Implementation of EU Audit Reform Nomi Robert, Senior Manager, - - PowerPoint PPT Presentation

Implementation of EU Audit Reform

Noémi Robert, Senior Manager, Accountancy Europe

Agenda Item

5A

2 2

• Implementation status and scope
• Progress & specific challenges re important

provisions implementation

• Actions at EU level

On today’s menu

6

Implementation status & scope

8

Implementation status

8

Implemented Not implemented

April 2018 Update

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.

9

PIE definition landscape before 2014 reform

10 10

2017 PIE survey

Progress & specific challenges re important provisions implementation

11

Mandatory audit firm rotation

1

Prohibition

• f non-audit

services

2

Role of audit committee & fee-related matters

3

12

Mandatory audit firm rotation

1

Prohibition

• f non-audit

services

2

Role of audit committee & fee-related matters

3

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• 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

Recap : Mandatory audit firm rotation

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Mandatory audit firm rotation

Initial duration of engagement

14

5 Years 7-9 Years 10 Years

* 5 years for SIFIs ** 8 years for banks *** 9 years for banks

April 2018 Update

15

Mandatory audit firm rotation

Tender extension

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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)

April 2018 Update

16

Mandatory audit firm rotation

Joint audit extension

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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)

April 2018 Update

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Main take away

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• Consistency in setting the initial duration of engagement period at

10 years

• Damageable divergences on the duration and the use of the
• ption to allow extensions of the initial duration
• Overview: 17 different mandatory audit firm rotation regimes

across the European Union

Progress & specific challenges re important provisions implementation

18

Mandatory audit firm rotation

1

Prohibition

• f non-audit

services

2

Role of audit committee & fee-related matters

3

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• 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)

“Tax 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 […]”

Recap: Provision of non-audit services (1/2)

20 20

• 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

Recap: Provision of non-audit services (2/2)

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Non-audit services

Additional prohibitions

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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.

April 2018 Update

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Non-audit services

Derogation of prohibition – Tax & valuation services

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No Certain tax services under the conditions of the Regulation Certain tax & valuation services under the conditions of the Regulation

April 2018 Update

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Non-audit services

Allowed NAS cap

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70% cap 30% cap

April 2018 Update

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Main take away

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• 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%

25 25

• 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

Independence & ethics

Mandatory audit firm rotation

1

Prohibition

• f non-audit

services

2

Role of audit committee & fee-related matters

3

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

31 31

• 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…

EU debate on tax & audit

32 32

Concluding remarks

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