In a 2005 assessment, which benchmarked Polish accounting and auditing practices against International Financial Reporting Standards and International Standards on Auditing (ISAs), the World Bank observed that ISAs are not mandatory and statutory auditors are obliged to comply with Polish auditing standards. A November 2006 National Chamber of Statutory Auditors (KIBR) self-assessment explained that Polish standards are based on ISAs. The World Bank, however, noted that Polish auditing standards are an "abbreviated" and "incomplete" version of international standards and recommended the wholesale adoption of ISAs in Poland. Polish auditing practices, however, are likely to change with the implementation of Directive 2006/43/EC of the European Parliament and Council, which came into force in May 2006. Per this Directive, all statutory audits of annual and consolidated accounts in the European Union countries must be conducted on the basis of ISAs as adopted by the European Commission (EC). EU member states shall adopt and publish the provisions necessary to comply with this Directive before June 29, 2008. Member states may impose additional requirements relating to the statuary audits of annual and consolidated accounts for periods expiring on June 29, 2010. Both, the World Bank and the KIBR self-assessment confirmed that Poland has expressed its commitment to adopt endorsed ISAs in line with the EC directives.

General Overview

A detailed assessment of Polish accounting and auditing practices was conducted by the World Bank, the results of which were published in February 2005 in the Report on the Observance of Standards and Codes (ROSC). In this report, the World Bank noted that International Standards on Auditing (ISAs) are not mandatory in Poland and statutory auditors are obliged to comply with Polish Auditing Standards. More than a year later, a November 2006 National Chamber of Statutory Auditors (Krajowa Izba Biegłych Rewidentów, or KIBR) self-assessment confirmed that audits must be conducted in accordance with Polish standards. Although the KIBR self-assessment pointed out that national auditing standards are based on ISAs and that "existing national standards are compared with IAASB pronouncements to eliminate to the extent possible differences between the national standard and the IAASB pronouncement" (p. 48), differences exist. The World Bank explained that "Polish auditing standards are effectively an abbreviated, incomplete version of ISA" (p. 28) and that the national standards lacked "ISA-compatible" requirements which could impact the quality of audits. However, Polish auditing practices are likely to change with the implementation of Directive 2006/43/EC of the European Parliament and Council which came into force in May 2006. Per this Directive, all statutory audits of annual and consolidated accounts in the European Union countries are required to be conducted on the basis of ISAs as adopted by the European Commission (EC). EU member states shall adopt and publish the provisions necessary to comply with this Directive before June 29, 2008. Member states may impose additional requirements relating to the statuary audits of annual and consolidated accounts for periods expiring on June 29, 2010. Both the World Bank and KIBR self-assessment confirmed that Poland is committed to adopting ISAs. As noted in the World Bank report, "Poland plans to accept as binding the International Standards on Auditing in whole" (p. 16). As part of the assessment, the World Bank made recommendations which include, but are not limited to, the following: (1) Poland should adopt ISA in whole; (2) adequate public oversight of auditing profession should be established; (3) appointment and dismissal of auditors must safeguard his or her independence; (4) Polish legislation must be reviewed to eliminate conflicting financial reporting requirements; and (5) the impact due to the adoption of the 8th EU Company Law Directive on Polish regulatory framework must be assessed.

Polish accounting and auditing practices are primarily regulated by the Commercial Code, Accounting Act, Banking Act, Insurance Act, Auditing Act, Securities Act, and related secondary legislation, as noted in the World Bank assessment. Per the World Bank, audits in Poland are conducted only when there is a public-interest requirement. In particular, the Accounting Act mandates audits of all joint stock companies, "large" limited liability companies, banks, insurance companies, and investment and pension funds. Large limited liability companies are defined as those which exceed two of the following size criteria: (1) a total balance sheet of EUR. 2.5 million; (2) net annual turnover of EUR 5 million; and (3) 50 employees. The Accounting, Banking, and Insurance Acts lay down additional requirements for audits of credit institutions and insurance companies. Per the Accounting Act, companies must file audited legal entity and consolidated financial statement with the Court Register and failure to do so must be reported to the above-mentioned authority. An extract of the audited financial statements must also be published in the official gazette. The Law on Public Trading of Securities requires listed entities to file audited legal entity and consolidated financial statements annually.

With regard to regulation, the World Bank noted that as of 2005, the Polish Securities and Exchange Commission (PSEC), as the regulator of securities market, was responsible for the enforcement of international accounting standards. The Banking Supervision Commission (BSC) and the Insurance and Pension Funds Supervisory Commission regulated the banking and insurance sector respectively. As part of its regulatory role, the BSC conducted on-site inspections to monitor compliance with accounting and auditing requirements. As pointed out in the World Bank report, "banks are obliged under the law to provide BSC with access to documents and with information to satisfy the examiners' enquiries" (p. 17). However, with the enactment of the Act on Financial Market Supervision in September 2006, the regulatory authority in Poland changed and the supervision of securities market, insurance and pension funds was consolidated under the Polish Financial Supervisory Authority (Komisja Nadzoru Finansowego, or PFSA). The integration of the Banking Supervisory Commission into the new regulator was planned for January 1, 2008, as noted in the IMF's 2006 Article IV Consultation report. There is no further information on exactly how the PFSA monitors compliance with financial reporting requirements in Poland.

The Law on Auditors and their Self Governing Body, also known as the Auditing Act, regulates the Polish auditing profession. The KIBR is the main professional body and has the legal mandate to issue auditing standards. The World Bank noted that, as of 2005, the KIBR had issued five auditing standards: Standard 1 - auditing (legal entity) financial statements; Standard 2 - auditing financial statements of entities of the financial sector (banks, insurance companies, pension and investment funds, etc.); Standard 3 - auditing consolidated financial statements; Standard 4 - limited review of financial statements; and Standard 5 - principles of conduct of entities authorized to audit financial statements and perform other attestation services. Per the assessment, only members of KIBR have the right to conduct statutory audits. The World Bank advised Polish authorities to enhance the capacity of KIBR. Furthermore, the assessment pointed out that although the profession is self-regulated, the KIBR is subject to the supervision of the Ministry of Finance. The KIBR, however, is empowered to independently initiate disciplinary sanctions against non-compliance with the Auditing Act, the report noted. The World Bank recommended that KIBR enhance transparency with regard to quality assurance and disciplinary procedures. Additionally, it was observed that the mandate of KIBR does not explicitly include serving the public interest" (p. 11) and KIBR should "formally endorse and follow its mandate to serve the public interest" (p. 35). With regard to ethics, KIBR issued a Code of Professional Ethics based on the 2001 International Federation of Accountants (IFAC) Code in 2002 and the World Bank recommended that it should adopt the IFAC Code of Ethics in its entirety. KIBR 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)

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According to the 2005 World Bank assessment, Poland is committed to adopt ISAs in line with the EC Directive No. 2006/43/EC.

ISA 210 Terms of Audit Engagements (effective 2006)

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See ISA 200.

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

ID

See ISA 200.

ISA 230R Documentation (effective 2006)

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See ISA 200.

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

ID

See ISA 200.

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

ID

See ISA 200.

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

ID

See ISA 200.

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

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See ISA 200.

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

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See ISA 200.

ISA 320 Audit Materiality (effective 2004)

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See ISA 200.

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

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See ISA 200.

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

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See ISA 200.

ISA 500 Audit Evidence (effective 2004)

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See ISA 200.

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

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See ISA 200.

ISA 505 External Confirmations (effective 2004)

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See ISA 200.

ISA 510 Initial Engagements — Opening Balances (effective 2004)

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See ISA 200.

ISA 520 Analytical Procedures (effective 2004)

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See ISA 200.

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

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According to the 2005 World Bank report, "Polish Standards set few requirements for audit sampling and other selective testing. Unlike ISA 530, Audit Sampling and Other Selective Testing Procedures, Standard 1 treats sampling in a very terse way. There appears to be an underlying assumption that ISA 530 will be applied but the specific definitions and provisions of ISA 530 are excluded from the Polish standard" (p. 28). However, Poland has expressed its commitment to adopting ISAs per the EC Directive on statutory audits in the EU member states.

ISA 540 Audit of Accounting Estimates (effective 2004)

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According to the 2005 World Bank report, "there is no specific requirement for the auditor to make a final assessment of the reasonableness of an accounting estimate based on the auditor's knowledge of the business and whether the estimate is consistent with other audit evidence obtained during the audit as required by ISA 540, Audit of Accounting Estimates" (p. 28). However, Poland has expressed its commitment to adopting ISAs per the EC Directive on statutory audits in the EU member states.

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

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See ISA 200.

ISA 550 Related Parties (effective 2004)

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According to the 2005 World Bank report, "Polish Standards are less detailed in the area of related parties than ISA 550, Related Parties. In particular, procedures for identifying related parties and related party transactions are not specifically included in Polish Auditing Standard No.1. ISA 550 requires the auditor to undertake a series of specific procedures in respect of the completeness of information regarding related parties" (p. 28). However, Poland has expressed its commitment to adopting ISAs per the EC Directive on statutory audits in the EU member states.

ISA 560 Subsequent Events (effective 2006)

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According to the 2005 World Bank report, "in relation to subsequent events, Polish Standards do not stipulate that the auditor should consider legal and related requirements in all jurisdictions in which securities are being offered as required by ISA 560, Subsequent Events" (p. 29). However, Poland has expressed its commitment to adopting ISAs per the EC Directive on statutory audits in the EU member states.

ISA 570 Going Concern (effective 2004)

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According to the 2005 World Bank report, "Polish Standards do not require the auditor to be as proactive concerning the validity of the going concern concept as required by ISA 570, Going Concern. Polish standards do not require the auditor to evaluate management's assessment of the entity's ability to continue as a going concern nor, if management's assessment of the entity's ability to continue as a going concern covers less than twelve months from the balance sheet date, to ask management to extend its assessment period to twelve months from the balance sheet date" (p. 29). However, Poland has expressed its commitment to adopting ISAs per the EC Directive on statutory audits in the EU member states.

ISA 580 Management Representations (effective 2004)

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See ISA 200.

ISA 600 Using the Work of Another Auditor (effective)

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According to the 2005 World Bank report, "Polish Standards are less detailed than ISA 600, Using the Work of Another Auditor. Specifically, they are silent on the matter of performing procedures to obtain sufficient and appropriate audit evidence that the work of the other auditor is adequate for the principal auditor's purposes, in the context of the specific assignment" (pp. 29-30). However, Poland has expressed its commitment to adopting ISAs per the EC Directive on statutory audits in the EU member states.

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

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See ISA 200.

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

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See ISA 200.

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

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See ISA 200.

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

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See ISA 200.

ISA 710 Comparatives (effective 2004)

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See ISA 200.

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

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See ISA 200.

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

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See ISA 200.