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Standards Compliance Index 21.67 out of 100 64
Business Indicator Index 9.90 out of 12 28
Honduras

International Standards on Auditing

Summary
In a 2007 review of the accounting and auditing environment in Honduras, the World Bank observed that "commendable" efforts to improve Honduran financial reporting standards had been made. However, continued national initiatives were required for further alignment with international standards. This was also necessitated by the fact that Honduras is a signatory of the Dominican Republic-Central American Free Trade Agreement and had the "least stringent" audit requirements among member countries. However, as noted in the assessment, with the passing of the Accounting and Auditing (A&A) Law in 2004, Honduras made significant progress. Beginning in January 2008, the application of International Standards on Auditing (ISAs) became mandatory. The Law also established the Accounting and Auditing Standards Technical Board as the national standard-setter, primarily responsible for the adoption of international standards. A technical assistance project financed by the Multilateral Investment Fund (MIF) was working towards developing interpretations and guidelines for the application of International Financial Reporting Standards and ISAs. However, the World Bank identified a number of deficiencies in the auditing framework, and found the January 2008 deadline for the application of ISAs to be "too ambitious." Therefore, the World Bank recommended that the A&A Law be amended to extend the adoption deadline to 2011-2012. The assessment also found that a lack of necessary accounting skills and knowledge was likely to impede the application of ISAs. Prior to the mandatory application of ISAs there were no Honduran auditing standards, and international audit firms applied ISAs for audit purposes.

    General Overview

    In 2007, the World Bank conducted an assessment of Honduran accounting and auditing practices, benchmarked against the International Financial Reporting Standards (IFRSs) and the International Standards on Auditing (ISAs). The report observed that "accounting and auditing standards and practices in Honduras have been improving; however, continued efforts to align these with international ones are still needed" (p. i). Furthermore, the report noted that for Honduras to avail itself of the advantages of membership in the Dominican Republic/Central American Free Trade Agreement (DR-CAFTA) (which became effective in April 2006), the country must practice "internationally-recognized rules and practices for business activities" (p. 4). This was also necessitated by the fact that among other DR-CAFTA member countries, Honduras had the "least stringent" audit requirements. However, with the passing of the Accounting and Auditing (A&A) Law in 2004, which mandates the application of ISAs beginning January 2008, significant progress was made towards harmonization of national and international auditing practices. Prior to the mandatory application of ISAs, there were no Honduran auditing standards. International audit firms applied ISAs for non-statutory audits in the private sector. Moreover, the World Bank identified a number of deficiencies in the Honduran financial reporting framework and noted that the January 2008 deadline for application of ISAs was "too ambitious," given the fact that Honduras suffers from a shortage of "human and financial resources" (p. 6). The World Bank, therefore, recommended extending the adoption deadline to 2011-12, along with other detailed recommendations on the upgrade of the accounting and auditing framework. For instance, the World Bank recommended amending the A&A Law to lay down a clear financial reporting framework and defining the following categories of companies based on the level of accounting and auditing requirements: (1) large state owned enterprises, banks, insurance companies, undertakings of collective investments and listed companies; (2) publicly accountable firms; (3) SMEs and; (4) micro-enterprises. In the long term, the World Bank recommended that Honduras establish a system of professional certification in order to assure adequate qualifications for auditors of public interest entities.
    The A&A Law also established the Accounting and Auditing Standards Technical Board as the accounting and auditing standard-setting body responsible for the adoption of international standards. Although the World Bank called this a significant step in the right direction, it nonetheless identified a number of weaknesses that were likely to impede the Technical Board in the performance of its duties. To begin with, the World Bank observed that the "law does not explain the adoption process for IFRS and ISA, nor does it institute a process for the standard-setting/adoption process" (p. 37). Furthermore, the report explained that although the Technical Board was responsible for the enforcement of the A&A Law, it had no clear rules to adhere to in this regard. Also, the report noted that even though the Technical Board is allowed to make amendments to the standards when required, there are no legal provisions to back it up in this activity. Finally, the Board lacked a consistent source of funding, permanent staff, or offices. The World Bank therefore recommended that "the Technical Board should adopt by-laws and a strategic plan in order to play an effective role as standard-setter and enforcer" (p. 29).
    Honduran auditing practices are primarily governed by the A&A Law, which mandates the application of ISAs. In addition, banks and other financial institutions must follow auditing instructions laid out by the National Banking and Insurance Commission (NBIC), the main regulatory body for the financial sector. In Honduras, NBIC-regulated entities are required to conduct statutory audits, and the regulator mandates the application of ISAs. These international standards were required even before the A&A Law was passed. Audits must be conducted by auditors or firms registered with the NBIC. The World Bank observed that some NBIC advisories "go against sound international practice" (p. 10). For instance, in the notes to the financial statements, auditors must explain differences between IFRSs and NBIC accounting requirements. However, the World Bank noted that the NBIC requires institutions to have their periodic financial statements audited when asked to do so. If the NBIC discovers any irregularities, another auditor can be called in to provide a second opinion. Also, financial institutions are required to report to the NBIC within 5 days of hiring a new auditor, and audit firms are required to "rotate the audit engagement partner every five years" (p. 11). Additionally, NBIC-regulated entities must publish the auditor's report in two major newspapers every year. Supervision is conducted via off-site and on-site monitoring. Overall, the World Bank noted that the NBIC performs its supervisory functions effectively. The report stated that the establishment of the auditor registry by the NBIC was an important initiative in the enforcement of professional requirements for auditors. The report, however, recommended that the NBIC "should set more stringent conditions for audit firms to be registered under 'Category D,' which audit large corporate borrowers" (p. 32). Enforcement of financial reporting requirements with regard to entities not regulated by the NBIC was found to be "very weak."
    The Honduran Association of Public Accountants (CPMCP) and the Association of University Professionals in Public Accounting (COHPUCP) are the two main self-regulated professional bodies in Honduras. Only members of these two bodies have the right to provide accounting and auditing services. The CPMCP has its own Code of Ethics, issued in January 2005. The World Bank noted that this Code falls significantly short of the International Federation of Accountants (IFAC) Code. The COHPUCP adopted the latest IFAC code. However, neither of these organizations enforce auditing or ethical standards within the profession. Furthermore, the World Bank noted that, although both organizations have a disciplinary body, "the disciplinary bodies do not have sanctioning powers on their own; however, they can recommend that the Boards of Directors of the respective [Institutes] apply sanctions on their behalf. The sanctions are not made public" (p. 20). The issue of quality control is also not addressed. In 2005, the Multilateral Investment Fund (MIF) financed a technical assistance project, and the World Bank pointed out that the MIF project will work towards resolving this issue by establishing a "technical comptroller." The World Bank observed that both the COHCUCP and CPMCP were faced with a severe lack of resources and that the educational qualifications and experience required for membership is below international standards. In fact, the assessment pointed out that the CPMCP only requires a high school diploma to qualify as a registered accountant. The report pointed out that a component of the on-going project is "aimed at strengthening accounting education and training in Honduras" (p. 16). This project will include courses and workshops on IFRSs and ISAs in several Honduran cities. The CPMCP is listed as a member on the IFAC website.


    The Principles

    ISA 200 Objective and General Principles Governing an Audit of Financial Statements (effective 2006)

    According to the 2007 World Bank report, the enactment of the Accounting and Auditing Law mandates the use of ISAs in statutory audits beginning January 1, 2008. The 2007 CPMCP self-assessment confirmed that "the law/regulation simply refers to IAASB [International Auditing and Assurance Standards Board] pronouncements as the auditing standards" (pp. 7-8).

    ISA 210 Terms of Audit Engagements (effective 2006)

    See ISA 200.

    ISA 220R Quality Control for Audits of Historical Financial Information (effective 2005)

    See ISA 200.

    ISA 230R Documentation (effective 2006)

    See ISA 200.

    ISA 240 The Auditor’s Responsibility to Consider Fraud in an Audit of Financial Statements (effective 2004)

    See ISA 200.

    ISA 250 Consideration of Laws and Regulations in an Audit of Financial Statements (effective 2004)

    See ISA 200.

    ISA 260 Communications of Audit Matters With Those Charged With Governance (effective 2004)

    See ISA 200.

    ISA 300 Planning an Audit of Financial Statements (effective 2004)

    See ISA 200.

    ISA 315 Understanding the Entity and Its Environment and Assessing the Risks of Material Misstatement (effective 2004)

    See ISA 200.

    ISA 320 Audit Materiality (effective 2004)

    See ISA 200.

    ISA 330 The Auditor’s Procedures in Response to Assessed Risks (effective 2006)

    See ISA 200.

    ISA 402 Audit Considerations Relating to Entities Using Service Organizations (effective 2004)

    See ISA 200.

    ISA 500 Audit Evidence (effective 2004)

    See ISA 200.

    ISA 501 Audit Evidence - Additional Considerations for Specific Items (effective 2004)

    See ISA 200.

    ISA 505 External Confirmations (effective 2004)

    See ISA 200.

    ISA 510 Initial Engagements — Opening Balances (effective 2004)

    See ISA 200.

    ISA 520 Analytical Procedures (effective 2004)

    See ISA 200.

    ISA 530 Audit Sampling and Other Selective Testing Procedures (effective 2004)

    See ISA 200.

    ISA 540 Audit of Accounting Estimates (effective 2004)

    See ISA 200.

    ISA 545 Auditing Fair Value Measurements and Disclosures (effective 2004)

    See ISA 200.

    ISA 550 Related Parties (effective 2004)

    See ISA 200.

    ISA 560 Subsequent Events (effective 2006)

    See ISA 200.

    ISA 570 Going Concern (effective 2004)

    See ISA 200.

    ISA 580 Management Representations (effective 2004)

    See ISA 200.

    ISA 600 Using the Work of Another Auditor (effective)

    See ISA 200.

    ISA 610 Considering the Work of Internal Auditing (effective 2004)

    See ISA 200.

    ISA 620 Using the Work of an Expert (effective 2005)

    See ISA 200.

    ISA 700 The Auditor’s Report on Financial Statements (effective 2006)

    See ISA 200.

    ISA 701 Modifications to the Independent Auditor's Report (effective 2006)

    See ISA 200.

    ISA 710 Comparatives (effective 2004)

    See ISA 200.

    ISA 720 Other Information in Documents Containing Audited Financial Statements (effective 2004)

    See ISA 200.

    ISA 800 The Auditor’s Report on Special Purpose Audit Engagements (effective 2006)

    See ISA 200.

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    Sources of Assessment

    Association of Public Accountants, "Assessment of the Regulatory and Standard- Setting Framework," Self-assessment prepared as part of the International Federation of Accountants' Member Body Compliance Program, July 2006. Available from International Federation of Accountants website. Accessed on April 3, 2008. (CPMCP 2006)

    Association of Public Accountants, "Response to the IFAC Part 2, SMO Self-Assessment Questionnaire," Self-assessment prepared as a part of the International Federation of Accountants' (IFAC) Member Body Compliance Program, July 2007. Available from International Federation of Accountants website. Accessed on April 3, 2008. (CPMCP 2007)

    World Bank, "Honduras: Report on the Observance of Standards and Codes - Accounting and Auditing," May, 2007. Available from World Bank website. Accessed on April 3, 2008. (WB 2007)

    Relevant Organizations

    Accounting and Auditing Standards Technical Board - Junta Tecnica de Normas de Contabilidad y de Auditoria (JTNCA) (in Spanish only)

    Association of Public Accountants - Colegio de Peritos Mercantiles y Contadores Publicos (CPMCP)

    Central Bank of Honduras - Banco Central de Honduras (CBH) (in Spanish only)

    Honduran Association of University Professionals in Public Accounting - Colegio Hondureño de Profesionales Universitarios en Contaduría Pública (COHPUCP) (in Spanish only)

    Multilateral Investment Fund (MIF)

    National Banking and Insurance Commission - Comision Nacional de Bancos y Seguros (NBIC) (in Spanish only)



    Relevant Legislation/Regulation

    Law on Accounting and Auditing Standards No. 189, 2004 - Ley sobre Normas de Contabilidad y Auditoria No. 189, 2004 (in Spanish only)

    Organic Law of the Association of Public Accountants, 2004 - Ley Orgánica del Colegio de Péritos, 2004 (in Spanish only)

    Code of Commerce No. 73, 1950 - Código de Comercio No. 73, 1950 (in Spanish only)

    Resolution of the Accounting and Auditing Standards Technical Board No. 1, 2006 - Resolución de Junta Técnica de Normas de Contabilidad y de Auditoria No. 1, 2006 (in Spanish only)

    Project on Adoption of International Financial Reporting Standards and International Standards on Auditing - - Projecto sobre Adopcion de Normas Internacionales de Informacion Financiera y de Auditoria (in Spanish only)



    Supplementary Sources

    Inter-American Development Bank website. Accessed on April 3, 2008. (IADB website)

    International Federation of Accountants (IFAC) website. Accessed on April 3, 2008. (IFAC website)
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