13 March 2012

FEE commented on the Consultation by the Irish Department of Jobs, Enterprise and Innovation on EU Audit Proposals

FEE comments on consultation by the Irish Department of Jobs, Enterprise and Innovation on EU Audit Proposals – Proposal for a Directive of the European Parliament and of the Council amending Directive 2006/43/EC on statutory audits of annual accounts and consolidated accounts – COM (2011)778 final.

FEE has welcomed the debate launched by Commissioner Barnier: auditors need to reflect on their societal role and their added value and as the needs of society, markets and stakeholders evolve, auditors have to change too. FEE thinks that a number of the proposals bring welcomed improvements. However, there are also proposals that need to be dropped or need significant scrutiny and improvement from the co-legislators.

FEE recognises the need to apply strict ethical and independence rules, both in the performance of the audit as well as in the performance of other services. Instead of the amendments proposed to Article 21 on Professional Ethics and Article 22 on Independenceand Objectivity, FEE recommends the application of the principles and requirements of the robust International Code of Ethics recently developed by an independent public interest board under the auspices of IFAC which recognises the notion of ‘materiality’, is balanced and practicable for business and auditors.

The proposed Directive excludes professional accountancy bodies from any other activity than the registration and approval of auditors. This ignores the fact that professional bodies, over many years, have underpinned the continued development of the profession and enhanced its quality and independence, in particular for small and medium-sized practices. Many Member States rely on the expertise, experience and resources of professional bodies to control the firms’ audit quality. This paradigm shift transforms what is today a profession into a regulated industry, affecting the values and discipline a professional institute instils in its members.

The proposed relaxation of ownership rules for audit firms might have unintended consequences, requiring additional safeguards to protect the integrity and independence of the audit function. These increased risks should not be ignored or underestimated.

FEE supports modernising the current audit frameworkand advancing audit policy, in particular with the proposed EU adoption of ISAs for all statutory audits.

In a globalised world, the Commission is right in promoting the creation of a single market for audit services, no matter how difficult it may appear in light of the remaining divergences in Member States’ legislation.

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