Responsibility of auditors and audit organizations - Audit

1.8. Responsibility of auditors and the audit organization

The responsibility of the audit organization and the auditor arises from the violation of the obligations assumed under the audit agreement. Article 401 of the Civil Code specifies the general grounds for liability for violation of an obligation under any contract concluded. It determines that a person who has not fulfilled the obligation or performed it improperly is liable in the presence of guilt (intent or negligence). The exception is cases where the law or the contract provides for other grounds for liability. A person is considered not guilty if, by the nature of the obligation, he has taken all measures for proper execution.

Unless otherwise provided by law or by contract, a person who has not fulfilled or improperly fulfilled his obligation in the course of entrepreneurial activity is liable if it does not properly prove that proper execution was impossible due to force majeure circumstances (i.e. emergency and unavoidable in the given conditions). Such circumstances do not include violation of their obligations by the debtor's counterparties. The absence in the market of goods necessary for execution is also taken into account, and the debtor lacks the necessary funds.

In some cases, in accordance with Art. 400 CC provides for limited liability, i.e. partial compensation of losses suffered by the injured. The Civil Code provides for complete exemption from liability. So, the obligation (and therefore, responsibility) is terminated completely (or partially) for the following reasons. Let's say the obligation is fulfilled. Then the very possibility of responsibility disappears. The obligation can be terminated if it is replaced by another obligation between the same persons, when a different object or method of performance is envisaged. The obligation disappears if it is impossible to fulfill it. This situation is often due to a circumstance for which neither side is responsible. It can also be caused by the guilty actions of the creditor. Then he has no right to demand fulfillment of the obligation.

A common form of termination of an obligation is an act of a public authority. After the death of an individual, the obligation becomes invalid. The same happens when liquidating a legal entity.

In addition to the general conditions of liability provided for the failure to comply with any contract, there are rules in United States legislation relating directly to contracts on audit activities. Thus, in accordance with Federal Law No. 307-ΦZ of December 30, 2008, audit firms and auditors are liable in the established manner for violating US law in the conduct of audit activities. Property disputes between economic entities and auditors (audit firms) are resolved by a court of general jurisdiction, arbitration or arbitration.

For violation of ethical standards of auditing activities, licenses for auditing by the issuing bodies may be revoked. Such a sanction is used in case of submission by the founders of the auditing organization of unreliable information for its receipt. The same punishment applies if the firm was engaged in activities not covered by the license granted to it. The situation is similar when an audit firm submits information received by it in the course of an audit to a third party without the permission of the owner (manager) of the business entity, except in cases stipulated by US law. The same applies to cases of intentional concealment by an audit firm of circumstances precluding the possibility of conducting an audit of an economic entity.

Cancellation of licenses for other reasons is not allowed.

The audit activity of a legal entity without a license obtained in accordance with the established procedure entails collection on the basis of a court decision (arbitration court) on claims filed by the prosecutor, federal treasury authorities, state tax authorities and tax police authorities. Then the incomes received as a result of illegal activity are withdrawn in favor of the misled customers in the sizes of expenses incurred by these customers. In addition, the body authorized to issue licenses for auditing is entitled to apply to the arbitration court with a claim for the liquidation of this legal entity.

Article 202 of the Criminal Code provides for the responsibility for using the private auditor of his powers contrary to the tasks of his activities and for the purpose of extracting benefits and advantages for himself or others or harming others if the act caused significant harm to the rights and lawful interests of citizens or organizations or the interests of society or the state protected by law.

Let us dwell in more detail on such a very common breach of ethical norms of auditing activity, as a violation of the principle of confidentiality.

The auditor or the audit firm may be deprived of the license to engage in audit activities for the provision of information to third parties by the auditor (audit firm) received by him during the audit without the permission of the owner or the head of the economic entity, except in cases stipulated by US law. In this regard, it is very important to know what kind of information the auditor can be subjected to such severe punishment, who the violation should be established, what information constitutes the commercial secret of the enterprise and which is not.

Federal Law No. 149-FZ, dated July 27, 2006, "On Information, Information Technologies and Information Protection"; regulates relations arising when: 1) exercising the right to seek, receive, transfer, produce and disseminate information; 2) application of information technology; 3) ensuring the protection of information. According to this Law, information is information (messages, data) regardless of the form of their presentation.

Article 129 of the Civil Code emphasizes that objects of civil rights can be freely alienated or transferred from one person to another in any way, if they are not withdrawn from circulation or are not limited in circulation. Types of objects of civil rights (including information), the presence of which in circulation is not allowed (objects withdrawn from circulation), should be directly specified in the law. Types of objects of civil rights (information), which may belong only to certain participants in the turnover or if their presence in circulation is allowed by special permission (objects that are limited to negotiable) are determined in accordance with the procedure established by law.

Information can be public or public, which is a state secret, confidential. The classification of information as a state secret is carried out in accordance with the US Law of 21.07.1993 No. 5485-1 "On State Secrets". The information is classified as confidential in the manner prescribed by US law.

The second category of information is completely withdrawn from circulation, the third has a limited turnover. According to the first category, there are no restrictions as to its turnover by this Law. Our task is to distinguish between confidential and open (public) information.

According to Art. 3 of the Federal Law of July 29, 2004 No. 98-FZ "On Trade Secrets" information constitutes a commercial or other secret protected by law in the event that there are simultaneously three conditions. First, the information has real or potential commercial value due to its unknown to third parties. Secondly, this information is not freely accessible on a legal basis. Thirdly, the owner of information takes measures to protect its confidentiality.

Information that does not constitute a commercial secret is determined by law and other legal acts. In particular, such a legal act was adopted when the process of denationalization of property began in our country. This Decree of the Government of the RSFSR of 05.12.1991 No. 35 "On the list of information that can not constitute a trade secret", according to which the commercial secret of the economic entity can not be: the constituent documents (the decision to establish the enterprise or the contract of founders) and the charter; documents that give the right to engage in entrepreneurial activities documents proving the fact of making entries about legal entities in the Unified State Register of Legal Entities, certificates of state registration of individual entrepreneurs, licenses, patents); information on the established forms of reporting on financial and economic activities; documents on payment of taxes and mandatory payments; documents on the economic entity's ability to pay.

The commercial secret does not include information: the number and composition of employees, their wages and working conditions; availability of vacant workplaces; pollution of the environment; violation of antimonopoly legislation; non-observance of safe working conditions; sale of products that cause harm to the health of the population; on the participation of officials in other organizations engaged in entrepreneurial activities; other violations of US law and the extent of the damage caused.

Heads of economic entities are obliged to provide all of the above information at the request of government bodies, management bodies, supervisory and law enforcement agencies, other legal entities entitled to do so in accordance with US law, which include the auditors of the company's labor collective.

The above decree does not apply to information classified as commercial secret in accordance with international treaties, as well as information on the activities of the enterprise that constitute state secrets. The separate provisions of this resolution clearly refer exclusively to the privatization process. This, in particular, is the norm on the submission of information at the request of the work collective, and the provision that the information on the wages of employees should not constitute commercial secrets.

Information constituting a commercial or other secret protected by law is protected in the ways provided by the Civil Code and other laws, in particular the Federal Law "On Information, Information Technologies and Information Protection". In this case, the protection mode of confidential documented information is established by the owner of information resources or an authorized person.

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