Jankowska Maria
The Faculty of Economic Sciences and Management
of the Nicolas Copernicus University, Toruń, Poland
History of the development of
financial audit in Poland
The profession of chartered accountant is related to the conduct of accounting books.
In Poland, the profession of chartered accountant was introduced by the Act on Joint Stock Companies of 22nd March 1928. The regulations dealt with the manner the chartered accountants are nominated in an odd figure by the district court whose venue was proper for the company. There was also a provision which allowed a chartered accountant to demand from the founders additional explanations and documents. The opinion by the experts was submitted in two copies in the district court which issued a certified copy to the founders of the company. The district court assigned the remuneration for the job of the chartered accountants and approved their bills of expenses. If the founders did not pay these dues, the district court enforced them in the mode foreseen for the collection of registration fees. In addition, Art. 89 of the Regulations had it that every year, each joint stock company was to submit its balance sheet, profit and loss account and the report drawn up by the Managing Board to be audited by chartered accountants both as to their compliance with the books and documents and the actual condition of the company's property and interests. This law also dealt both with the duty of the Managing Board to submit to the Supervisory Board within two months of the end of the financial year its report to be examined and with the right of the stockholders to be given a copy of the audited financial statements 14 days before the general assembly. The Regulations of 1928 contained basic notions and manners for the financial statements to be audited in Poland in the inter-war period.
This stage covered the period from the end of the Second World War up to the moment of social and political changes in 1989. At that time in Poland, there existed a state-controlled system which in practice did not foster the application of accounting. The functions of accounting were limited mainly to the implementation of recording tasks or else to the stage of book keeping. The accounting made up only a tool to supervise the state-owned enterprises. The implementation of the information, control or other functions was distorted or had no sense. In the conditions of central-control, there was no interest in the efficiency of management and therefore, there was no need to use reliable information for the adoption of decisions which should have been their basis. The control function of accounting had, first of all, documentary nature and very frequently an exclusively formal character.
To obtain external finance (subject subsidies, object subsidies, substantial supplies) the units would often distort the reality (assets, liabilities, the financial result) so as to prove the fulfilment of the tasks imposed thereon (plans).
The control carried out in such circumstances, most frequently avoiding the accounting divisions, did not allow the auditors to assess the degree of efficiency of management or the rationality of decisions adopted.
These were only social and political changes of 1956 that allowed for a free foundation of an association of accountants in Poland. Owing to the postulates of this association and the fact that the system of administrative supervision over accounting did not turn to be true, on 16th August 1957, the Council of Ministers issued Resolution No 332 which referred to audits of financial statements in state-owned enterprises, acting according to the self-financing system ( Polish Monitor No 73 of 1957, item 438). Pursuant to the resolutions, the purpose of the audit of financial statements was to verify balance items, the financial result, and to issue an opinion on the suggested distribution of profit and amount of write-offs to funds of special designation. The audit was documented by a protocol which confirmed the correctness of the financial statements. The expert who conducted the audit was appointed for an indefinite period of time by the body supervising the enterprise. A Board of Auditors composed of 3 to 7 people was founded for each enterprise. The Board was made up by experts from a list published by the Minister of Finance. However, they were not independent experts as the candidates to the lists were nominated by the proper ministers.
Important changes in the development of the profession of chartered accountants were introduced by the Resolution of the Council of Ministers No 187 of 12th May 1959 (P.M. No 58, item 278) on Financial and Accounting Audit in State-owned Organisational Units. The title of chartered accountant was established therein. It was necessary for people to fulfil all the following conditions to apply therefore:
· to have higher economic or legal education and at least 5 years of experience in accounting in state-owned units, 2 years at the position of main accountant (or any other independent position in the financial and accounting department) included, or who were independent scientists in the field of accounting or had high school education and 8 years of experience in accounting, at least 3 years at the position of main accountant (or any other independent position in the financial accounting departments),
· to have flawless moral and professional repute,
· to have passed a state exam for the title of Chartered Accountant (two stages of exam, 10 specialised subjects,
· to have made an oath in the form and content determined by the Minister of Finance.
A branch specialisation was also introduced, broken down into the industry, the construction, the commerce, the agriculture and the budget. Apart from a group of other duties, a chartered accountant had an additional right: 21 working days free of work designated to audit financial statements, the right to additional remuneration for deeds carried out, and a possibility to take up positions reserved for those having this professional title. However, chartered accountants did not create a free-lance profession as most of them worked at the same time in enterprises. The resolution dealt with the questions of financial statements audit and approval in state-owned enterprises, and in particular:
· it defined, that the purpose of the audit was to verify the correctness and the reliability of the balance and financial result,
· it imposed a duty to audit financial statements drawn up at the end of the financial year, and on the day of opening and closure of liquidation of state-owned enterprises, and also of independent firms, acting according to the internal self-financing system,
· as a result of the audit, the chartered accountant drew up a decision. If he had found out that the audited financial statements were drawn up incorrectly or unreliably, he was obliged to specify in his decision, all his reservations and indicate in what manner and up to what deadline they were to be made good,
· it defined the duty of the chartered accountant who made the financial statements audit to participate in the verification commission which was to give its opinion on the distribution of profit and in the balance debate to approve the financial statements.[1]
In 1960, the Minister of Finance issued an order, which indicated ethical features of experts and the mode to examine candidates for this profession. The Code of Professional Conduct obliged the chartered Accountant to perform with total impartiality and diligence, with the legal provisions in force taken into account together with accounting principles. A chartered accountant was to keep confidentiality, and in the case he detected a crime while auditing, he was obliged to secure the proofs and report that in writing to the manager of the unit and to inform the latter in his decision on the facts ascertained. Before starting the job of a chartered accountant, every candidate had to make the following oath: “I promise to conduct my tasks as a chartered accountant with a full conscience of responsibility imposed on me for professionalism, impartiality and independence of my judgements and for the accuracy of the audit carried out by me and of submitted decisions. I will always take care of the social interest and contribute to the largest degree to the detection of any irregularities and abuse”.[2]
To deepen the economic and financial discipline and to improve the system of economic and accounting information, the Council of Ministers adopted resolution of the Council of Ministers of 24th August 1973 (P.M. No 7, item 226) on main accountants, chartered accountants and auditing as well as on the approval of annual financial statements of state-owned organisational units. It also established the professional title of chartered accountant and dealt with the principles for the activity of main accountants in state-owned organisational units. The resolution also determined the principles for the audit and approval of financial statements. Subsequent years brought about changes in the features of the expert, following the changing political and economic situation. Positive changes referred to the expert, being noticed as an independent professional who assesses impartially the correctness and reliability of financial statements. The words of the oath were changed. The expression “the duty to detect any abuse” was removed and some words about the responsibility for the reliable conduct of audit and adoption of decisions were added.
3. The audit in
the period of transformation of the social and economic system.
The state-controlled economy transformed into the market economy involved also changes in the field of accounting and the institution of chartered accountant.
On 29th September 1994, the Act on Accounting was voted together with the executory provisions which came into force on 1st January 1995.
Despite of some differences in the structure of financial statements’ elements and in the field of their subjects and the area adjusted by the legal provisions of the act and directives, the law of 29th September 1994 approached the Polish accounting system to the principles in force in the European Union. It became the basic document to deal with the principles for accounting and the mode of audit of financial statements in the territory of Poland.
The provisions of the 19th October 1991 Act on the Audit and Publishing of Financial Statements, Chartered Accountants and their Self-government contained in Journal of Laws No 111, item 480 of 1991 introduced the duty to have the correctness of financial statements audited by independent experts and the title of chartered accountant was also changed. The act referred to solutions defined by the European Union. The scope of the audit of financial statements was extended. Apart from state-owned enterprises, statements of joint-stock companies, limited liability companies, limited partnerships, civil partnerships, foundations and also physical persons, leading business which fulfilled defined conditions were to be audited. An expert had to supplement his knowledge in the fields of the law, economy and organisation of new forms of businesses. The addressees of opinions and reports on financial statements’ audit were stockholders, shareholders, owners, investors who had the audit commissioned with the expert and awaited the confirmation of the reliability of the financial and property situation, and the data presented by the company. The chartered accountant was responsible before these persons, and also penally liable for drawing up any untrue opinion on financial statements. Without a good knowledge of the principles for the functioning of accounting, a chartered accountants would not be able to carry out reliably their profession of public trust. It was the duty of a chartered accountant to be a member of the professional self-government i.e. the National Chamber of Chartered Accountants (KIBR). The review work was carried out by a unit authorised to audit, registered in the Chamber. The bodies of the professional self-government within the KIBR were the National Congress of Chartered Accountants (debating every 4 years), and the elected National Council of Chartered Accountants, National Commission of Auditors and National Disciplinary Commission and Commissioner[3]. The task of KIBR has been the development and improvement of chartered accountants through training, exchange of experience and promotion of solutions applied in developed economies. In addition, the National Chamber of Chartered Accountants votes a professional code of conduct and standards for the profession of chartered accountants in consultation with the minister proper for Public Finance and the Commission of Financial Supervision. Up to now, KIBR has issued 5 standards:
No 1 - which defines the general principles for the audit of financial statements,
No 2 - related to the specificity of financial statements audits in banks, national security companies, investment and retirement funds, brokers, enterprises and other,
No 3 - which relates to the audit of consolidated financial statements,
No 4 - which discusses the general principles for the review of financial statements,
No 5 - which defines proceedings of subjects authorised to audit financial statements in the field of financial statement audits and other confirmation services carried out by chartered accountants.
In 2000, amendments to the following acts were adopted: on 21st September: the Act on Changes to the Act on Chartered Accountants and their Self-government (Journal of Laws No 89, item 992) and on 9th November: the Act on Amendments to the Act on Accounting (Journal of Laws No 113, item 1186).
Entering into force of subsequent changes in accounting allowed the legislator to achieve a few important purposes:
· to adjust Polish solutions related to accounting to the international accounting standards and to the principles in force in the States of the European Union, of which particularly to directives,
· to bring a unification in the national economy and to stabilise the basic condition which should be met by accounting,
· to grant the accounting an appropriate importance commensurable to the role which it plays in the contemporary economic market,
· to increase the safety in the trading in commodities and in the functioning of the capital market by showing in the financial statements a transparent and reliable picture of economic units[4].
In the Act on Accounting, the problems of auditing and publishing financial statements, related units included, were discussed. As defined in the act, the purpose of the audit of financial statements is for the chartered accountant to express his written opinion together with a report on the fact whether the financial statements are correct and reliable and to present clearly the property and financial situation as well as the financial result of a given unit.
The Act on Accounting is fully approved by the European Commission as it is in compliance with the legislation of the European Union.
4. Conclusions
After Poland acceded the European Union, the provisions which adjust the legal environment in Poland went through harmonization to those in force in the European Union. The professional standards for the profession of chartered accountants issued by the National Council of Chartered Accountants are in many solutions based on the International Standards for Financial Review (MSRF). Following the changes in the scope and contents of provisions which have occurred since Polish standards were issued, the norms and standards contained some derogating provisions related to the same subjects. Conferences organised by the KIBR allowed to exchange the experience and to propose solutions to new problems of audits.
In 2005, discussions were held with international organisations related to the duty to have a system of supervision over the activity of chartered accountants. This subject is discussed by Union Directive No VII. This subject and other related thereto serve to improve the quality of performance in the profession of chartered accountant. This is a public trust profession and each financial statements with an opinion and report on the audit constitute a reliable piece of information presented by entrepreneurs. The work of chartered accountants is a valuable confirmation for potential investors that the capital placed in a company is liable to an investment risk and not to a risk related to unreliable financial statements of the unit.
The paper is devoted to the changes through which the financial audit went in Poland. The paper covers the period starting from the recovery of independence of Poland (in 1918) through the years of state-controlled system (1945-1990) up to the present days.
Currently, Polish legal regulations have approached the European Legislation and allow the stakeholders to increase the certainty in economic relations.
[1] "The
mission of a chartered accountant at the background of the social and economic
transformations in Poland" J. Piłat, Polska Szkoła
Rachunkowości (Polish School of Accounting) edited by M. Mirasiewicz and
A. Karmańska, SGH (Higher School of Commerce) Warsaw 2004, p. 196
[2] Decree of the Minister of Finance
of 5th
January 1960 on Chartered Accountants, §12.
[3] Rachunkowość
międzynarodowa, L. Bednarski,(International Accounting) collective paper
edited by. L. Bednarski and
J. Gierusz, PWE Warszawa 2001, p. 283
[4] Zmiany w ustawie o rachunkowości
(Changes in the Act on Accounting)
2001/2002" J. Gierusz, ODDK, Gdańsk 2001 p. 5