Since 2011, increase of transparency in the work of the state and private sectors is expected in Armenia, conditioned by legislative changes in the sphere of internal and external audit. At the end of 2010, the parliament approved a law on “Internal audit”, and in 2011, companies with assets of 1bln AMD and more following the results of last year are subject to compulsory audit. Executive Director of “Ameria Audit” Company Artur Andreasyan spoke of expectations, related to the above-mentioned changes, in an interview to Mediamax and Banks.am portal.

- In December, 2010, Armenian parliament approved a law on “Internal Audit”, which, according to authors, aims at expanding legal bases of the institute of audit in governmental structures. Since “Ameria Audit” has significant experience of work with the government, we would like to know your opinion about the law and the current state of internal audit in the governmental sector.

- We welcome approval of the law. The initiative of introducing internal audit system in governmental system occurred back in 2001. Its legislative requirements were fixed in the law on “Treasury System” and Armenia-EU Action Plan within the framework of European Neighborhood Policy, according to which a system of internal financial control, meeting international standards, should be introduced in the entire governmental sector in Armenia.

It is not a secret that currently the function of internal audit in the public sector is not realized all-comprehensively and is mainly focused on assessing the financial operations. The framework of internal audit, however, is far wider and the approved law fixes all its functions.

Besides the approved law, there is a number of other documents as well, related to internal audit: standards and guides on internal audit in the public sector of Armenia, the rules of behavior for internal auditors, etc. 

We should note that certain works on improving internal audit had been in process back before the approval of the law: at the initial stage of forming internal audit in the governmental system, the Ministry of Finance decided to charge external auditors (audit companies) with this function. The latter will be working with regional administrations, municipalities and establishments under their control, non-commercial governmental organizations, as well as commercial enterprises, where the government’s participation exceeds 50%. A workgroup was set up to this end and “Ameria Audit” also entered that group.

In order to carry out the pilot stage, one regional administration and city administration are chosen. At present, research is in process there in order to assess the nature and the volume of work to be carried out and the responsibility which the audit companies will take upon themselves. I am sure that in 2011, these works will progress actively and the involvement of external auditors (although temporary) will be quite efficient.

- Is it provided that with formation of the institute of internal audit in governmental sector, it will completely substitute external audit there?

- No. Internal audit is subordinated to the leadership of the given organization and is mainly aimed at improving internal control, revealing the real potential and risks. The external audit represents assessment of the credibility of the customer’s financial reporting, and is provided for those who use them.

- In 2010, following the results of the previous year, compulsory audit will be provided for companies with revenues of 1bln AMD and more. This fact gave many people hope for abrupt reduction of shadow economy and wide spreading of corporate management principles. They also expected scandalous disclosures. Were those hopes justified?

- Hopes and expectations cannot be justified immediately. Last year, about 500 enterprises fell under compulsory audit, which, however, was perceived by the majority of them as something negative. A part of companies completely neglected the requirements of the law.

- About 50 companies avoided compulsory audit in 2010. What measures of punishment were undertaken?

- The law was imperfect as to this issue: administrative fine, which was applied against those enterprises, cannot have serious influence.

I should also note another negative phenomenon: the process of undergoing audit was perceived as something formal by some companies. Naturally, given such an approach, the quality of the provided service suffers, and as a result the regulator recalled a number of audit licenses.

- Aiming at ruling out “formal” audit, it was suggested entrusting this function to a number of audit companies which care for their own authority.

- It is somewhat difficult to define which company is authoritative and which one is not. One should not qualify a company as “authoritative” or “unauthoritative”: instead, there should be clear legislative requirements, which will rule out unlawful actions by audit organizations. 

At present, the draft law on “Amendments and changes in the law on audit activity” is in circulation; it provides for toughening criteria of audit activity: the draft law also provides for limitations concerning the minimum number of auditors, working in a single company, and if now an audit company can have only two qualified auditor, after approval of the law, this number will increase to 3, and starting from 2013 - up to 5. This first of all provides for the fact that already this year the notion of “private entrepreneur-auditor” will disappear.

- What are the lessons, which should be taken into account this year, when following the results of 2010, companies with assets of 1bln AMD and more are subject to compulsory audit? Many of them, by the way, do not function at all.

- It is obvious that the number of customers will increase even more, and, respectively, the load on the auditors will increase as well. There are certain limitations, which aggravate the situation, and one of them is the requirement to publicize financial reporting before June 30. I believe that this deadline should be prolonged till the end of the third quarter, so that the quality constituent of audit does not suffer.

- In conditions of dynamic growth of the number of customers over the past year audit companies took up expansion of their resources. How did the realities of the market influence “Ameria Audit”?

- The year of 2010 was a difficult year, but we managed to fulfill our commitments concerning customers. We hope that the year of 2011 will be easier, since a number of customers felt the difficulties, taking place because of tough timeframes on their skin, and concluded the agreements with us beforehand. A part of work with us is already carried out (through intermediate audit), so high quality provision of services will not require much time.