Audit Policy Update

• European Commission announces EU audit reform in 2022
• New directive takes EU corporate sustainability reporting to the next level
• The IAASB released a survey on its Work Plan for 2022–2023
• UK Government’s plan for introducing shared audit faces major setback

European Commission announces EU audit reform in 2022

Mairead McGuinness, European Commissioner for financial services, announced on 27 May that the European Commission (EC) will make a proposal for EU audit reform before the end of 2022. The process will start with a consultation after this summer.

The announcement came as part of the Commissioner’s speech at the webinar ‘Corporate Reporting in the EU’s Capital Market Union After Wirecard’. She made the following key points:

• Wirecard is only the latest in a succession of unacceptable scandals that have undermined trust in capital markets and audits
• We need a systemic response building on three lines of defence: corporate governance, audit and supervision – i.e. the corporate reporting ecosystem
• On audit, the key points were around the need to improve audit quality and on audit market concentration in the public interest entity (PIE) audit market. The Commissioner underlined that these issues were not new and now needed to be resolved

As said, the EC will launch a public consultation to assess the different measures to improve the ecosystem. In addition, it will consult Member States on their experiences to learn from them, focussing on their different national regimes and measures aimed to address the issues at stake. It is also expecting the outcomes of a study on the EU Audit Regulation and Directive functioning.

The recording of the webinar is available here and the write-up of the speech is available on the EC’s website

New directive takes EU corporate sustainability reporting to the next level

The EC has proposed the Corporate Sustainability Reporting Directive (CSRD) to strengthen sustainability reporting. This is fundamental for achieving a sustainable economy. It requires companies to share more targeted, reliable (assured) and easily accessible information as the basis for sustainable decision-making.

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Accountancy Europe has been contributing to the sustainability reporting agenda for nearly two decades. We commend the EC for proposing the CSRD and taking the lead in Europe and globally on the sustainability agenda.

Read more in our statement

The IAASB released a survey on its Work Plan for 2022–2023

The survey aims to gather stakeholders’ views on the International Auditing and Assurance Standards Board (IAASB)’s ongoing projects and possible future topic priorities. The IAASB has identified eight leading candidate topics, and asks stakeholders to rank these based on their relative importance. The survey will be open until 5 August 2021.

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Global Ethics Board takes major step forward in strengthening auditor independence

The International Ethics Standards Board for Accountants (IESBA) released revisions to the Non-Assurance Services (NAS) and fee-related provisions of the International Code of Ethics for Professional Accountants (including International Independence Standards).

The revised provisions significantly strengthen the guardrails around auditor independence in two important areas that have the potential to create incentives influencing auditor behaviour—i) NAS provided to audit clients and ii) fees.

Accountancy Europe responded to the IESBA’s consultation on the definitions of listed entity and PIE

Our response to the proposed revisions to the definitions of listed entity and PIE in the Code highlights that:

• The Code should define a minimum list of PIE categories as a baseline, and other entities can be designated as PIE depending on the local circumstances
• Establishing a requirement for firms to determine if any additional entities should be treated as PIE will negatively impact the three-way relation between the lawmaker, the audit firm and the regulator
• Expanding the PIE definition in the Code should not systematically lead to creating additional requirements in the IAASB standards

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UK Government’s plan for introducing shared audit faces major setback

The UK Government’s plan is to break up the Big Four accounting firms’ dominant position auditing UK’s FTSE 100 companies by introducing a ‘managed shared audit’.

BDO and Grant Thornton, however, do not plan to support managed shared audit, as proposed in the ongoing Department for Business, Energy & Industrial Strategy (BEIS) consultation.

The proposal for shared audits aims to help smaller accounting firms gain the skills and experience needed to audit the financial statements of large companies, alongside of the Big Four, and thereby increase competition in the industry.

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