30 November 2011

FEE's views on European Commission Proposals on audit policy

FEE welcomes measures aimed at continuing modernising the current audit model and advancing audit policy, e.g.:

• applying ISAs, which are high-quality proportional international standards on auditing, to all audits in Europe – an objective that FEE has long promoted;
• strengthening the role of audit committees;
• banning contractual clauses limiting entities choice of auditors;
• creating a single market for audit services;
• enhancing the auditor’s reports (external and internal), provided that it remains practicable and useful;
• improving the coordination of audit oversight on European level.

FEE is deeply concerned by measures that will reduce audit quality. Imposing such a short period (six years) for mandatory rotation of audit firms will be counterproductive; it will severely restrict the auditors’ knowledge of the entity being audited and reduce the value of the audit, increasing risks and disruptions, perhaps even increasing concentration as limited experience seems to show.

The proposals relating to the creation of audit-only firms, as well as the overly restrictive rules on limiting non-audit services, will severely limit the ability of the auditor to provide services that rely on the depth and breadth of expertise that stakeholders demand, especially in complex businesses.The profession recognises the need to apply strict ethical and independence rules both in the performance of the audit as well as in the performance of other services. The limitation of such services for reasons other than to secure independence does not serve the public interest, especially at a time where growth, innovation and job creation should be fostered.

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