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November 20, 2014

EU audit implementation: Key consultation expected in the UK

The UK government’s Department for Business, Innovation and Skills (BIS) has plans to launch a consultation on the implementation of the EU audit reform before the end of the year, The Accountant has learnt.

A spokesperson for BIS told The Accountant that this consultation will include consideration of whether and how the UK might implement the various options that member states have under the EU rules.

Both the Directive 2014/56/EU on Statutory Audits (the Directive) and the Regulation 537/2014/EU on Statutory Audit of Public Interest Entities (the Regulation) left 51 and 32 options, respectively, available for member states to decide on, according to the Federation of European Accountants.

For example, the EU regulation established that the maximum period a firm can audit a company is 10 years.

However, it introduced two options whereby member states could extend the audit engagement for another 10 years by tendering the contract, or another 14 years if a joint audit firm is appointed.

Equally, the regulation sets a list of prohibited non-audit services which firms cannot render to audit clients in order to enhance the independence of the auditor.

However, there’s an option available for member states to allow certain tax and valuation services, as long as they don’t disrupt the audited financial statements, the audit committee is informed, and independence is not jeopardised.

Different stakeholders of the accountancy profession, such as the International Federation of Accountants, have warned this could lead to a patchy audit regulatory framework across countries, depending on how differently member states interpret the rules.

In that respect the government spokesperson added that BIS officials are in discussion with representatives of other EU member states on their implementation plans, and with the European Commission, through a series of workshops the EU executive branch is running.

"We have also worked with the Competition and Markets Authority (CMA) on the issues around mandatory retendering and rotation of audit firm appointments, which has now made an order on mandatory retendering of appointments for the FTSE 350."

On the UK front, and since audit affects many areas of business, The Accountant further asked the spokesperson if BIS is currently getting feedback from various stakeholders (other than the CMA), and if so, which stakeholders it is listening to in order to inform the forthcoming consultation.

BIS hasn’t been available for comment on that further question at the time of writing.

Nonetheless, The Accountant has learnt that BIS and the Financial Reporting Council (FRC) have convened a number of stakeholders which forms an ad hoc group for the implementation of the EU law.

The Institute of Chartered Accountant of Scotland, the Institute of Chartered Accountants in England and Wales and the Association of Chartered Certified Accountants are represented in such a non-binding stakeholder group.

To find out more about what’s likely to happen in the UK, possible scenarios of the EU implementation process and insights from industry leaders, read The Accountant’s 2014 UK country survey: The British profession’s not for EU-turning

Related articlesEU audit reform: Spanish regulator gives 10 days to comment on tough audit rulesSpain opts for non-renewable 9 year rotation, rushing EU audit reform ahead of election

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