18 December 2013

Comments on the announced agreement on European audit reform: ACCA, FEE, FRC

ACCA

Difficult negotiations and controversies on some aspects of the reform of the audit sector shall not undermine the significant progress achieved towards increasing audit quality and re-establishing investor confidence, says global accountancy body

Sue Almond Technical Director at ACCA, says: "ACCA congratulates the European Parliament, the Council and the European Commission for the agreement reached on the compromise text regarding the Proposals for a new Regulation and for amendments of the Directive on audit, after months of tough negotiations. 

"It is important that we do not allow the recent controversies to overshadow some of the critical achievements of the negotiations of these measures. In particular, we have moved substantially closer to the adoption of a single set of international standards, which is critical for businesses operating in a global environment. We are therefore pleased to see progress on the adoption of International Standards on Auditing (ISAs) by the EU. Ethics, especially non-audit services, has clearly been an area where there are divergent views, but much of the detail that is contained in the proposed regulation on this issue is now in line with the International Ethics Standards Board for Accountants (IESBA), a step that we support. We are also pleased to see that the role of the audit committee has been recognised in overseeing the provision of non-audit services."

"The challenge for the audit profession will be to implement these changes in a way that helps restore public confidence in the audit, and in auditors. Audit plays a critical role in supporting global business and it is important that the profession now responds in a positive way that enhances the value of audit to companies and their stakeholders", Sue Almond concludes. 

Press release

FEE

It is good that this debate comes to an end as it has delayed firms’ decisions on strategy, business model, investment and recruitment for three long years. However FEE notes that a number of significant question marks remain outstanding.

In particular, it is disappointing that, for the sake of reaching agreement, the European Institutions failing to agree on truly European solutions adopted a regulation (i.e. an instrument that is directly applicable in the Member States without transposition) that contains many options including on major issues such as the list of prohibited non-audit services and the duration of mandatory rotation: leaving the Member States free to diverge on such matters is a significant step backwards for the furtherance of the internal market; moreover this will add unnecessary costs to the European economy. The adoption of the principles and list of prohibited non audit services of the IESBA Code could make the prohibitions more efficient and internationally workable.

FEE has long promoted and continues to support a European adoption of ISAs that is instrumental to sustain audit quality. This could have been achieved seven years ago should the European Commission have used the powers that the 2006 Statutory Audit Directive was granting it. It is regrettable that there will be no European adoption involving the main stakeholders and that this could result in carve-ins and carve-outs at the detriment of the internal market and an international level playing field.

FEE will analyse in detail the provisions once finally approved and available. The profession will take stock of the changes that are being put forward and engage on how they can be best implemented in practice while working to preserve audit quality. Business, national legislators and regulators and the profession will have to work together to limit unnecessary administrative costs for the European economy and audit firms.

Once these proposals become the future framework, the European accountancy profession is committed to meeting the resulting requirements while continuing to enhance quality and to work to the highest standards.

Press release

FRC

Following agreement in Brussels on the EU audit directive, FRC CEO Stephen Haddrill said:

"After four years of discussion and negotiation the EU is a hairsbreadth away from finalising major changes to the regulation of the larger audit firms. The final outcome deals with the longstanding problem of companies holding on to their auditors for fifty years on average, calling into question auditor independence. The FRC developed and implemented its own plan introducing retendering of the audit every 10 years for FTSE 350 companies. The UK’s Competition Commission has been persuaded by the merits of our approach.

The EU has now put this plan at the heart of its directive. In future, companies will be able to retender at 10 years and then must change the auditor at 20. This is a good compromise, made possible by the UK developing a plan, showing it was practical and thereby giving confidence to MEPs and policymakers. Other parts of the directive similarly borrow from experience in other Member States, including France and Germany. Europe is at its best when it takes the best of the experience of its Member States rather than when it adopts centrally designed dictats.

Commissioner Barnier is to be congratulated in his achievement, most of all for adopting in the final stages the best practice of Member States."

Press release