Iceland

Although not a member of the European Union (EU), Iceland participates in the European Economic Area (EEA) and is therefore required to transpose relevant EU Regulations and Directives into national law. The legal and regulatory framework for corporate reporting and auditing is accordingly aligned with EU requirements as incorporated into Icelandic legislation.

The financial reporting framework is primarily established under the Annual Accounts Act No. 3/2006, which incorporates the requirements of Regulation (EC) No. 1606/2002 on the application of International Financial Reporting Standards (IFRS) into national law. The Act provides the basis for the preparation of financial statements and establishes the role of the Icelandic Accounting Standards Board (Reikningsskilaráð), operating under the Ministry of Culture and Business Affairs, to issue supplementary accounting rules and guidance. Where the Act does not provide sufficient direction, IFRS are required to be applied as an additional source of authoritative guidance.

In accordance with the IFRS Foundation, IFRS are required for the preparation of consolidated financial statements of entities whose securities are traded in regulated and non-regulated markets. IFRS are also required for entities that are part of a group reporting under IFRS and for certain investment entities, including mutual funds and collective investment schemes. Other entities within the scope of the Act may elect to apply IFRS. IFRS are translated and enacted into Icelandic law prior to application. The IFRS for Small and Medium-sized Entities has not been adopted in the jurisdiction.

Statutory audit requirements are established under the Auditing Act No. 94/2019, which transposes Directive 2014/56/EU amending Directive 2006/43/EC on statutory audits into national legislation. The Act regulates the conduct of statutory audits, the approval and oversight of auditors, and the audit profession more broadly. Mandatory audits are required for public interest entities, including listed companies, financial institutions, insurance companies, and pension funds, as well as for other entities exceeding prescribed thresholds related to turnover, total assets, and number of employees.

The Auditing Act requires audits to be performed in accordance with generally accepted auditing standards. In practice, International Standards on Auditing (ISA) are recognized as constituting these standards and are applied in the conduct of statutory audits in Iceland.

The accountancy profession in Iceland is regulated under a public oversight model established by the Auditing Act No. 94/2019. Regulatory authority is vested in the Ministry of Culture and Business Affairs and the Auditors Oversight Board (Endurskoðendaeftirlitið) (ER), which is responsible for the approval, supervision, and discipline of statutory auditors and audit firms.

The ER operates as the competent authority for audit oversight and is responsible for ensuring compliance with applicable laws, professional standards, and ethical requirements. Its functions include the certification and licensing of auditors and audit firms, maintenance of the public register, monitoring compliance with independence and ethical requirements, and enforcement through investigation and sanctions where necessary. The ER also oversees the quality assurance system for audit firms and establishes requirements related to professional competence, continuing professional development, and professional liability insurance.

Entry into the audit profession is regulated under the Auditing Act and associated regulations. Individuals seeking certification as statutory auditors are required to complete a master’s degree in auditing and accounting approved by the ER, obtain a minimum of three years of relevant practical experience under the supervision of a licensed auditor, and successfully pass a final professional competence examination administered under the authority of the ER. Following certification, auditors are subject to continuing professional development requirements established at the jurisdiction level.

The Auditing Act also establishes comprehensive requirements governing the professional conduct of auditors, including provisions related to independence, appointment and dismissal, audit fees, quality assurance, transparency, and confidentiality. These requirements form the basis for the regulation and oversight of statutory audit services in the jurisdiction.

The Institute of State Authorized Public Accountants in Iceland (FLE) operates as the principal professional accountancy organization in the jurisdiction. Membership in FLE has been voluntary since 2020. Under delegation from the ER, FLE supports the regulatory framework through the development and delivery of continuing professional development programs and the maintenance of continuing professional development records for its members. FLE requires its members to complete a minimum of 120 hours of continuing professional development over a rolling three-year period, with compliance subject to monitoring.

This framework reflects a centralized regulatory model in which statutory oversight is exercised by a public oversight authority, supported by a professional accountancy organization with delegated responsibilities in the areas of professional development and member support.

Independent public oversight of the audit profession in Iceland is established under the Auditing Act No. 94/2019, which provides the legal framework for the regulation and supervision of statutory auditors and audit firms.

The Act designates the Auditors Oversight Board (Endurskoðendaeftirlitið) (ER), operating under the authority of the Ministry of Culture and Business Affairs, as the competent authority responsible for audit oversight in the jurisdiction. The ER is responsible for the approval and registration of auditors and audit firms, monitoring compliance with applicable legal, professional, and ethical requirements, overseeing the quality assurance review system, and conducting investigation and disciplinary procedures where necessary.

In carrying out its mandate, the ER exercises oversight of key aspects of the audit profession, including auditor independence, audit quality, continuing professional development requirements, and adherence to applicable auditing and ethical standards. The authority also has the power to impose sanctions in cases of non-compliance and to ensure the effective operation of the regulatory framework established under the Auditing Act.

The ER is not a member of the International Forum of Independent Audit Regulators, which is a global organization of independent audit oversight authorities that facilitates international cooperation and the exchange of information among regulators.

This framework reflects a centralized public oversight model in which regulatory, supervisory, and enforcement functions are carried out by a single independent authority operating under the Ministry.

The Institute of State Authorized Public Accountants in Iceland (FLE)

The Institute of State Authorized Public Accountants in Iceland (Félag löggiltra endurskoðenda) (FLE) is the principal professional accountancy organization in Iceland. FLE was established on July 16, 1935, and serves as the professional body representing statutory auditors in the jurisdiction.

Membership in FLE is voluntary. The organization is subject to public oversight and operates within the regulatory framework established under the Auditing Act No. 94/2019. In practice, FLE supports the profession through professional representation, technical activities, and member services.

Under the Auditing Act and related oversight arrangements, FLE has delegated responsibilities in consultation with the Auditors Oversight Board (Endurskoðendaráð) in relation to continuing professional development. These responsibilities include developing continuing professional development courses and maintaining continuing professional development records. FLE also provides professional resources and guidance to support auditors in the jurisdiction.

In addition to its national role, FLE is a member of the International Federation of Accountants, Accountancy Europe, and the Nordic Federation of Public Accountants. FLE joined the Nordic Federation of Public Accountants in 1939.

The quality assurance (QA) review system in Iceland is established under the Auditing Act No. 94/2019, which provides the legal basis for mandatory QA reviews of statutory auditors and audit firms. The Auditors Oversight Board (Endurskoðendaeftirlitið) is responsible for oversight of the system. Under the Act, audit firms performing audits of public interest entities are subject to review at least every three years, while other statutory auditors and audit firms are subject to review at least every six years.

The jurisdiction-level framework therefore provides for a mandatory QA review system covering all statutory audits, consistent in scope with Statement of Membership Obligations 1. However, current publicly available information does not demonstrate that all elements of the system are fully aligned with the full benchmark of Statement of Membership Obligations 1, including the broader operational requirements of the standard. Accordingly, the QA system is assessed as Partially Adopted under the 2026 definitions.

International Standard on Quality Management 1 and International Standard on Quality Management 2 are in use in the jurisdiction. FLE reports that ISQM 1, ISQM 2, and International Standard on Auditing 220 (Revised) replaced International Standard on Quality Control 1 and became effective on 15 September 2022.

Current Status: Partially Adopted

Initial and continuing professional development requirements for statutory auditors in Iceland are established under the Auditing Act No. 94/2019 and implemented by the Auditors Oversight Board (Endurskoðendaeftirlitið) (ER). The Act sets out requirements for entry into the profession, including completion of a master’s degree in auditing and accounting approved by the ER, a minimum of three years of practical experience, and successful completion of a final professional competence examination. Certified auditors are subject to continuing professional development requirements at the jurisdiction level.

The Institute of State Authorized Public Accountants in Iceland (Félag löggiltra endurskoðenda) (FLE), under delegation from the ER, supports implementation through the delivery and monitoring of continuing professional development programs. FLE requires its members to complete a minimum of 120 hours of continuing professional development over a three-year period.

Available information indicates that the requirements for entry, practical experience, assessment, and continuing professional development are aligned with the International Education Standards in effect as of the time of the assessment and are applied to statutory auditors in the jurisdiction. Accordingly, the International Education Standards are assessed as Adopted.

Current Status: Adopted

Statutory audit requirements in Iceland are established under the Auditing Act No. 94/2019. The Act requires auditors to perform their work in accordance with good auditing practice and states that this is to be interpreted in line with applicable laws, regulations, and international standards in force at the time. The framework applies to mandatory audits of public interest entities and other entities meeting the statutory size thresholds.

The Institute of State Authorized Public Accountants in Iceland (Félag löggiltra endurskoðenda) explains that auditors are required to conduct audits in accordance with all issued International Standards on Auditing that are effective and relevant to the engagement. Available public information therefore supports the conclusion that ISA in their entirety, as in effect at the time of the assessment, are required for application in statutory audits in Iceland.

There is no publicly available evidence that the International Standard on Auditing for Less Complex Entities has been formally adopted or implemented in the jurisdiction.

Current Status: Adopted

Ethical requirements for statutory auditors in Iceland are established under the Auditing Act No. 94/2019, which requires auditors to comply with the International Code of Ethics for Professional Accountants (including International Independence Standards) issued by the International Ethics Standards Board for Accountants. The public information reviewed supports that Iceland applies the IESBA Code directly rather than through a separate national code.

Current Status: Adopted

Public sector accounting requirements in Iceland are established by the Government of Iceland under the Public Finance Act No. 123/2015. Public information from the International Federation of Accountants and the Chartered Institute of Public Finance and Accountancy International Public Sector Financial Accountability Index indicates that the jurisdiction applies accrual-basis International Public Sector Accounting Standards (IPSAS) modified for the local context, and that IPSAS were incorporated into Icelandic law through this Act.

Government financial reporting further confirms that central government financial statements are prepared in accordance with IPSAS-based standards (reikningsskilastaðlar fyrir opinbera aðila), supporting the continued application of accrual-based IPSAS in practice.

Under the 2026 definitions, accrual-basis IPSAS modified for the local context are assessed as Adopted. Accordingly, IPSAS are assessed as Adopted in Iceland.

Current Status: Adopted

The investigative and disciplinary system in Iceland is established under the Auditing Act No. 94/2019 and applies to statutory auditors and audit firms. The Auditors Oversight Board (Endurskoðendaeftirlitið) (ER) is solely responsible for investigation and discipline in the jurisdiction. Public information indicates that ER may initiate cases on its own initiative where it considers that an auditor or audit firm may have breached the Act, ethical requirements, or other applicable rules.

The jurisdiction-level framework therefore provides a legal basis for an operational investigative and disciplinary system and reflects key elements of SMO 6, including the existence of a competent authority and an information-based trigger for proceedings. However, publicly available sources do not provide sufficient detail to demonstrate that all elements of the system are fully aligned with the full benchmark of SMO 6, including the detailed investigation, disciplinary, appeal, and public interest features contemplated by the benchmark. Accordingly, the investigative and disciplinary system is assessed as Partially Adopted under the 2026 definitions.

Current Status: Partially Adopted

Financial reporting requirements in Iceland are established under the Annual Accounts Act No. 3/2006. The Act defines International Financial Reporting Standards as International Accounting Standards and International Financial Reporting Standards as adopted by the European Union and incorporated into the Agreement on the European Economic Area.

According to the IFRS Foundation jurisdiction profile for Iceland, IFRS are required for consolidated financial statements of companies whose securities trade in regulated and non-regulated markets. IFRS are also required for companies that are part of a consolidated group using IFRS and for non-publicly traded mutual funds and collective investment schemes. Since 2016, other companies within the scope of the Act may also elect to apply IFRS. The IFRS Foundation profile further indicates that IFRS are translated, enacted into law, and published by the Icelandic government.

On that basis, IFRS are adopted at the jurisdiction level for domestic publicly accountable entities in consolidated general purpose financial statements.

However, the IFRS for SMEs have not been adopted in Iceland and, according to the IFRS Foundation profile, adoption is not under consideration.

Current Status: Adopted

Relevant Organizations

Félag löggiltra endurskoðenda

Relevant Legislation

Act No. 3/2006 on Annual Accounts Act No. 94/2019 on Auditors and Auditing Public Finance Act No. 123/2015

Relevant Publications

IFAC SMO Action Plan Iceland (FLE) International Public Sector Financial Accountability Index