AUDITORS REGULATIONS (CONFLICT OF INTERESTS AND REDUCED INDEPENDENCE BECAUSE OF OTHER WORK) (AD HOC PROVISION)

Transcription

1 Disclaimer: The Following is an unofficial translation, and not necessarily an updated one. The binding version is the official Hebrew text. Readers are consequently advised to consult qualified professional counsel before making any decision in connection with the enactment, which is here presented in translation for their general information only. AUDITORS REGULATIONS (CONFLICT OF INTERESTS AND REDUCED INDEPENDENCE BECAUSE OF OTHER WORK) (AD HOC PROVISION) By virtue of my authority under sections 10, 11 and 17 of the Auditors Law , in consultation with the Auditors' Council and with approval by the Knesset Constitution, Law and Justice Committee, I make these regulations: Definitions 1. In these regulations "audit" within its meaning in the Auditors Regulations (Ways of the Auditor's Practice) ; "family member" offspring, spouse, brother, sister, parent, the spouse of any of these; "holding" and "control" within their meaning in the Securities Law (hereafter: Securities Law); "client" the audited body and whoever controls the audited body; if consolidated reports, within their meaning in accepted bookkeeping rules, were drawn up for the audited body also every other body corporate consolidated in those consolidated reports, in respect of which the auditing auditor made an audit; "audited body" the person whose financial reports are audited by the auditor; "auditors firm" the auditing auditor, and also the auditors employed by him or by an auditor body corporate, of which he is a partner or member; "other work" also through a body corporate controlled by the auditing auditor; for this purpose, "control" includes the assumption that whoever holds 25% of the means of control of a body corporate and is able to prevent the adoption of business decisions by a body corporate controls the body corporate; "relative" a family member whose residence is with the person, who is the person's dependent, whose dependent the person is, and also a body corporate controlled by any of these and a trustee for any of these; "auditing auditor" an auditor appointed to conduct an audit on a certain audited body, including auditors who are partners, members or shareholders of the auditors body corporate of which he is an employee, partner, member or shareholder, and every person employed on his behalf in the audit of the audited body, and including auditors employed by an audit union, within its meaning in section 20 of the Cooperative Societies Ordinance all exclusive of any person who

2 permanently works abroad; "working auditor" the auditing auditor who actually engages in the audit of the audited body; "banking corporation" within its meaning in the Banking (Licensing) Law ; "auditors body corporate" a company of auditors or a partnership of auditors; "audit period" the current period, in respect of which the audit is made, including the time up to the date on which the auditing auditor's opinion is given about the financial reports for the current period. Circumstances of a possible conflict of interests or an infringement of independence 2. (a) It is assumed that an auditing auditor is in a conflict of interests or that his independence of the audited body was infringed, if in the course of the audit he makes he is required to audit a business or a transaction in which he has a personal interest, or an opinion or valuation that he performed as part of some other work; however, in the case of an economic opinion by the auditing editor, given before he was appointed the audited body's auditing auditor, it shall not be assumed as aforesaid (b) In addition to the provisions of subregulation (a), it is assumed that an auditing auditor's action in the framework of his other work is an act under a conflict of interests or infringes his independence of the audited body, if one of the following holds true for it: (1) during the audit period he received from the client pay, and undertaking to pay or other benefits, that are conditional on the results of his work, as a percentage of the monetary result of his work (hereafter: conditional income), but other than conditional income received from a controlling member of the audited body, the extent of which in the audit year does not exceed the income from auditing the audited body in that year; (2) he made his engagement in the audit conditional on his employment at some other work; (3) he or his relative maintained directly or indirectly and also through a body corporate under their control an economic connection to the client during the audit period or in the year that preceded it; for this purpose, "economic connection" with the client including customer/supplier connections, service provider / service recipient connections, property rentals, business partnerships, joint transactions, joint property ownership, and the like, and also the extension of loans to the client or the receipt of loans from the client; however, a loan to the auditing auditor by a banking 2

3 corporation on market terms and in the ordinary course of business, the acquisition of an asset, of goods or of a service by the auditing auditor not in order to trade in them on market terms and in the audited body's ordinary course of business or the receipt of pay from the client shall not be deemed an economic connection; (4) he or his relative hold any amount of securities of the client; (5) a member of his family who is not his relative holds 20% or more of securities in the client, unless the audited body is a private company and all its shareholders have agreed in writing that the audit be carried out by the auditing auditor, for whose family member the aforesaid holds true; (6) the auditing auditor or a person who in any manner whatsoever was involved in discussions that relate to the audit of the audited body, including discussions between partners of the office of auditors, is or was an employee of that client, or was engaged by the client in some other manner, and an employer / employee relationship existed between the client and the said auditor during the audit period or the year that preceded it; (7) during the audit period, a person from the auditor's office actually participates or participated in the decision making process for the client. Special work 3. Without derogating from the generality of the provisions of regulation 2, it is assumed that an auditing auditor is in a conflict of interests or that his independence of the audited body was infringed, if during the audit period or in the preceding year he engaged in other work, as specified below: (1) he acted for the client as an advocate, within its meaning in the Chamber of Advocates Law , in activities other than those customarily performed by an auditor; (2) a person from the Auditors Office acts as liquidator, receiver, estate administrator or trustee for the client, other than a trusteeship in which the trustee performs instructions in respect of trustee assets, without making management decisions; (3) giving an opinion on a financial report of the client, when the report includes particulars based on an opinion of some one from the Auditors Office, in respect of one or more of the following: (a) valuation of the economic value of assets, including vehicle assessment and real estate assessment; (b) valuation of the economic value of an obligation; (c) the existence of rights or of obligations in respect of assets; (d) evaluation of the actual condition of assets; 3

4 (e) preparation of a business plan that affects the life of the business; all other than an incidental opinion given by a person who is not the auditing auditor, the subject of which is a business plan, an asset or an undertaking that is not substantive for the business of the body corporate; (4) a valuation of the audited body, unless it was prepared for someone other than the audited body and all the following hold true for it in the aggregate: (a) it was drawn up before the audit period; (b) it was drawn up for a person who when it was prepared was not a controlling member of the audited body; (5) working as internal auditor of the client or on behalf of the internal auditor in connection with his work as the client's internal auditor; (6) the service of any person from the Auditors Office as officer of the body corporate that is the client, and also the service of the relative or member of the family of the auditing auditor, unless the auditing auditor does not know about it; for this purpose, the auditor shall be deemed to have known, even if he suspected and refrained from clarifying the matter; however, in respect of an audited body that is a private company the aforesaid about the service of the relative or member of the family of the auditing auditor as officer of the client shall not apply, on condition that all holders of the audited body's shares agreed in writing that the audit be made by the auditing auditor, for whose relative or family member the aforesaid holds true; (7) ongoing activity for the audited body as investment counselor or as manager of investment portfolios; for this purpose, "investment counselor" and "manager of investment portfolios" within their meaning in the Regulation of Investment Counseling and Portfolio Management Law ; (8) work at bookkeeping for the audited body that is a public company; (9) work at bookkeeping for the audited body that is not a public company by the auditing auditor in person. Circumstances that require disclosure 4. (a) Without derogating from the principles of independence and from the provisions of regulations 2 and 3 (1) if an auditing auditor engages in other work specified below, and if that is not disclosed in the financial reports or in the report of the Board of Directors of the public company, then it shall be disclosed in the report of the auditing auditor that includes his opinion on the financial reports of the audited body: (a) bookkeeping for the client; 4

5 (b) (b) evaluating a body corporate consolidated with the audited body in consolidated reports, or a body corporate included in the consolidated reports, if the audited body's holdings in the said body corporate are 25% or more of the audited body's equity; (c) giving the client valuations during the audit period; (2) disclosure as said in paragraph (1) shall also be made of the following: (a) (b) securities of the client held by the auditing auditor's family member at a rate of 5% or more, unless the auditing auditor did not know that and did not need to know it; a relative or member of the family of the auditing auditor is an officer of the client, if the provision of the closing passage of regulation 3(6) is complied with. Disclosure, as said in subregulation (a) shall also be made in respect of the auditing auditor's income from the other work for the audited body, as compared to his income from tax consultancy, unless his income from the other work does not exceed one third of all his income from that client. Conduct unbecoming the professional honor 5. Any action by an auditing auditor in violation of the provision of these regulations constitutes conduct unbecoming the professional honor. Saving of provisions 6. These regulations shall add to any statute and to the provisions made thereunder. Surveying interim reports 7. The provisions of these regulations on conducting audits shall also apply to surveys of interim reports by an auditing auditor. Amendment of Regulations from In regulation 1A of the Auditors Regulations (Conduct Unbecoming Professional Honor) , paragraph (6a) is repealed. Applicability and effect 9. These regulations shall only apply to audits in respect of the audit periods that begin on January 1,of the years 2003 to 2008, and in order to remove doubt let it be clearly stated that they shall not apply to audits in respect of the audit period that begins on January 1,