1. Module 16: International Standards on Auditing Implementing ISA Lessons learned in the Czech Republic Petr Kriz 17 January 2006

2. Agenda 1 Introduction and initial thoughts 2 National auditing standards in 90 th 3 Bridge to direct application of ISA after 2000 4 Lessons learned 5 Questions and answers

3. Section One 1 Introduction and initial thoughts 2 National auditing standards in 90 th 3 Bridge to direct application of ISA after 2000 4 Lessons learned 5 Questions and answers

4. 17 January 2006 Page 4 Introduction – My relevant experience PricewaterhouseCoopers Since 1991Partner since 2003 Czech Chamber of Auditors (CACR) 1995-1999CACR Auditing Standards Committee 1998-2000CACR Board Member 2000-2001CACR Vice-President 2001-2004CACR President Fédération des Experts Comptables Européens (FEE) Since 2002FEE Council Member Introduction and initial thoughts

5. 17 January 2006 Page 5 Introduction – Auditing Standards in the Czech Republic 1992Establishment of the Chamber (CACR) 1993First four Czech national auditing standards (CNAS) issued 1994-2001Issued 23 further general CNASs 1998-2002 Issued 5 specialised CNASs 2003 World Bank ROSC on accounting and auditing completed 2003 CACR Board decision on full adoption of ISAs 2004 National action plan on accounting and auditing completed 2004-6Gradual completion of the ISA implementation 2005 First National Application Guidelines on ISAs Introduction and initial thoughts

6. 17 January 2006 Page 6 Initial thoughts The law authorised the Chamber of Auditors to issue CNAS based on international standards CNAS were developed by Auditing Standards Committee which was one of the professional committees of the Chamber and finally approved by the Chamber Board CNAS always based on existing ISAs Any deviations from ISAs needed to be justified and explained ISAs were usually translated and used as a basis for development of a particular CNAS Introduction and initial thoughts

7. Section Two 1 Introduction and initial thoughts 2 National auditing standards in 90 th 3 Bridge to direct application of ISA after 2000 4 Lessons learned 5 Questions and answers

8. 17 January 2006 Page 8 First Czech National Auditing Standards issued in 1993 National auditing standards in 90th CAS 1Objectives and principles of audit CAS 2Audit evidence CAS 3Audit report on financial statements CAS 4Audit working papers Supplemented by CACR Board recommendation to use ISAs for areas not covered by CNAS.

9. 17 January 2006 Page 9 Further general Czech National Auditing Standards National auditing standards in 90th During 1994 and 2001 further 23 CNASs were prepared by the Auditing Standards Committee and approved by the Board. All were based on the respective ISA.

10. 17 January 2006 Page 10 Five specialised Czech National Auditing Standards National auditing standards in 90th CAS 51The relationship between bank supervisors and external auditors CAS 52Operational review and audit of financial statements of local governments CAS 53Audit issues related to Year 2000 (cancelled in 2002) CAS 54Review of Intra-group relations reports CAS 55Audit of not-for-profit organisations These are covering special areas, particularly audits of specific entities or special work required by national law. CAS 52, 54 and 55 remain valid after ISA introduction.

11. 17 January 2006 Page 11 Practical comments Diversified composition of the Auditing Standards Board Since 1999 new draft standards exposed to comments by auditors, MoF, CNB (banking regulator) & Czech SEC Challenging Board review of proposed standards CNAS enforced by the inspections of the Supervisory Committee National auditing standards in 90th

12. Section Three 1 Introduction and initial thoughts 2 National auditing standards in 90 th 3 Bridge to direct application of ISA after 2000 4 Lessons learned 5 Questions and answers

13. 17 January 2006 Page 13 Reasons for direct application Full harmonisation with international rules Perception of audit reports from international community Delays in approvals of new ISAs Problems with updates of existing CNAS following ISA revisions Bridge to direct application of ISA after 2000 Fight with national creativity Allowed reduction of expert involvement in the standard setting process Auditing Committee can focus on monitoring developments and comments on new draft ISAs

14. 17 January 2006 Page 14 Gradual implementation Discussed by the Auditing Standards Committee in 2003 Board decision taken and communicated in June 2003 For 2003: ISAs recommended for IFRS FS audits For 2004: ISAs optional instead of CNAS, which were allowed For 2005: ISAs required for all financial statement audits For 2006: ISAs required also for other assurance and related services Bridge to direct application of ISA after 2000

15. 17 January 2006 Page 15 Implementation process Agreed terms for official translation with IFAC Established Editorial Board for ISA Translation (EB) Agreed co-operation on translation with large firms Translation completed by large firms in 2004, reviewed by EB Updates done in 2005 Full IFAC Book distributed to auditors on CDs free of charge in the autumn (every year since 2004) National implementation guidelines developed in 2005 Bridge to direct application of ISA after 2000

16. Section Four 1 Introduction and initial thoughts 2 National auditing standards in 90 th 3 Bridge to direct application of ISA after 2000 4 Lessons learned 5 Questions and answers

17. 17 January 2006 Page 17 Key lessons from the ISA application and implementation Generally positive, no significant national specifics except special audit work generated by other legislation Implementation by audit firms generally at adequate level Smaller practices and sole auditors often struggling with the complexity and compliance levels are sometimes lower Critical aspects of implementation are communication strategy, gradual implementation and proper training programs Quality assurance and enforcement by professional body or public oversight is needed to improve compliance Lessons learned

18. 17 January 2006 Page 18 Practical notes on the translation process EB needs to be well composed of people strong in auditing and English language Key terms vocabulary needs to be agreed by the EB and made obligatory for translators Translators allowed to propose changes to EB Proper review of translation Final editorial unification of the work before issue Improvements and corrections to be made every year Lessons learned

19. ISAs implementation in the Czech Republic are clearly positive development from the IAS-based national auditing standards. The decision of the Czech Chamber on ISA implementation anticipates the new 8 th Directive requirement and will ease its implementation.

20. Section Five 1 Introduction and initial thoughts 2 National auditing standards in 90 th 3 Bridge to direct application of ISA after 2000 4 Lessons learned 5 Questions and answers

21. ? Questions and answers