10 November 2014

FEE commented on proposed changes to provisions of the Code addressing the long association of personnel with an audit or assurance client

FEE issued a comment letter on the IESBA ED - 'Proposed Changes to Certain Provisions of the Code Addressing the Long Association of Personnel with an Audit or Assurance Client'.

The EU Regulation No 537/2014 on specific requirements regarding statutory audit of public-interest entities states that “[…] the Key Audit Partners (KAP) responsible for carrying out a statutory audit shall cease their participation in the statutory audit of the audited entity not later than seven years from the date of their appointment. They shall not participate again in the statutory audit of the audited entity before three years have elapsed following that cessation. […]

Furthermore, the Regulation requires the statutory auditor or the audit firm to “establish an appropriate gradual rotation mechanism with regard to the most senior personnel involved in the statutory audit […]”.

As IESBA is aware, this new EU legislation has also introduced audit firm rotation for statutory audit of public interest entities which will become mandatory in the 31 jurisdictions of the EEA. Apparently, this requirement is regarded as an alternative measure to address the familiarity threat to an auditor’s independence that may arise from long association with an audit client.

Instead of seeking to strengthen existing provisions on internal rotation only, IESBA should take these recent European developments into account by taking a holistic approach based on an analysis of the interaction of the different approaches that exist to mitigate the familiarity threat (e.g. mandatory firm rotation, KAP rotation, and rotation of engagement partners and senior personnel). In this respect, FEE would also expect this analysis to address the impact on audit quality that an overly complex system of internal and external rotation requirements may have; this issue has not sufficiently been emphasised in the impact assessment of the ED.  

Full comment letter

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