An assessment of accounting and auditing practices conducted by the World Bank in 2004 points out that since 1997 Chilean standard setting authorities have been bringing Chilean Generally Accepted Auditing Standards (GAAS) in line with International Standards on Auditing (ISAs). Although broadly aligned with ISAs, Chilean GAAS still differ from the international standards as it is less specific and fails to cover important accounting areas. According to the World Bank, this could hamper the accuracy of the financial statements and the perception of the quality of financial reporting by the stakeholders. The World Bank, therefore, recommended to either incorporate the missing ISAs into Chilean GAAS, or to adopt ISAs altogether. On January 21, 2004, the Inter-American Development Bank (IADB) approved a project "International Financial Reporting and Auditing Standards: Chile." Its primary purpose is to strengthen existing mechanisms to support the system of issuance and adoption of international standards, as well as to converge towards ISAs and international accounting standards. More recently, a 2007 Chilean Association of Accountants (CCC) self-assessment confirmed that the CCC is in the process of implementing the IADB convergence plan for the adoption of ISAs in Chile. It was decided that international standards will be adopted without modifications, the self-assessment explains. However, as of July 2008, there is no indication that ISAs had been adopted by the Chilean authorities.

General Overview

According to a 2004 assessment of accounting and auditing practices conducted by the World Bank, the Chilean Corporations Law distinguishes between "open" and "closed" companies which follow different auditing requirements. All open companies must register with the Superintendency of Securities and Insurance (SVS) and are required to have their financial statements audited. The annual financial statements of all registered companies must be audited and filed with the SVS within 60 days after the calendar year-end. Closed corporations, although not required to register with the SVS, can voluntarily choose to do so and therefore need to be audited as well. Non-registered companies are only required a verification by an "inspector of accounts." This verification, the World Bank notes, is not equivalent to an audit. Therefore, the report observes, a significant number of Chilean corporate entities are not subject to the audit requirement.

The financial sector, including banks and insurances companies, is also subject to mandatory financial statement audits. With regard to insurance companies, in addition to the financial reporting requirements, the SVS also requires that external auditors issue an opinion with respect to the quality of internal controls. Additionally, banks, pension funds, insurance companies and other financial institutions are subject to financial reporting requirements laid out by the Superintendency of Banks and Financial Institutions (SBIF). The SVS, SBIF and the pension funds regulator, the Superintendency of Pensions (SP), maintain a registry of public accountants to conduct statutory audits. However, the World Bank report finds that the requirements set by the SVS for the registration of auditors are inadequate. The report also adds that although the Corporations Law and the Banking Law lay out sanctions against auditors for cases of false or fraudulent representations, non-compliance with professional standards is not penalized.

With regard to Chilean Generally Accepted Auditing Standards (GAAS), the World Bank points out that "while Chilean auditing standards and professional code of ethics produced by the CCC [Chilean Association of Accountants] are broadly in line with their international counterparts, they lack specificity and do not cover important issues" (p. ii). The report explains that this could impede assessing the accuracy of the financial statements and jeopardize the quality of financial reporting. Even though Section 101 of the Chilean auditing standards stipulates that in the absence of a national standard covering a specific matter, auditors are required to apply the relevant International Standards on Auditing (ISAs), the World Bank report notes that lack of active enforcement does not ensure the application of section 101. The World Bank recommended that the CCC either incorporate the missing ISAs as Chilean standards, or adopt ISAs completely. In line with the World Bank recommendations, in January 2004, the Inter-American Development Bank (IADB) approved a project on "International Financial Reporting and Auditing Standards: Chile." According to the IADB website, the objective of the project is to "strengthen existing mechanisms to support the system and process for issuance and adaptation of international standards, and to strengthen effective mechanisms of coordination, integration and dissemination, and to converge towards them." The project comprises four key components involving a convergence plan to bring accounting and auditing standards in line with international standards, strengthening of the accounting profession, professional training and dissemination of accounting and audit related material. The project will span over a 48 to 54 month period and the CCC is in charge of the implementation. A 2007 CCC's self-assessment confirmed that the CCC is in the process of implementing the IADB convergence plan for the adoption of ISAs in Chile. However, as of July 2008, there is no indication that ISAs had been adopted by Chilean authorities.

The World Bank report indentifies other weaknesses in the financial reporting regime with regard to the lack of an adequate licensing mechanism and a process for conducting quality control of statutory auditors. It also was recommended to establish in law a public oversight board for statutory auditors that should have the following function: (1) qualifying statutory auditors; (2) setting professional related standards; (3) enforcing those standards through on-site inspections and disciplinary proceedings; and (4) reporting to the public. The report states that "it would allow to ensure that auditors have adequate capacity to carry-out their function and that the public and interested parties enjoy adequate protection against misstated financial information" (p.iii).

The CCC, a voluntary organization, is legally empowered to develop and issue Chilean auditing standards. The CCC issues the Manual of Ethical Standards which, the World Bank notes, although similar to the IFAC code of ethics, it is "fairly vague, is very rarely prescriptive, and contains ...general statements" (p. 6). The World Bank also finds that the CCC lacks resources and membership is not compulsory to provide audit services. Furthermore, the assessment notes that there is little incentive for the CCC to impose stringent requirements on its members. Enforcement of the CCC ethics manual is weak and there is no mechanism to monitor in any ways whether the audit practice among its members is in line with CCC standards. According to the 2007 CCC self-assessment, the translation of the IFAC code was in process at the time of the assessment. The CCC is listed as a member on the International Federation of Accountants website.

The Principles

ISA 200 Objective and General Principles Governing an Audit of Financial Statements (effective 2006)

II

There is insufficient information publicly available as to Chile's compliance with this principle.

ISA 210 Terms of Audit Engagements (effective 2006)

II

There is insufficient information publicly available as to Chile's compliance with this principle.

ISA 220R Quality Control for Audits of Historical Financial Information (effective 2005)

NC

According to the 2004 World Bank report, "the Chilean standards on quality control were less specific and demanding than ISA 220" (p. 15).

ISA 230R Documentation (effective 2006)

II

There is insufficient information publicly available as to Chile's compliance with this principle.

ISA 240 The Auditor’s Responsibility to Consider Fraud in an Audit of Financial Statements (effective 2004)

NC

According to the 2004 World Bank report, Chilean GAAS did not address the issue of error and fraud.

ISA 250 Consideration of Laws and Regulations in an Audit of Financial Statements (effective 2004)

II

There is insufficient information publicly available as to Chile's compliance with this principle.

ISA 260 Communications of Audit Matters With Those Charged With Governance (effective 2004)

NC

According to the 2004 World Bank report, Chilean GAAS did not address the issue of communication with the directors' committee.

ISA 300 Planning an Audit of Financial Statements (effective 2004)

II

There is insufficient information publicly available as to Chile's compliance with this principle.

ISA 315 Understanding the Entity and Its Environment and Assessing the Risks of Material Misstatement (effective 2004)

II

There is insufficient information publicly available as to Chile's compliance with this principle.

ISA 320 Audit Materiality (effective 2004)

II

There is insufficient information publicly available as to Chile's compliance with this principle.

ISA 330 The Auditor’s Procedures in Response to Assessed Risks (effective 2006)

II

There is insufficient information publicly available as to Chile's compliance with this principle.

ISA 402 Audit Considerations Relating to Entities Using Service Organizations (effective 2004)

II

There is insufficient information publicly available as to Chile's compliance with this principle.

ISA 500 Audit Evidence (effective 2004)

II

There is insufficient information publicly available as to Chile's compliance with this principle.

ISA 501 Audit Evidence - Additional Considerations for Specific Items (effective 2004)

II

There is insufficient information publicly available as to Chile's compliance with this principle.

ISA 505 External Confirmations (effective 2004)

II

There is insufficient information publicly available as to Chile's compliance with this principle.

ISA 510 Initial Engagements — Opening Balances (effective 2004)

NC

According to the 2004 World Bank report, Chilean GAAS did not address the issue of initial engagements.

ISA 520 Analytical Procedures (effective 2004)

II

There is insufficient information publicly available as to Chile's compliance with this principle.

ISA 530 Audit Sampling and Other Selective Testing Procedures (effective 2004)

II

There is insufficient information publicly available as to Chile's compliance with this principle.

ISA 540 Audit of Accounting Estimates (effective 2004)

II

There is insufficient information publicly available as to Chile's compliance with this principle.

ISA 545 Auditing Fair Value Measurements and Disclosures (effective 2004)

II

There is insufficient information publicly available as to Chile's compliance with this principle.

ISA 550 Related Parties (effective 2004)

II

There is insufficient information publicly available as to Chile's compliance with this principle.

ISA 560 Subsequent Events (effective 2006)

II

There is insufficient information publicly available as to Chile's compliance with this principle.

ISA 570 Going Concern (effective 2004)

II

There is insufficient information publicly available as to Chile's compliance with this principle.

ISA 580 Management Representations (effective 2004)

II

There is insufficient information publicly available as to Chile's compliance with this principle.

ISA 600 Using the Work of Another Auditor (effective)

II

There is insufficient information publicly available as to Chile's compliance with this principle.

ISA 610 Considering the Work of Internal Auditing (effective 2004)

II

There is insufficient information publicly available as to Chile's compliance with this principle.

ISA 620 Using the Work of an Expert (effective 2005)

II

There is insufficient information publicly available as to Chile's compliance with this principle.

ISA 700 The Auditor’s Report on Financial Statements (effective 2006)

II

There is insufficient information publicly available as to Chile's compliance with this principle.

ISA 701 Modifications to the Independent Auditor's Report (effective 2006)

II

There is insufficient information publicly available as to Chile's compliance with this principle.

ISA 710 Comparatives (effective 2004)

II

There is insufficient information publicly available as to Chile's compliance with this principle.

ISA 720 Other Information in Documents Containing Audited Financial Statements (effective 2004)

II

There is insufficient information publicly available as to Chile's compliance with this principle.

ISA 800 The Auditor’s Report on Special Purpose Audit Engagements (effective 2006)

II

There is insufficient information publicly available as to Chile's compliance with this principle.