On the date of entry into force of Law No 162/2017, namely 15 July 2017, the tasks that may be delegated by ASPAAS to CAFR under Article 52, including carrying out quality assurance inspections of statutory auditors and audit firms in respect of statutory audit activity at entities other than public-interest entities, were delegated by operation of law under Article 95 of Law No 162/2017, under the supervision and control of ASPAAS, for a period of one year, which has now ended. ASPAAS retains ultimate responsibility for the performance of the delegated tasks.
Following its analysis of how CAFR performed the delegated tasks during the period of delegation by operation of law, ASPAAS identified certain non-conformities in the performance of the delegated activity of carrying out quality assurance inspections of statutory auditors and audit firms in respect of statutory audit activity at entities other than public-interest entities, as follows:
A. CAFR regulated outside the legal framework by issuing and applying CAFR Council Decisions No 85/25.09.2017 and 125/20.12.2017
The provisions of Law No 162/2017 in this respect are clear and no longer allow CAFR to issue any Regulations for activities within the remit of ASPAAS, as follows:
“ARTICLE 95
(1) On the date of entry into force of this Law, the tasks that may be delegated by ASPAAS to CAFR under Article 52 are delegated by operation of law, under the supervision and control of ASPAAS, for a period of one year.
(2) In order to exercise the tasks delegated under paragraph (1), CAFR shall apply the regulations existing at the time of entry into force of this Law until ASPAAS draws up its own specific regulations for the delegated activities.”
“Article 2
(6) (..) competent authority means the Authority for the Public Oversight of Statutory Audit Activity, hereinafter referred to as ASPAAS, as the regulatory authority in the field of statutory audit and the authority for the oversight of statutory auditors and audit firms.”
“Article 35 (..)
(9) ASPAAS issues inspection rules and procedures on quality assurance of statutory audit activity for the application of this Law.”
“ARTICLE 51
(1) ASPAAS is the competent authority for performing the tasks laid down in this Law.”
“ARTICLE 73 (..)
(2) ASPAAS is the competent authority in the field of public-interest oversight of statutory audit and exercises its powers in accordance with this Law.”
“ARTICLE 75
(1) The main tasks of ASPAAS as competent authority under Directive 2006/43/EC, as amended and supplemented, and this Law are as follows: (..)
d) carrying out inspections for the quality assurance of statutory audit; (..)
j) issuing its own regulations on the basis and in application of this Law.”
It is therefore clear from an analysis of these provisions that CAFR could only apply the regulations existing at the time of entry into force of Law No 162/2017. CAFR no longer had the legal power to regulate any of the activities referred to in Article 52 of Law No 162/2017, including carrying out quality assurance inspections of statutory auditors and audit firms that perform statutory audits at entities other than public-interest entities.
The analysis of the inspection objectives selected for the period under oversight shows that CAFR Council Decision No 85/25.09.2017 was applied throughout the period from its issue until 31.12.2017, and CAFR Council Decision No 125/20.12.2017 has been applied since its issue.
In addition, CAFR Council Decisions No 85/25.09.2017 and 125/20.12.2017 were never approved by the competent authority, ASPAAS.
In view of the above, it is beyond doubt that CAFR Council Decisions No 85/25.09.2017 and No 125/20.12.2017 in their entirety were issued without complying with the applicable legal provisions (and then implemented), the issuing authority no longer having regulatory powers over this activity after the entry into force of Law No 162/2017, this power being within the exclusive competence of ASPAAS.
In these circumstances, all inspections carried out by CAFR during the delegation period were carried out on the basis of regulations unlawfully approved by the CAFR Council, which, in the view of ASPAAS, entails their nullity by operation of law.
B. CAFR did not meet the applicable legal conditions on the criteria to be met by the quality assurance system
The current legal provisions, namely Regulation (EU) No 537/2017 and Law No 162/2017, impose clear experience requirements in carrying out statutory audits and in financial reporting for persons carrying out these inspections (and do not provide for this requirement to be met in any other way), namely:
- Article 35(1) and (4) of Law No 162/2017 (in force since 15 July 2017):
(1) All statutory auditors and audit firms are subject to a quality assurance system that meets at least the criteria set out in paragraph (4).
(4) The criteria to be met by the quality assurance system are as follows:
d) “persons carrying out inspections for quality assurance have at least 7 years’ experience as an active auditor in statutory audit, including at least 3 years at public-interest entities;”
- Article 26(5)(a) of European Regulation (EU) No 537/2014 (in force since 17 June 2016): “When appointing inspectors,, competent authority shall apply the following criteria: (a) inspectors shall have appropriate professional education, relevant experience in statutory audit and financial reporting and specific training on quality assurance reviews;”
By effect of Law No 162/2017, the activity of quality assurance inspections of statutory auditors and audit firms in respect of statutory audit activity at entities other than public-interest entities was delegated by operation of law to CAFR under Article 95 of Law No 162/2017. Consequently, ASPAAS tasks were delegated to CAFR for performance, while ultimate responsibility remained with ASPAAS.
An analysis of the CVs of the members of the CAFR Inspections department, who have carried out these inspections in recent years, including after the entry into force of European Regulation (EU) No 537/2014 and then of Law No 162/2017, does not show that they have experience in carrying out statutory audits, as required by the regulations mentioned above. Moreover, although ASPAAS repeatedly requested that the text of the CAFR Rules of Organisation and Functioning be brought into line with the law, including a request to state the legal criteria to be met by persons carrying out quality assurance inspections, these requests were refused by CAFR.
In view of the above, namely that the legal conditions were NOT met for carrying out these inspections, the competent authority, the one that bears ultimate responsibility for this activity, namely ASPAAS, cannot, for this reason as well, recognise the results of these inspections for the period in which they were delegated, namely 15 July 2017 – 15 July 2018.
The current situation is all the more complicated given that the results of the quality assurance inspections have also produced legal effects, through the very application of CAFR regulations which set different contribution levels depending on the rating obtained in the quality assurance inspections carried out by CAFR, as well as professional education obligations.
ASPAAS will make every effort with the professional body to remedy this situation and to cancel the effects on members of the profession of the quality assurance inspection activity carried out by CAFR.
C. Issues in the performance of other quality assurance engagements carried out by CAFR after 15 July 2018
CAFR issued Decision of the CAFR Council No 60/19.07.2018 approving the “Rules on the quality review of financial audit activity other than statutory audit and of other activities carried out by statutory auditors”, published in the Official Gazette of Romania, Part I, No 656/27.VII.2018. The draft CAFR rules on this matter were not sent to ASPAAS for approval. We also draw attention to the fact that Article 15(5) of the CAFR Rules of Organisation and Functioning, approved by CAFR Council Decision No 2/2018, provides that decisions of the Chamber’s Council affecting the statutory audit profession are published in the Official Gazette of Romania, Part I, with the prior approval of ASPAAS, as applicable.
Although ASPAAS has repeatedly asked CAFR to remedy the situation regarding the application of Article 35(4)(d) of Law No 162/2017 and Article 26(5)(a) of European Regulation (EU) No 537/2014, both of which concern the requirements for inspectors, these are not reflected in the legal act issued by CAFR.
Moreover, Decision of the CAFR Council No 60/19.07.2018 contains a number of provisions that exceed CAFR’s competence, those provisions falling within the exclusive competence of ASPAAS, in breach of Law No 162/2017, which provides that only ASPAAS, as the competent authority, may regulate the activities within its competence.
At the same time, ASPAAS cannot accept that, through an inspection system that is not in line with the law, the reputation of statutory auditors who also carry out statutory audits in particular, and of financial audit activity, including statutory audit, in general, should be damaged by ratings resulting from inspections carried out by persons who do not meet the minimum requirements laid down in both national and European legislation. This is all the more so as the inspection results also affect members’ financial obligations (contributions differentiated by rating) and their professional education obligations.
ASPAAS has initiated legal steps to remedy this situation and will also order the administrative measures required by law against those responsible.
