Iceland

Member Organizations

Member Organization Associate

  Félag Löggiltra Endurskodenda

Legal and Regulatory Environment

  • Overview of Statuatory Framework for Accounting and Auditing

    Although not a member of the European Union (EU), Iceland is a member of the European Economic Area, as such, the requirements of the EU Directives and Regulations as transposed into national laws and regulations.

    The main laws on corporate accounting and auditing are the Annual Accounts Act No. 3/2006, which transposes Regulation (EC) 1606/2002 on the application of international accounting standards into Icelandic legislation, and Auditing Act No. 94/2019, which transposes EU Directive 2014/56 amending the Directive 2006/43lEC on Statutory Audits of Annual Accounts and Consolidated Accounts.

    Icelandic accounting standards are set out in the Law on Annual Accounts No. 3/2006. The Law stipulates that the Ministry of Industries and Innovation (MoII) establish an accounting board to set uniform accounting rules and regulations for use in Iceland, based on and in addition to the Law. As indicated by the IFRS Foundation, to date, this board has not been established. The Law also stipulates that IFRS be used as additional accounting rules, so that when the Law does not give enough guidance, IFRS can and should be used.

    IFRS are required for separate and consolidated financial statements of all companies whose securities trade in regulated and non-regulated markets, except for the consolidated and separate financial statements of large and medium-sized companies whose securities do not trade in a regulated market, as well as pension funds above a specified size. IFRS are translated into Icelandic and published by the Icelandic government. The adoption of IFRS for SMEs is under consideration. Unless SMEs are part of a consolidated group that uses IFRS or are in the large or medium-sized company category, as per Icelandic regulation, they follow Icelandic statutory accounting requirements.

    The Auditing Act No. 94/2019 sets requirements for mandatory audits and regulates the audit profession. The Auditing Act states that audits should be carried out in accordance with generally accepted auditing standards (GAAS). The Act does not specify what constitutes GAAS, and the acts only refers to international standards, even though, as indicated by Accountancy Europe, ISA as issued by the IAASB are in practice applied in audits. A mandatory audit requirement exists for publicly listed entities, private limited liability companies, limited liability company banks, financial institutions, insurance companies, pension funds, and travel agencies.

  • Regulation of Accountancy Profession

    The Ministry of Industry and Innovation (MoII) and the Auditors Oversight Board (ER), empowered by the Auditing Act No. 94/2019, regulate the audit profession in Iceland. The ER has the authority for monitoring compliance with the Auditing Act, Code of Conduct, and other regulations. The supervision entails responsibility for: (i) certification of auditors and issuing licenses of auditing firms; (ii) application of sanctions; (iii) supervision of the quality system of auditing firms; and (iv) adopt quality control standards according to VII. section of the Act. In addition, ER is also responsible for supervising the requirements for independence, according to Art. Chapter V of the Act; implementing good auditing practice and ethics of auditors; setting requirements for retraining, according to Article 9 of the Act, and monitoring professional liability insurance, according to Article 8 of the Act.

    To be certified as an auditor, in accordance with the Auditing Act, individuals must: hold a master’s degree in auditing and accounting that is approved by the ER, have practical experience of a minimum of three years under the guidance of an auditor, to pass a final examination of professional competence, organized by the ER, and following certification be subject to continuing professional development (CPD) requirements. The Auditing Act also contains provisions on the independence of auditors, appointment of auditors, rules on audit fees, quality assurance, and termination of auditing licenses, transparency, and confidentiality.

    Previously, all auditors were required to be members of the Institute of State Authorized Public Accountants in Iceland (FLE), but since 2020 membership is voluntary. Under the Auditing Act and instructions from ER, FLE is entrusted with the following tasks in consultation with ER: (i) establishing a Code of Ethics for its members; (ii) developing CPD courses; and (iii) keeping CPD records. FLE members are required to complete at least 120 monitored CPD hours over a three-year period.

    Professional accountants (other than auditors) are not regulated at the state level.

  • Audit Oversight Arrangements

    The Auditors Oversight Board (ER), empowered by the Auditing Act No. 94/2019, regulates the audit profession in Iceland. The ER has the authority for monitoring compliance with the Auditing Act, Code of Conduct, and other regulation. The supervision entails responsibility for: (i) certification of auditors and operating licenses of auditing firms; (ii) application of sanctions; (iii) supervision of the quality system of auditing firms; and (iv) quality control according to VII. section of the Act. In addition, ER is also responsible for supervising the requirements for independence, according to Art. Chapter V of the Act; implementing good auditing practice and ethics of auditors; setting requirements for retraining, according to Article 9 of the Act, and monitoring professional liability insurance, according to Article 8 of the Act. The ER is not a member of the International Forum of Independent Audit Regulators.

  • Professional Accountancy Organizations

    The Institute of State Authorized Public Accountants in Iceland (FLE) was established on July 16, 1935. FLE membership is voluntary and it is exclusively comprised of auditors. Under the Auditing Act No. 94/2019, FLE is entrusted with the following tasks in consultation with the Public Auditors Oversight Board (ER): (i) establish a Code of Ethics for its members; (ii) develop continuing professional development (CPD) courses; and (iii) keep CPD records.

    In addition to being an IFAC member, FLE is a member of Accountancy Europe and the Nordic Federation of Public Accountants.

  • Projects or Other Information

Adoption of International Standards

  • Quality Assurance

    In accordance with the Auditing Act No. 94/2019, the Auditors Oversight Board (ER) is empowered to establish a mandatory quality assurance (QA) review program for all auditors. Reviews are conducted every three years for public interest entities and every six years for other types of companies.

    It remains to be established whether the existing QA system is in line with the requirements of SMO 1.

    Current Status: Partially Adopted

  • International Education Standards

    The Auditing Act No. 94/2019 sets the initial and continuing professional development (IPD and CPD) requirements for auditors in Iceland to be implemented by the Auditors Oversight Board (ER). The Institute of Authorized Public Accountants in Iceland (FLE) states that the auditors’ IPD and CPD requirements are in line with the 2019 IES requirements.

    To be certified as an auditor, in accordance with the Auditing Act, individuals must hold a master’s degree in auditing and accounting that is approved by the ER; have practical experience of a minimum of three years under the guidance of an auditor; pass a final examination of professional competence, organized by the ER; and following certification be subject to continuing professional development (CPD) requirements.

    Previously, all auditors were required to be members FLE, but since 2020 membership is voluntary. FLE members are required to complete at least 120 monitored CPD hours over a three-year period.

    Professional accountants (other than auditors) are not regulated at the state level.

    Current Status: Adopted

  • International Standards on Auditing

    The Auditing Act No. 94/2019 states that audits should be carried out in accordance with generally accepted auditing standards (GAAS). The Act does not specify what constitutes GAAS and only generally refers to international standards, even though, as indicated by Accountancy Europe, ISA as issued by the IAASB are in practice applied in audits.

    Current Status: Partially Adopted

  • Code of Ethics for Professional Accountants

    According to the Auditing Act No. 94/2019, auditors in Iceland are required to observe the Code of Ethics for Auditors issued by the Auditors Oversight Board (ER). The Act does not specify a Code of Ethics or references the International Code of Ethics for Professional Accountants. As of 2020, it remains to be established whether ER has adopted a Code of Ethics for Auditors and the degree of alignment of the Code with the 2018 International Code of Ethics for Professional Accountants.

    Prior to the adoption of the Auditing Act No. 94/2019, auditors were subject to the requirements of the Code of Ethics issued by the Institute of State Authorized Public Accountants (FLE). The FLE reports that its Code of Ethics is based on the 2009 IESBA Code of Ethics and that the Code has not been updated since 2010.

    Professional accountants (other than auditors) are not regulated at the state level.

    Current Status: Partially Adopted

  • International Public Sector Accounting Standards

    The Government of Iceland is responsible for adopting public sector accounting standards, which are cash-basis transitioning to accrual. National standards will be progressively replaced by IPSAS. The Institute of State Authorized Public Accountants (FLE) reports that IPSAS have been adopted into the Icelandic Law by the States Finance Act 123/2015.

    Current Status: Adopted

  • Investigation and Discipline

    In accordance with the Auditing Act No. 94/2019, the Auditors Oversight Board (ER) is solely responsible for the investigation and discipline (I&D) of auditors in Iceland. The ER may take up issues on its initiative if it believes that an auditor or audit firm has violated the Act, the Code of Ethics, or other rules that apply to the work of auditors. It is not clear to what extent the ER I&D system complies with the best practices of SMO 6.

    Current Status: Partially Adopted

  • International Financial Reporting Standards

    Icelandic accounting standards are set out in the Law on Annual Accounts No. 3/2006. The Law dictates that the Ministry of Industries and Innovation (MoII) should establish an accounting board to set uniform accounting rules and regulations for use in Iceland, based on and in addition to the Law. As indicated by the IFRS Foundation, to date, this board has not been established. The Law also dictates that IFRS should be used as additional accounting rules, so that when the Law does not give enough guidance, IFRS can and should be used.

    IFRS are required for separate and consolidated financial statements of all companies whose securities trade in regulated and non-regulated markets, except for the consolidated and separate financial statements of large and medium-sized companies whose securities do not trade in a regulated market, as well as pension funds above a specified size. IFRS are translated into Icelandic and published by the Icelandic government. It remains to be established what version of IFRS is to be used.

    The adoption of IFRS for SMEs is under consideration. Unless SMEs are part of a consolidated group that uses IFRS or are in the large or medium-sized company category, as per Icelandic regulation, they follow Icelandic statutory accounting requirements.

    Current Status: Partially Adopted

Disclaimer

IFAC bears no responsibility for the information provided in the SMO Action Plans prepared by IFAC member organizations. Please see our full Disclaimer for additional information.

 

Methodology

Methodology
Last updated: 11/2020
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