Audit Policy

July 2019

  • Accountancy Europe responded to the UK Brydon call for views
  • European Parliament political Groups discuss joint work programme, might include audit
  • IAASB issues stakeholder survey on audits of less complex entities
  • UK: FRC publishes latest inspections’ findings
  • Netherlands: Audit firms not legally accountable for quality of statutory audits, says court ruling

Accountancy Europe responded to the UK Brydon call for views

In our response to the UK Sir Brydon’s Independent Review into the Quality and Effectiveness of Audit, we support that companies and auditors provide more meaningful and transparent reporting and assurance to a wider audience, for instance on going concern issues, internal controls and non-financial reporting. We embrace digitalisation, which can help improve fraud risk assessments.

Communicating audit findings can be developed beyond Key Audit Matters – strong skills and expertise in multidisciplinary firms are needed to deliver on this. Such change will also require reconsidering directors’ and auditors’ responsibilities and liability.

We acknowledge the expectation gap which consists of three facets: knowledge, performance and evolution gaps. A holistic and pragmatic approach to audit quality focusing on exercising professional scepticism and meeting stakeholders’ demands should respond, at least partly, to these gaps.

In this context, you might be interested to see what David Herbinet, Accountancy Europe’s Vice-Chair on the future of audit, says about aspects like technology and sustainability and their impact on auditing. Watch the video above.

European Parliament political Groups discussing joint work programme

The four largest political Groups in the European Parliament have been negotiating on their common work programme and priorities.

The negotiations took place between the centre-Right EPP, centre-Left S&D, liberal RE and the Greens, in thematic working groups.

On financial affairs, the Groups have been discussing whether or not to include a call for the European Commission to review the EU audit legislation to address potential conflicts of interest stemming from the same firms providing both audit and tax services to their clients.

The Groups were aiming for an agreement by 12 July, but this was not feasible in the end. Instead, the negotiations are frozen as things stand. The Greens have already indicated that they would leave the negotiation table if the current European Commission President nominee, Ursula von der Leyen, is approved by the Parliament at a vote on 16 July.

Thus, it remains to be seen whether the joint work programme materialises at all and if so, whether provisions concerning the audit sector are included. Either scenario looks unlikely at the moment.

Calling all SMPs! IAASB needs your insights: 5-minute survey

The IAASB invites stakeholders to complete a short survey exploring the challenges in applying the International Standards on Auditing (ISAs) in audits of less complex entities and the possible actions to address these challenges.

This survey is linked to the IAASB Discussion Paper on Audits of Less Complex Entities but is aimed at stakeholders who are not intending to respond to the discussion paper. You can complete this 5-minute survey by 12 September.

Accountancy Europe responded to IAASB’s consultations on Quality Management Standards

On our website, you can find our responses to:

  • proposed International Standard on Quality Management 1
  • proposed International Standard on Quality Management 2
  • proposed International Standard on Auditing 220 (ED-220)
  • Quality Management for Firms and Engagement

Accountancy Europe responded to IESBA’s proposed revisions to the Code

We have responded the IESBA’s Proposed Revisions to Part 4B of the Code to Align with Terms and Concepts Used in ISAE 3000 (Revised). Read more

Accountancy Europe responded to IAASB’s consultation on EER assurance

We have responded to the IAASB’s consultation on Extended External Reporting (EER) assurance. Read more

PCAOB publishes CAM resources for investors and audit committees

PCAOB published two new resources on critical audit matters (CAMs), one specifically for investors and the other for audit committees.

The aim of the resource for investors is to provide them with useful information regarding changes to the auditor’s report, frequently asked questions about CAMs, and information about the implementation of the standard.

This document for audit committees aims to inform them as they engage with their auditors on the new CAM requirements.

UK: Latest FRC audit inspections’ findings indicate that improvements are needed

The UK audit regulator Financial Reporting Council (FRC) issued its report on audits of companies which relate to year 2017. The report is based on inspections of audits done by the seven largest firms.

In the nutshell, these are the main findings:

  • 75% of FTSE 350 audits assessed as good or requiring limited improvements. The FRC’s target is 90%. Overall there has been no improvement on last year
  • 25% of assessed audits are below an acceptable standard

Each of the seven audit firms has committed to specific actions to enhance audit quality. The FRC will assess the success of these initiatives. Read more

Netherlands: Audit firms not legally accountable for quality of statutory audits

The Dutch Authority for the Financial Markets (AFM) has lost a court case in appeal against audit firms EY and PwC. The Trade and Industry Appeals Tribunal announced this on Tuesday 18 June 2019. The ruling is final.

The case revolves around fines that the AFM imposed on EY and PwC in 2016, of 2,2 million and 845,000 euros respectively. The reason for this was shortcomings in the financial statements audits that the AFM identified in 2014. EY and PwC challenged the fine in court, and in late 2017 the administrative court in Rotterdam agreed with them. The fines were handed out with the argument that the audit firms failed to fulfil their ‘duty of care’.

The ruling has major consequences for the supervision of accountants. It means that the AFM can no longer impose fines on audit firms based on poor financial statement audits – the essence of the work of accountants. However, the AFM is now in discussion with the Ministry of Finance urging it to amend the legislation. 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.