Which audited entities are affected?
The new Decree1 ("Decree") applies not to all audited entities, but only to companies sanctioned by foreign states (or whose controlling persons or counterparties are subject to sanctions), as well as organizations of the military-industrial complex.
Which auditors are affected?
The restrictions imposed by the Decree apply to auditors who:
- are under a direct or indirect control of a foreign citizen, person without citizenship, foreign legal entity, international company; (or)
- belong to the same group of persons with a foreign citizen, person without citizenship, foreign legal entity, international company; (or)
- are individual auditors.
The terms "control" and "group of persons" are defined in corporate and competition laws. "Control" means the right to directly or indirectly exercise more than 50% of votes in the supreme governing body, or to appoint a general director or more than 50% of members of the board of directors, and "group of persons" means, generally, persons under joint control.
In accordance with the clarifications of the Ministry of Finance2, an auditor may engage another auditor not falling under the restrictions to work with the relevant information for audit purposes.
The question of whether an audited entity may refuse to disclose the relevant information to its auditor rests with the audited organization in each specific case, taking into account the different business setup of audit firms in the Russian market.
The Decree sets forth information which may be withheld by relevant issuers, persons issuing consolidated financial statements, banks, credit institutions, trade organizers as well as other categories.
In particular, the Decree sets out restrictions on the provision of information about transactions of the audited entity, its affiliates, participants, subsidiaries, financial investments, participation in disputes, counterparties, etc.
Restrictions on the provision of information to auditors should be taken into account when entering into audit services agreements, as well as in the context of M&A transactions in the course of valuation of assets.
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1 Decree of the Government of the Russian Federation dated 19 April 2021 No. 622 "On restrictions on providing information and documentation to audit firms and individual auditors".
2 Statement of the Ministry of Finance of the Russian Federation dated 29 April 2021 No. ИС-аудит-43 "Changes in audit law: facts and comments".