Statutory audit for 2019: how to avoid sanctions and fines
Significant changes adopted in the legislation on accounting and audit in Ukraine have affected many medium and large enterprises.
In this article, I would like to highlight the sanctions that may be imposed on companies for violations related to the non-publication of financial statements and the auditor’s report as required by the new legislation.
It is worth noting that the fines themselves are not that significant. A more substantial risk for large enterprises is the non-acceptance of the tax return for 2019 and subsequent years, if they were prepared on the basis of the financial result in accordance with Ukrainian Accounting Standards (UAS), rather than under International Financial Reporting Standards (IFRS), and not confirmed by the external auditor. The very fact of the violation of local compliance may be important for medium enterprises, especially those with foreign capital.
- The Law “On Accounting and Financial Reporting in Ukraine” No. 996-XIV as of November 16, 2018 does not contain any sanctions for enterprises.
- The Law “On Audit of Financial Statements and Auditing Activities” No. 2258-VIII of 21.12.2017 regulates the issue of sanctions/penalties for violations.
- This Law supplements the Code of Administrative Offences of Ukraine with Article 163-16. This provision came into force on January 1, 2019.
“Article 163-16. Violation of the procedure for disclosure of financial statements or consolidated financial statements.
Violation of the procedure for disclosure of financial statements or consolidated financial statements, along with the audit report, entails the imposition of a fine from 1,000 to 2,000 of tax-free minimum incomes of citizens* (i.e. from UAH 17,000 thousand to UAH 34,000 thousand). A repeated violation under paragraph one of this article, in respect of which the person has already been subject to administrative penalty during the year, entails the imposition of a fine from 2,000 to 3,000 of tax-free minimum incomes of citizens (i.e. between UAH 34,000 thousand and UAH 51,000 thousand)”.
* Tax-free minimum incomes of citizens = UAH 17.
There’s an important point to be emphasized here. If the company does not rectify its violation (i.e. does not prepare financial statements in accordance with IFRS and does not conduct an audit) within the period specified in the order of the supervisory body, it may be fined again.
The Law on audit specifies the supervisory authority that will regulate these violations.
“Article 244-22. Public supervisory authority for audit activities.
The public supervisory authority for the audit activities considers cases of administrative violations related to the violation of the procedure for disclosure of financial statements or consolidated financial statements, as well as the audit report (Article 163-16, except for violations committed by banks, non-banking financial institutions and issuers whose securities are admitted to trading on stock exchanges or in respect of whose securities the public offer was made by professional stock market participants), provision of information by the auditor, in cases determined by law, to the public supervisory authority for the audit activities (Article 166-26)”.
That is, public supervisory authority for the audit activities will fine all enterprises subject to statutory audit (whether large or medium) for violations, except the following:
- banks (the National Bank of Ukraine supervises them as before);
- financial institutions, such as insurance and leasing companies (the National Commission for State Regulation of Financial Services Markets is the supervisor);
- public joint-stock companies, asset management companies (the National Securities and Stock Market Commission supervises them as before).
If your company meets the criteria of medium or large enterprises, and you still have questions in the field of new legislation, Kreston GCG experts will be happy to answer them.
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