Iceland

Although not a member of the European Union (EU), Iceland is a member of the European Economic Area; as such, the EU Directives and Regulations' requirements are transposed into national laws and regulations.

The primary laws on corporate accounting and auditing are the Annual Accounts Act No. 3/2006, which transposes Regulation (EC) 1606/2002 on the application of international accounting standards into Icelandic legislation, and Auditing Act No. 94/2019, which transposes EU Directive 2014/56 amending the Directive 2006/43lEC on Statutory Audits of Annual Accounts and Consolidated Accounts.

Icelandic accounting standards are set out in the Law on Annual Accounts No. 3/2006. The Law stipulates that the Ministry of Culture and Business Affairs establish an accounting board to set uniform accounting rules and regulations for use in Iceland, based on and in addition to the Law. The Icelandic Accounting Standards Board, Reikningsskilaráð, was reestablished in 2016. The board has issued rules concerning leases as well as detailed guidance regarding information required to be disclosed in the Board of Directors Statement. The law also stipulates that IFRS be used as additional accounting rules so that when the law does not give enough guidance, IFRS can and should be used.

Per the IFRS Foundation, IFRS are required for consolidated financial statements of all companies whose securities trade in regulated and non-regulated markets. IFRS are also required for: companies whose securities do not trade in a regulated market but are part of a consolidated group that uses IFRS; and all non-publicly traded mutual funds and collective investment schemes. Since 2016, the adoption of IFRS is permitted for all other companies within the scope of the Icelandic Financial Statements Act. IFRS are translated and passed into law and published by the Icelandic government. The adoption of IFRS for SMEs is not under consideration.

The Auditing Act No. 94/2019 sets requirements for mandatory audits and regulates the audit profession. The Auditing Act states that audits should be carried out in accordance with generally accepted auditing standards (GAAS), and in the discussion following the bill, it is stated that the ISAs are considered to be GAAS. A mandatory audit requirement exists for publicly listed entities, financial and credit institutions, insurance companies, pension funds, and all other companies companies within the scope of the Financial Statements Act that exceed at least two of three thresholds specified in the Financial Statements Act, with respect to turnover, total assets and number of employees.

The Ministry of Culture and Business Affairs and the Auditors Oversight Board (ER), empowered by the Auditing Act No. 94/2019, regulates the audit profession in Iceland. The ER has the authority to monitor compliance with the Auditing Act, Code of Conduct, and other regulations. The supervision entails responsibility for: (i) certification of auditors and issuing licenses of auditing firms; (ii) application of sanctions; (iii) supervision of the quality system of auditing firms; and (iv) adoption of quality control standards according to section VII of the Act. In addition, ER is also responsible for supervising the requirements for independence, according to Art. Chapter V of the Act; implementing good auditing practices and ethics of auditors; setting requirements for retraining, according to Article 9 of the Act, and monitoring professional liability insurance, according to Article 8 of the Act.

To be certified as an auditor, in accordance with the Auditing Act, individuals must: hold a master's degree in auditing and accounting that is approved by the ER, have practical experience of a minimum of three years under the guidance of an auditor, pass a final examination of professional competence organized by the ER, and following certification be subject to regulation 665/2000 on continuing professional development (CPD) requirements. The Auditing Act also contains provisions on the independence of auditors, appointment of auditors, rules on audit fees, quality assurance, termination of auditing licenses, transparency, and confidentiality.

Previously, all auditors were required to be members of the Institute of State Authorized Public Accountants in Iceland (FLE), but since 2020, membership has been voluntary. Under the Auditing Act and delegation from ER, FLE is entrusted with the following tasks in consultation with ER: (i) developing CPD courses; and (ii) keeping CPD records. FLE members must complete at least 120 monitored CPD hours over three years.

The Auditors Oversight Board (ER), empowered by the Auditing Act No. 94/2019, regulates the audit profession in Iceland. The ER is not a member of the International Forum of Independent Audit Regulators. The ER’s functions are outlined in the Regulation section.

The Institute of State Authorized Public Accountants in Iceland (FLE)

FLE was established on July 16, 1935. FLE membership is voluntary, and it is exclusively comprised of auditors. Under the Auditing Act No. 94/2019, FLE is entrusted with the following tasks in consultation with the Public Auditors Oversight Board (ER): (i) develop continuing professional development (CPD) courses; and (ii) keep CPD records.

In addition to being an IFAC member, FLE is a member of Accountancy Europe and the Nordic Federation of Public Accountants.

In accordance with the Auditing Act No. 94/2019, the Auditors Oversight Board (ER) is empowered to establish a mandatory quality assurance (QA) review program for all auditors. Reviews are conducted every three years for public interest entities and every six years for other types of companies.

It remains to be established whether the existing QA system is in line with the benchmark of SMO 1.

Current Status: Partially Adopted

The HYPERLINK "https://www.althingi.is/lagas/149c/2019094.html" \l "G55"Auditing Act No. 94/2019 sets the initial and continuing professional development (IPD and CPD) requirements for auditors in Iceland to be implemented by the Auditors Oversight Board (ER). The Institute of Authorized Public Accountants in Iceland (FLE) states that the auditors' IPD and CPD requirements align with the 2019 IES requirements.

To be certified as an auditor, in accordance with the Auditing Act, individuals must hold a master's degree in auditing and accounting that is approved by the ER; have practical experience of a minimum of three years under the guidance of an auditor; pass a final examination of professional competence, organized by the ER; and following certification be subject to continuing professional development (CPD) requirements.

Previously, all auditors were required to be members FLE, but since 2020, membership has been voluntary. FLE members must complete at least 120 monitored CPD hours over three years.

Current Status: Adopted

A mandatory audit requirement exists for publicly listed entities, financial and credit institutions, insurance companies, pension funds, and all other companies companies within the scope of the Financial Statements Act that exceed at least two of three thresholds specified in the Financial Statements Act, with respect to turnover, total assets and number of employees.

The Auditing Act No. 94/2019 states that audits should be carried out in accordance with generally accepted auditing standards (GAAS), and in the discussion following the bill, it is stated that the ISAs are considered to be GAAS.

Current Status: Adopted

According to the Auditing Act No. 94/2019, auditors in Iceland are required to observe the IESBA Code of Ethics.

Current Status: Adopted

The Government of Iceland is responsible for adopting public sector accounting standards, which are accrual-basis IPSAS modified for the local context (IFAC/CIPFA International Public Sector Financial Accountability Index 2020).

The Institute of State Authorized Public Accountants (FLE) reports that IPSAS have been adopted into the Icelandic Law by the States Finance Act 123/2015.

Current Status: Adopted

In accordance with the Auditing Act No. 94/2019, the Auditors Oversight Board (ER) is solely responsible for the investigation and discipline (I&D) of auditors in Iceland. The ER may take up issues on its initiative if it believes that an auditor or audit firm has violated the Act, the ethical principles or other rules that apply to auditors' work. It is not clear to what extent the ER I&D system aligns with the best practices of SMO 6.

Current Status: Partially Adopted

Icelandic accounting standards are set out in the Law on Annual Accounts No. 3/2006. The law outlines that the Ministry of Culture and Business Affairs should establish an accounting board to set uniform accounting rules and regulations for use in Iceland, based on and in addition to what is in the law. The Icelandic Accounting Standards Board, Reikningsskilaráð, was reestablished in 2016. The law also dictates that IFRS should be used as additional accounting rules, so that when the law does not give enough guidance, IFRS can and should be used.

Per the IFRS Foundation, IFRS are required for separate and consolidated financial statements of all companies whose securities trade in regulated and non-regulated markets. IFRS are also required for: companies whose securities do not trade in a regulated market but are part of a consolidated group that uses IFRS; and all non-publicly traded mutual funds and collective investment schemes. Since 2016, the adoption of IFRS is permitted for all other companies within the scope of the Icelandic Financial Statements Act. IFRS are translated and passed into law and published by the Icelandic government. The adoption of IFRS for SMEs is not under consideration.

Current Status: Adopted

Relevant Organizations

• Institute of State Authorized Public Accountants in Iceland (FLE)
• Ministry of Culture and Business Affairs
• Public Auditors Oversight Board (ER)

Relevant Legislation

• Audit Directive and Regulation (EU) No 537/2014
• EU Regulation 56/2014
• Regulation 595/2020 on examination for certification as auditors
• Regulation 665/2020 on continuing education of auditors
• Regulation 666/2020 on a public register of auditors and audit firms
• The Accounting Act No. 145/1994 as amended, issued December 29, 1994
• Act No. 3/2006 on Annual Accounts, issued January 17, 2006

Relevant Publications

• Accountancy Europe, Structure and organization of the profession - key features – Iceland, 2020.
• Accountancy Europe, Organisation of the public oversight of the audit profession in 30 European countries, July 2020.
• Accountancy Europe, Defining a public interest entity, June 2022.
• IFRS Foundation, "IFRS Application Around the World—Jurisdictional Profile: Iceland," June 2016.
• Institute of State Authorized Public Accountants in Iceland (FLE), SMO Action Plan, 2024.