30 March 2012

FEE: Improving the quality of audit

It is crucial to note that, as a number of EU Member States only transposed the Statutory Audit Directive of 2006 (2006/43/EC)1 in 2010, it is too early for some of the benefits of these reforms to have fully materialised throughout the EU.

This was rightly highlighted by the European Parliament in 2009. At that time, only 12 EU Member States had transposed the Directive in full. The introduction of a system of public oversight, the set-up of audit committees in public interest entities, and the cooperation with third countries lagged behind. The “Doorn Report” very pertinently urged the European Commission to ensure immediate transposition and enforcement of the Directive in EU Member States, and to adopt ISAs. The process was only completed in 2010; less than two years ago.

Major drivers of the quality of audits are the standards by which the audits are performed. Consequently, the accountancy profession has put significant resources into improving the auditing standards over the past 10 years.

Another important driver of the quality of audits is quality assurance reviews. Therefore, to inspire public confidence, the accountancy profession established or, depending on the country, contributed significantly to the establishment of robust quality assurance systems for auditors.

Integrity, objectivity, ethical behaviour and independence underpin the audit. The accountancy profession has tirelessly worked to have practitioners comply with ever more stringent ethical and independence principles and requirements. It has also gradually increased the prohibition of the provision of certain non-audit services especially to public interest entity audit clients, while acknowledging for some the principle of materiality to the financial statements.

One of the most important innovations in audit practice was the move from a self-regulated profession to a profession which is under the supervision of a public oversight system.

Good governance of audit firms is another driver of the quality of audit. Recently, more attention was placed on this additional contributing factor, and the implementation of such measures has started in some larger audit firms as well as in a limited number of EU Member States.

FEE is committed to continuing to support change and innovation that improve the profession’s contribution to society. FEE believes that progress and effectiveness will be best ensured, and harmful unintended consequences and disruptions will be best avoided, by learning the lessons from the past and building on the acquis while continuing to foster a holistic modernisation of the whole governance and financial reporting system in the private and the public sector alike. In contrast, the European Commission proposals fail to recognise firstly that more time is required to benefit fully from the changes already made, and secondly that the profession is continually driving ahead with change to improve the quality of audits. This will continue in the years to come.

Full paper

© FEE