Around the globe: Estonia - Auditing in Estonia

Internal Auditor,  April, 2003  

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IN THE EARLY 1990S, the Soviet time-planning economy -- a formal, centralized economic planning tool implemented throughout post-Soviet countries -- collapsed, prompting many Estonian organizations to establish internal audit functions in order to create a new business environment.

In 1993, when internal auditing was first established in Estonia, there were only 10 to 15 practitioners. That year, the Estonian Central Bank, an institution charged with strengthening confidence in the stability and integrity of Estonian currency, issued a regulation requiring all commercial banks to have an internal audit function. Since then, banks' internal audit departments have developed from merely a policing activity to a high-level specialist function involved in assurance, risk management, and corporate governance.

Internal auditing has also evolved in other industries, such as high technology and wholesale. Initially internal auditors in these industries dealt primarily with efficiency issues. Now, their work is more focused on risk management.

AUDITING MANDATED

Estonia is planning to become a member of the European Union (EU) and North Atlantic Treaty Organization in the coming year or two. EU regulations and principles are already reflected in Estonian legislation and in the internal audit arena. The EU demands that all state institutions receiving EU support have an internal audit function.

Estonian laws enacted during the last two years require the nation's public-sector organizations, credit institutions, investment-fund companies, and insurance companies to establish independent internal audit functions as well. The regulations also outline acceptable reporting lines. For example, final audit reports are required to be sent to the head of the institution or county government.

THE PROFESSION IN 2003

Today, there are approximately 250 auditors working in Estonia, with 35 percent in the public sector, 31 percent in the financial sector, 9 percent in state enterprises, 9 percent in audit firms, and r6 percent in other private companies.

The main issue today's internal auditors are grappling with is how to heighten managers' and employees' risk awareness and how to identify links among objectives, risks, and controls. In many organizations, it's unclear who owns the controls. Also, instead of serving top management, many audit groups perform activities that aren't relevant to management's concerns.

Corporate governance is also a hot topic in the overall business environment, and Estonian internal auditors are working to improve corporate governance by becoming highly qualified specialists, educating themselves about governance--related issues, and sharing relevant information to help different management levels throughout their organizations.

RISING TO THE CHALLENGE

To enhance the profession, IIA-Estonia offers public seminars about internal auditing and participates in legislation workgroups. Recent newspaper and magazine articles have also sparked public interest in internal auditing and have helped to advance the profession.

Still, the country needs practitioners with high professional qualifications and efficient work practices to raise managers and other stakeholders' awareness about the importance of the internal audit function. Internal auditing is a relatively new profession in Estonia, and many of its value-added benefits have yet to be discovered. Fortunately, Estonia is a small country, making it easier to carry out changes and to develop rapidly.

APO OJA, IIA-Estonia chairman of the board, contributed to this article.

RELATED ARTICLE: AT A GLANCE

GDP: $14.3 billion

GDP PER CAPITA: $10,000

CURRENCY

Estonian kroon (EEK)

ANNUAL INFLATION: 5.8 percent

LAND AREA: 43,211 sq km

POPULATION: 1,415,681

LABOR FORCE: 608,600

INDUSTRIES

Engineering, electronics, wood and wood products, textile, services, transit, information technology, telecommunications.

INDUSTRIAL PRODUCTION

GROWTH RATE

5 percent

LANGUAGES

Estonian (official), Russian, Ukrainian, Finnish

SOURCE: THE WORLD FACTBOOK 2002

COPYRIGHT 2003 Institute of Internal Auditors, Inc.
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