According to the 2007 World Bank assessment of accounting and auditing practices in Kazakhstan, a 2006 Law on Audit mandates the use of International Standards on Auditing (ISAs) issued by the International Auditing and Assurance Standards Board (IAASB) effective November 2006. A 2007 Chamber of Auditors of the Republic of Kazakhstan self-assessment confirmed that the new Law adopts IAASB pronouncements as the auditing standards applicable in Kazakstan. Previously, the 1998 Law on Audit required the use of Kazakh Standards on Auditing which, the World Bank noted, fell "significantly short of ISAs." Although the new law introduced significant changes in the auditing framework, the World Bank observed that compliance with the 2006 Audit Law may prove challenging, because local professionals are not familiar with ISAs. Furthermore, the World Bank made a number of recommendations to the Kazakh authorities, including the requirement for an audit regardless of the entity's legal form only when there is a public interest for such an audit. The assessment also recommended making audited financial statements available to the public, establishing in the long term a public oversight mechanism for the audit profession, and developing a standard audit methodology and audit manual for ISAs.
General Overview
In a 2007 assessment, the World Bank benchmarked Kazakh accounting and auditing practices against International Financial Reporting Standards and International Standards on Auditing (ISAs). The World Bank observed that, according to a new Audit Law enacted in May 2006, ISAs are required in the conduct of audits starting November 2006, if the standards are not in conflict with national legislation. To facilitate the process, in April 2006, the assessment noted, the Ministry of Finance (MoF) funded the translation of ISAs into Russian and Kazakh in cooperation with the Chamber of Auditors of the Republic of Kazakhstan (CoA). Although the application of ISAs has been mandated by law, the assessment noted that "there is a significant risk that the majority of local practitioners is not familiar with ISA and will, therefore, struggle with compliance with the law" (p. 11).
Prior to the adoption of ISAs, the MoF functioned as the standard-setting body. In a two-step process, the CoA first adopted the standard, and then it was approved by the MOF. By year 2000, the CoA had adopted 36 Kazakh Standards on Auditing (KSAs), out of which only 11 were approved by the MoF. The World Bank assessment noted that the KSAs "fall significantly short of ISA" (p. vi) since they were based on outdated version of ISAs and did not address all the areas covered by their international equivalents. With the enactment of the new law, these issues have been addressed. However, weaknesses still exist. The World Bank made detailed recommendations in the area of auditing. In the short to medium term, the Bank recommended "a requirement for legal entity and/or consolidated financial statements to be audited only when there is a public interest for such an audit irrespective of the entity's legal form" (p. 23). Further, the assessment recommended making audited financial statements available to the public and in the long term establishment of a public oversight mechanism for the audit profession. Additionally, the Bank suggested that the Kazakh authorities develop a "standard audit methodology and audit manual for those audit practices that need support" (p. 24).
According to the 2007 World Bank report, Kazakhstan was among the first in the Commonwealth of Independent States (CIS) countries to "adopt a law on audit activities, which established the concept of auditing standards" (p. ii). The current auditing framework is governed by the amended 2006 Law on Audit. In addition to stipulating the mandatory auditing standards, the Law on Audit also lays down specific requirements with regard to mandatory membership in professional associations, the oversight of members and internal quality control. Also, this Law empowers the CoA to act as the supervisory body for the audit profession. The Law on Audit is supplemented by the Law on Joint-Stock Companies, which mandates an audit in all joint-stock entities, however, does not require companies to make audit reports publicly available, according to the World Bank.
With regard to regulation, the Agency of the Republic of Kazakhstan on Regulation and Supervision of Financial Markets and Financial Organizations (FSA) assumed the role of a consolidated regulator of the banking sector, insurance sector, and securities market and pension funds in January 2004. For the banking sector, the report noted that the National Bank of Kazakhstan (NBK) "regulates the system of accounting and financial reporting in banks through adoption of regulations and supporting methodological recommendations" (p. 11); however, monitoring compliance with the accounting and auditing requirements is under the purview of the FSA. Banks are required to publish audited legal entity financial statements. Further, the report explained "in addition to the statutory audit the [FSA] may require the banks' accounting records and reports, primary documents, and other information about their activities to be audited by an audit firm of its choosing" (p. 11). The bank's auditor is required to submit a copy of the audit report if so demanded by the FSA. The World Bank noted that although adequate sanctions exist in the Banking Law and the Code of the Republic of Kazakhstan on Administrative Violations, the FSA does not effectively monitor compliance with accounting and auditing requirements. Insurance companies are required to publish audited balance sheet and income statements. The World Bank also observed that "there appears to be a lack of knowledge-sharing within the [FSA] to develop a unified audit regulatory platform for the entities it regulates" (p. 5). The report therefore, recommended "regulatory harmonization."
The CoA is the main professional body in Kazakhstan which coordinates the activities of regional chambers of auditors. Empowered by the 2006 Audit Law, "the CoA has the authority to apply to the Ministry of Finance to withdraw, suspend or revoke audit licenses, and it is required, and has the authority under the new Audit Law, to undertake the external quality control of its members" (p. 7), the World Bank report noted. Despite these steps to ensure quality, the World Bank concluded that the "Kazakh accounting and audit profession suffers from a number of weaknesses, which results in a chronic lack of qualified professionals" (p. iii). The report also pointed to inadequacies in practical experience of accounting and auditing professionals and lack of trained instructors. The CoA adopted the latest International Federation of Accountants' (IFAC) Code of Conduct in October 2006 without any modifications. The CoA is listed as a member on the IFAC website.
The Principles
ISA 200 Objective and General Principles Governing an Audit of Financial Statements (effective 2006)
According to the 2007 World Bank assessment, the 2006 Law on Audit mandates the use of ISAs effective November 2006. The 2007 CoA self-assessment confirmed that "at the moment the new Law on Auditing (May 2006 version, effective from November 2006) simply refers to IAASB pronouncements as the auditing standards" (pp. 41-42).
ISA 210 Terms of Audit Engagements (effective 2006)
Chamber of Auditors of the Republic of Kazakhstan, "Assessment of the Regulatory and Standard-Setting Framework," Self-assessment prepared as part of the International Federation of Accountants' Member Body Compliance Program, February 2006. Available from International Federation of Accountants website. Accessed on March 14, 2008. (CoA 2006)
Chamber of Auditors of the Republic of Kazakhstan, "Response to the IFAC Part 2, SMO Self-Assessment Questionnaire," Self-assessment prepared as a part of the International Federation of Accountants' Member Body Compliance Program, May 2007. Available from International Federation of Accountants website. Accessed on March 14, 2008. (CoA 2007)
World Bank, "Kazakhstan: Report on the Observance of Standards and Codes (ROSC) -- Accounting and Auditing," May 2007. Available from World Bank website. Accessed on March 14, 2008. (WB 2007)
International Monetary Fund, "Republic of Kazakhstan - Financial Sector Assessment Program Update - Detailed Assessments and Updates of Financial Sector Standards and Codes," Country Report No. 04/338, Washington, D.C.: IMF, October 2004. Available from International Monetary Fund website. Accessed on March 14, 2008. (IMF 2004)
Narasimha, R. "Technical Assistance for Enhancing Financial Disclosure Standards in Transitional Economies," August 2005. Available from Asian Development Bank website. Accessed on March 14, 2008. (Narasimha 2005)
PricewaterhouseCoopers, "Kazakhstan: Doing Business in Kazakhstan," n.d. Available from PricewaterhouseCoopers website. Accessed on March 14, 2008. (PWC n.d.)
Kazakhstan