FEE's comment letter on the EC proposal for the Accounting Directive dealing with audit related matters

23 May 2012

FEE published its comment letter on some of the amendments related to audit currently discussed in JURI regarding the EC proposal for the Accounting Directive (the JURI Draft Reports dated 28 March 2012 and 8 May 2012 on the EC proposal for the Accounting Directive).

In FEE's first letter to JURI dated 24 February 2012, FEE indicated that it finds it inappropriate that the EC Proposal for the Accounting Directive characterises accounting including the preparation of the financial statements and auditing as "burdens” without recognising its beneficial role and added-value to corporate management and the economy as well as its public interest dimension.

FEE added that auditing provides independent and objective assurance designed to add to the credibility and reliability of the financial information and contributes to enhancing the operational effectiveness of the internal control system related to financial reporting.

FEE would like to reiterate that its previous comments about the benefits of auditing related to public policy goals such as stakeholders' information, investors' protection, markets' stability, the reduction of transaction costs and the cost of capital and access to finance, are equally important for medium-sized undertakings.

A sound financial reporting framework and the robust and independent assurance that audit provides are essential, in particular at a time where the European economy still needs to recover, growth needs to be fostered and trust rebuilt. FEE would be seriously concerned that, in such circumstances, the vast majority of undertakings would not have an audit. Therefore, changing Article 34.1 in the report dated 8 May 2012 (amendment 160) in a way that would delete the audit requirement for small and moreover for medium-sized undertakings, would be counterproductive and would undermine the European economy.

The criteria for the general requirement for auditing should, as proposed by the European Commission, continue to be determined by the Member State with respect to either the individual or the consolidated financial statements.

FEE noted that an amendment no 77 to Article 34 - dealing with the content of the audit report - was tabled. It states: “The statutory auditor shall also express an opinion on: […](c) whether prospective financial information included in the management report has been appropriately prepared on the basis of reasonable assumptions”. This is an additional requirement to the consistency check between the financial statements and the management report as proposed by the European Commission.

As an audit profession, FEE is ready to meet the growing needs of users of financial statements and make its audit reports more informative, comprehensive and exhaustive.

FEE suggests deleting the proposed amendment no 77 and retaining subparagraph 2 of Article 34.14 from the original EC text with additions which would result in the following wording:

“The statutory auditor shall also report concerning:

a) the consistency of the management report with the financial statements for the same financial year and

b) whether the management report has been prepared in accordance with the applicable legal requirements (Amendment 76).

The auditor shall also state that:

c) based on his knowledge and the understanding of the entity and its environment obtained during the course of the audit, the management report as a whole suitably presents the company’s position, the opportunities and principal risks and uncertainties of its likely future development.”

This would ensure that auditors:

Full comment letter


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