According to a 2003 World Bank review of accounting and auditing practices in Lebanon, financial statements of listed companies and banks must be audited in accordance with International Standards on Auditing (ISAs) per the Beirut Stock Exchange and Banking Control Commission rules, respectively. However, the assessment noted that there were no standards specified in the Lebanese legislation that had to be followed when auditing other entities, although many audit firms made an effort to perform audits in line with ISAs. At the time of the assessment, the Minister of Finance was in the process of drafting a Ministerial Order to require the use of ISAs by all auditors. However, the 2007 Lebanese Association of Certified Public Accountants self-assessment stated that the issuance of such an order is still work-in-progress. The World Bank noted that, in general, Lebanon had made "commendable progress" in implemening international standards. However, significant compliance gaps existed both in accounting and auditing practices, although fewer gaps were observed with banks and listed companies. Among other issues, the World Bank recommended reviewing or legislating new laws for accounting and auditing, requiring the application of ISAs by all public interest entities, reforming the role of the Higher Council on Accounting as the accounting and auditing oversight body, and upgrading the licensing procedure for auditors in public practice.

General Overview

A detailed assessment of Lebanese accounting and auditing practices was conducted by the World Bank, the results of which were published in 2003 in the Report on the Observance of Standards and Codes (ROSC). In this report, the World Bank noted that, except in the case of banks and listed companies, there were no auditing standards specified in Lebanese legislation that had to be applied, although many audit firms made an attempt to follow International Standards on Auditing (ISAs). However, at the time of the assessment, the Minister of Finance was in the process of drafting a ministerial order for the mandatory application of ISAs for all auditors. The 2007 Lebanese Association of Certified Public Accountants (LACPA) self-assessment, discloses that the issuance of such an order is still work-in-progress. In the meantime, auditors are required to adhere to a Ministerial Order No. 742 issued in 2002, which made ISA 700 the official format of the audit reports in Lebanon. According to N. Saidi, writing in 2004, "the Lebanese private sector recognizes International Accounting and Auditing standards (ISAs and International Financial Reporting Standards [IFRSs]); however, no legal requirement or formal mechanism exists to monitor compliance" (p. 39). Additionally, the author points out to the fact that no supervisory body has been established for monitoring reporting practices and ensuring consistency. The 2003 World Bank ROSC made many recommendations for the upgrade of auditing practices in Lebanon. These included, but were not limited to, reviewing existing legislation or instituting new laws for accounting and auditing, requiring the application of ISAs by all public interest entities, reforming the role of the Higher Council on Accounting (HCA) as the accounting and auditing oversight body, and upgrading the licensing procedure for auditors in public practice. Overall, the assessment concluded that the auditing profession needed to "improve the quality of auditing practices that go beyond what is required for local tax declarations" (p. 10).

The legal framework for Lebanese accounting and auditing practices as described in the World Bank assessment of 2003 is primarily governed by the Code of Commerce of 1954. The Code of Commerce governs joint stock companies, limited liability companies and partnerships and specifies rules regarding appointment of auditors and audits of financial statements. Banks are governed under the Code of Money and Credit of 1963 and are required to follow requirements specified by the Banking Control Commission (BCC), an independent supervisory body for banks. As noted above, the BCC mandates the use of ISAs for all banks. The BCC has the authority to decide on the bank's auditor and also to change the auditor if the quality of auditing was found to be unsatisfactory.

The Beirut Stock Exchange (BSE) is the main regulator for listed companies and specifies the financial reporting requirements for these entities. The BSE also requires the use of ISAs for all listed companies. The 2003 World Bank assessment noted that the BSE gets the financial statements of regulated entities reviewed by external auditors to ensure that audit reports are performed in accordance with ISAs. Although the BSE has the power to suspend trading or delist non-compliant companies, the World Bank noted that it "lacks the necessary authority to penalize or blacklist financial statements preparers and auditors" (p. 7). The insurance sector is regulated by the Insurance Control Commission (ICC). The World Bank pointed out that there is no securities market regulatory authority in Lebanon.

The HCA performs the oversight function for the professions of accounting and auditing. The 2003 World Bank assessment recommended redefining the HCA's role and functions to improve supervision of practicing auditors and enhance the quality of professional education and training. According to the assessment, the 1994 Act of Regularization of the Certified Public Accountants' Practice provides the regulatory framework for the accounting profession and empowers the LACPA to regulate public accountants and auditors. According to the 2007 self-assessment, the LACPA adopted the International Federation of Accountants (IFAC) Code as issued, without modifications. The LACPA 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)

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There is insufficient publicly available information that directly addresses this principle.

ISA 210 Terms of Audit Engagements (effective 2006)

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There is insufficient publicly available information that directly addresses this principle.

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

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There is insufficient publicly available information that directly addresses this principle.

ISA 230R Documentation (effective 2006)

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There is insufficient publicly available information that directly addresses this principle.

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

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There is insufficient publicly available information that directly addresses this principle.

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

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There is insufficient publicly available information that directly addresses this principle.

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

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There is insufficient publicly available information that directly addresses this principle.

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

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There is insufficient publicly available information that directly addresses this principle.

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

NC

There is insufficient publicly available information that directly addresses this principle.

ISA 320 Audit Materiality (effective 2004)

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There is insufficient publicly available information that directly addresses this principle.

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

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There is insufficient publicly available information that directly addresses this principle.

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

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There is insufficient publicly available information that directly addresses this principle.

ISA 500 Audit Evidence (effective 2004)

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There is insufficient publicly available information that directly addresses this principle.

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

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There is insufficient publicly available information that directly addresses this principle.

ISA 505 External Confirmations (effective 2004)

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There is insufficient publicly available information that directly addresses this principle.

ISA 510 Initial Engagements — Opening Balances (effective 2004)

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There is insufficient publicly available information that directly addresses this principle.

ISA 520 Analytical Procedures (effective 2004)

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There is insufficient publicly available information that directly addresses this principle.

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

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There is insufficient publicly available information that directly addresses this principle.

ISA 540 Audit of Accounting Estimates (effective 2004)

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There is insufficient publicly available information that directly addresses this principle.

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

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There is insufficient publicly available information that directly addresses this principle.

ISA 550 Related Parties (effective 2004)

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There is insufficient publicly available information that directly addresses this principle.

ISA 560 Subsequent Events (effective 2006)

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There is insufficient publicly available information that directly addresses this principle.

ISA 570 Going Concern (effective 2004)

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There is insufficient publicly available information that directly addresses this principle.

ISA 580 Management Representations (effective 2004)

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There is insufficient publicly available information that directly addresses this principle.

ISA 600 Using the Work of Another Auditor (effective)

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There is insufficient publicly available information that directly addresses this principle.

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

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There is insufficient publicly available information that directly addresses this principle.

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

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There is insufficient publicly available information that directly addresses this principle.

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

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According to the 2003 World Bank assessment, "Ministerial Order No. 742, dated April 15, 2002 introduced ISA No. 700, The Auditor's Report on Financial Statements, as the official format to be followed for audit reports in Lebanon" (p. 7). Since the publication of the World Bank self-assessment in 2003, ISA 700 was revised, and there is insufficient publicly available information that directly addresses this principle.

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

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There is insufficient publicly available information that directly addresses this principle.

ISA 710 Comparatives (effective 2004)

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There is insufficient publicly available information that directly addresses this principle.

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

NC

There is insufficient publicly available information that directly addresses this principle.

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

II

According to the 2003 World Bank assessment, "auditor's report accompanying the abridged financial statements is in accordance with ISA 800" (p. 12). However, ISA 800 was subsequently revised and there is insufficient publicly available information that directly addresses this principle.