Audit Policy Update

• European Commission publishes timeline for corporate reporting ecosystem revamp
• IAASB consultation opens for proposed new standard for audits of less complex entities
• UK FRC consults on governance of audit firms
• Second Dutch consultation in progress

European Commission publishes timeline for corporate reporting ecosystem revamp

The European Commission (EC) has published a new section on its website indicating when the various actions of its corporate reporting ecosystem reform initiative can be expected.

This review follows, notably, the Wirecard case in Germany, which in EC’s view warrants possible tweaks into the EU corporate reporting ecosystem. The main objective is to foster investor protection and capital market integration in Europe, and it would focus on:

• corporate governance
• external audit
• supervision

The current timeline is the following:

• in the next weeks: a Roadmap indicating EC’s objectives and policy options under consideration should become available. Stakeholders will typically be able to give feedback on these Roadmaps, with a usually 1-month long feedback period
• Q4 2021: launch of the public consultation
• Q4 2022: legislative proposal

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IAASB consultation opens for proposed new standard for audits of less complex entities

This new stand-alone draft standard responds to demands to have a set of high-quality requirements tailored for the needs of less complex entities (LCEs). It will provide a globally consistent approach at a time where several jurisdictional-specific LCE standards or related initiatives are arising.

The International Auditing and Assurance Standards Board (IAASB) strongly encourages all interested stakeholders to provide their feedback. The consultation is open for comment until 31 January 2022.

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Accountancy Europe responded to the IAASB survey on its Work Plan for 2022-23

In our response, we welcome the IAASB’s ongoing projects on the audits of LCEs, audit evidence, fraud and going concern. These are relevant issues for both auditors and stakeholders.

Acknowledging the resource constraints of the IAASB, we believe the topics identified by the IAASB as potential candidates for future work should be considered in three different categories:

1 – priority areas

• assurance for climate change disclosures
• responding to assessed risks
• review of interim financial information

2 – candidates for narrow scope maintenance

3 – matters for further exploration

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IFIAR released its report on developments in international audit markets

In this report, the International Forum of Independent Audit Regulators (IFIAR) analyses internationally relevant developments in audit markets as reported by its members. Observations are grouped into five policy topics:

• auditor appointment and tenure
• joint audits
• combination of audit and non-audit services
• transparency of audit related information
• audit firms’ governance and culture

Read more for details on key observations, facts and figures

UK FRC consults on governance of audit firms

The Financial Reporting Council (FRC) has launched a consultation on proposals to update and strengthen the Audit Firm Governance Code. The Code applies to the Big Four and to other firms auditing FTSE 350 companies. Going forward it will also apply to firms that audit significant numbers of other types of public interest entities (PIEs).

In support of the FRC’s objectives to promote high-quality audit and audit market resilience, the proposals aim to strengthen the Audit Firm Governance Code in key areas of accountability and firm resilience.

The consultation is open for comment until 18 November 2021.

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UK regulator’s inspection of audit quality shows room for improvement

The FRC inspection and supervision results for 2020/2021, covering the seven largest audit firms, show that nearly one third of the inspected audits need improvement.

The FRC CEO notes that while these results show some improvement on last year’s results, this is marginal and significant change still needs to happen to meaningfully improve audit quality.

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Second Dutch consultation on audit in progress

In addition to the consultation on audit quality indicators (AQIs) (for reference see the previous issue of Audit Update), the Dutch Ministry of Finance issued a second consultation on audit this summer. Its proposals aim to introduce measures to permanently improve the quality of statutory audits. Some of the main proposals are:

• providing a legal basis for the mandatory reporting of AQIs by firms
• the Royal Netherlands Institute of Chartered Accountants (NBA) Board will receive the power to appoint an auditor where a company cannot find one. Where there is a dispute on fees, the NBA can determine the level
• all firms conducting statutory audits with a revenue exceeding 3 million euro and having more than 150 employees (i.e. also those without a PIE license), will need to set up a supervisory board
• a legal basis for the powers of the supervisory board will be provided and those powers will be stipulated (including profit distribution, M&A, investments and restructurings/lay-offs)
• expanding the possibility for 3rd country accountants to register with a foreign diploma
• supervision of non-PIE licensed firms will move from the NBA to the Dutch Authority for the Financial Markets (AFM)
• the AFM will get more powers to conclude that a system of quality control is deficient and hence the firm’s board responsible for any shortcomings (rectifying in law an early court case won by EY and PwC)

The deadline for responses is 16 September 2021.

Read more (in Dutch, the website also includes responses)