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    Country by Country Financial Reporting and Auditing Framework

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    Estonia - Villems Donoway Ltd (prepared August 2015)

     

    Preparation and Filing of Statutory Financial Statements

     

    All legal entities registered in Estonia (Unlimited, Limited companies - OÜ, Joint-Stock companies - AS, Non-profit organizations - MTÜ) are required to file annual reports to the within 6 months after the end of the financial year. The annual reports may be submitted to the Register using a notary or by a person with Estonian ID (including Estonian E-residends).

     

    Self-employed persons (FIE) are required to prepare annual reports within the same period, but not submit them to the Commercial Register.  

     

    Financial Reporting Framework

     

    Estonian entities may choose between IFRS and Estonian GAAP for preparing financial statements. Estonian GAAP is based on the IFRS for SME standard, with a small number of additional requirements specific to Estonia. Beginning January 1, 2016, all entities will be transferred to new formats of financial statements (micro, small and general entities) according to a new EU Accounting Directive.

     

    Audit Requirements

     

    Compulsory audit and review criteria in Estonia

    Estonia is the only country within the European Union that set of requirements for compulsory review for SME entities instead of compulsory audit.  Generally, the selection between audit and review will be made based on the following indicators:

     

    If two parameters in the annual report have been exceeded:

    Audit

    Review

     

    Revenue

    2 000 000 €

    1 000 000 €

    Assets total

    1 000 000 €

    500 000 €

    The average number of employees

    30 people

    15 people

    OR

     

    If one parameter in the annual report has been exceeded:

    Audit

    Review

    Revenue

    6 000 000 €

    3 000 000 €

    Assets total

    3 000 000 €

    1 500 000 €

    The average number of employees

    90 people

    45 people

    In addition, the audit is mandatory for every public company, accounting entity of state, local government, legal person in public law, foundations and political parties who get financial support from the state budget.

     

    A new criteria for compulsory audit and reviews will be introduced for financial years starting January 1, 2016.

     

    Audit Appointments, Rotation and Joint Audits

     

    Audit appointments in Estonia are usually for one year, but it can be extended to several years based on the decision of the owners.  Resignation of an auditor after concluding an engagement contract is not allowed without serious reasons due to a disagreement on audit procedures and conclusions. Any cancellation of a contract should be reported instantly to database of Auditing Supervisory Board (ASB).

     

    There is no requirement to rotate audit firms, except that listed companies and public interest entities must rotate every seven years in line with the ethical standard.

     

    No joint audits were conducted in Estonia up to year 2015.

     

    Auditing Standards

     

    All audit engagements are undertaken under International Standards on Auditing (ISAs) issued by the IAASB.

     

    Ethical Framework

     

    Estonian auditing companies and auditors are bound by ethical standards including the IFAC Code (IESBA). Estonian auditors are also required to fully comply with ISQC 1 on quality control.   

     

    Auditor Registration

     

    Estonian companies, who wish to sign company audit reports, must gain Registered Audit Firm status.  The requirements to gain this status are:

     

    • The majority of the votes represented by the shares of an audit firm shall belong to sworn auditors subject, without restrictions, to supervision of a competent authority of a Contracting State, who have acquired their qualification in a Contracting State, or to audit firms.

     

    • The share capital of an audit firm which is a private limited company shall be at least EUR 12,000.

     

    • An audit firm shall not be engaged in an area of activity other than the provision of an audit service or other business activities.  An audit firm shall not belong to a network of sworn auditors, the structure of which does not enable them to obtain the exhaustive information required for oversight.

     

    • 2/3 of the directors (or 1 in case of two) should be sworn auditors.

     

    • Professional insurance coverage should be at least EUR 64,000.

     

    If a sworn auditor provides audit services as a self-employed person, then the criteria for share capital is not valid and the minimum professional insurance is EUR 32,000.

     


     

    Auditor Regulation

     

    Estonian audit firms are subject to external review by the Auditing Supervisory Board, which reviews all auditors of listed companies on a three-year cycle, and others on a six-year cycle.  Reports on individual firms are not publicly available. However, the ASB report on their inspection programme, summarising their findings across the profession as a whole, which is available on their website (https://www.audiitortegevus.ee).

     

    Internal Quality Control

     

    We have established a formal annual monitoring and peer review process which allows us to gain assurance that our firm's quality control systems are operating effectively. The review consists of both reviews of individual audit files, and an assessment of compliance with the group's policies and procedures relating to independence and audit quality. The files for review are selected using a risk-based approach with a weighting towards public interest entities, and other larger or more complex clients. Every partner is subject to the review of at least one audit file every year.

     

    Transparency Report

     

    All Estonian audit firms with public entities as audit clients are required by law to publish a transparency report.  The Estonian audit firm's report is available from the firm's website or Auditing Board website. 

     

    Topics covered by Transparency Report include:

     

    • Structure, Ownership and Governance
    • Network Regulations and Guidelines
    • Internal Quality Control
    • Independence and Ethics
    • External Regulation
    • Public Interest Entity Clients


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    David Chitty - Audit
    London, United Kingdom
    +44 20.7842.7292


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