UK’s accounting watchdog supports the creation of a European audit authority and a tightening of auditor independence rules – but has steered clear of backing mandatory rotation of auditors.
In the Financial Reporting Council’s (FRC) response to the European Commission’s (EC) green paper on Audit Policy: Lessons from the Crisis, it outlines agreement with several proposals to reduce risk associated with the level of audit market concentration.
A European audit authority would ensure that auditor received recognition during the creation of regulation within Europe, stated the FRC in its response.
However, a single European audit qualification was impossible, and the council would be “reluctant” to move towards that model. Differences in local laws and regulations would hinder such a move, and an attempt to introduce a single qualification would be to the “detriment of audit quality”, said the FRC.
“For example, the UK has found that maintaining opportunities for graduates from all disciplines, as well as suitably qualified non-graduates, to enter the profession has had a positive effect on the recruitment of high quality staff and in turn on audit quality,” the FRC stated.
Tightening the rules governing the provision of non-audit services to audit clients is appropriate, said the FRC, which suggests the approach as an alternative to mandatory rotation of auditors.
Audit committees should take a stronger and more proactive role in managing their company’s transparency around services undertaken by auditors.
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