Speaking at the Federation of European Accountants (FEE) audit conference, UK Financial Reporting Council (FRC) CEO Stephen Haddrill highlighted the implications for regulators of implementing the EU audit reform and why a homogeneous implementation is difficult.
Haddrill warned that the complexity of the legislation and the interaction of member state options will generate problems in practice that need to be sorted out with goodwill.
"As regulators we must remember that we are implementing single market legislation and achieve as much coherence and convergence as possible," he said. "And if it is not possible initially, we must stand ready with the Commission to address problems as they arise."
According to him implementation of the reform in a homogenous way is difficult as even within member states there is not necessarily a consensus. The consultation in the UK on the issue of non-audit services to audit clients is a good example of why a one-size-fits-all approach does not command consensus, he said.
"Some in the profession have called for us not to go beyond the requirements of the legislation in terms of the items on the black list. On the other hand investors have called on us not to reduce current UK requirements which do go beyond the EU legislation."
Equally, he continued, there have been mixed views on the FRC’s suggestion of a white list to provide certainty on what services can be sold. "Some have welcomed this, others argue that it will in effect stultify the exercise of discretion by audit committees."
In the absence of clear responses to the consultation, the FRC have not yet reached a view on these points, Haddrill announced.
Impact on audit inspections
He said that the FRC currently inspects the largest ten firms on a regular basis and with a much less frequent scrutiny of some other mid-tier firm. However the new legislation requires regulators to inspect all firms who undertake Public Interest Entities (PIEs) audits.
"The list of auditors may approach 100. Many will have only one or two PIE audits and the risk to the public interest is minimal compared to the audits of major banks and insurers," he said.
"We must be proportionate in our approach to inspection and coordinate with the professional bodies who do a perfectly good job of inspecting such firms already."
The implementation of the directive is not just about new regulation of the profession, Haddrill concluded. "It should also be a moment when we test how well we go about our job as regulators. We should not adopt new powers that challenge those we regulate without challenging ourselves."