The profession faced momentous change last year in the form of regulation agreed by the EU institutions. Successful adaptation to regulatory changes, though, is a duty that comes with the job and accountants shouldn’t fear it, any more than pilots should fear flying.
Finally, in 2014, EU audit reform will be a reality. The profession in Europe must come to terms with the idea of compulsory rotation of audit firms every 10 years – renewable thereafter for another 10, or 14 years if it’s a joint audit engagement.
The debate on the audit reform has rumbled along for almost the whole of the current European Parliament’s (EP) five-year term.
December’s agreement on the legislative package between the EU co-lawmakers arrived just in time, only months before the EP is dissolved in the run-up for elections in May this year.
A plenary vote of the EP, expected in April, will be the last slope along a steep and stony path for the profession, which started with the initial six-year mandatory audit rotation proposal by the European Commissioner for internal market and services Michel Barnier.
Whether the EU reform has found an appropriate balance depends very much on the observer. For the Big Four, with long-standing audit clients, seems like an imposed burden for the profession, which is doomed to failure.
For die-hard supporters of mandatory rotation the 10+10 solution is a pale reflection of the original goal proposed by the European Commission to open up competition across the European audit market.
However, as the Association of Chartered Certified Accountants technical director Sue Almond has pointed out, the EU reform was intended to restore confidence in audit services. According to Almond, the debate, initially framed in terms of audit quality and corporate reporting, has been "hijacked" by the competition agenda, while developments made to International Standards on Auditing (ISAs) have passed unnoticed.
Indeed, in the aftermath of the global financial crisis it’s important to keep perspective and remember that some that were "too big to fail" did so – despite their accounts being given clean bills of health by their respective auditors. At least, that’s the perception of the general public, including investors.
For the wider range of stakeholders, mandatory rotation means that no audit is forever. Nonetheless, many within the accountancy profession argue, it would only resemble a game of musical chairs, but with only Big Four participating.
"If we want things to stay as they are, things will have to change," says Tancredi Falconeri in Giuseppe Tomasi di Lampedusa’s masterpiece The Leopard. The novel depicts upheaval during the nineteenth century in Italy.
In the face of Garibaldi’s revolution to unite the country, noblemen struggle to retain the status quo. Differences aside, in the context of EU audit reform, how relevant Tancredi’s famous lines seem for today’s profession? Things will change, so will everything stay the same?
Carlos Martin Tornerocarlos.firstname.lastname@example.org