There are no auditing standards in Colombia to set the requirements and guidelines for auditing financial statements. According to the assessment conducted in 2003 by the World Bank on the accounting and auditing practices in Colombia, the Colombian government, in an attempt to improve the corporate financial reporting regime, proposed a new law which, among other things, would fully adopt International Standards on Auditing (ISAs). However, in 2005, the IMF noted that there still was the lack of audit standards and this represented a serious departure from international best practices for financial reporting and transparency. One of the main recommendations of the Update was an adoption of ISAs and reform of the auditing profession.

General Overview

According to the assessment conducted in 2003 by the World Bank on the accounting and auditing practices in Colombia, the Colombian government embarked on implementation of number structural economic reforms. One of the government's reform proposals involves a project to improve the corporate financial reporting regime. This project includes enacting a new law which, among other things, will fully adopt International Standards on Auditing (ISAs), reform and develop the accounting profession, and implement international best practice on a professional accountants' code of ethics, and establish an internationally comparable arrangement to license public accountants. (ROSC 2003)

However, as of 2003, the legislative requirements on auditing still contradicted the modern concept of financial statements audit. There was no external financial statements audit requirement in Colombia and there were sufficient problems with the capacity and regulation of the accountancy profession. (ROSC 2003)

In 2005, the IMF completed an update on the Financial System Stability Assessment (FSSA) conducted by the Fund in 1999. The IMF noted that the lack of audit standards represents a serious departure from international best practices for financial reporting and transparency. One of the main recommendations of the Update was an adoption of ISAs and reform of the auditing profession. (FSSA Update 2005)

Law 43 of 1990 requires the revisor fiscal to conduct work in accordance with Colombian GAAP, but it does not specify any other auditing standards or procedures. It provides only one page of general guidance on auditing requirements. The absence of auditing standards for financial statement audit reflects the fact that Colombian law recognizes the work of the revisor fiscal only. There is no concept of independent audit of financial statements. No law has yet been passed to streamline the legal framework regarding development and issuance of auditing standards. (ROSC 2003)

The functions of revisor fiscal are not compatible with the functions of an independent auditor of financial statements. In Colombia, the modern concept of independent audit does not exist in legal provisions on audit. The laws require a revisor fiscal to carry out many activities, of which only one is expressing opinion on the financial statements. The government has delegated responsibility to the revisor fiscal for controlling and analyzing an enterprise's operations, and exercising vigilance over and inspecting all transactions. Thus, in effect, it requires an enterprise's auditor to conduct controllership functions that should be the responsibility of management. (ROSC 2003)

Registered public accountants are not required to follow a code of ethics comparable to the one issued by IFAC. The requirements on professional ethics can be found in a few articles of Law 43 of 1990, but do not include guidelines on independence principles. There is a large gap between these requirements and the prescriptions in the IFAC Code of Ethics for Professional Accountants (revised in November 2001). Because the requirements are included in the law, it is difficult to update them to reflect changes in the IFAC Code. It would be easy to reduce the gap if the law would empower a body to issue a code of ethics for observance by all registered public accountants. The National Institute of Public Accountants has adopted the IFAC Code for its members - but compliance is voluntary. (ROSC 2003)

Article 203 of the Code of Commerce and Article 13 of Law 43 of 1990 provide the following criteria for determining the threshold of the annual audit requirement: all registered corporations; branches of foreign business entities; legal entities in which all the owners do not participate in management, and nonparticipating owners holding at least 20 percent equity; and all other commercial entities with total assets at December 31 of the prior year equal to or exceed 5,000 times the minimum salary, and/or the gross income for the prior year equal to or exceeding 3,000 times the minimum salary. (ROSC 2003)

Article 20 of Law 45 of 1990 requires appointment of a revisor fiscal by all enterprises that are supervised by the Superintendent of Banking and the Superintendent of Securities, and more than 20 other laws require specific types of enterprises to appoint a revisor fiscal. (ROSC 2003)

As a part of discharging professional duties for a client, a revisor fiscal issues an audit report on client's financial statements. A number of such audit reports reviewed in connection with the Accounting and Auditing ROSC showed various deficiencies with reference to the Colombian requirements, for instance: (1) The auditor did not state under which generally accepted auditing standards the audit of financial statements was conducted and under which generally accepted accounting principles the financial statements were prepared; (2) the auditor did not express the level of responsibility assumed for prior year financial information, presented on a comparative basis, when that work had been carried out by other auditors and expert appraisers. In one instance, the prior period auditor's opinion was modified without additional audit work to justify the change. (ROSC)

The National Institute of Public Accountants of Colombia is a member of the International Federation of Accountants (IFAC). (IFAC website)

The Principles

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

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ISA 210 Terms of Audit Engagements (effective 2006)

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

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ISA 230R Documentation (effective 2006)

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

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

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

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

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

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ISA 320 Audit Materiality (effective 2004)

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

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

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ISA 500 Audit Evidence (effective 2004)

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

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ISA 505 External Confirmations (effective 2004)

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ISA 510 Initial Engagements — Opening Balances (effective 2004)

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ISA 520 Analytical Procedures (effective 2004)

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

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ISA 540 Audit of Accounting Estimates (effective 2004)

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

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ISA 550 Related Parties (effective 2004)

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ISA 560 Subsequent Events (effective 2006)

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ISA 570 Going Concern (effective 2004)

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ISA 580 Management Representations (effective 2004)

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ISA 600 Using the Work of Another Auditor (effective)

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

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

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

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

ISA 710 Comparatives (effective 2004)

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

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

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