The past year has been a rough one by most accounts – not least for Polish accountants. New regulatory requirements have upended the market, which is under the shadow of an ethical crisis following the collapse of debt collector GetBack.

As such, it’s unsurprising that the mood at a recent Capital Group Forum organised by BDO Poland was somewhat grim. Participants at the conference, held at the Warsaw Stock Exchange on November 27, 2018, included representatives from the National Council of Statutory Auditors, the Audit Supervision Commission and Polish Association of Listed Companies, along with CFAs and BDO advisors. Discussion focused on the impact of recent legislation and provided detailed insights into audit functions at publicly listed Polish companies.

It’s a subject that’s seen plenty of movement since a new act on statutory auditors, audit firms and public oversight introduced new requirements in 2017. Audit contracts must be signed for at least three years, non-audit fees cannot exceed 50% of audit fees, and restrictions have been extended to bar auditors from providing services relating to tax, legal and accounting, or otherwise influencing the financial statements.

These changes have led to increased specialization amongst auditors, along with an increase in audit cost, the withdrawal of small auditors from the market, increased FSA regulation, and higher fees and fines. As a result, the Polish audit market is now more formalized, with more frequent and transparent communication between companies and auditors. However, a range of parties have raised concern regarding the flood of associated documentation and regulatory requirements.

In some cases, it’s unclear which regulations to follow. Take, for example, the methodology for determining whether an audit committee member is independent. On September 17, 2017 the FSA issued a statement that an independent member of an audit committee cannot have any material relationship with an entity, whereas the Companies Code mentions only major relationships. A year after the Code was updated, companies do not know if they should comply with the Code or FSA guidance. Perhaps unsurprisingly given this state of affairs, the independence (or lack thereof) of the audit committee chair is a problem at many companies. The problem is exacerbated by regulatory inaction, as fines and penalties are not being levied against companies that fail to meet independence requirements.

Along with independence, attendees discussed the appropriate qualifications for an audit committee member. In particular, there was debate about whether a diploma but lack of experience in the field is of equal value to many years of working in the industry but no diploma – credentials vs experience.

Another matter is the remuneration of audit committee members. While fee levels are increasing (the median for Polish supervisory board members is up 23% from 2017), particularly for committee members, in many cases they are not sufficient to attract appropriately qualified and committed directors, or to outweigh the potential liabilities of the position. The FSA can fine members with up to PLN 250,000 and forbid them from performing an audit committee member function in public interest entities from one to three years. Although members can insure themselves against administrative fines, insurance companies often decline to include this provision.

Participants of the conference discussion panel also expressed concerns regarding how audit committees function. In particular, the lack of a board-specific budget means that the audit committee is often in conflict with management without the resources to stand its ground. For instance, if the audit committee wanted to perform a special audit of management, it would have to ask the management board for funding.

The hottest topic of the conference, however, was not legislative developments and dilemmas or audit committee operations, but the implications of scandal. Shares of debt collector GetBack lost nearly 90% of their value over 2018 after the company failed to make interest payments to investors on bonds amounting to PLN 2 billion. The company’s former management is suspected of overbidding in debt auctions and breaching personal data protections, while the banks selling GetBack’s bonds are accused of deceiving investors and defining the investment as risk free. The question asked here was who exactly is to blame for this situation – the management, the audit committee, the auditor or everyone?

Instead of providing oversight, the country’s regulator is dealing with its own scandal. On the day of the conference, the head of the Polish FSA was arrested following reports that he had requested a multi-million bribe from a controlling shareholder of Getin Noble Bank. This unique situation led to a heated discussion regarding state authorities, especially auditors and audit committee competences and responsibilities.

As the scandals shook the market, trust in state institutions has dramatically decreased. New laws are not being put into practice and companies seem uninterested in improving their corporate governance practices beyond what is required by regulations. It’s a difficult state of affairs for all concerned.

Aleksandra is an analyst covering the Polish market.