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Law of Ukraine On audit of financial statements and auditing

LAW OF UKRAINE

On audit of financial statements and auditing

 

This Law defines legal basis for audit of the financial statements, implementation of auditing in Ukraine and regulates relations arising from its implementation.

Chapter I

GENERAL PROVISIONS

Article 1. Definition of terms.

  1. The terms used in this Law shall have the following meaning:

1) “audit of financial statements” means audit service on verification of accounting data and indicators of financial statements and/or consolidated financial statements of the legal entity or representative offices of foreign entities or another entity that submits financial reporting and consolidated financial reporting of the group, in order to express an independent audit opinion on its compliance in all substantial aspects with the requirements of the national accounting regulations (standards), international financial reporting standards or other requirements;

2) “auditor” means a natural person, who confirmed qualification to perform audit activity, has the relevant practical experience and is listed in the Register of auditors and audit entities;

3) “auditing” means an independent professional activity of auditors and audit entities that are registered in the Register of auditors and audit entities, on the provision of audit services;

4) “audit network (network)” means a structure to ensure cooperation that includes audit firms and/or auditors, whose activity is aimed at making profit or cost sharing, or which has common ownership, functions under common control or management, has common policies and procedures for quality control, common business strategy, provides services using the same trademark for goods and services or has common professional resources;

5) “audit firm” means a legal entity that conducts solely audit activities and/or provides non-audit services on the grounds and in the manner prescribed by this Law and international standards on auditing;

6) “audit report” means a document prepared by the audit entity on the basis of the audit of financial statements (consolidated financial statements) in accordance with the international standards on auditing and requirements of this Law;

7) “audit services” means audit, review of financial statements, consolidated financial statements, implementation of other assurance assignments and other professional services provided in accordance with the international standards on auditing;

8) “internal engagement quality control” means a work assessment of the auditor or key audit partner, which is documented in the auditor’s working documents on the opinion justifications contained in the draft audit report or other reports;

9) “group” means a group of legal entities consisting of the parent company and its subsidiary undertakings;

10) “engagement of the statutory audit of financial statements” means an assignment to provide justified assurance that is accepted and implemented by the audit entity in accordance with the requirements of this Law and international standards on auditing, by auditing the financial statements or consolidated financial statements in order to express an independent audit opinion on its compliance in all substantial aspects and compliance with the requirements of the International Financial Reporting Standards, National Accounting Regulations (Standards) and Laws of Ukraine;

11) “client” means a legal or natural person, who under the legislation shall or has the right to order audit services;

12) “key audit partner” means an auditor, who:

is appointed by the audit firm as being responsible for the financial statement audit on behalf of the audit firm, in case of the audit of a group – auditor appointed  by the audit firm as being responsible for consolidated financial statement audit of the group and the auditor appointed as being responsible for the financial statement audit of subsidiary undertakings;

signs the audit report;

13) “conflict of interests” means a contradiction between personal property, non-property interests of an auditor (audit firm officials) and his (their) professional rights and responsibilities, the presence of which may affect the objectivity or impartiality in the performance by him (them) of his (their) professional duties, as well as on commitment or non-commitment of his (their) actions;

14) “international standards on auditing” means a set of professional standards that define rules of audit services provision and cover ethics and quality control issues, which are defined by the international standards on quality control, auditing, review, other assurance and associated services, which are adopted by the International auditing and assurance standards Board and International Code of Ethics adopted by the International ethics standards board for accountants and disclosed by the International federation of accountants;

15) “non-practitioner” means a natural person that for at least three years before the date of appointment does not conduct professional activity on providing statutory financial statement audit services, was not an official of the management body or employee of an audit firm, was not involved on a contractual basis in the audit services provision; is not associated with any audit entity on the basis of ownership or control relations;

16) “statutory audit of financial statements” means an audit of financial statements (consolidated financial statement) of business entities that according to the legislation shall disclose or provide to users financial statements (consolidated financial statements) together with the audit report conducted by the audit entities on the grounds and in the manner prescribed by this Law;

17) “associated entity of the audit entity” means any business entity, regardless of the legal form, related to the audit entity by joint property, control and management;

18) “professional secrecy of auditor” means information (materials, documents etc.), which became known to the auditors in the process of the audit service provision and meets the following criteria:

1) is unknown or is not generally available to a wide range of people;

2) its disclosure may harm the interests of the person, who addressed the auditor, audit entity;

19) “register of auditors and audit entities” (hereinafter – the Register) means an automated system of collection, accumulation, protection, recording and provision of information on auditors and audit entities that are eligible for conducting audit activity in Ukraine;

20) “auditor’s working papers” means documents in electronic format or in hard copy and records in electronic format or in hard copy made by the auditor in the process of planning, preparation and provision of audit services, which contain all the information that the auditor considers to be important for the proper conduct of the audit, and also disclose used procedures, tests, obtained information and conclusions reached by the auditor as a result of the conducted audit;

21) “audit entity” means an audit firm or an auditor that meets the following criteria: performs audit activities as an individual-entrepreneur or conducts independent professional activity; acquired the right to conduct audit activity on the grounds and in the manner prescribed by this Law; is included in the Register as the audit entity.

  1. The terms “public interest entities”, “large enterprises”, “medium enterprises”, “small enterprises” in this Law shall be used in the meaning specified in the Law of Ukraine “On Accounting and Financial Reporting in Ukraine”.

The term “impeccable reputation” in this Law shall be used in the meaning specified in the Law of Ukraine “On prevention and counteraction to legalization (laundering) of the proceeds from crime, terrorism financing and financing proliferation of weapons of mass destruction”.

 

Article 2. Scope of the Law

  1. This Law shall apply to all auditors, business entities regardless of types of ownership and activity types, state and local authorities.
  2. This Law shall not apply to the activity of the state bodies, their departments and officials that are authorized by the Laws of Ukraine to implement state financial control and internal audit activities of legal entities, state and local authorities.

 

Article 3. Legal basis of auditing in Ukraine

  1. The auditing is regulated by this Law and other regulatory legal acts and international standards on auditing. In cases where an international agreement, consent to be bound by which was adopted by the Verkhovna Rada of Ukraine, establishes rules other than those described in this Law, the rules of international agreement shall apply.
  2. The Cabinet of Ministers of Ukraine may establish special features of conducting audit activity on the specific engagements in accordance with the interstate agreements concluded according to the legislation on behalf of the Government of Ukraine with foreign governments.
  3. The special features for conducting audit of financial statements of the National Bank of Ukraine and of banks are defined by this Law and by other legal acts.

Article 4. Auditor

  1. An auditor acquires the right to perform audit activities after confirming the qualification and obtaining practical experience in a manner prescribed by this Law. The auditor, who has acquired the right to conduct audit activities, is included in the Register. The auditor has the right to conduct audit activities only after he was included in the Register as an audit entity.
  2. The auditor performs audit activities as a part of the audit firm and/or as an individual-entrepreneur or carries out independent professional activity, provided that such a person is not an employee of the audit firm.
  3. The auditor shall be prohibited to implement directly other inconsistent with audit activity types of business activity that does not exclude their right to receive dividends, income from equity rights, income from rent and disposal of movable and immovable property, passive income.

The auditors may carry out public, educational, training and scientific activities, preparation of publications including receiving the appropriate remuneration.

  1. The Auditor shall not be a person, who has anoutstanding orunexpunged conviction in due course, or on whom during the last year administrative penalty for committing corruption offences was imposed, and the person to whom the penalty was applied during the last year in the form of an exclusion from the Register for submission of inaccurate information to the Register.
  2. The auditor is forbidden to use his authorities to obtain undue benefit or acceptance of promises or offers of obtaining such a benefit for himself or other people.
  3. Auditor from the foreign state may acquire the right to conduct audit activity in Ukraine in the manner prescribed by this Law, and subject to his compliance with the requirements established by this Law.

Article 5. Audit firm

  1. The audit firm acquires the right to conduct audit activities provided that it complies with the requirements of this article and in the manner prescribed by this Law.
  2. The total amount of the share of founders (members) of the audit firm, who are not auditors and/or audit firms, in the authorized capital, shall not exceed 30 per cent.
  3. Only the auditor shall be the official, who according to the statutory documents manages the audit firm.
  4. The head of the audit firm shall not be the head of another legal entity that carries out business activities according to the types incompatible with the audit activity.
  5. The audit firm from the foreign state may conduct audit activities in Ukraine under the condition of its admission to conduct audit activity in accordance with the provisions of the national legislation of the home state of such an audit firm if the key partner of this firm that will conduct audit of legal entities, representative office of a foreign business entity or another entity, registered in Ukraine, meets the requirements of this Law for the auditor, compliance of the audit firm with the requirements, defined by this Law, and also after its inclusion in the Register.
  6. The audit firm shall have a good reputation. The audit firm cannot be considered as having a good reputation if, over two consecutive years, more than three times the penalty was applied to the audit firm in the form of a warning or suspension of the right to provide services for the statutory audit of financial statements or statutory audit of financial statements of public interest entities.

The audit firm, which lost a good reputation, shall be excluded from the Register by the decision of the audit public oversight body.

 

Article 6. Auditing

  1. The audit services may be provided only by the audit entity that was granted such a right in accordance with the procedure and on conditions established by this Law.
  2. The audit entities may provide non-audit services, provided that the provision of such services does not lead to threats to the independence of the auditor.
  3. The audit activity is limited regarding consistence with entrepreneurial and other types of activities.
  4. This Law limits the simultaneous provision to the public interest entities services on the statutory audit of financial statements and the following non-audit services:

1) preparation of tax reporting, calculation of mandatory fees and charges, representation of entities in disputes on the issues mentioned above;

2) management consultancy, development and support of management decisions;

3) accounting and financial reporting;

4) development and implementation of the internal control procedures, risk management and information technologies in the financial sector;

5) provision of legal services in the form of: services of a legal adviser to ensure the conduct of economic activity; negotiating on behalf of legal persons; representation of interests in a court;

6) staffing of legal entities in the area of accounting, taxation and finance, including the provision of personnel that makes management decisions and is responsible for the preparation of financial statements;

7) assessment services;

8) services related to fund raising, profit distribution, development of investment strategies, except for the services providing assurance on financial information, in particular, carrying out the procedures necessary for the preparation, discussion and issuance of confirmation letters in connection with the securities issue of legal persons.

The audit entity and/or the participant of the audit network (network) shall have the right to provide the services listed in subparagraph 7 of paragraph four of this article, if:

  1. a) such services have no direct or have insignificant effect, separately or as a whole, on the financial statements of the audit entity;
  2. b) impact assessment on the audited financial statements is duly documented and explained in the supplementary report sent to the audit committee of the client;
  3. c) audit entity adheres to the principles of independence established by this Law.
  4. The auditors may conduct training and research activities, prepare publications and receive the corresponding royalties.

 

Article 7. General conditions for providing audit services

  1. The audit services shall be provided under the contract for provision of the audit services concluded between an audit entity and a client.

The non-audit services may be provided under the contract, written or oral request of the client to the audit entity.

  1. The contract on the provision of the audit services shall include the subject, the scope of audit services, the amount and terms of payment, the liability of the parties and other conditions in accordance with the requirements of the legislation and the international standards on auditing.

The rights and obligations of the audit entity and the client in the provision of audit services are defined in the contract in accordance with the requirements of this Law and other legal acts.

  1. The client has the right to choose the audit entity freely in compliance with the requirements of this Law and other legal acts.
  2. The officials of the legal entity whose financial statements are audited shall create the appropriate conditions for the qualitative provision of the audit services to the audit entity in accordance with the requirements of this Law and other regulatory legal acts.

The officials of the legal entity, whose financial statements are audited, are responsible for the completeness and accuracy of the documents and other information that are provided to the auditor for provision of the audit services.

  1. Reports on the outcomes of the provision of the audit services shall be documented in accordance with the international standards on auditing and the requirements of this Law.

 

Article 8. Professional ethics

  1. The auditors and audit entities in the process of provision of the audit services shall ensure professional ethical behaviour observing the priority of public interests, general moral rules, principles of independence and objectivity, professional competence, confidentiality and professional secrecy.

 

Article 9. Professional scepticism

  1. The auditors and audit entities in the provision of the audit services shall observe the principle of professional scepticism, which includes the possibility of substantial distortion of information, which is disclosed in the financial statements, and revealed during the audit of facts or behaviour, which indicate the violations, including fraud or errors, regardless of the previous experience of the auditor and audit entity concerning honesty and integrity of the legal entity officials, whose financial statements are audited.
  2. The auditor and audit entity shall critically and doubtfully approach the applied by the legal entity estimates of fair value, impairment (reversal of impairment) of assets, provisions (reserves) and future cash flows that affect the assessment of the ability of a legal entity to continue its activities on an ongoing basis.

 

Article 10. Independence and objectivity of auditor and audit entity

  1. The auditor and audit entity have the right to provide audit services, review financial statements and perform other engagements on assurance provided that such an auditor, an audit entity, its owners (founders, members), officials and employees are independent from the entity, whose financial statements shall be audited, did not take part in preparation and making management decisions of such a legal entity. The requirement for ensuring the independence applies to the reporting period of financial statements, which shall be audited, and period of provision of audit services of such financial statements.
  2. The auditor and audit entity shall implement all the necessary measures to ensure independence in the process of provision of the audit services, in cases stipulated by the international standards on auditing, in particular the prevention of the existing or potential conflict of interests and the impact of contractual or other relationships, which involve the auditor, audit entity, audit network, owners (founders, members), officials and employees of the audit entity, other persons involved in providing audit services and persons related to the audit entity.
  3. The auditor and audit entity shall refrain from providing audit services in case of a threat to the moral principles, property interests, protection of personality and family relations, enforcement to perform certain actions as a result of financial, personal, contractual, labour and other relations between the auditor, audit entity, his audit network and another person that can influence the outcome of audit services and legal entities, whose financial statements are audited, as a result of which an objective, rational and informed third party, taking into account the applied precautions, may conclude that the independence of the auditor or audit entity was not kept.
  4. The provision of the audit services is prohibited, if the auditor, audit entity, its key audit partners, its owners (founders, members), officials and employees and other persons, engaged in the provision of such services, as well as close relatives and family members of the mentioned individuals:

1) are owners of financial instruments issued by the legal entity, whose financial statements shall be audited, or of the legal entity related to such a legal entity through common ownership, control and management, except those belonging to such a legal entity indirectly through collective investment institutions;

2) participate in transactions with financial instruments issued, guaranteed, or otherwise supported by the legal entity, whose financial statements shall be audited, except operations within the collective investment institutions;

3) were throughout the periods referred to in paragraph 1 of this Article in labour, contractual or other relationships with the legal entity, whose financial statements shall be audited, which may lead to conflict of interest.

  1. The auditor and audit entity shall ensure documentation in the working papers of all significant threats to their independence, and precaution measures taken to mitigate those threats.
  2. The auditor and audit entity do not have the right to demand or accept money or non-monetary gifts from the legal entity, whose financial statements shall be audited, or the legal person or natural person related to him through common ownership, control and management, except in cases and in the amount allowed according to the relevant legislation.
  3. In case of the reorganization of the legal entity during the reporting period for which financial statements that shall be audited have been prepared, the auditor and audit entity shall assess the impact of the mentioned operation on their independence and to ensure that there is an ability to conduct audit after the reorganization date. In case of the independence threat identification – during three months measures shall be implemented to eliminate them or refuse to provide services on the audit of financial statements.
  4. The auditor, key audit partner, officials and employees of the audit entity and other engaged persons that took part in providing services for the statutory audit of financial statements for at least one year, and in case of a statutory audit of financial statements of public interest entities – for at least two years, after providing the relevant services do not have right to:

1) occupy senior positions in the management body of the legal entity, which was provided services for the statutory audit of financial statements;

2) be designated a member of the Audit Committee of the legal entity that was provided services for the statutory audit of financial statements or, in case of the absence of such a committee, a member of the body that performs the relevant functions;

3) be designated (be elected) as a member of an administrative or supervisory body of the legal entity that was provided services for the statutory audit of financial statements.

Article 11. Confidentiality and professional secrecy

  1. According to the principle of confidentiality and professional secrecy auditors and audit entities shall keep confidential the information obtained in the process of providing audit services, not to disclose information to which they have access in the process of proving audit services and not to use it in their own interests or interests of the third persons. The principle of confidentiality and professional secrecy shall not impede enforcement of the provisions of thisLaw. The term of the obligation to keep confidentiality of information may be determined by the contract.
  2. If the legal entity replaced the audit entity on providing services for the statutory audit of financial statements, such an audit entity shall provide to the audit entity, with which a contract for provision of the relevant services was concluded, an access to the relevant information on such a legal entity and the last audit of its financial statements.
  3. If an audit entity provides audit services to a subsidiary undertaking of a group, whose parent company is a non-resident, the principle of confidentiality and professional secrecy shall not impede the transfer by the audit entity of the relevant documents, including other information containing bank secrecy and personal data regarding the performed work on the audit of financial statements to the auditor of the group if such documentation is required to perform the audit services.
  4. The audit entity that provides services for the statutory financial statement audit to a legal entity that issued securities in another country or that is a subsidiary undertaking of the group, which shall publish consolidated financial statements in another state, may transfer available working papers on the audit of financial statements or other documents related to such a legal entity to the competent authorities of the relevant states in case of compliance with the legislation of Ukraine.
  5. The information shall be transferred to the auditor of the group in another state in compliance with the legislation on the personal data protection.
  6. The auditor and audit firm shall not be subject to the disciplinary, administrative, civil and criminal liability for submitting to the central executive body that implements the state policy in the area of combating legalization (laundering) of the criminally gained income, terrorism financing and the financing of proliferation of weapons of mass destruction, information on the financial transaction, even if such actions harmed legal entities or natural persons, and for other actions if they acted pursuant to the Law of Ukraine “On prevention and counteraction to legalization (laundering) of the criminally gained income, terrorism financing and the financing of proliferation of weapons of mass destruction”.
  7. The auditor and audit firm shall not be subject to the disciplinary, administrative, civil and criminal liability for submitting to the National securities and stock market commission information on the professional stock market participant or issuer whose securities are admitted to trading on the stock exchanges or on whose securities the public offer was made, even if such actions harmed legal entities or natural persons.
  8. The audit working papers are the property of the audit entity. Access to the audit working papers, as well as information constituting professional secrecy is possible only on the basis of the court decision, except the cases of the quality control of audit services carried out by the authorized under this Law body, disciplinary proceedings, other cases as defined by the law, and voluntary consent of the audit entity.

 

Article 12. Independence and objectivity of the auditor in the process of audit

  1. The Members of the administrative, management and supervisory bodies, the owners (founders, members) of the audit entity and its related entities are forbidden to interfere in the auditor’s audit activities in a manner that violates his independence and threatens the impartiality of his opinion.

 

Chapter IІ PROFESSIONAL STANDARDS AND AUDIT REPORT

Article 13. International standards on auditing

  1. The auditors and audit entities shall carry out audit activities in accordance with the international standards on auditing.
  2. The international standards on auditing disclosed in the official state language on the official web page of the central executive body in charge of the development and implementation of the state policy in the area of accounting and audit, which is responsible for their update, shall be applied in the process of conducting audit activity. Besides, the executive body that is responsible for the development and implementation of the state policy in the area of accounting and audit may determine the date, starting from which the international standards on auditing shall be implemented.

 

Article 14. Audit report and other official documents

  1. The audit report provides assurance to users by expressing an auditor’s independent opinion on correspondence in all substantial aspects of financial statements and/or consolidated financial statements with the requirements of the national accounting regulations (standards), international financial reporting standards or other requirements.
  2. The audit report shall be signed by the auditor that performs the audit activity, as an individual-entrepreneur, or conducts independent professional activity in case of performing the audit individually, or at least a key partner in case of conducting audit by the audit firm. In case of simultaneous involvement of several audit entities, the audit report shall be signed by all auditors and at least by the key partner on behalf of the audit firms. The person, who signed the audit report, shall indicate the date of signature.
  3. The audit report issued on the basis of the statutory audit outcomes, at least, shall include the following information:

1) full name of the legal entity; structure of the financial statements or the consolidated financial statements, date and period they cover; indication according to which standards the financial statements or consolidated financial statements are drawn up (International Financial Reporting Standards or National Accounting Regulations (Standards), other regulations);

2) statement on the application of the international standards on auditing;

3) clearly expressed audit opinion – unmodified or modified (qualified opinion, adverse opinion or disclaimer of opinion) about whether the financial statements or consolidated financial statements in all substantial aspects trustworthy and  objectively disclose financial information in accordance with the International Financial Reporting Standards or National Accounting Regulations (Standards) and meet the requirements of the legislation;

4) any matters to which the audit entity considers appropriate to draw attention, but which did not affect the opinion expressed by the auditor;

5) opinion on the consistency of the management report (consolidated management report), which is prepared according to the legislation, with the financial statements (consolidated financial statements) for the reporting period; on the presence of substantial information distortions in the management report and their essence;

6) significant uncertainty, which may question the ability of the continuation of activity of the entity, whose financial statements are audited, on a continuous basis in case of presence of such an uncertainty;

7) basic information about the audit entity that conducted audit (full name, address, information on inclusion in the Register).

  1. The audit report prepared on the basis of the results of the statutory audit of the public interest entities in addition to the information, specified in paragraph 3 of this Article shall include the following information:

1) authority title that designated the audit entity to conduct the statutory audit;

2) date of the audit entity designation and the total period of time of performance of the audit engagement without interruptions taking into consideration the continuation of authority, if that happened, and repeated designations;

3) audit assessments that in particular shall include the following information:

  1. a) description and assessment of the risks concerning substantial information distortions in the financial statements (consolidated financial statements), which are being audited, in particular due to fraud;
  2. b) distinct reference to the relevant article or any other information disclosures in the financial statements (consolidated financial statements) for each description and assessment of risks of substantial information distortions in the financial statements, which are being audited;
  3. c) brief description of the measures taken by the auditor to mitigate such risks;
  4. d) basic cautions concerning such risks;

4) explanations of the audit performance with regard to violation identifications, including violations related to fraud;

5) confirmation that the audit report is consistent with the additional report for the audit committee;

6) statement on non-provision of the audit services prohibited by law and on the independence of key partner and audit entity from the legal entity during the audit;

7) information on the other provided by the auditor or audit entity services to the legal or controlled by him entities, except the statutory audit services, which is not disclosed in the management report or financial statements;

8) explanation on the audit scope and typical for the audit restrictions.

  1. In case if a statutory audit is conducted by several audit entities they shall agree on the outcomes of the statutory audit and submit a joint audit report. In case of failure to agree on positions each audit entity shall provide his opinion in a separate paragraph of the audit report including the appropriate justification.
  2. The National Bank of Ukraine, the National Securities and Stock Market Commission, the National Commission on State Regulation of Financial Services Markets may establish additional requirements for the information, which relates to the audit or review of financial statements and shall necessarily be included in the audit report based on the results of the statutory audit or in the review of the interim financial information, according to the International Standards on Auditing and also establish the requirements for the additional reports of the audit entities concerning legal entities that are subject to regulation.

 

Chapter IІІ PUBLIC OVERSIGHT OF THE AUDITING

Article 15. Organization of public oversight of the auditing

  1. All the auditors and audit entities are subject to public oversight.
  2. The audit public oversight body is responsible for the implementation of the public oversight of the audit profession in Ukraine.
  3. The audit public oversight body consists of the audit oversight Board (hereinafter – the Oversight Board) and Quality Assurance Inspection (hereinafter – Inspection).
  4. The audit public oversight Body ensures supervision and is responsible for the oversight of:

1) registration of auditors and audit entities;

2) introduction of the international standards on auditing;

3) control over the attestation of auditors and continuous training of auditors who carry out the statutory audit of financial statements;

4) quality control of the audit services provided by the audit entities carrying out the statutory audit of financial statements;

5) disciplinary proceedings against auditors and audit entities carrying out the statutory audit of financial statements;

6) application of penalties.

   Public oversight body reviews cases of administrative violations (including those appearing by users of financial statements) related to violation of the legislation in the part of failure to provide information to the Public oversight body in cases provided for by this Law and for non-disclosure of financial statements together with an audit report.(para 4 of article 15 of the Law)

  1. The Audit Chamber of Ukraine is delegated the following authorities provided that its organizational structure prevents conflicts of interest:

1) registration of auditors and audit entities;

2) control over the continuous training of auditors carrying out the statutory audit of financial statements, with the exception of the statutory audit of financial statements of public interest entities;

3) quality control of the audit services provided by the audit entity carrying out the statutory audit of financial statements, with the exception of the statutory audit of financial statements of public interest entities;

4) implementation of the disciplinary proceedings against the audit entities carrying the statutory audit of the financial statements, with the exception of the audit entities that carry out the statutory audit of the financial statements of the public interest entities.

  1. The audit public oversight Body in the manner prescribed by this Law, shall supervise the implementation of the delegated authorities by the Audit Chamber of Ukraine.
  2. In case of systematic failure of the Audit Chamber of Ukraine to fulfil decisions of the audit public oversight Body two or more times, emergence of a conflict of interest in the process of exercising by the Audit Chamber of Ukraine its authorities mentioned in paragraph five of this Article and allowance by the Audit Chamber of Ukraine of other violations of requirements established in subparagraphs 2-7 of paragraph six and paragraph seven of Article 47 of this Law the audit public oversight body shall initiate convocation of the extraordinary congress of auditors for the early termination of powers of members of the Board of the Audit Chamber of Ukraine. The decision on the early termination of the authorities of the members of the Board of the Audit Chamber of Ukraine and the decision on the delegation of the new members to the Board of the Audit Chamber of Ukraine shall be taken by the congress of auditors in accordance with the procedure established by this Law. At the same time, the members of the Board of the Audit Chamber of Ukraine, who were guilty of violations, which caused the convocation of an extraordinary congress of auditors, cannot be delegated to the Board of the Audit Chamber of Ukraine.
  3. To ensure supervision the audit public oversight Body has the right to:

1) obtain information on the auditor (audit entity) related to the execution by such an auditor (audit entity) of his professional duties;

2) receive from the legal and natural persons information on the auditor and audit entity related to the performance by the auditor (audit entity) of the professional duties, disclosure of the financial statements together with the audit report, and also on the implementation of the delegated authorities by the Audit Chamber Ukraine;

3) conduct on-site inspections of auditors and audit entities in terms of performance of their professional duties;

4) send materials about the identified violations to the law enforcement officers;

5) involve inspectors and experts to carry out inspections and disciplinary proceedings;

6) impose penalties on auditors and audit entities;

7) receive reports from the Audit Chamber of Ukraine and conduct inspections of the Audit Chamber of Ukraine to ensure that the delegated authorities are carried out in accordance with the requirements of the audit public oversight body.

8) review and revise decisions taken by the Audit Chamber of Ukraine within the areas of its performance of the delegated authorities;

9) issue justified recommendations for actions, which are necessary to be taken by the Audit Chamber of Ukraine for the purpose of proper execution of the delegated authorities.

  1. The members of the Oversight Board and Inspection employees shall follow the confidentiality regime regarding the information, which they may learn in the process of fulfilment of duties prescribed by this Law.
  2. The oversight Board members are subject to the legislation on preventing and combating corruption.
  3. The audit public oversight body shall be independent from the audit entities.
  4. If the oversight body engages experts to perform individual special tasks, they cannot participate in making any decisions. The involved experts shall not have conflict of interests concerning the auditor (audit entity) that is subject to the disciplinary proceedings or inspection.
  5. To ensure financing of activities of the audit public oversight body the audit entities shall pay under each contract for carrying out the statutory audit of the public interest entities the following fees in favour of the audit public oversight body:

1) fixed fee amounting to three minimum wages established by law as of January 1 of the reporting year under each audit report prepared by the audit entity based on the results of the provision of audit services for the statutory audit of public interest entities;

2) fee as a percentage of remuneration (excluding value added tax) under a contract for the provision of audit services for statutory audit of public interest entities, the amount of which is determined by the Cabinet of Ministers of Ukraine on the basis of the budget of the audit public oversight body, but cannot exceed 2 percent of the amount of such remuneration.

To ensure financing of the activities of the Audit Chamber of Ukraine audit entities shall pay such fees to the Audit Chamber of Ukraine under each contract for providing statutory audit services to other legal entities that are not public interest entities:

fixed fee amounting to 0.3 minimum wages established by law as of January 1 of the reporting year under each audit report prepared by the audit entity based on the results of the provision of the statutory audit services;

fee as a percentage of remuneration (excluding value added tax) under a contract for the provision of the statutory audit services, the amount of which is determined by the Audit Chamber of Ukraine, but cannot exceed the fee paid to the audit public oversight body by audit entities, which provide audit services for the statutory audit of public interest entities.

The fees stipulated by this Article shall be paid by the audit entity not later than the last day of the month following the month in which the audit report was prepared (dated).

The budget of the audit public oversight body is approved by the Cabinet of Ministers of Ukraine.

The budget of the Audit Chamber of Ukraine in part of the financing of delegated authorities shall be approved by the oversight board.

  1. The audit public oversight body is a non-profit legal entity of public law. The Charter of the audit public oversight body shall be approved by the central executive body that ensures formation and implements state policy in the area of accounting and audit.

Based on the decision of the Cabinet of Ministers of Ukraine:

1) authorized capital of the audit public oversight body may be established from the funds provided by the State Budget of Ukraine;

2) audit public oversight body may be given property that is a state property on the right of economic jurisdiction, use or management.

The audit public oversight body is entitled to receive technical assistance from foreign governments, their agencies and institutions, as well as international financial organizations in the form of targeted grants or otherwise in accordance with the relevant agreement. The audit public oversight body shall ensure individual accounting of such assistance and publish on the official website the information on the size and directions of use of such assistance in accordance with the procedure established by the central executive authority in charge of development and implementation of the state policy in the area of accounting and audit.

The audit public oversight body independently owns, uses and disposes the property owned by him based on the right of property ownership.

The sources of the formation of property and funds of the audit public oversight body may include:

  1. a) monetary contributions to the authorized capital;
  2. b) fees of auditors in accordance with this Law;
  3. c) funds raised on a non-refundable basis (except funds from audit entities), including funds received from foreign governments, their agencies and institutions, as well as international financial organizations;
  4. d) property acquired in accordance with the procedure established by legislation;
  5. e) other sources, which are not prohibited by legislation.

The property that is state property and is provided to the audit public oversight body on the right of economic jurisdiction for use or management is included in its assets, but it cannot be alienated in any way without the decision of the Cabinet of Ministers of Ukraine. Write-offs and transfers of the state property are carried out according to the legislation. The property specified in this paragraph is not included in the authorized capital of the audit public oversight body.

The audit public oversight body shall maintain accounting records, submit and publish financial statements prepared in accordance with the international financial reporting standards.

The annual financial statements of the audit public oversight body are subject to the statutory audit by an independent audit entity. The procedure for selection of an independent auditor is determined by the Cabinet of Ministers of Ukraine.

In case of liquidation of the audit public oversight body, all the funds remaining after satisfaction of creditors’ claims are directed to the State Budget of Ukraine.

  1. The state authorities and other entities do not have the right to interfere in the activities of the audit public oversight body in the process of carrying out its authorities defined by this Law.

The decision of the audit public oversight body regarding their illegality may be appealed in court.

  1. The organizational, technical and methodological support of the oversight Board is provided by the Inspection.

Article 16. The procedure for formation and functioning of the oversight Board.

  1. The oversight board consists of seven persons, one representative from each of the following institutions – the central executive body in charge of development and implementation of the state policy in the area of accounting and audit, the National Bank of Ukraine, the National Securities and Stock Market Commission, the National Commission on State Regulation of Financial Services Markets and three persons from among non-practitioners.

Three persons from non-practitioners are elected on the basis of the results of the competition based on the transparent procedure conducted by the nomination committee that is formed by delegating one representative from the central executive body in charge of development and implementation of the state policy in the area of accounting and audit, from the National bank of Ukraine, from the National Securities and Stock Market Commission, from the National Commission on State Regulation of Financial Services Markets, from the Audit Chamber of Ukraine and 3 representatives from the professional organizations of auditors and accountants who are members of the International Federation of Accountants.

Candidates for the election by members of the Oversight Board from among non-practitioners are proposed by the Audit Chamber of Ukraine, professional organizations of auditors and accountants and by self-nomination.

Each professional organization of auditors and accountants that is a member of the International Federation of Accountants may delegate not more than one representative. If the total number of delegated representatives exceeds three persons, the selection of representatives to the nomination committee is conducted by rating voting in the manner determined by the executive body in charge of development and implementation of the state policy in the area of accounting and audit.

If the professional organizations of auditors and accountants that are members of the International Federation of Accountants have delegated less than three representatives, the professional organizations of auditors and accountants that are not members of the International Federation of Accountants and have in their membership as full members at least 20 per cent of the total number of auditors included in the Register as of January 1 of the current year, may delegate not more than one representative from each professional organization. At the same time, the membership of the auditor may be considered only in one professional organization, at the choice of the auditor, which shall be noted by him in writing.

The professional organizations of auditors and accountants elect representatives to the nomination committee by rating voting in the manner determined by the Cabinet of Ministers of Ukraine.

The candidates to be a member of the oversight board from the non-practitioners shall have work experience in the area of audit, accounting, law, but not less than 10 years, and impeccable reputation.

The persons, who were members of the Audit Chamber of Ukraine established in accordance with the Law of Ukraine “On Auditing” for two or more terms cannot be elected to the oversight Board.

On the basis of the Oversight Board decision persons from among non-practitioners at the expense of the audit public oversight Body may be covered the working hours to perform the tasks defined by the oversight Board (except participation in the meetings of the oversight Board), travel costs and accommodation expenses related to the participation in the oversight board and performance of its tasks.

The composition of the oversight Board shall be approved by the central executive body in charge of development and implementation of the state policy in the area of accounting and audit on the proposal of the relevant authorities and on the basis of the competition results. Members of the Oversight Board may be only non-practitioners that have knowledge and/or work experience in the area of accounting, audit, law. The members of the Oversight Board are appointed for five years. One person cannot be appointed to the Oversight Board for more than two consecutive terms.

The Head of the Audit Chamber of Ukraine and the Executive Director of the Inspection may participate in the meetings of the Oversight Board as observers in an advisory capacity.

  1. The Head of the Oversight Board is elected from the members of the Oversight Board by a simple majority vote.
  2. The meetings of the Oversight Board shall be held not less regularly than once in every two months.
  3. The authorities of the Oversight Board include the following:

1) approval of the public0 report on the activities of the audit public oversight Body;

2) adoption of the Charter of the audit public oversight body and draft legal acts regulating auditing;

3) supervision over the activity of the Audit Camber of Ukraine in terms of the execution of its delegated authorities;

4) making decisions on the designation of inspection of the execution of the delegated authorities by the Audit Chamber of Ukraine;

5) approval and providing recommendations to the Audit Camber of Ukraine to eliminate identified violations in the activities of the Audit Camber of Ukraine in the process of its performance of the delegated authorities;

6) revision of decisions of the Audit Camber of Ukraine, which have been made by it in the framework of the implementation of the delegated authorities, making possible amendments and their cancellation in case of justification of the inappropriateness;

7) supervision over the Inspection;

8) holding competition and on the basis of its results appointment of the Executive Director of the Inspection;

9) making decisions to initiate disciplinary proceedings against auditors and audit entities;

10) making decisions on the imposition of penalties against auditors and audit entities;

11) making decisions on imposing administrative penalties in case of violation of the legislation in the terms of failure to provide information to the audit public oversight body in cases stipulated by this Law and the non-disclosure of the financial statements or consolidated financial statements together with the audit report;

12) participation of members of the oversight Board in the work of bodies of the Audit Chamber of Ukraine in the framework of supervision over the execution of the delegated authorities;

13) receiving information from the Inspection, Audit Chamber of Ukraine on issues within the competence of the Board;

14) approval of the schedule of quality control inspections that are planned to be carried out by the Inspection in cooperation with the Audit Chamber of Ukraine;

15) involvement of experts;

16) transfer of materials to the law enforcement officers;

17) approval of the budget of the audit public oversight Body and report on its execution;

18) approval of the budget of the Audit Chamber of Ukraine in the area of the financing of its performance of the delegated authorities.

19) review of the decisions of the Attestation Commission and, in the case of justification, their cancellation.

  1. The authorities of the oversight Board are defined by this Law and by the Charter of the audit oversight body in the framework of the authorities defined by the Law.

Article 17. Inspection formation and functioning

  1. The inspection is headed by the Executive Director, who is appointed by the oversight board for a term of five years. The Executive Director shall be non-practitioner that has work experience in the area of audit, accounting, law at least for 10 years, has impeccable reputation, does not have a conflict of interests. In the process of creating conditions of competition for the selection of candidates for the position of the Executive Director the Oversight Board may set additional requirements for candidates for this position. The Executive Director shall appoint and dismiss two of his deputies in agreement with the Oversight Board, and also inspectors and other officials of the Inspection under the labour legislation requirements. The Deputy Executive Director shall be a non-practitioner, who has experience in the area of audit, accounting, law at least for seven years, impeccable reputation, does not have a conflict of interests.

The Executive Director may be dismissed before the appointed time in case of: resignation; inability to exercise his authority because of health reasons; entry into force of the court verdict; imposition of administrative penalties for corruption offences; dismissal from the position based on the decision of the audit public oversight Body for violating requirements of this Law and Charter of the audit public oversight Body.

  1. The Inspection authorities shall include the following:

1) conduct quality control inspections of the audit services provided by the audit entities;

2) prepare a draft public report on the basis of the results of implementation of public oversight and conducting quality control inspections of the audit services and publication of the report approved by the Oversight Board;

3) inspect, prepare and make draft recommendations to the Oversight Board for improvements on the implementation of the delegated authorities by the Audit Chamber of Ukraine;

4) conduct inspections and implement penalties on behalf of the Oversight Board;

6) methodological provision of the professional qualification.

  1. The inspection activities shall be carried out in accordance with this Law and the Charter of the audit public oversight body. The Inspection authorities are defined by this Law and the Charter of the audit public oversight body in the framework of authorities defined by the law.
  2. The Inspection officials are subject to the legislation in the area of preventing and combating corruption.

Article 18. Disclosure of information on the activities of the audit public oversight Body

  1. The audit public oversight body shall disclose on a mandatory basis at least the following information:

1) annual reports on its activities;

2) annual work programs on its engagements;

3) plan-schedule of the annual inspections of quality control of audit services;

4) annual reports on the overall results of the quality assurance system. The report shall contain information about the conducted inspections, provided recommendations, verification of their implementation, taken measures and sanctions imposed. It shall also include information on the main indicators of budget execution of the audit public oversight Body and resources involved in the process of function performance;

5) information on the penalties imposed.

Chapter IV. ATTESTATION OF AUDITORS

Article 19. Attestation of auditors

  1. An auditor may be deemed a physical person, who:

1) has higher education;

2) confirmed the high level of theoretical knowledge and professional competence by successfully passing the relevant exams;

3) passed the practical training on conducting audit activity.

  1. The theoretical knowledge shall be confirmed in the following directions:

1) standards of professional ethics and professional independence;

2) international standards on auditing;

3) legal basis of auditing and methodology of the audit (professional skills);

4) risk management and internal control;

5) financial analysis;

6) management accounting;

7) international financial reporting standards;

8) accounting theory and legislative basis of accounting and financial reporting;

9) tax legislation and legislation on the unified social tax;

10) economic, civil and labour legislation;

11) corporate legislation and legislation on re-establishing debtor solvency or declaring it bankrupt;

12) information technologies and computer systems;

13) finance of the enterprises;

14) economics of the enterprise and statistics.

  1. The professional competence is confirmed by passing a qualifying examination, which shall certify the person’s ability to apply theoretical knowledge in practice.
  2. The persons, who during their education in higher education institutions studied subjects referred to in paragraph 2 of this Article, for a minimum amount of hours defined by the Attestation Commission according to the Procedure and successfully passed the examination, on the basis of the decision of the Attestation Commission may be credited confirmation of theoretical knowledge in the relevant subjects.

The persons, who have passed appropriate theoretical examinations in the areas specified in this Article in the professional organizations that are full members of the International Federation of Accountants, and these persons are members of those organizations or are in the process of gaining membership in those organizations, on the basis of the decision of the Attestation Commission are credited confirmation of theoretical knowledge.

  1. The auditors admitted to the statutory audit in any country of the European Union, who intend to work in Ukraine, shall pass an examination to confirm theoretical knowledge on Ukrainian legislation in areas such as auditing and accounting, tax legislation and legislation on the unified social tax, labour, civil, economic legislation, including corporate legislation, and legislation on re-establishing solvency of the debtor or recognition of it as a bankrupt.
  2. A person who has higher education and work experience as an accountant, auditor, lawyer, financier, economist, auditor assistant at least for 15 years or has experience at least for seven years on those positions and completed an internship in the manner determined by this Law may be attested according to the results of the qualifying examination.
  3. The qualifying examination and examinations on theoretical knowledge are held by the independent assessment centres accredited by the Attestation Commission.

The preparation for passing exams in accordance with the programs approved by the Attestation Commission may be conducted by higher educational institutions and other institutions, professional organizations of accountants and auditors. A candidate for auditor may independently prepare for the examination.

The entities mentioned in this paragraph based on the decision of the Attestation Commission prepare the assignments for the examinations.

However, preparation of candidates for examinations and the development of examination assignments in the same area by the same entity are not allowed.

  1. The attestation of auditors is carried out by the Attestation Commission.

The Attestation Commission consists of nine members and is established on the basis of delegating to its composition:

1) one person from higher educational institutions on the proposal of the central body of the executive power that ensures the state policy development in the area of higher education;

2) two persons from professional organizations of accountants and auditors that are members of the International federation of accountants;

3) one person from the Audit Chamber of Ukraine;

4) one person from each of the following institutions: National Bank of Ukraine, National Securities and Stock Market Commission and National Commission on State Regulation of Financial Services Markets, central executive body that ensures development and implementation of the state policy in the area of accounting and audit, central executive body that ensures development and implementation of the state policy in the area of economic development.

Each professional organization of auditors and accountants that is a member of the International Federation of Accountants may delegate not more than one representative. If the total number of delegates is more than two, the selection of representatives to the attestation commission shall be conducted by rating voting in the manner determined by the executive body in charge of the development and implementation of state policy in the area of accounting and audit.

If the professional organizations of auditors and accountants that are members of the International Federation of Accountants have delegated less than two representatives, the professional organizations of auditors and accountants that are not members of the International Federation of Accountants and have at least 20 percent of the total number of auditors as their full members that are included in the Register as of January 1 of this year, may delegate not more than one representative from each professional organization. At the same time, the membership of the auditor may be considered only in one professional organization, at the choice of the auditor, which shall be noted by him in writing.

The professional organizations of auditors and accountants elect representatives to the attestation commission by rating voting in the manner determined by the Cabinet of Ministers of Ukraine.

The Head of the Attestation Commission shall be elected from among its members by a simple majority vote of the total members of the Attestation Commission. The personal composition of the Attestation Commission is approved by the Head of the central executive body in charge of the state policy development in the area of accounting and audit.

The term of office of the members of the Attestation Commission is three years. The Regulation on the Attestation Commission shall be agreed with the audit public oversight body and approved by the order of the central executive body that ensures development and implements the state policy in the area of accounting and audit.

Logistical and methodical support of the Attestation Commission activity is carried out by the audit public oversight body.

  1. The competence of the Attestation Commission covers:

1) organization of development and submission for approval to the audit public oversight body of the draft procedure for passing exams, Procedure for internship, Procedure for continuous professional training of auditors, the Procedure for the theoretical knowledge credit, other regulatory legal acts on the issues of certification and professional training of auditors;

2) approval of the examination programs for candidates for auditors in the volume of at least training curricula of higher education institutions of IV level of accreditation;

3) organization of passing examinations;

4) approval of the examination results;

5) making decisions on examination credit in the cases foreseen in this Law;

6) consideration of appeals against examination results;

7) accreditation of the independent evaluation centres, centres for the preparation of examination assignments and appointment of persons for checking examination results;

8) development of the requirements for the legal entities that may carry out continuous professional training of auditors;

9) making decisions on the recognition of qualification eligibility of the person to conduct audit activities.

The unlawful decisions of the Attestation Commission of auditors, its actions or inactivity that limit or violate the rights of the legal entities or natural persons may be appealed to audit public oversight body or court.

  1. The procedure for examination passing (including evaluation methodology of qualifying exams, the procedure for distributing funds received in the form of exam fees) and the procedure for passing the internship shall be developed by the Attestation Commission and submitted for approval to the audit public oversight body, which, after approval, passes them for approval by the central executive body in charge of the development and implementation of the state policy in the area of accounting and audit.
  2. The examinations are conducted in writing or in electronic form adhering to anonymity and confidentiality.
  3. The fee is charged for passing examination in the amount of one minimum salary set at the beginning of the respective year. These funds are distributed only between the entities that carry out the preparation of exam assignments, independent knowledge assessment centres and persons checking examination papers in accordance with the approved procedure. In the case of examination credit, the fee is not charged.
  4. An examination passing certificate on theoretical knowledge and qualifying exam is issued on the basis of the decision of the Attestation Commission by the central executive body in charge of development and implementation of the state policy in the area of accounting and audit.

The certificate is valid for 5 years from the date of passing the qualifying exam.

A refusal to issue the certificate can be appealed to the court.

  1. A person who intends to be the auditor shall obtain practical experience in the area of auditing through employment/internship in an audit entity at least for three years in any period regardless of the date of receipt of the examination passing certificate on theoretical knowledge and qualifying exams.
  2. In case of availability of the valid examination passing certificate on theoretical knowledge and qualifying exam and positive characteristics on the basis of the results of acquiring practical experience in the audit entity, the Attestation Commission decides on the recognition of the qualification of a person to conduct the audit activity.
  3. The auditor shall comply with the requirements of continuous professional training.
  4. The procedure for continuous professional training of auditors shall be approved by the central executive body in charge of the state policy development in the area of accounting and audit.
  5. The continuous professional training of auditors may be conducted by:

1) legal entities that meet the requirements established by the Attestation Commission;

2) audit firms that have developed their own programs of continuous professional training recognized by the professional organizations – members of the International Federation of Accountants;

3) professional organizations of auditors and/or accountants.

 

Chapter V

REGISTRATION OF AUDITORS AND AUDIT ENTITIES

Article 20. Register maintenance

 

  1. The audit entities can provide audit services only after being included in the Register.
  2. The information in the Register is entered by the Audit Chamber of Ukraine.
  3. The register is public and is published and relevantly updated in Internet on the web page of the Audit Chamber of Ukraine. The information in the Register is open and public with free 24-hour access and copying.
  4. The registration number of the auditor and audit entity is individual and cannot be passed to other auditors and audit entities.
  5. For the Register maintenance it is allowed to process personal data of physical persons according to the legislation on personal data protection.
  6. The Register shall obligatory contain information about audit public oversight Body and the authority that was delegated the specific powers.
  7. The Registry maintenance procedure is defined by the central executive body in charge of the development and implementation of the state policy in the area of accounting and audit.
  8. The information entering in the Register is free of charge.

 

Article 21. Register sections and information to be disclosed in the Register

  1. The Register shall consist of the following sections:

1) auditors;

2) audit entities;

3) audit entities that have the right to conduct statutory audit of financial statements;

4) audit entities that have the right to conduct statutory audit of financial statements of the public interest entities.

  1. The register shall contain the following information on the auditor:

1) name, surname and patronymic of the auditor;

2) registration number in the Register;

3) registration numbers in the public registers of auditors of other countries (if available) indicating the name of the country and registration body;

4) date and number of the decision of the Attestation Commission recognizing professional qualification of the person to carry out audit activity or the number of the certificate of the auditor received before the date of the enactment of this Law;

5) auditor’s contact information (telephone numbers, email, web address if available);

6) name and registration number of the audit entities, within which he performs audit activities or with which he is linked through relations of partnership, participation and so on and contact information (location, telephone numbers, email, web pages of these entities).

  1. The register shall contain the following information on the audit entities:

1) name, legal form of organization for legal entities and surname, name and patronymic of the auditor who performs the audit individually specifying the forms of its implementation (physical person – entrepreneur or implementation of independent professional activity);

2) registration number in the Register;

3) identification code of the audit firm (for auditors, who carry out audit activity individually, registration number of the taxpayer’s registration card or passport series and number (not disclosed) (for natural persons, who, because of their religious beliefs refused to accept registration number of the taxpayer’s registration card, informed about this fact the appropriate income and tax authority and have a note in the passport on the right to carry out payments by series and passport number);

4) location of the audit firm and contact information (telephone numbers, email, web address if available);

5) contact information of the auditor who performs audit activities individually (telephone numbers, email, web address if available);

6) list of founders (members) of the audit firm, including surname, patronymic name (if available), country of citizenship, name, country of residence, location, identification number (not disclosed) if the founder is a legal person – share of each founder (member) in the authorized capital, contact information of each individual (telephone numbers, email);

7) information on management bodies of the audit firm, surname, name, patronymic, date of appointment (election) of persons, who are elected (appointed) to the management body of the audit firm, registration numbers in the Register (if available), contact information of each individual (telephone numbers, e-mail) elected (appointed) to the management bodies;

8) information on the number of auditors, who are employees of the audit entity, including their registration number in the Register;

9) information on separate divisions of the audit firm, including location, contact information (telephone numbers, email, web address if available);

10) registration numbers in public registers of the audit firms in other countries (if available) indicating the country and title of the registration body;

11) date and number of decision on passing inspection of the system of quality control of audit services (if available).

  1. Some Registry sections shall contain information on the audit entities that have the right to conduct statutory audit of financial statements and statutory audit of financial statements of public interest entities, in particular:

1) name and identification code (not disclosed) of the audit entity, registration number in the Register;

2) list of auditors who are employees, partners, participants or are otherwise involved in auditing, including surname, name, patronymic, registration number in the Register;

3) information on the audit network (in case of membership of the audit entity in the audit network);

4) date and number of decision on passing inspection of the system of quality control of audit services;

5) contract details for insurance of civil liability of the audit entity to the third parties, which conducts a statutory audit of financial statements, the validity of such a contract, information about the insurer and the insurance coverage.

 

Article 22. Submission of information to the Register

  1. The information which shall be disclosed in the Register is submitted to the Audit Chamber of Ukraine according to the form approved by the Audit Chamber of Ukraine and agreed with the audit public oversight Body. It is forbidden to require information not foreseen by this Law. The documents to confirm the information indicated by the auditor and audit entity during their entry in the register are not submitted, but the mentioned documents are stored by the auditor and audit entity and provided in case of inspection.
  2. The auditor or audit entity within the 30 calendar days from the date of change of the information disclosed in the Register or the information to be included in it according to the provisions of this Law shall send the relevant information (changes) to the Audit Chamber of Ukraine for their disclosure.
  3. An application of the auditor or official that according to the statutory documents manages the audit firm (or a person authorized by the head of the audit firm) on the inclusion of information (including amendments to the disclosed information) in the Register or exclusion of the auditor or audit entity from the Register shall be signed personally, the electronic signature is applied under the legislation provisions on electronic documents and electronic document flow. This application shall obligatory include the applicant’s declaration on the authenticity of the information, which is submitted for disclosure in the Register and awareness of the responsibility for the submission of false information or concealment of information, which shall be disclosed in the Register under the provisions of this Law.
  4. The documents which are submitted (sent by post mail or in electronic format) for publication in the Register shall be prepared in the official state language. The electronic documents are prepared according to the legislation requirements on the use of electronic documents and electronic document flow. An electronic document is deemed to have been received after the receipt by the applicant of the notification electronically on receipt of such an electronic document from the authorized person of the Audit Chamber of Ukraine that automatically after receiving from the applicant an electronic document shall send him e-mail notification confirming the receipt of the electronic document.
  5. If the documents are submitted to the Audit Chamber of Ukraine personally, the authorized official of the Audit Chamber of Ukraine immediately shall verify accuracy of the application and availability of all information. The relevant electronic document review is conducted during the full working day from the date of its receipt. In case of finding deficiencies in the document execution or lack of certain information documents shall be returned immediately after the verification including indication of deficiencies to be corrected. If deficiencies were not found, documents are accepted for inclusion in the Register.
  6. Entering information on the auditor and audit entity in the Register shall be made within three work days, during which the authorized person of the Audit Chamber of Ukraine shall verify the conformity of the provided information on the auditor or audit entity in the open (public) state registers. In case of inconsistencies between the submitted information and the information disclosed, the documents are returned with the indication of the specific inconsistencies. After receiving clarifications or eliminating inconsistencies documents are accepted for registration in the Register.
  7. The completeness, accuracy and timeliness of the information submission to the Register shall be checked during an inspection of the quality control system of the audit entity.
  8. In case of receiving information about the unreliability of information about the auditor or audit entity, disclosed in the Register, the Audit Chamber of Ukraine has the right to request clarifications or conduct inspection of the audit entity in terms of the completeness, accuracy and timeliness of information submission to the Register.
  9. In case of finding a minor violation of the requirements of this Law on the completeness, accuracy and timeliness of submitting information about the auditor or audit entity for disclosure in the Register the auditor or audit entity is applied a penalty in the form of warning.

In case of identifying substantial violation of the requirements of this Law on the completeness, accuracy and timeliness of submitting information about the auditor or audit entity for disclosure in the Register, the audit public oversight body upon the proposal of the Inspection or the Audit Chamber of Ukraine makes a decision to exclude the auditor or the audit entity from the Register. The decision may be appealed to the court.

The violation is considered to be substantial in case of intentional failure to submit information, late submission or submission of false information, which is subject to disclosure in the Register in accordance with the requirements of this Law, which caused misleading of the client of audit services and/or other persons regarding the compliance of the auditor or audit entity with the requirements for conducting statutory audit or statutory audit of public interest entities.

  1. The Audit Chamber of Ukraine shall conduct business description for each auditor and audit entity, which chronologically keeps all the information submitted by them for disclosure in the Register. After excluding an auditor or audit entity from the Register his business description is kept at least for 10 years.
  2. The exclusion of the auditor or audit entity from the Register is carried out on the basis of their own request or on the basis of the decision of the audit public oversight body, in case of a decision on liquidation of the audit entity, death of the auditor and in other cases stipulated by the Register Maintenance Procedure and by this Law.

If the auditor or audit entity systematically does not pay the fees defined by the paragraph thirteen of Article 15 of this Law and other fees or payments approved by the Congress of Auditors of Ukraine in accordance with Article 48 of this Law, the audit public oversight body upon the proposal of the Inspection or the Audit Chamber of Ukraine applies to the auditor or audit entity the penalty provided for in the paragraph six of Article 42 of this Law. The mentioned decision may be appealed to the court.

Chapter VI. SPECIAL FEATURES OF CONDUCTING STATUTORY AUDIT AND AUDIT OF THE PUBLIC INTEREST ENTITIES

 

Article 23. Requirements for the internal organization of the audit entities that have the right to conduct the statutory audit of financial statements

  1. An audit entity to provide services of the statutory audit of financial statements shall ensure:

1) independence and objectivity of the auditor and key partner in the process of  provision of audit services, in particular by implementing the relevant policies and procedures, and availability of a control system of their performance;

2) introducing the internal control system, registration procedures and recording of facts, information on which is subject to registering and disclosure under the provisions of this Law, internal control mechanisms, use of the risk assessment methods, measures and means for protection of the information processment systems;

3) possibility to inform the authorized person of the audit entity about the facts of violations of the requirements of this Law by its employees;

4) sufficient level of qualification and experience of auditors and personnel involved in service provision according to the international standards on auditing. The audit entity shall be the primary place of employment for at least three auditors. In the process of providing services of the statutory audit of financial statements of public interest entities (except those that meet the criteria for small enterprises), the audit entity shall be the primary place of employment for at least five auditors, the total staff of the regular qualified employees who are engaged, shall include not less than ten persons, and at least two persons from which shall confirm the qualification in accordance with the Article 19 of this Law or have valid certificates (diplomas) issued by the professional organizations that confirm their high level of knowledge of international financial reporting standards. The list of the professional organizations, the certificate (diploma) of which indicates a high level of relevant knowledge, shall be approved by the oversight Board;

5) sufficient level of employees at their primary place of employment to implement engagement to conduct the statutory audit of financial statements. In case of involvement in the provision of these services auditors and other employees who are not primary employees of the audit entity, the audit entity shall take measures to prevent the decrease in the quality of internal control. Participation of the employees of the audit entity, who work not on the primary place of employment, in the engagement to conduct the statutory audit of financial statements shall not affect the liability of the audit entity that has been assigned by the legislation and agreement with the legal entity to which the relevant services are provided;

6) implementation of the organizational and administrative mechanisms to prevent, identify, eliminate or manage and disclose any independence risks and threats;

7) implementation of internal policies and procedures of the engagement to conduct the statutory audit of financial statements, which in particular shall include mandatory instruction, supervision and inspection of work of auditors and other employees, requirements for making and volume of auditor’s working papers;

8) introduction of internal quality control systems of audit services. Responsibility for the organization and effective operation of internal quality control system lies with the head of the audit entity, at the same time he may appoint a responsible person, only from among the auditors, who are primary employees of the audit entity;

9) use of the abovementioned internal procedures, systems, arrangements and resources to ensure systematic and regular provision of the statutory audit services;

10) introduction of mechanisms of registration and resolution of unusual situations that have or may have significant consequences for the impartiality of activities of the auditors and key partners related to the provision of the services of the statutory audit of financial statements;

11) application of policy in the area of personnel remuneration that is involved in the statutory audit engagement, which shall provide incentives to ensure quality of the work. This remuneration received by the audit entities from the legal entity for services which are not related to the statutory audit of financial statements cannot by any means be considered when determining the amount of remuneration to auditors and other employees involved in the engagement to conduct the statutory audit of financial statements of this legal entity;

12) constant monitoring, evaluation of conformity and effectiveness of internal policies and procedures, internal control system, including annual evaluation of internal system of quality control and implementation of the appropriate measures to eliminate any deficiencies. An audit entity may involve professional organizations of auditors for the independent assessment of the internal quality control system. An audit entity shall store all information on the evaluation results of the effectiveness of internal control system and the implemented measures within seven years.

Article 24. Work organization on execution of engagement to conduct the statutory audit of financial statements

  1. In carrying out the engagement to conduct the statutory audit of financial statements the audit firm shall appoint at least one key audit partner, the choice shall be based on the criteria of ensuring audit quality, independence and competence. The audit firm shall provide the key audit partner with sufficient resources and personnel.

A key audit partner shall personally take an active part in the statutory audit engagement.

In the engagement to conduct the statutory audit of financial statements the auditor that performs the audit activity as an individual – entrepreneur or carries out independent professional activity shall spend enough time to the engagement and allocate sufficient resources that will allow him to perform his duties properly in accordance with the requirements of this Law and the international standards on auditing.

  1. 2. The audit entity shall ensure registration of the identified non-compliances with the requirements of this Law in its own practice, information disclosure on their consequences and the measures implemented in order to eliminate them, or improvement of the internal control system to prevent them in future. An audit entity shall annually draw up a report providing review of such measures for internal use.

If an audit entity asks for the external experts’ consultation, he shall document his application and received recommendations.

  1. 3. The audit entity shall maintain personal records for each legal entity, whose financial statements are audited, which shall at least contain:

1) name, location of such a legal entity;

2) in case of the audit firm – surname, name, patronymic of the appointed key audit partner;

3) amount of remuneration received for the statutory audit services and remuneration for other services in each financial year.

4.The audit entity shall ensure the preparation by an auditor, a key audit partner that performs the engagement to conduct the statutory audit of financial statements, of the auditor’s working papers for each engagement, which shall obligatory document data to assess independence, to the extent specified in Article 28 of this Law, applied procedures, opinions, grounds for the opinions, etc., and store (as defined in Article 39 of this Law) any other important information and documents to support the audit report and to monitor compliance with this Law and the other legal requirements.

The auditor’s working papers shall be finally prepared and moved to storage not later than 60 days after the signature date of the audit report.

  1. The audit entity shall keep records of all submitted written complaints about the provision of the statutory audit of financial statements.
  2. In the process of providing services for the statutory audit of the consolidated financial statements, a key partner of the audit of group:

1) is responsible for the audit report and additional report for the audit committee;

2) evaluates and verifies the outcomes of the audit of financial statements of subsidiaries and associated enterprises or other work performed by other audit entities, including in particular representatives from other countries, to conduct the audit of consolidated financial statements of the group and documents the nature, duration and scope of such work, outcomes of the verification of the auditor’s working documents confirming the outcomes of audit of subsidiaries and associated enterprises.

  1. The scope of the auditor’s working papers prepared by the key partner of the audit of a group, and the outcomes of the audit of consolidated financial statements shall at most disclose the work performed by the key partner. A key audit partner of the audit of a group may use in his work and include in the auditor’s working papers only those documents from the foreign audit entities concerning which they have consent to disclose information to the audit public oversight body.
  2. If a key partner of the audit of a group cannot documentarily confirm the outcomes of the audit of financial statements of a subsidiary and/or associated enterprise conducted by another audit entity, he shall implement the appropriate measures and inform the Inspection about this. Such measures shall include, depending on the situation, carrying out additional work over the engagement to conduct the statutory audit of the consolidated financial statements of the group or by involvement of the audit entities to re-audit the financial statements of the subsidiary and/or associated enterprise.
  3. A key partner of the audit of a group shall upon request of the Inspection or the Audit Chamber of Ukraine submitted by the Audit Chamber of Ukraine in order to perform the delegated authorities give them access to auditor’s working papers, including documents confirming the results of the audit of financial statements of the legal entity subsidiaries or any other work performed by the audit entities of the network of the audit firms, including foreign audit entities, except the cases where the provision of working papers or other documents contradicts the legislation.

 

Article 25. Limitations on the scope of the engagement to conduct the statutory audit of financial statements

  1. The engagement to conduct the statutory audit of financial statements shall not include the assurance services on the future legal capacity of the legal entity, whose financial statements are audited, and the effectiveness or efficiency of activity of its management bodies or officials on carrying out economic activities at present or in future.

Article 26. Remuneration for the services of the statutory audit of financial statements

  1. Remuneration of the audit entity for the provision of the services of financial statement audit to the legal entity shall not depend on the provision to the same legal entity non-audit services and also contractual relations or agreements not related to the provision of the services of financial statement audit.
  2. It is forbidden to set the amount of remuneration for the provision of the statutory audit of financial statements on the basis of the predetermined conditions before the results of the provision of audit services or outcomes of their use, in particular, depending on the opinions presented in the audit report.
  3. If an audit entity for three or more years in a row provides to the public interest entity, its parent company and/or subsidiary undertakings services which are not related to the statutory audit of financial statements, except those services, referred to in paragraph 4 of Article 6 of this Law, the amount of remuneration for such services shall not exceed 70 of the average amount of remuneration, which was obtained by the audit entity during the last three years in a row for the services of the statutory audit of financial statements (consolidated financial statements) from such a public interest entity, his parent undertaking and/or subsidiary undertakings.
  4. If the total amount of remuneration received from the public interest enterprise for each of the last three years in a row exceed 15 per cent of the total net income from providing services by such an audit entity of the statutory audit of financial statements, the audit entity shall inform about this fact the audit committee of the enterprise and implement measures to ensure the independence, agreed with the audit committee. However, the Audit Committee may decide to conduct control review of the engagement by another audit entity that according to this Law has the right to conduct audit of financial statements of the public interest entities before the approval of the audit report.
  5. It is forbidden to provide the services of the statutory audit of financial statements of the public interest entities, if the total amount of remuneration received from this entity annually exceeds 15 per cent of the total amount of the net income from providing services by such an audit entity during five years in a row.

Article 27. Restrictions on the provision of services

  1. An audit entity that provides the services of the statutory audit of financial statements to the public interest entity or member of the audit network to which the audit entity belongs does not have the right to directly or indirectly provide to this enterprise, its parent company (Ukrainian resident) and/or subsidiary undertakings (Ukrainian residents) services referred to in paragraph 4 of Article 6 of this Law.
  2. If an audit entity that provides services of the statutory audit of financial statements of public interest entities belongs to the audit network, other members of this audit network can provide to this entity, its parent company (Ukrainian resident) and/or subsidiaries (Ukrainian resident) services, which are not related to the audit of financial statements, except services referred to in paragraph 4 of Article 6 of this Law, subject to the relevant approval by the audit committee and implementation of measures on the basis of evaluation of threats to independence.
  3. If a member of an audit network, to which the audit entity belongs, that provides services of the statutory audit of financial statements of the public interest entities, provides services referred to in paragraph 4 of Article 6 of this Law, to non-resident, which is a parent company and/or subsidiary undertaking of the public interest entity, financial statements of which are audited, such an audit entity shall conduct in connection with this assessment of the threats to independence. An audit entity may continue the engagement for the statutory audit of financial statements of public interest entities only if it can be proved that the services provision by the audit network member to the parent company (non-resident) and/or subsidiary undertaking (non-resident) of this entity does not affect the independence of the audit entity, his professional opinion and the audit report.
  4. The restrictions on the provision of services referred to in paragraph 4 of Article 6 of this Law defined by this Article shall be effective from the beginning of the reporting period of the financial statements, which are audited by the audit entity, up to the date of signing the audit report. At the same time, for the services of development and implementation of internal control procedures, the period of restrictions of the provided services extends to the financial year preceding the reporting period of the financial statements, which are audited by the audit entity.

 

Article 28. Evaluation of the threats to independence

  1. Prior to the engagement for the statutory audit of financial statements an audit entity, a key audit partner and auditors that directly or indirectly will carry out the engagement for the statutory audit of financial statements of a legal entity shall assess threats to independence, that is to assess and document:

1) compliance with the independence requirements stipulated by this Law;

2) threats to independence and implemented precautionary actions to mitigate the risk of their occurrence;

3) sufficiency of auditors and other personnel, time and resources required for implementation of the full range of procedures to implement engagement for the statutory audit of the financial statements;

4) compliance of the key audit partner and auditors that will be involved in the statutory audit engagements with the requirements of this Law.

  1. When providing services of the statutory audit of financial statements of the public interest entity, the audit entity, the key audit partner, the auditors that will be involved in the audit engagement, in addition to the requirements referred to in the first paragraph of this Article shall evaluate and document information on:

1) meeting the requirements defined by this Law on the remuneration establishment for the statutory audit services, compliance with the restrictions in providing services not related to the statutory audit and the duration of the period of providing services of the statutory audit to the public interest entity;

2) honesty and integrity of the officials of the management bodies and supervisory bodies of the public interest entities, whose financial statements are audited.

  1. An audit entity that provides services for the statutory audit of financial statements of public interest entities shall annually provide confirmation in writing to the audit committee of such an entity that an audit entity, a key audit partner, auditors that are involved in the process of the relevant audit engagement are independent from this enterprise. An audit entity shall inform the audit committee of the public interest entity, whose financial statements are audited, about the threats to independence and to agree on measures that will be applied to mitigate the risk of their occurrence.

 

Article 29. Appointment and removal of the audit entity from the provision of services of the statutory audit of financial statements

  1. The audit entity for the provision services of the statutory audit of financial statements shall be appointed by the general meeting of the stock company, the general meetings of participants, founder in the non-state unitary enterprises, management body in agreement with the central executive body in charge of development of the state financial policy of the state (municipal) enterprises and business entities where the state owns 100 per cent of shares (stocks) of the authorized capital, other supreme governing body according to the legislation and foundation documents. The audit entity that meets the requirements established by this Law and is included in the relevant section of the Register may be appointed for the provision of the statutory audit of financial statements.

If the general meeting of the stock company, members of a business entity cannot take place due to lack of quorum, the decision to appoint an auditor may be taken by the supervisory board of such an entity. If the supervisory board is not formed or its establishment is not required by the legislation provisions, the decision to appoint the audit entity may be taken by the executive body of such an entity.

  1. It is prohibited to establish in the agreements between the legal entity, whose financial statements are subject to audit, and a third party requirements or criteria to the audit entities that can be appointed to provide the services of the statutory audit of the financial statements of this legal entity, or indicate a list of audit entities which can be chosen, or the name of a particular audit entity. The provisions of such an agreement limiting the choice of the audit entity appointment for the provision of statutory audit services of the legal entity are worthless.

The public interest entity shall immediately inform the Inspection about the attempt of the third party to establish these mentioned contractual provisions or otherwise influence appointment of the audit entity.

  1. The public interest entities shall run a contest for the selection of the audit entities that may be appointed to provide services of the statutory audit of financial statements of this enterprise. The competition is open for participation of the audit entities that meet the requirements established by this Law to the audit entities that can provide services for the statutory audit of financial statements of public interest entities, are included in the relevant section of the Register, remuneration of which for the previous financial reporting period from each of the public interest entities that were provided services of the statutory audit of financial statements during this period did not exceed 15 per cent of the total amount of income from the provision of audit services and which have no restrictions associated with the duration of the provision of services to this enterprise.

To hold a competition the public interest enterprise shall develop and disclose the procedure of conducting it and unambiguous clear and non-discriminatory criteria for selecting at least two audit entities that are presented for consideration to the bodies that appoint audit entities for the provision of the services of statutory audit of financial statements.

The audit entities wishing to participate in the competition, are provided free of charge the tender documentation, which reveals information about the public interest entity activity and describes engagement to conduct the statutory audit of financial statements.

  1. The responsibility for the competition lies with the audit committee of the public interest enterprise or another body (department) entrusted with the relevant functions. The Audit Committee or another body (department) entrusted with the relevant functions shall evaluate the competitive bids submitted by the audit entities on the basis of the established selection criteria and prepare a report on the conclusions of the selection procedure. The results of the quality control of services provided by the audit entities participating in the competition are taken into account. On the basis of the competition outcomes the Audit Committee shall present justified recommendations on the appointment of the audit entity (entities) for the provision of the services of the statutory audit of financial statements, which shall include at least two proposals for the selection of audit entity for the statutory audit of financial statements.
  2. The public interest entity shall provide upon the request of the Inspection, confirmation of compliance with the selection procedure and transparency of competition and the development of recommendations of the Audit Committee.
  3. The management or supervisory body shall develop propositions to the body mentioned in paragraph one of this article on the appointment of the audit entity (entities) to provide services of the statutory audit of financial statements, which shall include recommendations of the audit committee or body entrusted with the respective functions, and also justified recommendations for selecting one audit entity or group of audit entities that will jointly provide audit services. If the propositions of the management body or supervisory authority do not take into account the recommendations of the audit committee, the justification of the appropriate proposals shall be given. However, an audit entity proposed by the management or supervisory body shall be among the audit entities that took part in the competition and meet the requirements mentioned in paragraph three of this Article.
  4. If in the framework of the legal entity a separate committee on the appointment of auditors was established, in which representatives of its owners (founders) have a decisive influence and which is entrusted to make recommendations on the selection of audit entity for the provision of statutory audit services, this Committee may perform functions of the audit committee.
  5. The public interest entities before signing the contract for the audit of financial statements shall inform on the audit entity that will provide those services the relevant state body, to which under the legislation provisions the financial statements shall be submitted together with the audit opinion. The form of this notification is established by such a state body.
  6. The audit entity can be removed from the engagement to conduct the statutory audit of financial statements before the end of the term specified in the contract with the management body of the legal entity to which the relevant audit services are provided. The removal of the audit entity from the performance of the statutory audit engagement may be made by the management body on the basis of sufficient substantiated evidence of violation of the requirements of this Law by the audit entity. Discrepancies in opinions on accounting and information disclosure in the financial statements and audit procedures are not grounds for removal of the audit entity from the statutory audit engagement.
  7. The legal entities whose financial statements are audited, and audit entities that performed the statutory audit engagement, shall inform the Inspection about removal of the audit entity from the engagement to conduct the statutory audit of financial statements before the completion of the implementation term of the assignment defined by the contract indicating the grounds and all the necessary explanations.
  8. The owners of 5 or more per cent of shares (stocks) of the authorized capital of public interest entities, the supervisory body of this enterprise, Inspection, the relevant state body, to which under the legislation provisions the financial statements shall be submitted together with the audit opinion, may apply to the court with a request to the management body to remove the audit entity if there are facts of violation of this Law.

 

Article 30. Duration of engagement to conduct the statutory audit of financial statements of public interest entities

  1. The public interest entity shall appoint an audit entity for the implementation of the first engagement to conduct the financial statement audit at least for a year. Duration of such engagement may be extended. At the same time, engagement duration of the financial statements statutory audit for the audit entity cannot exceed 10 years.
  2. After expiration of maximum duration of engagement to conduct the statutory audit of financial statements defined in the first paragraph of this article, or after the expiration of the engagement duration extended according to the paragraph four of this article, an audit entity, or, where appropriate, the members of its network shall not provide services for the statutory audit of financial statements to the same public interest entity within the next four years.
  3. The maximum duration of the engagement to conduct the statutory audit of financial statements can be extended, but not longer than for the term specified in the paragraph four of this article only if based on the recommendation of the audit committee the management body offers the body that under this Law is responsible for appointing the audit entity to extend the engagement and this proposition is approved.
  4. After the expiration of term of audit engagement identified in the paragraph one of this article the public interest entity may extend duration of the audit engagement performed by the audit entity:

1) for ten years on the basis of the results of the open competition for the selection of the audit entity conducted according to the provisions of this Law;

2) for fourteen years if the performance of the audit engagement simultaneously includes not one, but several audit entities, provided that on the basis of  the statutory audit results a joint audit report is submitted.

  1. The key audit partners responsible for carrying out the statutory audit of financial statements shall cease their participation in the statutory audit of financial statements of the public interest entities not later than seven years from the date of their appointment. They shall not again be involved in the statutory audit engagement of this enterprise for the subsequent three years.

The audit entity shall ensure rotation of auditors involved in the engagement to conduct the statutory audit of financial statements. The gradual rotation mechanism shall be applied in stages to specific individuals, but not to the whole group that implements the assignment.

  1. For the purposes of this Article, the duration of the engagement to conduct the statutory audit of financial statements is calculated starting from the first financial year according to the agreement to conduct audit, under which the audit entity is first appointed to implement statutory audit engagement of one and the same public interest enterprise.

For the purposes of this article, the audit entity shall involve other audit entities that joined him during the reorganization.

If there is uncertainty as to the date on which the audit entity commenced the statutory audit engagement in connection with its reorganization processes or changes in the ownership structure, such an audit entity shall immediately inform the Inspection, which ultimately determines the relevant date.

 

Article 31. Identification of violations

  1. If the auditor or the key partner in the engagement to conduct the statutory audit of financial statements of the public interest entities has reasonable grounds for suspecting that violations may have occurred or have occurred, including in particular fraud in the financial statements of such an entity, he shall inform about them the management body of the entity and to encourage the management body to investigate this issue and implement appropriate measures to eliminate these violations and prevent their recurrence in the future.
  2. If the public interest entity does not investigate this issue, the audit entity that provides to such an entity services of the statutory audit of financial statements shall inform about this the authority that under the legislation provisions supervises activities of the relevant public interest enterprise.

Submission by the audit entity of such information is not a violation of contractual or legal restriction on the information disclosure.

  1. The auditors and audit entities shall submit according to the established procedure and in cases foreseen by the Law of Ukraine “On prevention and counteraction to legalization (laundering) of proceeds from crime, terrorist financing and the financing of proliferation of weapons of mass destruction,” information to the central executive body that implements the state policy in the area of combating legalization (laundering) of proceeds from crime, terrorist financing and the financing of proliferation of weapons of mass destruction, and to the central executive body in charge of the development and implementation of the state policy in the area of prevention and counteraction to legalization (laundering) of proceeds from crime or terrorist financing.

 

Article 32. Requirements for the internal quality control of the performed engagement of the financial statement audit

  1. The internal quality control of the performed engagement for the statutory audit of financial statements of the public interest entities shall be conducted before the submission of an audit report and an additional report for the audit committee of the public interest entity.
  2. The internal quality control of the performed engagement shall be carried out by the reviewer, who is appointed from among the auditors that are not involved in the engagement for the statutory audit of financial statements, the review of which is carried out. If the audit entity does not have an auditor who was involved in the performance of the statutory audit engagement, then for the overview of the performed engagement an auditor can be involved, who is not linked with such an audit entity by the labour relations. In this case, disclosure of the working papers or information to the reviewer does not mean violation of professional secrecy. The working papers and information disclosed to the reviewer makes his professional secrecy.
  3. In the process of the review of engagement of the financial statement audit the reviewer shall document at least:

1) oral and written information provided by the auditor or key audit partner, to confirm substantial judgments and the main results of the conducted audit procedures and conclusions made on the basis of these results upon request or without the request of the reviewer;

2) opinion of the auditor and key audit partner stated in the draft audit report and additional report for the audit committee.

  1. In the framework of the review of engagement of the financial statement audit at least the following information shall be assessed:

1) independence of the audit entity from the legal entity whose financial statements are audited;

2) significant risks identified by the auditor or the key audit partner in the framework of the engagement for the statutory audit of financial statements and the implemented measures on the relevant management of these risks and justification of the level of their significance;

3) applying for expert advice and implementation of their recommendations;

4) nature of the distortion and volume of the corrected and uncorrected invalid information in the financial statements identified during the audit;

5) topics discussed with the audit committee, officials of the legal entity whose financial statements are audited;

6) topics discussed with the competent authorities and, where appropriate, with other third parties;

7) confirmation through documents and information selected by the reviewer from the auditor’s working papers, opinion of the auditor or the key audit partner stated in the draft audit report and additional report for the audit committee.

  1. The reviewer shall discuss the results of the internal quality control of the performed engagement for the financial statement audit with the auditor or the key audit partner. The audit entity shall establish procedures for the settlement of discrepancies between the findings of the key audit partner and reviewer.
  2. The audit entity and reviewer shall document the results of the internal quality control of the performed engagement for the financial statement audit including judgments on which these results are based.

 

Article 33. Requirements for termination of the provision of services for the statutory audit of financial statements

  1. If the audit entity ceases to provide services for the statutory audit of financial statements to the public interest entity, it shall continue to meet the requirements for confidentiality and professional secrecy.
  2. The audit entity that ceases to provide services for the statutory audit of financial statements to the public interest entities shall provide the assigned audit entity access to the additional reports for the audit committee, reports for the supervisory bodies of the public interest entity, transparency reports for the previous years.

 

Article 34. Audit Committee

  1. The large enterprises shall establish an audit committee or entrust appropriate functions to the revision commission or the supervisory Board that is established according to the legislation provisions.
  2. Other enterprises, which are public interest entities, may entrust the functions of the Audit Committee to a separate division of the management body or the supervisory authority.
  3. Most members of the Audit Committee of the public interest entities (in case of its establishment) cannot be connected with such entities. The head of the audit committee shall be appointed among the independent members. The officials of the entity`s management bodies shall not be members of the audit committee.
  4. At least one member of the Audit Committee shall be competent in the area of accounting and/or audit.
  5. The Audit Committee of the public interest entity or the body (division) which performs the respective functions shall ensure:

1) informing the general meeting of shareholders (members) or representatives of another senior management body according to the legislation provisions, management body or the supervisory authority of the enterprise about the results of the statutory audit of financial statements;

2) monitoring the process of the financial reporting preparation and provision of recommendations and propositions to ensure the validity of information;

3) assessment of the effectiveness of systems of internal control (internal audit according to the international standards of professional practice of internal audit) and risk management of the enterprise;

4) monitoring assignment implementation of the statutory audit of the financial statements;

5) assessment of the independence of audit entities that provide statutory audit services;

6) holding the transparent competition for the selection of an audit entity and justification of recommendations on the basis of its results.

Article 35. Additional report for the Audit Committee

  1. The audit entities that provide services for the statutory audit of financial statements of the public interest entities shall submit additional report to the audit committee or body (subdivision) which performs the relevant functions, not later than the date of submission of the audit report.
  2. The additional report for the Audit Committee shall reveal the results of statutory audit engagement performance and, at least, shall include:

1) statement about independence;

2) name, surname and patronymic of the key audit partner (partners) and auditors involved in the engagement performance (in case of an audit firm);

3) information disclosure of the involvement of external experts and other audit entities and confirmation of their independence from the legal entity whose financial statements are audited;

4) information on cooperation and information exchange with the audit committee or the body (division), which performs the relevant functions, with officials of the management body and the supervisory authority of the legal entity, including identification of the dates and list of items that were discussed;

5) information on the scope and terms of the performance of the statutory audit assignment, used resources;

6) distribution of assignments between audit entities in the process of appointment of more than one audit entity if the statutory audit is conducted jointly;

7) disclosure of information about the used methodology of the financial statement audit, including in particular all significant deviations in comparison with the previous year, even if in the previous year the statutory audit assignment was carried out by another audit entity;

8) significance level that was applied during the performance of the engagement of the statutory audit of financial statements as a whole, and, where appropriate, level or levels of significance for particular classes of transactions, articles of financial statements, disclosure of other information as well as qualitative factors shall be mentioned, which are taken into account in determining the level of significance;

9) opinion on the identified events or circumstances in respect of which there may be significant doubts about the ability of the legal entity to continue its activity on a continuous basis and whether they create significant uncertainty and summary on the implemented and expected support measures that are taken into account in the opinion on the client’s ability to continue its activity on a continuous basis and whether they create significant uncertainty;

10) information about the identified significant deficiencies in internal control system and/or accounting system, including statement whether these mentioned deficiencies were or were not corrected;

11) information on the revealed facts or justified suspicions of violation of the legislation or provisions of the foundation documents;

12) description of the applied assessment methods of different groups of assets and liabilities, including disclosure of relevant changes;

13) explanation of the scope of consolidation and criteria for non-inclusion of subsidiaries in the consolidation;

14) description of the work performed by the involved foreign audit entity that is not a member of the audit network;

15) information on the provision of the legal entity’s officials with all the necessary requests, clarifications and documents;

16) notification on:

any significant difficulties encountered during the implementation of the statutory audit assignment;

any significant issues that were discussed with officials of the legal entity, whose financial statements are audited;

other issues that may affect the quality of financial reporting.

  1. Upon the request of the audit entity, audit committee, management body of the legal entity or supervisory body the audit entity shall discuss the main issues arising in connection with the engagement performance of the statutory audit referred to in the additional report for the audit committee, with the audit committee or the body (division), which performs the relevant functions, management body or, where appropriate, supervisory authority of the legal entity.
  2. If the statutory audit assignment is performed jointly by several audit entities, in case if any disagreement arises between them on the audit procedure, accounting rules or any other issue, the reasons for these discrepancies shall be explained in the additional report for the Audit Committee.
  3. Additional report for the Audit Committee is executed in the order established for making the audit report.
  4. Upon the request of the audit public oversight Body and other state bodies, to which financial statements and auditor`s report are submitted, the audit entity or the audit committee or the body (division), which performs the relevant functions, shall submit the additional report.

Article 36. Report for the supervisory authorities

  1. The audit entity that provides statutory audit services to the public interest entity shall inform the supervisory body, which according to the legislation supervises such an entity the following information:

1) violation of the legislation in the framework of the supervisory body competence;

2) substantial threat or doubts about the possibility of the entity to continue its activity on a continuous basis;

3) refusal from the expression of the opinion or provision of negative or modified opinion.

The audit entity shall inform about any information regarding the issues specified in paragraphs 1-3 of this part, which he learns in the process of performance of the statutory audit engagement of the legal entity that has close links to the public interest entity, the statutory audit of the financial statements of which it also conducts. For the purposes of this paragraph, the definition “close links” shall mean a situation, in which two or more natural or legal persons are associated in any of the following ways:

1) participation in the form of ownership directly or through the control of 20 or more per cent of the shares, which have the voting right, or the authorized capital of the enterprise;

2) control;

3) constant link of two or more persons to one and the same third person by control.

  1. The National Bank of Ukraine, the National Securities and Stock Market Commission and National Commission on State Regulation of Financial Services Markets shall implement a mechanism of interaction with audit entities that carry out the statutory audit of financial statements of the public joint stock companies and issuers of securities, whose securities are admitted to the stock exchange trading or concerning whose securities the public offering is made, banks, insurance and financial institutions.
  2. The disclosure in accordance with this article, by the audit entity or audit network to the supervisory bodies of the relevant information is not a violation of the contractual or legal restriction on information disclosure.

Article 37. Transparency report

  1. The audit entity that provides the services of the statutory audit of financial statements of the public interest entities shall publish a transparency report for the previous year not later than on the 30th of April of the year following the reporting year. This transparency report shall be published on the website of the audit entity and be available on this website for at least seven years from the date of its publication.

The audit entity may introduce changes in the published transparency report. In such a case, it shall be indicated that this is the corrected variant of report, and the original variant of report remains available on the web site.

          The audit entity shall inform within 30 working days from the date of the occurrence of the event the audit public oversight body that the transparency report is published on its website and/or about amendments.

  1. The transparency report shall include at least the following information:

1) description of the organizational and legal structure and ownership structure of the audit firm;

2) if the audit entity is a member of the network:

characteristics of network and organizational, legal and structural mechanisms of the network;

name of the audit firms (or surname and name of each auditor, who works independently) that are members of the audit network, as well as the state in which they are registered;

net income received by the network for the provision of services of the statutory  audit of financial statements;

3) description of the management structure of the audit firm;

4) description of the internal quality control system and statement of the management or supervisory body about its effectiveness;

5) information on the date of the last external inspection of the quality control system;

6) list of public interest entities, which were provided the services of the statutory  audit  of financial statements in a previous financial year;

 7) information on practice of ensuring independence, and also confirmation of  conducting internal review of the compliance with independence;

8) information on the continuous training of auditors;

9) information on the principles of remuneration of key partners;

10) description of the rotation policy of the key audit partners and auditors  involved in the statutory audit engagement;

11) information concerning:

revenues from the provision of services of the statutory audit of financial statements of public interest entities and entities belonging to the group of companies, the parent company of which belongs to such enterprises;

revenues from the provision of the statutory audit of financial statements of other legal entities;

revenues from the provision of permitted non-audit services to the public interest entities;

revenues from the provision of non-audit services to the other legal entities.

12) information on the audit entity affiliates.

The transparency report shall be prepared in writing and signed by the audit entity director.

Article 38. Information for the audit public oversight Body

  1. The audit entity shall annually by the 30th of April of the year following the reporting year submit to the audit public oversight Body the list of public interest entities which were provided the statutory audit services disclosing information about:

revenues from the provision of services of the statutory audit of financial statement to the public interest entities;

revenues from the provision of other services to these enterprises.

Article 39. Storage of documentation

The audit entity shall store all the working documents and all reports for at least seven years from the date of the completion of the engagement to conduct financial statement audit or their creation in case if the engagement is not completed.

CHAPTER VII. QUALITY ASSURANCE OF AUDIT SERVICES

Article 40. Audit service quality control

  1. The audit service quality control of the audit entities shall be carried out through the quality inspection of audit services of the audit entities for compliance by them with the international standards on auditing, the independence principle, effectiveness of the internal quality control systems of audit services, the requirements of this Law.
  2. The quality control system of audit services consists of policies and procedures developed and implemented by the audit entities in accordance with the international standards on auditing.
  3. The statutory quality control of audit services shall be carried out concerning:

1) audit entities that provide services of the statutory audit of financial statements of large enterprises, banks, professional stock market participants and issuers whose securities are admitted to trading on stock exchanges or concerning whose securities a public offer was made – once every three years;

2) audit entities that provide services of the statutory audit of financial statements, except audit entities referred to in subparagraph 1 of this paragraph – once every six years.

  1. The audit service quality control of the audit entities that have the right to conduct statutory audit of financial statements of public interest entities shall be carried out by the Inspection.

 The audit service quality control of the audit entities that provide services of the statutory audit of financial statements (except audit entities that have the right to conduct the statutory audit of financial statements of public interest entities) shall be conducted by the Audit Chamber of Ukraine.

The audit service quality control of the audit entities that do not provide services of the statutory audit of financial statements of public interest entities shall be conducted on their own initiative by the Audit Chamber of Ukraine.

  1. In order to organize the audit service quality control the Inspection shall:

1) develop and submit for consideration to the oversight Board the procedure for carrying out the quality control inspections;

2) develop recommendations for conducting the quality control inspections;

3) approve the annual plans-graphics of conducting the quality control inspections;

4) appoint inspectors to conduct the quality control inspections;

5) approve reports on the basis of the results of the quality control inspections;

6) approve recommendations to eliminate weaknesses of the internal quality control system revealed on the basis of the results of the inspections;

7) prepare proposal to the oversight board on the application of penalties on the basis of the results of the quality control inspections.

  1. For the purpose of carrying out quality control of the audit services the Audit Chamber of Ukraine shall:

1) participate in the development of the Procedure for the quality control inspections;

2) develop recommendations for the quality control inspections;

3) develop annual plans-diagrams of quality control inspections and submit them for approval to the audit public oversight body;

4) establish in its structure the Committee for the quality control of the audit services;

5) approve reports on the basis of the results of the quality control inspections;

6) approve recommendations to eliminate deficiencies of the internal quality control system identified on the basis of the inspection results;

7) apply penalties to the audit entities (with the exception of the audit entities that have the right to conduct the statutory audit of financial statements of public interest entities).

  1. The Inspection and the Audit Chamber of Ukraine shall implement policies and procedures in the area of independence of inspectors and ensure prevention of conflicts of interest.
  2. The quality control inspections shall be carried out by inspectors, who are officials of the Inspection, and employees of the Committee for the quality control of the audit services of the Audit Chamber of Ukraine. An inspector may be an appointed person, who meets the following criteria:

1) is an auditor with the work experience of at least five years;

2) ceased activity of the audit service provision individually or as part of the audit entity;

3) upgraded qualification through passing a relevant training program approved by the attestation Commission.

Before the beginning of the quality control inspection the inspector shall declare the absence of a conflict of interest between him and the inspected audit entity.

The inspector may carry out the audit entity inspection with which he was bound by labour relations or relations of ownership, control etc., not earlier than three years after the termination of such relationships.

  1. The Inspection and the Audit Chamber of Ukraine may involve experts in the process of conducting the quality control inspection of the audit entity. In this case, experts shall meet the independence requirements established for inspectors.
  2. The quality control of the audit services involves the internal procedure testing, inspection of the working papers, audit reports and other reports, contracts for the provision of audit services, internal regulatory acts of the audit entity that define policies and procedures, which shall be applied in the provision of the audit services regarding:

1) compliance with the applied international standards on auditing, independence requirements and other requirements of this Law, including ensuring the reliability of information provided to be included in the Register;

2) quantity and quality of the resources used, including compliance with the requirements for the continuous training of auditors;

3) compliance with the requirements for remuneration for audit services, if they are established;

4) effectiveness of the internal quality control system of the audit entity;

5) reliability of information in the transparency report, if its disclosure is defined by this Law on assessment of the effectiveness of the internal quality control system of the audit entity.

  1. In the process of conducting the quality control inspections the working papers are selected on the basis of the risk analysis of the audit entity failure to perform the financial statement audit engagement to the extent and following the procedures defined by the international standards on auditing.
  2. On the basis of the quality control inspection a report is prepared containing the main conclusions and recommendations.
  3. The conclusions and recommendations on the basis of the quality control inspection with their justification shall be communicated to the audit entity and discussed with him before making the report.
  4. The procedure for conducting the quality control inspection shall be approved by the central executive body in charge of the state policy development and implementation in the area of accounting and audit.
  5. In case of violation identification in the quality control system of the audit entities, the Inspection and the Audit Chamber of Ukraine shall provide to the relevant audit entity binding recommendations on their correction and set the term for their correction, which shall not exceed 12 months from the date of completion of the inspection.
  6. In case of committing a professional misconduct by the audit entity defined by paragraph 4 of part five of Article 42 of this Law, the Inspection shall forward to the oversight board an application for imposing penalties.

In case of committing a professional misconduct by the audit entity defined by paragraph 4 of part five of Article 42 of this Law, the Committee for the quality control of the audit services of the Audit Chamber of Ukraine shall submit an application for imposing penalties to the Board of the Audit Chamber of Ukraine.

  1. The Inspection and the Committee for the quality control of the audit services of the Audit Chamber of Ukraine annually systematize and summarize the results of the conducted quality control inspections of the audit services of audit entities for further disclosure of the results of the analysis of violations by the audit entities of the professional requirements for the quality of audit services on the official web-site upon the decision of the oversight Board and the Board of the Audit Chamber of Ukraine.
  2. The unlawful decisions of the Inspection and Audit Chamber of Ukraine that limit or violate the rights of the audit entities may be appealed to the oversight board or the court.

Article 41. Monitoring of the quality of the audit service market and competition

  1. The Inspection acting under the request of the oversight Board shall regularly monitor changes in the market of audit services, including evaluation of:

1) risks arising from a significant number of deficiencies in the work of the audit entities;

2) level of concentration in the market;

3) work of audit committees or bodies (subdivisions) entrusted with the implementation of the relevant functions;

4) need to implement measures to reduce the relevant risks.

  1. A report shall be prepared at least every three years based on the monitoring results.

Chapter VIII

PROFESSIONAL LIABILITY OF AUDITORS AND AUDIT ENTITIES

Article 42. Disciplinary measures applied to auditors and audit entities

  1. The auditor and audit entity may be subject to professional liability in disciplinary proceedings on the grounds foreseen in this Law.
  2. “Disciplinary proceedings” means a procedure for consideration of a written complaint, application or publicly available information, which contains data about the presence in the actions of the audit entity characteristics of professional misconduct.
  3. The disciplinary proceedings against the audit entities that have the right to conduct the statutory audit of financial statements of public interest entities shall be carried out by the oversight Board.

The disciplinary proceedings against the auditors and audit entities (with the exception of the audit entities that have the right to conduct the statutory audit of financial statements of public interest entities) shall be carried out by the Board of the Audit Chamber of Ukraine.

  1. The grounds for bringing an auditor and audit entity to professional liability include committing by them professional misconduct.
  2. The professional misconduct of the auditor and audit entity includes:

1) non-performance or improper performance of their professional duties;

2) failure to comply with independence requirements of the audit entity;

3) violation of the international standards on auditing;

4) evasion of the audit entities from the quality control inspection and/or non-compliance with recommendations provided based on the results of quality control inspections;

5) violation of the requirements of this Law concerning the completeness, reliability and timeliness of submission of information about the auditor and the audit entity for disclosure in the Register;

6) violation of other obligations specified by this Law.

  1. In case of professional misconduct in relation to the auditor and audit entity one of the following penalties may be imposed:

1) caution requiring the auditor and audit entity, responsible for violations, to  cease unacceptable behaviour or eliminate violations and refrain from any such repeated actions;

2) suspension of the right to provide audit services of the statutory audit of financial statements of public interest entities for a period ranging from one month to three years;

3) official statement of the audit public oversight body or the Audit Chamber on non-compliance of the audit report with the Law requirements;

4) penalty imposition on the auditor or audit entity;

5) exclusion of the auditor or audit entity from the Register.

  1. The auditor or the audit entity may be subject to professional liability within seven years from the date of committing the professional misconduct.
  2. A penalty may be imposed on the auditor in the amount of:

1) up to 30 per cent of the remuneration amount under an agreement on the provision of audit services in the case of concluding an agreement without proper ensuring of meeting the requirements and restrictions defined by paragraph 4 of part one of Article 23, Articles 26, 27 and Article 30 of this Law;

2) up to 10 per cent of the remuneration amount under an agreement on the provision of audit services in the case of provision of services of the statutory audit of financial statements without a valid civil liability insurance contract of an audit entity conducting a statutory audit to the third parties.

The penalties are paid to the State Budget of Ukraine.

 

Article 43. Audit entity’s liability to the third parties

  1. The audit entity’s liability to the client of the audit services and third parties is limited exceptionally by the actual losses arising from a guilty action or inaction of the audit entity in case of providing statutory audit services or financial statement review. The lost profits, additional expenses, which the client and/or third parties of the audit entity may bear, are not reimbursed.

The audit entity’s liability to the client of the audit services, which do not constitute a statutory audit or review of financial statements, is established by an agreement between the client and the audit entity.

  1. The audit entity that conducts statutory audit of financial statements shall have a valid civil liability insurance agreement of the audit entity to the third parties concluded in accordance with the standard form of the insurance agreement approved by the National Commission on State Regulation of Financial Services Markets and agreed by the audit public oversight board.

The minimum amount of the insurance coverage under the civil liability insurance contract of the audit entity to the third parties concluded by the audit entity conducting the statutory audit of the financial statements of public interest entities shall be 10 percent of the amount of remuneration received under the contracts on the provision of audit services of the statutory audit of public interest entities (excluding added value tax) during the past year but not less than 10 million USD, unless otherwise stated by law.

  1. The audit entity is prohibited from providing services of the statutory audit of financial statements without a valid civil liability insurance contract to the third parties.
  2. The control of the observance by the audit entities that provide services of the statutory audit of financial statements (with the exception of audit entities that have the right to conduct the statutory audit of financial statements of public interest entities) of the requirements for availability of the valid civil liability insurance contract of an audit entity to the third parties rests with the Audit Chamber of Ukraine.

The control over observance by the audit entities that provide services of the statutory audit of financial statements of public interest entities of the requirements for availability of the valid civil liability insurance contract of an auditor to the third party rests with the Inspection.

Article 44. Disclosure of information on the imposed penalties

  1. The information on application of the disciplinary penalties after making the decision on the disciplinary penalty shall be disclosed within three days on the official website of the audit public oversight board and on the official website of the Audit Chamber of Ukraine, and also be available for finding within five years from the date of disclosure. The information on the recognition of the audit report to be non-compliant with the Law shall not be disclosed, but shall be sent to the government authorities, to which the audit report shall be submitted, and to the legal entity, whose financial statements were audited.
  2. The information on the penalties shall include information on violation, surname, name, patronymic of the auditor or the audit entity name and registration number in the Register in respect of such an auditor or audit entity, to which the penalties are applied, information on appeal and its results. At the same time it is prohibited to disclose information on the legal entity, in the process of audit of which there was a violation.

The decision on the imposition of penalty can be disclosed without providing information on the auditor and/or audit entity if:

1) on the basis of the preliminary estimate of the disclosure of the personal data on the auditor, on whom the penalty was imposed, is not consistent with the seriousness of the offence;

2) information disclosure may threaten the stability of financial markets or the objectivity of the investigation conducted by the law enforcement agencies;

3) losses, which may be caused by the information disclosure significantly exceed actual losses as a result of professional offence for which the penalty is imposed.

  1. In case of cancellation of decision on the penalty imposition the relevant information shall be removed from the official website of the audit public oversight body and/or the official website of the Audit Chamber of Ukraine within three days from the date of the relevant decision of the Oversight Board or the Board of the Audit Chamber of Ukraine or from the date of entry into force of a court decision.

Article 45. The procedure for disciplinary proceedings and decision-making

  1. The right to appeal to the oversight Board and/or the Audit Chamber of Ukraine with the application (complaint) on the action of the auditor or audit entity, which may be the basis for professional liability, has everyone who is aware of the facts of such actions.
  2. It is not allowed to abuse the right to appeal to the oversight Board and/or the Audit Chamber of Ukraine, including initiating consideration of the issue of the professional liability of the auditor or audit entity without sufficient grounds and use of the mentioned right as means of pressure on the auditor or audit entity in connection with conduct of audit activity.
  3. The disciplinary proceedings concerning the auditor or audit entity cannot be initiated on the basis of the application (complaint) that does not contain information on the characteristics of the professional misconduct of the auditor or audit entity, as well as on the basis of the anonymous application (complaint).
  4. Each application (complaint), except the ones that cannot be grounds for the disciplinary proceedings under this Law, shall be considered.

The application of the National Bank of Ukraine, the National Commission on State Regulation of Financial Services Markets shall be considered immediately without delay.

  1. On behalf of the oversight Board the Inspection shall inspect the information stated in the application (complaint).

The inspection of information stated in the applications (complaints), which are submitted to the Audit Chamber of Ukraine, shall be carried out by the Committee for the quality control of the audit services of the Audit Chamber of Ukraine.

  1. In the process of conducting inspection the Inspection and the Committee for the quality control of the audit services of the Audit Chamber of Ukraine have the right to receive upon the written request from the state authorities, local authorities, their officials and officers, heads of entities, institutions and organizations regardless of the form ownership and subordination, public associations, physical entities all the necessary information to conduct inspection, interview persons familiar with the circumstances of the action commitment that has features of professional misconduct.
  2. The state authorities, local authorities, their officials and officers, heads of enterprises, institutions, organizations, public associations, physical persons, who were sent the request on information necessary to conduct inspection of application (complaint) on actions of the auditors or audit entities from the Inspection or the Committee for the quality control of the audit services of the Audit Chamber of Ukraine, shall within ten work days of receipt of the request provide the relevant information, copies of documents.
  3. The refusal to provide information upon the request of the Inspection or the Committee for the quality control of the audit services of the Audit Chamber of Ukraine, late or incomplete provision of information, provision of information that is untrue, entail responsibility envisaged by the law.
  4. On the basis of the inspection of the information contained in the application (complaint), the reference shall be made, including the statement of circumstances discovered during the inspection, conclusions and proposals on the grounds of initiating the disciplinary proceedings.
  5. The application (complaint) on the professional misconduct of the auditor or the audit entity, reference and all the inspection materials, as well as application and quality inspection materials shall be submitted:

1) by the Inspection – for consideration to the oversight Board;

2) by the Committee for the quality control of the audit services of the Audit Chamber of Ukraine – for consideration to the Audit Chamber of Ukraine.

  1. On the basis of the results of consideration of the application (submission) on the professional misconduct of the auditor or audit entity, reference, the relevant materials the oversight Board by the majority votes of the members of the oversight Board participating in the meeting decides the issue whether to initiate or refuse to initiate disciplinary proceedings concerning auditor or audit entity.

On the basis of the consideration of the application (submission) about the professional misconduct of the auditor or audit entity, reference, the relevant materials the Board of the Audit Chamber of Ukraine by the majority votes of the members of the oversight Board decides the issue whether to initiate or refuse to initiate disciplinary proceedings against the auditor or audit entity.

  1. The decision to initiate disciplinary proceedings including identification of the place, day and time of its investigation or to refuse to initiate disciplinary proceedings shall be sent or delivered upon signature to the auditor or the audit entity representative and the person, who initiated the issue of professional liability of the auditor or audit entity within three work days after making such a decision.
  2. The disciplinary proceedings relating to the auditor or audit entity shall be considered by the oversight Board and the Board of the Audit Chamber of Ukraine within sixty calendar days after the date of initiation.
  3. The processing of a disciplinary case shall be carried out on the principle of competition. Processing of the case on professional liability of the auditor or audit entity is open.

In the process of the case consideration the oversight Board shall hear notification of the authorized representative of the Inspection, the Board of the Audit Chamber of Ukraine – inspectors of the Committee for the quality control of the audit services on the results of the inspection, explanations of the auditor or representative of the audit entity that is the subject of the initiated disciplinary proceedings, the person, who initiated consideration of the issue on the disciplinary liability of the auditor or audit entity and explanations of the other stakeholders.

  1. Upon the request of the person, who initiated the disciplinary liability issue of the auditor or audit entity, persons, who provided information, materials and explanations during the case processing, may be kept confidential. In this case, during the disciplinary case processing the relevant written materials are heard without mentioning the person, who provided them.

The Head and members of the oversight board, the Head of the Audit Chamber of Ukraine and members of the Board of the Audit Chamber of Ukraine shall ensure confidentiality of the above mentioned persons. The Head and members of the oversight board, the Head of the Audit Chamber of Ukraine and the members of the Board of the Audit Chamber of Ukraine are responsible for disclosure of confidential information, as provided by the legislation, and may be excluded from the oversight Board and the Board of the Audit Chamber of Ukraine.

  1. On the basis of the results of the disciplinary case consideration the oversight Board or the Board of the Audit Chamber of Ukraine shall make decisions on bringing auditor or audit entity to the professional liability for committing the professional misconduct and imposing penalties on him and/or about providing information to the law enforcement officers or closing the disciplinary case. The decision of the oversight Board and the Board of the Audit Chamber of Ukraine shall be adopted by the majority vote of its total membership. The decision of the oversight Board or the Board of the Audit Chamber of Ukraine to exclude an auditor or an audit entity from the Register shall be adopted by two-thirds of votes of its total membership. The decision in a disciplinary case shall be motivated.
  2. When choosing the type of penalty the circumstances of committing violation and its consequences, severity and duration of the violation, financial position, the level of cooperation of the responsible person with the audit public oversight body and the Audit Chamber of Ukraine, previous violations committed by the auditor or the audit entity shall be considered.
  3. The auditor or the audit entity or the person that initiated the issue of the disciplinary liability of the auditor or audit entity may appeal the decision on a disciplinary case to court. The decision of the Board of the Audit Chamber of Ukraine has the right to appeal a decision on a disciplinary case to a court. The decision of the Board of the Audit Chamber of Ukraine on the disciplinary case regarding delegated powers may be appealed to the oversight Board. Appealing a decision does not suspend its action (except for appealing in the part of delegated authorities to the oversight Board).

CHAPTER IX.

PROFESSIONAL SELF-REGULATION OF THE AUDITORS

Article 46. General principles of professional self-regulation of auditors

  1. The purpose of the professional self-regulation of auditors covers uniting on a professional basis of auditors’ efforts to fulfil their responsibilities assigned to them by this Law and ensuring their rights, representation of the professional interests of auditors in state authorities, local authorities, protection of professional interests and social rights of auditors, promoting professional development of auditors and providing them with methodological assistance, protection of interests of physical persons and legal entities in case of causing them harm as a result of illegal actions or negligence of auditors, and also carrying out self-regulation activities.
  2. The professional self-government of auditors operates on the principles of lawfulness, transparency, independence, democracy, collegiality, election, mandatory membership of auditors and implementation of decisions of bodies of professional self-government taken in the framework of their authorities, ensuring equal access of auditors to participation in professional self-government.
  3. The professional self-regulation of auditors is carried out through the Audit Chamber of Ukraine.

 

Article 47. Audit Chamber of Ukraine

  1. The Audit Chamber of Ukraine is a non-for-profit legal entity carrying out professional self-regulation of audit activities and is established to ensure the implementation of the tasks of the audit self-regulation.
  2. The auditors and audit firms included in the Register are the members of the Audit Chamber of Ukraine.
  3. The activities of the Audit Chamber of Ukraine are carried out in accordance with the legislation and the Charter of the Audit Chamber of Ukraine. The Charter of the Audit Chamber of Ukraine is approved by the congress of auditors of Ukraine in accordance with the requirements of this Law.
  4. The authorities of the Audit Chamber of Ukraine are defined by this Law.

The Audit Chamber of Ukraine:

1) carries out registration of auditors and audit entities;

2) controls quality of audit services, provided by the audit entities, except those that carry out the statutory audit of financial statements of public interest entities;

3) regulates relationship between the members of the Audit Chamber of Ukraine in the process of audit activities;

4) carries out disciplinary proceedings against audit entities, except those that carry out the statutory audit of financial statements of public interest entities;

5) controls the on-going training of auditors, with the exception of auditors that carry out statutory audit of financial statements of public interest entities;

6) participates in expert evaluation of draft legislation and regulatory acts on the issues of audit activities;

7) summarizes information on the practice of application of the international standards on auditing and provides recommendations upon request of the audit entities on controversial and complex issues;

8) represents Ukrainian auditors in relations with the state authorities, local authorities, their officials and officers, enterprises, institutions, organizations irrespective of the form of ownership, public associations and international organizations;

9) ensures protection of auditors’ professional rights;

10) ensures access and transparency of information regarding auditors of Ukraine.

Annually, the Audit Chamber of Ukraine shall receive from audit entities reports about services provided by them, analyse them and submit to the audit public oversight body the summarized information on the activities of these entities and the situation with the audit activities in Ukraine.

The authorities of the Audit Chamber of Ukraine cannot be delegated to other entities.

The Audit Chamber of Ukraine can perform other authorities in the manner and under conditions defined by this Law.

  1. With the aim of proper performance of the delegated authorities and tasks the Audit Chamber of Ukraine has the right to:

1) access data on an auditor or an audit entity related to performance by such an auditor or audit entity of their professional duties, including the possibility to receive copies of such data;

2) receive from the legal entities and physical entities information about an auditor or an audit entity, related to performance by the auditor or audit entity of their professional duties;

3) carry out inspections of audit entities, with the exception of audit entities that carry out statutory audit of the financial statements of public interest entities, in the part of their fulfilment of professional duties;

4) make proposals to the state authorities on development and implementation of the national policy in the area of auditing;

5) appeal to the court, on the basis of the rules of administrative legal proceedings, on its behalf decisions (regulations, acts of individual action, activity or inactivity of the entities of power authorities) that violate the rights or legitimate interests of members of the Chamber of Auditors of Ukraine;

challenge in court, in accordance with the rules of administrative legal proceedings, on its behalf, the decisions (regulatory acts, individual legal acts, actions or lack of action of the authorities) violating the rights or legitimate interests of members of the Audit Chamber of Ukraine;

6) in the manner, envisaged by the legislation, receive from the audit public oversight body information necessary for the performance of the tasks of the Audit Chamber of Ukraine;

7) conduct inspections of the compliance by the members of the Audit Chamber of Ukraine with the requirements of the Regulation on membership fees approved by the congress of auditors of Ukraine;

8) apply measures of disciplinary responsibility envisaged by this Law to the members of the Audit Chamber of Ukraine;

9) get involved in the international cooperation;

10) use work of employees, define the structure, staffing, number of employees, forms and amounts of payment and  material incentives for their work in accordance with the Ukrainian legislation and within the budget of the Audit Chamber of Ukraine approved in accordance with the requirements of this Law.

The Audit Chamber of Ukraine has other rights envisaged by the legislation.

  1. The Audit Chamber of Ukraine shall:

1) perform in a proper manner the delegated authorities;

2) comply with the requirements of the legislation of Ukraine, the Charter of the Audit Chamber of Ukraine and decisions of the audit public oversight body;

3) provide to the audit public oversight body reports and any other information about performance of the delegated authorities;

4) comply with the recommendations provided by the audit public oversight body on actions, which are necessary to be taken for the proper performance of the delegated authorities;

5) carry out registration of the auditors and audit entities in accordance with the requirements of this Law;

6) consider complaints about the actions of the members of the Audit Chamber of Ukraine;

7) ensure, in the manner envisaged by the legislation and the Charter of the Audit Chamber of Ukraine, free access to the information about its activities.

The Audit Chamber of Ukraine also has other obligations envisaged by the legislation.

  1. The activity of the Audit Chamber of Ukraine is public. The report on the activity of the Audit Chamber of Ukraine, financial reporting, budget of the Audit Chamber of Ukraine and report on its execution, information on the status of the audit activity in Ukraine, annual work programs and reports on their implementation shall be disclosed on the official website of the Audit Chamber within 180 days after the end of the calendar year.
  2. The management bodies of the Audit Chamber of Ukraine are:

1) congress of auditors of Ukraine;

2) Board of the Audit Chamber of Ukraine.

  1. The Committee for the quality control of the audit services shall be established in the structure of the Audit Chamber of Ukraine to ensure carrying out the inspections of the audit entities.
  2. The current operations of the Audit Chamber of Ukraine are managed by the Secretariat. The operating procedures of the Secretariat of the Audit Chamber of Ukraine are defined by the Regulation approved by the congress of the auditors of Ukraine.

The Secretariat is headed by an Executive Director appointed by the Congress of auditors of Ukraine, who works in the Audit Chamber of Ukraine at the main place of work. The Executive Director shall be non-practitioner.

The Executive Director under the concluded labour contract is personally liable for the use of the property and funds of the Audit Chamber of Ukraine and the creation of appropriate conditions for activities of the Audit Chamber of Ukraine.

  1. By the decision of the congress of the auditors of Ukraine commissions from the members of the Board of the Audit Chamber of Ukraine can be established in the structure of the Audit Chamber of Ukraine. The Experts can be involved in the work of a commission, who are not the members of the Board of the Audit Chamber of Ukraine.
  2. By the decision of the congress of the auditors of Ukraine the regional departments of the Audit Chamber of Ukraine can be established. The authorities and the operating procedures of the regional departments are defined by the regulation approved by the congress of the auditors of Ukraine.
  3. The members of the Oversight Board take part in the work of the bodies of the Audit Chamber of Ukraine within the scope of exercising the powers to oversee the implementation of delegated authorities.

Article 48. Congress of auditors of Ukraine

  1. The congress of auditors of Ukraine is the highest governing body of the Audit Chamber of Ukraine.
  2. The congresses of auditors of Ukraine can be ordinary, repeated and extraordinary. The ordinary congresses are conducted annually in the second quarter.
  3. The exact date of the congress shall be defined by the decision of the Board of the Audit Chamber of Ukraine. If by the end of the second quarter of the current year the Board of the Audit Chamber of Ukraine has not defined the date, then the audit public oversight body has the right to initiate it.
  4. The following issues are within the exclusive competence of the congress of auditors of Ukraine:

1)      delegation of auditors to the Board of the Audit Chamber of Ukraine and early termination of their powers;

2)      approval of the Charter of the Audit Chamber of Ukraine, Regulation on the Board of the Audit Chamber of Ukraine, Regulation on the Committee for the quality control of the audit services, Regulation on the Secretariat of the Audit Chamber of Ukraine, Regulations on the regional departments, procedure for convening and conducting of a congress, standing order of a congress;

3)      approval of the Regulation on the membership fees and defining the amount of the membership fees and other payments of the members of the Audit Chamber of Ukraine necessary for performance by the Audit Chamber of Ukraine of the authorities and tasks defined by this Law;

4)      hearing of the reports of the members of the Board of the Audit Chamber of Ukraine and the Head of the Audit Chamber of Ukraine;

5)      approval of the report on the performance of the budget of the Audit Chamber of Ukraine;

6) making decisions on joining of the Audit Chamber of Ukraine the international and other organizations, leaving these organizations.

  1. The congress can consider other issues, which are important for auditing, except the issues put by this Law in the competence of other bodies.
  2. The auditors registered in the Register are the delegates of a congress of auditors of Ukraine.
  3. The auditor shall personally take part in the Congress of Auditors of Ukraine. The auditor has the right to delegate (pass) his vote to another auditor, about which he shall notify the Audit Chamber of Ukraine in writing. At the same time any such new delegation by the auditor of his vote cancels the previous delegation (if available). The information on delegation (transfer) by the auditor of his vote to another auditor shall be entered in the Register by the Audit Chamber of Ukraine. One auditor may be delegated (transferred) not more than 10 additional votes.
  4. The Congress of the auditors of Ukraine is deemed to be eligible on condition of participation in the work of at least 20 per cent of the congress delegates. In the absence of a quorum the congress of the auditors of Ukraine will be deemed to have failed. Within 30 calendar days from the scheduled date of the failed congress, the Board of the Audit Chamber of Ukraine shall make a decision on holding the repeated congress of auditors of Ukraine. The repeated congress of the auditors of Ukraine shall be conducted in the manner prescribed by this Law for holding the ordinary congress.
  5. The decision of the congress of auditors of Ukraine shall be taken by the simple majority of votes from the total number of the auditors, who are present at the congress, with the exception of the instances, envisaged by this Law and the Charter of the Audit Chamber of Ukraine. The voting at the congress of auditors, by the decision of the congress, can be by open or ballot voting.
  6. The decision of the congress of auditors of Ukraine on delegation of the members to the Board of the Audit Chamber of Ukraine or other bodies of the Audit Chamber of Ukraine shall be taken by ballot vote.
  7. The extraordinary congresses of auditors of Ukraine can be convened by the Audit Chamber of Ukraine, upon the request of the professional organizations of auditors of Ukraine, and also in cases described by this Law by the audit public oversight body.
  8. The procedure of convening and holding of the Congress may cover the possibility to take the decisions by the Congress of Auditors of Ukraine by means of remote electronic voting system. In this case, the electronic voting system shall be a safe, secure and reliable system.

Article 49. Board of the Audit Chamber of Ukraine

  1. The Board of the Audit Chamber of Ukraine is elected by the members of the Audit Chamber of Ukraine at the congress of auditors of Ukraine by ballot vote from the highly qualified auditors with more than five years of experience in auditing.
  2. The total number of the members of the Board of the Audit Chamber of Ukraine is 11 persons.

The term of office of the members of the Board of the Audit Chamber of Ukraine is five years. One and the same person cannot be delegated to the Board of the Audit Chamber of Ukraine for more than two terms. The persons, who were members of the Audit Chamber of Ukraine established in accordance with the Law of Ukraine “On Auditing” for two or more terms cannot be elected to the Board of the Audit Chamber of Ukraine.

  1. The Board of the Audit Chamber of Ukraine represents the interests of the members of the Audit Chamber of Ukraine in the period between the congresses of the auditors.

The Board of the Audit Chamber of Ukraine makes decisions on behalf of the Audit Chamber of Ukraine. The decisions of the Board of the Audit Chamber of Ukraine are taken at its meetings by simple majority of votes under the condition of presence of more than half of its members, with the exception of instances, envisaged by this Law and the Charter of the Audit Chamber of Ukraine.

  1. The members of the Oversight Board shall take part in the meeting of the Board of the Audit Chamber of Ukraine.

The decisions of the Board of the Audit Chamber of Ukraine taken in the framework of the delegated authorities can be revised by the Oversight Board and cancelled in case of justification.

  1. The members of the Board of the Audit Chamber of Ukraine shall perform their duties on a voluntary basis.

Within the budget of the Audit Chamber of Ukraine the members of the Board of the Audit Chamber of Ukraine may receive payments for the time for fulfilment of the tasks (except participation in the meetings of the Board of the Audit Chamber of Ukraine), reimbursed transportation costs and accommodation in relation to the work in the Board and fulfilment of the tasks.

  1. The members of the Board of the Audit Chamber of Ukraine are subject to the legislation on preventing and combating corruption.

The members of the Board of the Audit Chamber of Ukraine shall comply with confidentiality requirements in relation to the information, which they may learn in the process of performing the duties envisaged by this Law.

  1. The authorities of a member of the Board of the Audit Chamber of Ukraine can be terminated prematurely in case of:

1) personal written application on resignation from the position of a member of the Board of the Audit Chamber of Ukraine;

2) exclusion from the Register;

3) systematic unjustified absence at the meetings of the Board without reason during six months in a row;

4) by the decision of the congress of auditors of Ukraine. The decision of the congress of auditors of Ukraine on issues of early termination of powers of the members of the Board of the Audit Chamber of Ukraine shall be taken by ballot vote with the two thirds of votes of the auditors taking part in the congress of auditors of Ukraine;

5) death.

  1. The operating procedure of the Board of the Audit Chamber of Ukraine is defined by the Regulation approved by the congress of auditors of Ukraine.

Article 50. Head of the Audit Chamber of Ukraine

  1. The Head of the Audit Chamber of Ukraine is elected by the congress of auditors of Ukraine from members of the Audit Chamber of Ukraine.
  2. The Head of the Audit Chamber of Ukraine ensures performance of representative functions on behalf of the Audit Chamber of Ukraine, chairs the meetings of the Board of the Audit Chamber of Ukraine, controls fulfilment of the decisions of the Board of the Audit Chamber of Ukraine and performs other functions envisaged by this Law.
  3. The Head of the Audit Chamber of Ukraine performs his obligations on a voluntary basis. By the decision of the congress of auditors of Ukraine the Head of the Audit Chamber of Ukraine within the approved budget of the Audit Chamber of Ukraine may receive remuneration for the execution of powers.
  4. The procedure for the exercise of powers by the Head of the Audit Chamber of Ukraine is defined in the Regulation on the Board of the Audit Chamber of Ukraine.

Article 51. Committee for the quality control of the audit services

  1. The Committee for the quality control of the audit services shall ensure conducting inspections of the audit entities, with the exception of the audit entities that conduct the statutory audit of financial statements of public interest entities.
  2. The Committee for the quality control of the audit services is led by the Head of the Committee appointed by the Congress of auditors of Ukraine, who works in the Audit Chamber of Ukraine at the main place of employment. The head of the Committee shall be a person, who has experience in the area of audit and/or accounting for at least 10 years and has an excellent reputation and who at the time of appointment ceased activity on the provision of audit services individually or as part of the audit entity. The inspectors of the Committee for the quality control of the audit services shall be persons, who meet the requirements specified in part eight of Article 40 of this Law.
  3. The employees of the Committee for the quality control of the audit services are subject to the legislation on preventing and combating corruption.
  4. The procedure for the functioning of the Committee for the quality control of the audit services is defined in the Regulation approved by the congress of auditors.

Article 52. Professional organizations of the auditors of Ukraine

  1. The auditors according to the requirements of the legislation have a right to join in public organizations on professional basis and establish professional organizations of auditors with the aim of joining efforts on professional basis for facilitation of the development and expansion of the profession of independent auditors, enhancing the meaning of the audit profession in Ukraine in order to meet the economic interests of the society, improvement of auditing, representation in the public bodies, local authorities, protection of professional interests and social rights of their members, international recognition of professional qualification of Ukrainian auditors.
  2. The professional organizations of auditors have the right in the manner described by this Law, to:

1) prepare physical persons for qualifying examination and exams on theoretical knowledge in order to certify auditors;

2) establish the independent knowledge assessment centres for conducting certification exams and exams on theoretical knowledge to certify auditors;

3) carry out continuous professional training of auditors;

4) suggest candidates for election as the members of the Board of the Audit Chamber of Ukraine by the members of the Oversight Board;

5) participate in the development of the draft regulatory documents and methodological recommendation on auditing;

6) carry out an independent assessment of the internal quality control system of the audit entities.

  1. The professional organizations of auditors cannot be limited in the execution of their rights, except for restrictions imposed by a court decision which has entered into force.

CHAPTER X.

FINAL AND TRANSITIONAL PROVISIONS

 

  1. This Law is enacted on January 1, 2018 and comes into force on October 1, 2018, except for the subparagraph 1 of paragraph 9 of section X “Final and Transitional Provisions” of this Law on amendments to the Code of Ukraine on Administrative Offenses, which be enacted in 12 months from the date of entry into force of this Law.
  2. The auditors, whose certificates are valid before enactment of this Law, shall be considered to be the auditors, who have confirmed the qualification for carrying out the audit activity and have acquired practical experience in the manner determined by this Law and are subject to the statutory inclusion by the Audit Chamber of Ukraine in the Register. The persons specified in this paragraph before October 31, 2018 shall submit to the Audit Chamber of Ukraine the information, which is subject to disclosure in the Register in accordance with the requirements of this Law.
  3. The right to conduct audit activity shall be retained by audit firms and auditors registered as individual entrepreneurs who were entitled to carry out audit activity at the date of the enactment of this Law. The persons specified in this paragraph are subject to the statutory inclusion by the Audit Chamber of Ukraine in the Register. The persons specified in this paragraph shall submit to the Audit Chamber of Ukraine the information, which is subject to disclosure in the Register in accordance with the requirements of this Law before October 31, 2018.
  4. The valid Certificate of passing the inspection of the quality control system issued by the Audit Chamber of Ukraine before enactment of this Law is a basis for entering the relevant information to the Register. The determination of the period of the quality control system inspection in accordance with the requirements of this Law is carried out based on the results of the inspections conducted by the Audit Chamber of Ukraine prior to the date of enactment of this Law.
  5. The constituent congress of auditors of Ukraine is conducted not later than within six months from the date of entry into force of this law to establish the Audit Chamber of Ukraine in accordance with the requirements of this Law.

The Organizational Committee for holding the constituent congress of auditors of Ukraine shall be responsible for implementing the organizational measures on convening a constituent congress of the auditors.

The structure of the Organizational Committee for holding the constituent congress of the auditors includes one delegated representative from each of the following institutions: the central executive body in charge of development and implementation of the state policy in the area of accounting and audit, the National Bank of Ukraine, the National Securities and Stock Market Commission, the National Commission on State Regulation of Financial Services Markets, the Audit Chamber of Ukraine and the professional organizations of auditors and accountants that are members of the International federation of accountants and include as full-fledged members at least 20 per cent of auditors from the total number of auditors, who are included in the Register as of January 1 of the current year. At the same time the membership of the auditor can be taken into account only in one professional organization of auditors and accountants upon the choice of the auditor, which shall be noted in writing.

The verification of the received information on the full members of professional organizations is carried out by an executive body in charge of the development and implementation of the state policy in the area of accounting and auditing.

On their intentions to delegate representatives to the Organizational Committee for holding the constituent congress of auditors the professional organizations of auditors and accountants shall inform the Audit Chamber of Ukraine within ten calendar days from the date of entry into force of this Law. The right of the professional organizations of auditors and accountants to participate in the work of the Organizational Committee for holding the constituent congress of auditors shall be checked by the acting at the time of entry into force of this Law Audit Chamber of Ukraine.

The delegation of representatives to the Organizational Committee for holding the constituent congress of the auditors is carried out within one month from the date of entry into force of this Law.

The funding of the congress shall be provided by the acting at the moment of entry into force of this Law Audit Chamber of Ukraine.

The auditors of Ukraine having valid for the time of the congress auditor’s certificate are the delegates of the constituent congress of auditors.

At the constituent congress the head of the constituent congress is elected, who organizes the work of the congress and chairs it.

The Charter of the Audit Chamber of Ukraine is approved at the constituent congress, the personal composition of the Board of the Audit Chamber of Ukraine is formed and other issues related to the establishment of the Audit Chamber of Ukraine are resolved.

The candidates to the members of the Board of the Audit Chamber of Ukraine can be nominated by the professional organizations of auditors or through self-nomination in the unlimited number. The nominated candidates shall provide to the Secretariat of the acting at the moment of the Law adoption Audit Chamber of Ukraine the application on their registration not later than thirty days before convening the constituent congress. The candidates that do not meet the requirements stipulated by this Law in relation to the members of the Board of the Audit Chamber of Ukraine and also persons, who at the date of adoption of this Law, were members of the Audit Chamber of Ukraine for two and more consecutive terms, cannot be registered as candidates.

The constituent congress is deemed to be eligible on condition of participation in the work of at least 20 per cent of the total number of congress delegates. In the absence of a quorum the congress will be deemed to have failed. Within 30 calendar days from the scheduled date of the failed Congress, the Organizational Committee for holding the constituent congress of the auditors in the manner specified by this Law shall take a repeated decision on holding constituent congress of Auditors of Ukraine.

The decisions of the constituent congress are taken by the simple majority of votes from the total number of the auditors present at the congress of auditors, with the exception of the instances envisaged by this Law. The voting at the congress can be open or secret ballot voting. The decisions of the congress on delegating members of the Audit Chamber of Ukraine to the Board of the Audit Chamber of Ukraine shall be taken by the secret ballot vote. The candidates are considered to be elected, if they received the majority of votes of the auditors participating in the work of the constituent congress of auditors of Ukraine.

On the basis of the constituent congress results the minutes are prepared, and are signed by the head of the constituent congress.

  1. The registration of the Audit Chamber of Ukraine, established in accordance with the procedure stipulated by this Law, is carried out in accordance with the Law of Ukraine “On the state registration of legal entities and individual private entrepreneurs”. Acting at the moment of this Law adoption Audit Chamber of Ukraine shall continue the performance of its authorities until the establishment of the Audit Chamber of Ukraine in the manner stipulated by this Law.

The transfer-acceptance of files, assets and funds from the acting Audit Chamber of Ukraine to the management of the Audit Chamber of Ukraine established in the manner stipulated by this Law, shall be carried out by the commission that is established by the constituent congress of auditors of Ukraine.

  1. To declare that within three years from the date of enactment of this Law the National Bank of Ukraine has the right, in accordance with the procedures established by the regulatory acts of the National Bank of Ukraine, to reject an audit firm selected by the bank for conducting external audit or to remove an audit firm that conducts an external audit the bank.
  2. To declare invalid from the date of enactment of this Law:

the Law of Ukraine “On Auditing” (Bulletin of the Verkhovna Rada of Ukraine, 1993, № 23, p. 243, with amendments);

Resolution of the Verkhovna Rada of Ukraine “On the Procedure for the Enactment of the Law of Ukraine “On Auditing” (Bulletin of the Verkhovna Rada of Ukraine, 1993, No. 23, p. 244; 1995, No. 33, Article 259, 1996, No. 17, p. 76; 1997, No. 48, p. 297).

  1. To amend the following legislative acts of Ukraine:

1) In the Code of Ukraine on Administrative Offences (Bulletin of the Supreme Council of the USSR, 1984, Annex to № 51, p. 1122):

to include Articles 16316 and 16626 of the following content:

“Article 16316. Violation of the procedure for the disclosure of financial statements or consolidated financial statements

The violation of the procedure for disclosure of the financial statements or consolidated financial statements together with the audit report –

entails the imposition of a fine from one thousand to two thousands of tax-free minimum incomes of citizens.

The repeated during the year commitment of a violation described in part one of this article, for which the person has already been subject to the administrative penalty,-

entails the imposition of a fine from two thousands to three thousands of tax-free minimum incomes of citizens”;

“Article 16626: Failure to provide information by the auditor to the audit public oversight body

Failure to provide information by the auditor, in cases stipulated by the law, information to the audit public oversight body –

entails the imposition of a fine from one hundred to two hundreds tax-free minimum incomes of citizens.

The repeated during the year commitment of a violation described in part one of this article, for which the person has already been subject to the administrative penalty,-

entails the imposition of a fine from two to five hundreds of tax-free minimum incomes of citizens”;

part one of the first article 2343 after the words and figures “The National Bank of Ukraine shall consider cases concerning administrative violations related to the violation of the procedure for the execution of operations with electronic money (Article 16314)” to supplement with words and figures “violation by the banks of the procedure of disclosure of financial statements or consolidated financial statements together with an audit report (Article 16316)”;

part one of the article 24416 after the words “the National Commission on State Regulation of Financial Services Markets shall consider cases concerning administrative violations related to” to supplement with words and figures “violation by the non-bank financial institutions of the procedure for disclosure of financial statements or consolidated financial statements together with the audit report (Article 16316)”;

part one of Article 24417 shall be supplemented with words and figures “violation by issuers, whose securities are admitted to trading on stock exchanges or in respect of whose securities the public offer was made or by professional stock market participants of the procedure for the disclosure of financial statements together with an audit report (Article 16316)”;

chapter 17 to supplement with the Article 24422 of the following content:

“Article 24422. Audit public oversight body

The audit public oversight body shall consider cases concerning administrative violations related to the violation of the procedure for disclosure of financial statements or consolidated financial statements together with the audit report (Article 16316, except for violations by banks, non-bank financial institutions and issuers whose securities are admitted to trading on stock exchanges or in respect of whose securities the public offer was made or by professional stock market participants), failure of an auditor, in cases defined by law, to provide information to the audit public oversight body (Article 16626).

The Executive Director of the Quality Assurance Inspection has the right to consider the cases of administrative violations and to impose administrative penalties on behalf of the audit public oversight board”;

2) in the Commercial Code of Ukraine (Bulletin of the Verkhovna Rada od Ukraine, 2003, No.18-22, p. 144):

to exclude in the first abstract of part eight of article 73 the words “selection of an independent auditor and criteria”;

to exclude in the second and third abstracts of part three of Article 90, the words “the selection of an independent auditor and criteria”;

Articles 362-264 should read as follows:

“Article 362. Auditing

  1. “Auditing” means an independent professional activity of auditors and audit entities that are included in the Register of auditors and audit entities, on the provision of audit services.
  2. Auditing is regulated by this Code, the law on auditing and other regulations adopted in accordance with them.

Article 363. Audit of financial statements and state financial audit

  1. “Financial statement audit” means audit service on verification of accounting data and indicators of financial statements and consolidated financial statements of the legal entity and representative offices of foreign entities or another entity that submits financial reports in order to express an independent auditor’s opinion on its compliance in all substantial aspects with the requirements of the national accounting regulations (standards), international financial reporting standards or other requirements.
  2. The financial statement audit is carried out by audit entities, which are included in the Register of auditors and audit entities.
  3. The state financial audit is a type of the state financial control and means an inspection and analysis of an actual state regarding legal and efficient use of the state or municipal assets and property, other state assets, correctness of accounting and financial statement accuracy, functionality of the internal control system.
  4. The state financial audit is carried out by the Accounting Chamber and state financial control bodies in accordance with the law.
  5. The audit of financial statements and state financial audit may be carried out based on the initiative of the business entity, as well as in cases stipulated by law (statutory audit).

Article 364. Auditor and audit entities

  1. “Auditor” means a physical person, who confirmed qualification to perform audit activity, has the relevant practical experience and is included in the Register of auditors and audit entities.
  2. “Audit entity” means an audit firm or an auditor that performs audit activities as an individual-entrepreneur or conducts independent professional activity that acquired the right to conduct audit activity on the grounds and in the manner prescribed by legislation and is included in the Register of auditors and audit entities.
  3. The conditions and procedure for conducting audit activity, the rights and duties of auditors and audit entities shall be determined by law, other legal acts.”;

to exclude article 365;

3) to exclude paragraph 24 of part two of article 7 of the Law of Ukraine “On the State Regulation of securities market in Ukraine” (Bulletin of the Verkhovna Rada, 1996, No. 51, p. 292 with amendments);

4) in the Law of Ukraine on the National Bank of Ukraine (Bulletin of the Verkhovna Rada, 1999, No. 29, p. 238; 2011, No. 36, p. 362; 2015, No. 32, p. 315):

to exclude in paragraph 9 of article 7 words “Register of audit firms that have the right to carry out audit of banks”;

in paragraph 11 of part 1 of article 9 the words “audit opinion” shall be replaced by the words “audit report”;

5) in the Law of Ukraine “On Banks and Banking” (Bulletin of the Verkhovna Rada of Ukraine, 2001, No. 5-6, p. 30 2011, No. 36, p. 362; 2015, No. 32, p. 315):

in article 70:

to exclude in part one the words “norms and standards of audit approved by the Audit Chamber of Ukraine in accordance with the international standards on auditing and ethics”;

part two shall read as follows:

“The right to carry out the audit of banks shall be rendered to an audit firm, included in the Register of auditors and audit entities, which is maintained according to the law, in part of audit entities that are entitled to carry out the statutory audit of financial statements of public interest entities”.

to exclude parts three and four;

in the text of the law the words “audit opinion” in all cases shall be replaced by words “audit report” in the relevant case;

6) to exclude paragraph four of article 17 of the Law of Ukraine “On political parties in Ukraine” (Bulletin of the Verkhovna Rada of Ukraine, 2001, No. 23, p. 118; 2015, No. 49-50 p. 449);

7) to exclude paragraph three of part one of article 15 of the Law of Ukraine “On financial services and state regulation of financial services market” (Bulletin of the Verkhovna Rada of Ukraine, 2002, No. 1, p. 1; 2011, No. 36 p. 362);

8) in paragraph 171 of part two of Article 5 of the Law of Ukraine “On the management of state property objects” (Bulletin of the Verkhovna Rada of Ukraine, 2006, No. 46, p. 456) to exclude the words “the criteria for the selection of an independent auditor and”;

9) in Article 75 of the Law of Ukraine “On Joint Stock Companies” (Bulletin of the Verkhovna Rada of Ukraine, 2008, No. 50-51, p. 384):

paragraph 3 of part three shall read as follows:

“3) a person, who is not independent from the company that is subject to audit. The requirements for the independence of the auditor are established by the legislation of Ukraine regulating auditing”;

part four shall read as follows:

“4. The audit report, in addition to the data provided for by the legislation on auditing, shall contain information provided for in part two of Article 74 of this Law.”

  1. The Cabinet of Ministers of Ukraine within three months from the date of entry into force of this Law shall:

adopt the legal acts envisaged by this Law;

ensure that the Ministries, other central executive bodies bring their legal acts in line with this Law;

ensure the delegation of representatives of the relevant authorities to the oversight board and the attestation committee.

  1. The National Bank of Ukraine, the National securities and stock market commission, the National commission on state regulation of financial services markets shall bring its regulations in line with this Law within six months from the date of enactment of this Law.
  2. If other legal acts contain rules, provisions on the statutory audit, the rules and provisions determined solely by this Law shall be applied to determine the requirements for audit entities that have the right to conduct statutory audit of financial statements.

The provisions of this paragraph shall also apply on the external independent financial audit of the statements on assets, revenues, expenses and financial obligations of the party.

 

 

President of Ukraine                                                              P. Poroshenko

 

Kyiv

December 21, 2017

No. 2258-VIII

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