Auditors’ assets to be frozen if clients suspected of fraud

June 23, 2015

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A new law would freeze the assets of external auditors if a company they audit is suspected of committing a financial crime causing damages in excess of HUF 50 million (USD 180,000), even if the auditor had nothing to do with the fraud, according to the Hungarian Chamber of Auditors.

The bill appears to be a response to the collapse of brokerage companies Buda-Cash, Hungarian Securities and Quaestor, all of which were audited by the same company, Gyimesi & Company.  The collapse cost Hungarian taxpayers hundreds of billions of forints.

The chamber has turned to Hungary’s commissioner on fundamental rights because it says the law conflicts with the country’s constitution.

According to the chamber the law also curtails property rights. To freeze one’s assets means that a property owner’s right to use his/her property is suspended.

Furthermore, the chamber reasons, the constitution explicitly states that fundamental rights can only be curtailed (proportionally) in the interest of protecting constitutional rights in the hope of attaining some defined goal.

The chamber says that compensating victims of Hungary’s recent brokerage scandals through frozen assets may be a worthwhile objective, but authorities should only freeze the assets of those who participated in the criminal fraud.

External auditors in Hungary do not have the right to make decisions for the companies they are auditing, the chamber says. Nor do they have the right to make decisions concerning their client’s property. Therefore, the chamber reasons, the curtailing of auditors’ property rights is a grossly disproportionate use of the law.

The chamber is also challenging a section of the law that gives authorities the right to freeze the assets of auditors that have been proven to be in no way connected to any criminal act.

It says the law gives authorities the right to use disproportionate powers by allowing them to freeze the assets of auditors even if they have no connection to the crime, and performed their services according to the standards of the profession and to the letter of the law.

Referenced in this article:

A könyvvizsgálók elképedtek Orbánék új törvényén, hvg.hu; 22 June 2015.