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The agreement paves the way for the formal adoption of the reform by the European Parliament and the Council through a vote in the coming months.
The reform is aimed at increasing transparency and confidence in the audit market by enhancing the credibility of the audited financial statements of public-interest entities (PIEs), which are companies with a significant public interest because of the nature of their business, their size, their number of employees or their corporate status, including banks, insurance companies and listed companies.
In addition, the new rules will facilitate a wider choice of audit providers, in a market that is nowadays highly concentrated in a few big accounting firms.
The main features of the agreement include:
Mandatory rotation of auditors
The new legislation will impose mandatory rotation of auditors of PIEs after a period of 10 years. Member States may allow the auditor or audit firm to continue audit of the same PIEs up to the maximum duration of 20 years where a public tendering is conducted and up to 24 years in case of a joint audit.
Prohibition and restriction on the provision of non-audit services
In order to avoid conflicts of interests and threats to independence a number of non-audit services, such as tax, consultancy and advisory services will be forbidden to be provided to the audited entity.
When an audit firm provides to the audited entity for three or more years, non-audit services (other than those phohibited), the total fees for such services will be limited to no more than 70 per cent of the average of the fees paid in the last three years by the audited entity.
Cooperation of audit oversight bodies
The supervision of the system will be carried out within the framework of a Committee of European Auditing Oversight Bodies (CEAOB). The European Securities and Markets Authority (ESMA) will provide assistance in the field of external relations within the structure of the CEAOB.
Commissioner Barnier welcomes provisional agreement in trilogue on the reform of the audit sector, 17.12.13
Lithuanian Presidency
“Under the compromise text, the Member States agreed today to introduce more stringent rules for the auditors and audit firms that are aimed in particular at strengthening the independence of auditors of public interest entities (PIEs) as well as at assuring greater diversity into the current highly-concentrated audit market. Furthermore, the reform is envisaging more coordinated approach to the supervision of auditors in the EU that will be leaded by the Committee of European Audit Oversight Bodies (CEAOB)”, said Lithuanian Finance Minister Rimantas Šadžius.
“I believe that the agreed audit reform package should enhance the quality of statutory audits in the EU and will help to strengthen confidence in audited financial statements, in particular those of banks, insurers and listed companies”, he concluded.
The Proposal on the changes of Audit directive 2006/43/EC and new Proposal on Audit regulation was presented by the Commission in November 2011.