Federal Treasury Assessment of Internal Quality Control in Audit Organizations

1. FEDERAL TREASURY ASSESMENT OF  THE INTERNAL QUALITY CONTROL IN AUDIT ORGANIZATIONS Head of the Federal Treasury Audit Surveillance Department Lyudmila Khalilovna Muromtseva Sochi 28 October 2019

2. AUDIT: ROLE, POSITION AND SIGNIFICANCE FEDERAL TREASURY AUDIT IS AN INDEPENDENT CONTROL OF ACCOUNTING (FINANCIAL REPORTING) OF AUDITED BODY IN ORDER TO DETERMINE THE ACCOUNTING RELIABILITY ROLE FUNCTIONS Independent financial control Provision of credible economic information Objective assessment of organization activities Expert Managerial Analytical Informational Consulting AUDITORS RENDER • OTHER SERVICES RELATED TO AUDIT ACTIVITY • Setting, recovery and keeping accounting and tax records, accounting (financial) reporting, tax consultations • AUDIT SERVICES • Audit of financial (accounting) reporting and other financial information • Audit-supporting services INVESTMENT ENVIRONMENT IMPROVEMENT ECONOMIC DEVELOPMENT ENHANCEMENT OF OWNERS AND SOCIETY TRUST

3. POSITION, ROLE AND SIGNIFICANCE OF EXTERNAL • QUALITY CONTROL IN AUDIT SYSTEM FEDERAL TREASURY SOCIETY, OWNERS PUBLIC INTEREST ENTITIES Audit services Audit report Reporting Confirmation of the validity of accounting (financial) reporting audit results Failure to confirm the validity of accounting (financial) reporting audit results AUDITORS Reports and corrective actions Control Documentation EXTERNAL QUALITY ASSESMENT(CONTROL) AUDITORS' ACTIVITIES ! EXTERNAL QUALITY ASSESMENT  OF AUDITORS' ACTIVIRY IS AN EFFECTIVE MEASURE TO IMPROVE AND TO DEVELOP AUDITING ACTIVITY

4. EXTERNAL QUALITY CONTROL • OF AUDITOR'S ACTIVITY FEDERAL TREASURY EXTERNAL QUALITY ASSESMENT OF AUDITORS' ACTIVITY IS PERFORMED BY SELF-REGULATORY ORGANIZATIONS OF AUDITORS FEDERAL TREASURY Individual auditors • Auditors conducting compulsory audit of public interest entities Other audit organizations SUBJECT • Observation of legal requirements by auditor or audit organization • Evaluation of auditor's work quality • Identification, prevention and combating violations of legal requirements TASKS SCHEDULED Three times a year at most TYPES UNSCHEDULED • Receipt of complaints or expiration of the instructions compliance time Warning on impermissibility of violations • Instructions to rectify discovered violations Instructions to suspend membership Instructions to delete data from audit register MEASURES

5. FEDERAL TREASURY THE FEDERAL TREASURY FUNCTIONS IN THE AREA OF AUDITING ACTIVITY SURVEILLANCE • PREVENTIVE CONTROL LEGISLATION IMPROVEMENT AND METHODOLOGICAL ACTIVITIES INSPECTION MANAGEMENT Meetings, conferences and consultations with auditor community representatives Inspection planning based on risk-oriented approach Proposals on legislative modifications and preparation of methods and techniques • Interaction with auditor community and state authorities on related issues Conducting inspections Council and work teams Implementation of corrective actions Control boards Analysis of international practice and approximation of supervising authorities of other jurisdictions Post-control monitoring Implementation of publicity principle • Keeping register of audit organizations rendering services on auditing public interest entities and register of beneficiary owners and persons supervising the activity of auditing organizations • Coordination of local authorities activity

6. INSPECTING EXTERNAL QUALITY CONTROL OF AUDITORS' ACTIVITY FEDERAL TREASURY INSPECTION OF EXTERNAL QUALITY CONTROL OF AUDITOR'S ACTIVITY ASSESSMENT OF INTERNAL QUALITY CONTROL RULES DETERMINATION OF INTERNAL QUALITY CONTROL EFFICIENCY ASSESSMENT OF REPORTING CREDIBILITY • Auditor activity legislation • Number and professional level of auditors • Remuneration size and payment procedure • Audit purposes and documentation of information supporting the auditor's opinion • Audit planning, form and content of conclusion • Materiality concept and audit risk • Quality control, related parties, post-reporting events and continuity of operations • Observation of legislative requirement by customers • Credibility of auditor's reporting information ! Conclusion: • regarding the auditor's work compliance with legislative requirements • regarding providing auditor's work quality control system and conducting audit in compliance with legislative requirements

7. INTERNAL QUALITY CONTROL MODEL IN AUDIT ORGANIZATION FEDERAL TREASURY THE PURPOSE IS TO IMPLEMENT AND TO KEEP A QUALITY CONTROL SYSTEM, WHICH PROVIDES FOR: • compliance with professional standards and legislative requirements • proper audit conclusions ELEMENTS OF AUDITOR'S QUALITY CONTOL SYSTEM MANAGEMENT RESPONSIBILITY FOR QUALITY • Rotation • Competence, qualification HUMAN RESOURCES • Commitment to the principles of ethics • Training • Observation of ethical requirements ETHICAL REQUIREMENTS • Independence CUSTOMER ACCESS TO SERVICES • Assessment of organization competence and observation of ethical principles in the course of audit • Task performance supervision TASK PERFORMANCE • Control of task performance quality • Periodic inspection of completed tasks MONITORING • Analysis and generalization of discovered violations • Taking measured to eliminate deficiencies International quality control standard 1 "Quality control in audit organizations conducting an audit and observation review of financial reporting, and other supporting tasks for ensuring reliability"

8. INDIVIDUAL ELEMENTS OF INTERNAL QUALITY CONTROL SYSTEM OF AUDITOR'S ACTIVITY FEDERAL TREASURY TASK PERFORMANCE SUPERVISION CONTROL OF TASK PERFORMANCE QUALITY • Discussion of important issues with task manager • Supervision of junior personnel work by more experienced employees • Independence assessment of particular audit • Evaluation of required consultations availability and the conclusions made • Team members supervision by the task manager • Analysis of financial reporting and proposed conclusion • Selective control of audit documentation and the conclusions made • Consultations on argued and complicated issues with other independent specialists of company • Documentation assessment and confirmation of the conclusions made • Assessment of conclusions and conclusion analysis PREPARATION OF DOCUMENTS TO CERTIFY: • Quality control completeness and conclusion compliance control • Timely control of task performance quality • Completeness of procedures MONITORING IS A CONTINUOUS ANALYSIS AND ASSESSMENT OF AUDITOR'S QUALITY CONTROL SYSTEM • INDEPENDENCE • POWERS • COMPETENCE ! • ELIMINATION OF DEFICIENCIES • TRAINING, QUALIFICATION IMPROVEMENT • MODIFICATIONS OF REGULATORY DOCUMENT • IMPLEMENTATION OF DISCIPLINARY CORRECTIVE ACTIONS

9. FEDERAL TREASURY THANK YOU FOR YOUR ATTENTION!