Regulations Regarding an Inspection of Compliance with the Requirements for the Audit Services Quality Control and Qualification Requirements of Authorised Representatives

Issued pursuant to
Section 35.¹, Paragraph four
of the Law on Audit Services

I. General Provisions

1. The Regulation prescribes the procedures for the inspection of compliance with the requirements for the audit services quality control, the qualification requirements for authorised representatives, the information to be included in an inspection report, and also the content of the inspection programme.

[29 October 2024]

2. The terms used in this Regulation correspond to the following terms included in Regulation (EU) No 537/2014 of the European Parliament and of the Council on specific requirements regarding statutory audit of public-interest entities and repealing Commission Decision 2005/909/EC (hereinafter - Regulation No 537/2014):

2.1. inspection of compliance with the requirements for the audit services quality control (hereinafter - the inspection) - to the term "inspections" within the meaning of Article 26(1)(a) of Regulation No 537/2014;

2.2. authorised representative of the Ministry of Finance (hereinafter - the authorised representative) - to the term "inspector" within the meaning of Article 26(1)(b) of Regulation No 537/2014.

[8 August 2023; 29 October 2024]

II. Inspection of Compliance with the Requirements for the Audit Services Quality Control

3. The authorised representative shall inspect compliance with the requirements for audit services quality control for such commercial company of sworn auditors or sworn auditor which or who provides audit services to a public-interest entity (hereinafter - the practice of sworn auditors). The inspection of the practice of sworn auditors shall be carried out by at least two authorised representatives. The authorised representative shall carry out the regular or extraordinary inspection:

3.1. the regular inspection shall be carried out not less than once in three years in accordance with the inspection programme prepared and approved by the Ministry of Finance in order to inspect:

3.1.1. whether the practice of sworn auditors has provided an audit service to a public-interest entity in accordance with the requirements of the Law on Audit Services and Regulation No 537/2014 in conformity with the international auditing standards recognised in Latvia;

3.1.2. whether the practice of sworn auditors complies with the internal quality management policy and procedures developed according to the scale and complexity of the activity of the practice of sworn auditors;

3.2. extraordinary inspections shall be carried out in the following cases:

3.2.1. if Category 3 or 4 is assigned to the practice of sworn auditors in a regular inspection;

3.2.2. if, when examining a submission for the audit services provided by the practice of sworn auditors to a public-interest entity, the Ministry of Finance has justified suspicions of violations of the requirements of the Law on Audit Services, Regulation No 537/2014, or the international auditing standards recognised in Latvia;

3.2.3. if it is necessary for the inspection of a certain audit service provided to a public-interest entity or the inspection of compliance with the requirements of the Law on Audit Services, Regulation No 537/2014 or international auditing standards recognised in Latvia.

[29 October 2024]

4. The authorised representative shall carry out the inspections referred to in Sub-paragraph 3.1 of this Regulation in the scope laid down in Article 26(6) of Regulation No 537/2014 by inspecting also the following:

4.1. whether the practice of sworn auditors has created and complies with an internal control system conforming to the scale and complexity of its activity for the assurance of the audit services quality;

4.2. whether the practice of sworn auditors complies with the requirements for independence and objectivity laid down in Section 25, Paragraphs one and three and Section 26, the confidentiality requirements laid down in Section 27, and the requirements for the receipt of fee for non-audit services laid down in Section 37.⁷ of the Law on Audit Services, and also the requirements for audit fees laid down in Article 4 of Regulation No 537/2014;

4.3. whether the practice of sworn auditors complies with the requirements laid down in the legal acts regarding work organisation, resource planning, document management, establishment of registers and files for the practices of sworn auditors;

4.4. whether the responsible sworn auditor has continued his or her education and improved his or her professional qualification in a continuing education process recognised by the Latvian Association of Sworn Auditors.

[29 October 2024]

5. In carrying out the inspection, the authorised representative shall:

5.1. become acquainted with the audit working papers of the practice of sworn auditors to be inspected;

5.2. acquire the necessary information by carrying out a survey and find out facts (for example, whether a rotation of sworn auditors exists, whether the requirement for the independence of the practice of sworn auditors from a client is complied with);

5.3. hear the representative of the practice of sworn auditors to be inspected.

[29 October 2024]

5.¹ The authorised representative may carry out the inspection in the following ways:

5.¹ 1. in person;

5.¹ 2. partially in person and partially remotely, ensuring all the requirements laid down in Paragraph 5 of this Regulation;

5.¹ 3. remotely if the inspection cannot be carried out in person due to a declared state of emergency or the introduction of epidemiological safety measures in the country. The inspection may also be carried out remotely if all documents of the practice of sworn auditors are stored and archived electronically and the authorised representative carrying out the inspection can ensure compliance with all requirements referred to in Paragraph 5 of this Regulation.

[29 October 2024]

6. After the inspection, the authorised representative shall provide an assessment of the practice of sworn auditors and include it in the inspection report.

[29 October 2024]

7. The internal quality management system of the practice of sworn auditors shall be assessed according to the following categories:

7.1. Category 1 - operates well: deficiencies have not been established or minor deficiencies have been established which do not affect the internal quality management system of the inspected practice of sworn auditors;

7.2. Category 2 - operates but some improvements are required: some deficiencies have been established which have a medium impact on the internal quality management system of the inspected practice of sworn auditors. Recommendations have been given for the improvement of the system and the practice of sworn auditors has developed an action plan for the implementation of the recommendations;

7.3. Category 3 - operates partly, significant improvements are required: systematic deficiencies have been established which have an impact on the internal quality management system of the inspected practice of sworn auditors. Recommendations have been given for the improvement of the system and the practice of sworn auditors has developed an action plan for the implementation of the recommendations;

7.4. Category 4 - does not operate: deficiencies which have been established indicate that the internal quality management system of the inspected practice of sworn auditors does not operate. Recommendations have been given for the improvement of the system and the practice of sworn auditors has developed an action plan for the implementation of the recommendations.

[29 October 2024]

8. The authorised representative shall create an inspection file for each inspection. The inspection file shall include the documents obtained or prepared during the inspection.

9. The authorised representative shall, within two weeks after the end of the inspection, commence the preparation of a draft inspection report and a draft plan for the rectification of deficiencies. The completion date of the inspection shall be recorded in the draft inspection report, and it shall be prepared within one month. If the specified time limit cannot be complied with due to objective reasons, the authorised representative may extend the time limit for the preparation of a draft inspection report and a draft plan for the rectification of deficiencies by one month, notifying the practice of sworn auditors thereof. Recommendations and time limits for the implementation thereof for the rectification of the deficiencies established in the inspection shall be included in the report and sent to the inspected practice of sworn auditors.

[29 October 2024]

10. The authorised representative shall determine the time limit for the implementation of the recommendations referred to in Paragraph 9 of this Regulation, taking into account the impact of the relevant deficiency on the internal quality management system of the practice of sworn auditors and the priority of the implementation of the recommendation. The abovementioned time limit shall not exceed 12 months from the date of approval of the inspection report.

[29 October 2024]

11. The inspected practice of sworn auditors shall, within 10 working days after receipt of the information referred to in Paragraph 9 of this Regulation, prepare and electronically submit the following information to the authorised representative:

11.1. comments and substantiated objections to the draft inspection report and the recommendations. Where possible, substantiate them with documents;

11.2. the measures to be taken for the rectification of the established deficiencies and the implementation of the recommendations by indicating the person responsible for the implementation of the recommendations.

[29 October 2024]

12. Where objective circumstances exist due to which the information referred to in Paragraph 11 of this Regulation cannot be submitted within 10 working days, the time limit for the submission of information may, upon a written agreement with the Ministry of Finance, be extended for the additional period required to prepare the information however for not more than 10 working days.

13. If the information referred to in Paragraph 11 of this Regulation has not been received within the time limit referred to in Paragraph 11 or 12 of this Regulation, it shall be considered that the inspected practice of sworn auditors recognises the inspection report as justified.

[29 October 2024]

14. The authorised representative shall assess the comments referred to in Paragraph 11 of this Regulation, the soundness thereof and the measures to be taken for the rectification of the established deficiencies and the implementation of the recommendations, prepare an inspection report and append a plan for the rectification of the deficiencies thereto.

15. If the authorised representative has received the information referred to in Paragraph 11 of this Regulation but has not changed the nature of the recommendations after its evaluation, a coordination meeting shall be organised with the inspected practice of sworn auditors which does not agree with the recommendations. If an agreement is not reached and the recommendations are not agreed upon or the authorised representative does not obtain evidence for changing the recommendations, the relevant recommendations of the plan for the rectification of deficiencies shall be indicated as unagreed in the inspection report.

[29 October 2024]

16. An inspection report and a plan for the rectification of deficiencies shall be signed by the authorised representative who carried out the inspection and approved by the official of the Ministry of Finance who is responsible for the inspection process. The authorised representative shall send the approved inspection report and the plan for the rectification of deficiencies to the inspected practice of sworn auditors.

[29 October 2024]

17. The person responsible for the implementation of the recommendations who is indicated in Sub-paragraph 11.2 of this Regulation shall ensure that the measures included in the plan for the rectification of deficiencies are implemented within the time limits specified in the plan. The practice of sworn auditors shall, within 10 working days after the time limit specified for the implementation of the relevant recommendation, inform the Ministry of Finance of the implementation of the recommendation by submitting a documentary proof.

[29 October 2024]

18. The Ministry of Finance shall supervise the implementation of the provided recommendations and, within 10 working days after receipt of the information referred to in Paragraph 17 of this Regulation, assess how the recommendations are implemented, where necessary, requesting additional information and (or) taking the decision to carry out an extraordinary inspection to assess the implementation of the recommendations.

19. If, within the time limit specified in the plan for the rectification of deficiencies, the inspected practice of sworn auditors has not taken measures to improve the internal quality management system, the Ministry of Finance shall:

19.1. within a month after the end of the specified time limit, publish on its website information on the deficiencies of the internal quality management system of the inspected practice of sworn auditors and inform the Latvian Association of Sworn Auditors thereof in writing;

19.2. evaluate the impact of the non-implemented recommendation on the internal quality management system of the inspected practice of sworn auditors and, where necessary, take the decision to carry out an extraordinary inspection.

[29 October 2024]

20. The documents included in the inspection file and the inspection report shall be stored in the relevant file in the archives of the Ministry of Finance.

21. The Ministry of Finance shall prepare a description of the internal procedures by determining the procedures for:

21.1. planning the inspections based on a risk approach;

21.2. carrying out the inspections and also indicate sample check lists;

21.3. compiling inspection results, providing an assessment of the inspected practice of sworn auditors, and preparing an inspection report.

[29 October 2024]

III. Information to be Included in an Inspection Report

22. The following information shall be included in an inspection report:

22.1. the place, date and time of drawing up the inspection report;

22.2. the given name, surname, and position of the authorised representative who carried out the inspection;

22.3. the details (identification data) of the document under which the authorisation to carry out the inspection was received;

22.4. information on the inspection:

22.4.1. the time of the inspection;

22.4.2. the nature of the inspection;

22.4.3. the conclusions of the inspection;

22.4.4. the date of completion of the inspection.

22.5. the plan for the rectification of deficiencies where recommendations and time limits for their implementation are included to rectify the deficiencies established in the inspection.

[29 October 2024]

IV. Qualification Requirements for Authorised Representatives

23. A person who meets the following may be appointed as the authorised person:

23.1. is a citizen of Latvia;

23.2. is proficient in the official language at the highest level;

23.3. has obtained higher vocational or academic education (except for short-cycle higher vocational education) in economics, management, finance, or law in the Republic of Latvia or abroad;

23.4. has an unimpeachable reputation - none of the conditions referred to in Section 9 of the Law on Audit Services apply thereto;

23.5. has acquired professional experience of at least three years in the preparation of financial statements and the audit (review) of such statements;

23.5.¹ has acquired the experience referred to in Section 35.² of the Law on Audit Services in the field of sustainability if the authorised representative carries out the inspection procedures referred to in Chapter VI¹ of this Regulation;

23.6. has heard the training course organised by the Ministry of Finance on the inspection.

[29 October 2024]

V. Content of an Inspection Programme

24. An inspection programme shall include the following measures which are necessary to:

24.1. ensure that the inspections are carried out not less than once in three years for those practices of sworn auditors which provide audit services to public-interest entities;

24.2. carry out the inspections by complying with the Law on Audit Services, the requirements of this Regulation, and Article 26 of Regulation No 537/2014.

[29 October 2024]

25. The following information on the inspections planned for the current year shall be indicated in an inspection programme:

25.1. the time of the inspections;

25.2. tasks and time limits for carrying out the inspections;

25.3. the practices of sworn auditors to be inspected;

25.4. the audit service and the sustainability report assurance service provided by the practice of sworn auditors to be inspected if the practice of sworn auditors to be inspected has also provided a sustainability report assurance service to a public-interest entity.

[29 October 2024]

26. An inspection programme shall not be accessible by the public and shall be at the disposal of the authorised representatives.

VI. Report on Quality Control Assurance

27. The Ministry of Finance shall, not later than within a month after completing all the planned inspections, compile the results of the inspections carried out in the previous calendar year, i.e. information on the findings of all inspections carried out in the relevant year and the recommendations provided, and publish them on its website.

[8 August 2023]

28. The Ministry of Finance shall, not later than within a month after the publication of the inspection results referred to in Paragraph 27 of this Regulation on its website, prepare a report on quality control assurance. The report shall include the information referred to in Article 28(c) of Regulation No 537/2014 and the measures to be taken, including the provided recommendations and the planned supervision measures related thereto (without indicating a specific inspected practice of sworn auditors) and also information on the effectiveness and efficiency of quality control assurance in respect of the quality of audit services and, where appropriate, the quality of sustainability report assurance services. Within two weeks after the preparation of the report, the Ministry of Finance shall publish it on its website.

[29 October 2024]

VI.¹ Special Regulations for the Inspection of the Quality of the Sustainability Report Assurance Service

[29 October 2024]

28.¹ If the practice of sworn auditors to be inspected has also provided a sustainability report assurance service to a public-interest entity, the authorised representative shall inspect the following during a regular inspection:

28.¹ 1. whether the practice of sworn auditors has created and complies with an internal control system for the quality assurance of sustainability assurance services corresponding to the scale and complexity of its activity;

28.¹ 2. whether the practice of sworn auditors complies with the independence and objectivity requirements laid down in the Section 25, Paragraphs one and three and Section 26 as well as the confidentiality requirements laid down in Section 27 of the Law on Audit Services;

28.¹ 3. whether the practice of sworn auditors complies with the requirements laid down in the laws and regulations regarding work organisation, resource planning, document management, establishment of registers and files for the practice of sworn auditors which provides the sustainability report assurance service;

28.¹ 4. whether the responsible sworn auditor or the principal sustainability auditor has continued his or her education and improved his or her professional qualification also in the field of sustainability in a continuing education process recognised by the Latvian Association of Sworn Auditors.

[29 October 2024]

28.² The inspection of the quality of the sustainability report assurance service shall be carried out by the authorised representative who has the experience referred to in Sub-paragraph 23.5.¹ of this Regulation.

[29 October 2024]

28.³ When inspecting the internal control system of the practice of sworn auditors which ensures compliance with the requirements laid down in Section 35.¹ of the Law on Audit Services and in Article 26 of Regulation No 537/2014, the authorised representative shall evaluate how the provision of sustainability report assurance services is ensured in the practice of sworn auditors to be inspected and shall verify the compliance in the provision of the abovementioned service with the independence and objectivity requirements laid down in the laws and regulations, the sustainability report assurance standards, and the professional code of ethics as well as the Law on Audit Services.

[29 October 2024]

28.⁴ The authorised representative shall assess the internal control system which ensures the quality and reliability of the sustainability report assurance service by conducting discussions with the representative of the practice of sworn auditors to be inspected, inspecting the policies and procedures of the internal control system as well as inspecting the sustainability report assurance service provided by the practice to be inspected.

[29 October 2024]

28.⁵ The authorised representative shall include the assessment and results of the inspection of the quality of sustainability report assurance services in the inspection report referred to in Paragraph 22 of this Regulation which, in conformity with the procedures and time limits laid down in Chapter II of this Regulation, shall be agreed upon with the management of the practice of sworn auditors to be inspected.

[29 October 2024]

VII. Closing Provisions

29. The Ministry of Finance shall prepare the description of internal procedures referred to in Paragraph 21 of this Regulation by 1 September 2017.

30. Cabinet Regulation No 536 of 17 June 2009, Regulations Regarding an Inspection of the Compliance with the Requirements for the Audit Services Quality Control (Latvijas Vēstnesis, 2009, No. 97; 2011, No. 178), is repealed.

Prime Minister Māris Kučinskis

Minister for Finance Dana Reizniece-Ozola

Translation © 2025 Valsts valodas centrs (State Language Centre)