Business organizations seek a greater increase in mandatory audit thresholds
The Estonian Chamber of Commerce and Industry (ECCI) and the Estonian Accounting Board have proposed a significantly larger increase in the mandatory audit and review thresholds for financial statements than initially planned. According to these organizations, the Ministry of Finance’s proposal to raise the thresholds by 25% is insufficient, and they advocate for at least a 50% increase.
The ECCI had already approached the Ministry of Finance in 2023 with a proposal to raise the audit and review thresholds to reduce the administrative burden and costs for businesses. The Ministry incorporated this suggestion into a draft law amending the Accounting Act and other related legislation, proposing a 25% increase in thresholds based on revenue and assets.
However, the ECCI, together with the Estonian Accounting Board, considers this 25% increase inadequate. The last adjustment to these thresholds was made in 2016, and since then, the consumer price index in Estonia has risen by 57.5% as of August 2024, according to the Statistics Estonia. Given the eight-year gap between adjustments, they argue that future increases are unlikely to occur for several years, and therefore, the threshold should be raised by a larger margin, reflecting the rise in the consumer price index. They also suggest that thresholds should be regularly adjusted every five years to ensure stability.
Decreased availability of audit services
The appeal also highlights issues with the availability of audit services. Many companies have struggled to find certified auditors, leading to delays in submitting their annual financial reports. This problem partly stems from the fact that audit thresholds haven’t been updated in years, leading to an increase in the number of companies required to undergo audits. Additionally, auditors are facing new responsibilities, such as sustainability report audits, further straining their availability.
Ministry's response to the proposal
ERR (link to article) reached out to the Ministry of Finance regarding the proposal, where Rainer Osanik, head of the Ministry's Financial Information Policy Department, stated that increasing the thresholds to the extent suggested by the ECCI is not feasible. According to Osanik, such an increase would reduce the number of businesses subject to audit obligations by approximately 30%, jeopardizing the transparency and trustworthiness of the Estonian business environment. He emphasized that the purpose of audit oversight is to ensure transparency and prevent the misuse of company resources and assets.
Osanik also pointed out that in 2017, auditors conducted 8,321 engagements, covering 5.4% of companies that submitted annual reports. However, this number has decreased each year, with 7,973 engagements conducted last year, covering 3.8% of companies submitting 2022 reports.
The ECCI finds the Ministry’s argument unconvincing, asserting that the audit thresholds are not critical to the transparency and trustworthiness of the business environment. Previously, the Ministry focused primarily on ensuring that financial statements subject to audits or reviews accounted for roughly 80% of revenue and asset volume. The ECCI suggests that this percentage could be lower, provided the business environment’s reliability and transparency are maintained. The number of companies subject to audit and the number of engagements should not be a determining factor in this context.
The ECCI also estimates that if the audit and review thresholds are only raised by 25%, as currently planned, the number of companies required to undergo reviews would decrease by 583, and 544 companies would need to conduct reviews instead of audits. Thus, the change would affect about 1,100 companies, with only half being exempted from audit oversight altogether, while the other half would see their audits replaced by reviews.