Stronger corporate reporting in Europe – solutions by the accountancy profession

Accountancy Europe commends the European Commission (EC) for its initiative and for adopting a holistic approach to the 3 pillars of corporate reporting: corporate governance & reporting, statutory audit, and their supervision. Our profession is open-minded to change and ready to contribute to the EC’s efforts to enhance the corporate reporting ecosystem. We propose several solutions below, and in more detail in our consultation response.

We concur with the EC’s objective to strengthen each pillar, so the ecosystem is better equipped to deal with company failures and minimise their occurrence. The overall framework should become more coherent, ensuring the 3 pillars are complementary and systemically effective in the EU.

Any measure taken should aim at providing reliable and timely information to shareholders, investors, and other stakeholders.

The EC’s focus on integrating financial and sustainability reporting is paramount. This, supported by the auditor’s involvement in both, provides a more accurate picture of a company.

We support developing quality indicators for corporate reporting, statutory audit, and supervision on a multi-stakeholder basis.

Corporate Governance and reporting

Robust corporate governance and reporting should underpin enhancing the auditor’s role in internal controls (including on fraud and going concern) and more informative audit reports. Companies should issue a public statement on the effectiveness of internal controls over financial reporting, focusing on fraud and going concern.

All public interest entities (PIEs) should have a separate audit committee and there should be no Member State options on this requirement. The audit committee should have enough members competent in accounting and auditing. In large PIEs, an independent internal audit function and well-established whistleblowing structures should support the audit committee.

Audit

We would welcome further simplification and harmonisation of the audit rules across Europe, including removing Member State options, for example on prohibited non-audit services.

EU legislation and ethical rules already firmly restrict auditors from providing non-audit services to PIE audit clients. To meet stakeholders’ expectations and emerging needs, auditors should continue being allowed to provide services closely linked to financial statements audit and assurance services, for example assurance on sustainability information, to their audit clients.

We welcome the EC looking into ways to increase choice and capacity in the PIE audit market. Substantively changing the market structure will take time, as mid-tier audit firms will need to continue investing in the required expertise and capacity to undertake PIE audits. Further evidence is needed on how any potential market opening measure, such as joint audit, would impact audit quality.

Supervision of Reporting and audit

There is merit in harmonising reporting and audit supervisors’ policies and activities to achieve a level playing field embedded in EU legislation.

We support robust supervision and enhanced regulators at EU and national level. Any new powers would need to be proportionate, with adequate checks and balances.

We believe that supervisors’ work should be more transparent, for example by publishing their inspection reports on individual PIE audit firms.

The supervisory framework should build an environment that fosters learning and development for both companies and auditors, rather than focus on sanctioning.