Amendment to the Auditors Act

Czech Republic: This amendment is based on EU directives and regulations and has come into force on 1 October 2016

Effective as of 1 October 2016, the Auditors Act has undergone far-reaching changes, the most important of which we are presenting to you in the following overview:

The provision of certain non-auditing services is newly prohibited, and the amendment has capped the remuneration for such services at 70 % of the overall remuneration for the audit (on grounds of the observation that the auditor’s impartiality towards the client will necessarily suffer if non-auditing services are provided in parallel to the audit proper).

Individuals who are chartered auditors newly must not hold key positions in companies (such as that of the CFO) or be on the audit committee or as a non-executive member on the executive or supervisory board unless at least one year has passed since they worked on the compulsory audit.

A concrete, individual auditor must be responsible for each audit engagement. The clients of large auditing companies in particular frequently complained that they are dealing with various assistants to the auditor but never with the auditor who signs the report himself or herself.

The Auditors Act in its new incarnation also addresses the issue of withdrawal by the to-be-audited company from the agreement on the compulsory audit. Diverging views as to the accounting treatment of certain issues or the auditor’s methodology are not sufficient cause to terminate the contractual relationship with the auditor. As before, so in the future, the party who withdraws from the agreement on the compulsory audit must promptly notify the council for public oversight over the auditing profession, stating the reasons for their withdrawal.

The auditor’s report must newly include a description of the most material risks and the way in which the auditor responded to these. The authoritative material for the assessment of the audit will be the non-public report designated for the audit committee. All public interest entities must install such an audit committee, which newly must have three members, the majority of which must be independent. Members are to be chosen from among the non-executive members of the supervisory board or from among third parties.

New rules govern the oversight over those auditors who carry out the audit at public interest entities (i.e., banks, insurance companies, issuers of securities). The auditing company (or, as the case may be, individual chartered auditors) who are involved in the compulsory audit of such entities are subject to the supervision exercised by the council for public oversight over the auditing profession (ensuring the independent oversight over auditors and their professional organization: the Czech Chamber of Auditors). Quality controllers who control the quality of auditors at public interest entities must not be actively pursue the profession of auditors themselves.

Lastly, we ought to mention the principle of mandatory rotation applying to auditing companies. The longer the collaboration with a given client, the closer the relationship between the auditor and their client, which after a certain time may call into question the quality of auditing performances rendered, because the auditor’s ability to discern deficiencies may be become impaired. Public entities may appoint the same auditor for no more than 20 years, on the further condition that a tender be held after a 10-year period has passed.

Source: Auditors Act, explanatory memorandum on the amendment bill


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