Israel

The Israel Companies Law (1999) outlines the framework for financial reporting in Israel. This law requires the maintenance of company accounts and requires all companies (including private companies) to file audited annual financial statements with the Registrar of Companies. Additionally, this law mandates companies to file audited financial statements with Israeli tax authorities.

In Israel, accounting standard-setting is undertaken by the Israeli Accounting Standards Board (IIASB). Through its promulgation of Accounting Standard No. 29, Adoption of International Financial Reporting Standards (IFRS) and in conformity with the Israeli Securities Authority (ISA) Securities Regulations (Annual Financial Statements) 2010, the IIASB requires the application of IFRS for all listed entities (with the exclusion of banking institutions and some foreign issuers). In accordance with these requirements, promulgation of any new or amended IFRS standards or interpretations by the International Accounting Standards Board are automatically incorporated into financial reporting regulations without need for specific incorporation or endorsement by the IIASB.

Regarding non-listed entities, Israeli Generally Accepted Accounting Principles (GAAP) are required to be applied as promulgated by the IIASB; IFRS are permitted. For non-listed entities, which are classified as Small and Medium Enterprises (SMEs), the IIASB adopted IFRS for SME through the Israel Accounting Standard No. 32. All SMEs that do not use IFRS for SMEs are permitted to use either full IFRS Standards, Israeli GAAP as issued by the IIASB or United States (US) GAAP. Although not mandatory at this time, the IIASB intends to again consider the mandatory use of the IFRS for SMEs in the future.

Banking institutions (listed and unlisted, including credit card companies) are subject to the reporting requirements of the Banking Supervision Department of the Bank of Israel and are required to apply only some IFRS that are not related to their core banking business. The Commissioner of Capital Market Division, which regulates insurance companies, requires application of IFRS for entities under its supervision.

All companies are required to be audited. The Institute of Certified Public Accountants in Israel (ICPAI) is legally recognized as the entity responsible for auditing standard setting through the Auditors Regulations (ways of the Auditor's Practice) 5715-1973. Through its Auditing Standards Committee, ICPAI sets Israeli Generally Accepted Auditing Standards (GAAS). The ICPAI reports that it is presently in the process of seeking to align its GAAS with ISA; however, the timeline for full convergence has not been established.

Auditors are the only segment of the accountancy profession that is regulated in Israel. The audit profession is regulated by the Auditors’ Council and the Institute of Certified Public Accountants in Israel (ICPAI).

The Auditors' Council is a branch of the Israeli Ministry of Justice established under the Auditors Law 5715-1955. The Auditors’ Council’s functions are to conduct examinations leading to receipt of an Auditor's License; supervise and control professional education and training and review; and respond to complaints regarding ethical and professional conduct.

ICPAI is a voluntary body of licensed Certified Public Accountants (CPAs), established in 1931, which sets auditing standards, develops ethical requirements for its members, promotes accountancy education and training, undertakes investigative and disciplinary procedures for its members, and advances the accountancy profession. Additionally, ICPAI maintains a role in certain areas of the fiscal lawmaking process in the Knesset (Israel’s lawmaking body) and acts as an advisor to the bodies supervising government-controlled companies, insurance companies, banks and other institutions on issues of professional standards and related matters. 

The Auditors Law and related Regulations cover matters concerning licensing, exams, and ongoing supervision of the profession in Israel. In accordance with this law, achievement of audit license may be undertaken through two different pathways: an academic (which 80% of candidates pursue) and non-academic route.

The academic route begins with achievement of bachelor’s degree with dual major, with one of the majors being in accounting. Upon receiving the bachelor’s degree, most students choose to study an additional year which allows them to obtain deeper knowledge in accountancy and taxation. Students that have completed this additional year must pass two final exams set by the Auditors’ Council in advanced financial accountancy and advanced auditing. After completion of formal education and examination, students are eligible for a two-year apprenticeship in an auditing firm (or another body approved by the Council). 

The non-academic route is based on self-study and/or on studies at non-academic schools. The candidate must pass 15 external exams administered by the Auditors’ Council in addition to completing a two-year apprenticeship prior to receiving a license. 

The audit profession is restricted to only those candidates who have completed one of these two pathways and have been granted a license by the Auditors’ Council. Only licensed auditors may practice auditing in Israel.

The function of Investigation and Discipline (I&D) in Israel is addressed by both the Auditors' Council and the ICPAI. The Auditors Council addresses all complaints concerning breaches of professional misconduct or breaches of ethical requirements as stated in the Auditors Law and Regulations. In addition to the investigation and disciplinary system of the Auditors’ Council, the ICPAI maintains its own Disciplinary Tribunal which has the authority to administer sanctions against members violating its rules.

Audit quality assurance is undertaken by the Israeli Oversight Board (IOB). Inspection by the IOB is mandatory for all Certified Public Accountant (CPA) firms that audit the financial statements of reporting companies (for this purpose, reporting companies are defined as companies that are subject to the Israel Securities Law, including Israeli companies whose securities are traded on foreign stock exchanges, other than those which are subject to oversight of the United States Public Company Accounting Oversight Board (U.S. PCAOB)). Members of ICPAI who do not audit public companies and wish their firm to be inspected may voluntarily join the oversight process.

There is no independent auditor oversight arrangement in Israel. The audit profession is regulated by the Auditors’ Council and the Institute of Certified Public Accountants in Israel (ICPAI). The Auditors' Council is a branch of the Israeli Ministry of Justice established under the Auditors Law 5715-1955. The Auditors’ Council’s functions are to conduct examinations leading to receipt of an Auditor's License; supervise and control professional education and training and review; and respond to complaints regarding ethical and professional conduct.

ICPAI is a voluntary body of licensed Certified Public Accountants (CPAs), established in 1931, which sets accounting and auditing standards, develops ethical requirements, promotes accountancy education and training, undertakes investigative and disciplinary procedures for its members, and advances the accountancy profession. Additionally, ICPAI maintains a role in certain areas of the fiscal lawmaking process in the Knesset (Israel’s lawmaking body) and acts as an advisor to the bodies supervising government-controlled companies, insurance companies, banks and other institutions on issues of professional standards and related matters.

The function of Investigation and Discipline (I&D) in Israel is addressed by both the Auditors' Council and the ICPAI. The Auditors Council addresses all complaints concerning breaches of professional misconduct or breaches of ethical requirements as stated in the Auditors Law and Regulations. In addition to the investigation and disciplinary system of the Auditors’ Council, the ICPAI maintains its own Disciplinary Tribunal which has the authority to administer sanctions against members violating its Rules.

Audit quality assurance is undertaken by the Israeli Oversight Board (IOB). Inspection by the IOB is mandatory for all Certified Public Accountant (CPA) firms that audit the financial statements of reporting companies (for this purpose, reporting companies are defined as companies that are subject to the Israel Securities Law, including Israeli companies whose securities are traded on foreign stock exchanges, other than those which are subject to oversight of the United States Public Company Accounting Oversight Board (U.S. PCAOB)). Members of ICPAI who do not audit public companies and wish their firm to be inspected may voluntarily join the oversight process.

Institute of Certified Public Accountants of Israel (ICPAI)

ICPAI is the nation’s professional accountancy organization (PAO) uniting and supporting the accountancy profession throughout Israel. In July 1948, the forefather to ICPAI, the Society of Certified Accountants and Auditors in Israel was recognized by the Israeli government as the sole body that would represent the accounting profession in the country. Today, ICPAI’s membership is voluntary and is comprised of Certified Public Accountants (CPAs) licensed by the Auditing Council as well as other accountancy professionals.

The Institute undertakes a variety of functions including: serving its members and developing the profession in Israel, advancing the accounting profession, developing and setting professional accounting and auditing standards, issuing and enforcing ethical rules, and strengthening the public confidence.

The ICPAI is a founding Member of IFAC as well as a member of Accountancy Europe and the Federation des Experts Comptables Mediterranees (FCM).

The Israeli Oversight Board is responsible for conducting quality assurance (QA) reviews of Certified Public Accountant (CPA) firms that audit the financial statements of public and reporting companies. The Institute of Certified Public Accountants in Israel (ICPAI), the auditing standard-setter, adopted the Israeli Auditing Statement No. 67 "Guidelines in Respect of Quality Review in Certified Public Accounting Firms," and adopted ISQC 1.

All members of ICPAI, which unites auditors among other professionals on a voluntary basis, may choose to have their firm to be voluntarily inspected.

In its 2020 SMO Action Plan, ICPAI indicates that the system is mostly in line with SMO 1. As of the date of this assessment, ICPAI reports that the only gap that remains is that QA reviews only apply to firms that audit listed companies.

Current Status: Partially Adopted

As outlined by Auditors’ Law 5715-1955, the Auditors' Council under the Ministry of Justice is responsible for the establishing and administering professional accountancy education program, conducting final assessment, and overseeing implementation of practical experience requirement.

Accountancy education programs are administered by the universities which are under the academic supervision of the Israeli Council for Higher Education (CHEI) and the professional supervision of the Auditors' Council.

Continuing professional development (CPD) is not required by law nor by the Institute of Certified Public Accountants in Israel (ICPAI), which unites accountancy professionals on a voluntary basis. ICPAI reports, however, that legislation has been proposed that would require CPD for all CPAs. While the proposed legislation is still pending as of the date of this assessment, ICPAI is in the process of requiring CPD requirements in line with 2019 IES for its own members. ICPAI maintains a voluntary program of CPD for its members and records, monitors, and verifies member participation. In 2015, ICPAI began a program of offering recognition for (incentivizing) participation in voluntary CPD offerings and providing certificates of achievement to members with a high degree of participation in CPD programs.

Although some of the general requirements of 2019 IES seem to be in place except for CPD requirements, the extent of alignment at the jurisdiction level needs to be established.

Current Status: Partially Adopted

Auditors Regulations (ways of the Auditor's Practice) 5715-1973 grant authority to the Institute of Certified Public Accountants in Israel (ICPAI) to set auditing standards to be used in all audits. The Auditing Standards Committee of the ICPAI reviews IAASB pronouncements and prepares recommendations for their adoption in Israel.

As of the date of the assessment, the standards are not fully based on the 2020 IAASB Handbook (some are outdated), and some standards are independently developed where no ISA is available to deal with a specific issue (e.g., consent letters, comfort letter to underwriters, SOX-related standards).

More information is needed to determine which version of the standards have been adopted to date aside from 2009 Clarified ISA (560, 230, 200, 320, 450, 580, 250, 220 and Auditor’s Report 700 series).

Current Status: Not Adopted

In Israel, ethical requirements are established in two autonomous legislations: the Auditors Law 5715-1955 and the Rules of Ethical Behavior as set by the by the Institute of Certified Public Accountants in Israel (ICPAI) according to its Article of Association that are to be adhered to by its members. ICPAI reports that its Rules of Ethical Behavior are based on the 2016 IESBA Code.

ICPAI indicates that it is in the process of reviewing the 2022 International Code of Ethics (expected to be completed by the end of 2024) with a view to identify and close the gaps between its Rules and the International Code issued by the IESBA. ICPAI also reports that it promotes the convergence of national ethics requirements with the IESBA Code to the Ministry of Justice and the other regulatory authorities.

Current Status: Partially Adopted

The Israel Government Accounting Standards Board (IGASB), established by the Israeli government, sets public sector accounting standards.

In 2004, Resolution No. 2375 was adopted that required adoption and implementation of IPSAS for all ministries and non-commercial statutory corporations. IGASB undertook translation of the 2007 version of the IPSAS Handbook in accordance with IFAC Translation Policy. The IGASB adopted and published 21 IPSAS in Hebrew in 2011 and 2 additional IPSAS in 2012 (based on the 2007 IPSASB Handbook).

Current Status: Partially Adopted

Investigative and disciplinary (I&D) systems for professional accountants are established by both the Israeli Auditors' Council and the Institute of Certified Public Accountants in Israel (ICPAI), which unites accountancy professionals on a voluntary basis.

The Auditor’s Council is authorized to address all complaints concerning breaches of professional misconduct or breaches of ethical requirements as stated in the Auditors Law and Regulations.

The Council can impose penalties including reprimand, loss or restriction of practice rights, fine\payment and/or charge costs, in addition to loss of professional title. The Auditors’ Council has the judicial authority equivalent to a District Court. The Supreme Court of Israel sits as an appellate court.

ICPAI maintains its own Disciplinary Tribunal which has the authority to administer sanctions against members violating its Rules. The Ethics Committee recommends and issues an appeal, subject to the Board of Director's approval, to the ICPAI Disciplinary Tribunal against a member violating ICPAI Rules.

The Disciplinary Tribunal is an institution formed according to the ICPAI Articles of Association which is binding for its membership. If the ICPAI internal court finds a member guilty of violating ICPAI rules, it may impose a variety of different sanctions up to and including expulsion from membership.

ICPAI completed a self-assessment of its I&D system and while its procedures are largely aligned with SMO 6 requirements, there are some gaps in areas of public interest considerations and initiation of proceedings.

Current Status: Partially Adopted

In Israel, accounting standards setting is undertaken by the Israeli Accounting Standards Board (IIASB). Through its promulgation of Accounting Standard No. 29, Adoption of International Financial Reporting Standards (IFRS) and in harmony with the Israeli Securities Authority (ISA) Securities Regulations (Annual Financial Statements) 2010, Israel requires the application of IFRS for all listed entities (with the exclusion of banking institutions and some foreign issuers).

In accordance with these requirements, promulgation of any new or amended IFRS standards or interpretations by the International Accounting Standards Board (IASB) are automatically incorporated into financial reporting regulations.

Regarding non-listed entities, Israeli Generally Accepted Accounting Principles (GAAP) is required to be applied as promulgated by the IIASB. Although Israeli GAAP is required, non-listed companies are permitted to voluntarily apply full IFRS.

For those non-listed Small and Medium Enterprises (SMEs), Israel adopted the IFRS for SME Standard through the IIASB’s adoption of Israel Accounting Standard No. 32. All SMEs that do not use the IFRS for SMEs Standard are permitted to use either full IFRS Standards, Israeli GAAP as issued by the IIASB, or United States (US) GAAP.

Current Status: Partially Adopted

Relevant Organizations

• Institute of Certified Public Accountants of Israel (ICPAI)
• Ministry of Justice Auditors’ Council
• Israeli Accounting Standards Board (IIASB)

Relevant Legislation

• Auditors’ Law 5715-1955
• Auditors Regulations (ways of the Auditor's Practice) 5715-1973
• Securities Regulations (Annual Financial Statements) 2010,
• Israel Companies Law (1999)
• HYPERLINK "ohttp://www.boi.org.il/en/BankingSupervision/BankingLegislation/Bank of Israel Bank Legislation and Notices/103.pdf" Bank of Israel Banking Ordinance
• Control of Financial Services (Insurance) Law, 5741-1981

Relevant Publications

• Ernst and Young, Doing Business in Israel 2015. 2015.
• Espinosa-Pike, Marcela and Itsaso Barrainkua-Aroztegi, A Universal Code Of Ethics For Professional Accountants: Religious Restrictions, University of the Basque Country, UPV/EHU. Procedia Social and Behavioral Sciences.
• ICPAI, SMO Action Plan, September 2021.
• International Monetary Fund, Israel: Detailed Assessment of IOSCO Objectives and Principles of Securities Regulation, 2012.
• IFRS Foundation, IFRS Application Around the World – Jurisdictional Profile: Israel, June 2016.
• OECD/IFAC, “Israel”, in Accrual Practices and Reform Experiences in OECD Countries, OECD Publishing, Paris, 2017.
• Previts, Gary John and Peter J. Walton, P. W. Wolnizer, A Global History of Accounting, Financial Reporting and Public Policy. Eurasia, the Middle East and Africa. Studies in the Development of Accounting Thought. Volume 14D. The University of Sydney. The Accounting Foundation.