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La réforme européenne de la pratique de l’audit

19 décembre 2013

Vous trouverez ci-dessous un condensé de l’entente intervenue par les institutions européennes concernant la réforme de l’audit. Ce résumé nous est transmis par ecoDa- The European Confederation of Directors’ Associations, dont le Collège des administrateurs de sociétés (CAS) est l’un des membres affiliés.

Cette entente fait suite au billet du 12 décembre, (Une réglementation pour accroître l’indépendance des firmes d’audit) où on annonçait certaines modifications sur la table à dessin des autorités réglementaires des É.U. et de l’union européenne.

Voici donc un bref résumé suivi d’une présentation sommaire des principaux changements convenus. À la suite de cet article d’ecoDa, vous trouverez le point de vue de Julia Irvine présenté dans Economia. Bonne lecture !

Yesterday, the European institutions managed to get a provisional agreement in trilogue on the reform of the audit sector. With the agreement, audit firms will be required to rotate every 10 years. Public interest entities will only be able to extend the audit tenure once, upon tender. Under this measure, joint audit will also be encouraged. To avoid the risk of self-review, several non-audit services are prohibited under a strict ‘black list’, including stringent limits on tax advice and on services linked to the financial and investment strategy of the audit client. In addition, a cap on the provision of non-audit services is introduced.

Audit reform 

 

1. A clarified societal role for auditors

Increased audit quality : In order to reduce the ‘expectation gap’ between what is expected from auditors and what they are bound to deliver, the new rules will require auditors to produce more detailed and informative audit reports, with a required focus on relevant information to investors.

The legislative triangle of the European Union

The legislative triangle of the European Union (Photo credit: Wikipedia)

Enhanced transparency : Strict transparency requirements will be introduced for auditors with stronger reporting obligations vis-à-vis supervisors. Increased communication between auditors and the audit committee of an audited entity is requested.

Better accountability : The work of auditors will be closely supervised by audit committees, whose competences are strengthened. In addition, the package introduces the possibility for 5% of the shareholders of the company to initiate actions to dismiss the auditors. A set of administrative sanctions that can be applied by the competent authorities is also foreseen for breaches of the new rules.

2. A strong independence regime

Mandatory rotation of audit firms : Audit firms will be required to rotate after an engagement period of 10 years. After maximum 10 years, the period can be extended by up to 10 additional years if tenders are carried out, and by up to 14 additional years in case of joint audit, i.e. if the company being audited appoints more than one audit firm to carry out its audit. A calibrated transitional period taking into account the duration of the audit engagement is foreseen to avoid a cliff effect following the entry into force of the new rules.

Prohibition of certain non-audit services : Audit firms will be strictly prohibited from providing non-audit services to their audit clients, including stringent limits on tax advice and services linked to the financial and investment strategy of the audit client. This aims to limit risk of conflicts of interest, when auditors are involved in decisions impacting the management of a company. This will also substantially limit the ‘self-review’ risks for auditors.

Cap on the provision of non-audit services:  To reduce the risks of conflicts of interest, the new rules will introduce a cap of 70% on the fees generated for non-audit services others than those prohibited based on a three-year average at the group level.

3. A more dynamic and competitive EU audit market

A Single Market for statutory audit : The new rules will provide a level playing field for auditors at EU level through enhanced cross-border mobility and the harmonisation of International Standards on Auditing (ISAs).

More choice : In order to promote competition, the new rules prohibit restrictive ‘Big Four only’ third party clauses imposed on companies. Incentives for joint audit and tendering will be introduced, and a proportionate application of the rules will be applied to avoid extra burden for small and mid-tier audit firms. Tools to monitor the concentration of the audit market will be reinforced.

Enhanced supervision of the audit sector : Cooperation between national supervisors will be enhanced at EU level, with a specific role devoted to the European Markets and Securities Authority (ESMA) with regard to international cooperation on audit oversight.

 

Voici également le point de vue de Julia Irvine présenté dans Economia.

 

EU bodies compromise on audit reform

Listed companies will have to tender their audit every 10 years and rotate auditors every 20 years after trilogue agreement was reached this morning on a package of audit reform measures

Certain non-audit services – such as some tax and corporate finance advice – which impact on an audit client’s financial and investment strategy, will be banned, and shareholders will find it easier to initiate action to get the auditors dismissed.

The measures, which were agreed between the European Parliament and the Lithuanian EU presidency, still have to be approved later this week by COREPER, the committee of permanent representatives of the member states. The European Parliament will then have to formally adopt the text next year.

Negotiations over audit reform reached stalemate earlier this month and led to the decision by British MEP and lead rapporteur Sajjad Karim to cancel scheduled trilogue discussions “because of a lack of will by some parties to compromise”. The major sticking points were mandatory rotation of auditors and non-audit services.

However, the breakthrough came today, thanks to “constructive efforts from all sides to find a way forward”, Karim said, adding that the compromise on a 20-year timespan for rotation was workable and a “considerable improvement on the commission’s original proposal”.

The agreed measures ensure that auditors will be key contributors to economic and financial stability through increased audit quality, stronger independence requirements and more open and dynamic EU audit market.

Other measures under the agreement include extending companies that have joint auditors can extend the 20 years to 24 and a four-year transitional period to avoid every company going out to tender at the same time.

Auditors will be prohibited from providing certain non-audit services to audit clients, including “stringent limits” on tax advice and services. The measures also include a 70% cap on fees from all other non-audit services, based on a three-year average at group level.

Big Four only clauses are banned and incentives for joint audit and tendering (as yet unspecified) are to be introduced. It is also intended that the rules will be applied proportionately to avoid extra burdens on small and mid-tier audit firms.

Auditors will have to provide more detailed and informative audit reports, focusing on relevant information for investors, they will be bound by strict transparency requirements in their communications with supervisors and will generally be required to talk more often to a client’s audit committee.

Shareholders will be able to start action to dismiss the auditors, provided 5% of them collaborate.

Finally, the package of measures will ensure a level playing field for auditors throughout the European Union through enhanced cross-border mobility and harmonisation of international auditing standards.

EU commissioner Michel Barnier hailed the outline agreement as “the first step towards increasing audit quality and re-establishing investor confidence in financial information, an essential ingredient for investment and economic growth in Europe”.

Auditors, he said, played an important societal role by providing stakeholders with an accurate reflection of the veracity of companies’ financial statements. “However, a number of banks were given clean bills of health despite huge losses from 2007 onwards. In relation to the real economy, inspection reports from the member states revealed lack of professional scepticism by auditors, misstatements and a lack of fresh thinking in the audits of major companies because of the average long-lasting relationship between the auditor and their clients.

“Taken all together, the agreed measures ensure that auditors will be key contributors to economic and financial stability through increased audit quality, stronger independence requirements and more open and dynamic EU audit markets.”

Karim added, “The European Parliament is optimistic that the proposal can be approved by a majority of member states and MEPs, considering it is a balanced compromise that will go a long way towards restoring confidence in the audit market.”

Initial reaction from the profession to the news was cautious. ICAEW chief executive Michael Izza said that after three years of debate and hard work, there was now hope that the follow-up work might be achieved before the EU elections on 22 May next year.

“Focus now needs to move to the transition and practical implications,” he said. “It is important not to underestimate the considerable practical impact the reform package will have, not only on the auditing profession but also on companies across the EU.

“It will take time for everybody involved – the profession, business, regulators – to work through the details and get to grips with all the changes.”

EU agrees rules to overhaul auditing firms (irishtimes.com)

EU in preliminary deal on audit reform (irishtimes.com)

US audit watchdog reviving controversial plan to require firms to disclose names of people who work on audits – @Reuters (reuters.com)

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