Election of the Auditor and Auditing of the Annual Accounts
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Election of the Auditor and Auditing of the Annual Accounts

Election of the Auditor and Auditing of the Annual Accounts. This article is from the Corporate Governance Recommendations prepared on the basis of Estonian legislation, structure of shareholders of Issuers acting in Estonia and taking into account the main problems that arise in company management.
Election of the Auditor and Auditing of the Annual Accounts
These Corporate Governance Recommendations are to be carried out primarily by companies whose shares have been admitted to trading on a regulated market operating in Estonia ("Issuers"), except for investment funds registered as public limited companies.

Other companies may also choose to comply with these Corporate Governance Recommendations and shareholders and partners of such companies are encouraged to follow these principles upon organizing their management and management control of the company.

Clause 1

Together with Notice Calling the General Meeting the Supervisory Board shall make available to shareholders information on a candidate for auditor, including information on their business connections specified below. If there is a desire to appoint an auditor who has audited Issuers reports on previous financial year the Supervisory Board shall pass judgment on their work.

Before the Supervisory Board presents a candidate of auditor for election in a General meeting, the Supervisory Board shall require from a candidate for auditor an overview of what kind of connection pertaining to work, economic connection or other connection possibly affecting the independence of the auditor exists between the auditor, its management body and the auditors in charge on one side and the Issuer and its management body on other side.

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The Supervisory Board shall describe in its evaluation report to judgment of the auditors work inter alia the services (including advisory services) that the auditor has provided to the Issuer during the preceding year or shall provide during the next year. Also the remuneration the Issuer has paid or shall pay to the auditor shall be published.

If the Supervisory Board makes a proposal to elect a new auditor it shall justify to the General Meeting its reasons for terminating the contract with previous auditor.

Clause 2

Before entering a contract for auditing services with an auditor, the Management Board shall present the Supervisory Board with the draft contract for approval. In a contract to be concluded with an auditor, above all the auditor’s functions, timetable and remuneration shall be agreed upon. The Issuer shall not conclude a contract, indicating that disclosure of remuneration payable for auditing is breach of contract.

Pursuant to the contract the auditor obliges to promptly inform the Chairman of the Supervisory Board of any danger to the independence or professionalism of their work that becomes evident during the course of their work, unless the danger is promptly eliminated.

Pursuant to the contract, the auditor shall oblige to promptly inform the Supervisory Board of any material circumstances that become known to them that may affect the work of the Supervisory Board and management of the Issuer.
The contract to be concluded with an auditor shall not in any manner hinder the auditor’s evaluation of the Issuer’s activities.

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Clause 3

Upon organizing the rotation of auditors, the Issuer shall comply with guidelines of the Financial Supervision Authority from 24 September 2003, “Rotation of auditors of certain entities under state supervision.”

Clause 4

Pursuant to the contract the auditor obliges to disclose to the Supervisory Board and at the General Meeting the facts, which become evident to them during the course of exercising of a regular audit, indicating non-compliance with the Corporate Governance Recommendations by the Management Board or the Supervisory Board. The Auditor shall prepare a memorandum to the Issuer regarding these facts along with the auditor’s report. The auditor shall not reflect in the memorandum the facts that the Management Board has explained in the Corporate Governance Recommendations Report.

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Clause 5

The General Meeting, Supervisory Board and Management Board shall enable auditor to carry out the auditing according to international auditing standards.

Clause 6

Upon introducing the findings of the audit to the Supervisory Board, the Auditor shall present inter alia:

  • an overview of the progress of the audit, co-operation with employees
    subject to the internal audit and the Management Board as well as important issues discussed with the Management Board and proposals which were not accepted by the Management Board on drawing up the annual report;
  • an overview of the independence of the auditor and the absence of conflict of interests during the audit;
  • an analysis of changes in shareholders' equity and circumstances not entered in the report subject to disclosure, yet having significant importance upon the understanding of the financial condition and performance of the Issuer;
  • their own opinion regarding one-off items, accounting policy used in book-keeping concerning them and the effect of it;
  • his or her own opinion regarding financial forecasts made and the quality of the budget.

The Auditor shall present an overview, analysis and opinion described above in writing to the Supervisory Board.

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