Place and role of the Chamber of Hungarian Auditors in the Hungarian business sector2012.11.12.
Economic decision makers in a market economy need information which help them in assessing the past and current asset, financial and income position of a given undertaking, in confirming or adjusting planned concepts regarding the future. Economic information is appropriate for preparing decision making if it is reliable and true. The creditors, investors and market participants regard a report to be true and genuine if the data in the report is reviewed by an independent auditor who issues an opinion and a report on the data. The auditor’s report certifies that the report provides a reliable and fair picture of the assets, finances and income of the enterprise, and that the report is prepared in compliance with accounting rules and regulations in force in the given country and in conformity with general accounting principles. When auditing the report, the parts and items of the report and its support with accounts and vouchers, the auditor must in all cases act in accordance with the provisions of the national auditing standards in force, acquire evidence on their reliable and fair nature, and establish an opinion on the basis of the foregoing. The report audited by the auditor is therefore a source of security for outside clients, business partners, creditors, investors and owners in relation to the fair content and regularity of the report.
The audit establishes value for both the state and the client business. Firstly, the reports of the 55 thousand business units audited by chamber member auditors each year contribute, in a preventive manner, to the legalization of the economy, compliance with laws, and thereby to the collection of tax revenue. Secondly, they also create value for the businesses by helping in assessing their reserves, optimizing taxes and preventing tax fines through useful advising and enhancing the reputation and reliability of the firms.
Audits, however, are not wonder remedies. It would be irresponsible to claim that where audits are held, abuses of rules, open questions and problems cease to exist. Some of the problems are related to the regulation of the object of the audit, i.e. accounting and taxes. If the accounting and tax rules are ambiguous and contradictory, their analysis cannot be effective, either. It would be illusive and impossible to elaborate perfect audit standards for the audit of reports and tax declarations prepared on the basis of faulty accounting, and particularly, ambiguous tax rules. The other problem is caused by the person of the auditor and the audit methods. The greatest risk underlying the audit is that an inadequate report is issued, or the report contains significant misstatements, and the opinion is nevertheless clean, or the qualified opinion issued in the auditor’s report is not sufficiently supported with evidence.
The year 2008 witnessed numerous changes in the life of the Chamber of Hungarian Auditors.
- As a result of elections held to fill in various posts, new faces appeared in most counties, the national presidium and at the head of the different committees, as well as in the membership, to make way for new concepts. The number of statutory duties have increased, interest representation has gained in importance; the quality control system has become more rational, efficient, useful and simple; reform measures were taken in the area of liability insurance; the curriculum and methods of auditor training and further training have been revised; the standards of the form and content of the professional journal and news bulletin of auditors has improved; a new, user friendly web site has been introduced; the electronic IT system underwent modernization, and the budget position of the chamber has improved as a result of external financing sources and savings measures.
- The doubling of the sales revenue limit of mandatory audits (from HUF 50 million to HUF 100 million) will likely lead to the roughly 30% drop in orders. It is therefore necessary to explore new areas and opportunities for utilizing the know-how and experience of chamber members.
- The rules of the revised Chamber Act in force as of January 1, 2008, and the statutes and other codes accordingly revised, produced major changes in the following areas:
- chamber membership and registration: permitted activities, personal participation, independence, coordinating body, auditor network, secondary status, titles used by the auditor, identification, agency contract, statement of approval;
- professional and financial liability of the auditor: the auditor company must have insurance and not the employee or member auditor;
- exemption from confidentiality is not necessary in relation to the old and new auditor;
- quality control: the quality control code and manual is completed, as well as the new questionnaire of full quality control composed of 66 and 98 questions;
- training of certified public accountants: maximum period of 4 years; one and not three years of professional practice is sufficient; tax studies is a new subject; competence examination after one year of apprenticeship and two years professional practice of 36 hours a week; the diplomas are issued by the Committee for the Qualification of Chartered Certified Statutory Auditors (OKKT) in place of OKKB;
- compulsory further training: there is now only one day of compulsory topical training; local organizations organize three days of courses on the basis of interest; progress has been made in the area of e-learning;
- a committee was set up to elaborate chamber recommendations in relation to fees;
- transparency report of the auditors of economic associations of public interest and the frequency of their quality control.
- The seven member Auditor Public Oversight Committee has commenced operation. In the event of detecting a situation posing a risk to the interests of parties using audit services based on statutory obligations, on the basis of the analysis, evaluation, assessment of available facts, in consideration of the degree of risk, the Committee: issues a proposal to the chamber or the minister for the elimination of the situation posing a risk to the interests of customers receiving audit services; files proceedings at the competent organofthe chamber; files for statutory supervisory proceedings.
- Changes have affected both international and Hungarian audit standards.
- The cooperation agreement concluded with the State Audit Office is based on new foundations.
Net sales revenue produced by audit companies and individual auditors rose by 6.37%, while the total net sales revenue of individual auditors basically remained unchanged.
The distribution of the market share of our members and registered companies on the auditor market has shifted to the advantage of the companies.
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The sales revenue of 13.4% of audit companies, or 253 companies, did not exceed HUF 4 million. By analysis of bracketed sales revenue, it may established that over 3/4 of the companies produced turnover approximating between HUF 4 and 30 million, corresponding to a total of 30% of the sector’s sales revenue, while the 35 companies with the highest sales revenue hold a market share of over 56%. The annual net sales revenue per capita of individual auditors with sales revenue reached HUF 5,724,000.
Act LIII of 1723 first regulated book-keeping obligations in Hungary. Act XVIII of 1840 authorized auditors to examine the correctness of closing accounts. (Section 130 of Act XXII of 1843 regulates auditing activity relating to fraudulent, accountable bankruptcy.) Act XXXVII of 1875 on trade also constituted a major advancement of our profession. The first Hungarian audit body was established in 1911 under the name Hungarian Association of Chartered Accountants. (The companies act of 1862 in Great Britain stipulated the institution of independent auditors for joint stock companies, and the Institute of Chartered Accountants was established in 1880. A similar organization has been in place in Germany since 1896 and Austria since 1904.)
The Association of Hungarian Certified Public Accountants was established in 1932 and disbanded on September 15, 1950. Since then auditors were named not as “chartered” but as “certified”. The diplomas were issued by the Accountancy Qualification Committee of the Ministry of Finance.
In the era of socialism, accounting was predominantly used to serve the interests and information needs of the ruling organs. Accounting experts were mere instruments for executing account frameworks of the people’s economy and the sectors and Decree 33 of 1968. The relevance of auditing also diminished in parallel; beyond forensic auditing, auditors were employed in central, government control or as financial managers of companies.
The Forensic Audit Committee was established in 1965, the Society of Hungarian Auditors in 1967. The Association of Hungarian Auditors was founded twenty-one years ago in 1987, and the Chamber of Hungarian Auditors was formed eleven years ago. With Act LV of 1997, the first period of the renewal of the Hungarian auditing profession was concluded. Parliament reinstated the institution of the audit, recognizing the public body of auditors as entitled to self-government. Since the effective date of this law, only members of the chamber and audit companies registered in the chamber’s register are authorized to conduct audit activities. Parliament revised this law last year after ten years. Thus Act LXXV of 2007 on the Chamber of Hungarian Auditors, audit activity and public oversight of auditors constitutes the statutory provision currently in force.
1997 Parliament passed Act LV on Auditing and on the Chamber of Hungarian Auditors in June 1997, thus acknowledging the right of auditors to establish their own Chamber to manage their affairs and represent their professional, ethical and economic interests in harmony with public interest through its elected bodies and officers. In accordance with the provisions of the Act, the Minister of Finance appointed a preparatory committee, including 21 members, to prepare the foundation of the Chamber. The committee was active from September 5, 1997 till December 17, 1997, the day of the constituent meeting. The committee drafted the Chamber’s provisional rules and election procedures, granted temporary membership to auditors licensed by the Ministry of Finance, organised thefounding and election of deputies and management of local chambers in 19 counties and in Budapest, and prepared the founding general meeting. The Chamber was registered by the Budapest Court following its announcement in the Companies Gazette on December 23, 1997.
1998 The Society of Hungarian Auditors was dissolved at its general meeting on January 15, 1998. According to the law, the new Chamber is not a legal successor of the former organisation. One of the major tasks of the Chamber of Hungarian Auditors was to replace the existing certificates and issue new operating licences to active auditors.
2006 Based upon experience gathered, significant changes and developments affecting the profession have taken place in the European Union. EU Directive 2006/43/EC has laid down the requirements for auditors, audit firms and their public oversight, along with their mandatory adoption date in member states.
2007 Due to these changes, and based on mid-term strategic objectives and recent experience, the Act on the Chamber of Hungarian Auditors was recast. The new Act (Act LXXV of 2007) was passed by the Parliament on June 2007.
2008 The Act on the Chamber of Hungarian Auditors went into effect on January 1, 2008. The new Act has reaffirmed the legal status of the Chamber and expanded its professional and public tasks.
2009 As of July 31, 2010, the Chamber of Hungarian Auditors had 5,637 members, including 3,351 active auditors, 2,286 temporarily inactive auditors and 1,940 registered auditing companies.
OBJECTIVES, MAIN ACTIVITIES
Under the Act, the Chamber performs the following public tasks:
– registering auditors and auditing companies,
– publishing official listings of registered auditors and auditing companies,
– tasks related to organising examinations for independent auditors in connection with their vocational training and certification.
Other tasks assigned to the Chamber:
– reviewing laws and statutory regulations within the scope of activities of auditors,
– establishing and publishing national audit standards,
– mandatory training of auditors,
– managing the quality control of auditing,
– publishing and observance of ethical rules,
– issuing rulings in professional issues.
In agreement with the Minister of Finance, the Chamber
a) appoints members of the Committee for the Qualification of Chartered Certified Auditors to issue auditor certificates,
b) sets the rules of examination for independent auditors,
c) makes recommendations for members of the board managing the examination of independent auditors and for one-third of the members of the National Accountancy Committee.
To accomplish its objective, the Chamber:
– publishes professional books, methodology guides and aids, and promotes professional development by organising seminars and conferences,
– promotes social recognition of the profession; it plans to publish professional information, to promote client relations,.
– participates in the work of international organisations of auditors and accountancy experts
and disseminates information among its members,
– the Chamber founded the Chamber of Hungarian Auditors Training Centre Ltd. in August 1999, to provide training services on a commercial basis. The company has proved a successful venture and has contributed to the preparation and financing of the Chamber’s professional programmes. The Centre is a leading market player in training financial and accountancy specialists. It also assists professionals by offering them a wide range of trade books and literature,
– on April 30, 2002 the Chamber founded the Chamber of Hungarian Auditors Insurance Broker Ltd., as a one-man joint stock company, to manage auditors’ liability insurance. The company’s tasks include obtaining insurance offers, concluding contracts, representing auditors vis-á-vis insurance companies, risk assessment, prevention of damages, consulting, managing claims and involvement in the collection of insurance premiums, – in March 1999 the Chamber set up the Dr László Rieb Foundation to promote language services for auditors. The Foundation’s objective is to create the conditions for auditors’ language education through setting up a modern scholarship system and through strengthening cooperation with European auditor organisations,
– the Chamber set up the Foundation for the Development of Hungarian Accounting in December 2001, to promote the translation of international accounting standards into Hungarian, their publishing and dissemination and the harmonisation of Hungarian accounting rules with these international accounting standards.
Legal supervision of the Chamber is exercised by the Minister of Finance. Announcements, rulings and resolutions of the General Meeting, the Presidium and the technical committees
are published in the Chamber’s official paper (Számvitel Adó Könyvvizsgálat, SZAK-ma) and monthly in its Newsletter as well. From 2008, both publications have also been available electronically on the Chamber’s website.
The Chamber’s primary objective after Hungary’s accession to the EU is to establish, jointly with member states, professional auditing services, with auditors:
– providing high-quality services and developing their professional knowledge and competence on a continuous basis,
– applying and observing national auditing standards and principles,
– adopting professional and ethical standards of behaviour,
– the Chamber seeks to promote public recognition of the profession, allowing auditors to help achieve Hungary’s economic objectives,
– to achieve its goals, the Chamber participates in the development of auditing and accounting practices and initiates the teaching and wide implementation of modern auditing methods in Hungary.
The Chamber of Hungarian Auditors is a member of the International Federation of Accountants (IFAC). From December 2002, it has been an ordinary member of the Federation of European Accountants (FEE). It is represented in the FEE’s Council and in the IFAC’s Developing Nations Committee.
The Chamber maintains close bilateral relations with the professional chambers of Croatia, the Czech Republic, France, Romania, Serbia, Slovakia, Slovenia, Poland and Ukraine. It is also in close cooperation with the national chambers of Austria, Germany, Italy, the Netherlands and Scotland.
The Chamber’s representatives regularly offer presentations at international conferences. The Chamber’s strategic objective is to establish ongoing cooperation with the professional chambers of EU member countries.
Dr. János Lukács
Chamber of Hungarian Auditors