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					                  AFA OOD
             SPECIALISED AUDIT FIRM

          TRANSPARENCY REPORT
              FOR YEAR 2010

IN ACCORDANCE WITH THE REQUIREMENTS OF ART.40 “M”
     OF THE INDEPENDENT FINANCIAL AUDIT ACT
Transparency Report - 2010                                        AFA OOD




                                CONTENTS:




DESCRIPTION OF THE LEGAL AND ORGANISATIONAL FORM AND
OWNERSHIP STRUCTURE                                                         2


DESCRIPTION OF THE MANAGING STRUCTURE                                       3


DESCRIPTION OF THE INTERNAL QUALITY CONTROL SYSTEM. REPORT OF
THE MANAGING BODY ON ITS OPERATIONAL EFFICIENCY                             4


DATE OF LATEST REVIEW OF THE FIRM PERFORMED BY THE INSTITUTE OF
CERTIFIED PUBLIC ACCOUNTANTS OR THE OPERATION QUALITY
CONTROL COMMISSION                                                          8


LIST OF PUBLIC-INTEREST ENTITIES WHOSE FINANCIAL STATEMENTS FOR
YEAR 2010 WERE AUDITED BY AFA                                               8


DESCRIPTION OF INDEPENDENCE RELATED PRACTICES                               9


DATA ON THE PARTICIPATION OF AFA’S REGISTERED AUDITORS IN THE
CONTINUOUS TRAINING COURSES ORGANISED BY THE INSTITUTE OF
CERTIFIED PUBLIC ACCOUNTANTS                                            11


TOTAL REVENUE FROM SERVICES RELATED TO INDEPENDENT FINANCIAL
AUDITS, TAX CONSULTATIONS AND OTHER SERVICES                            13


PARTNER REMUNERATION BASIS                                              13




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Transparency Report - 2010                                                           AFA OOD




DESCRIPTION OF THE LEGAL AND ORGANISATIONAL FORM AND OWNERSHIP STRUCTURE


AFA OOD is a limited liability company originally registered by Sofia City Court Decision of 19
June 1992 under Company File No. 17022/1992. In pursuance of the Commercial Register Act
requirements, in force as from 1 January 2008, the company has been duly re-registered and is at
present entered in the Commercial Register at the Registry Agency with
UIC 030278596. The company has a seat and address of management at Sofia, 38 Oborishte Str.

The company has three shareholders all of them being Certified Public Accountants and
Registered Auditors: Renny Georgieva Iordanova, holding Diploma No. 006, Valia Iordanova
Iordanova – Diploma No. 112 and Nadia Dimitrova Viachka – Diploma No. 206. Information on
the ownership of shares in company’s capital is available in the public Commercial Registry of
the companies in Bulgaria.

AFA OOD is governed by the General Meeting of Shareholders and is represented by both
General Managers – Renny Georgieva Iordanova and Valia Iordanova Iordanova – jointly and
severally.

Two Procurators – Nadia Dimitrova Viachka and Valentina Todorova Brankova – have been
assigned, each of them being able to represent the company jointly with one of the General
Managers only.

AFA OOD satisfies all criteria for a specialised audit firm as defined under § 1, p.9 of the
Supplementary Provisions to the Independent Financial Audit Act and has been listed under
No. 015 in the Registered Auditors Registry promulgated by the Institute of the Certified Public
Accountants in Bulgaria.

AFA OOD is included in the list of Registered Auditors, approved by an order of the Deputy
Governor of the BNB in charge of Banking Supervision Department, as well as in the list of
Registered Auditors approved by the Deputy Chair of the Insurance Supervision Division to the
Financial Supervision Commission, whereby it is authorised to perform audits of banking and
insurance institutions.




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Transparency Report - 2010                                                           AFA OOD




                             DESCRIPTION OF THE MANAGING STRUCTURE




The structure of AFA OOD includes the following departments:
        •   Audit Services Department
        •   Tax & Legal Services Department
        •   Consulting Services for Implementation of Integrated Business Solutions Department
        •   Information Technologies and Audit of Information Systems Department
        •   Accounting and Payroll Services Department
        •   Administrative Department.

Renny Georgieva Iordanova manages the overall activities of the Company and is in charge of
the Audit Services Department and the Consulting Services for Implementation of Integrated
Business Solutions Department.

Valia Iordanova Iordanova is in charge of the Tax & Legal Services Department, the Accounting
and Payroll Services Department and the Information Technologies and Audit of Information
Systems Department.
Nadia Dimitrova Viachka is in charge of the audit of production entities and manages the
Administrative Department.
The key members of the audit staff of AFA OOD (partners and managers) have acquired
profound experience through the years of working with the largest international accounting firms
– Deloitte & Touche, PricewaterhouseCoopers, KPMG и Ernst & Young. Seven of them are
Registered Auditors – besides the three shareholders the following are Certified Public
Accountants and Registered Auditors: Valentina Todorova Brankova – Diploma No. 0467,
Tatiana Petkova Yorkisheva – Diploma No. 0573 and Nikolinka Iordanova Dimitrova – Diploma
No. 0583 and Yulia Marinova Ancheva – Diploma No, 0716, and one of them Emil Emilov
Garipov is ACCA Member – Identification Number 1342057/2009.




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Transparency Report - 2010                                                            AFA OOD




 DESCRIPTION OF THE INTERNAL QUALITY CONTROL SYSTEM. REPORT OF THE MANAGING
                             BODY ON ITS OPERATIONAL EFFICIENCY



Description of the internal quality control system

The internal quality control system of AFA OOD includes the following components:

a) Procedures for assigning a person in charge (CPA) of the general monitoring and
management of the internal system of quality control rules and procedures

The Meeting of all Certified Public Accountants in the company elects one of them, following a
nomination by the Managing Partner, to assume the functions for general monitoring, briefing
and oversight on the overall development and implementation of the internal quality control
policy and procedures. This person has the powers and responsibilities to propose amendments to
the policy, rules and procedures, organise inspections of particular engagements, monitor the
individual components of the system as well as suggest sanctions for their non-observance.

This function is currently performed by Tatiana Yorkisheva.


b) Procedures and measures for imposing the ethical rules of ICPA in all areas of company’s
activities and in the execution of every individual engagement
The company has adopted a procedure for initial and updating staff training with regard to the
subject and observance of major ethical rules. This is done by organizing specific training
courses, seminars and meetings. Special attention is paid to the independence principle, which is
subject to developed specific policy and procedures. The policy as well as the Code of Ethics for
Professional Accountants are accessible by the whole staff of the company.

In addition, the personal example and behavioural style of the partners, all CPAs and team
leaders is exclusively relied upon.


c) Application of a special purpose procedure for client acceptance and continuance as well as
for undertaking other specific engagements and tasks
For years the company has a developed and implemented special purpose procedure for
preliminary collection of information and references upon acceptance and/or continuance of the
collaboration with each client regardless of the provided type of services.



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Transparency Report - 2010                                                              AFA OOD


The collected information is summarised in specific forms, which are subject to analysis and
assessment at three levels: by the specialist in charge of the engagement, by the partner/CPA
directly in charge of the engagement and by the Managing Partner jointly with the CPA in charge
of quality control. These forms represent an important and determinative part of the final decision
on undertaking a particular engagement and/or work with a client.
The procedure for acceptance and continuance of the relations with clients is mandatory before
each engagement as well as every year – for repeated engagements.


d) Internal policy and rules for staff recruitment and professional development
Company’s internal policy has been developed in a way to ensure sufficient personnel with skills,
competence and compliance with ethical principles that are essential for the performance of
engagements in line with the requirements of professional standards and regulatory and legal
provisions. It includes: procedures for staff recruitment; performance assessment of each staff
member; development of skills and competence; principles and rules for professional
development and promotion in the Company’s hierarchy; assessment of personnel needs and a
specific remuneration scheme.
Special attention is being paid to professional education and continuous professional
development. The Company has adopted a good order of mentoring by more experienced staff,
transfer of knowledge and know-how and current monitoring and control in the course of each
engagement.
The policy also includes a developed scheme for work assessment and general performance of
each staff member through procedures of periodic and annual attestation.


e) Quality control procedures for work performance at engagement level

The Company has a developed system of internal procedures for control on the work and
performance of a particular engagement. It aims to provide a reasonable assurance that the
respective engagement is performed in accordance with the requirements of professional
standards and regulatory requirements and with a view to the ultimate objective – the firm
through its partners and CPA to issue a report, which is adequate to the specific circumstances of
the engagement, the work performed and the collected evidence. The procedures cover all stages
of an audit engagement or respectively, of other related engagements: appropriate staff planning
adequate to the risk assessment of a specific engagement; procedures for monitoring and control
on the compliance with the standards applicable to the engagement; procedures for oversight,
mentoring and training of the team; methods for review of the work performed and the judgments



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Transparency Report - 2010                                                               AFA OOD


and conclusions made; quality of the documentation and collected evidence and respectively, of
the issued report.
The oversight includes procedures for: current monitoring of the progress in engagement
execution through a continuous contact and reporting between the engagement team leader and
the CPA and partners in charge as well as internally within the team; assessment of work
allocation and performance according to the competence of each team member including with
regard to the understanding of work instructions and whether the planned time is sufficient for
high quality of performance; covering and current discussion and assessment of all issues of
significance for the engagement as well as timely identification of issues arising in the course of
the engagement that need discussions with more experienced team members or within the
Company, including with external experts and consultants.
The major principle, set in the review of the work performed, is that the work of the less
experienced team members shall always be observed and reviewed by more experienced ones
and respectively, by the CPA and partner in charge – currently, in the course of the engagement
and respectively, upon its completion and summarizing for report issuance.
The company has adopted a mandatory rule for consulting on complicated and disputable issues –
both with experts within the firm of the same or another department having more appropriate
expertise and with colleagues of other audit firms or other specialised and consulting firms.

Special attention is being paid to the cases of differences in opinion – then the disputable issue is
subject to discussions by leading partners, manages and CPAs.
The engagement quality control review is a mandatory condition for its completion and report
issuance.


f) Current procedures for monitoring the observance of the internal quality control procedures
and rules
The procedures for monitoring of the quality control system implementation are related to
providing a reasonable assurance that the system is adequate, operates efficiently and is practice-
relevant. They include both procedures of assessment of the rules themselves – update and
adequacy, and procedures of periodic review of specific engagement that involve all partners, key
managers and CPAs. The results of these reviews are discussed in appropriate way to ensure
work improvements and reduction of the risks of errors.




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Transparency Report - 2010                                                               AFA OOD




Report of the managing body on the operational efficiency of the internal quality control
system

The following major activities related to the internal quality control system were performed in the
past year:
         •   introductory professional training sessions for the newly appointed staff of the Audit
             Services Department to get them acquainted with the internal audit methodology,
             standards and work rules and the requirements for confidentiality and independence
             (September – October 2010);

         •   meetings and training sessions of the whole staff for update on International Standards
             on Auditing and the Code of Ethics (October 2010); staff training of the Audit
             Services Department for investigation and revealing of fraud and abuse – carried out
             by Ass.Prof. Dimitar Dinev of the Association for Counteraction to Economic Fraud
             (ACIF) (September 2010);

         •   update and improvements of the internal documents of the firm (“Firm Policy for
             Quality Control”, “General Procedures Program for Audits Quality Control”,
             “Questionnaire on the Procedures Performed in Relation to the Independent Review
             for Quality Control of an Engagement");

         •   trainings for improvement of staff professional competence and experience in IFRS;

         •   continued program for foreign languages education of personnel – specialised training
             course in business and financial English;

         •   the reporting year 2010 was the first year when the system for staff assessment in
             AFA OOD was functioning. In the period 30 June – 30 September 2010 the first
             annual attestations thereunder were performed. The new assessment framework
             measures with higher precision the individual performance of each employee. The
             assessment system provided us with the opportunity to make more accurate analyzes
             of work efficiency in any of the lines of services we offer. As a result of this we
             undertook measures for work improvement where the analyzes showed less efficiency
             (setting specific tasks and deadlines in the individual plans of employees,
             improvements to administrative organization of the audit process);

         •   subsequent reviews of certain engagements, conducted by the firm (on sample basis
             whereas including engagements of all Certified Public Accountants), by a second




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Transparency Report - 2010                                                               AFA OOD


              independent CPA for the purpose of assessing the application of the internal quality
              control system and its efficiency;

        •     consolidation and further development of the procedure on the use of a second,
              independent and consulting partner for certain engagements;

        •     the use of electronic dossiers was proved itself in practice and improvements were
              made to the system;

        •     implementation of a new electronic registry of the contracts concluded by the firm
              with its counterparts, which facilitates the control and performance by engagement.




            DATE OF LATEST REVIEW OF THE FIRM PERFORMED BY THE INSTITUTE OF CERTIFIED
            PUBLIC ACCOUNTANTS OR THE OPERATION QUALITY CONTROL COMMISSION

The latest review by a team of inspectors from the Commission for Public Oversight of Statutory
Auditors and controllers from the Operation Quality Control Commission at the Institute of
Certified Public Accountants was performed in October 2010.
A report dated 28 October 2010 was issued stating that “for the reviewed period, the specialized
audit firm AFA OOD complied in all material respects with the quality requirements for the audit
services performed by applying the procedures set in the professional standards”.




 LIST OF PUBLIC-INTEREST ENTITIES WHOSE FINANCIAL STATEMENTS FOR YEAR 2010 WERE
                                  AUDITED BY AFA



    1. Sopharma AD
    2. Medica AD
    3. Neochim AD
    4. Bulgarian Rose Sevtopolis AD
    5. Sopharma Trading AD
    6. Sopharma Estates REIT
    7. Momina Krepost AD
    8. Byala Mesta OOD



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Transparency Report - 2010                                                                 AFA OOD


    9. Cherna Mesta OOD
    10. Centriom OOD
    11. Brestiom AD
    12. Ziraatbank AD
    13. Megastroy 2004 OOD
    14. Neta EOOD
    15. Net Is Sat OOD
    16. Florina Bulgaria AD



                       DESCRIPTION OF INDEPENDENCE RELATED PRACTICES


Independence is fundamental to the audit profession and is pervasive in all professional relations
between the audit practice of AFA OOD (including its partners, audit and consulting staff, and
subcontractors when such are needed) and its audit, assurance and other related services clients.
This requires that firm practice be free from any interest that might be regarded as being
incompatible with objectivity, integrity and impartiality principles.
The independence policy of AFA OOD is based on the Independent Financial Audit Act, the
Code of Ethics for Professional Accountants of the International Federation of Accountants
(IFAC), International Standards on Auditing applicable in Bulgaria as well as the additional
independence requirements stated in the Sarbanes-Oxley Law and Auditing and Related
Professional Practice Standards issued by the Public Company Accounting Oversight Board
(PCAOB) of USA where this is necessary.
Prior to concluding an engagement contract, a preliminary examination for acceptance of the
engagement shall be performed. One of the circumstances checked is whether the nature and the
conditions for accepting the engagement would not lead to threats resulting from the presence of:
                (a) self-interest,
                (b) self-review,
                (c) advocacy,
                (d) familiarity,
                (e) intimidation.
All partners and the members of the audit and consulting teams and the subcontractors of AFA
OOD prior to the commencement of the audit season sign an Annual Independence Declaration
prepared in line with the list of clients for which an audit is planned and forthcoming.




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Transparency Report - 2010                                                              AFA OOD


In addition to filling the annual declaration, every team member when involved in an audit team
and starting individual work under an engagement of a specific client shall complete a
declaration stating whether he/she has knowledge of any circumstances that could
compromise the independence with regard to this client as well as that on the occurrence of
new circumstances or change in circumstances relating to the application of the independence
principle, he/she will inform the firm the partner in charge of the engagement and the team
leader.
Currently the observance of the rules and requirements of the firm’s independence policy is
followed at different levels by: team leaders, engagement partners and the partner in charge of
independence policy in the firm.
When defining the fees for an audit, assurance or related services engagements, the total fees
generated from each client or client group for such an engagement should not represent a large
proportion of firm’s total fees and make it dependent on this client or client group.
Considering the significant amendments and supplementations to the Independent Financial
Audit Act of 29 July 2008 whereby the requirements of Directive 2006/43/EC of the European
Parliament and the Council have been transposed, the internal independence policy of AFA was
carefully reviewed and revised. The relevant changes were made also in the contents of the
Annual Independence Declaration and the declarations signed prior to the commencement of
individual engagements and the new templates were signed by all members of personnel involved
in audit engagements.
The circumstance that AFA OOD provides audit services to public-interest entities as well has
been taken into account in the update of the internal documents and the policy for providing
services other than audit of financial statements and assurance.
Besides the current control on the observance of the rules of the firm’s independence policy, the
compliance with the independence rules, the existence/non-existence of threats to independence
as well as the applied measures to mitigate these threats are again reviewed on the completion of
an engagement. In addition, when the internal business year for AFA is closed, an overall review
and assessment is performed on the actual observance and the effects оf company’s independence
procedures to current clients and engagements at partner’s and manager’s level, and respectively,
by team and individual.
For the purpose of monitoring the precise observance of the above requirements and procedures
and the timely improvement and update of the independence policy, a special partner in change
has been assigned – Valia Iordanova.




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Transparency Report - 2010                                                             AFA OOD




        DATA ON THE PARTICIPATION OF AFA’S REGISTERED AUDITORS IN THE CONTINUOUS
   TRAINING COURSES ORGANISED BY THE INSTITUTE OF CERTIFIED PUBLIC ACCOUNTANTS



The policy of AFA OOD is entirely focused on providing best conditions and opportunities for
professional development and growth of each employee. For this purpose, the firm stimulates all
forms for improving the professional qualification and expanding the knowledge and skills of its
employees. It covers the training expenses and finances the obtaining of the following
qualifications:


    •    Certified Public Accountant;
    •    ACCA (Chartered Certified Accountant) – at present, eleven of AFA employees are
         registered students under the ACCA program;
    •    CIA (Certified Internal Auditor);
    •    CISA (Certified Information Systems Auditor);
    •    CFA (Chartered Financial Analyst);
    •    Training in the International Bureau of Fiscal Documentation (IBFD).


AFA OOD organises and assumes the costs of training courses needed to maintain the respective
qualification levels (licences).


Annual program for training firm’s employees, Certified Public Accountants as well, which
includes:
    •   At least once in a year a training course in organised (with terminating daily work) on
        actual professional issues in the field of audit, accounting, taxes, trade, employment and
        insurance law, and other related fields and topics;
    •   AFA OOD has established stable contacts with Intercollege, Cyprus, which is a first-class
        college licenced for professional training under ACCA, CIA and CPA. Once in a year,
        college lecturers train the employees of the firm (auditors, accountants) under a
        preliminary approved and coordinated program – in the area of IFRS, management
        accounting, corporate finance and financial management, audit;
    •   Various additional forms of specialised training are organised for the teams of different
        departments in professional fields needed for their work – in the firm, in the country and
        abroad;




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Transparency Report - 2010                                                                 AFA OOD


    •   Various forms of foreign language training are also envisaged for the whole staff,
        including for professional terminology and translation.


Some of the training courses organised by AFA OOD in 2010 and involving Certified Public
Accountants were:
    •   October 2010 – Amendments to auditing standards;
    •   20-21 December 2010 – lecturers from Intercollege, Cyprus, 24 hours; topic: IFRS
        update;
    •   13 October 2010 – Transfer prices – tax aspects through the prism of audit risk;
    •   1 October 2010 – Transformation of commercial companies – Lecturer: Dimitar Voinov
        of Tax Policy Directorate at the Ministry of Finance;
    •   27-28 September 2010 – Investigation and revealing of fraud and and abuse – Lecturer:
        Ass.Prof. Dimitar Dinev of the Association for Counteraction to Economic Fraud (ACIF);
    •   21 June 2010 – Transfer pricing – selected issues, novelties at international level –
        Lecturer: Jeanmarco Kotani, OECD.


The key partners of AFA OOD carry out training courses of ICPA regional organisations. In
2010 they conducted such training courses on IFRS for the regional organisations in Varna,
Burgas and Rousse as well as training courses on audit methodology (update on ISA and audit
sampling) for the regional organisations in Stara Zagora and Rousse. Mrs Valentina Brankova
was also involved as a lecturer in the course on audit methodology.
The partners and the other CPAs participate as lecturers when AFA organises training courses to
its clients. In 2010 such courses were organised on the following topics:
    •   IFRS – update 2010 – for Bulgartabac Group, Lecturers: Valia Iordanova and Nadia
        Viachka;
    •   IFRS – for BNP Paribas Personal Finance, Lecturers: Valia Iordanova and Valentina
        Brankova;
    •   Financial statements – principles and requirements for their preparation – for Geotechmin
        Group, Lecturer: Renny Iordanova.
The Certified Public Accountants, working in AFA, participated in various forms of continuous
training and cover the required minimum of hours. This is additionally followed by the partner in
charge of training and educational courses in the firm – Valia Iordanova and by the CPA in
charge of quality control – Tatiana Yorkisheva.




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Transparency Report - 2010                                                            AFA OOD




     TOTAL REVENUE FROM SERVICES RELATED TO INDEPENDENT FINANCIAL AUDITS, TAX
                             CONSULTATIONS AND OTHER SERVICES



In 2010 AFA OOD earned service revenue at the amount of BGN 4,270 thousand. Revenue
structure by service type is as follows:
    •   audit-related services – BGN 2,274 thousand
    •   tax consultations – BGN 395 thousand
    •   other services – BGN 1,600 thousand.
Other services include: accounting services and consultations, payroll processing, training
courses, due diligence, consulting services related to the implementation of ERP systems, agreed-
upon procedures, etc.




                                 PARTNER REMUNERATION BASIS


The partners’ remuneration is determined as follows:
    •   agreed monthly remuneration depending on the scope of assumed management and
        professional engagements;
    •   annual bonus based on the achieved results.




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