Why is a mandatory audit opinion necessary for an LLC?

Audit is the independent verification of accurate and honest accounting and financial reporting in business entities engaged in the production and sale of goods, the provision of services, and the performance of work. An audit can be mandatory or voluntary (at the initiative of the business entity).

According to Article 2 of the Law "On Audit Services", an audit is mandatory for business entities that are required by law to publish their financial statements, as well as in cases directly stipulated by law. In other cases, the audit is voluntary.

Although mandatory audit applies to joint-stock companies, many public interest entities, etc., the target audience of this article is Limited Liability Companies (LLCs).

According to Article 91.4 of the Civil Code, a limited liability company (excluding micro and small business entities) must engage an independent auditor annually to verify the accuracy of its annual financial statements, in other words, conduct an external audit.

According to Article 464 of the Code of Administrative Offenses, failure to conduct a mandatory audit in cases stipulated by the Law "On Audit Services" results in:

• A fine from 300 to 600 manats for officials;

• A fine from 1,500 to 2,500 manats for legal entities.

Before the decision No. 348/1 of the Board of the Chamber of Auditors dated October 3, 2022, regarding the "Minimum rates for audit services provided in the territory of the Republic of Azerbaijan", audit services in the country were regulated by the Board's decision No. 316/6 dated December 28, 2019. The key point here is the removal of the term "recommended" from the title of the decision. Previously, when independent auditors or audit organizations entered into contracts with clients, they could offer prices lower than the recommended minimum. However, such practices are no longer allowed.

With the change, the audit market is now regulated by an almost uniform pricing system. If any auditor offers a price below the minimum threshold, disciplinary measures will be applied to the executor, as stipulated in the "Regulations on Disciplinary Responsibility for Violations of Execution Discipline During Audit Services", approved by the Board of the Chamber of Auditors on October 19, 2022, under decision No. 349/1.

Additionally, while the previously recommended minimum audit fee for companies with a turnover above one million manats (even those with an 8-digit turnover) was 9,000 manats, this amount has since changed.

Do not delay your audit inspection to avoid fines and to develop your business securely.