Prior to the commencement of the Technical Aid to the Commonwealth of Independent States (Tacis) Project "Implementation of Auditing Reform, Russian Federation" funded by the European Union, 23 Federal Rules (Standards) on Auditing Activity (RSAs) had been approved between September 2002 and April 2005 broken down into four stages. As noted in the 2006 concluding report of the Project, the approval process takes very long time and seems to be not adequate for the purpose of endorsement of auditing standards. Moreover, the 23 RSA were developed based on International Standards on Auditing (ISAs) in effect as of 2002. Since then, significant changes were made to ISAs, which resulted in only one RSA remaining unchanged. These circumstances led to the Tacis Project's decision to develop the "Complete Draft set of RSAs as of December 31, 2005". By 2006, all standards' drafts prepared by the Project had been officially submitted to the Audit Council at the Ministry of Finance (MoF) for further discussion, review and approval. On August 25, 2006, 8 new RSAs based on the drafts developed by the Tacis project were officially approved; as of October 2006, other drafts were still under consideration. In August 2006, pursuant to the Current IFAC Project Timetable for 2006 and Subsequent Years, published on the IFAC web site, the Project team updated its "Road Map/Action Plan to Ensure Compliance of Russian Standards on Auditing with ISAs effective as at December 31, 2006 and Subsequent Years". It describes the RSAs, which will need to be developed to ensure compliance with ISAs effective as at December 31, 2006 and in subsequent years.

General Overview

Auditing standards in Russian Federation have to be endorsed by the Government of the Russian Federation (GoRF) in a form of the Decision. Between September 2002 and April 2005, 23 new Federal Rules (Standards) on Auditing Activity (RSAs) were approved broken down into four stages. The 23 RSAs were developed based on ISAs, but not in full compliance with ISAs. On the one hand, at that time there was no objective to develop RSAs in full compliance with ISAs, and on the other hand, no formal rules, prescribing and regulating the national standard development processes existed at the International Federation of accountants (IFAC). (Tacis n.d., pp. 2, 3)

In June 2004, the European Union launched the Technical Aid to the Commonwealth of Independent States (Tacis) Project "Implementation of Auditing Reform, Russian Federation" which was designed for two years and lasted till October 2006. The project had four main objectives, namely: (1) to support the development and enforcement of RSAs and a regulatory framework in line with ISAs and audit methodologies; (2) to enhance the performance of audit regulatory bodies - the Ministry of Finance of the Russian Federation (MoF) and accredited professional associations of auditors; (3) to enhance the ability of Russian individual auditors and audit firms to perform audits to international standards, utilizing internationally recognized technical audit methods, to audit consolidated financial statements and those of banks and other financial institutions; and (4) to disseminate good practices and raise awareness of benefits among the audit stakeholders and the business community. (Tacis website)

As mentioned above, at the beginning of the project 23 RSAs were effective in Russia, whereas the full set of ISAs as of December 31, 2005 consisted of 39 Standards. Moreover, these existing 23 RSAs are based on ISAs as of 2002. Since then, significant changes were made to ISAs, which resulted in only one RSA remaining unchanged (RSA 07 The Auditor's Report on Financial Statements). These circumstances led to the decision to develop the "Complete Draft set of RSAs as of December 31, 2005." All standards' drafts prepared by the Project officially have been submitted to the Audit Council at the MoF for further discussion, review and approval. On August 25, 2006, 8 new RSAs based on the drafts developed by the Tacis project were officially approved; other drafts were under consideration. As of March 2007, in all 31 RSAs have been adopted. (Krikunov 2007; Tacis website)

As noted in the concluding report of the Tacis Project, the approval process takes very long time and seems to be not adequate for the purpose of endorsement of auditing standards (the approval process of stage three took more than 1 year and stage four almost two years). It was recommended the a federal body empowered by the government have the authority for the endorsement of the national auditing standards. Ideally that would be the body, which is already responsible for the oversight of auditing in Russia. (Tacis n.d., p. 2)

The Tacis project was assigned to develop additional RSAs in compliance with ISAs. At the same time these new standards had to be consistent with the existing 23 RSAs. In this regard, two main areas of discrepancies were identified. First, in Russia, a specific audit terminology has been developed traditionally in the course of many years. It is in use by auditors in their daily work and also is laid down in the existing 23 RSAs. The Project has developed a "Glossary" with the objective to reach compliance with ISAs. However, constraints such as described above did not allow introducing changes to terms, which were determined in the existing 23 RSAs. Other non-compliances matters have occurred, where the Russian law and regulation prescribed the use of other terms or its description, or where specific terms are not in use the Russian Federation, due to certain "gaps" in the existing law and regulations. Therefore, the "Glossary" developed by the Project point out in footnotes the discrepancies with corresponding explanations for further consideration. In the further development of RSA, it should be considered the fact of partial noncompliance and the revision and completion of the Glossary should be regarded as a high priority task in the future work-plan. (Tacis n.d., p. 3)

Secondly, RSAs which were developed on the basis of ISAs were not always complying with the Structure and Contents of the ISAs. Additions, deletions and modifications have been made, which may be not in line with the "Modifications to IAASB's International Standards - A Guide for National Standard Setters Who Adopt Those Standards". The Project recommended that the future developers of RSAs should consider the fact of partial non-compliance and include the revision of the entire set of RSAs into the future work-plan. (Tacis n.d., p. 3)

The report further notes that the principle of the structure IAASB pronouncements is to group the standards by their objectives and to reserve sufficient space for future standards in a way that the created structure is not to change. As of October 2006, no similar structure for the RSAs has been introduced, and according to the Project's staff knowledge it is not planned in the nearest future. At present, all RSAs are numbered consecutively. Strictly speaking, the current system is not in compliance with ISA and creates certain difficulties in understanding the objectives and interrelations between the standards. The Project's recommendation was to adopt the ISA structure and numbering as soon as feasible. The Standards are interrelated and therefore include corresponding Cross-references. Not knowing the number of a new RSA at the stage of its development, makes it impossible to incorporate corresponding footnotes and cross-references regarding other standards, which are in development stage too. (Tacis n.d., p. 2)

In August 2006, pursuant to the Current IFAC Project Timetable for 2006 and Subsequent Years, published on the IFAC web site, the Project team updated its "Road Map/Action Plan to Ensure Compliance of Russian Standards on Auditing with ISAs effective as at December 31, 2006 and Subsequent Years". It describes the RSAs, which will need to be developed to ensure compliance with ISAs effective as at December 31, 2006 and in subsequent years. In accordance with the Terms of Reference, the Action Plan and a simplified Road Map were also published in Finansovaya Gazeta, Publication No. 40 on 5 October 2006. (Tacis website)

The Federal Law On Audit Activity, which was enacted in 2001, regulates audit activities. It defines audit services, establishes the rights, obligations and liability of auditors and audit firms, discusses confidentiality and independence, and sets forth meaningful compliance regulations. In May 2005, the State Duma adopted in the first reading amendments to the Law which introduce significant changes to the audit profession. It proposes to replace the licensing of audit activity with mandatory membership of audit firms in self-regulated professional associations, to introduce mandatory quality control and to toughen the requirements on auditors' independence. Auditing standards in Russia are expected to be in line with international standards. As of March 2007, the Draft Law was still under consideration. (PWC 2006, p. 24; Krikunov 2007)

According to the Draft Law, the MoF will no longer regulate the audit activity. The regulatory functions will be transferred to self-regulating audit organizations. Self-regulating audit organizations will be responsible for professional education of auditors, audit control of individual auditors as well as audit firms. The Draft Law proposes to eliminate licensing of audit activity and substitute it with mandatory membership in self-regulating audit organizations. The Draft Laws provides detailed descriptions of functions, rights and responsibilities of the self-regulating organizations. According to the Draft Law, the state regulation of the audit activity will be carried out by the Government of Russian Federation through a federal executive body. The state regulation of the audit activity will consist of development state policy in the field of auditing, setting legislative framework (including drafting and approving federal standards on auditing), analysis of reports prepared by the self-regulating organizations and preparation based on those reports of an annual report on the auditing services market. (Draft Law 2005)

In accordance with Russian auditing legislation, some companies are obliged to have their annual statutory financial statements audited. Commercial non-governmental companies whose annual statutory financial statements are subject to statutory audit include: (1) all open joint stock companies; (2) banks and other credit institutions, insurance companies, commodity and stock exchanges, investment funds, charitable and other (non-investment) funds, etc.; (3) other companies with annual sales exceeding 500,000 times the average official minimum monthly wage for the reporting year and companies with total balance sheet assets exceeding 200,000 times the average official minimum monthly wage for the reporting year (currently RR 50 million and RR 20 million, respectively). In addition, annual statutory financial statements subject to publication must be audited by independent auditors prior to their publication. Consolidated financial statements are not subject to mandatory statutory audit. (PWC 2006, p. 23)

The Bank of Russia recommends that the selection of the auditing firm be based on the following criteria: (1) it must have less than four specialists certified by internationally recognized accounting and auditing associations and institutions; (2) the manager in charge and his/her deputy must be co-owners of the auditing firm; (3) there must be specialists in charge of risk management and quality assurance of audits and the preparation of auditor's reports in the auditing company; (4) auditing must be guided by the International Standards on Auditing and the Code of Ethics of the International Federation of Accountants. (Deloitte & Touche 2004, pp. 2-3)

The Institute of Professional Accountants and Auditors of Russia (IPAR) is a member of the International Federation of Accountants (IFAC). Russian Collegium of Auditors (RCA) is an associate member of IFAC. (IFAC website)

The Principles

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

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There is no publicly available information as to Russia's compliance with this principle.

Federal Rule (Standard) No. 1 Objective and General Principles Governing as Audit of Financial (Accounting) Statements was approved by the Resolution of the Government of Russia No. 696 of 2002. (Krikunov 2007, p. 7)

ISA 210 Terms of Audit Engagements (effective 2006)

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There is no publicly available information as to Russia's compliance with this principle.

Federal Rule (Standard) No. 12 Terms of Audit Engagements was approved by the Resolution of the Government of Russia No. 532 of October 2004. (Krikunov 2007, p. 7)

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

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There is no publicly available information as to Russia's compliance with this principle.

Federal Rule (Standard) No. 7 Internal Quality Control for Audit was approved by the Resolution "On Amendments of Federal Rules (Standards) on Auditing Activities" No. 405, July 2003. (Krikunov 2007, p. 7)

ISA 230R Documentation (effective 2006)

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There is no publicly available information as to Russia's compliance with this principle.

Federal Rule (Standard) No. 2 Auditing Documentation was approved by the Resolution of the Government of Russia No. 696 of 2002. (Krikunov 2007, p. 7)

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

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There is no publicly available information as to Russia's compliance with this principle.

Federal Rule (Standard) No. 13 The Auditor's Responsibility to Consider Fraud in an Audit of Financial Statements was approved by the Resolution of the Government of Russia No. 532 of October 2004. (Krikunov 2007, p. 7)

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

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There is no publicly available information as to Russia's compliance with this principle.

Federal Rule (Standard) No. 14 Consideration of Laws and Regulations of the Russian Federation in an Audit of Financial Statements was approved by the Resolution of the Government of Russia No. 532 of October 2004. (Krikunov 2007, p. 7)

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

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There is no publicly available information as to Russia's compliance with this principle.

Federal Rule (Standard) No. 22 Communications of Audit Matters With Management of the Audited Entity and its Representatives was approved by the Resolution of the Government of Russia No. 228 of April 2005. (Krikunov 2007, p. 8)

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

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There is no publicly available information as to Russia's compliance with this principle.

Federal Rule (Standard) No. 3 Planning an Audit of Financial Statements was approved by the Resolution of the Government of Russia No. 696 of 2002. (Krikunov 2007, p. 7)

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

EN

Federal Rule (Standard) No. 34 Understanding the Entity and Its Environment and Assessing the Risks of Material Misstatement was developed by the EU-funded Tacis Project in accordance with ISA 315 as available on March 31, 2005 and was approved by the Resolution of the Government of Russia No. 523 of August 2006. (Krikunov 2007, p. 8; )

ISA 320 Audit Materiality (effective 2004)

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There is no publicly available information as to Russia's compliance with this principle.

Federal Rule (Standard) No. 4 Audit Materiality was approved by the Resolution of the Government of Russia No. 696 of 2002. (Krikunov 2007, p. 7)

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

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There is no publicly available information as to Russia's compliance with this principle.

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

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There is no publicly available information as to Russia's compliance with this principle.

ISA 500 Audit Evidence (effective 2004)

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There is no publicly available information as to Russia's compliance with this principle.

Federal Rule (Standard) No. 5 Audit Evidence was approved by the Resolution of the Government of Russia No. 696 of 2002. (Krikunov 2007, p. 7)

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

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There is no publicly available information as to Russia's compliance with this principle.

Federal Rule (Standard) No. 17 Audit Evidence - Additional Considerations for Specific Items was approved by the Resolution of the Government of Russia No. 228 of April 2005. (Krikunov 2007, p. 8)

ISA 505 External Confirmations (effective 2004)

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There is no publicly available information as to Russia's compliance with this principle.

Federal Rule (Standard) No. 18 External Confirmations was approved by the Resolution of the Government of Russia No. 228 of April 2005. (Krikunov 2007, p. 8)

ISA 510 Initial Engagements — Opening Balances (effective 2004)

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There is no publicly available information as to Russia's compliance with this principle.

Federal Rule (Standard) No. 19 Initial Engagements -- Opening Balances was approved by the Resolution of the Government of Russia No. 228 of April 2005. (Krikunov 2007, p. 8)

ISA 520 Analytical Procedures (effective 2004)

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There is no publicly available information as to Russia's compliance with this principle.

Federal Rule (Standard) No. 20 Analytical Procedures was approved by the Resolution of the Government of Russia No. 228 of April 2005. (Krikunov 2007, p. 8)

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

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There is no publicly available information as to Russia's compliance with this principle.

Federal Rule (Standard) No. 16 Audit Sampling was approved by the Resolution of the Government of Russia No. 532 of October 2004. (Krikunov 2007, p. 7)

ISA 540 Audit of Accounting Estimates (effective 2004)

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There is no publicly available information as to Russia's compliance with this principle.

Federal Rule (Standard) No. 21 Audit of Accounting Estimates was approved by the Resolution of the Government of Russia No. 228 of April 2005. (Krikunov 2007, p. 8)

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

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There is no publicly available information as to Russia's compliance with this principle.

ISA 550 Related Parties (effective 2004)

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There is no publicly available information as to Russia's compliance with this principle.

Federal Rule (Standard) No. 9 Related Parties was approved by the Resolution "On Amendments of Federal Rules (Standards) on Auditing Activities" No. 405, July 2003. (Krikunov 2007, p. 7)

ISA 560 Subsequent Events (effective 2006)

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There is no publicly available information as to Russia's compliance with this principle.

Federal Rule (Standard) No. 10 Subsequent Events was approved by the Resolution "On Amendments of Federal Rules (Standards) on Auditing Activities" No. 405, July 2003. (Krikunov 2007, p. 7)

ISA 570 Going Concern (effective 2004)

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There is no publicly available information as to Russia's compliance with this principle.

Federal Rule (Standard) No. 11 Going Concern was approved by the Resolution "On Amendments of Federal Rules (Standards) on Auditing Activities" No. 405, July 2003. (Krikunov 2007, p. 7)

ISA 580 Management Representations (effective 2004)

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There is no publicly available information as to Russia's compliance with this principle.

Federal Rule (Standard) No. 23 Management Representations of the Audited Entity and its Representatives was approved by the Resolution of the Government of Russia No. 228 of April 2005. (Krikunov 2007, p. 8)

ISA 600 Using the Work of Another Auditor (effective)

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There is no publicly available information as to Russia's compliance with this principle.

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

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There is no publicly available information as to Russia's compliance with this principle.

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

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There is no publicly available information as to Russia's compliance with this principle.

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

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There is no publicly available information as to Russia's compliance with this principle.

Federal Rule (Standard) No. 5 The Auditor's Report on Financial (Accounting) Statements was approved by the Resolution of the Government of Russia No. 696 of 2002. (Krikunov 2007, p. 7)

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

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There is no publicly available information as to Russia's compliance with this principle.

ISA 710 Comparatives (effective 2004)

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There is no publicly available information as to Russia's compliance with this principle.

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

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There is no publicly available information as to Russia's compliance with this principle.

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

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There is no publicly available information as to Russia's compliance with this principle.