Our topical audit questions were answered by:
Jim Sylph, Technical Director of IFAC;
Nikolai Remizov, Audit Methodology Director, auditing firm «FBK» (Moscow).
Could you say a few words about the International Federation of Accountants.
JS : IFAC is the worldwide organization for the accountancy profession. Its mission is to develop and enhance the profession to enable it to provide services of consistently high standards in the public interest. Its current membership consists of 153 professional accountancy bodies in 113 countries, representing more than two million accountants in public practice, education, government service, industry, and commerce.
Which countries have already decided to transfer to ISA from their national standards?
JS : A member survey carried out in 1998 indicated that 34 countries use IFAC’s International Standards on Auditing ( ISAs ) as their national standards and a further 35 countries use them without significant modification. These countries include Netherlands, France, Germany, Switzerland, United Kingdom, Yugoslavia, Bulgaria, Czech Republic and Turkey.
Can we say that the ISA wide usage has become irreversible?
JS : A 1995 IFAC survey showed fewer countries using ISAs. There has therefore been a big increase in interest and support for ISAs in the last few years. Further, IFAC is pleased to note that the US Panel on Audit Effectiveness in its May 2000 exposure draft has recognized that many major accounting firms are now using ISAs as their basic international audit guidance and methodology. Further discussions are underway with IOSCO to get their endorsement of ISAs in the same manner that they have recently endorsed International Accounting Standards.
Does this mean that now incomplete or partial use of ISA is still possible?
JS : Partial use of ISAs should be considered only as a temporary short – term measure to allow a gradual transition to full adoption of ISAs. If only a portion of the standards are used, it will not be possible for the audit report to make reference to international standards of auditing as the framework on which the audit was performed. Instead, this reference would have to be to Russian audit standards. This reference may prove a major barrier for Russian companies whose financial statements are used outside the country because the international capital markets may not give as much recognition to the national standards of a specific country as they do to international standards. Further, since the major audit firms which join the IFAC Forum of Firms will be undertaking to use ISAs as a basis for all their work it could put national companies and national audit firms at a disadvantage if they do not adopt ISAs.
With which Russian organi.zations does the International Federation of Accountants co.operate in providing technical assistance in the move to ISA?
JS : The Russian Auditors Collegium has recently been admitted as an associate member of IFAC and as such ISA promoter.
What is, in essence, the problem of the move to ISA? How can you explain the position of opponents to this process in different countries?
JS : The main problem is educational. How do you train auditors in the differences between the standards and what they have been doing in the past ?
Are you sure that Russia should immediately move to ISA?
JS : This would be my recommendation. The sooner the country adopts the standards, the sooner it will be recognized as having world class audits on which the capital markets can rely.
How will compliance with the standards be enforced?
JS : IFAC has created a Compliance Committee. One of its jobs will be to understand how member bodies are applying the IFAC International Professional Practice Statement on Assuring the Quality of Professional Services and comparing and contrasting the investigative and disciplinary processes of member bodies. For firms that join the Forum of Firms there will be periodical, firm on firm, practice review. This will require the establishment of a global quality assurance regime, applicable to every office of every member of the Forum of Firms.
What are the benefits of the move to ISA for Russian auditors?
NR : The integration of the Russian economy to the system of international economic relations requires harmonizing financial reporting and auditing systems.
Adherence to the common requirements to the accounting profession in Russia should stimulate the development of the Russian economy and make the investment potential of our country more favorable abroad.
It is necessary for the term «audit» to mean the same in Russia as in the other countries of the world.
How different is the Russian auditing system from ISA?
NR : From the formal point of view, the 34 Russian standards on auditing activities were created on the basis of ISA and are very close to them in content. The existing discrepancies may be put to the style and presentation of the documents, details of description, practical examples used, etc. Thus at first sight one can say that the Russian system of auditing is very close to ISA and is tending to develop in this direction.
At the same time one should point out, that there is no law or tradition that stipulates the use of those standards in the course of audits in Russia.
The main legal document of Russian auditors – «The Temporary Rules on Audit Activities» that were adopted by the Decree of the President of the Russian Federation in the end of the 1993, does not mention auditing standards at all. In 1994 the preparation of auditing standards was listed among other duties of the Commission on Auditing Activities, but at the same time the order of their formal adoption and their mandatory character were not stipulated.
The bodies that issue state audit licenses recognized Russian standards on auditing as mandatory for auditing firms. At the same time, attempts to prosecute Russian auditing firms that do not comply with the requirements of the auditing standards in their work, were successfully appealed by those firms in the court of law.
As a result one can say, that the Russian standards, so far as they do not contradict ISA, are adhered to by the Russian firms that belong to the so called «big five», and by some other Russian auditing firms of authority, that provide their services to the biggest enterprises and are interested to maintain their good reputation.
As for several thousands small and medium-sized auditing firms that possess state audit licenses, it is not even possible to estimate the percentage of those that adhere to the standards, as the procedures for external controls on the auditing firms are just being developed now.
Besides, it should be pointed out, that the Russian economy being in transition, the investment relations being undeveloped, and the lack of competent users of financial statements lead to the fact, that auditing services in their traditional way (as the confirmation of reliability of financial statements) are not properly required by Russian society. As a result for quite a few auditing firms the audit is often limited to the reconciliation of the tax returns of the client, to the search of misappro.priations and to tax consultations, not accompanied by formalities stipulated by the standards, but notwithstanding all that, as a result standard audit reports are usually issued to the clients.
What are your immediate and mid-term recommendations?
NR : First of all, the Russian translation of ISA should be published and also relevant comments and methodological documents should be prepared.
A Federal audit law should be adopted that stipulates the existence of audit standards as such, their binding nature for auditors and enforcement procedures.
At present the draft audit law has passed the first reading in the Russian Parliament (the State Duma). The existing draft of the law foresees the resolution of the matters listed above.
How will the standards be implemented in Russia?
NR : As was pointed out above, there are legal, administrative and economic reasons for the discrepancies between Russian auditing and CISA, though even now many Russian auditing firms are able to work and actually work in close conformity with ISA.
One can hope that after the adoption of the audit law the implementation of the standards in Russia would be more successful.
Is there a Russian translation of international standards?
NR : There have been numerous but not quite successful attempts to translate ISAs into Russian. The most well – known translation reviewed by Professor M. Rappoport was prepared about ten years ago. The Russian translation was based on « International Standards on Auditing 1985 » and there were a lot of errors and deficiencies in its terminology. Recently there have been attempts to prepare the Russian translation of ISAs in CIS countries ( e. g. in Ukraine and Kazakhstan ). The Russian Auditors Collegium disseminated one of the versions of the Russian translation of the ISA 1994 book to its members.
At the moment the issue of the official Russian translation of ISAs endorsed by IFAC is underway under the auspices of the ICAR with widespread participation of professional auditors.
When is the presentation of the Russian version of ISAs to take place?
NR : ICAR is planning to finish the work on the Russian edition of International Standards on Auditing in August 2000. The conference on the Russian edition of the Standards planned to be held in for September 2000.
The interview was prepared in cooperation with «Finanasist» Magazine, http://www.e-finansist.ru.
IFAC website address is http://www.ifac.org;
Auditing firm « FBK » website address is http://www.fbk.ru; tel : ( 095 ) 737 5353 .