Estonia

In Estonia, the Accounting Act regulates basic accounting functions for all registered business entities. The Act requires that at the end of each financial year, an accounting entity prepares an annual report that consists of the annual accounts and the management report. The auditor’s report (if compulsory) and the profit distribution proposal for the financial year should be annexed to the annual report. Annual reports are required to be filed at the Commercial Register within six months of the end of the financial year.

Accounting Framework

As a member of the European Union (EU), the statutory framework for accounting and auditing in Estonia is subject to European Commission (EC) Directive 2014/56/EU (which has amended 2006/43/EC) for the audits of financial statements, Regulation EC 1606/2002 on the application of international accounting standards, and the Accounting Directive 2013/34/EU for the preparation of statutory financial statements. These directives and regulations, which are transposed into national legislation, together with other company, financial and capital markets laws outline financial reporting requirements in Estonia.

Regarding accounting standards, Estonia is subject to the IAS Regulation adopted by the European Union in 2002. As such, International Financial Reporting Standards (IFRS) as adopted by the EU are required for the consolidated financial statements of all European companies whose debt or equity securities trade in a regulated market in Estonia. Foreign companies whose securities trade in a regulated market in Estonia (and generally in the EU) are required to report under IFRS as adopted by the EU for their consolidated financial statements unless the European Commission has deemed their local accounting standards to be equivalent to IFRS, in which case they may use their local standards. In addition to listed companies, IFRS as adopted by the EU are required to be applied by credit institutions, insurance undertakings, financial holding companies, mixed financial holding companies, and investment firms. All other Estonian companies can choose whether to prepare their consolidated and annual accounts in accordance with IFRS as adopted by the EU or in accordance with the Estonian Accounting Standards (Estonian Generally Accepted Accounting Principles - GAAP).

Estonian GAAP is promulgated by the Estonian Accounting Standards Board (EASB). The EASB is an independent committee whose rules of procedure must be approved by the Government on the proposal of the Minister of Finance. Estonian GAAP (effective from 2013) is based on IFRS for Small and Medium-sized Entities (IFRS for SMEs) with limited differences from IFRS for SMEs with regard to accounting policies as well as disclosure requirements. In areas not specifically covered by Estonian GAAP, the treatment in IFRS for SMEs is recommended, but not mandatory. Each Estonian GAAP standard contains a brief comparison with the respective section of IFRS for SMEs.

Auditing Framework

In accordance with the Estonian Auditor’s Activities Act, all public limited companies are subject to audit. An entity subject to a review may instead opt for an audit if they desire. Additionally, the Authorized Public Accountants Act provides audit requirements for public interest entities (PIEs). The following entities are PIEs and must undergo a mandatory audit: listed entities, financial institutions, and entities which exceed certain revenue, asset, and/or employee thresholds.

Audit requirements are outlined by the Estonian Auditor’s Activities Act which stipulates that the basis of auditing are the international standards transposed by the European Commission and established by the Commission Regulation and those standards prepared based on the principles of the International Auditing and Assurance Standards Board (IAASB) and International Ethics Standards Board of Accountants (IESBA). The Estonian Auditing Activities Oversight Board (AAOC) is responsible for approving the standards prepared pursuant to the principles and based on the standards provided for in this Act. To have legal effect in Estonia, any regulation (including IAASB standards) must be translated into Estonian. The Estonian Association of Auditors (EAA) has translated all ISA that are applicable for audits on or after December 15, 2023.

In Estonia, the auditing profession is regulated by the Auditors Activities Act. The Act established the Auditing Activities Oversight Council (AAOC), which oversees all functions related to Estonian auditors and auditing firms in coordination with the Estonian Association of Auditors (EAA). The Ministry of Finance is responsible for ensuring that the two organizations carry out their activities with regard to the public interest. Lastly, the Auditors Activities Act also outlines the requirements for participation in and operation of a system of investigation and discipline as well as the procedures and entities responsible for audit quality assurance.

The Act outlines the initial professional development requirements for practicing as an auditor in the jurisdiction. A sworn auditor (auditor) is a person who holds a bachelor’s degree recognized by the state; three years of practical experience; necessary theoretical training; has active legal capacity and impeccable reputation; and passed the qualification exams organized by the AAOC and approved by the MoF. Individuals must join the EAA.

In addition to overseeing the granting, suspending, and revoking of auditing licenses, the AAOC is also responsible for (i) adopting auditing and ethical standards; (ii) conducting quality assurance (QA) reviews and disciplinary proceedings; (iii) imposing sanctions; and (iv) overseeing activities delegated to the EAA, such as continuing professional education and development.

Meanwhile, the EAA shares in some of the responsibilities mentioned above, such as (i) translating standards into Estonian for application in the jurisdiction; (ii) organizing the continuing professional education of auditors; (iii) proposing the content of the auditor’s examination; and (iv) participating in disciplinary proceedings of the AAOC.

Finally, through the transposition of the EU Audit Reform, auditors of public interest entities (PIEs) are now subject to mandatory audit firm rotation. These have been implemented through amendments to the Auditors Activity Act in January 2017 to require contracts for the provision of the statutory audit of annual accounts of a PIEs to be extended for a total of up to ten consecutive years. Additionally, a sworn auditor may not provide services to a government entity for a period of greater than seven years. Finally, an audit firm carrying out the statutory audit of a PIE or any member of the network of sworn auditors to which such audit firm belongs shall not, directly or indirectly, provide to the audited public interest entity, to its parent undertaking or to its controlled undertaking in the member state any service specified in Article 5 (1) of Regulation (EU) No 537/2014.

The Auditing Activities Oversight Council (AAOC) is the audit oversight authority in Estonia and was established by the Auditors Activities Act. The AAOOC carries out the following responsibilities: (i) granting, suspending, and revoking of auditing licenses; (ii) adopting auditing and ethical standards; (iii) organizing the professional examinations for auditors; (iv) conducting quality assurance (QA) reviews and disciplinary proceedings; (v) imposing sanctions; and (vi) overseeing activities delegated to the Estonian Association of Auditors (EAA), such as continuing professional education and development. The Ministry of Finance holds ultimate responsibility for ensuring that the two organizations carry out their activities with regard for the public interest.

Estonian Auditors' Association

The Estonian Auditors' Association (EAA) is a public-private network of over 150 audit firms and 350 individual auditors, standing for a reliable business environment in Estonia. It is the only legally recognized, self-governing PAO in the country. Membership in the association for all certified auditors desiring to practice the audit profession is compulsory. The EAA (i) seeks to be a leader in initiatives supporting the development of Estonia as a smart economy with a competitive and transparent business and investment environment, (ii) leads and participates in public discussions in order to increase public awareness of the auditors’ value proposal, (ii) cooperates closely with different interest groups, state authorities and business organizations, (iv) contributes to the development of the financial regulatory and legal framework, (v) supports provision of high-quality assurance services by organizing trainings for professionals, exchange of information, networking, and oversight of the audit profession.

EAA is a member of IFAC as well as an associate member of Accountancy Europe.

Through the Estonian—Swiss Cooperation Program, Switzerland supports Estonia and other new EU member states to reduce reducing economic and social disparities within the enlarged European Union. The objectives and utilization conditions are set forth in each country's Framework Agreement. Under this agreement, Estonia received roughly 1.8 million Swiss francs to support effective implementation and enforcement of the Acquis Communautaire targeted to Corporate Financial Reporting, which allowed EAA to fund SMO-related activities in the areas of developing and delivering training for its members. Projects which demonstrated institutional and regulatory capacity building for corporate sector financial reporting and auditing at the national level were selected for this support under this program.

The Auditors Activities Act confers upon the Auditors Activities Oversight Council (AAOC) the mission of public oversight of the audit profession.

The AAOC is responsible for the implementation of a quality assurance system and to carry out those reviews. The AAOC’s system of quality assurance undertakes reviews for statutory auditors and statutory audit firms based on risk and at least once every six years for audits of non-public interest entities (PIEs) and once every three years for audits of PIE audits. In 2022, the relevant standards — ISQM 1, 2, and ISA 220 (revised) — were translated and formally adopted.

The AAOC’s QA system is fully compliant with EU legislation and regulation on auditing and, according to the Estonian Association of Auditors (EAA) is also aligned with SMO 1 best practices.

Current Status: Adopted

The Auditors Activities Act stipulates the initial and continuing professional development requirements in order to practice as an auditor in Estonia.

A sworn auditor (auditor) is a person who holds a bachelor’s degree recognized by the state; three years of practical experience under supervision of an EAA member firm; necessary theoretical training; has active legal capacity and impeccable reputation; and passed the qualification exams.

The EAA states that the Estonian university education system and curricula provide the technical competence, professional skills and practical experience needed for the entry into the profession – in line with the IES requirements. Auditing courses have been added to Master programs and at the end of 2022, a new master’s program will launch on Risk Management at the University of Tartu, which will address IES 1-4.

Professional examinations for auditors are organized by the Auditors Activities Oversight Council (AAOC) with the examination program & questions proposed by EAA and ultimately approved by the AAOC and the Ministry of Finance (MoF).

Continuing education requirements are stipulated in the Act, and auditors must fulfill 40 hours of CPD per year. The EAA is responsible for organizing the CPD activities and reports that IES 7 & 8 are adopted.

Current Status: Adopted

The Auditors Activities Act specifies the basis of auditing as international standards (IAASB standards). The Auditors Activities Oversight Council has legal responsibility for auditing standard-setting in Estonia. However, for any regulation to have legal effect in Estonia it must be translated into Estonian.

In 2016, the Estonian Association of Auditors (EAA) was delegated the responsibility of standards’ translation.

The EAA is translating all standards that are applicable for audits on or after December 15, 2023 for adoption (i.e., within the 2022 Handbook Of International Quality Management, Auditing, Review, Other Assurance, And Related Services Pronouncements).

Current Status: Adopted

The Auditors Activities Act specifies that auditors must comply with the requirements in the IESBA Code of Ethics. The Auditors Activities Oversight Council has legal responsibility for ethical standard-setting in Estonia. However, for any regulation to have legal effect in Estonia it must be translated into Estonian.

In 2016, the Estonian Association of Auditors (EAA) was delegated the responsibility of standards’ translation.

As of 2024, EAA has translated and published the 2023 International Code of Ethics for Professional Accountants – including independence standards.

Current Status: Adopted

Government entities utilize national standards — General Rules for State Accounting (GRSA) — which are issued by the Ministry of Finance and based on the Estonian GAAP and the IPSAS. Since 2004, a full accrual accounting and reporting system has been implemented in Estonia although the Estonian Association of Auditors indicates that there are some areas where simplified application or non-application of the IPSAS has been opted for. According to the Accrual Practices and Reform Experiences in OECD Countries, accrual budgeting was set to be implemented in 2017.

The Estonian accounting and reporting systems provide data on assets, liabilities, revenues, expenses, commitments, and payments, and the Ministry of Finance compiles a consolidated annual report for the whole government, including all government levels and their decentralized entities.

Current Status: Partially Adopted

The 2017 Auditors Activities Act establishes an investigation and disciplinary system (I&D) system for auditors, which is handled by the Auditors Activities Oversight Council (AAOC).

Effective 2021, the AAOC has issued updated procedures regarding investigations of complaints and disciplinary proceedings. The Estonian Association of Auditors (EAA) indicates that the AAOC’s procedures are aligned with the SMO 6 best practices. For some components (i.e., timeframe targets for handling cases; monitoring progress with cases; and independent review of complaints with no follow-up), the EAA notes that there are no specific written policies, but the AAOC can carry out these functions as needed.

Current Status: Adopted

International Financial Reporting Standards (IFRS) as adopted by the EU are required for the consolidated financial statements of all European companies whose debt or equity securities trade in a regulated market in Estonia.  In addition to listed companies, IFRS as adopted by the EU are required to be applied by credit institutions, insurance undertakings, financial holding companies, mixed financial holding companies, and investment firms – which are considered public interest entities in the jurisdiction. EU-endorsed IFRS have slight modifications from IFRS (e.g., temporary 'carve-out' from IAS 39 Financial Instrument: Recognition and Measurement and a temporary extension of the scope of applying IFRS 9 Financial Instruments with IFRS 4 Insurance Contracts) but according to the IFRS Foundation, the majority of companies can state full compliance with the IFRS.

All other Estonian companies can choose whether to prepare their consolidated and annual accounts in accordance with IFRS as adopted by the EU or in accordance with the Estonian Accounting Standards (Estonian Generally Accepted Accounting Principles — Estonian GAAP).

Estonian GAAP is promulgated by the Estonian Accounting Standards Board (EASB). Estonian GAAP (effective from 2013) is based on IFRS for Small and Medium-sized Entities (IFRS for SMEs) with limited differences from IFRS for SMEs with regard to accounting policies as well as disclosure requirements. In areas not specifically covered by Estonian GAAP, the treatment in IFRS for SMEs is recommended, but not mandatory. Each Estonian GAAP standard contains a brief comparison with the respective section of IFRS for SMEs.

Current Status: Adopted

Relevant Organizations

Auditors Activities Oversight Council

Estonian Association of Auditors

Relevant Legislation

Accounting Act 2002

Accounting Directive 2013/34/EU

Auditor’s Activities Act 2010 (amended 2017)

Commercial Code 1995

European Commission (EC) Directive 2014/56/EU

Regulation EC 1606/2002

Relevant Publications

Accountancy Europe, Member State Implementation of Directive 2014/95/EU, 2017.

--, Organization of the Public Oversight of the Audit Profession in Europe, a Survey, March 2018.

--, Definition of Public Interest Entities in Europe, March 2019.

--, Structure and Organization of the Accountancy Profession Key features: Estonia, 2020

Argento, Daniela, Peeter Peda, Giuseppe Grossi, “The enabling role of institutional entrepreneurs in the adoption of IPSAS within a transitional economy: The case of Estonia.” 15 Jan 2018.

Estonian Association of Auditors, “Experiment with the Auditor’s Act” 2018.

--, SMO Action Plan, 2022.

Estonian Company Registration Website.

Fisher, Liz, “European countries on the path to IPSAS,” 1 March 2018.

IFRS Foundation, “Use of IFRS Standards By Jurisdiction Country Profiles – Estonia.” July 2016.

--, IFRS Application around the World – Jurisdictional Profile: European Union, April 2021

Invest in Estonia – Establishing a Company / Accounting Requirements.

Ministry of Finance, “ HYPERLINK "https://www.rahandusministeerium.ee/en/news/authorised-public-accountants-act-amendments-reduce-administrative-burden" Authorised Public Accountants Act amendments to reduce administrative burden”, 21 March 2016.

OECD and IFAC, Accrual Practices and Reform Experiences in OECD Countries, OECD Publishing, Paris, 2017.

Ojamaa, Kurmet, Auditor Activities Oversight Council: Overview, July 2010.

Pricewaterhouse Coopers (PWC) “Changes in Estonian Legal Framework and Practices of Accounting and Auditing during 2004-2014.” 2016.

-- Doing Business and Investing in Estonian 2017

--, “European Union Audit Legislation—Frequently Asked Questions”, 12 April 2017.

Strandberg, Reidi, “Estonia's new Authorised Public Accountants Act – an introduction to non-auditors”, December 2011.

World Bank, Estonia Accounting and Auditing Report on the Observance of Standards and Codes, 2004.