Czech Republic: Amendment to the Auditors Act has consequences for the board of auditors
A recent amendment to the Auditors Act has significant consequences for a special body known as the board of auditors. The „board of auditors“ is a committee with supervisory competencies especially in the area of financial controlling; it must be established by so-called entities of public interest (such as companies whose shares are traded in regulated markets, banks, or corporations with more than 4 000 employees – see Sec. 2a of the Auditors Act for the details).
An important change lies in the fact that the board of auditors is no longer a body of the company. This means that the members of the board of auditors are no longer subject to a host of rules which previously applied to them (as they do to all members of corporate bodies). Among them are e.g. the rules on conflicts of interest and the rules of compensation for members of corporate bodies. However, the articles of association or the memorandum of association may stipulate that the board of auditors is a body of the company after all.
The board of auditors must have at least three members; under the new rules, a majority of them must satisfy the criteria of independence – which is formulated more broadly than previously, when the law spoke of „independence from the to-be-audited entity“. According to the explanatory memorandum submitted by the authors of the amendment bill to the Auditors Act, the independence requirement is to ensure the absence of any serious conflict of interest whatsoever. Entities of public interest must bring their board of auditors (in terms of its composition) into compliance with the new statutory requirements by 13 January 2016.
As previously, so under the new rules, the members of the board of auditors are appointed by the general meeting, from the ranks of supervisory board members, nonexecutive members of the administrative board, or third parties.
A new rule stipulates that the board of auditors shall recommend the auditor who is to certify the financial statements to the supervisory body. The supervisory body then proposes an auditor to the general meeting; while it is not bound by the erstwhile recommendation of the board of auditors, it will have to give reasons if it deviates from that recommendation.
Lastly, we should mention the new obligation of „entities of public interest“ to publish the composition of their board of auditors on their website.
Source: Act No. 334/2014 Coll., amending Act No. 93/2009 Coll., on auditors and on the amendment of certain laws