Audit reforms passed in European parliament

by Richard Crump

More from this author

03 Apr 2014

  • Financial Director
  • Comments
European Parliament

EUROPEAN politicians today voted in favour of sweeping reforms that will force large-listed companies to tender their audit contracts once every ten years.

Under the rules, listed companies are required to change their auditors every ten years. However, a company can extend this period by a further ten years if tenders are carried out, and by 14 years if the company appoints more than one firm to carry out the audit.

There reforms also impose a 70% cap on the fees generated by firms for non-audit work, while certain non-audit services, such as tax advice and services linked to financial and investment strategy have been banned altogether.

The black-list of prohibited services, which proved one of the most contentious issues among member states, is designed to limit conflicts of interest in instances where auditors are involved in decisions impacting the way companies are managed.

The reforms fall short of the ambitious measures originally proposed by the European Commission in November 2011. Nevertheless, Michel Barnier, internal market and services commissioner and a key architect of the reforms, said he was "very satisfied" with the outcome.

"With this vote, we have taken another important step towards re-establishing investor confidence in financial information, an essential ingredient for investment and economic growth in Europe," Barnier said.

The EU rules follow similar moves taken by UK regulators, which imposed mandatory audit tendering among FTSE 350 companies last year. In October 2013, the Competition Commissioned introduced mandatory requirements for companies to tender every ten years, with those that tender less frequently than five years required to report in which financial year they plan to put the audit engagement out to tender.

The competition watchdog rules, build on ten-year 'comply or explain' measures implemented by the FRC in 2012. Stephen Haddrill, chief executive of the FRC, welcomed the European leigislation as "following the UK's example".

"For the FRC, these developments are most important because they contribute towards the enhancement of quality in financial reports and audits that can engender trust within the investor community, not only in the UK, but across Europe," he said. 

Other members of the profession supported the changes in general, though David Barnes, Deloitte's managing partner of public policy, said the firm has "lingering concerns...around the patchwork of differing requirements that may develop across Europe for multinationals".

Following today's vote in plenary, the audit package must be formally adopted by the Council. The publication of the new rules in the Official Journal of the European Union is expected in the second quarter of 2014.

Visitor comments

blog comments powered by Disqus
display:none

Add your comment

We won't publish your address


By submitting a comment you agree to abide by our Terms & Conditions

Your comment will be moderated before publication

Submit

Financial Planning and Performance AnalystCabinet Office-Greater London-Competitive

 
 
 
 
 
 
 
 

 

Newsletters

Get the latest financial news sent directly to your inbox

  • Best Practice
  • Business
  • Daily Newsletter
  • Essentials

Careers

Search for jobs
Click to search our database of all the latest accountancy roles

Create a profile
Click to set up your profile and let the best recruiters find you

Jobs by email
Sign up to receive regular updates with the latest roles suitable for you

Briefings

budget-management

Why budgeting fails: One management system is not enough

If budgeting is to have any value at all, it needs a radical overhaul. In today's dynamic marketplace, budgeting can no longer serve as a company's only management system; it must integrate with and support dedicated strategy management systems, process improvement systems, and the like. In this paper, Professor Peter Horvath and Dr Ralf Sauter present what's wrong with the current approach to budgeting and how to fix it.

cchcover

iXBRL: Taking stock. Looking forward

In this white paper CCH provide checklists to help accountants and finance professionals both in practice and in business examine these issues and make plans. Also includes a case study of a large commercial organisation working through the first year of mandatory iXBRL filing.