The Ministry of Finance has submitted a draft amendment to the Auditors Activities Act to the government, which, among other things, proposes increasing the audit obligation thresholds by 25 percent.

However, the Estonian Chamber of Commerce and Industry has suggested that this increase should be at least 50 percent. This proposal is based on the fact that the Estonian consumer price index has risen by 57.5 percent from 2016, when the thresholds were last raised, to the end of August this year. Many companies face difficulties finding a sworn auditor, and some are unable to submit their annual reports on time as a result.

Rainer Osanik, head of the financial information policy department at the Ministry of Finance, told ERR that raising the thresholds to the extent proposed by the Chamber of Commerce and Industry is not reasonable, as it would reduce the number of companies subject to audit by approximately 30 percent, endangering the transparency and reliability of Estonia's business environment.

He emphasized that the purpose of auditing is to ensure transparency and reliability across the entire business environment and to prevent the misuse of company funds and assets.

"Audits are not conducted for small businesses, but rather for large companies in the Estonian context, where turnover and assets amount to tens of millions of euros, and there are many employees," Osanik said. "These companies account for a significant portion of Estonia's economic turnover, as well as its exports and imports, and are generally among the largest taxpayers. Therefore, auditing is a routine practice for such companies."

Osanik pointed out that in 2017, auditors carried out 8,321 engagements, which covered 5.4 percent of the companies that submitted annual reports. However, the number of engagements has decreased each year, with auditors completing 7,973 engagements last year, covering 3.8 percent of the companies that submitted annual reports in 2022.

"Despite the high inflation in recent years, this is not reflected in the volume of companies' turnovers or assets to the same extent. If the thresholds are increased by the 25 percent recommended by the Ministry of Finance after thorough analysis, the number of companies subject to audit will decrease by approximately 1,000, covering 3.2 percent of the companies that submitted annual reports," Osanik explained.

Among the proposals from businesses was the suggestion that the next update of the thresholds should take place in five years. Osanik noted that the Ministry of Finance will review the thresholds every two years in the future, and this revision is already included in the draft law currently before the government.

ERR reported earlier this year that many companies became subject to mandatory auditing for the first time. Under current law, an audit is required for companies that meet two of the following three conditions: sales revenue of €4 million, assets of €2 million and a staff of 50 employees. In any case, an audit is mandatory for companies with sales revenue exceeding €12 million. The number of companies meeting these conditions has increased rapidly due to the recent surge in prices, while the audit thresholds have remained unchanged.

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