European member states should ensure consistent use of the definition of networks of audit firms within the European internal market, according to the European Federation of Accountants (Fédération des Experts Comptables Européens – FEE).
FEE suggests the use of the International Federation of Accountants (IFAC) code of ethics as guidance to implement the network definition in the EU would prevent harmful consequences. The federation said inconsistency will threaten legal certainty, be unworkable in practice and raise compliance costs.
The statement from FEE follows a survey of current network definitions used in the 27 EU member states, Norway and Switzerland. Commenting on the findings of the survey, Jacques Potdevin, president of FEE, said: “National legislators or regulators should consider the use of the IFAC code of ethics guidance in European member states to promote consistent application of the network firm definition internationally. A definition of ‘network’ is first and foremost a response to cross-border issues in relation to international associations of audit firms, therefore harmonised definitions will provide efficiency and simplification.”
FEE chief executive Olivier Boutellis-Taft said it is difficult to think of an internal market with 27 different definitions in which firms would be considered in or out of a network depending on different interpretations.
“Furthermore, such a patchwork of national definitions will hamper the international development of networks of mid-sized audit firms at a time where ways to increase choice on the audit market is being discussed,” Boutellis-Taft said.
FEE ethics working party chairman Michael Niehues said there is also a need for clarification by means of further guidance on some ambiguous terms in the network definitions. “The European Commission is encouraged, with advice from the European Group of Auditors’ Oversight Bodies, to enhance legal certainty by initiating a process to prepare and provide guidance to the EU member states to implement and apply the network definition,” Niehues advised.