Opinion of the European Central Bank of 26 October 2018 on the legal framework of the State Audit Office (CON/2018/45)
Date: 2018-10-26
Institutions: European Central Bank
Subjects: Croatia, administrative structures, audit, auditing

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  reporting  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  implemented  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,  financial  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 

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 overall 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 Office 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 auditors, 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 same 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 HNB 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). 

2 

                                                 
ECB-PUBLIC 

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  special  procedure  for  HNB 3.  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 contained 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 obliged 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 inform 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 basis. 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  
4  

See Article 13 of the draft law. 
Kodeks  profesionalne  etike  državnih  revizora,  Class:  003-05/16-02/2,  File  No:  613-01-01-16-1,  available  at 
www.revizija.hr. 

3 

 
                                                 
ECB-PUBLIC 

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 contain 11 

must not have an impact on HNB’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 for the implementation of orders/recommendations to the State Audit Office12, are compatible 

with the principle of central bank, including institutional, independence. 

5  
6 

7 
8 

9 

10  
11   
12   

All ECB opinions are published on the ECB website at www.ecb.europa.eu. 

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. 

See Article 61 of the Law on HNB for the activities of the independent external auditors of HNB. 
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.  
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. 
See Article 11(4) of the Law on HNB. 
See Article 13 of the Law on HNB. 
See Article 13 of the Law on HNB. 

4 

 
                                                 
ECB-PUBLIC 

3.1.5  For practical reasons, the authorities may wish to consider the introduction of a transitional 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 

5