The Spanish audit regulator, the Institute of Accountancy and Audit (Instituto de Contabilidad y Auditoría de Cuentas or ICAC), has published its highly expected draft law to implement the EU audit reform, giving stakeholders a deadline of 10 days to provide their feedback.
The regulator has opted for stricter audit rules than those permitted by the EU Directive and Regulation, which gave member states some leeway to legislate in key areas such as mandatory firm rotation and the provision of non-audit services.
As stated in the preamble of the draft, the option to extend audit firm rotation to the maximum duration allowed has been rejected because long-term audit engagements can compromise auditors’ independence and pose the threat of building cosy relationships with their clients.
For the audit of public interest entities (PIE), article 37 of the draft sets a maximum audit engagement of 10 years, which can be extended four years if a joint auditor is appointed.
For other companies that should you pass a statutory audit, the limit of the engagement is nine years with no option to extend its duration, according to article 21 of the draft legislation.
Regarding the provision of non-audit services, the draft law does not take the option available for member states to allow certain prohibited services (i.e. tax and valuation services) under some circumstances.
When it comes to the provision of other non-audit services to PIEs (services not included in the black list of the EU regulation), those should be limited to 15% of the total fees earned by the audit firm in the last 3 consecutive years, and 30% for the auditing of other companies.
As regulated by articles 38.1 and 23.3 of the draft respectively, if the audit firm doesn’t comply with those caps it should terminate the engagement from the next fiscal year onwards.
Contacted by The Accountant, the ICAC and the Spanish finance ministry were not available for comment.
Implementation in the UK
In the UK the government has plans to launch a consultation on the implementation before the end of the year.
A spokesperson for the Department for Business, Innovation and Skills (BIS) told The Accountant: "This [consultation] will include consideration of whether and how the UK might implement the various options in the Directive and Regulation."
The 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 run by the Commission.