European Union ponders audit reform

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14 Oct, 2010

The European Commission has issued a consultation paper on audit policy.

A Green Paper has been issued, entitled Audit Policy: Lessons from the Crisis, which seeks to open debate on the role of the auditor, the governance and the independence of audit firms, the supervision of auditors, the configuration of the audit market, the creation of a single market for the provision of audit services, the simplification of rules for Small and Medium Sized Enterprises (SMEs) and Practitioners (SMPs) and the international co-operation for the supervision of global audit networks.

The Green Paper discusses some significant matters, including:

  • whether the mandatory rotation of audit firms — not just of audit partners — should be considered
  • whether the appointment, remuneration and duration of the engagement would be the responsibility of a third party, perhaps a regulator, rather than the company itself
  • whether there is a need for more 'joint audits' or 'audit consortia'
  • a genuine single market for the provision of audit services based on enhanced harmonisation of rules and the creation of a "European passport" for auditors which would allow them to provide services on an EU wide basis
  • the need for a comprehensive debate on what needs to be done to ensure that both audits of financial statements and auditor reports are "fit for purpose"
  • whether efforts should be made to create a specific environment for the audit of SMEs (e.g. "limited audits")
  • when and how to introduce the International Standards on Auditing in the European Union.

Comments on the Green Paper close on 8 December 2010. The Commission will host a high level Conference on 10th February 2011, aimed at discussing the present Green Paper and the main findings of this consultation with all stakeholders and explore possible ways forward. Once this consultation phase is closed the Commission will announce any appropriate follow up measures and proposals in 2011.

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