Public interest entities

Credit institutions, insurance companies, pension funds and issuers of securities that have their securities listed in a regulated market are defined in Act no. 94/2019 on Auditors and Auditing and Act no. 3/2006 on Annual Accounts as public interest entities.[1]

The laws highlight the macroeconomic importance of such entities by placing increased requirements on their reliability and the independence of their auditing in order to ensure the quality of their annual accounts and other financial information. A special Supervisory Committee, Audit Committee, is required to operate in public interest entities. The Board of Directors is responsible for appointing an Audit Committee and the committee members shall be independent of the entity's auditors, in addition to which the majority of committee members shall be independent of the entity. The role of the Audit Committee is, among other things, to monitor accounting procedures in the preparation of financial statements, the functionality and organisation of internal controls, and the auditing of annual accounts in order to ensure the quality of their annual accounts and other financial information. The Audit Committee also makes a proposal to the Board of Directors on the selection of an auditor and supervises his/her work. Regarding the independence of auditing in a public interest entity, the auditor's period of service are limited, increased requirements are placed on the quality control of the work of the auditor or auditing firm, and there is also an obligation to publish a transparency report containing information about the auditor or auditing firm in question.

Auditors and audit committees of public interest entities therefore play an important role in verifying the reliability of the entities' financial information, which is an important factor in maintaining a sound and proper financial market, as well as boosting the confidence of investors, shareholders and the public in the entities' operations and financial markets. Reliable financial information also strengthens the Financial Supervisory Authority of the Central Bank of Iceland (the Financial Supervisory Authority) supervision of the relevant entities. The Financial Supervisory Authority therefore places an emphasis on fruitful communication with auditors in order to promote better supervision.

[1] Commercial banks, savings banks and credit undertakings are considered credit institutions, cf. Article 4 of Act no. 161/2002 on Financial Undertakings. Financial undertakings other than credit institutions are considered public interest entities if they have their securities listed in a regulated securities market.