1. November 29, 20051 The Implementation of the 8th Directive Public Oversight in Hungary Katalin Fekete Vice President Hungarian Chamber of Auditors

2. November 29, 20052 Statutory audit in Hungary Restart in 1988 Rapid growth in number of licensed auditors Statutory audit defined in the Company Act and the Accounting Act Low threshold (EUR 200 000 in sales revenue) 3.6 thousand active auditors

3. November 29, 20053 The Chamber of Hungarian Auditors 1997 Law on the Chamber and the audit activity 1997 The establishment of the Chamber as a self-regulated body 2001 ISA based Hungarian Standards on Auditing 2002 external quality control system

4. November 29, 20054 Legal supervision of the professional organization Legal supervision performed by Minister of Finance = legal requirements and self regulation rules ≠ direct responsibility for the quality of audit

5. November 29, 20055 Hungarian market Limited number of listed companies IFRS mainly in the capital market SMEs’ majority in the market Statutory audit for SMEs =obligation Limited number of lawsuits against auditors

6. November 29, 20056 External quality control 1 Based on EU recommendation Principles: –Independence –Incompatibility –Professional behavior 1500 auditors 2002-2005

7. November 29, 20057 External quality control 2 Monitored peer-review system Organised by the Committee of the Chamber Carried out every 6th or 3rd year Annual report on the general findings

8. November 29, 20058 External quality control 3 Result of the investigation: –Meets requirements, –Meets but needs further development –Failed Actions after negative outcome –Written warning –Obligation to attend training –Disciplinary procedures (incl. removal from the register)

9. November 29, 20059 Implementation of the Directive Within two years or as soon as possible? Harmonisation with other relevant laws The Chamber was asked to prepare the bill Approval in 2006?

10. November 29, 200510 Public Oversight in Hungary Appropriate structure to prevent accidents/scandals Equivalence in quality to the other systems Final responsibility –Registration –Standard on ethics, internal quality control, auditing –Education, quality assurance, disciplinary system and direct investigation?

11. November 29, 200511 European Public Oversight Cultural, economic and commercial structures distinguish nations Diversity, cooperation, mutual recognition Hungarian system will follow the directive

12. November 29, 200512 System or one committee? No bureaucratic, costly solutions No American type of oversight → one oversight committee (OC) governed by non-practitioners + minority practitioners = German type solutions

13. November 29, 200513 Financial independence of the OC Funding must be free from undue influence of auditors = financed from the state budget

14. November 29, 200514 Selection of the OC members Respectable persons Acknowledged experts of accounting, finance, law, auditing, financial reporting = direct invitation + proper balance between the representatives of state authorities, administration, large companies, science = appointed by the Minister of Finance for 5 yrs = no remuneration

15. November 29, 200515 Transparency of oversight activity Annual work plan Annual report published on website

16. November 29, 200516 Licences of the OC Admission of members, registrations Ethical and disciplinary procedures Compliance of chambers statues and self regulations Quality control activity Training, continuous professional development Legal nature of chamber rules

17. November 29, 200517 Detected irregularities Oversight Committee –call to restore legality, –may suspend the activity of the auditor, initiate the withdrawal of the license, –Initiate a disciplinary procedure /quality control –Obligate the member (audit firm) to supply data. Finally, OC may go to the court

18. November 29, 200518 Hungarian oversight ∑ = comprehensive power + limited operative activities

19. November 29, 200519 Thank you for your attention.