Tuesday, May 14, 2013

European Commission and Audit Reform



Force companies to change auditors periodically and prohibit auditors from providing other services are part of changes to draft legislation to open the market for audit services in the EU and to increase the quality and transparency adopted in Committee on Legal Affairs on 25 April 2013. The role of auditors has been questioned because of the financial crisis. "We need to regain the confidence of investors, who want quality audits and independent give them the assurances they need when investing in European companies," said Sajjad Karim (ECR, UK), in charge on the reform of the audit. The committee decided by 15 votes for and 10 votes against to open negotiations with the Council in order to reach a common text. The S & D, Greens / EFA and GUE / NGL voted against. Informal negotiations begin as soon as possible. The legislation would force auditors in the EU to publish audit in accordance with international standards reports.

For auditors of public interest entities, such as banks, insurance companies and listed companies, the committee agreed that audit firms should provide stakeholders and investors a comprehensive document containing all actions of the listener and providing a comprehensive manner, the accuracy of the accounts of the company. As part of a series of measures to open the market and to increase transparency, the committee voted in favor of the proposal to ban contractual clauses "only four major companies" that require the audit is performed by one of them. The public interest entities would be forced to launch a tender in the selection of a new auditor. To ensure that the relationship between the auditor and the audited company become too familiar, MEPs adopted a mandatory rotation rule that an auditor would have the right to audit the accounts of a company for 14 years maximum, a period that could be extended to 25 years if guarantees are provided.

The European Commission had proposed a period of six years, but a majority of MPs in the committee felt that it was an expensive and undesirable intervention in the audit market. To avoid conflicts of interest and threats to their independence, EU audit firms would be forced to comply with rules similar to the standards internationally. Most members of the committee considered the proposal for a general ban on the provision of other services, counterproductive to the quality of audits. They agreed that the only other services that could threaten the independence should be banned. They also approved a list of services that would be prohibited under the new legislation. Audit firms could, for example, continue to provide certifications regarding compliance with tax requirements but would no longer provide tax advisory services that directly affect the financial statements of the company. They could also be examined by the national tax authorities.