Who Is Subject to the Audit of Financial Statements
The coordination of an external audit begins with the question whether your organization is required by law to have one. Under Article 6 of the Law of Georgia on Accounting, Reporting and Audit, a public-interest entity, an enterprise of the first or second category and a group are obliged to ensure the audit of their financial statements or consolidated financial statements in the manner established by law. This requirement extends to a subject that is a subsidiary enterprise within a group — being inside a group structure does not neutralize the audit obligation.
On the other hand, enterprises of the third and fourth categories and non-entrepreneurial (non-commercial) legal persons are exempt from the audit obligation, unless otherwise provided by the legislation. For an enterprise subject to regulation or supervision by a regulatory or supervisory authority, the requirement for an audit of interim financial statements is established by the sectoral legislation. Determining the correct category and verifying sectoral requirements is the first step of coordination.
The Procedure and Standards of the Audit
Under Article 14, an audit in Georgia is conducted in accordance with the International Standards on Auditing — standards adopted by the International Auditing and Assurance Standards Board, put into effect by the Service: updated editions enter into force within 6 months of the update, and the auditor has the right to use the current English version of a standard. Other audit services — review, other assurance engagements and related services — are governed by the corresponding international standards.
The audit of a public-interest entity carries additional requirements: the authority to conduct such an audit belongs only to an audit firm that has passed monitoring of a quality management system of the corresponding level, and additional requirements for the audit process and procedures are established by order of the head of the Service. Audit activity connected with a contract where a party is a property manager likewise requires monitoring of a corresponding quality.
The Conduct of the Audit and the Storage of Documents
Under Article 15, an audit may be conducted under the procedure established by law or on the subject's own initiative; the audit of the statements of a public-interest entity and of first and second category enterprises is conducted for every reporting period. The audit conclusion is confirmed by the signature of the engagement partner or an authorized person of the firm, and the firm's internal procedure must allow the identification of the engagement partner.
Two details are decisive for the client. First — the auditor is obliged to keep the documents compiled and used in the audit, in electronic or material form, for 6 years from the end of the relevant reporting period. Second — the auditor must exercise professional skepticism: on the basis of indicative facts it acknowledges the possibility of a material violation — fraud or error — and pays particular attention to fair value estimates, impairment of assets, provisions, receivables and future cash flows. An audit is thus not a formality: it means questions being asked, and readiness to answer them is precisely the task of coordination.
The Submission and Publication of Reports
Under Article 9, a subject — other than a non-entrepreneurial legal person — is obliged to submit the financial statements, the governance report, the report on payments made to the state and the audit conclusion together, immediately but no later than 1 October of the year following the reporting period. The Service publishes the submitted statements and audit conclusions within 1 month of submission; where the reporting period does not coincide with the calendar year, the statements are submitted no later than 9 months after the end of the period.
A public-interest entity also publishes these reports on its own website or in a print publication. The Service verifies the statements selectively on a risk-based approach and is empowered to demand the elimination of defects — which is why the internal review before submission should follow the same logic through which the Service will look at the statements.
Frequently Asked Questions
When must the statements be submitted together with the audit conclusion?
Under Article 9 — by 1 October of the year following the reporting period; for a non-calendar period, within 9 months of its end.
How long is the audit documentation kept?
Under Article 15 — for 6 years from the end of the relevant reporting period, in electronic or material form.
Which subjects are exempt from the audit?
Third and fourth category enterprises and non-entrepreneurial legal persons, unless otherwise provided by legislation (Article 6).
Who may audit a public-interest entity?
Only an audit firm that has passed monitoring of a quality management system of the corresponding level (Article 14).
How We Help on Legal.ge
External audit coordination is a two-sided matter: the law governs who, when and under which standards audits, while the organization answers for its readiness for the auditor's questions — the completeness of records, the order of documentation and the quality of the statements. A well-coordinated audit finishes on time; a poorly planned one exceeds deadlines and leaves remarks in the conclusion.
The lawyers working on Legal.ge will help you determine the audit obligation, frame the contractual relationship with the audit firm, map the documentation to prepare for the audit and plan the response to the conclusions. Contact us for a consultation — an audit you prepare for in advance turns risk into analysis.