ECIIA looks at the details of the Commission's initiative to improve the quality and transparency of company auditing, which is likely to be voted on in the EP in mid-March.
One of the main proposals is that companies be required to rotate audit firms every ten years. If this goes ahead, public interest entities will only be able to tender to extend the audit tenure once, and they will be encouraged to adopt joint auditing arrangements with two or more firms.
Perhaps more importantly for internal auditors, several “non-audit” services, including internal audit, some tax advisory work and services linked to financial and investment strategy, will be “black-listed” for the tenured audit firm. In addition, a cap on the provision of “non-audit” services is expected to be set at 70% of audit costs.
If that were not enough, there are several reforms to the way that companies will need to handle the selection process and to boost external oversight of the market. These include:
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An extension of the audit report to include special mention of the independence of the auditors and their capacity to identify fraud;
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When the board recommends external auditors to the General Assembly, they must give the feedback provided on the selection process by the audit committee;
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The adoption of International Auditing Standards will be compulsory;
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Each country must set up a control regulator to check audit quality. This will be supervised by the European Group of Auditors’ Oversight Bodies, including representatives from EIOPA, EBA and ESMA;
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Yearly meeting with the European Systemic Risk Board and sectorial representatives, audit firms, financial institutions to discuss risk in different sectors.
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