The UK government and the accounting regulator, the Financial Reporting Council, announced yesterday two industry-wide consultations, seeking comments from interested parties. The consultations end 19 February and 20 March, respectively.
Meanwhile, Spain’s two professional accountancy bodies have expressed outrage at the way in which the EU audit reform is being implemented by the Ministry of Finance.
In the first place, the professional bodies don’t understand why the Ministry seems to be in such a great rush since the EU legislation comes into force in June 2016 and Spain’s current legal framework wouldn’t require many amendments to adapt to the EU provisions.
Both the Institute of Auditors (Instituto de Censores Jurados de Cuentas de España or ICJCE) and the Corporation of Auditors of the Council General of Economists (Corporación de Auditores del Consejo General de Economistas or REA+REGA), feel they have been excluded from the process.
ICJCE and REA+REGA have been warning about the risks of rushing the implementation at a time when the European Commission (EC) is still issuing interpretations.
The EU rules gave member states considerable leeway to determine enabling legislation in key areas such as mandatory firm rotation and the provision of non-audit services.
The Accountant interviewed REA+REGA president Carlos Puig de Travy to find out more about the implementation of the EU rules in Spain. A spokesperson for the Ministry declined to be interviewed.
The Accountant: Are you disappointed with the audit regulator, the Institute of Accountancy and Audit (Instituto de Contabilidad y Auditoría de Cuentas or ICAC)?
Carlos Puig de Travy: This is an initiative led by the Ministry. We don’t have any problem with the regulator, which acts on behalf of the Ministry to undertake the reform and issue the draft law. What we don’t understand is this haste to accelerate the implementation.
TA: Who do you think is in such a hurry?
De Travy: You might remember the comments of the Minister before the summer. He said the reform of our audit law couldn’t wait. And we asked: why is this rush if the interpretation of the EU package is still the subject of debate among member states? There is enough time until June 2016. We have the opportunity to come up with a good implementation of the EU audit reform -one that meets the demands of stakeholders and investors.
TA: Can you think of any reason for the apparent hurry?
De Travy: It’s clear that this process needs to be sped up, if you wanted to get it passed in parliament before the elections in December 2015. But the question is: do we really need to implement the EU law before the polls? Besides, the reason should not be Gowex or Bankia. Those were isolated cases. The audit profession in Spain is heavily regulated and subject to tough oversight. There is no single reason that can justify to undertake this reform so hastily.
TA: The two Spanish professional bodies say they feel excluded from this process, why is that?
De Travy: This is not the first public consultation of a draft law we inform. Since the enactment of the current law in 1988, we have participated in many legislative reforms. This law shouldn’t be drafted ignoring the feedback from the accountancy industry and other stakeholders. It’s a highly technical law; we need to sit down and hold a point-by-point discussion about the draft. We need to fully understand the implications of the EU rules and the options left for member states to decide on.
TA: Do you know if the regulator or the Ministry have been in touch with other EU counterparts to implement the law in a coordinated fashion?
De Travy: No that I know. Meetings and workshops about the interpretation of the Directive and the Regulation are taking place from mid-December onwards. There are more than 50 options in the Directive and more than 30 in the Regulation. In the UK there is a special group of stakeholders working hand in hand with the government. Why can’t we set up a consultation period as well? The reasonable thing to do would be to wait and see what the approach of other member states is going to be. I’m afraid we can’t wave a magic wand to foresee what approach other countries will take.
TA: Apart from your response to the 10-day public consultation on the draft law, are the views of the professional bodies being heard?
De Travy: In Spain, unlike in the UK, the regulator and the profession are not working together on the implementation. That’s the way it is. The draft law is now at Ministry level, once approved by the Minister and then by the Cabinet, a bill is sent to the parliament. But such a bill would lack consensus and can’t go through parliament as now stands.
TA: Has there been any amendment of the draft since its first version of 1 August?
De Travy: There are no substantial differences. What we ignore now is whether or not the ICAC is going to take on board the feedback received during the 10-day consultation, which ended 12 November. It could have sent an amended draft to the Ministry. But we don’t know.
TA: Has the ICAC published the responses received during the consultation?
De Travy: Not so far. We have published our joint response in our websites. Other stakeholders could have issued responses. Only ICAC knows.
TA: What did you suggest in your joint response?
De Travy: The response has four parts. The first one looks at the way this process has been handled by the Ministry and the regulator (See timeline attached). The second one outlines the reasons why this draft clashes with the Directive and the Regulation. The third one examines article-by-article the letter of the Spanish draft law. We have challenged 43 out of 67 articles, due to implementation issues. The fourth part is our conclusion.
TA: And what did you suggest with regard to audit rotation?
De Travy: We are happy with the options to extend, up to 10 years, the audit engagement through tendering, and particularly through joint audits up to 14 years. Joint audits would be crucial in Spain to promote competition and open the market to the mid-tier firms. It would also help maintain the independence of the auditor.
TA: What about the option to provide valuation and tax services under certain circumstances?
De Travy: We don’t see any problem with that. It’s not forbidden in the current national law, neither it is in other countries such as the US, the UK and Germany. It goes without saying that we are not in favour of a ‘free-for-all’ situation. The auditor needs to remain independent and comply with a system of threats and safeguards.
TA: Do you think Minister Luis de Guindos would reconsider the draft law?
De Travy: Yes he would -if he finally realises that is not sensible to pass this law, which hasn’t been discussed with the profession. The draft law as now stands is counterproductive. We have enough time to sit down and work together with the regulator. We still hope that a great audit law can be drafted.
Read the full story: Spain’s cocksure approach to the EU audit reform: courage or imprudence?
UK government kick-starts EU audit implementation suggesting 10+10 rotation option