of this year, the Ministry of Finance announced that it wants to review current solutions regarding the market of statutory auditors, audit companies and financial revision regulations. Consultations ended at the end of April, and currently the Ministry is analyzing proposals and comments submitted, among others by the Polish Chamber of Statutory Auditors and audit companies, including investigating public interest units, i.e. listed companies and banks. A large part of companies conducting researching such units (including all companies of the so -called Big Four, other significant companies belonging to international networks, as well as larger local companies that represent the dominant share in the audit services market) also operates as part of the platform of audit companies studying public interest units under the organization of the Republic of Poland (JZP auditors platform). These companies reported their postulates of changes.
We talk with Tomasz Konieczny, chairman of the platform JZP auditors about what, according to the largest audit companies, should be changed on the market and how to improve it.
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What is the problem with our white list of services?
First of all, it raises interpretative doubts. According to the Polish approach, auditors may perform services indicated in the regulations. In many cases, however, there is a doubt whether what the auditor wants to do outside the report examination is allowed. Unfortunately, the world is not black and white, it has many colors.
Can you give an example?
For example, every statutory auditor is obliged to work. Compulsory vocational training is partly consisting of courses, which are largely conducted by audit companies, which also investigate reports. The problem arises when my client, the company's financial director, which I am an auditor, wants to come to such training. The audit is on a white list, so it is allowed, while there is no training for customers. This problem has just been solved during the dialogue (exchange of letters) with the Ministry of Finance, but it shows well what is the problem with the white list.
Not only that, this customer can come to another competitive company for training and there is no problem. But what if the client prefers my training? I believe that if he is among the 50 other people participating in the course, it does not disturb my independence as an auditor.
What are the problems with the white list?
Another problem was (now it was also solved) that in 2018 the regulations referred to the standard that did not exist at the time. The provisions allowed an auditor who examines the emission prospectus, also perform certain additional services for clients, provided that they remain in line with the national standard of related services. Only that there was no such standard at the time. It was created a year and a half later. This meant that by a badly written law (a throw introduced to the regulations at night, during work in parliament), the researching statutory financial statement could not perform the basic service required for the prospectus, i.e. the release of the so -called certifying a letter, because he could only do it if there was a “national” standard, and no one wrote one. As a result, next to the auditor of the annual report, a second auditor entered, who re -examined only for the needs of the prospectus, and then he could apply the international standard to issue a certificate letter.
These problems would not have been if Polish regulations were in line with the European concept and introduced a black list, prohibited services. Our first postulate is therefore to replace the current white list with a list of prohibited services. It is enough to delete one provision from the Act (Article 136) regarding services allowed and the slot machine will become effective, which says what is not allowed.
Another problem with Polish limitations is also that the auditor cannot conduct a research if he has contributed to keeping accounting books over the past three years. The EU and the Code of Ethics speak of the year of the study or preceding. In our opinion, it is worth adapting national regulations in this respect to European standards.
Invatibility of the examination by law. What to change
The next postulate of auditors is a change in the provisions that say about the invalidity of the examination by virtue of law. What is the problem?
Pursuant to the Act, some violations of the Act, e.g. breaking the independence of the statutory auditor, results in the invalidity of the examination by law. The problem is that nobody knows what is invalid by law. There is also no such provision in the directive. And to break the independence of the auditor, it can occur in a very simple situation, and even by accident. For example, when for one of the 100 members of the audit team, the wife, with whom this expert is separated, will mistake the shares of the company, which is examined by the team. Such an accidental event can theoretically cause that the study of a large capital group will be defective. The Ministry of Finance in their messages and the Lord confirm that the scale of the violation does not matter. Fortunately, in practice such an effect did not occur on a large stock company, because it would be a disaster for the company itself and its bodies.
How to interpret the remuneration limit
Another problem that the auditors talk about is a matter of interpretation of the remuneration limit. The auditor's remuneration for additional services may not exceed 70 percent. audit remuneration. Is there a problem with that too?
Yes, the European regulator was imprecise in this matter. The problem with the interpretation boils down to what to include in the meter and what to include in the denominator. Unfortunately, this is a European regulation, so it will be difficult to change it, but we can explain how to interpret in Poland, what we include in the meter and as to the denominator. Here we see a field to change. This mechanism can be clarified and softened in the direction used by other EU countries. It is often less restrictive than in Poland, and therefore more industry -friendly, but also the studied company, which does not necessarily want to look for an alternative auditor for the service, which is clearly related to the study of the financial statements.
Another problem that auditors have is the Public Procurement Law Act. What do the auditors want to change?
We want public procurement law not to apply to audit services as for legal services. The point is that the current public procurement provisions applied literally can lead to a violation of the independence of the auditor. Our services, like legal services, are very specific. It is impossible to ensure independence to the auditor if, for example, the contracting authority says that the price for the examination cannot increase more than 50 percent. There are cases when the price must increase more than 50 percent. That is why we want to exclude the public procurement law.
There is not enough mediation
What about mediation between you and audit companies. Is there a field to change here? Recently, the matter of mediation between Mr. and Deloitte was loud.
We believe that mediation should be disseminated, today they are practically gone, although an exception has happened. However, mediation has a deep sense. The auditor then avoids the trial, judicial procedure. It is also beneficial for you, because the part of the settlement may be the payment of some amount by the auditor and reducing the costs of the dispute in court. In other countries, audit companies sometimes conclude settlements simply for pragmatic reasons. We believe that it is also worth spreading in Poland.
Another problem concerns the use of Polish in all matters.
Problem with document translations
What is it about?
Certain documents regarding the functioning of the company or research files, for practical reasons of work in an international network, is more convenient in English. The problem is that if the audit of the National Supervision Agency comes to the audit company, it usually gives 24 or 48 hours to translate the research files, and we even talk about several thousand pages of documents. This is a purely formal requirement, resulting from the Act, because in practice controllers with experience are perfectly operated in the English and English and Polish mixture, which sometimes happens. But the law requires either conducting or translated on a call, so the authority calls for a good morning to translate everything, because they result from the logic of the regulations. Of course, auditors have a simple way to deal with it, but as you can guess, the quality of such a translation leaves much to be desired. This is a problem for both sides – an author's company and controllers. If the case goes to court, the argument does not apply to merits, but just a bad translation, e.g. from English. Therefore, we suggest that the authority has any doubts to translate into Polish only those documents to which these doubts relate. If we have several pages of documents to translate, we will be able to provide controllers with an expert translation, i.e. the best possible.
As I understand, the JZP auditors and other entities sent their postulates as part of the consultation to the Ministry of Finance. When is the ministry take a position or present a draft change?
The ministry has not yet presented its proposal. However, we appreciate the openness of the ministry and the desire to take dialogue with participants of the audit market. Of course, we want the changes to be introduced as quickly as possible, but it is more important that they be good and refined.
