Estonian Auditors’ Association
Member | Established: 1999 | Member since 2004
The EAA is a public-private network of over 150 audit firms and 350 individual auditors, standing for a reliable business environment in Estonia. It is the only legally recognized, self-governing PAO in operation in the country. Membership of the association for all certified auditors desiring to practice the audit profession is compulsory. The EAA (i) seeks to be a leader in initiatives supporting the development of Estonia as a smart economy with a competitive and transparent business and investment environment, (ii) leads and participates in public discussions in order to increase public awareness of the auditors’ value proposal, (ii) cooperates closely with different interest groups, state authorities and business organizations, (iv) contributes to the development of the financial regulatory and legal framework, (v) supports provision of high-quality assurance services by organizing trainings for professionals, exchange of information, networking, and oversight of the audit profession.
EAA is a member of IFAC as well as an associate member of Accountancy Europe.
Statements of Membership Obligation (SMO)
The Statements of Membership Obligations form the basis of the IFAC Member Compliance Program. They serve as a framework for credible and high-quality professional accountancy organizations focused on serving the public interest by adopting, or otherwise incorporating, and supporting implementation of international standards and maintaining adequate enforcement mechanisms to ensure the professional behavior of their individual members.
SMO 1: Quality Assurance
The Auditors Activities Act confers upon the Auditors Activities Oversight Council (AAOC) the mission of public oversight of the audit profession and the AAOC is responsible for carrying out QA reviews of all audits in the jurisdiction.
As stated by EAA, it is expected that all auditing firms that have been operating for more than two years will have undergone a QA review by June 2017. EAA also reports that the QA review system in place meets the SMO 1 best practices and the consistency and effectiveness of QA system is under continuous monitoring and review in the co-operation with AAOC. At the end of the first full quality control cycle (after June 2017) there is a plan to review and update the quality control standards and guidelines, possibly as a part of multi-national co-operation project.
Prior to 2017 and the drafting of the Authorized Public Accountants Act, which was to amend the Auditors Activities Act, the EAA was carrying out all QA reviews under the direction and supervision of the AAOC. When EAA did carry out QA reviews, it maintained two full-time QA specialists to develop a high quality, standardized QA inspection program. At least one person appointed by the Oversight Board would participate in the QA review carried out by the EAA, but not be a member of a QA review team. During the QA review, the QA review team is required to document their work and prepares the record and report of work of the control team. The Management Board of the EAA then discusses the subjects covered in the report and makes the corresponding resolutions. The quality assurance process is completed by the decision of the Management Board of the EAA as either pass or fail.
The association provides members with a variety of guidelines, quality manuals, and sample forms to prepare for QA reviews and notes that QA reviewers receive additional training to carry out their function.
The EAA is requested to update its SMO Action Plan and communicate with IFAC regarding any significant changes in the structure and function of the AAOC’s jurisdictional QA review system as well as any areas for ongoing operation of the EAA system of quality assurance.
SMO 2: International Education Standards
The Auditors Activities Act stipulates the initial and continuing professional development (IPD and CPD) requirements in order to practice as an auditor in Estonia. Professional examinations for auditors are organized by the Ministry of Finance (MoF) which is responsible for developing the examination process and all questions for the sworn auditors’ examination based on the act, therefore establishing the framework for IPD. Meanwhile the Auditors Activities Oversight Council (AAOC) is responsible for conducting the examinations and then overseeing the granting of audit licenses.
The EAA supports the MoF in creating exam questions as well as with the continuous monitoring and feedback of examination results. In Estonia, there are no tertiary level accounting education programs given the small size of the country’s economy. However, the EAA states that the Estonian university education system and curricula provide the technical competence, professional skills and practical experience needed for the entry into the profession. In recognition of this deficiency and to assist national alignment with the IES, EAA has supported the recent creation and introduction of Master’s degree curricula for financial audit. EAA therefore recognizes the partial non-compliance with IES 1—6 and continues monitoring the demand of auditing firms for new recruits as well as development plans of universities with faculties of economy. Moreover, in light of the revised 2015 IES requirements, which emphasize learning-outcome approaches, more information is needed to assess the extent of alignment and incorporation of the IES in national accountancy educational requirements.
With regards to IES 7—8, EAA is responsible for organizing and monitoring CPD of auditors in Estonia which is aligned with the IES requirements at 120 credits over three years. Members must submit an annual activity report detailing the fulfillment of their CPD obligations. EAA reports that it is continuously evaluating and updating its training program for the auditors to reflect the changing local regulations and expectations of the society. As reported in April 2017, EAA planned to initiate the process of updating the internal CPD regulations for the local auditors in the co-operation with the MoF.
In light of the revisions to the IES requirements effective in 2015 and in 2019, the EAA is encouraged to consider how it might undertake an analysis of IES application within the country and identify, communicate and work with counterparts in the professional education sphere to further alignment and implementation of IES. EAA may wish to explore the examples of other PAOs in their cooperation with university systems and in the provision of accounting / auditing education programs in smaller markets.
SMO 3: International Standards on Auditing
The Auditors Activities Act specifies the basis of auditing as international standards (IAASB standards). The Auditors Activities Oversight Council has legal responsibility for auditing standard-setting in Estonia. However, for any regulation to have legal effect in Estonia it must be translated into Estonian.
In 2016, the Estonian Auditors’ Association (EAA) was delegated the responsibility of standards’ translation and the association has translated all ISA that are applicable for audits on or after December 15, 2019.
To further implementation, EAA provides members with the translated standards on its website along with examples of auditor reporting and other guidance. It also works to ensure inclusion of changes and developments to the ISA in the sworn auditors examination and initial professional development program. Additionally, as the entity responsible for provision of continuing professional development (CPD), the EAA strives to update CPD programs and seminars appropriately to embody standards’ updates and address any emerging themes / issues.
EAA is encouraged to utilize its membership in Accountancy Europe to participate in the comments and exposure draft process on IAASB standards in order to share its perspective and experiences.
SMO 4: Code of Ethics for Professional Accountants
The Auditors Activities Act specifies the IESBA Code of Ethics as the required ethical parameters for auditors. The Auditors Activities Oversight Council has legal responsibility for ethical standard-setting in Estonia. However, for any regulation to have legal effect in Estonia it must be translated into Estonian.
In 2016, the Estonian Auditors’ Association (EAA) was delegated the responsibility of standards’ translation and the association translated the 2018 International Code of Ethics for Professional Accountants – including independence standards. The EAA’s Methodology Committee monitors developments to the IESBA Code and will determine the necessary amendments to the Estonian translation in order to maintain alignment with the IESBA Code on an ongoing basis.
In addition to supporting translations and monitoring amendments, the EAA reports that it conducts trainings on the Code of Ethics and has incorporated these into its formal CPD program, other seminars, and will issue written communications as needed in regards to ethic topics.
EAA is encouraged to continue efforts to include updated ethical questions and issues in the development of the professional examination as well as to encourage university programs to cover ethical subjects as part of their curricula. Finally, EAA is encouraged to utilize its membership in Accountancy Europe to participate in the comments and exposure draft process on IESBA standards in order to share its perspective and experiences.
SMO 5: International Public Sector Accounting Standards
Public sector entities in Estonia utilize General Rules for State Accounting (GRSA) which is issued by the Ministry of Finance, and is based on the Estonian GAAP and the International Public Sector Accounting Standards (IPSAS). Since 2004, a full accrual accounting and reporting system with reference to the IPSAS has been implemented in Estonia although the Estonian Auditors’ Association indicates that there are some areas where simplified application or non-application of the IPSAS has been opted for. According to the Accrual Practices and Reform Experiences in OECD Countries, accrual budgeting was set to be implemented in 2017.
With no responsibility for the adoption of public sector accounting standards and with an accrual-based system in place, EAA is encouraged to consider indicating how it supports its members in the public sector with training to properly implement the standards and support stronger public financial management. This might include training in specialized areas such as performance audits. EAA is also encouraged to participate in the standard-setting process of the IPSASB in order to share its experiences with implementing accrual-based standards.
SMO 6: Investigation and Discipline
The Auditors Activities Act establishes an investigation and disciplinary system (I&D) system for auditors and outlines the roles and responsibilities for the Estonian Auditors’ Association (EAA), Auditors Activities Oversight Council (AAOC), and Ministry of Finance. The Ministry of Finance holds ultimate responsibility for ensuring that the two organizations carry out their activities with regard for the public interest. The AAOC is responsible for organization and oversight of I&D system and has the authority to carry out investigations and/or disciplinary proceedings. However, in practice, the majority of case proceedings are carried out by the EAA and the decision (including the chosen disciplinary punishment) is approved by the AAOC.
I&D proceedings may also be conducted within the EAA with respect to its members on the basis of the results of an investigation or quality control, a precept issued by the Ministry of Finance or any other document or information which gives a reason to believe that the member of the EAA has committed a disciplinary offence. EAA has conducted a self-assessment of its I&D system and has noted that there are a few areas of departure from SMO 6 components including diversity of representation on the disciplinary committee, establishment of timeframe targets, tracking mechanism for the I&D system, as well as a process for independent review of cases where no action was taken. The EAA indicates it monitors the efficiency and effectiveness of the system on an ongoing basis and had planned to complete a major review of the procedures by end of 2017.
In addition, the association states that it has incorporated the relevant topics in relation with auditors’ and auditing firms’ rights and obligations into training programs, lectures and written communications and provides the necessary counselling for its members.
Based on the self-assessment conducted by the EAA, the association should indicate how it plans on addressing these remaining gaps that would further enhance its I&D system. The EAA could consider how it can work in collaboration with the AAOC and the MoF on strengthening this important pillar for the accountancy profession.
SMO 7: International Financial Reporting Standards
IFRS as adopted by the EU are required for the consolidated financial statements of all European companies whose debt or equity securities trade in a regulated market in Estonia. In addition to listed companies, IFRS as adopted by the EU are required to be applied by credit institutions, insurance undertakings, financial holding companies, mixed financial holding companies, and investment firms – which are considered public interest entities in the jurisdiction. All other Estonian companies can choose whether to prepare their consolidated and annual accounts in accordance with IFRS as adopted by the EU or in accordance with the Estonian Accounting Standards (Estonian Generally Accepted Accounting Principles — Estonian GAAP) as promulgated by the Estonian Accounting Standards Board (EASB). Estonian GAAP (effective from 2013) is based on IFRS for Small and Medium-sized Entities (IFRS for SMEs) with limited differences from IFRS for SMEs with regard to accounting policies as well as disclosure requirements.
EAA reports that it supports its members in understanding and implementing IFRS and Estonian GAAP through training programs, lectures, and written communications.
EAA is encouraged to continue efforts to include up-to-date IFRS questions / issues in the development of the professional examination as well as to encourage university programs to cover IFRS subjects as part of their curricula. The association could include some specific examples of its activities in this regard and of the training it offers members on the accounting standards. Finally, EAA is also encouraged to participate in the standard-setting process of the IASB through its membership in Accountancy Europe in order to share its experiences and perspective.
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