On May 17, 2006, Directive 2006/43/EC of the European Parliament and the Council came into force requiring all statutory audits of annual and consolidated accounts to be carried out on the basis of International Standards on Auditing (ISAs) as adopted by the European Commission (EC). European Union member states shall adopt and publish the provisions necessary to comply with this directive before June 29, 2008. Member states may impose additional requirements relating to the statuary audits of annual and consolidated accounts for periods expiring on June 29, 2010. In a 2001 assessment of Slovak auditing and accounting practices, the World Bank pointed out the differences between Slovak requirements and ISAs and recommended wholesale adoption of the international standards. Based on the World Bank recommendations, the Slovak authorities initiated a program for reform in the area of accounting and auditing with the support of the Institutional Development Fund's Grant. One of the purposes of the reform was to ensure that ISAs would be adopted, without modifications, as mandatory auditing standards. As stated in the Slovak Chamber of Auditors 2007 self-assessment and other publications on the issue, in line with the EC directive and the World Bank recommendations, effective December 31, 2004 Slovakia adopted ISAs as national standards for auditing.
General Overview
In 2006, Directive 2006/43/EC of the European Parliament and the Council came into force, requiring all statutory audits of annual and consolidated accounts to be carried out on the basis of ISAs as adopted by the European Commission (EC). Per the directive, European Union (EU) member states shall adopt and publish the provisions necessary to comply with this Directive before June 29, 2008. Slovakia is an EU member and thereby has to comply with EC directives.
In 2001, the World Bank conducted a review of accounting and auditing practices in Slovakia in order to evaluate the weaknesses and strengths of the accounting and auditing requirements, and to review the reporting requirements against actual practices. The Report on the Observance of Standards and Codes (ROSC), published in November 2001, contained suggested policy recommendations to improve the reporting framework in Slovakia. It recommended establishing an effective legal and regulatory framework, strengthening the enforcement mechanisms, and the adoption of International Standards on Auditing (ISAs) in Slovakia. At the time of the assessment, the Slovak Chamber of Auditors (SKAU) had developed 36 Slovak auditing standards or SSAs. The World Bank observed that "although the SKAU claims that all the SSAs conform to the requirements of the ISAs, there seem to be some gaps" (p. 6).
Based on the World Bank's recommendations, the government of Slovakia initiated a program of accounting and auditing reform supported by the Institutional Development Fund's Grant. One of the purposes of the reform was to ensure that ISAs would be adopted, without modification, as mandatory auditing standards, replacing existing SKAU developed standards. The government of Slovakia, in collaboration with the SKAU, established the National Steering Committee (NSC) which was headed by the State Secretary of Finance and comprised representatives from the government, regulatory, supervisory, and industry bodies. Other than adoption of ISAs and IFRSs, technical support was provided for the establishment of the Financial Reporting Council (FRC), an independent oversight body, and for assisting the SKAU in the implementation of existing and future ISAs. In January 2004, the evaluation committee for the Institutional Development Fund's Grant project accepted technical proposals from Deloitte and Touche in consortium with Ernst and Young, KPMG, and PricewaterhouseCoopers. A Project Coordinator was authorized to negotiate the contract which was finalized and signed on March 1, 2004. The 2007 SKAU self-assessment noted that "the law/regulation simply refers to IAASB pronouncements as the auditing standards" (p. 33), thus confirming the final adoption of ISAs in Slovakia. The 2007 International Monetary Fund (IMF) Financial System Stability Assessment (FSSA) Update further confirmed that "the quality of auditing in the financial sector Slovakia is now covered by International Standards on Auditing (ISAs)" (p. 23).
The 2005 self-assessment prepared by the SKAU provides information on the regulatory and standard-setting framework for financial reporting in Slovakia. According to the assessment, the legal framework for the preparation of financial statements in Slovakia is based on the Commercial Code of 1991, as supplemented by the Auditing Law of 2002 and the Accounting Law. The 2005 SKAU self-assessment noted that all joint stock companies and companies meeting at least of the three criteria must have their financial statements audited: (1) assets of 500,000 EURO; (2) sales of 1,000,000 EURO; (3) number of employees more than 20 employees.
SKAU is the auditing standard-setting body in Slovakia. The 2001 World Bank assessment pointed out that the SKAU is authorized to enforce audit related rules, regulations, and standards. However, the 2005 SKAU self-assessment noted that ISAs had been adopted in 2004 and the standard-setting role of SKAU would change to "early translation of exposure drafts, make them available for public comments, prepare comments, translate final version and write commentary to implementation if necessary." A 2007 SKAU self-assessment noted that the SKAU had also adopted the International Federation of Accountants (IFAC) Code as issued without modifications. The SKAU 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 SKAU self-assessment and other publications, Slovakia adopted ISAs effective for financial statements prepared as of December 31, 2004.
ISA 210 Terms of Audit Engagements (effective 2006)
International Monetary Fund, "Slovak Republic: Financial System Stability Assessment Update, including Report on the Observance of Standards and Codes on the following topics: Banking Supervision and Insurance Regulation," Country Report No.07/243, Washington, D.C.: IMF, July 2007. Available from International Monetary Fund website. Accessed on October 21, 2007. (IMF 2007)
Slovak Chamber of Auditors, "Assessment of the Regulatory and Standard-Setting Framework," Self-assessment prepared as part of the International Federation of Accountants (IFAC) Member Body Compliance Program, July 2005. Available from International Federation of Accountants website. Accessed on October 21, 2007. (SKAU 2005)
Slovak Chamber of Auditors, "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, March 2007. Available from International Federation of Accountants website. Accessed on October 21, 2007. (SKAU 2007)
World Bank, "Slovakia: Report on the Observance of Standards and Codes: Accounting and Auditing," November 27, 2001. Available from World Bank website. Accessed on October 21, 2007. (WB 2001)
Directive of the European Parliament and of the Council of 17 May 2006 on Statutory Audits of Annual Accounts and Consolidated Accounts, Amending Council Directives 78/ 660/EEC and 83/349/EEC and Repealing Council Directive 84/253/EEC No. 2006/43/EC, 2006
UHY Hacker Young, "Doing Business in Slovakia," October 2006. Available from UHY Hacker Young website. Accessed on October 21, 2007. (UHY Hacker Young 2006)
Slovakia