Compliance Audits Under Georgian Law: Which Statute Governs
The internal-control audit model familiar from United States securities legislation is not Georgian law and cannot carry a Georgian page. In Georgia the legal regime of audit is defined by the Georgian law on accounting, reporting and audit: it decides who must have financial statements audited, by which standards the audit is conducted, and what quality controls govern the auditor. The four articles behind this page refresh four distinct angles: coverage, standards, conduct and quality.
For a company this means audit plans and budgets must start from this law’s requirements rather than from foreign practice analogies.
Who Must Have Financial Statements Audited
Under Article 6, public-interest significant entities, first and second category enterprises and groups must ensure the audit of their financial statements or consolidated financial statements in the manner prescribed by the law, unless regulatory normative acts of the relevant field provide otherwise. The requirement extends to a subsidiary within a group.
Third and fourth category enterprises and non-commercial legal persons are exempt from the audit obligation unless Georgian legislation provides otherwise. For an enterprise subject to regulation or supervision, the requirement for an interim financial-statement audit or other assurance engagement is set by the sector’s legislation — sectoral regulation may thus amend the general rule.
By Which Standards, and Who May Conduct the Audit
Under Article 14, audit in Georgia is conducted in accordance with international standards on auditing — those adopted by the International Auditing and Assurance Standards Board or its successor body. For other audit services beyond an audit — review, other assurance engagements, related services — the corresponding standards of the same board apply. Updated standards enter into force within 6 months of their update, and the auditor may use the current English version.
Audits of public-interest significant entities carry additional requirements: only an audit firm that has passed the corresponding monitoring of its quality management system is entitled to conduct them. When choosing an auditor, a company therefore checks not only the price but the firm’s status.
How the Audit Is Conducted
Under Article 15, an audit may be conducted as mandatory or on the subject’s initiative. For public-interest significant entities and first and second category enterprises and groups, the audit is conducted for every reporting period. The audit conclusion is confirmed by signature of the engagement partner or an authorized person of the audit firm, and the firm’s internal procedures must make identification of the engagement partner possible.
The auditor must retain the documents compiled and used in the audit, in electronic or physical form, for 6 years from the end of the corresponding reporting period. The audit conclusion must not provide assurance about the subject’s future viability or the effective functioning of its governing body, and the auditor must exercise professional skepticism — recognizing, on the basis of indicative facts, the possibility of a material violation, fraud or error.
Quality Management and Supervision
Article 19 obliges the auditor to have appropriate quality-management policies and procedures in accordance with international standards on quality management. Monitoring is carried out by the Service, on a risk-based approach or on the basis of a declaration or complaint, and must be adequate to the volume and complexity of the firm’s activity.
The periodicity is fixed by law: monitoring is carried out no more than once per 6 years for an ordinary auditor, and no more than once per 3 years for an auditor auditing public-interest significant entities and first category enterprises. A firm planning such an audit but not yet having conducted one applies to the Service before signing the engagement contract; the decision is made within 5 working days of the application.
Monitoring results are public and are reflected in the registry within 5 working days of the decision. A firm auditing public-interest significant entities publishes an annual transparency report on its website no later than 4 months after the end of each financial year, and it must remain accessible for at least 5 years from publication.
Frequently Asked Questions
Below are the most frequent questions about the audit obligation.
Is the audit mandatory or voluntary?
Both are possible. Under Article 15 an audit is conducted either in the manner prescribed by Article 6 or on the subject’s initiative; for public-interest significant entities and first and second category enterprises it takes place for every reporting period.
Must a third or fourth category enterprise be audited?
No, they are exempt unless legislation provides otherwise. For enterprises subject to sectoral regulation, the requirement for interim audits is set by that sector’s legislation.
For how long are audit documents retained?
For 6 years from the end of the corresponding reporting period, in electronic or physical form.
How often is the auditor’s quality management system monitored?
No more than once per 6 years, and for an auditor of public-interest significant entities and first category enterprises — no more than once per 3 years.
Who publishes the annual transparency report?
An audit firm auditing public-interest significant entities, no later than 4 months after the financial year ends, on its website, accessible for at least 5 years.
How We Help on Legal.ge
The lawyers of Legal.ge help you plan the audit obligation correctly: we determine whether your enterprise is subject to audit, assess the eligibility of the audit firm, and help organize document flow during the audit. Contact us before the reporting period closes — a late audit costs not only a fine but reputation.