Audit Policy

June 2019

  • IAASB conference and discussion paper on audit of less complex entities
  • Accountancy Europe’s recent work on SME audit
  • European Commission formally adopts ESEF, becomes a statutory requirement
  • New IAASB chair announced
  • PwC to split its audit practice

IAASB: Responding to Challenges Related to Less Complex Entities

Paris conference

The International Auditing and Assurance Standards Board (IAASB) held a conference Responding to Challenges Related to Less Complex Entities (LCE) on 16-17 May in Paris, following up on its 2017 conference.

The first day focused on audit of LCEs while the second day was dedicated to ethics and quality management. When it comes to LCE audit, topics discussed were in particular related to:

  • the value of audit
  • national initiatives in certain countries aiming to deal with SME/LCE audit
  • root causes of challenges linked with the use of the International Standards on Auditing (ISAs) in LCE audits and possible IAASB actions

Call for views

At the conference, the IAASB also introduced its recent discussion paper on this matter. The IAASB is seeking views on the way forward on LCE audits – the deadline for submission of responses is 12 September 2019. Accountancy Europe will respond with the support of experts who helped us develop our publication Simplifying auditing standards for small or non-complex entities in 2018, which was followed by this launch event.

Watch an interview with Kai Morten Hagen, Chair on SME audit within Accountancy Europe, who will lead our work on the response.

In addition, the IAASB plans to shortly issue a survey in parallel to the consultation. Its aim is to gather feedback from those stakeholders who are not the usual respondents to the IAASB consultations.

Conclusion on the way forward

There is a commitment from the IAASB to be open-minded in finding a way to deal with LCE audits. Seeing that countries are coming up with different solutions at national level, the IAASB became aware of the urgency to act. Therefore, there is also a commitment to be back in Paris in two years’ time with a solution.

Audit exemption thresholds in Europe: 2019 update

This publication follows up on our 2016 factsheet and presents the current audit exemption thresholds in Europe and how several countries have recently amended them.

Our survey results show that four EU countries have lowered their audit exemption thresholds while two countries have increased them between mid-2016 and early 2019. Overall, there was no clear upward/downward trend in the development of the thresholds in this period. We also found diverging national policies and views on auditing smaller entities. Read more

Evolution of SME audit in Europe from the perspective of the legislation and auditing standards

In this article, we analysed the evolution of SME audit in a long-term perspective. We found that over the last decade, the audit exemption thresholds have increased in 20 European countries. Read more

European Parliament elections take place

On 26 May, the European Parliament elections took place with 751 MEPs elected to represent European citizens.

With 179 MEPs (37 less than previous term), Christian Democrats remain the largest group but they will have to seek more than one ally in the future to get their policies through.

Socialists came in second with 153 MEPs (-32), followed by the big winner liberal ALDE group with 110 seats (+36). Greens can also be considered winners, as they are now the fourth largest group with 74 MEPs (+22). The far-Left GUE-NGL registered significant losses, and now stands at 38 MEPs (-14).

On the far-Right side, several new MEPs from Italy and France contributed to a predicted surge in strength. Whether or not the various far-Right factions can rally behind a common political grouping will determine their eventual strength.

For audit, it is particularly relevant that the Greens emerged strong from the elections, since they consider the review of the Audit Reform to be one of their priorities for the upcoming term. Read more

European Commission formally adopts ESEF, becomes a statutory requirement

European Commission has formally adopted the technical regulatory standards developed by ESMA on a European Single Electronic Format (ESEF), under the Transparency Directive. No objections were raised from either the European Parliament or the Council.

The Commission also published a legally non-binding Q&A document to help guide relevant stakeholders through the new requirements. The Q&A document clarifies that ESEF will be a statutory requirement as defined in the Audit Directive, and thus means it will have to be audited.

The Q&A also confirms that the Commission is coordinating with the Committee of European Auditing Oversight Bodies (CEAOB) in order to possibly provide further guidance on ESEF auditing. Moreover, the Commission will assess whether the audit of ESEF would warrant changes to the Transparency Directive.

For further information on ESEF, see our recent publication.

An Empirical Analysis of Key Audit Matters in the Financial Industry

The European Banking Institute issued a publication analysing Key Audit Matters (KAMs) based on 2017 audit reports of supervised European banks. This year marks the first year in which KAMs for all European public interest entities (PIEs) can be observed. Read more

Accountancy Europe also carried out work in this area – you can check our analysis and good practice examples of KAMs reported in the banking sector here. Currently, we are working on a 2018 update which will be issued in September 2019.

IFIAR Annual Inspection Findings Survey

In May 2019, the International Forum of Independent Audit Regulators (IFIAR) issued its 2018 inspection findings arising from inspections of audit firms affiliated with the six largest global audit firm networks. Read more

IAASB consultation on strategy and work plan

Accountancy Europe submitted its response to the IAASB’s proposed strategy for 2020-2023 and work plan for 2020-2021. Read more

New IAASB chair

Thomas Seidenstein will become the new chair of the IAASB for a three-year term starting July 1, 2019. He succeeds Prof. Arnold Schilder, who has led the IAASB since 2009. Read more

Audit debate emerging in Italy?

Following the UK and Dutch reviews of their audit markets, a debate might be emerging in another European country. In an interview, Professor Giulio Tremonti, a former Socialist Finance Minister, outlines potential competition and independence issues in Italy’s audit sector. Read more (available only in Italian)

US PCAOB staff guidance on the communication of critical audit matters

The Public Company Accounting Oversight Board (PCAOB) published a staff guidance, A Deeper Dive on the Communication of CAMs, developed to support implementation of the new critical audit matter requirements. Read more

UK: Mazars wins Goldman Sachs audit

Due to a combination of mandatory auditor rotation and a lack of competition, Goldman Sachs had to look outside of the Big Four for its new auditor. Three Big Four firms all provide non-audit services to Goldman Sachs, which left PwC as the only Big Four not conflicted.

However, PwC itself needs to be rotated out by 2022, which forced the European branch of the US bank to look to the mid-tier firms for audit services.

Mazars will become the European auditor for Goldman Sachs International, which encompasses the bank’s London and Frankfurt businesses, from 2021. The bank will retain PwC as its group auditor. Read more

UK: PwC to split its audit practice

On 5 June, PwC announced its plan to split audit practice in two in response to rising criticism of the accountancy industry from politicians and regulators. One business would focus on ‘external’ audits and a separate business would carry out ‘internal’ audits for management, alongside cyber security and technology risk reviews.

In addition, PwC announced its plans to strengthen audits, including hiring an additional 500 experienced audit professionals. Read moreThis curated content was brought to you by Júlia Bodnárová,    Accountancy Europe senior advisor since 2017. You can send her tips by email and connect with her on LinkedIn.