By Sue Almond, technical director, ACCA
I was fortunate to chair a roundtable on the future of audit while MEP Karim, rapporteur for the JURI committee on the EC audit proposals, was in New York recently on a fact-finding visit to understand more about the US and the global audit market, to consider the broader impact of the EU audit proposals. The roundtable attracted a wide range of attendees, and it was interesting to hear the perspectives from the US. Not surprisingly, much of the debate focussed on the critical EU proposals such as mandatory auditor rotation, tendering and non-audit services.
There were some general recurring themes that arose at the roundtable:
- Although a single country, the US state system is not so different to EU member states – for example auditors are required to be registered with the state.
- The distinction between public company audit (regulated by PCAOB and SEC) and private company audit (AICPA and state) is quite significant.
- The rules on audit committees are set by the SEC. These tend to relate to the legal requirements, including independence of Audit Committee (AC) members, rather than the functioning of the AC, and there was strong support for an enhanced, and more transparent, role for the AC. There was general support for the role of the AC in evaluating non-audit service provision.
- There was very strong disagreement with mandatory audit rotation across almost all sectors (in line with the feedback to the recent PCAOB consultation on the topic), and in fact the day before the roundtable a motion was tabled in Congress to prohibit any proposed rules on this. The practical impact on global businesses of potentially different mandatory rotation requirements in different jurisdictions was noted. However, it appears PCAOB may still be interested in pursuing rotation.
- FASB will shortly publish going concern proposals. This is important because the current position is that management in the US have no requirement/responsibility to make a going concern assessment – it is purely the role of the auditor. This is causing significant problems for the IAASB in its auditor reporting project, where there is pressure for the auditor not to be generating ‘new’ information.
- There was support for global standards, e.g. ISAs (International Standards on Auditing) and IESBA Code of Ethics.
MEP Karim published his final proposed amendments for the EU Audit proposals for vote just after the roundtable. They are very much in line with the position ACCA took on the original proposals more than 18 months ago:
- We support adoption of global standards (e.g. ISAs, including on auditor reporting, IESBA Code, independence/non-audit services, ISQC1)
- We support strengthening the role of the audit committee and increased transparency
- We do not support mandatory rotation of auditors as we do not believe that there is evidence that supports an improvement in audit quality as a result
- We do not support restricting the role of professional bodies, particularly in relation to the monitoring of auditors of unlisted entities.
Following the approval on MEP Karim’s report, the focus now moves to the Council. Let’s hope that they will recognise the good work that has been done in the Parliament as they now work on their revisions to the audit proposals …