Commercial banks are major participants of market economy. Any kind of information that may affect the process of attracting investors or investment itself, especially information on some company’s financial accounts are vitally important for the development of free market economy.
The truth of information depends on auditing companies’ service quality and qualification level of auditors. Therefore, high quality auditing service is a basis of free market economy formation. The issue requires our particular attention that is why ‘Sakartvelos Ekonomika’ continues to discuss auditing activities. At one of the previous additions (#4 (125), ‘Auditing business in the world and in Georgia’) we have spoken about the regulation types of the sphere, by means of joining international standards and local experience we have tried to answer the question – what method should a government choose for managing the sphere –should it be state regulation or self-regulation? This time, we will concentrate on auditors’ education and qualification: what programs do modern auditors apply, what changes are introduced in international standards and what is being done in Georgia in this respect.
On May 28-29 Georgian Federation of Professional Accountants (GFPAA) and Auditors and the Association of Chartered Certified Accountants (ACCA) arranged an international conference on ‘Professional Education and Service Quality Control’. Before discussing contents of the conference, let us get brief information on Georgian Federation of Professional Accountants (GFPAA) that was first formed in December 1996 as a Georgia Club of Accountants and has been given a name of GFPAA since 1998 following the merger of Georgia Club of Accountants and the Georgia Association of Accountants. Since 1999 GFPAA has launched professional accountants’ certification program that fully met the requirements of International Federation of Accountants (IFAC). Since 2000 GFPAA has begun to modify and introduce Auditors and the Association of Chartered Certified Accountants (ACCA) certification program in Georgian. GFPAA is a member of IFAC since 2000. GFPAA formed ‘Institute of professional Accountants’ in 2003. The institute prepares candidates for professional accounting through ACCA program. GFPAA unites 13 corporate (auditing company) and 3.324 member individuals (including 560 real members). As Georgian Federation of Professional Accountants states the main objective of GFPAA is to maintain full correspondence with international practice in the sphere of professional certification of auditing and service quality control, the thing that is also required by International Federation of Accountants. Sharing and considering international experience is of utmost importance while reaching the above mentioned goal. The conference served this goal too. It was attended by various professional, international and donor organizations (from England, Germany, Turkey, Estonia, Kazakhstan, Russia, Azerbaijan, Armenia etc), as well as representatives of Georgia’s governmental and non-governmental sector, education and business. Participants shared with their countries’ experiences related to professional education and service quality control in fields of accounting and auditing. While talking about international standards on auditing we should consider the Directive of the European Parliament and of the Council of the European Union, 17 May 2006. According to the directive, a natural person may be approved to carry out a statutory audit only after having attained university entrance or equivalent level, then completed a course of theoretical instruction, undergone practical training and passed an examination of professional competence of university final or equivalent examination level, organized or recognized by the Member State concerned. The examination of professional competence should guarantee the necessary level of theoretical knowledge of subjects relevant to statutory audit and the ability to apply such knowledge in practice. Part at least of that examination shall be written.
The test of theoretical knowledge included in the examination should cover the following subjects in particular:
· General accounting theory and principles;
· Legal requirements and standards relating to the preparation of annual and consolidated accounts;
· International accounting standards;
· Financial analysis;
· Cost and management accounting;
· Risk management and internal control;
· Auditing and professional skills;
· Legal requirements and professional standards relating to statutory audit and statutory auditors;
· International auditing standards;
· Professional ethics and independence.
It should also cover at least the following subjects insofar as they are relevant to auditing:
· Company law and corporate governance;
· The law of insolvency and similar procedures;
· Tax law;
· Civil and commercial law;
· Social security law and employment law;
· Information technology and computer systems;
· Business, general and financial economics;
· Mathematics and statistics;
· Basic principles of the financial management of undertakings
In order to ensure the ability to apply theoretical knowledge in practice, a test of which is included in the examination, a trainee should complete a minimum of three years’ practical training in, inter alia, the auditing of annual accounts, consolidated accounts or similar financial statements. At least two thirds of such practical training shall be completed with a statutory auditor or audit firm approved in any Member State. Member States shall ensure that all training is carried out with persons providing adequate guarantees regarding their ability to provide practical training. Directive of Council of the European Union should be taken into consideration by all member states.
We have discussed the issues related to education standards in our country with the chairmen of the board of Georgian Federation of Professional Accountants Revaz Dzadzamia
– Does Georgia meet international standards and requirements of auditing service?
– One of the major objectives of a statutory audit is the level of professional training, keeping professional ethics and working by internationally acknowledged standards. The situation in Georgia does not comply with international level, although it is far better from auditors’ education point of view in comparison with last 5-10 years, the period when the activity was just starting. It was caused by a fact that together with A Council for Audit Activities, professional organization GFPAA was authorized to certify and approve auditors. Although we have strict requirements to a company to get a right for auditing activities, still, it is a step forward for training qualified specialists. Currently the federation certifies auditors by means of internationally acknowledged ACCA program. The program was introduced in Georgia in 1998 by starting training staff in the English language. In 2000 it was translated in Georgian. At first we used to invite specialists from abroad for English language students, by the time we started Georgian language program, we had our own specialists, our citizens, that had passed ACCA exams. Consequently Georgian language program was delivered by our own students.
– There are some other international programs of auditors’ education, such as CPA, CGA, CPA/CIPA. Is it possible to receive certificate only by ACCA program in Georgia?
– There are some other programs approved by several states, but only within professional organizations. For example, in post soviet states (Russia, Uzbekistan, Azerbaijan, Ukraine etc) have launched CIPA program. Still, the program is not recognized as auditors’ training program. Those who take it are approved as professional accountants and members of professional organization. In order to be licensed as an auditor, he/she must apply to auditors’ activities regulating structure and take a new exam required by this particular structure. Besides, there are some other programs too, but unlike ACCA, they are not international. ACCA operates in 150 countries and is recognized by auditing companies as well as by state. Those who apply ACCA in Georgia do not require to take additional exam in order to work in the sphere of auditing. GFPAA has reached this agreement with a Council for Audit Activities. Moreover, those who pass exams by this program are considered to be more qualified specialists, than let’s say, those candidates who take only unwritten exams at a Council for Audit Activities.
– Is GFPAA certificate internationally acknowledged?
– It’s a bit difficult issue. According to the International Federation of Auditors there are certain criteria of inter recognition. It means that certificates issued by IFAC member organizations should be recognized by other member too. Since GFPAA is a member organization of the International Federation of Accountants, other same type of institution should recognize our certificate. Although there are certain restrictions, namely: if the specialist recognized as a professional accountant by our Georgian language program wishes to work in other country, he/she is required know the language, tax code and business related law of the given country. The same applies to our country, an auditor coming form other county may be required to meet same local standards and take exams to receive a permission of activity. Let me mention once again that out specialist have never faced any trouble regarding recognition. In case it happens, we are eligible to contact the professional organization and explain that the staff is qualified to meet international standards.
– Does the certificate have a period of validity?
– Certificate issued by us does not have a period of validity, although it does not imply that a person, receiving the certificate once keeps the profession for good. There is a requirement towards certified specialist – to raise qualification level from time to time to meet new needs. Changes annually take place. 2005-2007 was considered to be relatively so to say ‘still’ period and significant changes in accounting standards did not take place. Still during this ‘quiet period’ 8 new standards entered into force and about 20 existing standards were amended. Bigger changes are ahead. American accounting principles and international standards of accounting are being merged nowadays so that all countries of the world apply the same international standards. GFPAA implements education program to be involved in the processes. Certified specialist should annually prove the qualification level. It may imply participation in conferences, attending training courses, presenting relevant certificates, posting articles or scientific works etc. Those specialists, who can not implement the above mentioned, are required to attend 40 hours trainings and seminars organized by GFPAA by the end of each year.
– What is the situation like regarding auditor’s service quality in Georgia?
– Auditors’ service quality control is maintained by a Council for Audit Activities of the Parliament of Georgia. Although the Council has been functioning during the last 13-14 years, real measures in this regard, haven’t been taken – none of auditing companies and individual auditor have been controlled and examined yet. It is impossible to gain society’s trust towards auditors without monitoring audit activities.
– According to a Council for Audit Activities, legal mechanisms that would discipline low level auditing service do not exist.
– It may also be true. Still, regulating institution should study and have at least general idea about the situation in this respect. In case it finds the situation to be difficult and researches give the right to express it, the council should attempt to affect the low quality service. Since GFPAA did not succeed in finding a way of cooperation with the Council for Audit Activities, it has found other way out – GFPAA suggested auditing companies to become member organizations. Each of them is aware from the very beginning that the federation implements a quality control. In case of ignoring GFPAA recommendations regarding improving service quality, the company is excluded from GFPAA. Exclusion from the federation threatens the image of a company. The client seeking for a high quality will not use its service. Consequently, our member companies try their best to offer high quality service to their customers as well as to meet international standards and requirements.
This is the federation’s route. There are more than 200 auditing companies in Georgia and only 13 of them have joined us yet. Although law may introduce changes soon and may oblige all auditing companies who plan to remain on market to become the member of professional organization.