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Although less ambitious than initially proposed by the Commission, landmark measures to strengthen the independence of auditors have been endorsed, particularly in the auditing of financial institutions and listed companies. This will ensure that auditors will be key contributors to economic and financial stability.
With the agreement, audit firms will be required to rotate every 10 years. Public interest entities will only be able to extend the audit tenure once, upon tender. Under this measure, joint audit will also be encouraged. Despite the extension of the rotation period, this principle will have a major impact in reducing excessive familiarity between the auditors and their clients and in enhancing professional scepticism.
The new rules also provide innovative tools to limit the risk of conflict of interest. To avoid the risk of self-review, several non-audit services are prohibited under a strict ‘black list’, including stringent limits on tax advice and on services linked to the financial and investment strategy of the audit client. In addition, a cap on the provision of non-audit services is introduced.
Taken together, the agreed measures will considerably strengthen audit quality across the European Union. In this regard, I particularly welcome the agreement on the harmonisation of the international standards on auditing (ISAs).
On the cooperation between audit supervisory authorities, I regret that ESMA has not been endorsed as the core structure for coordination but I am pleased that it has been granted an initial mandate on international cooperation.
It is now high time for auditors to meet the challenges of their role – a societal role. I trust that once final details are reflected in the text and formally endorsed by the College, co-legislators will also approve the text in coming weeks.