Association of Accountants of the Republic of Latvia

AARL as an organization uniting mostly accountants does not have responsibility for establishing a QA review system for statutory auditors in Latvia. However, the association is a member of the consultative body, the Audit Advisory Council (AAC) since 2009 and plays an important role in collaborating with the Ministry of Finance and Latvian Association of Certified Auditors (LACA) in advancing the quality of audit services, raising public awareness of issues in the field of auditing, and protecting the public interest. The QA review system for statutory audits in the jurisdiction is in line with SMO 1 best practices.

The AARL requires its members, specifically professional accountants who are acting in public practice, to comply with ISQC 1 where it relates to provision of accountancy services and ISRS 4410 (revised) and is advocating that the MoF require this of all professional accountants – not just those that voluntarily join AARL. To support its members, it has prepared a guide which includes the translation of the revised ISRS 4410 and is updated on an ongoing process. AARL also conducts regular seminars for its members on the practical implementation of ISRS 4410 and has translated the IFAC Guide to Compilation Engagements.

AARL reports that it is in the process of developing a QA review system for its members and the association has established a partnership with the Institute of Certified Accountants from England and Wales (ICAEW) and joined the regional Quality Assurance Network (QAN) for technical support. It intends to implement these procedures in 2022. AARL has developed a methodology, review program, working documents, and checklists to support implementation.

In addition, AARL also has partnership agreements with LACA and ICAEW to cooperate on education and professional matters related to QA topics for accountants. Together LACA and AARL plan to translate the quality management standards and adopt the standards by December 2022.

As noted in SMO 1, it is desirable for the largest range of professional services performed by professional accountants to be subject to quality assurance review systems, including, for example, other assurance engagements or preparation of financial statements. AARL is encouraged to progress its development of a review system for the services its members offer and where possible, align it with SMO 1 best practices. As the changes from ISQC 1 to ISQM 1 might impact AARL’s members, it is encouraged to continue to monitor and prepare its members and stakeholders for the implementation of ISQM1 when it becomes effective as of December 15, 2022. Resources on the quality management standards are available on the IAASB website.

Current Status: Sustain

AARL developed a voluntary Professional Accountant certification in 2000 to improve the expertise and competencies of the preparers of financial statements in Latvia as IPD and CPD requirements are not outlined in law for professionals other than auditors. Certificate-holders of AARL are required to have a university degree, have three years of work experience as a chief accountant or five years as accountant, or five years in another top-level position related to economics and requiring knowledge in accountancy, and pass a series of professional examinations. AARL also offers preparatory courses in advance of the examinations.

AARL reports that the certification program was developed and reviewed in accordance with the latest (2019) IES. AARL indicates it reviewed its exams in 2017 to address evaluation of competencies as per the IES revisions effective in 2015. It also states that it has created an Accounting Educational Institutions Committee which is to engage and cooperate with universities with the objective of ensuring students and potential AARL members are gaining the necessary skills and competencies as part of their IPD. The engagement is also intended to raise the quality of lecturers.

In 2013, the association aligned its CPD requirements with IES 7. AARL has a mandatory CPD requirement for its members and has in place an annual reporting and monitoring system for actual education activities undertaken (reported in terms of number of hours spent and by subject).

In 2017, AARL also signed a Memorandum of Understanding with the Institute of Certified Accountants from England and Wales (ICAEW) to address education cooperation and adapt its learning programs with that of ICAEW. As of 2021, the institute together with LACA plan to translate the latest IES into Latvian.

AARL is encouraged to review and complete the IES Checklist developed by IFAC which may be useful in progressing with the adoption of the revised requirements of the IES, especially IES 2, 3, 4 and 8 that are effective as of January 2021. AARL may also consider utilizing the IFAC Accountancy Education E-Tool to review the current version of IESs and share these requirements with its members and stakeholders – such as universities that seem to address IES 1 – 4 for professional accountants.

Current Status: Review & Improve

The Law on Audit Services as amended in July 2019 requires the use of ISA in Latvia as approved and translated by the Latvian Association of Certified Auditors (LACA). LACA has translated the 2016 ISA Handbook and the revisions to ISA 240, 250, and 315 in the 2018 & 2020 IAASB Handbook. The AARL has no authority for setting auditing standards and its members – professional accountants who might offer public services – comply with ISQC 1 and ISRS 4410 as it relates to accounting services. Its members do not provide statutory audit services.

Although it does not have any standard-setting responsibility, AARL is a member of the Audit Advisory Committee (AAC), which supports the Ministry of Finance and the LACA in the adoption and implementation of ISA and other IAASB pronouncements. It supported the implementation of the EU Audit Reform by providing technical feedback, on behalf of the AAC, concerning the Law on Audit Services of 2017. AARL reports that it also participates in policy dialogues and public consultations on auditing with the government, regulators and other stakeholders; for example, the IAASB’s discussion paper on Audits of Less Complex Entities.

To support its members, the institute has translated IFAC’s Guide to Compilation Engagements and regularly disseminates ISA-related guidance and news from LACA.

Current Status: Sustain

Ethical requirements for professional accountants are not established in law as they are for auditors. Therefore, AARL has been proactive with the adoption of the IESBA Code of Ethics for its members. The institute reports that every year AARL adopts the most recent version of IESBA Code of Ethics. The currently effective version is the 2022 International Code of Ethics and together with LACA, the AARL has translated the 2020 International Code of Ethics to Latvian to support members.

To support the implementation of the IESBA Code of Ethics, through its Committee of Ethics, AARL organizes workshops and training seminars for its members. It has organized seminars on NOCLAR in 2019 and the translation of the 2018 Code in September 2020. The institute also updates its education and continuing professional development program to include courses on any revisions. Additionally, AARL also publishes articles for its members on ethics and key aspects of the IESBA Code of Ethics—in 2019, it highlighted the revisions of the 2018 Code.

AARL is encouraged to continue its translation efforts in collaboration with the LACA in this area to ensure that professionals can implement the revisions once effective.

Current Status: Sustain

In Latvia, the State Treasury, under the Ministry of Finance is responsible for the development of legislation for public sector accounting standards, which are national standards reportedly in line with accrual-based principles and the financial statements for central and local government and government-related entities are broadly IPSAS compliant.

While it has no responsibility for the adoption of public sector accounting standards in the jurisdiction, AARL reports that it cooperates closely with the State Treasury under the Ministry of Finance to support standard-setting activities. It actively promotes the adoption of IPSAS with the State Treasury and State Audit Office and provides comments on draft legislation to make improvements to the existing public sector accounting legislation. It also indicates it is monitoring the development of European Public Sector Accounting Standard (EPSAS) across the EU and how it might affect Latvia’s standards.

In addition, in 2018, the AARL organized a training workshop on IPSAS for its members in cooperation with the Institute of Chartered Accountants from England and Wales.

AARL is encouraged to continue its advocacy with the Treasury to converge national standards with IPSAS especially now that the State Revenue Service is to transition to accrual accounting this year. Adoption of accrual IPSAS as issued by the IPSASB would ensure application of global best practice. It may find IFAC’s Train the Trainers: Introduction to IPSAS resource helpful for training and educational activities it is considering.

Current Status: Sustain

The AARL has established an I&D system for its members that join on a voluntarily basis and it details the operating procedures within its SMO Action Plan. AARL reports that the system fulfills most SMO 6 requirements – it does not have a separate investigations and disciplinary committee. Both investigations of complaints and disciplinary decisions are done by the Ethics Committee. Decisions can be appealed to the Board.

AARL plans to develop a QA review system for the services its members offer in 2022. It indicates it would eventually link the results of these reviews to the I&D system. As such, it is currently developing regulations on I&D for AARL members who are acting in public practice regarding any violation of the quality of accountancy services provided. It is envisioned that AARL’s Accounting Outsourcing Committee will have an investigation function regarding quality of services and work performed by these members and the AARL’s Ethics Committee will continue to perform disciplinary function.

Public confidence in enforcement mechanisms for all professional accountants is essential and SMO 6 represents global best practices. A committee dedicated to investigations, reviewing evidence, and to determining if there is a case to forward to a separate disciplinary committee is best practice. Individuals on the investigation committee should not simultaneously be on the disciplinary panel. AARL has outlined plans to address this gap and is encouraged to provide updates as it progresses.

Current Status: Execute

The 2013 EU Accounting Directive was adopted in Latvia and transposed under the 2016 Law on Annual Financial Statements and Consolidated Financial Statements which sets the requirements for the preparation of corporate financial statements in Latvia. It outlines accounting standards to be applied—either EU-endorsed IFRS or Latvian Generally Accepted Accounting Principles (GAAP)—based on company size and type.

With no responsibility for the adoption of accounting standards, AARL states that it uses its best endeavors to broaden the adoption and mandatory application of IFRS in the jurisdiction. The institute participates in working groups organized by the Ministry of Finance on the development of amendments or new laws on financial reporting. For example, AARL advocated for amendments to the 2016 legislation that permitted both consolidated and separate financial statements to be prepared in accordance with EU-IFRS for all companies, regardless of size.

To support implementation, AARL includes IFRS in its IPD and CPD, regularly offers seminars on the standards, and shares IFRS and other pronouncements from the IASB. It also created a Public Interest Structures committee, which alongside its Methodological Committee, is dedicated to understanding challenges with IFRS application, raise awareness, and receive feedback to address issues among practitioners.

Additionally, LACA and AARL established a cooperation agreement in 2012 with the objective of enhancing the Latvian financial reporting framework. The agreement covers collaboration on the following issues: (i) creating favourable conditions for the development of accountants, auditors and other related professions in Latvia; (ii) achieving a qualitative development of the Latvian financial reporting system, including the introduction of the requirements of the EU legislation, IFRS, as well as other standards; (iii) improving the quality of financial reporting as well as the implementation of best practice models in the field of accounting, financial reporting and auditing.

AARL has demonstrated that, within the scope of its authority, it is committed to meet the SMO 7 obligations and has ongoing processes to maintain compliance.

Current Status: Sustain