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Legislation for audit reform published in the Official Journal

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27 May 2014

Regulation (EU) No 537/2014 of the European Parliament and of the Council of 16 April 2014 and Directive 2014/56/EU of the European Parliament and of the Council of 16 April 2014, both of which form the legislative package for audit reform in the EU, have been published in the Official Journal of the European Union.

Under the new rules, the societal role of auditors will be clarified, with the aim of increasing audit quality, transparency and audit supervision.  The new rules will require that audit reports be more detailed and informative and their work will be more closely monitored with strengthened audit committees.

Mandatory rotation of auditors for public interest entities (PIEs) will be introduced, requiring such companies to retender at 10 years and change the auditor at least every 20 years. The reforms include a prohibition on the provision of certain non-audit services to PIE audit clients (including tax advice and services linked to the financial and investment strategy of the audit client) and also introduce a cap on the fees that can be earned from the provision of permitted non-audit services to PIEs.

Additionally the rules prohibit the use of restrictive clauses in contracts which limit a company’s choice of auditor in order to promote market diversity.

Both the Directive, which amends the Statutory Audit Directive (Directive 2006/43/EC) (link to Europa website) and the Regulation will enter into force 20 days after their publication in the Official Journal of the European Union (namely 16 June 2014).  The EU Member States have two years from the date of entry into force to incorporate the rules of the Directive within their national law (namely by 16 June 2016).  Although the Regulation enters into force on 16 June 2014 there is a two year delay, until 16 June 2016, in the application of most of its provisions.

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