Bulgaria: introduction of new law on independent financial audit

As of 1 January 2017, new rules on the mandatory financial audit of "public-interest entities" have entered into force. This will concern public companies, banks, insurers and reinsurers, pension insurance companies and funds managed by them, large investment firms, mutual funds, companies providing public services etc.

Some of the key changes regarding the mandatory financial audit of the public-interest entities include:

• introducing mandatory joint financial audit by two auditors/audit companies of the annual financial statements of banks, insurance and reinsurance companies and pension funds. The joint audit is introduced as a measure to ensure the independence of auditors and enhance audit quality. The auditors conducting joint audits could freely decide on the distribution of tasks in the audit and have the right to express different opinions and final conclusions;
• introducing a minimum one-year period for the contract to carry out the statutory financial audit;
• restriction for the public-interest entities to be audited by the same auditor/s more than seven consecutive years, and mandatory internal rotation by the auditors, who are required every four years to change the persons who on behalf of the audit company sign the audit report for the respective client;
• introducing a "blacklist" of prohibited services, which auditors are not allowed to provide to their clients;
• introducing an obligation for auditors of public-interest entities to submit an additional report to the final audit report to the audit committee of the company;
• limitation of auditor's remuneration for provided non-audit services.

The objective of the new law is to create a stable and independent legal basis for supervision and control over the financial auditor's activities and to send out a clear message to international investors.