Audit report: the evolution of norms of Ukrainian and international legislation

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Vinnytsia national agrarian university

Department of audit and state control

Audit report: the evolution of norms of Ukrainian and international legislation

V. Fabiyanska, c.e.s.

Associate professor

Annotation

The article deals with the problems which have place in the auditor activities, one of which is the lack of clear and unambiguous terminology, which is the basis for understanding of the essence of audit, its goals and objectives. The assessment of the audit activities on the basis of the analysis of dynamics of the number of subjects of audit in Ukraine is carried out. The purpose and objectives of audit in accordance with International standards on auditing is revealed. The criteria that must conform the audit report in accordance with International standards of auditing are analyzed. Historical aspects of the final document development of the audit of financial statements in Ukrainian and international legislation are researched. The views of scientists regarding the conflict of norms of the International standards of Audit and the Law of Ukraine “About auditor activity” are analyzed.

It is proved that the difference in the names of the same document “audit opinion ” according to the Law of Ukraine “About Audit Activity” and “audit report” according to the International Standards of Audit is the lack of relevance in their translation. The ways of bringing legislation of auditing in Ukraine to the requirements of international law are suggested. The adoption of a new law “About audit of financial statements and audit” which takes into account the requirements of Directive 2014.56 EC should promote it.

Keywords: independent audit, auditor activity, auditor opinion, audit opinion, audit report, International Standards of Audit.

Фабіянська В.Ю. Аудиторський звіт: еволюція норм українського та міжнародного законодавства

У статті розглянуто проблеми, що мають місце в аудиторській діяльності України, однією з яких є відсутність чіткого та однозначного термінологічного апарату, який є базою для розуміння сутності аудиту, його мети та завдань. Здійснено оцінку стану аудиторської діяльності на основі проведеного аналізу динаміки кількості суб'єктів аудиту в Україні. Розкрито мету та цілі аудиту відповідно до Міжнародних стандартів аудиту. Проаналізовано критерії, яким має відповідати аудиторський звіт відповідно до Міжнародних стандартів аудиту. Досліджено історичні аспекти розвитку підсумкового документа про аудит фінансової звітності в українському та міжнародному законодавствах. Проаналізовані погляди вчених щодо колізії норм Міжнародних стандартів аудиту та Закону України “Про аудиторську діяльність”.

Обґрунтовано, що відмінність у назві одного і того ж документа “аудиторський висновок” відповідно до Закону України “Про аудиторську діяльність” та “аудиторський звіт” відповідно до Міжнародних стандартів аудиту полягає у відсутності обґрунтованих відмінностей при перекладі. Запропоновано шляхи приведення законодавства про аудиторську діяльність України до вимог норм міжнародного права, чому має сприяти прийняття нового законопроекту “Про аудит фінансової звітності та аудиторську діяльність ”, у якому враховані вимоги Директиви 2014.56 ЄС.

Ключові слова: незалежний аудит, аудиторська діяльність, аудиторська думка, аудиторський висновок, аудиторський звіт, Міжнародні стандарти аудиту.

Фабиянская В.Е. Аудиторский отчет: эволюция норм украинского и международного законодательства

Problem Statement

The main aim of Audit is to express an independent audit opinion, implemented in the final document of audit, concerning accounting and financial reporting of the enterprise. According to the International standards of quality control, auditing and other related services it is called “audit report”.

However as the native practice shows Ukrainian audit terminology uses the term “audit report” since the audit formation in Ukraine. Primarily it is related to the definition set out in article 7 law of Ukraine “About audit activity”: “Audit report is a document drawn up according to audit standards which provides assurance to users according to financial reporting and other information to conceptual fundamentals which were used while drawing it up” [1].

Such difference between names of the same document (as practice shows) makes it difficult and ambiguous interpretation, first of all, in the process of audit during generalization and documentation of audit results, in scientific studies and also in the educational process while teaching subjects “Audit”, “Audit Organization and Methods” and related subjects. It arouses scientific interest and courses the need for the study of theoretical aspects of audit report formation in conditions of European integration processes in Ukraine

Analyses of the Previous Research and Publications

The problem of Audit development in Ukraine was studied in the works of a number of leading economists such as: L. Hutsalenko, [2], N. Zdyrko, O. Shevchuk [3], O. Petryk [4], L. Knyzhnyk [5] and onters. The works of national scientists such as I. Pozhrytska [6, 7], O. Pasko [8], D. Dolbnieva [9], N. Shalimova [10], who studied problems of essentiality, structure and interpretation of the final audit document, were dedicated to the problem acpects of generalizied audit document.

Nevertheless, despite significant scientific achievements of researchers in the area, problems of theoretical and practical aspects of the final audit document drawing up remain unsettled, especially in terms of recent amendments to the International Standards of Audit and draft of the Law of Ukraine “About audit activity”, the aim of which is adaptation of Ukrainian standards to international audit.

Defining the Aim of the Research

The aim of the article is to investigate the evolution of standards in Ukrainian and international legislation (considering Ukraine uses international audit standards - hereinafter IAS) as to the process of drawing up and name of the generalized audit document and also to suggest ways of solving the possible problems concerning interpretation of the abovementioned document for the purpose of avoiding its ambiguous interpretation and adapting them to the requirements of international law.

The essence of the article

Unstable economic situation in Ukraine needs solution of the chain of problems which take place in the professional activity of auditors, accounting firms and make successful audit development impossible. One of the problems is the scarcity of methodological instructions in Audit control, which causes shortages of information and since - auditor's low competence [2].

Shevchuk O.D. and Zdyrko N.H. are convinced that the first main and fundamental problem in Audit is absence of strict and definite terminology which is the basis for the understanding of Audit essence, its place, tasks and role in the system of economic control [3].

According to the Law of Ukraine “About auditor activities” Audit Chamber of Ukraine (hereinafter - ACU) annually receives from audit firms and individual auditors included in the Register of audit firms and auditors, reports on their work provides, analyze them and submit summarized information about audit activity in Ukraine to the Cabinet of Ministers of Ukraine.

On 01.01.2016, 1008 auditing firms and 99 auditors-entrepreneurs were registered in the Registry. In General in Ukraine on 01.01.2017 the number of audit firms and auditors entitled to conduct auditing activities, and accordingly are required to present in APA report form №1 - audit, amounted at 1008 [11].

Analysis of the results of auditor activities and the state of the market of auditor services shows that the audit market suffers from transformations that occur in the country. So, in 2016 136 auditing entities were excluded from the Registry of audit firms and auditors and only 37 subjects of audit activities were included [11].

Information shown at Fig. 1 about the amount of subjects of auditor activity from 2012 to 2016 indicates a general tendency to its reduction (in comparison with 2012 - 60,3%), what indicates the outflow from the profession as a result of several factors, including the crisis in society and strengthening the requirements for the audit profession by regulators, and changes in tax legislation.

1 800 1 600 1 400 1 200 1 000 800 600 400 200 0

2012 р. 2013 р. 2014 р. 2015 р. 2016 р.

Fig. 1. The number of subjects of audit activity in Ukraine for 2012-2016 Source: [11]

Some problems concerning uncertainty in terminology also touched auditors final document due to the differences between national and international standards in the field of auditing. It can't but influences the practical activity of auditors and the practice of teaching in high school also shows: it creates obstacles to clear understanding of audit methodology by future scientists and practitioners.

According to the ISA 200 “The main aims of an independent auditor and auditing according to International Standards of Audit”, the aim of Audit is to increase the users' level of trust to financial reporting. It may be reached by the expression of the auditor's opinion whether the financial reports have been drawn up in accordance with all essential aspects of the conceptual basis of financial reporting [12].

Abovementioned ISA 200 also determines general objectives of the auditor:

a) to get assured that financial reporting in general do not contain essential misstatement as a result of fraud or error, which enables an auditor to express his opinion of the financial reporting drawn up in all essential aspects according to the conceptual basis of financial reporting;

b) to report on the financial statements and provide information as it is required by ISA, according to the results obtained by the auditor [12].

ISA 700 in “Formulation of opinion and reporting on financial statements” determines such objectives of the auditor:

a) to form opinion about the financial statements according to the conclusions of estimation based on the audit arguments received;

b) to express the opinion clearly in a written report that also describes the basis for the opinion [17].

That is, on the basis of International Standards of Audit, the main and ultimate aim of the auditor is preparing of a generalized document - an audit report. ISA 700 “Formulation of opinion and reporting on financial statements” also accentuates that the expression of opinion on the financial statements based on the audit findings is the responsibility of the auditor. D13 ISA 700 also accentuates that a written report is a report published in paper and electronic media.

Addendum to ISA 700 “Formulation of opinion and reporting on financial statements”, which is called “Examples of audit reports on financial statements” uses the title of a generalized audit document “Independent auditor's Report” [12].

In accordance with the International standards of control of quality, audit, review, other assurance and related services, criteria which must comply with the audit report are the following: documentary form, publicity, independence of an auditor's opinion (Fig. 2).

It can be concluded that the International standards of quality control, auditing, review, other assurance, and related services operate two names of the final audit document: “the audit report” and “independent auditor's report”, which are considered to be identical.

Additional final documentation included audit report which was much wider document in content compared to the auditor's report. Let's examine the history of the title of the generalizing document of audit in Ukraine with the aim of highlighting the main milestones of its development.

According to the National Audit standards in Ukraine and the Code of Professional Ethics of Auditors of Ukraine, the auditor's report is an obligatory component of final documentation and audit results are drawn up in the form of audit report, which must include clear understanding of the auditor of the audited financial statements [13].

Fig. 2. The criteria, to which the audit report in accordance with International standards of Audit must comply Source: compiled by the author based on [4]

International Audit Standards were adopted in Ukraine as National Audit Standards in 2003 (ACU resolution of 18.04.2003, №122/2). During their introduction ACU translated into Ukrainian such publications of Audit Standards of International Federation of accountants, issued in: 2001, 2004, 2005, 2006, 2010, 2012, 2013. auditing ukraine international standard

In 2015, ACU in agreement with IFA translated a new edition of the International Standards of control of quality, audit, review, other assurance, and related services edited in 2014, which, according to the decision of ACU of 29.12.2015, №304/1, adopted for mandatory use upon performing tasks from February 1, 2016 as the national Audit Standards. In addition, the decision of ACU of 27.02.2014, №290/7 adopted a Code of ethics for professional accountants of International Federation of accountants edited in 2012 for mandatory application by auditors of Ukraine from May 1, 2014 [11].

International Audit Standards have undergone changes, the following changes were made in the names and structure of the audit report (table. 1) [6].

Domestic legislation, in particular the Law of Ukraine “About auditor activity” still interprets today the generalized document on the audit of financial statements as the “audit report”. As the analysis of well-known economists evidences scientific research concerning the difference between the names of the same document is being still carried out.

Table 1