11 March 2014

Insurance Europe: Audit reform inappropriate for multinationals

The proposed mandatory audit firm rotation procedures neglect the complexities of multinational entities with domestic and foreign subsidiaries within and outside the EU. These would all be subject to different rotation provisions because the agreement allows individual states to have shorter rotation regimes than those in the Regulation. Should each subsidiary be subject to a different rotation cycle, the established and proven unified audit systems for public-interest entities would be harmed. Subsidiaries must not have shorter rotations than the parent company. For holdings outside the EU, the audit firm rotation regime should be that of the European parent.

Furthermore, the wording on the restriction of fees for non-audit services needs clarifying. It is unclear whether the cap on non-audit fees of 70 per cent of the average audit fees paid in the last three consecutive financial years for the statutory audit of the entity applies at entity or group level. Insurance Europe strongly calls for the restriction to only apply at group level. This would be in line with the group basis of key governance structures and would avoid distorting operations at subsidiary level.

Press release

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