Audit Policy Update

• Use of CEAOB guidelines on ESEF by third country auditors
• IFIAR’s 2021 report on audit inspection findings
• IAASB and IESBA’s work on sustainability matters

Use of CEAOB guidelines on ESEF by third country auditors

The Committee of the European Auditing Oversight Bodies (CEAOB) has issued a note on the use of its guidelines on European Single Electronic Format (ESEF) by third country auditors.

The note reminds that third country issuers are required to follow relevant EU rules and disclose annual financial reports drawn up in accordance with all the requirements on ESEF, together with an audit report. Therefore, auditors of these issuers will need to provide an audit opinion on whether the financial statements included in the annual financial report comply with the relevant statutory requirements on ESEF.

The CEAOB recommends that third country auditors use the CEAOB ESEF guidelines in this context as they complement other relevant national or international standards on auditing.

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See also Accountancy Europe’s webpage which gathers key publications and guidance available for ESEF reporting and assurance, and tracks the implementation by EU Member States.

Lump sum funding in Horizon Europe removes need for financial reporting and ex-post audits

Horizon Europe, the EU’s key funding programme for research and innovation until 2027 with a budget of €95.5 billion, has introduced the wide use of a so-called lump sum funding approach. This approach has proven to work well in practice, based on pilot testing during the predecessor programme Horizon 2020.

The lump sum funding approach removes all obligations on actual cost reporting, time sheets and financial ex-post audits. The objective is a massive reduction in errors and administration of R&I grants, and a stronger focus on content.

This also makes access to the programme easier, especially for small organisations and newcomers, who often lack the experience and capacity to cope with the complex rules for actual costs.

The European Commission (EC) recently organised a webinar on the topic of lump sum funding.

The actual cost system will remain in place being inherently complex, with many rules and procedures, including agreed upon procedures for financial ex-post audits. This is because it needs to accommodate all different practices across Europe. The potential to simplify it is exhausted, according to the EC.

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IFIAR’s 2021 report on audit inspection findings

The International Forum of Independent Audit Regulators (IFIAR) has released a report on the results of its tenth 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 collected information about two categories of activities: inspections of firm-wide systems of quality control and inspections of individual audit engagements.

IFIAR Members reported in this 2021 survey that 30% of audit engagements inspected had at least one finding, down from 34% in 2020 and 47% in the first survey capturing this percentage in 2014.

The survey inspection results are predominantly for inspections of audits that concluded prior to the pandemic.

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IAASB’s revised standard for group audits

The International Auditing and Assurance Standards Board (IAASB) released International Standard on Auditing (ISA) 600. The revised standard addresses special considerations that apply to audits of group financial statements (group audits).

The IAASB also developed a Basis for Conclusions and factsheet to support the implementation.

The revised standard becomes effective for audits of group financial statements for periods beginning on or after 15 December 2023.

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IESBA’s new definition of a public interest entity

The International Ethics Standards Board for Accountants (IESBA) released a new definition of a public interest entity (PIE), along with other revisions in the International Code of Ethics for Professional Accountants.

The revised provisions specify a broader list of categories of entities as PIEs whose audits should be subject to additional independence requirements. Recognising the diversity in jurisdictional contexts, the IESBA encourages the national standard setters and other relevant local bodies to refine the PIE categories.

The revised PIE definition and related provisions become effective for audits of financial statements for periods beginning on or after 15 December 2024.

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IAASB and IESBA’s work on sustainability matters

The IAASB and IESBA have discussed sustainability assurance and related ethical matters during their March meetings. Both Boards have set up dedicated working groups to look into sustainability matters to progress their activities in this area.

In this context, read more on the IAASB’s work here and on the planned IESBA activities here.