Audit Policy Update

• European Commission launches its consultation: Corporate reporting – improving its quality and enforcement
• Raising expectations on companies’ accounting for climate and auditor’s role
• IFAC’s new online platform on international standards for the accountancy profession
• Accountancy Europe’s four new publications on audit & assurance

European Commission launches its consultation: Corporate reporting – improving its quality and enforcement

The European Commission (EC) launched on 12 November the expected consultation on three pillars of corporate reporting: corporate governance, audit and supervision.

This EC initiative aims to strengthen the quality of corporate reporting and its enforcement. It focuses on large listed companies, Public Interest Entities (PIEs).

The consultation questions are split into five sections:

• The overall impact of the EU framework on the three pillars of corporate reporting
• The corporate governance pillar
• The statutory audit pillar
• The supervision of PIE statutory auditors and audit firms
• The supervision of corporate reporting

The questions cover issues regulated by the EU Accounting Directive, Transparency Directive, the Statutory Audit Directive and the Audit Regulation.

Part of the consultation package is a so-called ‘call for evidence’ document which provides background information on this initiative, including issues that it aims to address.

The responses will directly feed into the EC’s impact assessment (planned for 2022) with a view to possibly amend and strengthen the current EU rules in relevant areas. Deadline to respond to the call for evidence and consultation is 4 February 2022. Adoption date for legislative proposals is planned (indicative planning) for the last quarter of 2022.

Accountancy Europe will respond to this consultation aiming to contribute to the debate with potential solutions, in the public interest, to the issues at stake.

CEAOB revises its guidelines on auditor’s involvement in ESEF

The Committee of European Auditing Oversight Bodies (CEAOB) issued an updated version of their guidance on European Single Electronic Format (ESEF), initially from November 2019.

The document refers to the EC’s view that statutory auditors should provide an opinion on compliance with ESEF requirements.

These guidelines describe the expectations of the CEAOB regarding the procedures to be performed by the auditors, the consequences of any misstatements identified by the auditors, as well as the form and content of the audit report.

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EC proposal for amending the Directive on solvency

Accountancy Europe enthusiastically welcomes the EC proposal for amending Directive 2009/138/EC (Solvency II), which would introduce a new audit requirement for insurance undertakings.

This is in line with the positions we have advocated for over the past ten years, as exemplified in our briefing paper from July 2011 and through various communications with the European Insurance and Occupational Pensions Authority (EIOPA). This audit would consist of providing assurance on the prudential balance sheet, the group balance sheet and/or the single Solvency and Financial Condition Report. Furthermore, the proposed amendments require undertakings to use an internal model to report to supervisors an estimation of the Solvency Capital Requirement calculated with the standard formula.

Raising expectations on companies’ accounting for climate and auditor’s role

Expectations to see climate impacts accounted for and disclosed in the financial statements are rising, putting companies, preparers and auditors in the spotlight. The terminology ‘Paris aligned accounts’ is often used to refer to carbon net zero emissions by 2050 and the underlying assumptions in the companies’ assets, liabilities and financial performance.

In a recent letter sent to Big 4 firms, a large investors group called on governments and regulators to take actions to force preparers and auditors of financial statements to properly reflect climate matters. This comes after a similar call by investors about which we informed earlier this year.

Another example of the main developments leading this movement are the European Securities Markets Authority (ESMA)’s common enforcement priorities for the year ending 31 December 2021. These include ‘climate matters’ both as a priority related to the International Financial Reporting Standards (IFRS) financial statements and as a priority related to non-financial statements.

IFAC’s new online platform on international standards for the accountancy profession

The International Federation of Accountants (IFAC) has created an online platform (eIS: e-International Standards) on relevant international auditing, accounting and ethical standards.

This resource provides direct access to the standards and support materials developed by the International Audit and Assurance Standards Board (IAASB), the International Ethics Standards Board for Accountants (IESBA) and the International Public Sector Accounting Standards Board (IPSASB).

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IAASB survey on draft auditing standard for less complex entities

The IAASB recently issued an exposure draft of an international auditing standard for less complex entities. All interested stakeholders are encouraged to respond to the consultation until the end of January 2022.

The Board also launched a survey – open until 14 January 2022 and available in English, French and Spanish – for the stakeholders who may not have the time or resources to submit a written comment letter.

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Publication on non-audit services and auditor’s independence

There is a clear trend in stakeholders’ expectations from companies to report on a wider variety of matters. In parallel, the scope of audit and other assurance services provided by the auditor are expected to keep evolving.

Our recent publication communicates the measures in place to ensure auditors’ independence while providing other assurance services to the companies they audit. It also describes the reasons why auditors are requested or required to provide these services. Finally, examples of assurance services are presented to explain how auditor’s involvement offers benefits to shareholders and other stakeholders.

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Two updated publications on countries’ implementation of the 2014 EU audit legislation

We have updated our two publications on national implementation of the 2014 EU audit legislation to reflect the latest legislative changes in European countries.

Implementation of the 2014 EU Audit Directive and Regulation in 30 European countries: State of play as of November 2021

More than five years after the implementation deadline, we present an updated state of play in 30 European countries, including 27 EU Member States, Iceland, Norway and the United Kingdom. We have further analysed the countries’ decisions & their latest legislative changes and visualised the outcomes for the key options regarding:

• non-audit services provision
• mandatory audit firm rotation
• key activities of public oversight bodies and delegation of tasks to professional bodies

Organisation of the public oversight of the audit profession in 30 European countries: Survey results

The publication provides an overview of how the public oversight is organised in each of the 27 EU Member States and Iceland and Norway, as members of the European Economic Area, and the United Kingdom. It covers information on composition, funding, transparency and key activities of the national public oversight bodies and the extent of delegation of tasks to professional bodies.

Our findings show that the national public oversight bodies now carry out many activities previously in the competence of the professional bodies. Nevertheless, professional bodies continue to play an important role in this area working together with public oversight bodies to reinforce audit quality.

FAQs on sustainability information assurance

The EC adopted a proposal for the Corporate Sustainability Reporting Directive (CSRD) to strengthen sustainability reporting. This is fundamental to achieve a sustainable economy. It requires companies to report more comparable, targeted, reliable as well as easily accessible information as the basis for sustainable decision-making.

The EC also introduces an EU-wide requirement for limited assurance on sustainability information. According to the EC proposal, independent external assurance enhances the reported sustainability information’s credibilityhelps meet the growing demands for reliable information on sustainability matters.

Our new FAQ provides answers to recurring questions on sustainability information assurance, specifically on:

• limited and reasonable assurance engagements
• assurance requirements and the EU regulatory framework
• technical aspects of professional assurance standards

The questions and answers aim to inform policymakers and other interested stakeholders about assurance on sustainability information.

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