In the business newspaper Äripäev of 30 June 2017, Märt-Martin Arengu, the president of the Estonian Auditors’ Association, discussed the upcoming changes in the Estonian Auditors’ Activities Act. Some of the amendments entered into force already on 1 July and the majority will become effective on 1 September. Borrowing the headline from an old legendary western, Arengu states that some of the important amendments are good, some are bad and some are ugly. 

The definition of a “public interest entity” has been narrowed down, which will leave only about 30 public interest entities in Estonia after 1 July: publicly traded companies, credit institutions and insurance agencies. This in turn means that the administrative burden will be lower.   

In the future, the audit contract must be concluded for a period of two years. This amendment will contribute not only for the benefit of the public and auditors, but also for the benefit of companies. Due to a longer cooperation with one auditor the companies do not need to share the company’s base information to a new person every year.

Unfortunately, the new law brings new expenses for undertakings, as the cost of supervision performed over auditors has been increased and the costs are to be borne by the undertakings that are audited.

Just before the second reading of the draft legislation, an amendment was added making the auditing obligation voluntary for about 1500 smaller public limited companies. “There was no actual debate or impact analysis on this amendment and it was thus not supported by the auditors or the Ministry of the Finance who prepared the draft legislation, “said Arengu. This amendment diminishes the reliability of the public limited company as an institution, as the reliability of the public limited company, compared to a private limited company, is in fact based on four factors: bigger capital requirement of the obligatory contribution, obligatory three-level management structure, obligation to note shares in the central register and a compulsory audit. “Figuratively speaking, we will see how the three-wheeled vehicle will continue to drive, and should an accident occur, there will be a lot of explaining to do,” said Arengu.

More detailed information on the changes in the auditing legislation is available on the homepage of the Estonian Auditors’ Association (in Estonian).

Source: The Estonian Auditors’ Association