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Kyiv – 14 October 2011Petr Šobotník – President KAČR

Czech Audit Market

Current Topics and Challenges

Petr Šobotník - Introduction

Born in 1954 Accounting background ( 1980 – 1990 ) Joined C&L in 1991, Partner since 1995 Partner in PwC – 1998-2010 Independent consultant/auditor since 2010 President of the Czech Chamber since 2007,

reelected in 2010 FEE – member of Ethics Working party since 2004

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Czech Economy

Population of 10.5 mio

Major privatisations completed (VW, RWE,E.ON, TPCA, Huyndai, O2, Vodafone, TMO, Philip Moris, Erste, SG, Generali, SAB Miler, Arcelor, Evraz, Siemens Skanska, Veolia ) only limited number of state owned companies ( energy, post, railways, airlines)

Modest GDP growth in 2010, further reduction of growth in 2011, growth prediction for 2012 between 1-2 %

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Czech Audit profession

The Czech Chamber of Auditors established by law in 1993 – 18 years of operation ( amended by law in 2000) – active member of IFAC and FEE

New Act on Auditors since April 2009 – implementation of the European Directive on Statutory Audit approved in May 2006

Self-regulatory status still in place, however Public Oversight ( not state oversight !! ) established in 2009

Limited involvement of Ministry of Finance and Czech National Bank

Only one Chamber of Auditors in Czech Republic

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Audit Requirements

3 criteria – turnover ( 4 mio EUR), assets ( 2mio EUR), employees ( 50 )

Joint stock companies – 2 criteria Limited liabilities companies – 3 criteria ISA ( International Standards on Auditing ) obligatory

since 2006 Accounting framework – Czech Standards, however

all Public Interest Entities under IFRS since 2010, new option for multinationals to use IFRS since 2011

IFAC Code of Ethics obligatory since 2004

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Czech Auditors – Age structure June 2011

Sole Practitioner

Employed Temporary non – active

Total

Below 30 4 25 - 29

31 – 40 48 171 9 228

41 – 50 160 194 6 360

51 – 60 220 217 9 446

61 – 70 123 91 11 225

Over 70 44 8 4 56

Total 599 706 39 1344

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Czech Auditors – Age Structure

New auditors only exceptionally start as sole practitioners

80 % of auditors in category 31 – 40 are employed

Sole practitioners only dominate in categories over 70 (85%) and 60 – 70 (60%)

Number of auditors stabilized – new auditors replace older generation (turnover about 40 annually)

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Size of the Czech Market

Czech Auditors and Audit firms pay( in addition to fixed contributions ) to Chamber 0,45 % of their audit and audit related revenues – major source of income for our Chamber

Czech audit market – CZK 4bn – EUR 160 mio

However actual 2011 figure lower by 10 % - extreme pressure on our fees due to worsening of economic situation of our clients and tough competition

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Size of the Czech Market

Fixed contributions amount for 40% of fees paid – stabilised

Variables – change in trend – after several years of growth – 2010 is the first year of decline

Big 4 dominates in variables – 70% of all variables paid by firms

Nr.5 generates only 30 % of income of Nr.4

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New Act on Auditors - Leadership

Composition of Board –50 % rotation every 2 years Consensus of various players

6 members – Big 4 2 members – small firms (ex Big 4) 3 members – Academicians 2 members – small firms 1 member – sole practitioner

Supervision + Disciplinary Committees – no changes (elected for 4 years)

New Act on Auditors - Leadership

Several Committees under Board Audit Accounting Continuous education Entrance to profession SMP/SME Public sector ( municipalities ) Membership

Only voluntary membership in committees

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New Act on Auditors- Chamber Office

20 employees

Strong quality control department – 8 staff

Methodology group – 4 people

Other support functions – membership, entry to profession, continuous education

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New Act On Auditors–Admittance to Profession

Significant liberalisation Acceptance of various exams under given conditions

increased interest to admittance Up to 7 exams (11 in total) – Prague School of Economics Up to 6 exams (12 in total) - ACCA

Oral exam no longer in place – hot topic (7+3) concept to be replaced by (5+5) concept

Number of years – exams recognised Number of years – exams to be completed

Appeal to Public Oversight possible

Continuous education

40 hours annually required – each member

Priority themes under Chamber umbrella – clarified ISA´s in 2010 and 2011

Compliance carefully monitored

Important role of Academicians in accounting and Professionals in auditing

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New Act on Auditors – Public Oversight Supervising role

RVDA (Czech Public Oversight Board- POB) 2 years of experience in place supervising and appealing role namely Presidium (6 members) in charge with 2/4/6 years of

mandate – partial rotation every 2 years Only one auditor in Presidium nominations made by Ministry of Finance (in agreement

with Czech National Bank) Nominations proposed by various institutions (MF, CNB,

Chamber of Trade, Industry Chamber, Academicians, KACR)

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New Act on Auditors – Public Oversight Supervising role

Supervising role closely linked to quality control inspection programme

Inspections performed namely by inspectors employed by Chamber plus auditors elected into Supervision Committee, no inspections performed by POB only, POB can join any inspection and initiate new ones

Number of inspections growing 2009 – 148 2010 - 191

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New Act on Auditors – Public Oversight Supervising role

POB quality control commitee thoroughly supervises the whole process

KACR must submit to POB performance report semiannually

Historically – not all auditors inspected Everyone must be inspected by end of 2013 Inspection rating implies potential disciplinary treatment Size of penalties is a topic Both 2009 and 2010 – penalties in a range CZK 500 th. –

600 th. collected in total 2011 over CZK 1mio (EUR 40,000)

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New Act on Auditors – Public Oversight Supervising role

Auditors of PIE ( Public Interest Entities )inspected every 3 years; others every 6 years

C,D result – inspection in period of 2 years to be repeated

Quality in centre of inspections Special focus on auditors of PIE

Public Interest Entity –all publicly traded entities, all financial institutions, big companies with employees over 4000

Conclusion

Key aspects of auditor´s work still valid Independence,Objectivity,Confidentiality,Professional

care Protection of the public interest

Strong application of self-regulatory mechanisms is vital, oversight role important, but quality work must be delivered by auditors

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Czech Audit Market

Questions ?

Interested more?

Attend www.kacr.cz

( in Czech end English )

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