FEE welcomed the initiative focusing on three key areas in enhancing audit quality - the independence of auditors, the role of audit committees, and auditor reporting.
FEE's comments on the Discussion Paper are limited to those areas of most relevance for FEE to comment on:
Mandatory audit firm rotation and tendering
In a recent survey conducted by FEE, 80 per cent of FEE Member Bodies indicated that they are against mandatory audit firm rotation with only a minority of them supporting the principle. One of the countries supporting mandatory firm rotation is Italy, where mandatory firm rotation is currently in operation.
FEE believes that mandatory audit firm tendering will not meet the expectation of reducing concentration and that a move towards a system of voluntary tendering, with the provision of enhanced disclosures on the qualitative aspects of reappointment, would leave the decision in the hands of the audit committee who are ultimately better placed to make such a judgement.
The prohibition of providing Non-Audit Services to Audit Clients
Non-audit services provided by auditors to their audit clients should not be treated as if every service endangers the auditor’s independence in every circumstance. To prohibit provision of non-audit services to audit clients as a whole would unnecessarily restrict the ability of business to choose the most appropriate adviser in circumstances when threats to independence would be absent or minimal or could be managed with safeguards. In reality, there are different types of services.
Non-audit assurance or so called audit related services should, without limitations, be permitted provided that potential threats to independence are addressed. Other non-audit services should be subject to a case by case analysis in accordance with the conceptual approach of the IESBA Code. In addition, as the audit committee has a determining role in the procurement of significant non-audit services in public interest entities from the auditor, it would be subject to the involvement of or approval by the audit committee of permissible services.
Audit-only firms
FEE agrees with the Discussion Paper’s recommendation to reject the proposal for audit-only firms. It is more than doubtful how the proposal for audit-only firms would enhance audit quality and, in FEE's view, it may even weaken it as well as it may have unintended consequences.
Joint audits
FEE notes that joint audits could have an impact on helping to change the concentration in the audit market, although its impact on audit quality is unclear. Joint audits will bring about some practical difficulties compared to having only one auditor carrying out the audit.
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