The biggest section in the recommendation focuses on auditor independence and although the issues are still being discussed it appears the UK ethical framework approach (as opposed to detailed rules) has been accepted by the majority of countries.
As ever the major focus is on the provision of non-audit services to audit clients. Many companies hovering near the audit threshold purchase a wide range of services from their auditor, including basic bookkeeping.
At one stage it looked as though the EC was threatening the ability of auditors to offer clients the add-on service of writing up the books.
However, that problem seems to have been resolved, though the pay-off will probably be that firms will need to separate the bookkeeping and audit teams. A stipulation that should not be too onerous.
The EU sees reliable and comparable financial information as essential for an efficient EU capital market because it encourages cross-border investment and promotes investor confidence.
Objective and independent assessment of financial statements by a statutory auditor has a crucial role to play in this respect. But the focus here is on the quoted company sector rather than small privately owned entities.
Apart from independence, the major issue is quality assurance over the way audits are conducted and monitored. The EC says that it does not want to impose common standards but instead put in place minimum requirements.
It reckons that to meet them, nearly all member states would have to upgrade their auditing quality assurance systems. A task that should not faze the UK’s Auditing Practices Board or the Joint Auditing Committee of the three institutes.
We are in a different position from many other EU countries because of our relatively low audit threshold and because of the large amount of UK businesses that operate through limited companies. However, even with these features it seems UK auditors have little to fear from the EC.
With the SEC threat receding, it may be an exaggeration to say Christmas has come early for the profession. But for the moment it seems unlikely it will be snowed under by heavy falls of US and European inspired regulation.
- Peter Williams is a freelance writer and director of Kato Publishing.
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