Audit Policy Update

• Accountancy Europe responded to the UK Government’s consultation Restoring trust in audit and corporate governance
• New global study reveals lack of standardisation in sustainability assurance
• Consultation on Audit Quality Indicators in the Netherlands launched
• New law strengthening the integrity of the German financial market

Accountancy Europe responded to the UK Government’s consultation Restoring trust in audit and corporate governance

Our response to the Business, Energy and Industrial Strategy (BEIS) Department consultation focuses on those matters in the Consultation Paper with global or European relevance for the audit profession and the corporate reporting ecosystem at large.

The discussion on the audit’s future in the UK cannot be considered in isolation, as the audit market is globally interconnected through networks of audit firms auditing companies and groups that operate worldwide. We strongly encourage global coordination and cooperation on changes to reporting models, company’s responsibilities, the auditor’s role and supervision.

We commend the UK Government for the quality of the process followed to arrive at the Consultation Paper, which included discussions with relevant stakeholders, including the audit profession.

All key parties in the ecosystem have a responsibility to strengthen corporate reporting. Our profession is open to changes, and looks forward to a fruitful dialogue with stakeholders to further develop its role and to contribute to finding solutions to the key issues.

Our key comments are on all ‘3 pillars of corporate reporting’:

1. Corporate governance and related auditor’s role

• Stronger internal company controls
• Resilience Statement
• Audit committees – Role and oversight

2. External audit

• Scope and purpose of audit
• Tackling fraud
• Independent auditor appointment
• Market opening measures
• Operational separation between audit and non-audit practices

3. Supervision

• Monitoring of audit quality

Read our response

New tax transparency measure introduces role for statutory auditors

The European Parliament and the Council reached a political agreement on public country-by-country reporting (CBCR) on 1 June, after over 5 years of political deadlock.

The new measure would oblige multinationals, with an EUR 750 million turnover and operations in the EU, to disclose publicly and on a country-basis a set of key data to enable the assessment of their tax practices.

The final agreement also introduces a new requirement for statutory auditors of the affected entities. It says that a statutory auditor must check whether the audited entity is obliged to publish CBC reports, and if it has done so (existence check).

Read more

Draft IAASB standard for audits of less complex entities coming soon for comments

The International Auditing and Assurance Standards Board (IAASB) approved an Exposure Draft (ED) of International Standard on Auditing for Audits of Financial Statements of Less Complex Entities (ISA for LCEs). They are currently working on the explanatory memorandum and the questions that will accompany the ED.

We expect that the ED will be published in the week of 19 July with a consultation period of 180 days.

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Monitoring Group calls for applications for membership to the Public Interest Oversight Board

The Monitoring Group (MG) has announced a further step to implement its reforms. This includes establishing the MG Nominating Committee (MG NC) and issuing an open call for applications for board members to the Public Interest Oversight Board (PIOB) for an initial 3-year term commencing 1 January 2022.

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PIOB calls for expressions of interest for the membership of the new Standard-Setting Boards Nominations Committee

The composition of the IAASB and the International Ethics Standards Board for Accountants (IESBA) will transition to become multistakeholder structures, following the MG recommendations to strengthen the international audit and ethics standard setting system.

The PIOB welcomes applications for membership of the new Standard-Setting Boards (SSBs) Nominations Committee, which will be responsible for selecting candidates to both the IAASB and the IESBA and recommending their appointments for PIOB approval.

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New global study reveals lack of standardisation in sustainability assurance

The International Federation of Accountants (IFAC), AICPA & CIMA (representing the Association of International Certified Professional Accountants) issued a new global benchmarking study The State of Play in Sustainability Assurance which highlights significant differences in sustainability assurance across jurisdictions.

The study captures and analyses the extent to which companies are reporting and obtaining assurance over their sustainability disclosures, which assurance standards are being used, and which companies are providing the assurance service.

Some of the key findings are:

• 91% of companies reviewed report some level of sustainability information
• 51% of companies that report sustainability information provide some level of assurance on it
• 63% of these assurance engagements were conducted by audit or audit-affiliated firms

Accountancy Europe’s members discussed this study, amongst other matters, during a members’ webinar organised together with IFAC and CIMA on 8 July.

See also Accountancy Europe’s feedback on the Corporate Sustainability Reporting Directive (CSRD) proposal which we have just submitted to the European Commission.

Consultation on Audit Quality Indicators in the Netherlands launched

The Quartermasters, appointed to ensure the audit reform delivery in the Netherlands, have drawn up 10 Audit Quality Indicators (AQIs) to gain more insight into the quality of the accountancy sector. The AQIs can provide users of the annual accounts with further insight into factors that influence the quality of the annual statutory audit.

The 10 proposed AQIs are:

Level 1: Quality of the engagement file

1. Involvement of the external auditor

2. Errors in the Annual Financial Report

3. Fraud and going concern

Level 2: Quality Control System (within the audit firm)

4. Quality enhancing measures

5. Quality control system

Level 3: Context (in regard to audit firm)

6. Turnover in audit team

7. Culture

8. Willingness to innovate

9. Budget overrun

Level 4: Ecosystem

10. Client satisfaction

The Consultation (web page in Dutch) wants to give stakeholders the opportunity to express their opinion on the proposed set of quality indicators. It is open for comment until 19 September 2021.

Netherlands: 20 largest accountancy firms must set up a supervisory board

The Dutch Minister of Finance Hoekstra has announced proposals on better governance of accountancy firms.

The proposals include that:

• The 20 largest accountancy firms should have a supervisory board. These supervisors would have more say, for example, about the amount of the profit distribution within the firm
• The Dutch Authority for the Financial Markets (AFM) would assess the suitability of directors and supervisory directors of these 20 firms

Read more (in Dutch)

New law strengthening the integrity of the German financial market

The law was passed on 28 May and most of its provisions are applicable already from 1 July 2021. It came as a response to the Wirecard case.

The law focuses on auditor independence, auditor liability and also introduces stringent sanctions for auditors found to have signed an incorrect auditor’s report.

Key changes to current practice impacting auditors now include:

• 10-year mandatory external auditor rotation; beyond PIE auditors as required at EU level, it applies to all financial service entities’ auditors
• 5-year mandatory internal rotation for engagement partners who sign the auditor’s report
• Prohibition of non-audit services in line with the EU Audit Regulation, hereby reversing the previously exercised EU Member State option to allow certain specific advisory services
• Auditor liability:
  • Unlimited liability in cases of gross negligence for (most) PIE audits
  • Raised liability caps for ordinary and gross negligence
• Tightened sanctions for signatories of the auditor’s report and raised fines for audit firms in case of professional misconduct

The focus of the new law is mostly on audit, but there are also changes aimed at strengthening certain aspects of corporate governance and increasing the power of Germany’s regulatory oversight authorities.

Read more (in German)