Auditing

Developments

Due to the special requirements for auditors that audit public interest entities, the distinction between audit firms that audit such entities and other audit firms gets more pronounced. At the end of 2020, ten audit firms audited public interest entities.

The largest audit firms have a predominant market position in terms of statutory audit fees. There are nevertheless a number of small audit firms, although the number of firms with just one statutory auditor has fallen in recent years. Technological developments and their bearing on the auditing work are a key issue, especially in the major international audit networks.

In 2020, the audit firms' activities and conduct of audits were directly and indirectly influenced by the Covid-19 pandemic through the audit clients.

Supervision, monitoring and control

Finanstilsynet’s supervision of auditors comprises licensing of individuals and firms, registration and supervision of statutory audit work. Finanstilsynet oversees that auditors maintain their independence and perform their work in a satisfactory manner and in compliance with law and good audit practices. Moreover, Finanstilsynet supervises the firms’ compliance with the anti-money laundering legislation.

Periodic quality assurance reviews

According to the Auditors Act, auditors and audit firms that audit public interest entities shall be subject to periodic on-site inspections at least every three years. These inspections are conducted by Finanstilsynet. Other auditors and audit firms are to be reviewed at least every six years. These reviews are conducted by the Norwegian Institute of Public Accountants (DnR) for members and by Finanstilsynet for non-members. Guidelines have been prepared for Finanstilsynet’s cooperation with DnR. According to the guidelines, DnR shall refer the matter to Finanstilsynet if it identifies circumstances that may prompt revocation of an auditor’s licence. On account of the Covid-19 pandemic, DnR agreed with Finanstilsynet not to carry out quality reviews in 2020. Reviews that should have been conducted in 2020 will take place in 2021.

In 2020, Finanstilsynet completed the reviews carried out in the autumn of 2019 and conducted six periodic inspections. Not all of these inspections have been finalised. One of the audit firms that was reviewed has taken on audit engagements for entities which entail that the audit firm is also subject to periodic quality assurance reviews by the Public Company Accounting Oversight Board (PCAOB) in the United States. Due to the Covid-19 pandemic, the planned joint reviews with the PCAOB were not carried out. During much of 2020, supervisory activity was in the form of digital meetings and off-site inspections.

Other supervisory matters

Other supervision is carried out on the basis of Finanstilsynet’s risk assessments, where notifications of possible audit deficiencies are a factor in determining the type of supervision to be implemented.

In 2020, Finanstilsynet registered 106 notifications of possible audit deficiencies from DnR, the tax authorities, bankruptcy administrators, the police and others. Media entries or matters identified by Finanstilsynet in other supervisory areas may also indicate audit deficiencies. All notifications are reviewed and assessed for further follow-up by Finanstilsynet. Matters that are not followed up by on-site inspections or some other form of closer control, are likely to conclude with the auditor being asked to conduct a self-evaluation, identify any deficiencies and correct these in future audits. Finanstilsynet informs the auditor that the evaluation and possible measures must be documented, and that these cases will be reviewed by the authority in connection with future inspections.

A total of 36 notifications were followed up in 2020. In 23 of these cases, the auditor was asked to explain how a particular audit engagement was conducted and present audit documentation showing that the auditing was in compliance with good audit practices. 13 of the reports prompted ad-hoc on-site inspections. Finanstilsynet has also sent 13 notifications to audit firms, asking them to carry out a documented self-evaluation of the reports received.

Some of the inspections in 2020 have yet to be finalised. A number of inspections are concluded by issuing critical comments. Some of the cases are closed because the auditors choose to relinquish their licence after receiving a notice of inspection or after the inspection has been completed. Audit non-conformances were revealed in all of the cases. The most serious instances of non-conformance were that the auditor had not obtained sufficient and appropriate audit evidence as the basis for the issued audit report. This also applied to auditing of public interest entities. In order to properly perform the role as a representative of the general public, it is important that the auditor demonstrates professional scepticism to management’s assessments when conducting the audit. Finanstilsynet found that the auditor's independence had been seriously compromised in two of the cases.

In addition, eleven thematic inspections were carried out, addressing the auditor's compliance with the anti-money laundering legislation. The inspections had not been completed at year-end 2020, but several of them revealed deficiencies in the audit firms’ implementation of business-specific risk assessments and establishment of procedures. A number of the inspections revealed inadequate compliance with requirements for risk classification of customers, internal training and identification of circumstances indicating that funds could be used for money laundering or terrorist financing. On the basis of the preliminary assessments of the shortcomings that were uncovered, Finanstilsynet notified possible administrative fines for several of the audit firms encompassed by the thematic inspection.

Revocation of auditors’ licences

	2016	2017	2018	2019	2020
State-authorised auditors	1	0	0	3	0
Registered auditors	1	2	2	2	0
Audit firms	3	0	0	1	1

Matters referred to the Board of Appeal for Audit and Accounting Matters

In 2020, no matters concerning auditors were considered by the Board of Appeal for Auditors and Accountant Matters.

Licensing

Number of licensed auditors and audit firms as at 31 Dec. 2020

	2016	2017	2018	2019	2020	Licensed in 2020
State-authorised auditors	4 044	4 233	4 326	4 476	4 658	272
Registered auditors	3 526	3 574	3 607	3 652	3 707	91
Of which statutory auditors	1 560	1 532	1 519	1 541	1 508	70
Audit firms	494	447	447	458	461	29

Finanstilsynet authorises auditors as either registered or state authorised auditors. In order to be registered, the auditor must complete a practical test. In 2020, 273 candidates enrolled for, and 253 passed, the test. Eight candidates failed the test, while twelve candidates chose either not to go through with the test or withdrew during the process. When processing applications for an auditor register number, which is needed in order to become a statutory auditor, Finanstilsynet checks that the auditor meets the statutory continuing education requirements and has the required indemnity insurance.

Regulatory development

The new Auditors Act which, among other things, implements the EU Statutory Audit Directive (2014/56/EU) and the EU Statutory Audit Regulation (EU 537/2014) was adopted by the Storting (Norwegian parliament) on 20 November 2020. The Act entered into force on 1 January 2021.

The Ministry of Finance adopted new framework regulations to the Auditors Act on 17 December 2020. On 16 December 2020, Finanstilsynet adopted amendments to the regulations on risk management and internal control, which means that audit firms are covered by the regulations in accordance with the requirements of the new Auditors Act.

In 2020, Finanstilsynet was involved in preparing consultative statements submitted by the CEAOB (Committee of European Auditing Oversight Bodies) and IFIAR (International Forum of Independent Audit Regulators) to international standard-setters within auditing.