Professional ethics, independence and the statutory auditor's legal position
What this domain tests
Independence, the ethical code and the legal position of the statutory auditor under Act No. 93/2009 Coll. Expect scenario questions where you must name the threat, decide whether a safeguard works, and say what the auditor must do.
Legal architecture
Auditors are licensed by the Chamber of Auditors (KA ČR); public oversight sits with the Public Audit Oversight Board (RVDA). The auditor is appointed by the general meeting (or by the statutory body where no general meeting exists), reports to the audit committee, holds professional indemnity insurance, and is bound by confidentiality, competence and due care. Sanctions range from a written warning through conditions on the licence to fines and withdrawal of the licence.
Independence rules
- No financial interest, loans, guarantees or significant business relationships with the client.
- No employment relationship with the client within the last two years.
- Fees must not be contingent on the outcome of the audit; unpaid fees from the prior year are a self-interest threat.
- Public-interest entities (PIEs): the engagement partner rotates after 5 years and other key audit partners after 7 years, with a 3-year (2-year for other key partners) cooling-off period. Prohibited non-audit services include bookkeeping, valuation, internal audit outsourcing, legal advocacy and management functions.
- Fee dependency on a PIE client above 15% of the firm's total fees for two consecutive years requires disclosure and safeguards, or resignation.
Worked example
A firm earns CZK 4.2m from one PIE client out of CZK 25m total fees - 16.8%, two years running. Threat: self-interest (fear of losing the client). Safeguards: an engagement quality review by a partner outside the relationship, disclosure to and discussion with the audit committee, and, if the dependency persists, declining reappointment. If the same client asks the firm to value a property portfolio making up 30% of the balance sheet, that is a self-review threat for a PIE and cannot be safeguarded - the firm must not perform the valuation.
Traps
Assuming internal safeguards cure prohibited services; forgetting the two-year employment bar; missing that rotation applies to key audit partners, not only the engagement partner; confusing the KA ČR with the RVDA.