Agenda Item 5A Implementation of EU Audit Reform Noémi Robert, Senior Manager, Accountancy Europe
On today’s menu • Implementation status and scope • Progress & specific challenges re important provisions implementation • Actions at EU level 2 2
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Implementation status & scope
Implementation status April 2018 Update Implemented Not implemented Note: Slovenia has not yet fully implemented the new EU audit rules. In Iceland and Norway, the new audit rules become applicable later (date to be set). Therefore, information on these countries in the following slides is subject to change. 8 8
PIE definition landscape before 2014 reform 9
2017 PIE survey 10 10
Progress & specific challenges re important provisions implementation 1 2 3 Role of audit Mandatory Prohibition committee audit firm of non-audit & fee-related rotation services matters 11
1 2 3 Role of audit Mandatory Prohibition committee audit firm of non-audit & fee-related rotation services matters 12
Recap : Mandatory audit firm rotation • General rule: PIEs must rotate auditor after 10 years Member States’ options to: • • Shorten the 10 years Extend up to 20 years with ‘public’ tender or up to 24 years with • joint audit 13 13
Mandatory audit firm rotation Initial duration of engagement April 2018 Update 5 Years 7-9 Years 10 Years * 5 years for SIFIs ** 8 years for banks *** 9 years for banks 14 14
Mandatory audit firm rotation Tender extension April 2018 Update No extension 1-2 Years 6 Years 9 Years 10 Years * Extension of duration not applicable to banks and insurance undertakings ** Initial duration of engagement extendable up to 10 years *** No extension for banks **** 10 years extension for existing engagements (first appointment between 2003 and 2014) 15 15
Mandatory audit firm rotation Joint audit extension April 2018 Update No extension 4 Years 10 Years 14 Years 15 Years * Mandatory joint audit For Bulgaria it is only for banks, insurance undertakings and pension funds ** No extension for banks *** 14 years extension for existing engagements (first appointment between 2003 and 2014) 16 16
Main take away • Consistency in setting the initial duration of engagement period at 10 years • Damageable divergences on the duration and the use of the option to allow extensions of the initial duration • Overview: 17 different mandatory audit firm rotation regimes across the European Union 17 17
Progress & specific challenges re important provisions implementation 1 2 3 Role of audit Mandatory Prohibition committee audit firm of non-audit & fee-related rotation services matters 18
Recap: Provision of non-audit services (1/2) • The auditor of PIEs cannot provide certain non-audit services to the audited entity and its related undertakings ‘Black list’ included in the Regulation (art 5) • “T ax services relating to preparation of tax forms ; payroll tax […] Services that involve playing any part in the management or decision-making of the audited entity Bookkeeping and preparing accounting records and financial statements payroll services Designing and implementing internal control or risk management procedures […] valuation services […] Legal services, with respect to the provision of general counsel […] Services related to the audited entity’s internal audit function […]” 19 19
Recap: Provision of non-audit services (2/2) Member States’ options to • • Be more restrictive than the EU list • Allow certain tax and valuation services under strict conditions The provision of ‘permissible’ services is • • Subject to the approval of the audit committee following an assessment of the threats to independence and safeguards applied • Capped to 70% of the average of statutory audit fees paid in the last three consecutive years 20 20
Non-audit services Additional prohibitions April 2018 Update List of prohibitions as per the Regulation ‘White’ list approach* Additional prohibitions * Auditors and audit firms can only provide the non- audit services included in the “white” list. 21 21
Non-audit services Derogation of prohibition – Tax & valuation services April 2018 Update No Certain tax services under the conditions of the Regulation Certain tax & valuation services under the conditions of the Regulation 22 22
Non-audit services Allowed NAS cap April 2018 Update 70% cap 30% cap 23 23
Main take away • Clear trend to stick to the list of prohibitions included in the Regulation • The large majority of Member States opted for derogation of prohibition of certain tax and valuation services within the conditions laid out in the Regulation • Only one Member State (Portugal) opted to lower the NAS cap below 70% 24 24
Independence & ethics • EU legislation focus almost entirely on independence • IESBA Code is not basis for EU Audit legislation • EU legislation goes significantly further than IESBA Code for PIE audits 25 25
1 2 3 Role of audit Mandatory Prohibition committee audit firm of non-audit & fee-related rotation services matters
Audit committees responsible for • Auditor selection • Reviewing and monitoring auditor independence • Reviewing and monitoring the appropriateness of the provision of non-audit services 27
Focus on auditor selection • Structured process followed by reasoned recommendation to the supervisory body • The audit committee will ensure • Auditor independence towards management ‘Fit for purpose’ selection criteria • 28
Other actions at EU level
Tax transparency and fair taxation
EU debate on tax & audit • Follow-up of the European Parliament PANA Committee recommendations • European Commission response • In 3 years after objective assessment of audit reform implementation • Earlier EC review of audit reform IF … 31 31
Concluding remarks 32 32
Stay connected! www.accountancyeurope.eu Connect with European Professional Accountants @AccountancyEU @AccountancySME 34 34
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