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Regulatory developments

This document summarizes the significant regulatory developments in the European Union's audit landscape from 2010 to 2012. It outlines the European Commission's Green Paper and the objectives of creating a comprehensive framework to enhance auditor governance, independence, and market configuration. Key areas of focus include the statutory audit of public interest entities (PIEs), confidentiality, transparency, non-audit services, fee limitations, and mandatory rotation of auditors. The framework aims to strengthen public trust in the audit profession while promoting simplified processes for SMEs.

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Regulatory developments

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  1. Regulatory developments Dublin February 2012

  2. Regulatory developments Green paper of the European Commission • October 13, 2010 : Green Paper • First step in the process to elaborate a law at European level : Discussion document open to public comments. • May 2011 : Report to the parliament • September 13, 2011 : European Parliament Resolution • November 2011 : Draft legislation • Regulation for PIEs • Directive for non PIEs

  3. Regulatory developments What were the objectives? • Open a discussion on : • Role of the auditor • Governance and independence of audit firms • Supervision of auditors • Configuration of the audit market • Creation of a European passport • Simplifications for SMEs / SMPs

  4. Regulatory developments Items included in the draft regulation • Conditions for carrying out statutory audit of PIEs • Independence and avoidance of conflicts of interest • Confidentiality and professional secrecy • Performance of the statutory audit • Audit reporting • Transparency reporting by statutory auditors and audit firms and record keeping • Appointment of statutory auditors or audit firms by PIEs • Surveillance of the auditors of PIEs Education Experience Examination Ethics Enforcement

  5. Regulatory developments Non audit services • 3 categories of services • Related financial audit services • 8 Prohibited services • 4 Permitted services subject to pre approval of audit committee or regulator • Difference to be made between the firm expressing the opinion and the network • For Network : threats and safeguards approach and 3 prohibited services and 5 services with a rebuttable presumption that independence is affected • “Audit only firm” for auditors of large PIEs with revenue of more than EUR 1.5 Billion in the EU

  6. Regulatory developments Fees • Limitations on fees • Fees from related financial audit services < 10% of the fees of the statutory audit • If total amount of fees received from a client exceed 20% or 15% during 2 consecutive years • Disclosure to the audit committee • Information to audit authority that make the decision whether the auditor can continue or not for a period not exceeding 2 years

  7. Mandatory rotation • Minimum duration of a statutory audit of 2 years • Renewable only once • Maximum duration of the combined 2 engagements : 6 years • 9 years in case of joint audit • In exceptional circumstances, subject to pre approval of the supervisor, extend duration to 8 years • 12 years in case of joint audit • Cooling of period of 4 years • Partner rotation every 7 years with a 3 years cooling off period

  8. Regulatory developments Othermatter of attention • Record all the breaches to the regulation • When suspected illegal acts : • Inform the audited entity and invite it to investigate the matter and take measures • If measures not appropriate, information of the supervisors of PIEs • Confirmation of independence ; • In the audit report • To the audit committee • Employment for an audit client • Cooling off period of 2 years for key audit partners and 1 year for others involved in the audit

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