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THE COMPETITION COUNCIL SANCTIONED THE LITHUANIAN CHAMBER OF AUDITORS

21 06 2007

The Competition Council having in its meeting examined the findings of the concluded investigation and having heard the explanations of interested parties passed the decision concerning the compliance with the requirements of Article 5 of the Law on Competition of the undertakings operating in the audit services market. The investigation was conducted in response to the applications of UAB Audata and UAB Baltijos auditas and covered a period of 2004 – 2007.

Having assessed the conclusions of the investigation the Competition Council established that the Lithuanian Chamber of Auditors has infringed the requirements of Article 5 of the Law on Competition by providing the coordinated minimum rates of the audit services for the auditing of the European Union structural funds, minimum rates of the time consumption and minimum hourly rates. The Lithuanian Chamber of Auditors (LAR) was obligated to terminate the actions infringing the requirements of the Law on Competition and subjected to a fine in the amount of LTL 30,000 for the violation of the Law.

The audit of the funds received from the EU structural funds is a much more extensive undertaking than the audit of the financial statements of a company, and is of great significance for the purpose of ensuring the proper use of the funds received as support from the EU structural funds to Lithuania. LAR is the only association of all certified auditors (over 400) and the audit companies (over 200) and enforcing their self-governance in the entire territory of the Republic of Lithuania. Among other objectives of the investigation the Competition Council sought to establish whether or not the LAR Presidium, establishing the minimum rates for the audit of the EU structural funds, the minimum time requirements and the minimum hourly rates was restricting competition by abusing its administrative powers, i.e., by imposing to auditors and the audit companies the prices for the provision of the audit services.

The investigation produced a finding that in 2004, the LAR in its website announced the information on the minimum rates of auditors and audit companies in respect of the audit of the EU structural funds. The announcement of the information of the kind created the preconditions for the restriction of competition in the market for the auditing the funds from the EU structural funds, since the service providers and, on the other hand, the undertakings intending to purchase the audit services were referring the minimum audit rates drawn up and announced in the LAR website even though they were provided for guidance only. Thus the LAR committed an infringement of the item of Article 5 of the Law on Competition prohibiting the direct or indirect fixing of the price of the goods or other terms of purchase or sale.

Furthermore, the LAR Presidium also committed an infringement of the Law on Competition where the Presidium in January 2002 approved and communicated to the auditors the recommended minimum time consumption rates for the purpose of the audit of projects funded under the 2004-2006 Single Programming Document of Lithuania in addition to the working time cost schedule submitted to the auditors and the audit companies. It has been established that through the modification of the methodology for the selection of the audit companies the LAR Presidium sought to create a situation in which the audit companies seeking to avoid the regular inspections would increase the charges for the audit services. The LAR has been also referring to other measures (such as letters, considerations in the meetings, etc.) intended to induce the audit companies to increase the rates of the audit services and, in particular, following the above documents drafted by the LAR.

The thorough analysis of the relevant legislation produced a finding that neither the EU, nor the Lithuanian legal acts contained any provisions obligating the LAR to recommend any minimum rates for the audit of the EU structural funds, or minimum time consumption rates, or hourly rates. On the contrary, the charge for the audit service must be established under the agreement between the auditor and the head of the entity being audited. Further, in one of its reports on competition in the area of free professions the European Commission has indicated that the recommended prices, in the same way as the fixed prices may result in a considerable detriment to competition: on the one hand the recommended prices may facilitate the coordination of prices among the service providers, and, on the other hand, they tend to mislead the consumer concerning what is considered reasonable prices.

Competition Council Spokesperson