Audit Policy Update

• Towards reliable non-financial information across Europe  
• Amendment calling for separation of audit and consulting passes European Parliament’s ECON vote, second amendment proposed 
• IFIAR global survey shows need to continue efforts to improve audit performance 
• UK: Upcoming consultation on audit laws

Towards reliable non-financial information across Europe

On 19 February, Accountancy Europe issued a publication Towards reliable non-financial information across Europe.

Non-financial information (NFI) is crucial for companies, investors and other stakeholders to make sound business decisions. Providing independent assurance on the reported NFI enhances its quality and reliability. The demand for assurance on NFI has been growing steadily, but the practice still varies across Member States.

Our publication sets out how European countries have transposed the Non-Financial Reporting Directive 2014/95/EU (the NFRD) into national law and the impact on the role of the statutory auditor and independent assurance services provider. We also look into the voluntary assurance practice beyond legal requirements across Europe.

Our fact sheet shows that out of the 26 European countries covered:

• 12 countries apply the minimum requirement for the statutory auditors to check whether NFI has been provided
• 11 countries have an additional requirement to check the consistency of NFI with the financial statements
• 3 countries opted for mandatory independent assurance over the NFI
• 14 countries indicated to have companies seeking voluntary independent assurance

If you have additional information on how independent assurance practice is developing across Europe, please contact [email protected]

Amendment calling for separation of audit and consulting passes European Parliament’s ECON vote, second amendment proposed

On 18 February, the ECON Committee approved an amendment to EU competition report, tabled by MEP Eero Heinäluoma (S&D/Finland) and calling on the European Commission to consider UK CMA recommendations on joint audits and separation of audit and non-audit services. For further background information, please see the previous audit update.

The competition report, now including Mr. Heinäluoma’s paragraph, is to be voted in Plenary in the upcoming weeks. This final vote was initially supposed to take place on the week of 9 March, but has been postponed due to the corona outbreak.

Ahead of the Plenary vote, the MEP Stéphanie Yon-Courtin (RE/France) tabled a further amendment (nr. 6) on behalf of the whole Renew Europe Group, to amend the paragraph introduced by MEP Heinäluoma. Ms. Yon-Courtin’s amendment removes references to UK CMA and joint audits, but more explicitly calls on the Commission to consider the separation of audit from consulting services.

Two MEPs ask the European Commission to reform audit Regulation in AML context

MEPs continue to express concerns about the Luanda Leaks. In a most recent development, on 21 February the MEPs Eero Heinäluoma (S&D/Finland) and Jonás Fernández (S&D/Spain) sent a letter to Commission’s Executive Vice-President Dombrovskis.

In their letter, the MEPs argue that Luanda Leaks have shown inadequacies in the implementation and enforcement of the 5th AML Directive. They also express concern about the low number of suspicious activity reports submitted by ‘accountants’ in 2015.

The MEPs also refer to analysis from the NGO Transparency International which argues that “accountants, wittingly or unwittingly, often facilitate money laundering”.

They recognise that auditors have a positive role to play in AML, and call for a review of audit Regulation “in the coming months”  on “specific requirements regarding statutory audit of public interest entities” to ensure that accountants can continue to play their “critical role” in AML.

IFIAR survey on inspection findings shows a need to continue efforts to improve audit performance

In February 2020, the International Forum of Independent Audit Regulators (IFIAR) released its eighth global annual survey of inspection findings. It is based on its member regulators’ individual inspections of audit firms affiliated with the six largest global audit firm networks.

IFIAR continues to track the percentage of listed public interest entity (PIE) audits inspected with at least one finding. The general reduction in this percentage continued in the 2019 survey, decreasing from 47% in 2014 to 33% in 2019.

While encouraged by the downward trend, IFIAR urges the audit firms to continue efforts to achieve improved audit performance as the current inspection findings rates remain high. Read more

UK: Upcoming consultation on audit laws

The UK government is finalising plans for a consultation on proposed laws that would overhaul audit regulation. Amongst others, it is expected to propose legislation to introduce a version of the Sarbanes-Oxley regime in the UK which would force company directors to certify accuracy of financial statements. It is also expected to consult on an expansion of the definition of a public interest entity which would bring thousands of additional companies under regulatory oversight. Read more