EN ECB -PUBLIC  
 
OPINION OF THE EUROPEAN CENTRAL BANK  
of 26 October 2018  
on the legal framework of the State Audit Office  
(CON/2018/ 45) 
 
Introduction and legal basis  
On 7 September 2018 the European Central Bank (ECB) received a request from the Ministry of Finance 
of the Republic of Croatia for an opinion on a draft Law on the State Audit Office (hereinafter the ‘draft 
law‘).  
The ECB’s competence to deliver an opinion is based on Articles 127(4) and 282(5) of the Treaty on the 
Functioning of the European Union and the third indent of Article 2(1) of Council Decision 98/415/EC1, as 
the draft law relates to Hrvatska narodna banka (HNB). In accordance with the first sentence of 
Article  17.5 of the Rules of Procedure of the European Central Bank, the Governing Council has adopted 
this opinion.  
 
1.  Purpose of the draft law  
1.1 The draft law proposes to replace in its entirety the existing Law on the State Audit Office. The 
scope of the draft law addresses the establishment of Državni ured za Reviziju (the State Audit 
Office) , its internal organisation, competences and management , procedures and reporting, the 
implementation of its orders and/or recommendations, the qualifications of state auditors, 
cooperation with other bodies and penal provisions.  The draft law specifies that in case of 
discrepancies between its provisions and the provisions of other laws, the provisions of the draft 
law apply. For the purposes of the draft law, an audit is defined as including (i) an examination of 
the documents, papers, reports, internal control systems, accounting, financial and other 
procedures, as well as other records, in order to be able to state whether the annual financial 
statements are prepared in accordance with the relevant financial repor ting and legal framework; 
(ii) a procedure for evaluating whether the activities, financial transactions and information in any 
important aspect are in line with the relevant laws arranging the business operations of the audited 
entity; and (iii) a procedure for evaluating whether the programmes, projects and activities of the 
audited entity are impl emented efficiently, i.e. according to the principles of cost -effectiveness, 
efficiency and purposefulness, and whether they can be improved.  The draft law further provides 
that the audited entity’s revenues and expenditures, assets and liabilities, financ ial statements, 
financial transactions, programmes, projects and activities are also subject to the audit.  
                                                 
1 Council Decision 98/415/EC of 29 June 1998 on the consultation of the European Central Bank by national 
authorities regarding draft legislative provisions (OJ L 189, 3.7.1998, p. 42).  
ECB -PUBLIC  
2 1.2 In particular, the draft law introduces the state audit of HNB, in addition to the existing audit of the 
prepared financial statements and overal l operations performed by independent external auditors, 
as required under the Law on Hrvatska narodna banka (hereinafter the ‘Law on HNB’)2, and 
establishes the scope and rules for such audit. In this respect, the draft law provides that the State 
Audit O ffice is competent to verify and evaluate the use of funds by HNB through which the goals 
and tasks prescribed by the Law on HNB and other laws of  the Republic of Croatia, as well as the 
tasks performed by HNB in compliance with the Treaty and the Statute of the European System of 
Central Banks and of the European Central Bank (hereinafter the ‘Statute of the ESCB’) are not 
directly accomplished or performed. The draft law sets out the scope of such audit, specifying that 
it includes (i) a procedure for evaluating whether the activities, financial transactions and 
information referring to the costs of operations in respect of administrative business operations, 
acquisition, management and disposal of real estate, movable property and equipment in any 
important aspect are in line with relevant laws according to which HNB operates, and (ii) a 
procedure for evaluating whether the programmes, projects and activities of HNB, in respect of 
administrative business, acquisition, management and disposal of real estate, movable property 
and equipment, are implemented efficiently, i.e. according to the principles of cost -effectiveness, 
efficiency and purposefulness, and whether they can be improved.  
1.3 The draft law provides that in performing the audit of HNB, the State Audit Office (i) is obliged, 
according to Article 130 of the Treaty, Article 7 of the Statute of the ESCB and Article 71 of the Law 
on HNB, to fully respect the independence of HNB; and (ii) is not allowed to give direct or indirect 
instructions to HNB,  its bodies or members of the bodies of HNB which would or could have an 
impact on their independence.  
1.4 As regards confidentiality, the draft law provides that in performing the tasks within their 
competence under the draft law, the certified state audi tors, the deputy auditor general, the auditor 
general and other civil servants employed in the State Audit Office, must adhere to the rules on 
confidentiality of information, data and documentation encompassed by Article 37 of the Statute of 
ESCB in the sa me way as if they were employees of HNB. This obligation continues to exist even 
after the termination of their employment in the State Audit Office. For the purpose of performing 
the audit, the certified state auditors, the deputy auditor general and the auditor general may 
request information, data and documents from HNB that are necessary for the performance of the 
tasks referred to in the draft law.  
1.5 The draft law clarifies that (i) the powers of the State Audit Office under the draft law are without  
prejudice to the goals and duties of HNB under the Treaty, the Statute of the ESCB, the Law on 
HNB and other existing national law of relevance; (ii) activities that are subject to the audit of 
business operations of HNB by independent external auditors are not subject to the audit 
performed by the State Audit Office in accordance with the provisions of the draft law, and (iii) the 
State Audit Office is not authorised to verify or evaluate the achievement of the goals and the 
fulfilment of the duties of HN B prescribed by the Law on HNB as well as of the duties prescribed by 
                                                 
2 See Article 61 of Zakon o Hrvatskoj narodnoj banci ( Narodne novine no 75/08 and 54/13).  
ECB -PUBLIC  
3 other laws of the Republic of Croatia and the duties that HNB exercises in accordance with the 
Treaty and the Statute of the ESCB.  
1.6 Regarding reporting, the draft law sets out a speci al procedure for HNB3. The draft law provides 
that after the audit has been performed, the State Audit Office delivers a draft audit report, which 
may contain the orders and/or recommendations of the State Audit Office to HNB for its opinion. 
The Governor of HNB has the right to give his opinion on the draft audit report within 15 days. After 
receiving the Governor’s opinion, the State Audit Office prepares the audit report with this opinion 
included and returns it to the Governor. The Governor may lodge an objection to the audit report 
within 15 days from the date of its receipt and, thereafter, the auditor general must decide on the 
lodged objection within 30 days from the date of receipt. If the Governor does not accept the orders 
and/or recommendations c ontained in the audit report to which he lodged an objection, which the 
auditor general did not accept, he is obliged to inform the State Audit Office, without any delay, of 
such non- acceptance, and to state the reasons for non -acceptance. HNB is not oblig ed to deliver a 
plan for the implementation of the orders and/or recommendations to the State Audit Office. If HNB 
does not implement the orders and/or recommendations stated in the audit report to which no 
objection has been lodged, it is obliged to infor m the State Audit Office thereof, without any delay, 
and to state the reasons for not implementing them. The explanatory memorandum accompanying 
the draft law notes that the State Audit Office opposes the proposed audit arrangements in respect 
of reporting and implementation of orders and/or recommendations, as this is not in line with the 
conduct of audits for other audited entities. The State Audit Office is of the opinion that the state 
audit of HNB should be conducted in line with the auditing standards  of the International 
Organisation of Supreme Audit Institutions (INTOSAI) and with the Code of Professional Ethics of 
State Auditors, whereby it is prescribed that all state audits are conducted on a non- political, 
independent and purely professional basi s. In that sense, it is the State Audit Office’s opinion that 
these provisions should not be part of the draft law.  
1.7 Further, the draft law provides that the certified state auditors, the deputy auditor general and the 
auditor general, in implementing the duties regarding the audit of HNB under the draft law, will act 
in accordance with the procedures laid down in the framework of the auditing standards of the 
International Organisation of Supreme Audit Institutions (INTOSAI) and the Code of Professional 
Ethics of State Auditors4. 
1.8 Finally, the draft law provides that it enters into force on the eighth day upon the day following its 
publication in the Official Gazette.  
 
                                                 
3  See Article 13 of the draft law.  
4  Kodeks profesionalne etike državnih revizora, Class : 003- 05/16- 02/2,  File No : 613- 01-01-16-1, available at 
www.revizija.hr . 
ECB -PUBLIC  
4 2. General observation  
The ECB notes that it has previously issued Opinions CON/2016/33, CON/2016/52 and CON/2018/17 in 
response to legislative consultations from the Croatian authorities on legislative initiatives concerning the 
State Audit Office’s audit of HNB5. 
 
3. Specific observations  
3.1  State Audit Office’s audit of HNB  
3.1.1  As previously noted by the ECB6, the principle of institutional independence referred to in 
Article  130 of the Treaty and Article 7 of the Statute of the ESCB refers to the fact that the exercise 
of central bank powers and the performance of the tasks and duties conferred on central banks 
must not be subject to external instructions or government influence. In particular, where the 
operations  of a national central bank (NCB)  are subject to the control of a state audit office or 
similar body charged with controlling the use of public finances, the scope of the control (a) should 
be clearly defined by the legal framework; (b) should be without prejudice to the activities of the 
NCB’s independent external auditors to examine all books and accounts of the NCB7 and, further, 
in line with the principle of institutional independence; (c) should comply with the prohibition on 
giving instructions to an NCB and its decision- making bodies; and (d) should not interfere with the 
NCB’s ESCB- related tasks8. The state audit  should be conducted on a non- political, independent 
and purely professional basis9.  
3.1.2  In line with the abovementioned criteria (see paragraph 3.1.1), the ECB notes that the draft law is 
committed to fully respect the independence of HNB and, consequently, prohibits the State Audit 
Office from giving direct or indirect instructions to HNB which would or could have an impact on its 
independence10. Similarly, the orders and/or recommendations that the audit report may contain11 
must not have an impact on H NB’s independence.    
3.1.3  The ECB understands that the general provisions of the draft law, as set out in paragraph 1.1, are 
subject to the specific provisions of the draft law pertaining to the audit of HNB.  
3.1.4  The ECB notes that the provisions of the draft law regarding the audit of HNB, in particular the 
procedure whereby the Governor may express his opinion on draft audit reports and lodge 
objections to, and not accept, audit reports as well as that HNB should not be obliged to deliver a 
plan f or the implementation of orders /recommendations to the State Audit Office12, are compatible 
with the principle of central bank, including institutional , independence.  
                                                 
5  All ECB opinions are published on the ECB website at www.ecb.europa.eu.  
6 See paragraph 2.1.1 of Opinion CON/2016/33, paragraph 3.1.1 of Opinion CON/2016/52 and paragraph 3.1.1 of 
Opinion CON/2018/17.  
7 See Article 61 of the Law on HNB  for the activities of the independent external auditors of HNB . 
8 See paragraph 3.3 of Opinion CON/2011/9,  paragraph 2.1 of Opinion CON/2011/53 and paragraph 4.2 of Opinion 
CON/2015/57.  
9 See paragraph 4.4 of Opinion CON/2015/8, paragraph 4.2 of Opinion CON/2015/57,  paragraph 2.1 of Opinion 
CON/2016/24 and paragraph 2.2 of Opinion CON/2016/59.  
10  See Article 11(4) of the Law on HNB.  
11   See Article 13 of the Law on HNB.  
12   See Article 13 of the Law on HNB.  
ECB -PUBLIC  
5 3.1.5  For practical reasons, the authorities may wish to consider the introduction of a trans itional period 
for the implementation of the draft law. For example, it may make sense for the provisions relating 
to the newly introduced audit of HNB to be brought into operation within a specified period of 
months (e.g. three or six months) after the entry into force of the draft law, in order to enable HNB 
to make the necessary adaptations to discharge its new obligations under the draft law.  
 
This opinion will be published on the ECB’s website.  
 
 
Done at Frankfurt am Main, 26 October 2018.  
 
[signed]  
 
The President of the ECB  
Mario DRAGHI