16 March 2004

FEE response proposed EU Audit Directive

The representative organisation of the European accountancy profession (FEE) is concerned by weaknesses in the plans for oversight, audit standards, independence and liability proposed in the Commission’s proposal for a revised Eighth EU Directive on Auditing.

FEE has identified four key areas of concern of the Commission proposal:

Co-ordinated Oversight:
FEE criticizes that the proposed Directive lacks clarity regarding the organisation of the European co-ordination. It also stresses the importance for similar treatment of oversight for auditors and audit firms of both listed and unlisted companies.

Global Endorsement of Standards:
FEE is concerned that the endorsement procedure in the proposed Directive could introduce an unnecessarily costly new procedure. Also, to have a definition of the audit report in the law is inappropriate as such issues should continue to be dealt with effectively in auditing standards.

Scope of Services and Rotation of Firms:
The explanatory memorandum raise the possibility of a general prohibition on provision of non-audit services to audit clients. FEE does not believe that such restrictive rules will improve the quality of audits. It also does not support the specific proposal in the directive on rotation of audit firms which would be possible every seven years.

EU Study on Liability:
The risk of catastrophic losses arising from huge claims in relation to audit is a most serious threat to the viability of the auditing profession. FEE therefore urges the European Commission to accelerate its study of this issue.

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