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 primarily 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, all listed entities (with the exclusion of banking institutions and some foreign issuers) are required to apply IFRS – including new and amended standards issued by the IASB. Banking institutions (listed and unlisted, including credit card companies and pension funds) are subject to the reporting requirements of the Banking Supervision Department of the Bank of Israel which are mainly based on US GAAP according to the IFRS Foundation. Insurance companies that are subject to the reporting requirements of the Capital Market, Insurance and Savings Authority are required to apply IFRS Accounting Standards; however, according to the IFRS Foundation, the effective date of IFRS 17 Insurance Contracts (and consequently IFRS 9 Financial Instruments) has been postponed to 1 January 2025.

Israeli Generally Accepted Accounting Principles (GAAP) — based on IFRS but with some differences — are to be applied by private companies as promulgated by the IIASB. Although Israeli GAAP is required, private companies are permitted to voluntarily apply full IFRS.

For those private 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.

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). As of February 2024, the Committee has issued 12 standards that are based on the Clarified ISAs (ISAs 560, 230, 200, 320, 450, 580, 250, 220, ISQC1, 260, 265 and 701), with other Clarified ISAs in the process of being adopted or revised. ICPAI reports that it adopted ISA 620 to come into effect this year, and has also adopted ISA 700, 705, 706 and 710 which will come into effect by the end of 2025.

Most other standards are based on previous versions of ISAs and some standards are independently developed where no ISA is available to deal with a specific issue (e.g., consent letters, joint audits, SOX-related standards).

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

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.

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)).

There is no independent audit oversight arrangement in Israel. The audit profession is regulated by the Auditors’ Council, the Institute of Certified Public Accountants in Israel (ICPAI), and Israeli Oversight Board (IOB) as described in the Regulation section.

Institute of Certified Public Accountants of Israel (ICPAI)

ICPAI is unites and supports the accountancy profession throughout Israel. The 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 accountancy 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 (IOB) is responsible for conducting quality assurance (QA) reviews of 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). The IOB coordinates with the Ministry of Justice, the Securities Authority, and the Supervisor of Banks, in administering its inspections, and publishes its findings on its website.

The Institute of Certified Public Accountants in Israel (ICPAI) reports that the QA review system is in line with SMO 1 requirements. However, the relevant standards — ISQM 1, 2, and ISA 220 (revised) — have not yet been adopted. ICPAI reports the standards’ adoption will happen within the next five years.

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 the initial professional development requirements for auditors. Generally, candidates who wish to practice auditing must hold a bachelor’s degree, pass examinations organized by the Auditors’ Council, and complete a two-year apprenticeship in an auditing firm. While these requirements incorporate some requirements of the IES, they are not fully aligned.

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, the Auditors’ Council, 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 and is pending approval as of the date of this assessment.

Although some of the general requirements of 2019 IES seem to be in place, such as some general IPD requirements, there still remains gaps such as no mandatory CPD requirement for all professionals.

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 February 2024, the Committee has issued 12 standards that are based on the Clarified ISAs (ISAs 560, 230, 200, 320, 450, 580, 250, 220, ISQC1, 260, 265 and 701), with other Clarified ISAs in the process of being adopted or revised. ICPAI reports that it adopted ISA 620 to come into effect this year, and has also adopted ISA 700, 705, 706 and 710 which will come into effect by the end of 2025.

Most other standards are based on previous versions of ISAs and some standards are independently developed where no ISA is available to deal with a specific issue (e.g., consent letters, joint audits, SOX-related standards).

Current Status: Not Adopted

In Israel, ethical standards for accountants and auditors are established by the Ministry of Justice, and the Institute of Certified Public Accountants in Israel (ICPAI) as per the Auditors Law 5715-1955 and the Rules of Ethical Behavior as set by ICPAI for its members that join voluntarily.

As of the date of this assessment, ICPAI has developed its own ethical guidelines tailored to the local context. While these guidelines may align with international standards in certain aspects, they are not direct adoptions of the IESBA Code. Its Rules of Ethical Behavior are reportedly based on the 2016 IESBA Code. It also indicates that it is in the process of reviewing the 2023 International Code of Ethics (expected to be completed by the end of 2027) with a view to identify and close the gaps between its Rules and the International Code issued by the IESBA.

Current Status: Partially Adopted

The Israel Government Accounting Standards Board (IGASB), established by the Israeli government, sets public sector accounting standards. The national standards are accrual-basis with reference to IPSAS as described below.

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 (Ministry of Justice) 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 serves 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 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 the I&D system and reports that it is in line with SMO 6 requirements.

Current Status: Adopted

In Israel, accounting standard-setting is primarily 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, all listed entities (with the exclusion of banking institutions and some foreign issuers) are required to apply IFRS – including new and amended standards issued by the IASB. Banking institutions (listed and unlisted, including credit card companies and pension funds) are subject to the reporting requirements of the Banking Supervision Department of the Bank of Israel which are mainly based on US GAAP according to the IFRS Foundation. Insurance companies that are subject to the reporting requirements of the Capital Market, Insurance and Savings Authority are required to apply IFRS Accounting Standards; however, according to the IFRS Foundation, the effective date of IFRS 17 Insurance Contracts (and consequently IFRS 9 Financial Instruments) has been postponed to 1 January 2025.

Regarding non-listed entities, Israeli Generally Accepted Accounting Principles (GAAP) — based on IFRS but with some differences — 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, MONTH YEAR .
• 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 2023.
• 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.