March 14, 2006 Vienna1 The Implementation of the 8th Directive in Hungary Katalin Fekete Vice President Hungarian Chamber of Auditors

March 14, 2006 Vienna2 New law is in progress Waiting for the official publication of the Directive Bill has been prepared by the Chamber Implementation in 2006 (or 2007?)

March 14, 2006 Vienna3 Registration and qualification Chamber has the registration right Natural persons and firms are registered Qualification –University degree –Certified accountant qualification –One year professional practice –Max 3 years training courses –Exams of 7 modules –Professional practice of 3 years in mentor system –Competence exam

March 14, 2006 Vienna4 Auditor in part time job? Because of historical reasons it is a big issue in Hungary. Current system: audit can be practice only in full time job. No specific requirements in the Directive If the government follows the wording of the Directive the Hungarian profession would step back

March 14, 2006 Vienna5 Liability system No limited liability in Hungary Auditors are insured No bigger claims against auditors Government is waiting for the result of the study and EC proposal

March 14, 2006 Vienna6 Audit fee Strong price competition No guidance relating to the audit fee Hungarian Competition Office is against the regulation.

March 14, 2006 Vienna7 Independence General principles in the law Further details in IFAC code and ethical regulation of the Chamber Non-audit services performed by auditors (e.g. accounting and tax advice) regulated by the law

March 14, 2006 Vienna8 Rotation in the current system No difference between listed and non- listed companies Public interest isn’t defined in the law but the term is used during the external quality control No firm rotation 5 years auditor’s rotation exists in banks, insurance companies, funds, etc.) Cooling-off period is different

March 14, 2006 Vienna9 Rotation after the implementation No firm rotation Public interest has to be defined Listed/traded companies have to be differentiated 7 years rotation + 2 years cooling off period should be unified

March 14, 2006 Vienna10 Auditing standards ISA + some special legal requirements = Hungarian standard on auditing from 2001 in Hungary Standard are updated regularly.

March 14, 2006 Vienna11 External quality control 1 Based on EU recommendation Monitored peer-review system Organized by the Committee of the Chamber Carried out every 6th or 3rd year Annual report on the general findings 1500 auditors

March 14, 2006 Vienna12 External quality control 2 Result of the investigation: –Meets requirements, –Meets but needs further development –Failed Actions after negative outcome –Written warning –Obligation to attend training –Disciplinary procedures (incl. removal from the register)

March 14, 2006 Vienna13 Public Oversight in Hungary Legal supervision exist, no public oversight Oversight will be created by the new act. Final responsibility, direct investigation and monitoring

March 14, 2006 Vienna14 Oversight Committee No bureaucratic, costly solution OC governed by non-practitioners (direct invitation) They are respectable persons, acknowledged experts of accounting, finance, law, financial reporting Minority practitioners Funding must be free from undue influence of auditors (financed from the state budget) Transparency of oversight activity

March 14, 2006 Vienna15 More information