13 July 2012

FEE's four Policy Statements on Audit Policy

As the representative organisation of the European accountancy profession, FEE is committed to advancing audit policy across the EU and globally. This would require striking a proper balance between the need to provide consistent common principles and requirements, while acknowledging differences in size, structure, complexity and type of economies of EU Member States. Intervention in European Union law needs to continue complying with the principles of subsidiarity and especially proportionality.

Therefore, FEE recommends the European Institutions to reassess the choice of a European Regulation as the legal instrument to change statutory audit of public interest entities. In line with the choice made regarding the current Statutory Audit Directive (2006/43/EC), it would be more appropriate and proportionate to continue dealing with the provision of statutory audit services to companies which are public interest entities in a European Directive.

FEE Policy Statement on the Provision of Non-Audit Services to Audit Clients that are Public Interest Entities (PIEs)

In this Statement, FEE explains that not all non-audit services should be treated as a monolithic bloc which endangers the auditor’s independence and thus be prohibited as a whole. There are different categories of non-audit services and further harmonisation at European level could be achieved with the application of the principles and requirements of the relevant sections of the IESBA Code of Ethics. Certain services should be generally prohibited as provided for in the IESBA Code. Others should be generally permitted with the overall requirement to address specific threats to independence without other limitations. The provision of other services to audit clients should be either prohibited or permitted depending on a case by case analysis.

FEE Policy Statement on Improved Auditor Reporting

In this Policy Statement, FEE explains that the informative value of public audit reports and the auditor communications with the audited entity should be enhanced to benefit all stakeholders. This could be achieved by considering the currently proposed general principles and requirements for the content of future auditor communications, as recently issued by the IAASB.

As far as public auditor reporting is concerned, this can be done through providing more information in the audit report regarding the auditor’s view on the use of the going concern assumption by management. In addition, information in relation to the audit approach used in respect of the entity’s specific significant audit risks including internal controls should be included. The auditor report accompanies the entity’s financial statements and the additional auditor reporting will help to add credibility to those financial statements.

FEE Policy Statement on Public Oversight of Statutory Auditors and Audit Firms auditing Public Interest Entities (PIEs) and non-Public Interest Entities (non-PIEs)

This FEE Policy Statement recommends that for public oversight of the audit profession, an appropriate mechanism is set up to identify, assess and use relevant and up-to-date expertise and experience from practitioners regarding auditing, as well as that the composition of competent authorities should reflect a necessary wide range of stakeholders, including representatives of business, regulators and shareholders, and not only be composed of government officials. Furthermore, the proposed European Regulation should clarify the need for ESMA to create a dedicated and representative Stakeholder Consultative Group to involve all relevant stakeholders.

Generally, each Member State’s competent authority is best placed and sufficiently competent to judge the level of delegation that is appropriate according to their own specific market conditions. Regarding non-PIE audits, FEE believes that existing mechanisms such as quality assurance reviews performed by professional accountancy bodies have proven effective and useful in adding value to non-PIE audits. Therefore, FEE recommends that the competent authority should continue to be able to delegate - under the oversight of the competent authority and appropriately reported to them - quality assurance reviews for non-PIEs to professional accountancy bodies.

Related to the proposed PIE definition, FEE recommends to introduce a Member State option to exclude certain entities from the definition, on condition that the Member States provide evidence regarding national regulation, and demonstrate that they are not significant to the economy and that the exemption of such entities would not result in any cross-boarder effect.

FEE Policy Statement on Adoption of ISAs in the European Union

In this Statement, FEE explains that a major driver of the quality of audits is the standards by which the audits are performed. Over the past 10 years, considerable improvements have been made to the ISAs as issued by the IAASB. Recognising that ISAs promote quality and enhance confidence in the internal market, FEE continues to call for their adoption for all statutory audits in the European Union.

FEE welcomes the explicit statement of proportionate application of ISAs for SME audit engagements as proposed by the European Commission, as it would assist in avoiding an unreasonable inspection approach applied by competent authorities including disproportionate demands for audit documentation. In this context, FEE would be supportive of a further international initiative to develop solutions on the application of the proportionality principle of ISAs that would assist the practical application of ISAs and its requirements in differing audit environments.

Press release

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