Auditor Independence

Prohibitions under Article 34 of Law ZRU-677

• an audit firm may not audit its own creditors and insurers, or companies in which the firm or its auditors are founders, participants or shareholders;
• it may not audit a company whose founder, head, chief accountant or audit committee member works at the audit firm;
• it may not audit a period for which the firm kept or reconstructed the client's books or prepared its financial statements;
• it may not audit if employees of the audit firm are close relatives of the client's founder, head or chief accountant;
• it may not audit where there is a conflict of interest;
• the same company may not be audited for more than seven years in a row.

What impairs independence

• The auditor's financial interest in the audited organisation
• Family ties with officers of the audited entity
• Providing services whose results the auditor would then audit, such as bookkeeping
• Excessive financial dependence on one client
• Any relationship that threatens the objectivity of judgement

Checking independence before the contract

Circumstances that prevent an audit are checked before the contract is signed. Discovering a conflict during the work means the audit has to be stopped, and the costs are wasted for both parties.

The practical consequence for the company

The most common situation is an attempt to engage one firm for both bookkeeping and the mandatory audit. This is a direct violation: the auditor would be auditing its own work. These functions are split between different firms.